SLB (SLB) — Q1 2023 Earnings Call Transcript

Thank you, Leah. Good morning, and welcome to the SLB first quarter 2023 earnings conference call. Today's call is being hosted from Rio, Brazil, following our Board meeting held earlier this week. Joining us on the call are Olivier Le Peuch, Chief Executive Officer; and Stephane Biguet, Chief Financial Officer. Before we begin, I would like to remind all participants that some of the statements we will be making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. I therefore refer you to our latest 10K filing and our other SEC filings. Our comments today may also include non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures can be found in our first quarter press release, which is on our website. With that, I will turn the call over to Olivier.

Thank you, ND. Ladies and gentlemen, thank you for joining us on the call today. In my prepared remarks, I will cover three topics. I will begin with an update on our first quarter results; then, I will share our latest view on the macro and our positioning for long-term success; and finally, I will close with our outlook for the second quarter and full year. Stephane will then provide more details on our financial results, and we will open for your questions. It has been a great start of the year as we achieved results that set us on a solid footing for our full-year financial ambitions. On a year-on-year basis, our financial and operational results were strong across all geographies and divisions. Following the remarks that are shared in our earnings release this morning, I would like to emphasize a few key highlights from the quarter. First, we delivered very solid year-on-year growth at a magnitude last seen more than a decade ago. Geographically, year-on-year growth rates in North America and internationally were comparable. More importantly, the rate of change is tilting more in favor of the international markets, where sequentially we experienced the smallest seasonal decline in recent times. Collectively, our core divisions grew year-on-year by more than 30% and expanded operating margins by more than 300 basis points. We continue to position the core for long-term success with significant contract wins and technology innovations that improve efficiency and lower carbon emissions. A great example is EcoShield, a geopolymer-based cement-free well-integrity system and one of our latest Transition Technologies launched earlier this quarter. You will find many examples of these contract wins and the performance impact of our new technologies in today's press release. In digital, we maintained strong growth momentum and also secured more contract wins. At a division level, the amount of year-on-year revenue growth in digital was somewhat masked by significantly lower APS revenue due to production interruptions in Ecuador and lower project revenue in the Palliser asset in Canada. Additionally, digital continues to help us elevate our efficiency and margin performance in the core, as we deploy these solutions at scale in our global operations. And in new energy, we continue to make progress across our portfolio, notably with new carbon capture and sequestration activities that raise our involvement to around 30 projects globally. CCS is recognized as one of the fastest-growing opportunities to reduce carbon emissions, and with the tailwinds from the US Inflation Reduction Act and other initiatives around the world, we expect more projects to move forward to final investment decisions in the next few years. Finally, we are delivering on our commitment to increase returns to shareholders. During the quarter, we relaunched our share buyback program, with repurchases totaling more than $200 million worth of shares. I would like to really thank the entire SLB team for their hard work and for delivering yet another successful quarter. Moving to the macro, we maintain a constructive multi-year growth outlook. Through the first quarter, the resilience, breadth, and durability of the upcycle have only become more evident. I would like to take a few minutes to describe these factors. To begin, the underlying demand, investments, and activity during this cycle are resilient, despite short-term economic and demand uncertainties. The combination of energy security, the initiation of long-cycle projects, and OPEC’s policy sets the conditions for a de-coupling of the activity outlook from short-term uncertainties. Indeed, energy security remains a top priority for most countries and is driving structural investments that are governed primarily by national interests. The extent of these investments is resulting in a broad-ranging growth outlook, comprised predominantly of resilient long-cycle projects in the Middle East, the international offshore basins, and in gas projects. Collectively, we expect these market segments to reach or exceed more than two-thirds of the total global upstream spend and support a long tail of resilient activity over the next few years. In parallel, the North America market, characterized by higher short-cycle exposure, is also set to benefit from a positive demand outlook and supportive commodity pricing. However, this will be impacted by an anticipated activity plateau in the short term, which will subsequently be reflected in production volumes. Moving to the dimensions of breadth and duration, these are also best emphasized by the latest activity outlook for the Middle East and offshore market segments. Fundamentally, the pivot to both segments as anchors of supply growth is a defining attribute of this cycle. This is providing an unprecedented level of investment visibility and a scale that is setting many records. In the Middle East, the largest ever investment cycle has now commenced. This will support ongoing capacity expansion projects