SLB - NYSE

Good morning. My name is Megan, and I will be your conference operator today. I would like to welcome everyone to the Second Quarter Schlumberger Limited Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a Q&A session. As a reminder, this call is being recorded. I will now turn the call over to James McDonald, Senior Vice President of Investor Relations Industry Affairs. Please go ahead.

Good morning, and welcome to the Schlumberger Limited second quarter 2025 earnings conference call. Today's call is being hosted from Paris, 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. 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 second quarter earnings press release, which is on our website. With that, I will turn the call over to Olivier.

Thank you, James. Ladies and gentlemen, thank you for joining us on the call. Before we begin, I would like to officially welcome the ChampionX team to Schlumberger Limited. Earlier this week, we shared the news that our transaction is now complete. This is the start of an exciting new chapter for our company. I could not be prouder to lead the company at this juncture, building on an unmatched talent pool and portfolio of technologies to serve our customers and create value for our shareholders. Now, as we move into this call, I would like to start by walking you through our second quarter performance. Then I will share how we see the macro environment evolving, comment on our new chapter with ChampionX, and what that means for our business in the second half of the year. After that, Stephane will provide more details on our financial performance, and then we will open the line for your questions. This was a solid quarter for Schlumberger Limited as we delivered steady revenue and slight EBITDA margin expansion despite the considerable macro headwinds and market volatility over the past few months. These results are a clear reflection of our broad operating footprint, our technology leadership, and our strong execution. International markets revenue grew by 2%, benefiting from pockets of growth in the Middle East, Asia, and North Africa, fully offsetting sequential headwinds in Saudi Arabia and certain offshore markets. Specific to the Middle East and Asia, long-term fundamentals for oil remain strong, and both conventional and unconventional gas are providing an additional tailwind for activity across the region. During the quarter, we experienced strong growth in Iraq, the UAE, Kuwait, East Asia, China, and Australia. Meanwhile, in North America, our revenue declined sequentially. We continue to outpace the market, led by increased sales across most of our business lines in production systems and higher digital sales in US land. The revenue decline stemmed mostly from the seasonal spring breakup in Canada and non-repeat of exploration data sales in US offshore. In the offshore market, certain projects are pushed wide, most notably in sub-Saharan Africa. However, we continue to maintain a steady backlog in OneSubsea, with a significant number of offshore projects preparing for FID. Altogether, these dynamics reinforce our confidence in the long-term growth of this market. Next, let me discuss the performance of our divisions. In the core, Production Systems led the way again this quarter, benefiting from increased sales of artificial lift and midstream production systems. Overall, our service quality and reliability continue to differentiate our offering in this space, and we have been awarded several new projects during this quarter. In wireline construction, revenue was flattish sequentially, with growth in Iraq, the UAE, North Africa, and Nigeria, offset by lower activity in Namibia and North America. In reservoir performance, revenue declined slightly due to lower evaluation and stimulation activity, partially offset by solid international work. Turning to digital and integration, our digital revenue remained steady with double-digit growth across a combination of our platforms, applications, and digital operations, offset by lower exploration data this quarter. We now have more than 7,800 users across the Delphi platform, representing double-digit growth year on year. This is a continued reflection of our customers' focus on unlocking through digital higher levels of performance and efficiency in their assets. Finally, we continued to exhibit growth in CCS, where we successfully executed several large-scale projects in the carbon market this quarter. We are now participating in the entire value chain from point of capture with the CB Capturing to permanent storage with SAP SaaS three. This combined offering is being successfully utilized at the Longship CCS project in Norway, and we believe this will continue to present new opportunities for our carbon solution business. All in all, this quarter was challenging with lots of moving parts, yet we produced solid results. Considering the uncertainty and market volatility, the entire Schlumberger Limited team has delivered remarkably well. Having met with many customers during the quarter, I am assured of our differentiated performance and the trust that our customers continue to place in us. Next, I will discuss what we are seeing in the macro environment and how we expect this to evolve over the second half of the