SLB N.V. (SLB) Earnings

Management highlights

### Macro Market and Upcycle Dynamics - The market is exhibiting characteristics of an upcycle, driven by structural upstream investment trends amplified by the Middle East conflict: replenishment of depleted commercial and strategic inventories, supply diversification, domestic resource development for energy security, and rebuilding spare production capacity. - Third-party forecasts expect 2026 long-cycle project final investment decisions (FIDs) to increase approximately 30% year-over-year, driving upstream capex and exploration growth in the second half of 2026, with a more meaningful impact extending to Latin America, the Mediterranean, and Asia in 2027. ### Regional Activity Update - Broad-based international growth and a rebound in North America was recorded in Q2: higher offshore activity grew across Latin America (Brazil, Guyana, Mexico), Europe/Africa (Scandinavia, Nigeria), and Asia (China, Indonesia, India, Australia), while U.S. land rebounded driven by demand for production and recovery solutions. - In the Middle East, operations remain constrained by security challenges in Iraq, with activity gradually resuming in other countries. Full activity recovery will take time and varies by country, but customer engagement for recovery has increased in recent weeks, with gradual recovery underway in UAE, Qatar, and Saudi Arabia. ### Strategic Priorities - **Core Business**: Aligned with customer priorities of restoring production capacity, developing deepwater resources, and improving capital efficiency. Leverages enhanced production and recovery capabilities from the ChampionX acquisition. - **Digital & AI**: Positioned as a key growth platform and performance enabler, grounded in deep domain expertise and integrated into core upstream workflows from subsurface interpretation to autonomous operations. Digital's strong momentum is expected to continue. - **Data Center Solutions**: Strategy focused on diversifying the customer base, expanding internationally, and increasing the scale/scope of offerings. SLB has evolved from manufacturing to end-to-end design, engineering, and system integration for modular data center infrastructure, with plans to expand into adjacent decarbonized power and cooling solutions. Backlog has grown ahead of expectations, and management targets an annualized revenue run rate exceeding $2 billion by the end of 2027, with longer-term ambitions to become a critical industrial technology partner for the AI economy. ### Financial Operations - Generated $1.4 billion in operating cash flow and $716 million in free cash flow in Q2, a $739 million sequential increase driven by seasonal working capital improvements. Full-year 2026 capital investments are still expected to be approximately $2.5 billion, with a minimum of $2.4 billion in stock repurchases, and total shareholder returns of over $4 billion via dividends and buybacks.

Guidance

- **Q3 2026 Base Case Guidance**: Assumes gradual Middle East activity recovery in line with end-Q2 trends. Expects 3-4% sequential global revenue growth, and ~75 basis points of adjusted EBITDA margin expansion. Core division revenue is expected to grow sequentially in the low-to-mid single digits, while digital revenue is expected to grow in the low single digits. - **Q3 2026 Downside Scenario**: If significant conflict re-escalation disrupts remobilization and leaves Middle East revenue flat sequentially relative to Q2, Q3 revenue would be ~$150 million lower than the base case, with an adjusted EBITDA headwind of ~$75 million, concentrated in Well Construction and Reservoir Performance. - **Q4 2026 Preliminary Guidance**: Assumes Middle East revenue reaches $2.1-$2.2 billion, or ~95% of Q4 2025 Middle East revenue. Expects total Q4 revenue to surpass $10 billion, representing ~5% year-over-year growth, with an adjusted EBITDA margin of ~24% (in line with Q4 2025). - Full-year 2026 capital investment, share repurchase, and total shareholder return guidance maintained at prior levels: ~$2.5 billion in capital investments, minimum $2.4 billion in share repurchases, and over $4 billion in total shareholder returns. - Data center solutions guidance updated to expect an annualized revenue run rate exceeding $2 billion at the end of 2027, up from prior unstated lower targets.