over the next four years, in both oil and gas. Consequently, this year we expect to post our highest revenue ever in the Middle East, putting us on track to achieve our multi-year growth aspirations. Simultaneously, we are witnessing further activity expansion in the offshore markets. Offshore activity continues to surprise to the upside, with breadth and a diversity of opportunities across all major basins. In addition, the latest FID projections and industry reports indicate that the offshore sector is set for its highest growth in a decade, with more than $200 billion in new projects through the next two years. This growth will be supported by three layers of activity: First, the resumption of infill and tieback activity in mature basins, which was very visible across Africa in 2022. This will continue to strengthen in multiple geographies from this year onwards. Second, ongoing large development projects in both oil and gas that are ramping up and starting to scale. This is evident in Latin America such as in Guyana and Brazil, and in the Middle East such as in Saudi Arabia, UAE, and Qatar. And third, the resurgence of exploration and appraisal activity, which is starting to gather strong momentum in existing basins and new frontiers. From West & South Africa to the East Mediterranean, we are starting to see exploration and appraisal at a pace that was unforeseen just a few months ago. Additionally, the activity pipeline continues to elongate with new licensing rounds and new blocks awarded. As a result, we believe that we will continue to witness durable offshore investment for many years to come. Let me spend a couple of minutes highlighting what this means for SLB. As the cycle unfolds, the characteristics I have described continue to align with major strengths in our core. This will support additional activity intensity for well construction; accelerated growth opportunities in reservoir performance through the return of exploration & appraisal activity; and further long-term growth potential for production systems. One such example is the TPAO Sakarya project in the Southern Black Sea offshore Turkey. This project involved all our core divisions supporting the development of a challenging subsea gas asset and the simultaneous construction of a gas production facility, demonstrating SLB's unique ability to integrate at scale, from pore-to-process. Looking more in-depth, our production systems division is in a unique position as a long-cycle lever of growth for us with quarterly year-on-year results demonstrating our ability to fully harness its potential. We believe momentum is set to continue, benefiting from our strong market presence in the Middle East and in the offshore basins. In this division, we anticipate cumulative bookings in the range of $10 billion to $12 billion in 2023, up significantly from 2022. We have taken a strong step forward towards this ambition with more than $3 billion in bookings in the first quarter, and the outlook supports continued strong bookings through at least 2025. Overall, this will provide durable revenue growth and a significant installed base for services in the years to come. In this context, our exposure to the deepwater subsea market remains an essential component of our growth opportunity, and we continue to strengthen this part of our portfolio with much success. In subsea, we have grown 20% over the last two years and are already generating EBITDA margins in the high teens, building on our technology, performance in execution, and the depth of our processing portfolio. We expect strong momentum for this part of our business to be sustained through 2025 and beyond. To conclude, we are in the midst of a unique cycle with qualities that enhance the long-term outlook for our industry—Resilience, Breadth, and Durability—all reinforced by a pivot to the Middle East, Offshore, Gas, and a return of exploration and appraisal. We could not ask for a better backdrop to execute our returns-focused strategy. During the early phase of this cycle, led by North America, our results have already demonstrated our ability to capture growth ahead of activity and expand margins visibly beyond pre-pandemic levels. Looking forward, we are positioned to fully harness the International and Offshore momentum that is now underway and to further our margin expansion journey. In the quarters ahead, we will continue to demonstrate our returns focus, capital discipline, and commitment to shareholder returns. I am truly excited about the outlook for SLB. Next, I would like to comment on our progress over the shorter term. For the full year, our strong first quarter gives us renewed confidence in our financial ambitions for 2023. We are primed for revenue growth and margin expansion through the year, underpinned by a very solid international outlook. In North America, we still expect tangible market growth but at a lower rate than originally anticipated at the start of the year, mainly as a result of ongoing weakness in gas prices. Taken together, we expect the strong international growth to offset any weakness in North America, keeping our full-year ambitions intact, with year-on-year growth in excess of 15%, which would support adjusted EBITDA growth in the mid-twenties. More specific to the second quarter, directionally, we expect revenue to grow about mid-to-high single digits with operating margins expanding by 50 to 100 basis points driven by a seasonal rebound in the international markets. Growth will be led by the Middle East & Asia Area, and continued momentum in the offshore markets. Building on this, we expect our second quarter adjusted EBITDA to reach new highs in this cycle, further extending the earnings growth journey we initiated 11 quarters ago and taking another positive step towards achieving our full-year ambitions.