year. During the first half of the year, the oil and gas industry demonstrated its strength and resilience, proving that it can operate through uncertainty without a significant drop in upstream spending, highlighting the different attributes of this sector. As we look to the second half of the year, the macro environment continues to be uncertain, particularly with the announcement of the OPEC+ supply releases into a well-supplied market. For the moment, commodities are being absorbed by peak summer demand, channel restocking, and the replenishment of global crude inventories that are sitting below five years historical average. While sustained release could exert pressure on commodity prices in the near term, the removal of the overhang of OPEC+ voluntary cuts allows for market stabilization over time. While it is difficult to predict the outcome from the combination of further supply release, persistent geopolitical risk, and lingering tight negotiations, it is fair to assume sustained resilience in the market outlook absent of a dramatic shift in commodity prices. Regionally, the Middle East and Asia will continue to display the most resilience in the short term, driven by lower occupancy and a sustained focus on energy security. Meanwhile, advantaged offshore projects will lend support to the steady market across Europe, Africa, and the Americas. In contrast, net activity across North America and Latin America has the greatest downside risk due to short-cycle spending. Globally, we expect operators to remain focused on critical in-flight development projects and acceleration of efficiency gains, a heavier focus on production recovery, and continued investments in digital and AI. Next, let me describe the growing market and opportunities that we see with ChampionX. Today, our customers are on a quest to unlock and optimize the full production potential of their assets while improving efficiency in the reservoir recovery phase of their operations. This is creating a less cyclical and growing market opportunity that is more OPEX-driven and is less sensitive to short-term commodity cycles. The addition of ChampionX enhances our portfolio by providing the capability we need to lead this effort. ChampionX's strengths in production chemicals and artificial lift enhance our portfolio in two essential and fast-growing segments that are critical to long-term asset performance. In production chemicals, ChampionX adds scale, vertical integration, and a strong global manufacturing footprint to deliver solutions to address the rising demand from aging infrastructure and complex reservoirs. Now combined, our service portfolio has the breadth to optimize production across the full lifecycle of the well. Additionally, ChampionX brings a unique digital production technology portfolio that will expand into new markets and new applications. Integrating these capabilities into Schlumberger Limited's existing portfolio allows for greater innovation and customer value creation. As we take a further step in delivering a fully integrated sales offering anywhere in the world, from well to surface facility, from completion to decommissioning, geographically, this acquisition also expands our global reach. ChampionX's deep presence in North America pairs well with Schlumberger Limited's international leadership, enabling us to bring their technologies to new markets while also deepening our capabilities in the US. Together, this is a highly complementary fit, one that strengthens our portfolio, accelerates our growth in regional markets, and reinforces our ability to deliver value at every stage of the production lifecycle. And just as important, we are combining two organizations that share a strong culture of innovation, operational excellence, and customer focus. Overall, this will enable us to integrate the full production landscape with the best people, the deepest domain expertise, and the most innovative technology solutions, guided by our shared passion for innovation and a commitment to delivering for customers in every basin around the world. I am truly excited to welcome the ChampionX team to Schlumberger Limited and look forward to what we will achieve together. Now before I hand over to Stephane, let me quickly share our guidance for the second half of the year. Starting August 2025, we will begin consolidating ChampionX into our results. Therefore, we expect second-half revenue to be between $18.2 billion and $18.8 billion. This second-half increase will be a result of the five months contribution of ChampionX combined with steady revenue in our legacy Schlumberger Limited business compared to the first half, driven by growth in production systems and digital, fully offsetting the anticipated activity decline in the US and certain deployment markets. Moreover, revenue will be backloaded in the fourth quarter, reflecting a full quarter of ChampionX as well as the seasonal uplift on year-end digital and product sales. We also expect second-half EBITDA margins to be flat compared to the second quarter, inclusive of the ChampionX contribution and inclusive of about 20 to 40 basis points for a tariff impact. I will now turn the call over to Stephane to discuss our financial results and the plan for ChampionX financial integration in more detail.

