SLB (SLB) — Q3 2024 Earnings Call Transcript

Thank you, Leah. Good morning, and welcome to the SLB third quarter 2024 earnings conference call. Today's call is being hosted from New York, 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'll 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. For more information, please refer to our latest 10-K filing and other SEC filings, which can be found on our website. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our third-quarter press release, which is on our website. And finally, in conjunction with our proposed acquisition, SLB and ChampionX have filed materials with the SEC, including a registration statement with a proxy statement and prospectuses. These materials can be found on the SEC’s website or from the parties’ websites. With that, I will turn the call over to Olivier.

Thank you, James. Ladies and gentlemen, thank you for joining us this morning. During the call, I will cover a few topics. I’ll start by reviewing our third-quarter results. Then, I will discuss how we are leveraging our differentiated market positioning, digital leadership, and operating efficiency to navigate the evolving macro environment. Finally, I will provide an update on our full-year financial ambitions and our early outlook for 2025. Stephane will then provide additional details on our financial results, and we will open the line to your questions. Let’s begin. SLB delivered strong third quarter results with continued margin expansion. Sequentially, although revenue was flat, we expanded our adjusted EBITDA margin by more than 50 basis points to 25.6% by driving efficiencies throughout the business, and we generated very strong free cash flow of $1.81 billion. In the international markets, revenue remained steady sequentially despite lower reactivity as commodity prices resulted in a more cautious approach to discretionary short cycle spending. Demand for SLB's digital products and services continued to accelerate, and we saw continued growth in the Middle East and Asia, fueled by oil capacity expansions and strong gas activity as well as offshore projects. Meanwhile, revenue in Europe and Africa was largely unchanged as strong production and recovery activity in North Africa was offset by a decline in Latin America following a strong second quarter. Turning to North America, revenue increased 3% sequentially as higher offshore activity in the Gulf of Mexico was partially offset by lower drilling activity in U.S. land as the market remained constrained by gas prices and ongoing capital discipline by operators. Next, let me touch on the performance of the Divisions. In Digital & Integration, we delivered strong sequential growth led by our digital business, which reached a new quarterly revenue high. We also continued to increase profitability, expanding our pretax segment operating margin to 36%, driven by higher digital revenue and cost optimization. Overall, our digital business remains on pace to achieve full-year revenue growth in the high teens, and we announced a number of exciting new products and partnerships during the quarter that I will discuss a little later in today’s call. Turning to the Core divisions, Production Systems continues to grow, benefitting from long-cycle development activity, particularly in the Middle East & Asia and in the Gulf of Mexico. I was proud to see that most Production Systems business lines contributed to this performance, as we continued to secure sizable bookings while also increasing our backlog for the future. Reservoir Performance remained steady, supported by stable production and recovery spending, and Well Construction declined slightly due to weaker land activity in North America and in the international markets. Overall, these results demonstrate SLB’s unique ability to navigate the evolving market by leveraging our differentiated international and offshore positioning, our broad technology portfolio, and our continued focus on capital discipline and operating efficiency. I want to thank the SLB team for continuing to deliver for our customers and shareholders in this dynamic environment. I am extremely proud of their contribution and dedication to our performance strategy. Next, I wanted to share some updates on our progress in digital. We delivered another quarter of strong digital growth as operators continued to increase their investments in digital technology to reduce cycle times and risk, enhance productivity, lower costs and carbon, and accelerate returns. This is presenting opportunities for high margin growth, and we have taken a leading role in this space, partnering with our customers to accelerate their transition to the cloud, scaling new technology for drilling and production operations, and creating new markets by delivering disruptive solutions for data and AI. As part of this journey, we hosted our Digital Forum in September, where we brought more than 1,000 customers and partners to innovate solutions and shape our shared digital future. During this event, we launched the Lumi data and AI platform, which will accelerate advanced data and generative AI capabilities at scale for SLB’s customers across the energy value chain. Today, we offer approximately 150 AI and machine learning capabilities across our products and solutions, and we continue to work with our customers and partners to innovate and deploy new ones. We also unveiled a number of cross-industry announcements during the Forum, including a collaboration with NVIDIA to develop generative AI solutions for energy, as well as a partnership with Amazon Web Services to expand access to applications from the Delfi digital platform and to evaluate decarbonization solutions for Amazon’s digital infrastructure. Each of these agreements helps to expand our capability set and positions SLB as a key partner in digital and sustainability across the industry. Next, let me discuss the macro environment. Over the past few months, commodity prices have been under pressure. This is largely due to concerns of an oversupplied market, driven by higher output from non-OPEC+ producers, uncertainty around OPEC+ supply releases, weaker demand from China, and softer economic growth rates in the U.S. and Europe. This has resulted in a cautionary approach to activity and discretionary spending by many customers as highlighted in our third-quarter results. Despite these evolving market conditions, we believe the long-term fundamentals for oil and gas remain in place. Demand for energy is increasing and energy security remains a global priority, as witnessed by recent commodity price fluctuations tied to geopolitical tensions in the Middle East. In this environment, gas will continue to play an increasing role in the energy transition, while oil will remain a large part of the energy mix for decades to come. Internationally, gas investment remains strong, particularly in Asia, the Middle East, and the North Sea, and is expected to grow regardless of OPEC+ decisions on oil production. Meanwhile, while short-cycle oil investments have been more challenged, long-cycle deepwater projects globally and most capacity expansion projects in the Middle East remain economically and strategically favorable. Specific to North America, we do not see U.S. activity rebounding in the near term, and any potential increases in gas rigs could be quickly offset by a further decline in oil rigs due to increased operating efficiency. Overall, we expect this to result in a sustained level of global upstream investment in the years to come, with the secular trends of digital and industry decarbonization extending the investment horizon. SLB is well positioned to navigate in this evolving macroenvironment through our differentiated portfolio and multipronged strategic approach across Core, Digital, and New Energy. With that backdrop, let me conclude my opening remarks by sharing our outlook for the full year 2024 and our early thoughts regarding 2025. Specific to the fourth quarter, we expect muted revenue growth, with a favorable mix of year-end digital and product sales partially offset by E&P budget exhaustion in U.S. land and cautious discretionary spending from certain international customers. And, with continued cost optimization, we anticipate we will deliver EBITDA margin expansion in the fourth quarter. For the full year of 2024, ongoing margin expansion will enable us to deliver full-year adjusted EBITDA margins at or above 25%. Additionally, our strong cash flows, coupled with the announced sale of our Palliser asset in Canada, will support increased returns to our shareholders. In 2025, we see the potential for upstream spending in the international markets to grow in the low to mid-single digits, while North America spending will be flat to slightly down. This directional outlook will depend on the geopolitical environment and commodity prices, and we will share an updated view in January after we receive more feedback on customer budgets. In conclusion, SLB remains well positioned to deliver strong financial results, as our optimized cost structure, portfolio rationalization, differentiated exposure to key international and offshore markets, and digital leadership will support further margin expansion, higher cash generation, and increased returns to shareholders. I will now turn the call over to Stephane.

