SLB N.V. ($SLB)

Good morning. My name is Megan, and I will be your conference operator today, and I would like to welcome everyone to the First Quarter SLB Earnings Call. [Operator Instructions]. As a reminder, this call is being recorded. I will now turn the call over to James R. McDonald, Senior Vice President of Investor Relations and Industry Affairs. Please go ahead.

Thank you, Megan. Good morning, and welcome to the SLB First Quarter 2026 Earnings Conference Call. Today's call is being hosted from Houston, following our Board meeting held earlier this week in Midland, Texas. 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 first 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. Before we begin, I would like to acknowledge our people, customers and partners in the Middle East as they navigate this challenging and uncertain time. Our strong presence in the region dates back more than 85 years, and I'm proud of the resilience and unity demonstrated by our people as they work in lockstep for customers to safeguard our teams and assets while preparing for an eventual resumption of operations. I want to commend the entire SLB team for their continued care, commitment and support for one another and for our customers. Turning to today's call. I will start with our first quarter performance, followed by an update on the evolving situation in the Middle East and our outlook in the mid- to long term. I will then cover our strategic initiatives, including ChampionX, Digital and Data Centers and provide our thoughts for the second quarter. Stephane will then take you through the financials, and we'll open the line for your questions. Let's begin. It was a challenging start of the year, marked by severe disruption in the Middle East that impacted our first quarter revenue and earnings. At the onset of the conflict, customer decision to safeguard personnel and assets led to an initial wave of operational shutdowns. As the conflict persisted, further activity curtailments followed as a result of production shut-ins. The impact of these actions was most pronounced in Qatar due to force majeure and the suspension of offshore operations and in Iraq due to the security conditions. We also experienced a more gradual impact from offshore rig shutdowns in other countries in the region, driven by a combination of security concerns and export capacity disruptions. In addition to the situation in Middle East, unfavorable activity mix and higher costs further weighed on the quarter, most notably in OneSubsea. Looking across the divisions, Production Systems and Digital grew year-on-year, while Reservoir Performance and Well Construction declined mostly due to the impact of the conflict. Production Systems' year-on-year revenue increased 23% due to the acquisition of ChampionX, which continued to deliver accretive growth. Additionally, we're on track to achieve our synergies target. On a pro forma basis, ChampionX also grew year-on-year, demonstrating the increasing demand in the production market. Turning to Digital. Revenue increased 9% year-on-year, driven by strong uptake in Digital Operations. Of note, automated footage drilled increased by 145% year-on-year as customers continue to adopt Digital and AI-powered Solutions to boost operational performance and efficiency. Also, Data Center Solutions remains a bright spot with 45% growth year-on-year. The momentum in this area continues, as you saw with our recent announcement to serve as a modular design partner for NVIDIA DSX AI factories. With our growing backlog, we remain on track to exit the year at $1 billion run rate and expect the growth rate to accelerate in 2027. Overall, despite the challenges of the quarter, I'm pleased that the strategic decisions and portfolio actions that we are taking in Digital, Data Center Solutions and Production Recovery are delivering results. I would like to express a big thank you to our teams in the Middle East and across the world who continue to deliver each day for our customers in this very dynamic environment. Now let me turn to how we expect the market to evolve as the conflict in the Middle East is resolved. Firstly, we anticipate that oil prices will settle at levels above the pre-conflict baseline. This reflects the new balance of liquid supply and demand, which has been significantly altered by more than 500 million barrels of lost production impact thus far. In this environment, energy security will remain at the forefront. We expect many countries to accelerate efforts to diversify supply, strengthen domestic resource development and rebuild strategic and commercial inventories that have been drawn down during the conflict. In short, the fragility of the global energy complex we are witnessing today demonstrates the strategic importance and long-term value of oil and gas. Together, these dynamics are expected to support a constructive macro environment for upstream investment over the coming years. In the near term, activity would be led by efforts to restore production capacity across the Middle East for both oil and gas. While some countries executed orderly shut-ins and should be able to resume production within days or weeks, other areas, particularly where disruption were more abrupt may require more gradual ramp-up, including additional well intervention. As a result, while the near-term recovery will be gradual and differ across countries, we see an upside in the outlook, barring demand restriction from the prolonged conflict. We are committed and ready to support our customers across the region. Beyond the region, we expect a broad-based response across both short- and long-cycle investments. Short-cycle activity is likely to strengthen first, particularly in North America and parts of Latin America, where operators can respond quickly to higher prices. In addition, well intervention activities that can lead to additional production will get a natural boost across all basins. At the same time, we expect renewed momentum in long-cycle development, especially in offshore and deepwater markets as customers look to secure a durable, large-scale source of supply. This is also likely to improve certainty of offshore FID approvals while also supporting increased exploration activity. As you can read in third-party reports, the FID pipeline in 2026 is strengthening and directionally adding over $100 billion total investment approval visibly ahead of the last 2 years and with another step-up expected in 2027 with deepwater resource