Thank you, Olivier, and good morning, ladies and gentlemen. Second quarter earnings per share, excluding charges and credits, was $0.74. This represents an increase of $0.02 sequentially and a decrease of $0.11 when compared to the second quarter of last year. While the net amount of charges and credits recorded during the quarter had no impact on our EPS, we did incur $0.09 of charges relating to headcount reductions and the impairment of an equity method investment, as well as $0.02 of merger and integration charges related to the ChampionX and OneSubsea transactions. These charges were offset by a $0.11 gain relating to the sale of our interest in the Palliser APS project in Canada. Overall, our second quarter revenue of $8.5 billion increased 1% sequentially, driven by 2% growth in the international markets. Our pretax segment operating margins increased 20 basis points sequentially to 18.5%, as margins increased in three of our four divisions. Companywide adjusted EBITDA margin for the second quarter was 24%, representing a sequential increase of 21 basis points. Let me now provide you with more details for each division. Second quarter digital and integration revenue of $1 billion decreased 1% sequentially. Digital revenue was flat as double-digit sequential growth from the combined effects of platforms, applications, and digital operations was offset by lower exploration data sales, following a strong first quarter. Lower APS revenue in Canada drove the overall 1% revenue decrease for the digital and integration margins, which expanded 240 basis points to 32.8%, driven by greater digital adoption efficiency gains. We expect digital revenue growth and margin expansion to continue in the second half of the year, with a significant uptick in the fourth quarter benefiting from year-end sales. In order to provide you with increased visibility into this business as it continues to grow, I am pleased to announce that we will start reporting the results of our digital business as a separate segment beginning in the third quarter. Turning to our reservoir performance division, revenue of $1.7 billion declined 1% sequentially due to a slowdown in evaluation and stimulation activity across international markets, partially offset by strong intervention activity. Margins improved 203 basis points to 18.6% as a result of the higher intervention activity and the absence of startup costs that impacted the first quarter. Well construction revenue of $3 billion was essentially flat sequentially, while margins of 18.6% decreased 119 basis points, primarily due to an unfavorable technology and geography mix internationally. Finally, production systems revenue of $3 billion increased 3% sequentially, driven by strong sales in artificial lift, midstream production systems, and valves, as well as increased data center infrastructure solutions revenue. Margins increased 28 basis points to 16.4%, primarily due to continued growth and a favorable activity mix. Now turning to our liquidity, we generated $1.1 billion of cash flow from operations and free cash flow of $622 million during the quarter. This represents a $519 million increase in free cash flow compared to last quarter, which is largely due to seasonal improvements in working capital. Consistent with our historical trends, we expect our free cash flow in the second half of this year to be materially higher than in the first half, on improved earnings, higher customer collections, and lower inventories. Capital investments, inclusive of CapEx and investments in APS projects and exploration data, were $520 million in the second quarter. For the full year, we now expect capital investments to be approximately $2.4 billion, reflecting the impact of the ChampionX acquisition. Regarding our M&A activity, as I mentioned earlier, we completed the sale of our Palliser asset in Canada near the end of the second quarter. As a result, we received $316 million of net cash proceeds in the second quarter and an additional $22 million in the third quarter. For reference, we generated $215 million of revenue in the first half of the year from the Palliser assets, with EBITDA margins in the low 50s and pretax margins in the low 50s. Let me now turn to the ChampionX acquisition and what it means for Schlumberger Limited's future financial performance. First, from a financial reporting perspective, we will begin consolidating ChampionX effective August 1, 2025. This means we will consolidate two months of ChampionX results in the third quarter of 2025. The ChampionX activities will be reported under our Production Systems division, which is where Schlumberger Limited's legacy production chemicals and artificial lift businesses currently sit. The only exception to this relates to ChampionX's digital activities, which will be reported under our new digital division. It is worth mentioning that we will be aligning ChampionX with Schlumberger Limited's definition of digital. As a result, the digital revenue that we will report coming from the ChampionX business will be lower than what was previously disclosed by ChampionX. We will provide you with pro forma historical financial information to assist with modeling the combined businesses, together with the additional granularity into our digital business, in our third quarter earnings release. As it relates to synergies, we spent the past twelve months refining our preliminary estimates and developing actionable plans. We are now even more comfortable with our initial assessment that we will be able to generate $400 million of annual pretax synergies within the first three years after closing. The largest portion will come from cost synergies, which represent approximately 75% of the $400 million. Roughly half of these cost synergies will come from supply chain savings, which will be generated not only from ChampionX operations but also from Schlumberger Limited's existing cost base, including the chemical spend in our legacy businesses. The other half of the cost synergies will come from operating costs and G&A savings. With regard to the expected annual revenue synergies of approximately $100 million, when translated into incremental pretax income, we have only included opportunities with the highest probability of realization. These have been identified at a country and customer level. Let me now conclude with the direct impact of the acquisition on our financial metrics. As it relates to margins, we have demonstrated this quarter the resiliency of Schlumberger Limited's margin despite a challenging macro environment. This resilience will be reinforced by the addition of ChampionX, which has delivered continuous margin expansion over the last few quarters. For that matter, when excluding the Drilling Technology business that was disposed of concurrently with the closing of the Schlumberger Limited transaction, ChampionX finished the second quarter of 2025 with revenue of approximately $850 million and adjusted EBITDA of approximately $190 million, delivering visible margin expansion both sequentially and year over year. We expect both legacy Schlumberger Limited businesses and ChampionX to continue delivering strong margin performance in the second half of this year. This will, however, be partially offset by the impact of tariffs. Assuming no changes to the tariffs that are currently in place, we estimate that this will cost us between 20 and 40 basis points of margin in the second half. Altogether, this will result in our companywide adjusted EBITDA margin in the second half of the year being essentially flat when compared to the second quarter of the year. Said another way, our adjusted EBITDA margins, including the contribution of ChampionX, would have expanded by about 20 to 40 basis points in the second half if not for the impact of the tariffs. Looking forward, our margins will be further enhanced by the $400 million in synergies that I previously discussed. With the detailed plans our integration teams have developed, we believe that we will be able to realize at least half of the synergies within the first eighteen months of the transaction. As a result, we expect the transaction will be accretive to both margins and earnings per share on a full-year basis in 2026. This reflects certain assumptions regarding the purchase accounting, which will be finalized in the coming months. Based on these assumptions, we have estimated the incremental annual recurring pretax intangible asset amortization expense to be approximately $80 million over and above ChampionX's historical annual intangible asset amortization expense of approximately $50 million. This incremental amortization expense equates to approximately $0.04 of EPS on an after-tax basis. The calculation also reflects the fact that we issued 141 million shares of Schlumberger Limited stock in connection with this transaction. It is worth mentioning that since the announcement of the ChampionX transaction in April 2024, we have been accelerating the repurchasing of our shares. To that end, since the announcement, we have reduced our total shares outstanding by 78 million. This represents 55% of the shares we just issued in this transaction. Finally, I wanted to briefly come back to the second-half guidance that Olivier shared earlier, where we expect second-half revenue to be between $18.2 to $18.8 billion. If we have to compare this H2 outlook to H1, by including ChampionX and excluding Palliser in H1, and considering ChampionX on a full six-month basis in H2, this would result in second-half revenue growth from flat to low single-digit when compared to the first half, driven by both our legacy portfolio and ChampionX. I will now turn the call back to Olivier.