Thank you, Olivier, and good morning, ladies and gentlemen. Third-quarter earnings per share excluding charges and credits was $0.89. This represents an increase of $0.04 sequentially and $0.11, or 14%, when compared to the third quarter of last year. During the quarter, we recorded $0.02 of merger and integration charges relating to the Aker subsea and ChampionX transactions and $0.04 of charges in connection with the program we started last quarter to realign and optimize the support and service delivery structure in certain parts of our organization. Overall, our third-quarter revenue of $9.2 billion was essentially flat sequentially. However, the third quarter represented another quarter of both sequential and year-on-year margin expansion despite revenue growth rates moderating. These improvements were driven by very strong Digital & Integration margins combined with the effect of the cost optimization program I just mentioned. Additionally, the resilient, long-cycle Production Systems business continued its top line growth and margin improvement journey, benefiting from its strong backlog. Sequentially, our pretax segment operating margin expanded 48 basis points to 20.8%. Company-wide adjusted EBITDA margin increased 55 basis points to 25.6%, representing the highest level since the first quarter of 2016. Let me now go through the third-quarter results for each Division. Third-quarter Digital & Integration revenue of $1.1 billion increased 4% sequentially with margins expanding 456 basis points to 35.5%. The sequential revenue growth was entirely due to higher digital sales, as APS revenue was flat. The strong margin performance was driven by improved digital profitability as a result of the higher uptake of new digital solutions and the optimization of our digital support and delivery structure. Reservoir Performance revenue of $1.8 billion was flat sequentially as higher intervention activity in international markets was offset by lower evaluation revenue in Latin America and the Middle East. Margins contracted 53 basis points due to the unfavorable technology mix. Well Construction revenue of $3.3 billion decreased 3% sequentially due to a lower rig count in U.S. land and Saudi Arabia, and the completion of drilling projects in certain offshore markets. Margins decreased 19 basis points as a result of the lower activity. Finally, Production Systems revenue of $3.1 billion increased 3% sequentially driven by higher sales of surface production systems, completions, and artificial lift, led by North America and the Middle East & Asia. Margins expanded 110 basis points to 16.7% on improved profitability in artificial lift, completions, surface production systems, and midstream production systems. Regarding our liquidity, our cash flow performance during the third quarter was very strong, as we generated $2.4 billion of cash flow from operations and free cash flow of $1.8 billion. This represents a $1 billion increase in free cash flow as compared to last quarter, largely due to significant customer collections. Capital investments, inclusive of CapEx and investments in APS projects and exploration data, were $644 million in the third quarter. For the full year, we are still expecting capital investments to be approximately $2.6 billion. On the M&A front, as announced yesterday, I am pleased to report that we have signed a definitive agreement to sell our interests in the Palliser APS project in Canada. This transaction will reduce our direct exposure to commodity prices and the associated earnings volatility as well as reduce our capital intensity. It also allows us to eliminate significant future abandonment liabilities. Under the terms of the agreement, we will receive cash proceeds of approximately $430 million U.S. dollars, subject to closing adjustments that are typical for such a transaction. This transaction will also result in us removing asset retirement obligations from our balance sheet with a present value of approximately $280 million. This transaction, which is subject to regulatory approvals and other customary closing conditions, is expected to close before the end of this year. Turning to the pending ChampionX acquisition, the integration teams on both sides have been working together closely, and we are extremely pleased with the progress they are making. We now anticipate the transaction to more likely close in the first quarter of 2025. Finally, total returns to shareholders, in the form of stock repurchases and dividends, was approximately $2.4 billion on a year-to-date basis. During the third quarter, we repurchased 11.3 million shares for a total purchase price of $501 million. As a result of our strong cash flow performance, we expect to maintain this level of buyback in the fourth quarter. Consequently, we will exceed our previous commitment to return $3 billion to our shareholders in 2024. Furthermore, we reaffirm that we will return a minimum of $4 billion to shareholders in 2025, reflecting our confidence in our ability to continue generating strong cash flows.

