Baker Hughes Co - Class A (BKR) — Q4 2021 Earnings Call Transcript

Thank you. Good morning, everyone, and welcome to the Baker Hughes fourth quarter and full-year 2021 earnings conference call. Here with me are our Chairman and CEO, Lorenzo Simonelli; and our CFO, Brian Worrell. The earnings release we issued earlier today can be found on our website at bakerhughes.com. As a reminder, during the course of this conference call, we will provide forward-looking statements. These statements are not guarantees of future performance and involve a number of risks and assumptions. Please review our SEC filings and website for a discussion of some of the factors that could cause actual results to differ materially. As you know, reconciliations of operating income and other GAAP to non-GAAP measures can be found in our earnings release. With that, I will turn the call over to Lorenzo.

Thank you, Jud. Good morning, everyone, and thanks for joining us. We are pleased with our fourth quarter results, as we generated another quarter of strong free cash flow, solid margin rate improvement, and strong orders performance from TPS. During the quarter, TPS continued to operate at a high level. OFE successfully executed on its cost improvement initiatives and OFS performed extremely well despite continued pressure on supply chain and commodity inflation. For the full year, we were pleased with our financial performance. We took several steps in 2021 to accelerate our strategy and help position the company for the future. Last year proved to be successful on many fronts for Baker Hughes with key commercial successes and developments in the LNG and new energy markets, as well as record free cash flow generation and peer-leading capital allocation. After a quiet start to the year, LNG activity played an important role in helping TPS book almost $7.7 billion in orders in 2021, which was just below the record levels achieved in 2019. Perhaps more importantly, we believe that the step-up in LNG order activity provides a solid indication that a new LNG cycle is beginning to take shape. We also believe that the uptick in orders, along with other recent policy movements, particularly in Europe, confirms that natural gas is gradually gaining greater acceptance as a transition and destination fuel for a net-zero world. In new energy frontiers, we started to see more pronounced commercial successes from our energy transition efforts, generating approximately $250 million in new orders across our TPS, OFS and DS product companies, primarily in the areas of hydrogen and CCUS. We remain confident in our ability to grow this business over the next decade to ultimately total $6 billion to $7 billion of orders by 2030. I'm also very pleased to report that Baker Hughes delivered its strongest ever free cash flow year, generating over $1.8 billion in 2021, which represents almost 70% conversion from adjusted EBITDA. We are pleased to see this performance as our cash restructuring and separation payments wound down, and we continue to make progress on improving our working capital and broader cash processes. Our strong free cash flow profile provides the company with ample flexibility and optionality when it comes to our broader capital allocation strategy. As evidence of this, we returned almost $1.2 billion back to shareholders through dividends and buybacks in 2021, while also making multiple acquisitions and investments across the industrial and new energy spaces. On the industrial front, we completed the acquisition of ARMS Reliability and a major investment in Augury, which will help Baker Hughes continue to build out its Industrial Asset Management platform and deliver an expanded set of asset performance capabilities. On the new energy front, we were active this year in pursuing early-stage technologies in CCUS and in hydrogen. In CCUS, we acquired a position in Electrochaea, a biomethanation company and also entered into an exclusive license with SRI for the Mixed Salt Process. In hydrogen, we made an investment in Ekona, a growth stage company developing novel turquoise hydrogen production technology; as well as Nemesis, a technology company focused on a range of early-stage hydrogen