getting a large portion of this investment. Regionally, this presents opportunity in Africa, Asia and Latin America. Africa represent one of the most compelling long-term opportunities with a significant base of underdeveloped oil and gas resources. We expect portfolio allocation to shift more favorably towards this region over time. Asia will continue to prioritize access to gas, both onshore and offshore as it works to diversify supply through development of national resources. And across Latin America, from Guyana to Brazil to Suriname, we see continued strength in deepwater development, complemented by short-cycle growth in unconventional in Argentina. Separately, Venezuela continues to represent an exciting growth opportunity where we can expand on our existing operation in country. To conclude, in the context of energy security and the rebalancing of supply and demand, we see 3 primary drivers of increased investment over the coming years. First, the replenishment of depleted commercial inventories and strategic reserves; second, the diversification of supply, including greater redundancy in sourcing; and third, increased emphasis on developing local resource to enhance long-term resilience. Our core business will benefit from these dynamics, supporting a positive outlook for SLB into 2027 and 2028. Let me now describe the additional strategic growth levers for SLB: Production Recovery, Digital and Data Centers. Starting with Production Recovery. This is becoming increasingly critical as the industry faces structural challenges in replacing reserves and sustaining production from existing assets. In this context, technology that enhance recovery and extend the life of mature fields are no longer optional. They are essential. Against the macro we just discussed, this is a defining moment for Production Recovery. This technology has the potential to shape the next stage of recovery in unconventional assets and to create a step change in production enhancement in every basin and resource play from deepwater to conventional and from gas to oil. With ChampionX, we are uniquely positioned to lead in this space by combining production chemistry, artificial lift, digital capability and subsurface domain expertise, we're helping customers unlock additional barrels from existing reservoirs in a capital-efficient manner. This is particularly relevant as operators look to maximize recovery, improve returns and bring incremental supply to market in support of energy security. We hosted our first Production Recovery Summit in Houston a couple of weeks ago, and we are very pleased with the engagement from our customers from every region across the world. They increasingly recognize the potential of this domain and the opportunities present to unlock growth for the industry. Turning to Digital. This business continued to build strong momentum and is a key driver of both differentiation and long-term value creation for SLB. While still a relatively small portion of our revenue today, its impact extends well beyond its size. Our approach is grounded in domain expertise where AI, data and software are integrated into our platform and workflow to deliver measurable performance outcomes. This is not about stand-alone tools. It is about embedding intelligence across the full life cycle of reservoir development and production. Our teams continue to make exciting developments, particularly in agentic AI. And as the number of use cases increase, the value of this technology are proven in the field, we anticipate increased adoption. Over time, we expect digital to become an increasingly important lever for growth, both as stand-alone business and as an enabler across our broader portfolio. And we're excited to share more about this business during our Digital Investor Day later in June. Finally, Data Centers represent a new and rapidly expanding opportunity for SLB. Building on our core strengths in engineering, manufacturing and project execution, we're extending our scope of modular infrastructure solutions to support the accelerating demand for AI and digital capacity. In less than 2 years, we have established our right to play in this industry, proven by our manufacturing know-how and supply chain capabilities. We are building on this expertise to support design engineering and performance optimization of the Data Center build-out, and we are currently scaling the business through expanded capacity, deepening partnerships and selective international growth. While still at an early stage, this business is already demonstrating the characteristics we are looking for: capital-light growth, strong demand visibility and a clear path to becoming a meaningful contributor to earnings over time. Looking ahead, we see additional upside through opportunities such as thermal management, decarbonized power and serving as a system integrator. These are areas where our capability can further differentiate our offering and expand our addressable market. We also continue to assess potential opportunities to accelerate this trajectory through targeted M&A. Taken together, these 3 areas: Production Recovery, Digital and Data Center Solutions reflect how we are evolving our portfolio towards higher return, technology-driven and less cyclical growth. They are complementary, scalable and aligned with the long-term trends shaping both energy system and digital infrastructure. Let me now share our view on how the second quarter may unfold. First, it is uncertain how long geopolitical disruption will last and how the recovery in the Middle East will unfold. At the same time, we are facing higher procurement and logistics costs driven by the conflict. As a result, it is challenging to provide precise guidance for this quarter. However, there is a scenario where operational disruption in the region persists through the middle of the second quarter and then begin to gradually ease. Under this assumption, we estimate that the sequential revenue and earnings decline in the Middle East will be fully offset by all other international markets combined, where we anticipate mid- to high single-digit revenue growth with improved margins. Meanwhile, North America revenue is expected to be flat sequentially. By division, under the middle scenario I just highlighted, Digital and Production Systems will grow globally, while Reservoir Performance and Well Construction will decline globally. I will now turn the call over to Stephane to discuss our financial results in more detail.