Thank you, Olivier, and good morning, ladies and gentlemen. First quarter earnings per share excluding charges and credits was $0.63. This represents an increase of $0.29 or 85% when compared to the first quarter of last year. In addition, during the first quarter, we recorded a $0.02 gain relating to the sale of all of our remaining shares in Liberty, which brought our GAAP EPS to $0.65. Overall, our first quarter revenue of $7.7 billion increased 30% year-on-year as the growth cycle continues to unfold. This represents the highest quarterly year-on-year increase in more than a decade. International revenue was up 29% year-on-year, while North America increased 32%. Company-wide adjusted EBITDA margin for the first quarter was 23.1%. In absolute dollars, adjusted EBITDA increased 43% year-on-year. As a reminder, our ambition is for adjusted EBITDA to grow, in percentage terms, in the mid-twenties for the full year of 2023. The first quarter was certainly a strong start towards achieving this goal. On a sequential basis, revenue decreased 2%, mostly driven by seasonally lower revenue in Asia and Russia as well as lower APS revenue in Ecuador. Russia represented approximately 5% of our consolidated Q1 revenue. Sequentially, our pretax segment operating margins declined 178 basis points largely due to seasonality and lower APS revenue. From a year-on-year perspective, margins expanded 298 basis points with significant margin growth in three of our four divisions. Let me now go through the first quarter results for each division. First quarter Digital & Integration revenue of $894 million decreased 12% sequentially with margins declining 8 percentage points to 30%. These decreases were primarily due to lower APS project revenue and seasonally lower digital and exploration data licensing sales. The APS revenue decline was mostly a result of a pipeline disruption in Ecuador that temporarily reduced production and lower commodity prices impacting our project in Canada. As a result of these issues, APS revenue declined year-on-year, but this effect was more than offset by strong digital growth, including a more than 50% increase in our cloud and edge solutions. Margins for the Digital & Integration division are expected to improve in Q2 as the pipeline issue in Ecuador has been resolved and as digital sales will increase sequentially in line with the usual seasonal trend. Reservoir Performance revenue of $1.5 billion decreased 3% sequentially while margins declined 207 basis points to 16.1%. These decreases were primarily due to seasonal activity reductions in Europe and Asia and lower revenue in Russia. Year-on-year, revenue grew 24% and margins increased 291 basis points driven by strong growth internationally, both on land and offshore. Well Construction revenue of $3.3 billion increased 1% sequentially, while margins of 20.6% decreased 44 basis points. However, year-on-year revenue grew 36% while margins expanded 444 basis points with very strong growth across all areas on higher activity, increased pricing, and a favorable technology mix. Finally, Production Systems revenue of $2.2 billion was essentially flat sequentially and margins declined 148 basis points to 9.3% due to seasonality and the activity mix in Europe and Asia. Year-on-year, revenue increased 38%, while margins expanded 217 basis points driven by strong activity across all areas led by Europe, Latin America, and North America. Margins also improved compared to the first quarter of last year as supply chain and logistics constraints continued to ease. Now turning to our liquidity. Our net debt increased approximately $1 billion sequentially to $10.3 billion. During the quarter, we generated $330 million of cash flow from operations and negative free cash flow of $265 million reflecting the seasonal increase in working capital we typically experience in the first quarter. This largely reflects the payout of our annual employee incentives and the build-up of working capital that will support our anticipated growth throughout the year. Our second quarter free cash flow is expected to be materially higher and to continue to increase into the third and fourth quarters. Capital investments, inclusive of CapEx and investments in APS projects and exploration data were $595 million in the first quarter. For the full year, we are still expecting capital investments to be approximately $2.5 to $2.6 billion. During the quarter, we monetized our remaining investment in Liberty, which resulted in net proceeds of $137 million. We also spent $244 million, net of cash acquired, on acquisitions and investments in other businesses, the majority of which relates to the Gyrodata acquisition. Finally, we resumed our stock repurchase program and repurchased 4.4 million shares during the quarter for a total purchase price of $230 million. We will continue to repurchase shares in the coming quarters and, as previously announced, we are targeting to return a total of $2 billion to our shareholders this year between dividends and stock buybacks.