technologies. While 2021 saw many positive achievements, the year was also not without its challenges. We saw continued disruptions from the COVID-19 pandemic, which continue to impact our operations. Supply chain and inflationary pressures also drove higher costs and delivery issues primarily across our OFS and DS product companies. Our teams have continued to work to offset some of these pressures, but we expect to continue to see some level of tension and disruption in these areas potentially through the first half of the year. As we look ahead to 2022, we expect the pace of global economic growth to remain strong. However, growth rates are likely to moderate from 2021 levels as central banks are expected to begin tightening monetary policy in order to reduce COVID-related stimulus plans and quell growing inflationary pressures. Despite the expected slowdown in the pace of growth, we believe the continuing broader macro recovery will translate into rising energy demand in 2022, with oil demand likely recovering to pre-pandemic levels by the end of the year. Pairing this demand scenario with continued OPEC+, IOC and E&P spending discipline, we expect the oil markets to remain tight for some time. We believe that this will provide an attractive investment environment for our customers and a strong tailwind for many of our product companies. We also expect continued momentum in the global gas markets in 2022 building on a strong 2021. A combination of demand and supply factors converged in 2021, pushing natural gas and LNG prices to record-breaking levels in both Europe and Asia. The gas price spikes also highlighted the fragility of the global energy system as the world transitions to net zero. Looking ahead, we expect a number of additional LNG FIDs in 2022 and beyond, supported by the growing appetite for longer-term LNG purchase agreements. As we have previously mentioned, we see significant structural demand growth for LNG in the coming decades. Our positive long-term view is also supported by the recent improvements in policy sentiments in certain parts of the world towards natural gas' role within the energy transition. Against this constructive macro backdrop, Baker Hughes remains focused on executing our strategy across the three pillars of transforming the core, investing for growth, and positioning for new energy frontiers. Importantly, we also continue to work towards aligning Baker Hughes across the two business areas that we outlined in the third quarter of last year: Oilfield services and equipment, and industrial energy technology or OFSE and IET. Since we unveiled our vision of ultimately executing across these two broad business areas, we have been evaluating all aspects of the company in order to determine the most efficient organizational and corporate structure. Our goal is to find the right structure that properly aligns our internal resources and helps accelerate growth in key strategic areas, while also enhancing our profitability and returns and increasing shareholder value. We have reached some early conclusions and have started to implement changes internally. Most notably, we recently created The Climate Technology Solutions Group and Industrial Asset Management Group, which will both report to Rod Christie, Executive Vice President of TPS. Climate Technology Solutions or CTS will encompass CCUS, hydrogen, emissions management and clean and integrated power solutions. Industrial Asset Management or IAM will bring together key digital capabilities, software and hardware from across the company to help customers increase efficiencies, improve performance and reduce emissions for their energy and industrial assets. We believe that the creation of these two groups will help accelerate the speed for commercial development for solutions-based business models across our new energy and industrial asset management offerings. Importantly, it will not change any of our reporting structure today. Overall, we are very excited about the strategic direction of Baker Hughes and believe the company is well placed to capitalize on near-term cyclical recovery and is well positioned for the long-term structural change in the energy markets.