Thank you, Stephane. I believe we are ready for your questions.

We will now begin the Q&A session. Your first question comes from the line of David Anderson with Barclays. Your line is open.

Thanks and good morning. Thanks for taking care of that. So kind of essentially the second half is flat with the first half. I was just wondering, Olivier, if you could provide a little bit more detail behind this. You had mentioned customers selectively adjusting activity. I was curious if this is primarily just related to the shorter cycle programs in the US land and Saudi slowing down. But more broadly, I am curious if you have seen a noticeable change in customer behavior since OPEC started bringing barrels back. It feels like we are in a bit of a wait-and-see mode with respect to oil pricing and customer spending. Just hoping you could provide some insight into how you see this energy map developing over the next few quarters.

Yeah. Thank you, David. So first, to come back to the guidance, I think the guidance reflects from the low to the high guidance flat to low single-digit, and we have put on short to go even beyond this. So we have definitely growth. We project growth in the second half compared to the first half when accounting for the moving parts in and out of our portfolio. Clearly. Okay. And driven, as we said, driven by the production system ChampionX combination getting an uplift in the second half of the year, partly in the third and fourth quarter. And also by digital enhancements. This combination more than offsetting, if you like, some of the headwinds that are in selective markets still affecting the drilling activity and to a lesser extent the reservoir performance portfolio. So all of this to come back to your question about selective customer adjustment, I believe that the major adjustment in international markets is largely behind us. People have been prepared and adjusting their spending rates and their activity outlook to account for uncertainty and somehow the declining commodity prices that they have seen during H1. However, as we have seen more recently, the short-cycle markets have been more reactive to the persistent slightly lower commodity prices on expedited. Yet, all in, we are seeing this as a resilient market. Going forward, assuming that the price will stay range-bound to what we have seen between $60 and $65 or $60 and $70. And I think we believe that there are a few things at play that could change this. But most of the cuts and most of the adjustments in selective markets and selective countries have been done with the exception, as I said, of the short cycle partly in North America and some markets internationally that are short cycle. So hence, that is the reason why we guided the way we guided the second half.

And then in your release and also in your commentary, you had noted a few things going on in deepwater. You had called out Namibia for some slowing. I was just wondering, just broadly speaking, in deepwater, are you concerned about just kind of near-term activity just slowing here? Is Namibia sort of one-off, or are you worried that you are starting to see some of these projects pushing to the right? Because if you look at kind of rigs and rig schedules, subsea deliveries, pipe orders, it looks like deepwater is sort of poised for a pretty good uptick in kind of by mid-2026. Just wondering if that is if you agree with that or things are sort of sliding to the right a little bit.