Thank you, Stephane. Ladies and gentlemen, I think we will open now the floor to your questions.

Good morning. Olivier, you and Stephane, you outlined kind of an unprecedented, quite frankly, amount of contract awards, amount of visibility into the cycle. And curious, as you talk to your customers now, what you see as the durability of those awards, given the global volatility in economies and things of that nature. How are you thinking about the next several years? How are you guys perceiving kind of the steadiness of these contract awards and their ability to continue to go forward, even if we were to have a recession or something like that? And how that would influence your revenue and results?

No, James, thank you. I think indeed, I highlighted and in my prepared remarks, I shared the view that in the recent months and certainly in the last quarter, I have been traveling in Asia, the Middle East, and South America. I have seen customers taking commitments and being ready to commit to the supply capacity and to the partnership they need to deploy and develop the assets going forward as we believe this cycle is unique through, as we said, elements of resilience by the nature of investment and growth rate, including the long-term capacity expansion committed in the Middle East, including the large long-cycle elements that are growing in proportion led by offshore deepwater coming back. The breadth, I think everywhere we go, everybody needs - is seeing a customer reaching out to mobilize resources, sometimes for short-cycle production enhancements, most of the time for development commitment of assets and redevelopment expansion from infield to large-scale development. And durability is certainly improving and duration of the cycle, I think, is improving as we see because beyond the Middle East, '27 targets of capital expansion for the country. Other countries are targeting this towards the end of the decade. And here in the city in Brazil, Brazil has a clear ambition for 4 million barrels by 2030, and they've already committed up to 20 FPSO contracts that will continue to build the pipeline of offshore activity subsea in particular going forward. So I'm very positive about the mix of short-cycle on production enhancements and the long commitment from the Middle East, from deepwater and offshore operators to complement the long cycle, to not offset and now take precedent over this short cycle and so turn, as we indicated, a turn into the cycle towards international offshore and the Middle East in particular. So that's where we are very confident.

Okay. That's perfect, Olivier. And then a follow-up for me. In terms of pricing, international and offshore versus maybe North America, kind of what you're seeing there in terms of the level of concern or maybe not concern but level of willingness to accept pricing increases. It seems to me like customers internationally and offshore are more looking at or concerned about availability of service capacity rather than what it actually costs.

Yes. I think we are seeing pricing tailwinds and we have seen pricing tailwinds in the global market for quite a few quarters, starting in North America. It has turned to international based on two things: first, indeed, securing capacity going forward, considering the tight supply of equipment, unique technology, giving a level of sense of urgency to secure contracts and elongate the contracts. You have seen examples of nine-year contracts in the announcement we made today. And at the same time, I think performance matters. Performance matters to offshore operators. Performance matters for first gas, first oil. And there's a sense of urgency to accelerate the cycle. This is one of the priorities. And technology integration also makes a difference and is recognized and is driving a pricing premium. So the combination of supply capacity, a sense of urgency for performance integration, and technology deployment is driving pricing tailwinds that are serving us very well.