Thanks, Lorenzo. I'll begin with the total company results and then move into the segment details. Orders for the quarter were $6.7 billion, up 24% sequentially driven by TPS, Digital Solutions, and OFS, partially offset by a decrease in OFE. Year-over-year, orders were up 28% driven by increases in TPS, Digital Solutions, and OFS, and a decrease in OFE. Remaining performance obligation was $23.6 billion, up 1% sequentially. Equipment RPO ended at $8.2 billion, up 9% sequentially, and services RPO ended at $15.3 billion, down 4% sequentially. We are pleased with our strong orders performance in the quarter, particularly in TPS, which provides a good level of revenue visibility into 2022 and beyond. Our total company book-to-bill ratio in the quarter was 1.2, and our equipment book-to-bill in the quarter was 1.4. Revenue for the quarter was $5.5 billion, up 8% sequentially driven by increases across all four segments. Year-over-year, revenue was flat, driven by an increase in OFS and offset by decreases in TPS and OFE. Operating income for the quarter was $574 million. Adjusted operating income was $571 million, up 42% sequentially and up 23% year-over-year. Our adjusted operating income rate for the quarter was 10.3%, up 240 basis points sequentially and up 190 basis points year-over-year. Adjusted EBITDA in the quarter was $844 million, up 27% sequentially and up 10% year-over-year. Adjusted EBITDA rate was 15.3%, up 130 basis points year-over-year. We are particularly pleased with the margin improvement in the fourth quarter, which was largely driven by increased productivity, higher pricing, and mix. All four of our segments experienced strong improvements in adjusted operating income and adjusted EBITDA rate sequentially. Corporate costs were $106 million in the quarter. For the first quarter, we expect corporate costs to be roughly flat with fourth quarter levels. Depreciation and amortization expense was $273 million in the quarter. For the first quarter, we expect D&A to increase slightly from fourth quarter levels. Interest in the quarter was $95 million, which includes a make-whole premium relating to the debt refinancing we completed during the fourth quarter. We expect interest expense to return to historical levels in the first quarter. Income tax expense in the quarter was $352 million, which includes $103 million in charges that relate to liabilities indemnified under the Tax Matters agreement with General Electric. These tax expenses are offset in the other non-operating line of our income statement. GAAP diluted earnings per share were $0.32, which includes a $241 million gain from the net change in fair value of our investment in ADNOC Drilling and a $131 million loss from the net change in fair value of our investment in C3.ai, both recorded in other non-operating income. As a reminder, in 2018, we formed our strategic partnership with ADNOC Drilling and invested $500 million for a 5% stake. In October 2021, ADNOC Drilling completed their IPO, which requires us to mark our investment to fair value. Since our investment is recorded as a marketable security on our balance sheet, the change in fair value will be reflected in the other non-operating income line on a quarterly basis going forward. Adjusted diluted earnings per share were $0.25. Turning to the cash flow statement, free cash flow in the quarter was $645 million. The sequential improvement was driven by higher adjusted EBITDA, strong cash collections, and modestly higher proceeds from disposal of assets due to increased real estate sales. We also continue to execute on our $2 billion share repurchase program during the fourth quarter, repurchasing 13.2 million Baker Hughes Class A shares for $328 million at an average price just under $25 per share. For the first quarter, we expect free cash flow to decline sequentially primarily due to seasonality. When I look at the total year 2021, I'm very pleased with our financial results, particularly regarding our free cash flow performance and broader margin rate improvements. Orders for the full year were $21.7 billion, up 5% driven by TPS, Digital Solutions, and OFE, partially offset by OFS. Total company book-to-bill was 1.1 for the year. Total year revenue of $20.5 billion was down 1% driven by declines in OFS and OFE, partially offset by increases in TPS and Digital Solutions. Adjusted operating income of $1.6 billion was up 52% in the year with total company adjusted operating income margins improving 270 basis points mainly driven by productivity improvements in TPS and cost-out programs and productivity improvements in OFS. Adjusted EBITDA of $2.7 billion was up 14% in the year. Total company adjusted EBITDA rate improved 170 basis points in 2021. Corporate costs for the year were $429 million. For 2022, we expect corporate expenses to be approximately in line with 2021 levels. For the full year, we generated $1.8 billion of free cash flow, which includes $175 million of cash payments related to restructuring and separation activities. Our strong free cash flow performance was driven by higher adjusted EBITDA, lower CapEx, an increase in cash flow generated from working capital, and a significant reduction in cash restructuring and separation charges. Not included in free cash flow are over $200 million of proceeds from asset or investment sales during the year, which include the sale of a small portion of our C3.ai stake and the proceeds we received from the formation of the HMH joint venture with Akastor. As Lorenzo mentioned, we returned almost $1.2 billion to shareholders through dividends and share repurchases and also deployed over $250 million in tuck-in acquisitions and investments in the industrial and new energy sectors. Our free cash flow in 2021 resulted in a 68% conversion from adjusted EBITDA. While our free cash flow conversion was positively impacted by the large cash generation from working capital, we believe that Baker Hughes should be able to generate free cash flow conversion at or above 50% on a multi-year cycle basis. For 2022, we expect free cash flow conversion from adjusted EBITDA to be around 50% as working capital should be a use of cash due to expected revenue growth. Going forward, we expect our strong balance sheet and free cash flow generation to continue to provide us with attractive flexibility and optionality to return cash to shareholders and invest in tuck-in M&A and technology on an opportunistic basis. Now, I will walk you through the segment results in more detail and give you our thoughts on the outlook going forward.