Thank you, Olivier, and good morning, ladies and gentlemen. First quarter earnings per share, excluding charges and credits, was $0.52. This represents a decrease of $0.20 when compared to the first quarter of last year. During the quarter, we recorded $0.02 of merger and integration charges, primarily related to the ChampionX transaction. Overall, our first quarter global revenue of $8.7 billion increased 3% year-on-year. Excluding the impact of the ChampionX acquisition in the third quarter last year, revenue declined by $607 million or 7% year-on-year. When compared to the fourth quarter of last year, revenue fell by just over $1 billion or 10.5%. This decline was approximately 200 basis points or about $200 million higher than we expected at the time of our last earnings call in January. This was primarily due to the impact of the conflict in the Middle East as we experienced operational disruptions throughout the month of March. Company-wide adjusted EBITDA margin for the first quarter was 20.3%, down 346 basis points year-on-year. Margins were negatively affected by high decrementals on the Middle East revenue impact. We did not make any material adjustment to our cost base during the quarter as our immediate focus was the protection of our people and preserving operational capacity for the expected future rebound in activity. We also incurred additional logistics and materials costs as a result of supply chain disruptions due to the conflict. Beyond the effect of the Middle East conflict, first quarter margins were impacted year-on-year by increased tariffs, project mix and higher costs in OneSubsea as well as pricing headwinds in select markets, particularly in Well Construction. Let me now go through the first quarter results for each division. First quarter Digital revenue of $640 million increased 9% year-on-year, primarily driven by 87% growth in Digital Operations. This was supported by increased digital services adoption and new technology introduction as well as the acquisition of ChampionX. Notably, annual recurring revenue for the division stood at $1.02 billion at the end of the first quarter, representing year-on-year growth of 15%. Digital pretax operating margins of 20.9% was essentially flat year-on-year. However, adjusted EBITDA margin of 26.1% declined 473 basis points due to lower amortization relating to exploration data as a result of the mix of surveys sold during the quarter. As you know, Digital margins are historically lowest in the first quarter due to seasonality and steadily increased throughout the year, reaching the highest level in the fourth quarter as evidenced by last quarter's results. This trend will continue. And consequently, we expect to achieve full year digital adjusted EBITDA margin that is at least equivalent to last year's level of 35%. Reservoir Performance revenue of $1.6 billion decreased 6% year-on-year, while pretax operating margin of 16.1% decreased 47 basis points. These decreases were due to lower stimulation and intervention activity, primarily as a result of the disruptions in the Middle East. Well Construction revenue of $2.8 billion decreased 6% year-on-year, primarily from lower activity due to the disruptions in the Middle East, partially offset by higher offshore drilling activity in Europe and Africa, Latin America and North America. Pretax operating margins of 15.2% contracted 463 basis points year-on-year due to lower profitability on account of the Middle East conflict as well as pricing headwinds in select markets. Finally, Production Systems revenue of $3.5 billion increased 23% year-on-year. Excluding the impact of the ChampionX acquisition, first quarter revenue decreased 6% year-on-year. On a pro forma basis, revenue from the ChampionX Production Chemicals and Artificial Lift businesses grew 2% compared to the first quarter of 2025. This strong ChampionX performance was offset by the impact of the Middle East conflict, lower OneSubsea revenue and independent of the conflict, lower product deliveries in Saudi Arabia. Production Systems' pretax operating margins of 14.2% declined 240 basis points year-on-year due to lower profitability in Surface Production Systems, Completions and OneSubsea. As it specifically relates to OneSubsea, pretax margin in the first quarter was 14.4% compared to 18.1% in the first quarter of 2025. Margins were affected by the concurrent wind down of several large programs and the initiation of new projects with high start-up costs. OneSubsea margins are expected to increase over the remainder of the year. ChampionX partially offset those effects as we continue to make progress with our synergy realization. As a result, ChampionX margins this quarter were higher than in both Q4 and Q1 of last year and were accretive to both Production Systems and total SLB's margins. Now turning to our liquidity. Our net debt increased $797 million sequentially to $8.2 billion. During the quarter, we generated $487 million of cash flow from operations. Free cash flow was slightly negative at $23 million on account of the payment of annual employee incentives and the seasonal increase in working capital that we typically experience in the first quarter. This was compounded this year by delayed collections in the Middle East stemming from the conflict. We expect our cash flow generation to follow our historical pattern with free cash flow gradually increasing throughout the year with the majority coming in the second half. Capital investments inclusive of CapEx and investments in APS projects and exploration data were $510 million in the first quarter. For the full year, we are still expecting capital investments to be approximately $2.5 billion. During the quarter, we repurchased $451 million of our stock, and we still expect to repurchase a minimum of $2.4 billion for the full year, in line with 2025. As a reminder, we are targeting to return more than $4 billion to our shareholders in 2026 through a combination of dividends and stock buybacks. Before I wrap up, let me come back to our second quarter outlook and more specifically to the Middle East. I would first like to clarify that the Middle East represented approximately 70% of our Middle East and Asia business in the first quarter. Under the specific scenario that Olivier highlighted earlier, where operational disruption in the region continues until the middle of the quarter and then starts to alleviate, we estimate that it would negatively impact our second quarter earnings per share by an incremental $0.06 to $0.08 when compared to the first quarter. This is the result of lost revenue as well as higher procurement and logistics costs associated with the conflict. I will now turn the conference call back to Olivier.

