Day, ladies and gentlemen, and welcome to the Baker Hughes, AGE Company First Quarter 2019 Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr.
Phil Mueller, Vice President, Investor Relations. Sir, you may begin.
Thank you, Kevin. Good morning, everyone, and welcome to the Baker Hughes at GE Company's Q1 2019 earnings conference call.
Here with me are our
Chairman and CEO, Lorenzo Simonelli and our CFO, Brian Worrell. Today's presentation and the earnings release that was issued earlier today can be found on our website atbhge.com. As a reminder, during the course of this conference call, we will provide predictions, forecasts and other forward looking statements. These statements are not guarantees of future performance and involve a number of risks and assumptions. Please review our SEC filings for some of the factors that could cause actual results to differ materially.
As you know, reconciliations of operating income and other non GAAP to GAAP measures can be found in our earnings release. With that, I will turn the call over to Lorenzo.
Thank you, Phil. Good morning, everyone, and thanks for joining us. On the call today, I will give a brief overview of our Q1 results, update you on our view of the market and some key themes and take you through the quarter highlights. Brian will then review our Q1 financial results in more detail before we open the call for questions. In the Q1, we booked $5,700,000,000 in orders.
We delivered $5,600,000,000 in revenue. Adjusted operating income in the quarter was $273,000,000 Free cash flow for the quarter was negative 419,000,000 dollars Earnings per share for the quarter was 0 point 0 $6 and adjusted EPS was 0 point 15 dollars Importantly, our financial outlook for the Q2 and the total year 2019 is unchanged from what we communicated at the end of the Q4 2018. Let me take a few moments to share our view on the market. The Q1 proved to be a period of stabilization for the global oil and gas markets. Oil prices rose during the quarter, with Brent up 34% and WTI up 33%, rebounding from Q4 2018 lows.
OPEC and Russian production cuts and continued challenges in Venezuela are balancing the markets. U. S. Production growth remains strong, but the lower CapEx budgets announced by our U. S.
Customers will likely have an impact on supply over the medium term. Rig count in the U. S. Was down 3% or 29 rigs in the Q1, slightly less than previously expected. The U.
S. DUC inventory hit a new all time high in February at just over 8,500 DUCs. U. S. Production is expected to be up more than 1,000,000 barrels per day in 2019.
While our independent customers focus on working within their cash flows, the major operators are moving with speed into areas such as the Permian Basin. The U. S. Market remains the most dynamic and difficult to predict. We are closely monitoring activity as commodity prices change and operators can materially reevaluate their spending plans through the year.
The Canadian rig count was up 2% in the first quarter, in line with our expectations. We expect Canadian activity to remain at significantly depressed levels in the second quarter and the remainder of the year. In the international markets, OPEC crude oil production has dropped by 1,800,000 barrels per day since November amid continuing challenges in Venezuela and lower output from Saudi Arabia and Iraq. Overall, international activity remains relatively robust, and our growth assumptions for those markets remain the same. Our outlook for the offshore market is consistent with what we communicated during our Q4 call.
We expect total subsea tree demand for 2019 to be around 300 trees, essentially flat year over year. Our LNG outlook of up to 100,000,000 tonnes per annum sanctioned by the end of 2019, including LNG Canada, is unchanged. In the Q1, we saw the 16 MTPA Golden Pass project reach FID. Just recently, FERC approved Venture Global's Calcasieu Pass, Tellurian's Driftwood and Sempra's Port Arthur project. Our LNG market outlook is predicated upon the supply and demand fundamentals as we look out to 2,030.
We do not expect near term challenges in LNG spot pricing to impact this outlook. To produce 550 MTPA by 2,030, the industry will need to operate approximately 650 MTPA of nameplate capacity. This represents significant growth from today's 380,000,000 tons of capacity. Therefore, we see 2019 FIDs as only the beginning of a substantial LNG project cycle for which we are well positioned. Each LNG project has specific requirements, and our customers demand a solution designed to best address their commercial and operational parameters.
Depending on a variety of factors, customers can decide to either build the refrigeration train on-site or have it delivered as a complete module. They may decide to work with larger or smaller drivers and utilize different liquefaction processes such as APCI or cascade. We can offer solutions across any process. From the largest scale site built trains to the most integrated modular solutions, we are the industry leader. We have unparalleled engineering, manufacturing and testing capabilities and are by far the most referenced technology provider.
In fact, our technology powers a substantial portion of current nameplate capacity. To maintain our competitive edge, we have continually invested in technology even during the downturn. Our unparalleled track record and advanced technical solutions uniquely position us for the upcoming equipment build cycle. We expect to continue to win the most important projects in the industry. In summary, we have a positive outlook across a number of end markets.
While the speed of the recovery varies across those markets, we see our company positioned to benefit from multiple growth drivers. Strengthening international markets will have the largest positive impact on our business. Approximately 70% of our total company's revenues and 60% of our oilfield service revenues are outside of North America. The next wave of LNG projects will be a significant tailwind for us, and we are expecting our offshore related businesses in Offshore Equipment and TPS to drive more significant earnings growth from 2020 onwards. However, we are not just relying on an improving market outlook.
We continue to focus on regaining market share and introducing new initiatives and solutions for our customers to drive further growth in existing markets. We are focused on profitable growth using innovative structures, the strength and differentiation of our portfolio and a reinvigorated sales force to win business around the world. We are applying a rigorous framework that ensures the business we are winning is at the right margins and accretive to our current operations. Our international wins in 2018 are good examples of this process. A great example of a new solution is the range of carbon competitive products we are offering for electric frac in the Permian.