Hey, good morning, guys.

Good morning, James.

Good morning, James.

Lorenzo, as you continue to make changes in the industrial energy technology part of your business, you're increasingly becoming - thinking about it and you've talked about this two different companies here, the OFS business and the industrial energy technologies business. You talked a little bit about some new divisions you formed within energy technology. I'm curious as to how you're thinking about the potential separation of the two companies, what the timeline could look like if you're thinking about accelerating your initial thoughts on timeline?

Yes, James. Thanks a lot. And as we've mentioned in the past, we've been doing a lot of work on evaluating the optimal corporate structure for Baker Hughes as we continue to see the energy markets evolve and also the energy transition accelerate. The process is going to take some time, as we evaluate all the parts of the company, which includes everything from the best organizational structure, all the way down to details like legal entities and tax structure, so the end goal is to develop the business or corporate structure that allows us to operate efficiently and accelerate growth in our key strategic areas, and doing so in a way that enhances our profitability and returns and increases the shareholder value. As you've seen from our prepared remarks, the formation of CTS Climate Technology Solutions and Industrial Asset Management Groups are one of the first steps towards strengthening our focus around two strategic business areas of OFSE and IAT that we mentioned last third quarter. As we said last year, as the energy markets evolve, we think operating around these two broad focus areas makes sense in terms of investment strategy, etc. And we also said that aligning across the two broad business areas will actually help us give the most optionality longer term. So the work we've done only just reinforces our view. Again, the company is strong together at this stage and we'll continue to align across the two business areas, continue to work and continue to update us on our progress and decisions. But it goes without saying, we continue to operate the company for the best returns to shareholders.

Of course, absolutely. And then maybe unrelated follow-up, Lorenzo, on TPS, and you gave some good guidance on kind of expected orders over the next several years. I'm just curious how we should think about 2022, the cadence of the orders and then what that means for growth in TPS as we get into 2023?

Sure, James. And I think importantly, I believe the order momentum we saw at the end of 2021 is likely to continue into 2022. We've indicated over the past quarters that we are seeing an LNG cycle beginning to accelerate. And generally speaking, LNG projects are beginning to be pulled forward versus previous expectations due to the strong long-term LNG fundamentals and also the improving environment to secure long-term offtake agreements. So we also believe the recent policy movement out of Europe, that's encouraging to see what would be FIDs in 2023 may be potentially be pulled forward into 2022 as well. So there are a couple of large awards this year in 2022 and also some small and mid-size awards that should be coming through. And I think although we're calling the TPS orders in 2022 really flat to 2021, we believe that orders could potentially increase as we go through the year, so the specific areas, U.S., Middle East, and Russia, and for 2023, it's a little early, but I think again the outlook is positive and we still see a lot of projects that we're discussing with our customers, as you know, we're very close on the LNG side. I also think it's important to remember that LNG is a headline for TPS orders. We also see a solid pipeline in our onshore-offshore production segment, along with opportunities in pumps, valves and we continue to see positive traction in the new energy front on the back of a strong order intake in 2021.

Hey, good morning, everyone.

Hi Chase.

Hi Chase.

So I guess I wanted to kind of dig in a little bit deeper and ask on you creating two new divisions, you get the Climate Technology Solutions and Industrial Asset Management divisions that you split out now. And so I guess, first, kind of, what was the catalyst for doing this and how do you think that this - splitting this up will impact how you run these businesses? And then a related follow-up there is just like, do you plan to give us some quarterly details to kind of track the progression of these two new businesses?

Yes. Great, Chase, and look, we're excited to take this step to formally create CTS Climate Technology Solutions and also IAM, Industrial Asset Management that are both going to report into Rod. And as we've mentioned before, as the energy landscape continues to change, we'll adapt our organizational structure accordingly. And as we look at what we announced last - third quarter last year, within the two business areas of oilfield services equipment and IT, we really see this as being one of the first steps in enhancing our capabilities to solve for customer requests. And as the market evolves, we think we're going to continue formalizing these groups. This provides leadership accountability in two important growth areas. If you look at Climate Technology Solutions, it's going to bring together four of our growth areas, hydrogen, CCUS, emissions management, and clean integrated power solutions. It's going to continue to build on the product roadmap and commercial offerings as well as support the sale of products and solutions we have in these areas today across Baker Hughes. And as you look at Industrial Asset Management, this is really going to bring together our digital software and hardware capabilities across Baker Hughes to develop an integrated IAM ecosystem that enables us to respond to what customers are looking for. So it's going to be an interaction across the various product lines both for CTS and IAM. And at this stage, we're not looking to change the reporting segments as we continue to develop in these two growth areas.

Okay, perfect. The follow-up is really just kind of same line of questioning and just kind of digging a little bit more on the energy transition. I mean obviously in the fourth quarter, you had a key hydrogen order with NEOM and you had the CCUS with Moomba. But could you talk about other opportunities that you see on the horizon, and maybe also kind of hit on M&A opportunities, you did Ekona, the hydrogen investment there? So maybe highlight that, maybe other opportunities that you see the kind of - do some tuck-in acquisitions.