Segment performance

SLB reported total Q2 2026 revenue of $9 billion, an increase of 3% sequentially, with Middle East revenue falling 13% sequentially to $1.66 billion (18.4% of total revenue). Overall adjusted EBITDA margin increased 83 basis points sequentially, and pre-tax segment operating margin increased 49 basis points sequentially. The segment performance breakdown is: - Digital: Q2 revenue of $697 million, up 9% sequentially (7.7% of total revenue). Pre-tax operating margin was 27.8% (up 683 basis points sequentially), and adjusted EBITDA margin hit 34.7% (up 860 basis points sequentially). Annual recurring revenue grew 15% year-over-year. - Reservoir Performance: Q2 revenue of $1.6 billion, down 2% sequentially (17.8% of total revenue). Pre-tax operating margin was 14.9%, down 121 basis points sequentially, due to Middle East operational disruptions. - Well Construction: Q2 revenue of $2.7 billion, down 2% sequentially (30% of total revenue). Pre-tax operating margin of 15.2% was flat sequentially, as Middle East profitability declines were offset by improved results in North America and Latin America. - Production Systems: Q2 revenue of $3.8 billion, up 7% sequentially (42.2% of total revenue). Pre-tax operating margin increased 138 basis points to 15.5%, with adjusted EBITDA margins returning to above 20%. Growth was driven by One Subsea, artificial lift, valves, surface production systems, and the accretive margin contribution from ChampionX. - Data Center Solutions: Revenue increased 33% sequentially and 80% year-over-year, with strong growth driven by new hyperscaler customers and expanded offerings.

Risks & headwinds

- Geopolitical volatility and conflict escalation in the Middle East could disrupt activity recovery, constrain operations in key markets such as Iraq, and delay full return to prior revenue levels, with negative impacts on near-term financial performance. - Pricing pressure remains a headwind in 2026, particularly for large competitive tenders, which could pressure margins in core segments. - Logistics disruptions and cost inflation from the Middle East conflict have created temporary cost headwinds, though management expects these impacts to moderate as supply chains are reconfigured. - Deepwater project FID timing is dependent on agreement between all stakeholders including host governments, which can lead to project delays and shifts in the timing of revenue recognition for SLB.

Analyst Q&A

• Q: Asked to clarify the Q3 to Q4 step-up in Middle East revenue, and whether a $10 billion Q4 2026 revenue run rate is a reasonable baseline for a ~$40 billion full-year 2027 top line. /

  A: Management declined to provide formal 2027 full-year guidance, but confirmed Q4 2026's $10 billion revenue reflects three factors: further gradual Middle East recovery to 95% of 2025 Q4 levels, typical year-end sales increases for digital and production systems, and growing data center revenue. Underlying market fundamentals support sequential growth in both North America and international markets, combining Middle East recovery, accelerating deepwater activity, and strength in production recovery, with secular tailwinds from digital and data center solutions. Q2 Middle East revenue was $1.66 billion, with a gradual sequential recovery expected in Q3 base case.

• Q: Asked about the durability of the current exploration activity pickup, whether it is just a short-term reaction to higher prices or a multi-year trend. /

  A: Management expects exploration growth to be a multi-year long-term trend driven by structural energy security priorities, the need for reserve replacement as shale growth slows, and demand for new deepwater resources. SLB is well-positioned to capture this growth via its differentiated Reservoir Performance wireline technology, digital exploration data offerings, and new well construction technology for higher exploration well success rates.

• Q: Asked why full Middle East production recovery is expected to take longer than the market consensus of a quick rebound within a couple months. /

  A: Recovery is staggered across countries, and full restoration cannot happen quickly due to ongoing security constraints particularly in Iraq, and damaged export and production capacity in Kuwait. Countries less impacted like Oman, UAE, and Saudi Arabia are already restoring activity, but severely impacted markets will take quarters to fully recover, with overall activity growing gradually as conditions stabilize.

• Q: Asked to explain SLB's data center product offering, value add to customers, and the business' economic profile. /

  A: SLB delivers high-quality, modular off-site fabricated data center infrastructure for server halls and cooling systems, shipped to customer sites globally. The value proposition is shorter lead times, reliable scalable delivery, and quality consistency compared to traditional on-site construction. From a financial perspective, the business is currently not accretive to SLB's overall margin, but it is capital-light, drives strong top-line and earnings growth, and generates strong free cash flow.

• Q: Asked about margin momentum for the core business heading into 2027 after the 24% expected Q4 2026 adjusted EBITDA margin. /

  A: One Subsea margins are gradually increasing quarter-over-quarter after transitory first-quarter startup costs, with further expansion expected in the second half of 2026. ChampionX continues to deliver sequential margin expansion driven by unfolding synergies, even with chemical inflation headwinds from the Middle East conflict. Well Construction maintained stable margins through the Middle East disruption, and digital typically delivers its highest margin of the year in Q4, supporting the 24% margin expectation for Q4 2026 and continued momentum into 2027.