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

[Operator Instructions] Your first question comes from the line of Dave Anderson with Barclays.

So looking past some of the near-term disruptions, I was wondering if you could expand a bit more on your views on how the investment cycle has changed. You mentioned a broad-based recovery in '27 and '28. Is that predicated on oil prices being structurally higher now? And can you also comment on kind of which end markets that you see the most upside as you sit here today?

I think there are multiple reasons why I think we believe that the industry will benefit from an uptick in investment. First, indeed, I think we are projecting that the commodity price will be higher after this than they were before. But more importantly, I think the significant impairment of the supply-demand balance, I think, has created the need for replenishing these inventories, replenishing the strategic reserve and also have heightened the risk of energy security. And hence, as a reason -- as a consequence of this, there will be multiple factors that will play into an increased investment outlook. Firstly, to replenish inventory and strategic reserve will supplement the natural demand in oil and gas. Secondly, the energy security will draw decision -- national decision to reinvest into local resource and to diversify the source of supply, including creating some redundancy if and as necessary and clearly maintaining in the future higher inventory stock spare to prevent future shock of supply. So we believe that these are aligning with trends that are already in play that we're indicating that offshore was set for a rebound as we exit 2026 and 2027. So we believe that this combination will both affect the short cycle impact in a shorter time and the long cycle at scale into '27 and '28. So we are set in our opinion, for an uptick into the cycle strength going forward.

So Olivier, you had talked about deepwater looking particularly attractive in that outlook. Obviously, that's part of the long cycle story there. Can you talk about where you see the most upside in terms of SLB business? Is it more on the Well Construction and Reservoir analysis side? Could OneSubsea be a big driver? Just trying to think about through the business that would be most impacted?

So first, I think we are confident that offshore, I think, as being very attractive economically now, and I think where the large resource are set for operator to unlock and develop going forward, I think, is the reason why we are seeing this uptick into the FID pipeline and the prediction by many reports saying that this will at scale exceed what we have seen in the last couple of years. So the macro assets are very positive for deepwater. And this is true across -- I would be very clear, across Africa, Asia -- East Asia and Americas for different reasons. Africa, as I stated in my remarks, I think it would certainly be one of the most beneficiary for this as it has vast undeveloped still resource, both oil and gas on the West and on the East and clearly set to be developed, and this is where we see potential acceleration of FID in the coming quarters. Americas is very strong from Brazil to Gulf of America. And I believe this will continue to be a play part in Central America, that we see support in Asia because of gas. We see a double down on the development of gas, deepwater resource, and we have seen a lot of development happening these days in Indonesia. And you have seen some of the announcements we have made earlier today in the earnings press release and with Subsea being awarded in Malaysia and in South China Sea, a critical award. So I believe that core at large will benefit from this rebound. We have strong market position across the different divisions. But yes, indeed, Subsea, we expect OneSubsea to benefit at scale. And as guided historically previously, I think we expect OneSubsea to benefit to have higher booking this year than last year visibly and to then have a growth trajectory in '26 and into '27 and '28 as we see the scale of this offshore cycle developing.

Your next question comes from the line of James West with Melius Research.

Olivier, the Middle East is your backyard. You guys have owned that market for a century or more. You don't leave conflict zones when conflicts happen and you're always there for the recovery. As you think about the recovery and how it could unfold, and I know you made some comments in your prepared remarks about this. But as you talk to the customers, what do they want to do? What do they need you for initially? And how do you think the kind of momentum builds, assuming that we -- the conflict resolves in the time line that you've kind of laid out and others have laid out?