Yeah. First, to comment on what we have seen for the last twelve to eighteen months, we have seen white space developing. And indeed, the least cyclical projects shift to the right, but we still have seen the rich pipeline of advantaged projects that are key to the portfolio of international operators, part with IOCs, to be going forward with anticipated FID, and you see it in Sweden. Then the Namibia effect is an effect of a long period of appraisal exploration success. It is now going into a deep, I would say, learning and decision for the way forward. I will not try to overreact to the Namibia temporary effect, but I am more excited about what I have seen in the Americas at large for oil. Be it on some of the Africa assets that are going in phase three or that are reaching FID. Obviously, in Central America, the Guyana assets, the Brazil, very sustained activity, and Guyana sustained activity as well as from Mexico combined. I think it is a market that has only upside going forward. And by contrast, in the Eastern Hemisphere, driven by gas markets, from Indonesia, big discovery, to Mozambique, soon to be relaunched. And still is made as a very prolific and exciting basin. I think I see the condition that set for indeed rebound directionally in the years to come. And certainly, I think the hypothesis of 2026 is a valid hypothesis that I think we will have to look forward to seeing unfolding.

Thank you very much. Appreciate it.

Thank you. Your next question comes from the line of Scott Gruber with Citigroup. Your line is open.

Yes. Thank you. I am curious about how you view the growth outlook during our larger production business. How would you dimension both the underlying growth for the production market and then how you can enhance that growth with revenue synergies, especially as you apply your digital applications? When you put those two factors together, what is a medium-term reasonable growth outlook for the production business?

I think I will not try to comment on it because the definition of the production market is for me that I think would have to come back give you a little bit more detail on a combined three treatments that we drive synergy, that we drive this market to grow in our mind. First and foremost, I think the customers our customers have told us, our customers and operators are focused on trying to extract more value from production and recovery phase of the asset. To compact with a very ambitious completion of development phase of the asset. They are trying to get the most of existing aging assets. Make sure that they extend the plateau, they improve the performance, and they improve the recovery to extract more. Unleashing assets. So the unique combination that we have access to with the addition of the ChampionX gives us an unmatched portfolio. And I think I am not talking about only production systems. Actually. So production chemistry. I am talking about intervention. I am thinking about the surface equipment. I am talking about the ability that we have to integrate, innovate, and add digital. So what would drive growth in this is our ability to partner with our customers to provide integrated offering beyond the specifics of artificial lift production chemistry. And add digital capability to it. And offer end-to-end solutions that include well-service services, well intervention, and includes equipment at the surface that can help enhance the production capability. So we see this as a market that will have more resilience, less cyclicality because it is inclusive of OPEX expense, and the long-term resilience and long-term growth that will certainly outpace the global CapEx market for the big car. That is what we see, and we see this as a white space, as an innovation space, as a space where customers are very pleased to see any feedback we have got engagement we had. They look forward to seeing what you can put together by innovation, by integration, and with digital in this market. So we are quite excited.

Great color. And then your portfolio changes, they are pushing the company to become less capital intensive, more free cash generative. How do you think about kind of where you can take CapEx to sales free cash conversion in 2026 and beyond, especially as you realize the synergies? For instance, can you push that free cash conversion rate toward something like a 60% level on a sustained basis? How do we think about those capital intensity and free cash metrics over time now?

So Scott first maybe on 2025 as a reference, we kind of anticipated the soft activity and brought down the total capital investment 10% lower compared to last year. So we are basically at maintenance CapEx level this year. And at the very low end of our 5% to 7% CapEx as a percentage of revenue range. So going forward, if we see growth, we will certainly add the growth CapEx to that. We have that agility. And ChampionX clearly brings down that percentage a bit more, but we are already very low. We may or may not change the range, but the ChampionX is clearly helping with the low capital intensity. Regarding EBITDA to free cash flow conversion, we do not really track it that way. We prefer looking at free cash flow margin, but we are looking on the full cycle basis to be above 10% of revenue in terms of free cash flow margin, and we are exceeding this now as we speak and intend to do the same going into the following years. Partially because of the positive contribution from ChampionX.

Alright. I appreciate it. Thank you.

Thank you. Your next question comes from the line of Arun Jayaram with JPMorgan. Your line is open.

Good morning, gentlemen. First question, is global upstream spending is on track to decline in 2025 or 2024. I was wondering if you could share with us your views on how you see this playing out for Schlumberger Limited across different regions, internationally. So if you can comment on Mexico and Saudi and North America and perhaps the timing of a potential inflection point in spending trends.