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

Olivier, it seems that slower top-line growth for 2025 is expected, but your team has many initiatives that will drive continued margin expansion. Could you discuss some of the factors contributing to this and how you or Stephane anticipate it will progress throughout the year? I understand you may not want to share too many specifics yet due to ongoing budget assessments, but any additional insights on how this might develop would be appreciated.

Yes. Good question. Thank you, James. So yes, indeed, we have the ambition to maintain our margin expansion journey as we enter 2025 or exit rate of 2024, with the results we have delivered in Q3, the ambition we have and the statement we have made on further expansion in the fourth quarter will bode very well as we enter 2025 to start the year with a kick if I may. And now looking forward, I think the guidance at this point, market spend will indicate that they will benefit from another year of international growth outpacing North America, which again plays in our favor from the margin mix. And obviously, the combination of our digital technology premium will continue to play favorably as we accelerate technology introduction and continue the journey and ambition, we have on digital to reach approximately $3 billion on the and some of a year of strong growth. And finally, I think we have initiated some cost out and operating efficiency focus for our team, entire team and this is already falling through into our results, and I expect this to take full scale in 2025.

Got it. Okay. Great. And then, now that we're a little over a month out from your digital forum that you held recently, could you maybe share some of your initial thoughts on the success of the forum? It seemed to me at least that the uptake in digital. Clearly, you just mentioned $3 billion in revenue. But for next year, but digital uptake is accelerating and the quality of the digital uptake, not just going to the cloud, but also using all the AI tools is accelerating as well. But I wanted to get your, now that we've gotten on the way your thoughts on that.