Hi, good morning, Olivier.

Good morning, Dave.

Can you discuss the duration of the cycle in your core business, particularly regarding well construction? I’m interested in the pace of well construction you anticipate this year and where you expect to see the most significant increase in activity and shifts in technology. I noticed that North America experienced a 9% sequential increase, which was unexpected. How does the ramp-up in the Middle East fit into this? Additionally, similar to James's question about capacity, if I were one of your customers, what would I be most concerned about today? Is well construction a top concern? It seems like it must be significant. I would appreciate any insights you can provide. Thank you.

Yes. No, I think you are correct. I think the supply of high-performance equipment in the Well Construction domain is under stretch today. And I think we are working very closely with our customers to prioritize equipment, price technology application and use integration, use digital to help deliver the performance they expect. So there is a stretch indeed in this. But going forward, I think we are committing the resource when we see the returns to be accretive to our margins and align with our expectations and ambition to continue to expand margins. So where we see the most activity, clearly, this year is an uptick and this will be the case as sequentially next quarter is in Middle East and offshore. A combination of an integrated contract we have in offshore with relatively complex assets on occasion that demands a lot of technology deployments. And the intensity of activity in the Middle East, that is a mix of short-cycle and long-cycle development projects, this combination is unique and I think will be putting more resource, more equipment, and more technology and will drive revenue forward.

And was the North America uptick, was that more offshore-driven than onshore this quarter?

Yes, it was, indeed, absolutely. I think offshore is not only international, I think offshore is happening in North America. North America as northeast Canada, Alaska offshore, and go from Mexico, the combination of which is set to grow and our pace this year, the U.S. land and North America (NAM) activity. So we are also getting the benefit of our fit for basin success in North America that continues to hold and help us maintain, grow our share, and come in on a premium on pricing.

And then, Olivier, in the D&I business, APS obviously impacted the performance this quarter. I was wondering if you could kind of pull back a little bit and help us understand how the digital business is performing. I think the goal is at a $3 billion revenue target. Wondering if you can kind of tell us where we are now in terms of that run rate. And in order to hit those targets, I'm just curious, is that about your existing customers using digital more? Is it adding more apps to DELFI? Is it adding more customers? Is it all of the above? Maybe help us understand a little bit more.

All of the above. Indeed. But I think, indeed, Dave, I think first, in this quarter, obviously, the growth, and we have seen growth rates in digital that are aligned with our expectations, aligned with our ambition to double revenue from 2021 to 2025. We have seen, as Stephane mentioned, during his prepared remarks that the new technology edge and cloud is growing at more than 50%, continuing on the trajectory that we have set in the last couple of years. And we don't see any sign of this slowing down. Indeed, expansion will come from multiple dimensions. Obviously, getting more consumption from the existing customer we have. And we are today deploying one of the largest contractors in Petrobras, where we were and we are meeting with the team here, very satisfied with deployment and growing the number of users. That's an axis that then growing a number of applications, and that's where we want to deploy and go beyond geoscience, our petrotechnical suite, if you like, to digital operation, production, and digital operation into the drilling domain, automating the full rig well construction process. And again, in Brazil, we are very pleased to meet with Equinor and look after the Peregrino platform, where we're about to deploy for the first time in the world a fully automated top side to bottom assembly, fully automated autonomous digital journey that will realize this year. So we have both the geoscience application deployment, the digital operation, and we have new customers coming in, and you have seen some new contracts that we announced this quarter. So we are growing to the pace we are expecting to be our trajectory to double. And in this quarter, this was unfortunately masked fully by the APS setback, but we expect this to resume and to be actually one of the leading growth sequentials that you would see in the second quarter.

Fantastic. Thank you.

Thank you.

Good morning, Olivier.

Good morning, Chase.

So a quick question. I guess coming back to international and just kind of focusing there. We get questions on this international ramp. And because the last six months, we've seen some oil price volatility. We've seen a couple of OPEC+ cuts. And so we kind of get a lot of investor questions if there's been any signs of OPEC slowing down, any kind of planned projects or CapEx plans. So let me just ask you if you've seen any indications of OPEC+ members slowing things down at all in the Middle East.