Yes, Chase, we were very pleased with the performance in 2021 for the new energy orders. You cited the two in the fourth quarter, one for hydrogen and also CO2 with the Santos Cooper Basin and we see those opportunities continuing. We've given 2022 outlook of between $100 million, $200 million. We think that we're on the higher end of that and it's continued momentum with our customers on really helping them to achieve their net-zero targets. And I think the Ekona investment that you mentioned, again, it's another way in which we are expanding our portfolio of capabilities. It's a growth-stage company, which develops turquoise hydrogen production technology and it's another solution that can really help our customers. As we look at 2022 and beyond, again, we still see the opportunity to create a new business through the energy transition that by 2030 is $6 billion to $7 billion and we are actively building our portfolio to represent that through small tuck-in technologies and I see us continuing to do that.

It sounds like the supply chain issues may linger for you and peers here at least in the first half of the year. Are we finally at the point where we can see light at the end of the tunnel? Are you able to identify a quarter when the supply chain issues really just have a limited impact on reported financials or is that too early to call at this point?

Yes, Scott. I'd say that you got to look at it in a couple of fronts. I'd say a lot of the supply chain disruptions that we were seeing in the third quarter primarily from logistics, some shortages more broadly and disruptions in shipments because of COVID have pretty much stabilized and we've figured out ways to work with that through planning and different shipping routes and increasing some of our lead times and those sorts of things. I'd say that that's pretty much stabilized. Where you're still continuing to see some disruptions are around chips that primarily impacts Digital Solutions a little bit and oilfield services. And just to give your perspective, right now, pretty much all of about 90% of our suppliers are giving us 1 year lead times and we have all of our 2022 on order there and to give perspective, if I go back 7 months, that 90% was about 20% to 30%. So that's really what's going on in the industry. So we are planning for it. We're working through it. Suppliers give allotments about 60 days out. So I'd say the teams are working incredibly well to make sure that has limited impact on our customers. So we are operating in this new normal. The other area around supply chain is really particular to our chemicals business where you've seen some inflation come through. We had a supplier who got a fire that disrupted our supply and we've been working with them to get supply from other places. That appears to be stabilizing as well. I'd say we'd anticipate the inflation in that space to be relatively stable here in the first quarter. And so the chemicals business had about a 150 basis point drag on OFS overall in the quarter to give you a little bit of a magnitude of what we were seeing there. But again, I'd say we're operating well in this new normal. And I would expect things to continue to improve as the year progresses. But we've got plans in place to offset disruptions and as much of the inflation as we can.

Got it. And then, somewhat of a related question. So supply chain issues are being managed better. They should hopefully ease over the course of the year. End markets are obviously recovering across most of the businesses and you're entering it seems to be the later innings of the restructuring efforts. So Lorenzo, maybe if we just kind of think high level here, it seems like there is convergence across those items such that Baker should be really hitting its stride over the course of the year. So can you just putting the separation question aside, if we just kind of think about where the business sits versus a couple of years ago when the two businesses came together in the merger. Can you just kind of talk high level about kind of where the business stands today, how to think about cadence of profit growth, obviously, we have the 20% exit target in oil services, but kind of kind of your perspective on where the business sits today from a performance standpoint and kind of where we go over the course of '22 and into '23, kind of gives us the convergence of what seems to be some pretty favorable factors from a tailwind perspective?

Yes, sure, Scott. And I think you know, the last four years have been an interesting rollercoaster, and I'm really pleased about the way in which we as a team and Baker Hughes has been focused on approaching it and also creating a good setting for 2022 and beyond. We started out, we had a lot of integrations restructuring, the separation from GE, then another major restructuring due to COVID downturn. At the same time, we continued laying the groundwork for the energy transition pivoting to be an energy technology company, making the investment in C3.ai disposing of unprofitable or non-strategic operations and really continuing our strategy to transform the company, across what we said were the three pillars: transform the core, invest for growth, and also the new energy frontiers. Over the course of time, we continue to actively cut costs. We've invested in growth areas with over six transactions, we've made small-scale acquisitions, also new energy or industrial investments, we've created a good partnership network across multiple capabilities that are required for the future. And we've always been optimistic on natural gas and the continued role that it plays in the energy transition and LNG. So I'm very excited about the macro environment for Baker Hughes and more importantly, how we are positioned as a company to capitalize on the LNG cycle, the upstream spending cycle, and longer-term growth for the new energy opportunities. I think in my tenure at least it's nice to see macro tailwinds across both of our two large business areas.