I am very pleased to report that we likely had our best forum ever. The scale of attendance, the number of partners who joined us, and the customers who showcased their technology were outstanding. We had the opportunity to highlight the digital value proposition we provide across various domains, from geoscience to operations, demonstrating our integrated and open platform approach with partners. They are evolving our technology from traditional on-premise solutions to cloud, edge, and now AI, including generative AI. This has led many customers to recognize our ability to enhance all facets of their operations, drive productivity in geoscience, optimize performance, and reduce costs and carbon emissions moving forward. I see the total addressable market expanding as customers acknowledge the maturity of our offerings and the partnership ecosystem we've built. There's a significant opportunity for them to achieve greater efficiency and competitiveness. We aim to accelerate the adoption of the tools we've developed over the past decade to benefit from digital operations. Digital operations in production, drilling, autonomous processes, and optimization, along with edge AI applications, have significantly evolved over the last 18 months, transforming how we work with our customers. That is where I envision our future, focusing on long-term growth beyond the current cycle.

Customers are becoming more cautious, although your projects continue to progress. It appears that the cycle is reaching a plateau. You mentioned that international spending is expected to be low, in the mid-single digits next year. However, looking back at the previous cycle, significant growth in the second half was driven by sustained deepwater development. My question is whether you believe deepwater can again be a growth driver beyond 2025. There have been approximately 300 billion in final investment decisions over the past few years, and you've just announced several Petrobras awards, with Namibia and Suriname on the way. Is this sufficient to increase overall spending, or does the oil price need a structural improvement for this cycle to regain momentum?

Yes, I think you have seen the realization that when commodity prices are under pressure, there is some pressure on short cycle that is suppressed and that may come back and will come back as soon because it impacts increased drilling, intervention activity, and impacts short cycle and commercial in some regions. But it will most likely come back as soon as the commodity price regains traction. But the long cycle, apart from some decisions on timing and project execution, have been untouched. And we have had a year of strong exploration activity that has unlocked new reserves, that has appraised new future pipelines of deepwater, as you have heard and seen across the Americas, across South Africa, across the East Mediterranean, and across Asia, where gas is critical. The combination of these, as you know, is representing every year. This year, I think the total offshore FID will approach $100 billion, and we expect that this rate of $100 billion for offshore will remain at that level or higher for the next two or three years. So, the cumulative over '23 to '26 of offshore will exceed $500 million of offshore FID, and that's a sign that this project will execute beyond '25, beyond '26 and will be a growth engine for the industry going forward.

That's great to hear. It's also wonderful to learn about the sale of the Palliser Block. I'm glad to put that behind us so we can focus more on the digital business. One of the points you mentioned at that forum is that digital is contributing to growth in margins going forward, and clearly, that has already been the case. You're on track to reach your $3 billion revenue target next year. Naturally, I'm curious about what's next. I don’t think you’re ready to announce a new target yet, or you would have done so already. But I wonder where you foresee that growth coming from. You mentioned extending that production side, which could be an additional source of growth. A significant part of this growth has been driven by well construction, and I'm curious if deepwater could also become a major driver of the digital business moving forward.

It is already. I think we are already deploying our well construction automation and optimization, autonomous operations in some offshore rigs and making huge advancements where the cost of rig operation matters, and this is something that will unlock the future. But I think I will split it into the three categories. I think you have a platform transition, a cloud transition that has happened that affects more than 1,000, 1,500 customers we have, and it's a long transition that will continue to happen one customer at a time. Cloud transition will continue to drive our Delfi adoption across our customer space in geoscience, and we'll continue to see this affecting and being a long cycle, a long period of growth for years to come as a driver. The second is, as you mentioned, as I mentioned, the digital operation, be it in production and drilling with the emergence of edge application, the emergence of autonomous optimization application, and this is both seen by the digital services that our core divisions are offering, with much success with this digital offering that they are putting on the back of our Delfi, and we see it into the pickup of our production and drilling operation capability by the customers themselves. And finally, the third leg of growth in our digital portfolio is the emergence of new data and AI capability, as you have seen, the Lumi that we have put in place. So, we combine these three over the future horizon. This will continue to be digital. As a consequence, we continue to be a growing TAM for us and will be an engine of growth that will be accretive to the top line and will deliver accretive margin to the Company. So that's the way we see it. And I will not, at this point, set the target for the next risk, but we'll continue to see growth between '25 with this context.

