Baker Hughes Company

step: 01 title: Business Model Overview ticker: BKR company: Baker Hughes Company source: coverage-next-full date: 2026-05-28

Step 01 — Business Model Overview

1. One-Sentence Description

Baker Hughes is a US-domiciled energy-technology conglomerate that earns money two ways: (1) selling oilfield services and equipment (OFSE) to E&P customers worldwide, and (2) selling industrial-energy hardware — chiefly LNG-liquefaction turbomachinery, gas-turbine power systems, and condition-monitoring instrumentation — plus the long-cycle aftermarket services that follow (IET) [S1].

2. Corporate Structure

Two reporting segments:

• OFSE (Oilfield Services & Equipment) — FY2025 revenue $14.32B (52%); FY2025 EBITDA margin 18.3% [S2]
• IET (Industrial & Energy Technology) — FY2025 revenue $13.41B (48%); FY2025 EBITDA margin 18.5% [S2]

CEO: Lorenzo Simonelli (since the 2017 GE combination; also Chair) [S3]. HQ Houston. ~58,000 employees [S1]. Stock: NASDAQ:BKR. GE fully exited the legacy sponsor stake in 2024.

3. Value-Chain Layer Map

OFSE leg

Customer is an E&P operator drilling a well. BKR participates at virtually every stage:

Pricing: project-based for hardware; time-and-materials or unit-pricing for services. Margins ~17–18% segment EBITDA.

IET leg

Customer is typically a midstream / energy-infrastructure / industrial buyer. BKR sells big-ticket capex hardware up front plus a long, sticky aftermarket attach:

The aftermarket is the structural asset. GTS on a turbomachinery installed base typically runs 8–12% of cumulative install value per year for ~25 years — a high-margin recurring stream that builds with every new GTE order shipment.

4. Unit Economics

5. Revenue Mix vs FY 5y History [S2]

Mix-shift is the story. Pre-Chart, IET reaches >50% of revenue in 2026; post-Chart, IET goes to ~55–60%+ of revenue.

6. Geographic Mix (FY2024 disclosed) [S4]

• North America: ~$3.96B (OFSE only); ~14% of OFSE
• International OFSE: ~$11.7B; ~75% of OFSE
• IET: predominantly international (LNG projects in US Gulf Coast / Qatar / Mozambique / Australia)
• Aggregate: ~80% international, ~20% North America

7. Customer Concentration

• No E&P customer >10% of revenue (typical for OFS) [S1]
• IET concentration is meaningful at the customer-block level: Cheniere + Venture Global + Sempra Infrastructure + Woodside + QatarEnergy together likely 30–40% of IET RPO
• Largest single customer relationships: Saudi Aramco, Petrobras, ExxonMobil, Chevron (across both segments)

8. How Growth Compounds (Judgment)

1. OFSE: mid-single-digit international growth offsets NA stagnation. Margin holds, FCF grows.
2. IET: LNG super-cycle drives equipment orders (≥1.0× book-to-bill sustained); each new shipment adds a 25-yr LTSA tail.
3. Mix: IET margin grows faster than OFSE, plus IET grows faster — both numerator effects pull blended EBITDA margin from ~18% toward 20%+ steady-state.
4. Capital returns: ~70% FCF conversion + ~$1.4B/yr buyback+dividend = ~$1.50/yr cash to shareholders growing toward $2/yr.
5. Chart catalyst: transformational M&A adds another scaled long-cycle franchise (cryogenic + cold-chain + data-center cooling).

9. Thesis Update

Updating BKR_thesis_tracker.md: confirms the two-engine framing. IET mix-share crossover (>50%) is the macro tell. Each quarter of IET book-to-bill > 1.0 builds the RPO multi-year cushion.