First, I think to be clear, I think we are working in lockstep with our customers every day, every week. We continue to work closely with them to understand as they are contemplating all options for recovery, and I continue to observe the outcome of the discussion and the geopolitical events happening on the back, and we stand ready. So I think we are more in standby as we speak. But yes, multiple scenarios are being considered. And there are some country where the resumption of operation will be relatively fast and could turn into days and weeks. And there are a country as facility and/or field have been stopped and shutting abruptly, where we will be needing to intervene on those fields. Hence, it will be an initial phase of assessment, initial phase of intervention before the production can come back to full capacity. And there are country or region or -- not region, but zone in the region where security will remain a concern and will delay further the recovery. So it's a gradual recovery. But yes, we are working very closely with customers, both to mobilize equipment or resource and also to anticipate the reservoir consequence and the type of services you need to provide as the conflict start to be stabilizing and as the customer have the confidence to remobilize. So we see long-term clear upside in the region. And we see that some country will actually use it to catch up and maybe expand the capacity to recover from the market share and the production loss during this period.

Got it. Okay. Very, very helpful. And then maybe a quick follow-up. Understanding that most energy countries and, of course, companies and countries want to diversify supplies now. Do you see more of your customers that are Middle East-based maybe stepping outside of the region. They've already started to do that a little bit, but stepping outside more post conflict?

No, I think that generally, I think operators will continue to diversify their options across the entire world. And I think there are plenty of basins that still stand undeveloped. And I think I highlighted Africa. I think there's a lot of oil and gas resource that are set to be developed. And I think the fiscal terms and the security conditions have improved actually in the region and will make it very critical. But the Middle East remains a low-cost barrel and low-cost gas country at scale. And hence, it will continue to attract investment as well. And I think the national resource holder in the region will continue to develop at scale the resource. So we see a mix, but I think beneficiary of this, and I think maybe additional investment will go into Africa, into Americas offshore, into Asia deepwater and into production recovery across all regions, we believe, because this is where the fastest incremental barrel can come from.

Your next question comes from the line of Steve Richardson with Evercore ISI.

I was wondering if we could talk a little bit about Digital made this acquisition with S&P. And from what we understand, this is a largely U.S.-centric data business and data sets. So can you talk about what the longer-term vision is there and be sure to hit on how and if that's an enabler of some of the other things you're doing in the broader business outside of Digital?

Yes, absolutely. As described in our press release this morning, I think we have come to an agreement with S&P Global Energy to acquire actually their upstream petrotechnical software suite, not their data. And this is mostly deployed in North America with independent and with workflows that are quite specific to commercial market. So this is highly complementary to the offering we have. And as we go forward, this will complement our offering in North America, give us opportunity to expand the reach of this petrotechnical workflow solution internationally for the [ iberian ] market. And also it will help us to maybe expand and address the next challenge into the unconventional development and recovery and use this new software suite to complement what we have and [ add sounds, add domain ] and create and unlock new commercial workflow into North America. So it gives us a broader market access. It gives us a tool that is fit for the commercial market where we're not having the same offering today. And this just expands our product suite into the domain. Now separately, as you may have seen also into the earnings press release announcement, we have entered an agreement to pursue a strategic partnership with S&P Global Energy with AI, giving an opportunity to use the power of Lumi and Tela, including specific domain foundation models that we build using the data sets, the global data sets of S&P Global Energy so that we together provide our customers with unique insights to AI, applying AI capability, applying our domain and our domain foundation model, our capability on the full data sets of S&P Global Energy. So that's unique, and I think that will be very, very appreciated by customers and benefit the customer greatly going forward.

That's great. And I suspect we'll hear much more about that at the Analyst Day in June. I'm wondering if you could give us a brief update on the Data Center business and your outlook there in terms of securing additional customers, commercial approaches there and expectations for the balance of the year relative to what you talked about a quarter ago?

Yes. I think you have seen we continue to progress. I think we continue to reiterate our ambition and our goal that we will reach or exceed the $1 billion run rate as we close this year. And actually, we have made great progress this quarter to secure additional customers that give us further visibility into the demand for our capacity in 2027 and '28. And as indicated, developing more growth and scaling more than what I've mentioned as an exit rate going forward. So you have seen one announcement on NVIDIA that has chosen us, has selected us as their design partner for the DSX AI factory. It means a lot. It means that we have been selected amongst others as a partner they believe they can trust to develop this modular infrastructure solution for DSX center, large-scale future Rubin Vera solution center that will need to be scaled fast, and we will add our capability to build this site, manufacture this equipment off-site and bring this modular infrastructure to this NVIDIA customer in the future. So that's great. And I think you will see additional announcement coming that will show the breadth of our customer reach and the scale of our operation going forward. So we are very pleased with the progress, and this will continue to grow in '26 and clearly at scale in '27.