I'm glad to hear that you still see some growth next year. I want to ask a question that separates operating leverage that results in growth from other margin drivers. So, if we assume that upstream spending is flattish for the next three years, is there a certain level of margin expansion that you think you could achieve through further cost optimization and further growth in digital? I assume that you would challenge the organization to continue expanding margins in a flat backdrop. Just curious what that potential rate of margin improvement could be?

Yes. First, we do see not only in Q4 and into 2025, further margin expansion on that upstream spending outlook. And as you actually mentioned, it comes from several components. It comes primarily, I would say, from the mix of activities in our various divisions. As Olivier indicated, digital is a booster to our overall company margins, technology mix, performance contract or performance in general pushes margins as well. And yes, there's an element of cost optimization, not only from the program we started at the end of last quarter, but also from our continuous focus on cost. We will continue to adjust delivery resources based on level activities, and we will continue to look for further optimization in our structure. So, it's a mix of all these components that will continue to push our margins into 2025.

Got it. And Stephane, how would the financials be impacted by the Palliser sale? How much EBITDA comes on? How much CapEx comes out?

On Palliser, we generate approximately $500 million in annual revenue from the asset, with pretax margins in the high 30s. Importantly, this also reduces the amount of investment we need each year to maintain this revenue level, with capital expenditures around $150 million annually. Additionally, it is crucial to highlight the elimination of future abandonment liabilities, which are about $280 million when discounted and nearly $1 billion undiscounted. This is beneficial as it will clear these liabilities from our balance sheet and profit and loss statement, leading to decreased earnings volatility and lower capital intensity.

Olivier, you framed that you're seeing a little bit of cautiousness in some of the short-cycle markets, North America, international oil with some resiliency in long cycle gas and deepwater opportunities. I was wondering if you could characterize the current pricing dynamics internationally, just relative to your expectations of margin expansion from here?

I think we believe that the pricing environment is still positive, constructive, I would say. I think first, realizing that the industry is capital disciplined. And the industry has no spare capacity to move and to place. As a consequence, performance, technology, and integration capabilities still give us opportunities to support our pricing, and I don't see it in the current environment changing very much. Well, as you pointed out, I think first, we are very pleased to have achieved these milestones again, the milestone has been to produce lithium carbonate from our demonstration plant in Nevada using direct lithium extraction from brine and using a concentration and purification process that we have integrated with our own IP and using some external technology and putting this together and working for months to tune it to digitally optimize it and to realize this. So, our plan forward is to work with prospective partners and customers to see how this technology can be used and to respond to big demand that exists and some plans that some of our customers and partners have announced to use DLE as a method to extract lithium and produce in large quantity in the coming years. So, we are looking forward to technology to scale it for application as a license technology or as a partner where we will develop and run going forward this technology with our customers and partners. That's the way we look into it. And again, very good first and benchmark performance for such a DLE plant and exciting long-term prospect for us in this new space.

Yes. A couple of financial questions. Maybe as we think about 2025 over the summer, you had talked about that $10 billion EBITDA target for '25 on a 20% CAGR. Just in light of some of the macro commentary, can you just talk about some of those moving pieces as it relates to that guide? And I think you've given us a lot of moving pieces, but I'd like to just kind of tie that out.

We are very focused on margin expansion and have successfully increased EBITDA margins year-on-year for 15 consecutive quarters, with no plans to stop. This is our mission, made up of several components. Regarding your question about 2025 and the absolute value of EBITDA in relation to our long-term CAGR ambition from 2021 to 2025, it is possible that considering the current macro outlook, which is still being clarified, and if we exclude ChampionX for a direct comparison, the CAGR from 2021 to 2025 may finish in the high teens instead of exceeding 20%. Yes, we definitely maintain capital discipline. It's somewhat predictable at this point, and while it's a bit early to discuss our capital expenditures for next year, the theme of capital discipline will definitely be a priority given the macro environment. Specifically regarding our Q3 free cash flow, we tend to generate the majority of our annual free cash flow in the second half of the year. In Q3, this was particularly pronounced. Q3 was strong, largely due to improvements in customer collections. Q2 had lower collections, which contributed to a catch-up effect. Q4 will largely hinge on customer collections, and we do see some volatility in these collections from one quarter to another. We will keep pushing forward and expect to close the year well in terms of working capital and free cash flow. Looking ahead to next year, while it's too early to provide a specific number for free cash flow, it will definitely exceed our 2024 expectations, especially with the addition of ChampionX. This is why we feel confident reaffirming our target of $4 billion in returns to shareholders for next year, as we anticipate an increase in free cash flow in 2025.