Okay. Quite a lot packed into the question here. The first, indeed, I would say it is clear now that the market is in the total market is in slight decline in 2025 compared to 2024. We see both more in North America than we see it internationally. There is more resilience in Middle East and Asia markets due to both the commitment to oil capacity expansion, development of unconventional and commercial gas across the region, and the focus on energy security in Asia. So that provides a bit of a buffer and I think that is very visible. As we have commented before internationally, the other international market, I think, is impacted by two aspects this year, the white space in the broader market, the Mexico that has been reducing significant activity based on restructuring and reaching a new bottom in terms of activity. And some of the, I would say, short-cycle activity in the rest of Latin America. North America, I think there is no secret that the short cycle has been declining in the last couple of months, more deeply than everyone will anticipate. It will represent certainly the highest, I would say, drag on to the total CapEx for the year. Now before we talk about inflection, I would like to talk about resilience. That this adjustment has been done in the first half, I believe as we have demonstrated into our second half outlook when collecting for the in and out, we are anticipating growth. And this is because we believe that there is resilience in some part of the international market. There is still appetite for executing the most advantaged project with some unconventional development or some large gas or oil development that are under play. And we believe that our market position that we have, which is hedged across different business lines across different geographies, gives us the resilience that I think you see in our numbers in the second half. So I think now inflection if we look at I am trying to look ahead and directionally. I think looking beyond 2025, we believe that we will continue to see that a bit of a cycle rebound. Okay? That will be driven by several by first the phenomena of energy market and the estimation of could use of the critical role of oil and gas supply. So specifically, if I like to look directionally ahead and beyond 2025, we are anticipating that a combination of the lipid market rebalancing, the continued investment in our capacity expansion, in Middle East, accelerating global gas supply, both conventional, unconventional, and international or in North America. And the robust pipeline that I commented before in offshore deepwater projects. And finally, the increase of production because we focus for the customer. We combine with digital and AI, trend to lend support to gold investments going forward. We see that this is directionally shaping up, I would not comment on exact timing, but I think I will first remind everybody that there is resilience in this market despite mild uncertainty. And the future is still rich with a lot of projects internationally. Rich with gas driving back activity in many parts of the world, and rich with a long-term deepwater project that will add real intensity going forward.

Great. Thanks. And my follow-up question, appreciate the comments around your expectations around the second half outlook plus some of the outlook comments on ChampionX, but Olivier, Stephane, could you help us maybe break down your expectations for how you see things playing out in Q3 versus Q4?

We could. Let us give you a little bit more colors onto this guide. That we could give and share in Q3 versus Q4. So first, the high level, we have gathered that the second half will be back-end loaded. And now more specifically, to the first quarter. We expect first, this third quarter will impact at first, but addition of two months of ChampionX. That is a positive addition. By negative addition of the full quarter absence of Palliser following its divestiture. By also the impact negative, I would say, of activity decline in the US and certain offshore markets. And finally, and more recently, by an incident that you have had on Ecuador pipeline disruption. This would translate all in into a slightly higher revenue sequentially from Q2 to Q3. Now trying to contrast this with Q4, with respect to the fourth quarter, we see revenue to be higher by high single digits versus the third quarter as an uptick. Reflecting first a full quarter of ChampionX, and secondly, the seasonal uplift we will see from year-end digital and product sales. I hope I gave you a bit more color on the top line. And the Q3. And the uptick in Q4 that will help circle back the relative revenue in Q3 and Q4.

Let me just start with the Thank you. Okay. Yeah. I just wanted to add Sorry for that. What Olivier described, that Q3 and Q4 directional split is what leads us to say that when you exclude the Palliser operations from H1, reinstate ChampionX in H1 and have ChampionX for six months in the second half. This is where you see growth and there is a range where this is the range of flat to low single digit between H1 and H2. You compare, like, for, like I hope it is a lot of moving pieces, but I hope it is good.

Great. Thank you.

Thank you. Our next question comes from the line of Neil Mehta with Goldman Sachs. Your line is open.

Thank you, Olivier. I found a couple of questions. First on ChampionX. Appreciate all the comments around synergies, but maybe you can unpack as you spend more time on ChampionX assets as part of this integration process and talking to customers about the application of some of their products. Any incremental thoughts, particularly on leveraging the platform leveraging the products into your international platform.