Your next question comes from the line of Arun Jayaram with JPMorgan.

Olivier, Production Recovery seems to be an important theme this morning. I was wondering if you could highlight some of the industrial and technical challenges in restoring production, which is off-line in the Middle East. And do you think that -- assuming that we get to an improvement in the situation in the Middle East in 2Q, could this be a driver of SLB's second half '26 results?

So firstly, I will not be commenting on behalf of our customers in the Middle East as they go through the assessment of their facilities. Some of them, as you know, have been damaged by this crisis. I will more comment on the engagement, collaboration and close partnership we have with our customers to prepare for and as they are ready to mobilize as they believe the security concerns are no more present. And I think -- first and foremost, I think some, as I said, the shuttings were done orderly. And I think this would just be a resumption of operation that would just be redeployment of resource, remobilization of resource, and I think with no necessarily significant impact in short term. Others will need well intervention activity, and that's where we have an upside, and we will want to work with our customers to see how we can help restore the production and add -- and use the production recovery technology set to help us regain the capacity production that was pre conflict. So long term, as we said earlier, we see more upside. I think once this resumption of operation gradually resumes throughout the following months and possibly quarter for some country, we see that there is an upside into the desire for some country there to uplift their capacity and to participate to the replenishment of the depleted inventory and strategic reserve. So we are seeing gradual intervention first recovery, production recovery focus and then a large-scale development and expansion of capacity for some country.

Great. I have a follow-up to Stephen's question on Digital. If I look at year-over-year trends, Olivier, your revenue was up 9%, but your margins fell by 473 basis points. I was wondering if you could talk about what you saw on the margin front and perhaps the recovery potential for Digital margins over the balance of the year?

I'll take this question, Arun, it's Stephane. So as you know, we closed last year in Digital with full year EBITDA margin of 35% and the pretax operating margins of 28%. There's a bit of a distinction between the pretax margin and the EBITDA here. We started 2026 with pretax margin of just about 21%, which is essentially in line with where we started in the first quarter of 2025. EBITDA margins, however, were indeed lower, and this is exclusively due to lower amortization from the mix of exploration data that we sold during the quarter. So if you step back anyway, as I said earlier, the first quarter of the year is typically the lowest for Digital margin. So if you look at where we started, same as last year, and we fully expect to see the same pattern we have seen over the years. we will reach the highest margins in the fourth quarter. And it is clearly our ambition to deliver the total EBITDA margins from Digital of at least 35% this year as well. So this is the choppiness of quarterly movements, but it's not a concern to us.

Your next question comes from the line of Scott Gruber with Citi Research.

I got a couple of questions on Digital. So in a world where code writing becomes easier and more commoditized, can you speak to the resilience of the value add of your Digital portfolio? And as you kind of take moves to shape the portfolio like you've done with the S&P acquisition, how do you think about kind of expanding that value add and enhancing that resilience?

No, I think the customers are accelerating the adoption of Digital because they believe that no matter what the cycle is turning into, a highly favorable cycle or challenging cycle, they believe they need to differentiate. They need to add and extract efficiency, productivity in the [ general ] terms and planning workflow, operational performance and efficiency into the drilling and into the production and recovery space. And they have seen that the digital capability, and you can see it by the adoption of Digital Operations growing at very nicely year-on-year and is driven by drilling, is driven by production, operation workflow where customers are adopting AI solution, adopting software solution that can transform the performance of drilling operation like drilling automation, can transform production workflow to render ESPs autonomous. And I think this capability will be looked for, for every customer. So every use case we see is resonating across customers in every basin. And I think we see this not only resilient, we see this as a long-term tail of any cycle and something that Digital will continue to have a tailwind in our industry because we have data like no other industry has. We have scientists and engineers that love to play with data, and we have AI that is starting to come at play as a catalyst to become an X factor, if you like, to unlock productivity. So we are, I think, unique in our capability. We have the domain knowledge that is deep, and we have the platform that can help scale this AI capability going forward. So we feel that I think it is the right time for the industry to adopt AI at scale. We think that we have the platform, we have the deep domain and the first use case that are starting to be realized recently and the power of agentic in our industry will only reinforce this growth opportunity, and it's not only resilience, it's growth going forward. And we show more of this in the Digital investor forum.