No, we have not seen any impact on businesses, and we don't believe there will be any. We think that the companies in the region are dedicated to mobilizing resources for their ambitious capacity expansion plans. All the commitments are not just in the UAE and Saudi Arabia, but across many countries in the GCC. This growth pertains to both oil and gas capacity, including commercial gas in the region. I have been in the Middle East recently and have not observed any signs of challenges. The multitude of contract awards tendered in the past 18 months, many of which are multiyear or beyond five years, clearly reflect the commitment to these capacity expansion plans. An inflection point has occurred, and we expect to see growth for the rest of the year. Therefore, we do not anticipate any impact.

Okay, awesome. Appreciate the color there. The follow-up is really kind of on CCUS. You had a lot of announcements in your press release, which really highlighted your experience on the sequestration side. But there are other parts, obviously, of the value chain. And are there other parts that you would actually think that would be a good fit for SLB, like possibly the capture technology side?

No, absolutely. I think we have indeed a unique right to play in sequestration that have translated into a significant number of studies and services and modeling and digital that we have provided to a lot of customers. And these customers have approached us to participate, some of them emitters that are non-oil and gas as you have seen some of the examples we gave in the press release earlier today. And then we are using our technology and innovation capability to explore and to invest into capture technology or to partner as we are partnering with Linde into the application of CCS projects across the domain of blue hydrogen and ammonia for decarbonizing the natural gas and ammonia production. So we are indeed either associating or investing into capture technology, hence broadening our scope beyond sequestration and using our right to play to expand and create a business that will stand on its own in the years to come.

Okay. Awesome. Appreciate the color there. I'll turn it back over. Thanks, Olivier.

Thank you, Chase.

Olivier, I wanted to get some insights on what you're seeing within the subsea segment of Production Systems. I think you highlighted broadly within Production Systems $10 billion to $12 billion of backlog growth potential this year or bookings potential. I was wondering if you could maybe characterize SLB's technology offering and integration capabilities relative to your peers as well as provide any update on the strategic transaction that you announced last summer.

Sure. I’ll start by discussing Production Systems. The bookings we are referring to are at the Production Systems level, which includes our production equipment capabilities from subsea to in-well completion and subsea surface system processing. When you consider all these elements together, we offer a unique end-to-end integration and delivery capability, which presents us with the opportunity to engage at scale alongside our partner, Subsea 7, specifically in relation to the TPAO project where the first gas was flared yesterday in the country. This kind of integration is distinct. We can design, deploy, and develop gas facilities, having done so in the past, and connect them to our subsea developments and completion architecture. This comprehensive integration sets us apart and allows for significant participation in large-scale developments. In terms of subsea, we also differentiate ourselves by our ability to connect to the subsurface, showcasing our integration from the subsea to the completion architecture. I want to highlight a couple of key points. First, our electrical capability allows us to fully transition subsea operations to electric, which is transformational for the deepwater sector and enhances low carbon initiatives as well as digital control of subsea equipment. In Brazil, we are fortunate to have established a unique center of excellence, collaborating with various operators in a joint development program focused on deploying fully electric subsea equipment, which will mark a significant advancement in the industry. Additionally, our processing and boosting capabilities remain a point of differentiation. You might recall the award we received last year from Shell for gas processing subsea equipment and the recent two awards for boosting capabilities in Brazil, further underscoring our unique position. Our ability to integrate subsea processing equipment with other well or surface equipment is exceptional, enhancing our digital capabilities as well. Regarding the joint venture we announced, we are currently engaging with regulatory bodies in various regions but cannot provide additional comments beyond what has been previously stated. This presents an exciting outlook and opportunity, and we will continue to move forward until the deal is finalized.

