Baker Hughes CEO Sees Timing Risk, Not 'Broad-Based' Cancellations, In AI Power Backlog
Lorenzo Simonelli points to non-refundable deposits and cancellation penalties, and says power systems are under 20% of total backlog.
Baker Hughes Chairman and CEO Lorenzo Simonelli told a Stifel analyst on the company's third-quarter earnings call that permitting and financing can slow individual data center power projects, but that he sees no sign of widespread cancellations. The energy technology company, which makes equipment and services for oil and gas, LNG and power generation, has booked $4.9 billion of data center awards so far this year, Simonelli said.
Deposits, penalties and a screening process
Asked how permitting, capital constraints and project timelines affect customers, Simonelli said not every project will move at the same pace. Financing costs can affect the timing and viability of an individual project, he said, "particularly for the less established players." He called that primarily a timing issue rather than a risk of "broad-based" cancellations.
He said contracts carry "material non-refundable down payments and meaningful cancellation penalties," and any proposed transfer or sale of a reservation needs Baker Hughes' approval. The company is "not seeing evidence of broad-based project attrition or cancellation across our opportunity set," he said.
Baker Hughes also screens counterparties on access to GPUs, permitting progress, execution capability and project economics. That lets it favor established, well-capitalized customers over one-time equipment sales, he said.
Under 20% of backlog
Simonelli put the exposure in context: power systems represent less than 20% of total company remaining performance obligations, the contracted work not yet delivered. He said Baker Hughes remains highly diversified.
In prepared remarks he cited two major U.S. power awards for AI infrastructure: 1.1 gigawatts for a major technology company and about 500 megawatts from a U.S. energy company. He also said power systems orders should approach $7 billion this year.
Slower conversion into 2027
CFO Ahmed Moghal said the growing mix of longer-lead-time orders in power systems, LNG and offshore production stretches the time it takes backlog to turn into revenue. He expects more modest growth in 2027, with a greater share of revenue converting beyond next year.
At the end of the third quarter, 33% of the combined gas technology equipment and CTS backlog was scheduled to convert in 2027. A year earlier, 46% of the comparable backlog was due to convert in 2026, Moghal said.
The company now expects full-year orders in its industrial and energy technology segment of $21.5 billion to $23.5 billion, and the segment's remaining performance obligations hit a record $39.4 billion.
Moghal said he still expects the company's book-to-bill ratio, orders relative to revenue, to stay above one times in 2027.
Sources
- Baker Hughes Logs Higher 3Q Revenue on Growing Demand From Energy, Industrial Markets -- Update — MarketWatch
- Baker Hughes (BKR) Q3 Earnings and Revenues Surpass Estimates — Yahoo Finance
- Baker Hughes Q3 Profit Falls 33% as Orders Surge 31% | OilPrice.com — oilprice.com
- Baker Hughes Revenue Lifted by Growing Demand From Energy, Industrial Markets - WSJ — The Wall Street Journal
- Baker Hughes Non-GAAP EPS of $0.70 beats by $0.09, revenue of $8.03B beats by $280M (NASDAQ:BKR) | Seeking Alpha — seekingalpha.com
