Baker Hughes Company — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Dollar amounts are in millions except per-share data. Baker Hughes is an energy technology company operating through Oilfield Services (OFS), Oilfield Equipment (OFE), Turbomachinery & Process Solutions (TPS), and Digital Solutions (DS).
Key financial results
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $4,835 | $4,782; up 1% |
| Operating income | $279 | $164 |
| Operating margin | 5.8% | 3.4% |
| Income (loss) before tax | $187 | $(536) |
| Net income (loss) attributable to Baker Hughes | $72 | $(452) |
| Diluted EPS | $0.08 | $(0.61) |
| Cash from operating activities | $72 | $678 |
| Capital expenditures | $268 | $221 |
| Cash and cash equivalents | $3,191 at March 31 | $3,853 at December 31, 2021 |
| Total borrowings | $6,685 at March 31 | $6,727 at December 31, 2021 |
Net debt was approximately $3.5 billion at March 31, 2022, compared with approximately $2.9 billion at year-end. Current assets were $14.7 billion and current liabilities $9.1 billion, a current ratio of approximately 1.6. The company had no borrowings under its $3 billion revolving credit facility or $3 billion commercial paper program and was compliant with debt covenants. The next debt maturity is December 2023.
Operating cash flow fell year over year, with the company citing $93 million of net working-capital cash usage, mainly from receivables and inventory, partly offset by progress collections. Cash declined by $662 million during the quarter. The quarterly Class A dividend was $0.18 per share, and the company and BHH LLC repurchased $236 million of shares and associated LLC units.
Performance and changes versus prior period
- OFS revenue rose 13% to $2,489 million and segment operating income increased to $221 million from $143 million, reflecting higher activity, volume, and pricing; logistics and commodity inflation partly offset gains.
- OFE revenue declined 16% to $528 million and shifted to an $8 million segment operating loss from $4 million income, primarily due to lower volume and the prior removal of subsea drilling systems operations into a joint venture.
- TPS revenue fell 9% to $1,345 million as equipment and project revenue weakened; segment operating income rose to $226 million from $207 million on business mix and productivity.
- DS revenue was approximately flat at $474 million; segment operating income declined to $15 million from $24 million amid supply constraints and inflationary pressure.
- Consolidated operating income improved despite only modest revenue growth. The prior-year quarter included a $788 million loss on the C3 AI investment and a $121 million reversal of legal accruals; Q1 2022 included a $74 million C3 AI valuation loss and an $85 million ADNOC Drilling valuation gain. Other non-operating loss was $28 million in 2022 versus $626 million in 2021.
- Q1 2022 restructuring, impairment, and other charges were $61 million, mainly a TPS equity-method investment write-off and foreign-currency translation adjustments; separation costs were $9 million.
Orders were $6.8 billion, up 51% year over year, with higher intake in all segments. Remaining performance obligations were $25.8 billion, versus $23.2 billion a year earlier; the company expects to recognize approximately 53% within two years and 68% within five years.
Outlook, risks, and contingencies
- Management expected 2022 North American onshore activity to grow strongly, international onshore spending to improve outside Russia/Caspian, offshore activity and subsea awards to recover, and long-term LNG economics to remain positive. These expectations were conditional on market conditions and commodity prices.
- 2022 capital expenditures were expected to be up to 5% of annual revenue; income tax payments were estimated at $550–$650 million. No specific revenue or earnings guidance was provided in the filing text.
- Management cited inflation, materials and labor constraints, supply-chain pressure, and an uncertain economic and geopolitical environment. DS product deliveries were affected by supply constraints.
- Russia accounted for approximately 4% of Q1 revenue. Baker Hughes suspended new investment in Russia but continued existing contractual obligations while complying with applicable laws. Further sanctions or operational disruption could materially affect results.
- The company announced an agreement to acquire Altus Intervention, expected to close in the second half of 2022. It also disclosed April investments in HIF Global and the acquisition of Mosaic Materials.
- Off-balance-sheet arrangements, including guarantees, surety bonds, and letters of credit, totaled approximately $4.5 billion; the company stated they were not expected to materially affect financial position, results, or cash flows.
- Legal matters include ongoing arbitration related to a Nigerian LNG project and shareholder litigation. The company said it could not predict outcomes of certain proceedings. OFAC issued a cautionary letter in February 2022 and said it would take no civil monetary penalty or further enforcement action regarding the disclosed sanctions matter; a related SEC investigation remained ongoing, with timing and impact uncertain.
Important facts for investors to verify
- Whether operating cash flow and working capital improve as activity and inventory needs grow.
- How Russia-related sanctions, contractual obligations, and the stated 4% revenue exposure evolve.
- Whether inflation and supply constraints continue to pressure margins, especially in OFE and DS.
- Progress and closing conditions for the Altus Intervention transaction, and the execution and funding of other energy-transition investments.
- Changes in the SEC investigation, pending litigation and arbitration, and the potential exposure associated with off-balance-sheet guarantees.
- Whether order growth and the $25.8 billion performance-obligation balance convert to revenue and cash flow on expected timelines.