Olivier, you mentioned a more cautious outlook as you approach 2025, which we appreciate. In light of these dynamics, typically when the industry experiences moderate growth or some markets face a slowdown, pricing pressures tend to arise. I’m curious if you are beginning to notice this or having discussions with your customers about it. If not, what factors might be influencing your customer discussions differently?

Yes, I believe that throughout any cycle, we will consistently face competitive pressure and customer demands to reduce operational costs or enhance product value. Our view is that as long as we continue to demonstrate strong credit values and surpass expectations in our operations, we can alleviate any potential pressures from competition or customers. Additionally, we see that the industry is currently constrained in terms of equipment capacity and critical new technologies. Recently, there has been a notable discipline in capital spending that has helped mitigate this risk. I think that if we maintain high customer satisfaction through our performance, advance our technology, and deliver our integrated value proposition, we can alleviate any pressures that may arise in a slowing growth environment and defend our pricing, potentially improving it when necessary to protect our margins going forward. Ultimately, it comes down to execution, relationships, and capital discipline throughout the industry. I believe the conditions we are facing this cycle are somewhat different from those we have experienced in the past, and I view this situation positively.

Okay, that's great. Maybe a follow-up about your digital forum, which was a great event. In the context of the follow-up meetings, what were one or two insights that emerged from those discussions with potential clients for your generative AI product? What surprised you that you didn't expect going in?

I think the customers were, I think, first, many of them participated themselves and 150 papers were presented by our customers, more than 10 of them presented their own application of digital to other customers. I think it was from a lot of learnings for customers to watch each other and to learn from each other and how they use digital technology to unlock value. So, if take away, I think, at a high level, I think, customers realized that we are more than just one geoscience application on the cloud, and we have a digital value proposition that expands across different domains and across different technology stack on-prem, cloud, edge AI, and across the different dimension sensing and production. So, the full value proposition we have on digital, I think did surprise many of the customers as we continue to expand and have now a very comprehensive offering. That's the first takeaway, I think. The second is, I think the emergence of AI as x-factor for the industry to unlock more value of digital. This industry is data-rich, I would say. We have deployed, as you heard, 150 engineered AI tools covering various domains, physics, and the latest data science techniques to unlock more performance into our digital applications. The latest announcement of Lumi as a platform that complements Delfi, as a platform for providing access to all E&P data in one framework to integrate all the applications seamlessly. Finally, to create a framework that allows customers to use AI applications on their datasets across different domains and unlock new insights or create new performance. That's sort of Lumi data and AI is getting a lot of inbound requests as we have just announced it, and it will certainly be a factor of growth in the future as the industry recognizes that there is a lot to unlock from data to liberate data and to realize value through AI including Gen AI applications that we develop with partners like NVIDIA, Mistral and others.

I know there have been a lot of questions on digital, but I had one conceptual one, if you don't mind, Olivier. As we think about the upstream cycle maturing and growth slowing, I know digital has its own secular drivers, SLB specific drivers. So, growth in digital should be different versus upstream spending. But conceptually, Olivier, how should we think about the variance, the sensitivity to digital growth opportunity relative to what the upstream market is doing? So, if growth in upstream spending slows from 10% to, let's say, low to mid-single digits, does it do too much to digital growth outlook? Or are they materially unrelated to each other?

I think as we are very early in the curve of adoption of digital, I believe, they are largely uncorrelated at this point. We see the TAM, total addressable market of digital in our industry, in upstream actually growing as the market may be moderating from upstream CapEx. We believe that the size of digital will actually, by contrast, grow. Our ability to not only participate fully but also gain share in this market and unlock white space in this market, such as with Lumi data and AI, and offer edge autonomous operation, I think will create a long growth opportunity that will be largely uncorrelated. Now, there are aspects of short term, I would say, discretionary decisions that can affect digital. But I think the long trend is positive, and the long trend will continue to be a secular investment opportunity for customers that are now realizing creates value today and hence is an opportunity to differentiate their performance for tomorrow.