No. Absolutely. I think we are very blessed to have two very highly complementary portfolios technically and geographically. And I think the strength of ChampionX in the US, the ability to innovate locally with their customers, I think it is something that we want to expand apply to some of the other business we are running into North America to also have better impact. More focus impact, and more fit technology to our customer base. The US and hence benefit as a level of side synergy if you like. From our quoting model and engagement model of customers in North America. But secondly and critically, I think using the bulk portfolio, both of artificial lift and, obviously, of chemical production of and the ability to generate of ChampionX into the international market where we have established a go-to-market access and established customer relationships. So, yes, we would expect this first from a complementary portfolio and from a market access. But secondly, as I mentioned before, I think the customer feedback we got beyond access to certain technologies that exist today, they believe that by combining our domain subsurface recovery capability including performance in dimension, our digital and our integration track record the belief that, I think, we can help them unlock value of some, asset internationally. And they are very much interested to see what is next in our value proposition beyond just an expansion of our product portfolio into international markets. So integration, digital, domain, subsurface integration, I think, will be what will drive the synergy going forward beyond the geographical expansion as I mentioned.

Alright. Thank you so much. And you know, we appreciate the color around margins being relatively flattish in the back half. Can you provide any segment level perspective on the margins? Where do you see things trending better? Where do you think is trending softer? Just so we can get a little more granularity for the model.

So in the second half, you will directionally, you will clearly see digital and integration, but you will see it is actually digital. In the second half, the margins will continue to increase. That is really on the back of the year-end sales. Including exploration data sales. Production systems, we are quite happy with the margin journey so far. So we will probably at least maintain that level. With ChampionX, the production systems EBITDA margins will actually increase. ChampionX will be accretive to production systems. And the other two core divisions, reservoir performance, and well construction, we are expecting to be relatively flat with the second quarter, in line with the overall guidance for the company.

Perfect. Thank you.

Thank you. Your next question comes from the line of Roger Read with Wells Fargo. Your line is open.

Yeah. Thank you. Good morning. And thanks again for your help on all the outlook. I guess, two questions I would like to come at. In terms of the pace of synergies with ChampionX, you have had a lot more time, obviously, from when the deal was announced to closing here. What might look different or more accelerated on synergies and what might look better in terms of the integration process as, you know, we look at what you may do with the top line of this business over the next, say, eighteen months.

Also, as we discussed on the prepared remarks, first, the majority of synergies is cost, right? And the work is both supply chain saving. So this is compared to our initial estimates, it has there are more or less in terms of overall envelope the same as what we had initially. And the base can be a bit faster actually because now we have done the homework. It is literally by product code and supplier and geography. So we can execute both supply chain synergies faster. So this is why initially, if you recall, it is one of the reasons why we had said at the time that the transaction will be accretive in the second year. Following the transaction. And now we think within the first eighteen months, so on a full-year basis for 2026, the transaction will be accretive. And this requires about half of the total $400 million synergies to be achieved in 2026, which we think is really based on our plans. On the integration itself, I will leave it to Olivier.

No. Integration, I think the team has worked hard for the last twelve months. To do integration planning. I think we were very pleased to launch it yesterday live with all the ChampionX employees. I think the reception is very strong. I think we have a very strong workbook and playbook for integration that we touch all aspects of, organization process and onboarding. But obviously much more importantly, I think, the way we face together the customers and trying to create this omni scenario this, white space, with the combined portfolio. So there is really an effort that has been made to prepare this from day one. I think we will be in the next two weeks and months owning out this indication playbook and be in a position to start to capture revenue scenario clearly very soon. And add to these established cost synergies that will be executed from immediately. So I would say very pleased with progress, very pleased with the reception, of the ChampionX team. And also very pleased, extremely pleased with the feedback. That we are receiving when engaging customers. That want to preserve the ChampionX strengths, but at the same time, I am excited to see the innovation, to see the expansion, as I said, the integration, digital, capability that we can add and subsurface the main that should unlock some more value with both North America and internationally. So good progress, strong team, free aligned, and quite an exciting start.

Very helpful. Thanks. Follow-up question is Mexico has been a big topic over the last several quarters. The most recent comments from the president indicated they would like to grow gas supply out to 2030. Does not look like what they have been doing recently would lead to that. So any insights in terms of what you are seeing out of the political leadership of Mexico, Pemex itself, and then what has been the, you know, obviously, the issue in terms of getting accounts receivable and all that in?