Great. Olivier, my follow-up. You and the Board are in Rio this week. I was wondering if you could characterize on what you're seeing on the ground in terms of the upstream spending picture. And obviously, we've had a regime change recently with the new administration. Are you seeing any potential changes to the fiscal or regulatory regime that could impact spending over the next couple of two, three years?

This visit has been exceptional for the Board and for the interaction we have with customers, clearly showcasing Brazil's potential for significant supply growth in the future. A&P and Brazil aim to reach or exceed 4 million barrels per day from 3.3 million currently. They have already established a foundation for production enhancements in the land basins and are continuing to accelerate the development of the sub-salt deepwater, with up to 20 FPSOs already in play. They are also moving forward to explore the Ecuador margin, which will provide additional growth opportunities for Brazil beyond the already secured multi-year FPSO contracts. We do not anticipate any changes; instead, we see an acceleration and an extension of Brazil's growth outlook. One noticeable shift is their commitment to decarbonization and digitalization, which the leadership has reaffirmed. We have observed this, and it will be more apparent in the future. Digital operations are set to increase significantly in Brazil, led by the main operator, and the country will enhance its commitment to carbon capture and storage. We are fortunate to be involved in the first and only bioenergy CCS project in Latin America with FS Bioenergia, and following our meeting with the team two days ago, they are very satisfied with the progress on the CCS initiative in Brazil. You can expect more activity, with no slowdown, but rather an upside in the offshore environment and a rapid transition towards low carbon and digital solutions.

Good morning, team. First question was around cash flow and working capital specifically was a bigger outflow than we had modeled in the quarter. Does that all reverse over the course of the year and you could talk about some of the moving pieces around that?

Sure, Neil. So yes, it does reverse. As you know, Q1 is always the lowest quarter of the year for free cash flow. As mentioned, we have the typical working capital buildup. Particularly, we have the payout of annual employee incentives. This is a one-off. It was about $500 million in the first quarter. And then we build inventory for anticipated growth, particularly in the Production System division, as we've mentioned. So even though it remained negative, the free cash flow actually came slightly ahead of our own expectations. Our DSO was the lowest historically for a first quarter, so we were quite happy with that. So yes, it will increase in the second quarter and it will accelerate in the second half on higher EBITDA, continuous capital discipline, and working capital unwinding. Keeping in mind, we typically generate the majority of our annual cash flow in H2, but it will increase materially in Q2. So when you put it all together, the 2023 full-year free cash flow will be significantly higher than last year and clearly, on the trajectory to deliver the 10% free cash flow margin we committed for the 2021 to 2025 period. And just to close, this will allow us to, as Olivier mentioned and as I mentioned in my prepared remarks, to return $2 billion to shareholders in the form of dividends and buybacks together.

That's really helpful. The follow-up is just the margins at Digital. I think it's hard to isolate because of some of the volatility around APS. Can you give us a sense of how you're seeing the underlying margin trends at the core digital business? And in Q2, that segment margin progression, I would imagine, strengthens as you work through some of these Ecuador challenges?

Yes, just to remind everyone, our Digital & Integration division merges digital and exploration data with our Asset Performance Solutions. At the start of our digital journey, we set a clear goal for Digital margin to significantly benefit SLB, while also aiming to double our revenue from 2021 to 2025. We are making progress on that path and are visibly contributing a strong margin to SLB. Over the past few quarters, we've shown that by leveraging top performance in APS and our unique digital offerings, we can achieve D&I margins well above 30%. Despite facing similar challenges and setbacks in APS, we continue to maintain highly profitable margins, certainly in the 30s. Looking ahead, we expect D&I margins to improve sequentially due to robust revenue growth in digital and strong margins, along with a resurgence in growth and healthy margins for APS. Overall, we anticipate not just revenue growth, but also sequential margin expansion, continuing to be highly beneficial for the remainder of the year.

Yes, good morning.

Good morning, Scott.

Olivier, you mentioned the resurgence in exploration, which is great to hear for SLB. One concern out there though is the potentially limited number of experienced geologists across the customer base to prosecute the exploration programs just because G&G departments were definitely scaled down during the pandemic. Is this a legitimate constraint on the strength of the exploration cycle? Or is this capability being rebuilt across the industry? What are you seeing on that front?