10. Source Index

step: 04 title: Financial Quality & Adversarial Sweep ticker: BKR company: Baker Hughes Company source: coverage-next-full date: 2026-05-28

Step 04 — Financial Quality & Adversarial Sweep

1. Statement-Quality Snapshot

Income Statement Quality (FY2021–FY2025) [S1]

Cash Flow Quality

Balance Sheet Quality

2. Material Non-GAAP Adjustments [S2]

Adj-EBITDA bridge FY2025 (from press release reconciliations):

• GAAP operating income: ~$3.2B
• • D&A: $1.19B
• • Restructuring/separation costs: ~$200M
• • Other unusual items (legal, impairments): ~$0
• = Adj-EBITDA: ~$5.1B (18.4% margin)

Verdict: Add-backs are modest and consistent. No "EBITDA gymnastics" flag.

3. Earnings Quality Score

Verdict: earnings quality is HIGH and improving. The 2020 GE-spinoff legacy writedowns were a one-time cleanup; the franchise has produced clean, growing cash earnings for 3 straight years.

4. ADVERSARIAL RESEARCH SWEEP

Short reports / activist letters

• No active short thesis report identified as of 2026-05-28 (Hindenburg / Spruce Point / Citron — none have published on BKR)
• Sell-side bear case = compression of OFSE pricing + LNG-cycle peak narratives, not fraud claims
• Seeking Alpha bear takes exist but are valuation-based, not red-flag-based (e.g., "BKR: Why I'm Still Not Buying Despite Strong LNG And Data Center Exposure" — author argues already-priced)

SEC investigations / enforcement

• No active SEC enforcement actions against BKR as of recent public records
• Historical predecessor (legacy Baker Hughes Inc.) had FCPA enforcement actions in 2007 and 2018-era settlements — fully resolved, baked into current compliance posture
• No FCPA, AML, or environmental enforcement currently pending

Lawsuits / litigation

• Standard commercial-contract disputes for OFS company of this size; no material undisclosed
• Predecessor Halliburton/Baker Hughes 2014-era anti-trust merger blocked; that's an HAL story not BKR risk now
• Subsea / GE Subsea legacy: some legacy warranty claims; reserves on balance sheet
• No class actions on accounting or disclosure quality pending

Auditor

• Auditor: KPMG (long-tenured)
• No going-concern flags, no critical audit matter (CAM) escalations beyond standard long-cycle revenue recognition

Insider / governance flags

• Combined CEO/Chair (Simonelli) — minor governance ding offset by lead-independent director
• Insider ownership low (<1%) — typical for spinoff industrial
• CEO pay-ratio 269× — high but in-line for large-cap energy/industrials

Accounting policy changes

• No notable changes in 3 years
• Q1'26 small revisions to internal segment-cost-allocation methodology (immaterial)

Recent regulator concerns

• Russia exit done 2022 (~$200M lost, fully written off)
• China-watchlist exposure ~5-10% revenue (managed)
• EU regulators reviewing Chart Industries deal (notification April 2026) — competition concerns possible but unlikely to block

Goodwill / impairment risk

• 2020 $15B goodwill impairment was cleanup of legacy GE Oil & Gas valuation — done
• Current goodwill $6.07B is well-supported by current segment EBITDA
• No impairment risk under base-case forecasts; bear scenario (oil to $50 + LNG cycle reset) might create tail risk on OFSE goodwill but is remote

Cyber / data incidents

• No material cyber breach disclosed in last 24 months
• Industry-standard exposure to operational-technology cyber risk

Off-balance-sheet liabilities

• Long-cycle contract performance obligations (advance payments) are on-balance-sheet under ASC 606
• Operating lease liabilities consolidated post-ASC 842
• Pension underfunding ~$300M (immaterial vs $19B equity)

5. Adversarial Verdict

Clean sweep. No fraud / disclosure red flags; no active short thesis; auditor relationship stable; goodwill exposure controlled; legal items routine; insider mechanics typical for industrial spinoff. The risk profile is business / cyclical risk, not accounting risk.

6. Quality Score Card

Composite: A-/A. This is a high-quality industrial reporting franchise.

7. Thesis Update

The clean financial-quality sweep removes "earnings/accounting risk" from the bear case. Remaining bear case is cyclical + macro. Updating BKR_thesis_tracker.md.

8. Source Index