Well, you know, it is true. We set the minimum a few years back of 50%. So, yes, we have clearly exceeded that, and I'm quite happy we were actually able to exceed that. It really depends on investment opportunities. I think 80% is already a very good number. It's hard to tell you if it can get to 100% in 2025. I mean, it's really. We are happy with where our balance sheet is. Deleveraging has been a focus for a few years. We have turned that focus from deleveraging to return. Depending on investment opportunities, returns to shareholders remain the priority at the moment. So, yes, you will see that percentage clearly above our initial short guidance of 50%. That's for sure.

I'm going to come back to digital. It's the theme of the day. So let me ask the question slightly differently for you, Olivier, as you think about it. High growth, you've got to get customers on board. You've got to have the opportunities available internally, right in terms of people and offerings. So, as we think not just the growth rate in ‘25 to $3 billion. But beyond that, what do you see as potential bottlenecks be they internal or external, that you've really got to deal with here, the front and center items about having the right people in the right place and making the inroads to your client base.

No, Roger, thanks for the question. I think there's nothing new. I think we have been working on going and understanding what can we do to unlock both from the go-to-market and from our own internal capability the digital growth. I think we have been more successful in the last few quarters. It comes down to engaging with customers, better understanding what I think offering they are looking for. The transition to multi-cloud, from a hybrid cloud environment, on-prem and cloud, has been an evolution that we have taken two to three years back, and I think it's paying off and is unlocking the growth. The other realization is that some customers don't necessarily focus on the application, but they focus on data and they are willing to sort out and unlock the data. Hence, the operation of Lumi as a platform to address customers that are more interested in unlocking data and directly accessing AI through a data platform as opposed to having to adopt the full suite. We have seen this. We have done investment into our innovation factory to help collaborate for customers to tailor some fit-for-basin application to their needs. We have already gone through this. Is it all cycles resolved? No. I think, as I said, it's one customer at a time, adoption on the cloud. However, something that helps us a lot is the digital operation led by our core division, production system, well construction, and reservoir performance are becoming agents of digital transformation for our customers, as they are pushing and getting successful into the adoption of digital services that are being delivered real-time at the edge, such as autonomous drilling operations or wellbore insights or surveillance and optimization of some of our production system equipment. This is one well at a time. This is one transaction at a time. So, the rate of adoption here, I think, and a push we have made to coalesce our offering in the office, in the planning, to offering into operation, under one umbrella of platform, I think is unlocking the pace of adoption. We see this happening today, and we believe this will continue. We are working with partners to provide more options to our customers so that they recognize the ecosystem they work with. These are the two or three dimensions that we have worked with in the last 18 months, two or three years, and that are starting to bear fruits and starting to transfer into growth, and we don't see it changing going forward.

Two for me. The first, just sort of thinking about the short term in the fourth quarter. Can you talk a little bit about the sort of the puts and takes as we look at the fourth quarter and maybe even versus sort of normal seasonality that we get every year? And I'm just also curious on the Gulf of Mexico, if there's been any big impact from the storm activity?

I'm not sure I understood your second question. You seem to be concerned about the latter part of your inquiry.

Whether there's been much impact from the Gulf of Mexico storms.

So, I will start with this to say that we have seen muted impact on the Gulf of Mexico storm on our operation, and the Gulf of Mexico has been a driver for growth in the third quarter sequentially. As it comes to the fourth quarter and your question, I think the puts and takes, I think, yes, there is an element of seasonality, both on the positive side, which is the digital and product from production system year-end sales that will normally and will create a boost to our revenue. There is a seasonality effect on some part of the Nova atmosphere that are starting to see either part of the sequence or budget exhaustion part in U.S. land we see an offset, and I think these two, as we commented, will be partially offset, and we see as a consequence muted growth going forward sequentially. But that's the puts and takes that we are seeing going forward. Thank you, Leah. Ladies and gentlemen, as we conclude today's call, I would like to leave you with the following takeaways: First, SLB remains well positioned to navigate commodity price fluctuations, benefiting from our unique operating footprint. Moving forward, we will continue to harness our technology deployment and integration capabilities to capture high margin opportunities in the international, deepwater, and gas markets. Second, our digital business remains a key differentiator in the industry. This will continue to drive higher margin growth while opening the door to new markets. Third, with our solid financial performance and focus on operating efficiency, we look forward to delivering further margin expansion, higher cash generation, and increased returns to shareholders. Thank you for joining us this morning. With that, I will conclude our call.