No, I will not be overly concerned by this. I think there are two factors that are playing into this. The first at Digital, I think, is having significant productivity gain for processing, analyzing, and generating prospects, as we call it, from modeling, from structural modeling to prospect identification, the seismic data set, as well as the capability to process using digital capability has significantly improved. So the ability to create a spotlight on the gas line or the oil pools, I think, is better than it's ever been and certainly much better than last cycle. And secondly, I think there is a significant service consulting capability that we participate into that can help complement and provide support to our customers. But I would say digital, productivity, and technology that has improved give higher accuracy, better geology interpretation capability, better structural modeling from seismic to wireline and to modeling or to sampling like our ORA reservoir sampling technology, all combine to give a significant support to the G&G team of our customers and to not a slowdown but actually accelerate and improve the productivity and ability to generate prospects. So I'm not concerned. And I believe that you will see this prospect be fast-tracked from exploration to appraisal to development going forward.

Yes, thank you. Good afternoon in Rio. I wanted to revisit the question about exploration and appraisal. You mentioned that the slowdown in North America was offset by developments in exploration and appraisal. I'm curious about what has contributed to this increase in exploration and appraisal, especially since commodity prices were not particularly strong in 2022 and haven't been exceptional in 2023 either. Is it a shift in how your customers view their future inventories, or is there another factor driving this improvement?

I believe that energy security, the favorable commodity price outlook, and the intention to capitalize on the cycle to explore and connect reserves to existing advantageous basins or expedite gas and new oil pools, as I mentioned earlier, are crucial. The speed of this process is primarily connected to the availability and contracting of deepwater rigs or offshore rigs, and occasionally land rigs, during exploration activities. The exploration and appraisal cycle began last year and is gaining momentum alongside offshore activity. This trend will contribute to a new phase of activity and lead to final investment decisions in two or three years, once the exploration has been appraised. This underlying trend has begun over the past few quarters and is speeding up. I see that customers are adopting a longer-term perspective, moving beyond short-term uncertainties or commodity price fluctuations, and are committing to new basins or expanding near-field exploration. This is the situation as we observe it. Ladies and gentlemen, I think I want to give a close to this call. It's almost to the hour. So to conclude today's call, I would like to leave you with the following takeaways. First, the quality of the unfolding upcycle in oil and gas is improving, with unique attributes of resilience, breadth, and duration. This is very much evidenced by the strengthening outlook in both Middle East and offshore markets and further reinforced by the tight supply balance as demand forecast approach new highs at year-end. Second, our strong start of the year gives us further confidence in our full-year financial ambition. Directionally, the dynamics in international markets will likely offset the moderation of activity growth in North America. In fact, we are witnessing a gradual shift from short to long-cycle investment and a further transition to international, with both effects closely aligned with our strengths and paving the way for an exciting outlook for years to come. Third, our overall performance demonstrates the strength of our portfolio, focused on the most attractive and resilient market segments globally, both in oil and gas and low-carbon solutions. Our divisions continue to align with customers at most priorities on value delivered to performance and integration, with digital transformation and decarbonization as industry mandates. Additionally, pricing continues to trend positively, enabling us to extract more value for our products and services. As a result, we reaffirm our ambition to further expand margins as the cycle unfolds, to grow earnings to new levels in this cycle and to significantly increase returns to shareholders as further demonstrated this quarter. I remain very confident in the alignment of our strategy to formal trends in the energy market and fully trust the SLB team to continue outperforming in this context. Now before I close, I wanted to announce that ND Maduemezia will be moving to a new career opportunity in SLB after a remarkable stand in his position as Investor Relations VP for the past three years. Thank you, ND, for the support and positive engagement with our investors and market analysts. Replacing ND is James McDonald, who is transitioning from his previous role as Americas Land Basin President. Welcome, James. With this, I want to close today's call and wish you all the best. Thank you. Good day, everyone.