No. I am not yet. I will not want to comment on behalf of the decision that the government and Pemex renewed. I think they need to go through the motion of restructuring and or addressing the critical issue they were facing and finding a bottom and then rebounding. We believe we are there. We are just waiting now to see what are the next steps that could help unlock the value of, obviously, the asset in Mexico and the dynamic of Pemex to rebound from this. We stand ready. We have been in a country for decades, and we are ready to respond be it on the gas developments or overdevelopment. We are not only working for Pemex in Mexico. We are working with independents, local independents that have been fairly active and we have a very exciting project for outside, deport on Mexico. Starting early next year that we are all prepared for. Both subsea and well construction that I think we are excited about. That is adding dimension to the Mexico rebound. So difficult to predict what is next. We continue to work very closely with partnership with Pemex and trying to get some more intelligence from the government, but I do not want to be commenting more on this. And, again, we remain focused on doing the best and adapting to the market activity there.

Great. Thank you.

Thank you. Thank you.

Your last question comes from the line of Josh Silverstein with UBS. Your line is open.

Yeah. Hi. Hi, everyone. Appreciate you stripping out the digital business as a standalone unit to highlight the value here. You had previously talked about top-line standalone digital growth kind of in the mid to high teens this year. I want to see if you are still on track for that level then if you could provide any details around the key growth contributions from Delphi Cloud and the AI platforms within that outlook.

Yeah. We do not split typically. I think we have been commenting just this quarter that I think the combination of cloud legacy application that is desktop and this operation is going up double digit. We have a significant uptick in the second half of the year. We said mid to high teens in the past, I think we are continuing to your mission to be as committed to grow and certainly to outpace significantly. That is what matters. Is to outpace significantly the rest of the market and be it in meetings or by contrast with the much lower and declining CapEx. So they cop the activity. They cop the investment profiles what we are accessing. And, yeah, I think it is a long as I say, it is a long digital transformation. It is a long journey we have started with the industry. And I think our leadership, beating cloud, beating digital operation, between legacy desktop or in expansion data, as a combination. We continue to do everything to make sure that it is highly differentiated in terms of growth rates compared to the and we expect this to be the case for the foreseeable future. And as you have seen, the market the margin has improved. We expect the margin to further improve in the second half, back end of the year, after the fourth quarter. Hence becoming accretive and remaining accretive highly in terms of margins and continuing to be accretive in terms of applying cost.

So I think we come out there under some users characteristic that are linked to the cloud adoption. We have seen this quarter to just give you a data point. Forty million CPU hours being consumed fifty percent more than due to last year at the same time. We have seen also almost one thousand of wells being drilled using drill plan, one of our planning applications that we use and with our customers. So I think we continue to see momentum and we are confident that I think it will be for sure. Much growth than the rest and one of the highest growth business lines we have in Schlumberger Limited. And you will, from Q3, get more details and we will disclose this so that the value that we can expect from this will be recognized by investors.

Yeah. Thanks for that. And maybe just a follow-up, and I know there is more detail to come on the third quarter, but are there any additional types of disclosures you might be able to provide here on these kind of key AI and fast-driven products towards companies that are more specifically focused on this as well? Thanks.

No. Obviously, we have, as you know, decided to establish a new platform, let me call Lumi, for data and AI adoption across our customers. And I think we are very pleased with the early impact this had. A lot of POV as we call it. A lot of early test and adoption across really all the segments of our customer base. Attracted by the ability to connect and to integrate data and to have a toolbox of AI capability that we offer from our partners. So that AI workflows can be enabled through our platform by customers and letting the customer play with their data and using our toolbox to then do use Gen AI or to use AI capability on top. That is what is exciting. That is what customers are coming to our platform for, and that is what the early success of Lumi is giving us. So, yes, I think continued momentum there and this is only the early steps of that adoption.

Thank you. I will now turn the call over to Schlumberger Limited for closing remarks.

Thank you, Megan. Ladies and gentlemen, as we conclude today's call, I would like to leave you with the following takeaways. First, Schlumberger Limited's diverse portfolio and broad operating footprint enable us to overcome regional winds and evolving macro dynamics to deliver solid results as we demonstrated in this quarter. Second, increasing our exposure to the growing production recovery market with the addition of ChampionX. Our combined portfolio technology capability and digital leadership will position Schlumberger Limited to unlock value for customers while delivering best-in-class workflow integration across production, chemicals, and artificial lift. And finally, global oil and gas markets have thus proven resilient and we are optimistic about the opportunities ahead and our ability to deliver steady growth in the second half of the year. With this, I conclude today's call. Thank you all for joining.