Definitely, look forward to it. And a follow-up here, just with an outlook for higher oil prices, at least over the medium term, how does that impact the Digital business? I assume your seismic sales could improve. How meaningful could that be? And then kind of more importantly, would you anticipate customers taking some of this excess cash that they're generating and spend it on more software, more applications to get a bigger boost for their own internal efficiency?

Yes. Obviously, when the commodity prices are high, and I think the customer have more optionality with their discretionary spend, they use it in 2 domains, use it in Digital and they accelerate exploration. And I think we foresee that -- and we have seen it, and we have seen signal that exploration is coming back. You have seen some announcements of some company reinvesting in exploration at scale because they believe they want to secure reserves to participate to long-term energy security. And at the same time, yes, they use this discretionary spend smartly and using this on occasion to buy data sets to accelerate the exploration and will benefit from that, but also participate to more pilots and then make decision faster to accelerate their platform software deployment in their organization.

Your next question will go to the line of Sebastian Erskine with Rothschild & Company Redburn.

I just want to start on SLB OneSubsea. It's really one of the jewels in the SLB Crown. You guided at full year '25 results of $9 billion in sort of order intake over the next 2 years. But I wonder if you could give perhaps some outlook on the margin expansion potential within the OneSubsea business, particularly with comparison to the sort of broader offshore E&C universe. Is there more room for integration with the rest of your portfolio or further efficiencies related to your -- the existing kind of Aker Subsea business? Any color on the margin outlook for OneSubsea?

Yes, sure, Sebastian. So you have noticed that actually for the first time, we gave you our margins for -- in OneSubsea for the first quarter. Unfortunately, they were not as brilliant this quarter, but these are temporary effects for -- due to the timing of project completions and start-ups. So you've seen where the margins were in the same quarter of last year, pretax margins of 18%, which means EBITDA margins very close to 20%. So this is what we expect from this business over the cycle at the minimum. And even though we started on a rough note in the first quarter, we expect the margins to normalize in the coming quarters. And hopefully, on the back of a backlog, that is increasing year-on-year. We are actually up 5% year-on-year on the backlog. We have better visibility on the growth going forward and potential margins at least.

Yes. I just want to add a couple of things. Yes, Production Recovery, I think I just want to add that, obviously, Subsea as a domain of deepwater, I think, is essential for our customers and Production Recovery plays a great role. And I think we have a unique processing -- Subsea flow processing portfolio. You have seen one more announcement that we are continuing to renovate and to enhance the project we have at Gullfaks with Equinor in Norway and we have done one acquisition that complements offering to help us better participate into the intervention world of deepwater subsea. So we believe indeed that our Production Recovery strategy and the connection with our other core capability is essential going forward as it will help customers leverage OneSubsea to enhance the production of existing fields and provide more life-of-field services as we call it, including Digital capability to this subsea installation. So it's both on the E&C cycle and then on the life-of-field services long term that will benefit.

Really appreciate the color there. And then just a follow-up. I think, Olivier, in the prepared remarks, you mentioned towards the end of the Data Center Solutions section, you were kind of considering potential further M&A following the closure -- or the announcement of the S&P Global deal. What areas are you seeking to add in terms of your portfolio? Any color on that would be helpful.

Yes. We are looking at everything where we believe that we could build a portfolio that give us a more technology anchor into our portfolio so that as we build more modular infrastructure solution across the full space, thermal management is one that obviously come to mind. And we're looking at the opportunity we believe could complement the offering we have and the go-to-market that we have created and right of play we have created into the space.

Your next question will go to the line of Marc Bianchi with TD Cowen.

I just first wanted to quickly clarify on the outlook here for second quarter. So you're essentially saying that results will be the same as first quarter and there's sort of a $0.06 to $0.08 incremental hit from Middle East that's being offset elsewhere. Is that the message you're trying to deliver here?

Yes. No, that's a good summary, Marc. Just to be clear, this is under the specific scenario that we highlighted where the operational disruptions start to ease more or less at the middle of the quarter and then gradually recover. So in this scenario, we can offset the negative impact of $0.06 to $0.08 incremental effect of Middle East with the rest of the international operations.

Great. The other question I had going back to OneSubsea and sort of the $9 billion of awards over '26 and '27. Just given sort of the outlook here, do you see upside to that now? And how are you sort of thinking about your competitive positioning? We hear a lot from your other competitor about their integrated capabilities. Can you kind of talk about how you see OneSubsea positioned from a competitive perspective?