And Scott, the only thing I'd add there to what Lorenzo says is, you've seen how we've been running the company, we've got a strong balance sheet, we believe we've had pretty shareholder-friendly capital allocation. We're able to maintain the dividend during the latest turmoil because of COVID and we'll continue to run the company with a strong balance sheet and make sure we maintain the most flexibility and optionality as we look to increase returns.

I had a couple of questions on TPS, you guys booked nearly $3 billion of inbound orders this quarter, $7.7 billion for the year. I was wondering if you could comment on, if you think the orders would be accretive to the margins you realized in 2021 in TPS?

Arun, look again, I am very pleased with the strength we're seeing in TPS, and look, as I said, overall for 2022 expect margin rates to be roughly flattish in TPS depending on the mix of equipment and services. And that does include some of the increased expenditures in R&D really associated with the new energy and industrial area, so kind of stepping back from that, you can surmise that I am very pleased with the order book and the margins that are in the order book. I think this year, we've demonstrated that we've been able to deliver strong productivity in an inflationary environment as we're executing on these projects. So I'd say in general, like where the order book is sitting.

Great. And my follow-up. Brian, you had mentioned how the strong inbound orders are driving more revenue visibility in TPS this year, next year. We had been thinking about low single-digit top line growth this year and how is the order strength influencing your thoughts about the top line, you mentioned the flattish margins, but I want to see if we're moving maybe to mid-single digits or upper single digits in TPS as this year?

Yes Arun, considering our current position and the strong orders that came in 2021, along with what we're anticipating for 2022, I expect orders to remain relatively flat with a chance of increasing in 2022 for both equipment and services. A high single-digit growth rate seems reasonable for our revenue growth in 2022. Looking at the order profile, the conversion of our equipment backlog, and the order pipeline for 2022, I anticipate that revenue growth in 2023 will likely surpass the growth we see in 2022. We've observed robust tailwinds in TPS that have persisted throughout the year, and currently, the outlook in LNG appears solid. Additionally, there is considerable activity in onshore-offshore production and new energy orders that will drive further growth in the medium term.

I was just wondering if you could talk a little bit about the tendering activity going on in the Middle East. Lorenzo, you talked about kind of the beginning of a multi-year growth phase in the Middle East. It's been a bunch of large awards. You guys have been pretty selective. I was wondering if you just kind of talk about kind of maybe some of the dynamics you're seeing out there and would you expect to see more large tenders in the coming months and kind of your view on the pricing? Thank you.

Yes, David. On the international outlook for the Middle East, based on conversations with our customers, we expect the broad-based recovery through our whole major geographies and overall international growth in the low to mid-teens, and unlike 2021 where the Middle East was lagged, we believe this could be one of the strongest markets in 2022 and it's likely in the early stages of a growth cycle as you have seen in the region with production capacity on a gradual long-term basis. We also expect another strong year of growth in Latin America led by Brazil and Mexico; else North Sea, Russia, Asia Pacific solid growth and not as much as the Middle East in Latin America, but still solid growth, and then also West Africa off a low base starting to see some productive time. We got to see some of the larger cases that take place. We're continuing to see that I think. We are very judicious in the way in which we enter. We've always said we're going to be disciplined and we like the outlook internationally as we go forward.

Great, thank you. On a - it's kind of a separate subject. You have a number of partnerships and investments that you've got involved in across the new energy spectrum, which I think all of them going are going to fall under this new Climate Technology Solutions Group. Just kind of curious where you go from here. A number of these technologies that can take time to scale. So do you keep expanding our portfolio and keep kind of looking at other technologies like Ekona and hydrogen or do you give the other parts a clean tech with smaller investments or is there a point where there are more sizable M&A opportunities out there. I mean, I'm just kind of curious of kind of what that looks like and kind of the horizon. Is it just too early even to be talking about M&A opportunities in this space?

I think it's a little early, but I think as you look at our approach and it really resonates with what we're hearing from our customers is across oil and gas and also at our industrial segments we serve, customers are asking help me achieve a net-zero roadmap, whether it be the 2030 target or the 2050 target that they have. And that requires a compilation of different technologies. And what we're doing within our Climate Technology Solutions Group and why we stood it up is really to be able to respond to that customer request and walk them through the various technologies and capabilities. When you look at the investments we've made Electrochaea, you look at also C3, you look at the already in-house chilled ammonia process, you mentioned also what we've done with Ekona. What we're providing is actually a capability to offer a roadmap towards those solutions and we'll continue to evaluate which solutions we think are best for our customers, but we do want to be like we are in other areas that we serve a provider of technology and capability to achieve the customer request. Likewise on Industrial Asset Management, if you think about the investments we've made, both C3 or ARMS, we're really developing an ecosystem of capability to respond to customers' request around how to drive less downtime. How do we increase efficiency and productivity, and that requires the ability to sense, have historical data on equipment, and be able to offer the foundation of a platform towards customers. So both of these areas actually help us in our growth initiatives and are led by customer requests.

Good morning, team. A couple of questions around capital allocation. And the first one is on the buyback, how are you thinking about the pacing of the buyback? Do you think it's reasonable to keep on the pace that we saw here in Q4, which is over $300 million and it looks like in the release GE selling ratably? Is it fair to say at this pace will be out of the market by the middle of this year?

Yes, Neil, look, we like what we've done so far from a buyback perspective. Since we started in September, we purchased 17.2 million Class A shares. It's been about $434 million. So the price per share is just over $2,450. We are planning right now to have a consistent buyback program with the ability to accelerate it if the conditions warrant an acceleration. So I'd say if you think about sitting here today, our plan right now is roughly through the first half of this year to keep up the pace. You've seen us since we started the program and that as you point out if GE continues to sell at the pace they're selling that roughly coincides with selling down the remainder of their stake. And so I'd say, look at that point in time, we reevaluate what the right levels are, but I think from an overall stepping back and looking at capital allocation once GE is out, I think buybacks in the range of roughly $200 million to $300 million annually is a good place to be. And look, I think we are uniquely positioned here to continue paying a strong dividend, have a pretty consistent buyback program and be able to do M&A, the tuck-in technologies or capabilities that we think are going to enhance our growth capability. So very pleased with the free cash flow generation, what we've been doing from a capital allocation point so far in terms of recycling some of the proceeds from dispositions or the investment sales back into growth areas in the business.

And just to clarify $200 million to $300 million quarterly, right?

Yes, buybacks, yes.

Okay, great. And then on the dividend, you've been sitting here at this $0.18 a quarter level, really since 2017 in the earnings power and the free cash flow generation of the business get us a point where you can get more aggressive around the dividend recognize you're doing yields better than your large cap services peers, but it's still worse than the energy sector broadly. How do you think about what the right time is to evaluate an increase in distribution around the dividend and tie that in with your comments around the buyback?

Yes Neil, just to clarify there, in the $200 million to $300 million I was speaking more to once we've gone through this pace here in the first half, we'll take a step back and look at buybacks. But I'd say the $200 million to $300 million was more annually after we get through here, the first half of the year is how I would think about it. In terms of evaluating the dividend, look it's something we're always taking a look at and discussing with our Board in terms of the best way to return value to shareholders. I think we demonstrated during the downturn that even with all of that volatility maintaining the dividend was an important priority for us. So we're at a level where we don't want to get out over our skies because as you know this industry can be quite volatile and we want to make sure, you know, we can be relied upon from an investor base on a consistent basis here. Saying that though, as we continue to generate strong free cash flow, look at investment opportunities and the best way to continue to meet our return objectives. It's not out of the cards, but at this moment in time, I'd say we're happy with where it sits today and we'll continue to update you if our thinking changes. Thank you, and thank you to everyone for joining our earnings call today. Before we end the call, I want to leave you with some closing thoughts. We're very pleased with the way the team executed during the fourth quarter and navigated the many challenges over the course of 2021. For the full year, we delivered growth in orders and operating margins and delivered record free cash flow generation helping us return almost $1.2 billion to shareholders. Looking ahead, we're excited about the multi-year growth opportunities developing across our portfolio and believe that Baker Hughes is well positioned to capitalize on the cyclical growth in upstream and longer-term structural growth in LNG and new energy. Thank you for taking the time and I look forward to speaking with you all again soon.