So first, I think commenting on the cycle. I think the more the dynamic plays probably as the conflict ends, the more we believe that the investment will be attractive into the deepwater market as it is a majority actually of what we foresee as FID in '27 and '28. And hence, the more it will play into the size of the addressable market. Hence, if FID have firmed up, if not accelerated in '27 or even in '26, this will give us a potential to outperform the guidance we have given. So yes, now on the position, we feel very good with the position we have, extremely good. We have a partner with Subsea7 who gave us when and as customers ask for integrated offering, the indicated capability to deliver, and we have done it at scale with many customers. We feel that we have developed partnership and collaborative engagement with several customers that have led us to be getting -- working jointly with our customers to help and provide support to increase and improve the design of the subsea architecture and unlock FID, and this is true with the partner we have with Equinor with bp. And we believe that we have a unique portfolio with subsea processing that is having no match on the market. And you have seen an announcement today, and you will continue to see a pipeline of projects that will make it pretty unique in the marketplace. You have seen the Ormen Lange subsea gas compression that unlock a new level of recovery for the field of Ormen Lange in Norway. You have seen the additional announcement we did today on the Gullfaks project, where we'll rework with our customer to make sure that we extend the life and improve the performance of this capacity of subsea processing so that it unlocks next level of recovery. So yes, we feel good about our integration capability. We feel good on the pipeline that you have seen. We were awarded in Malaysia, in South China Sea, in Suriname and in Norway announced today. And we continue to have a pipeline of exciting projects going forward across the basin. I mentioned earlier, Americas, Asia and Africa. So we are pleased with the OneSubsea progress and continue to support them fully.

Your last question comes from the line of Neil Mehta with Goldman Sachs.

You guys talked a lot about some of the cost impacts that you're seeing in the Middle East and how that's impacting margins. And I think we all understand that a conceptual level, things like freight. But can you just kind of give us some of the line items that might be causing the pressure point and help us understand what are some of the specific items that are pressure points?

Sure, sure. We can do that. So clearly, from the situation in the Middle East, it introduced quite some strain on supply chain networks locally, but with ripple effects in other places in the world. So probably the line item that's the most impacted is logistics and transportation costs clearly. Coming next is raw materials, those which are derived from petroleum products, of course, and that would also include chemicals. So it's raw materials and logistics mostly. So this has impacted our margins in the first quarter, and it will linger for a while. Now we are not going to let just that hit our cost. We have mobilized our commercial organization to recover some of these increased costs, and we are activating inflation pass-through clauses that we have in our contracts. And if we don't, we are in direct negotiations with both our suppliers and our customers to offset these effects. So we are kind of used to these spikes in costs coming from inflation, and we will try to recover as much as we can.

And my last question, it's been a couple of months now that ChampionX has officially been in the SLB portfolio. Just any observations about what it's bringing to the table here and how you've been able to integrate the system into the broader company?

First, I think I will reiterate the results part of the ChampionX addition to our portfolio. As Stephane highlighted, I think ChampionX has been as a portfolio accretive to the company in the first quarter, and I think it has been growing year-on-year and expanding margin year-on-year. Second, I will come back to the 3 days we spent with our Board in Midland. I think it was a pleasure to see in action our ex ChampionX employee integrating fully in [ Port to Pipeline ] if you like, a tool that we made for our customer with our Board of Directors to showcase our fit-for-basin technology in the Permian. Highly integrated, already getting pull-through or getting synergy -- revenue synergy and technology synergy that customers are appreciative. The second highlight of this trip was meeting of our customers. We hosted many customers with our Board of Director in Midland, and I think it was a pleasure to give -- to get feedback, very direct and transparent feedback from our customer. They were very pleased with the integration progress, and they have seen the light of the potential that ChampionX with the greater SLB can bring to their operation in the Permian. So we are seeing the benefits on the financial results. We are seeing an exciting opportunity for Production Recovery as we commented on the summit that we hosted lately. And we see the enthusiasm of our team spending with the ChampionX employees and the customers that are appreciative and recognize this is something unique that we have and something that can unlock the potential of Production Recovery, partly in unconventional, but in all of our basins in the world as well.

Thank you. I will now turn the call over to SLB for closing comments.

So thank you very much. So ladies and gentlemen, as we conclude today's call, I would like to leave you with the following reflection. First, while recent events have created near-term disruption, they have also reinforced the need for secure and reliable energy, which will support oil price above pre-conflict levels and create an enduring backdrop for oil and gas investment. Second, Production Recovery, Digital and Data Center Solutions are creating the foundation for accelerated growth. And finally, I want to take the moment to recognize that this year marks 100 years of SLB. As we celebrate this milestone, I'm proud that we are not only honoring an extraordinary legacy, but also building the foundation for the next century of innovation, performance and leadership. With this, I will conclude today's call. Thank you all for joining.

This concludes today's conference call. You may now disconnect.