We are solving some of our customers' toughest challenges such as logistics, power and reducing flare gas emissions with products from our TPS portfolio. These solutions are based on our differentiated technology, which will enable new revenue and profit pools both for our equipment and our aftermarket service businesses in TPS. Across North America, there are more than 500 frac fleets totaling around 20,000,000 horsepower, the majority of which are powered by trailer mounted diesel engines. Each fleet can consume up to 7,000,000 gallons of diesel annually, emit 70,000 metric tons of CO2 and require approximately 700 tanker truckloads of diesel to be supplied to site. In addition, many of the oil producing shale basins produce an excess of gas that is flared today as a result of infrastructure constraints.
Against this complex backdrop, there is significant opportunity for our gas turbine business to support our customers with a new range of solutions by making use of the associated gas to power hydraulic fracturing fleets. Electric frac enables a switch from diesel driven to electrical driven pumps powered by modular gas turbine generator units. This alleviates several limiting factors for the operator or pressure pumping company, such as diesel truck logistics, excess gas handling, carbon emissions and reliability of the pressure pumping operation. As infill drilling and multi pad structures gain prominence, the opportunity to further deploy our extensive high-tech turbomachinery solutions, including our NovaLT products, is substantial. For context, 20,000,000 horsepower translates to a potential market of 15 gigawatts of power.
Over the past few years, we have been providing LM2500 gas turbine technology for electric frac to customers in the Permian, with 8 fleets successfully operating in the U. S. More recently, we are deploying our NovaLT and TM2500 technologies to a number of customers. This is an example of how we focus on a growing market where our technology provides significant differentiation. Investing in these high-tech markets will continue to be our priority versus competing in markets with low barriers to entry.
Now let me share some specific highlights of the Q1 with you. In Oilfield Services, we are executing to grow share and improve margins. Our strategy to utilize the strength of our drilling and completion offerings and reengage with customers in critical markets across the OFS portfolio is showing clear signs of success. While we are driving these initiatives, we remain focused on executing in our core product lines. We continue to deliver record performance with our drilling services offerings in North America.
To further support growth and profitability in the core business, we opened a new Motors Center of Excellence in Oklahoma City in early April. Following the opening of the center, BHGE is the only service company that designs, develops and manufactures every aspect of its downhole motors in house. At this location, we can innovate, manufacture, service and repair our drilling motors. We closely monitor all aspects of motor performance and collaborate to fine tune processes. We built the center in Oklahoma to be in close proximity to our North American customers.
For us, this means reduced product costs. For our customers, it means superior motor quality and better reliability. As I mentioned earlier, a core component of our shared growth strategy is to reengage with customers globally where we see the opportunity to drive profitable growth for our company. For example, in wireline, we secured a large multiyear contract with Petrobras, reentering the wireline market in Brazil after a number of years. We were also successful with this strategy in our drilling and completion fluids business.
In the Q1, we were awarded several significant contracts in Asia Pacific, North America and the Middle East, displacing competitors and driving growth for BHGE. These are clear examples where consistent engagement with our customer, technology and strong service delivery can lead to meaningful increases in share, revenue and most importantly, margins. Overall, our strategy in OFS remains clear. We will grow market share that is accretive to margin, drive cost out of our products and reduce service delivery costs. In On Field Equipment, we had another strong orders quarter, building on the momentum from 2018.
The successful commercialization of Subsea Connect is gaining traction. Subsea Connect enables early engagement with our customers. We are driving deeper partnerships across the value chain and deploying our new Aptara product family to deliver improved outcomes. In the Q1, Subsea Connect played an integral role in a number of our wins in OFE. A good example is our partnership with BP and McDermott on the Tortue project.
We spent the last 12 months co located with BP and McDermott's offices in London. Our collaboration during the FEED phase and holistic project planning will allow us to drive unprecedented efficiencies and dramatically reduce lead times. We also had a great win with Beach Energy in the quarter. We will supply subsea production systems for the Otway project, a natural gas field offshore South Australia. We are leveraging our early customer engagement and our modular technology to lower cost and improve production cycle times.
Both of these wins demonstrate Subsea Connect in action. We are confident that our offering and experience will continue to drive change as we see an increase in early engagement activity with customers around the world. We were also pleased to be awarded the contract to supply subsea production system for the Ichthys field. We were able to leverage existing designs and technology to drive standardization and enable fast execution. These project awards demonstrate our leadership in subsea gas production and leverage a combination of global and local teams with experience in key markets around the world.
In our flexibles product line, we have made tremendous progress over the past year on our advanced flexible pipe technologies and new materials. We are actively focused on the commercialization of our new Aptara Composite program. Our positive outlook for orders growth in our flexible business is unchanged. We see significant opportunities in 2019 both in Latin America and other regions such as the Middle East. In Turbomachinery and Process Solutions, the Q1 of 2019 saw continued activity in the LNG market with further progress on several projects.
In the Q1, we secured the awards to provide turbomachinery equipment for ExxonMobil and Qatar Petroleum's 16,000,000 tons per annum Golden Pass LNG export facility. We will provide 6 heavy duty gas turbines, driving 12 centrifugal compressors for the plant. We are deploying our MS7000 and 1 gas turbine technology, which is the most utilized large industrial gas turbine in the LNG market. Also during the quarter, we won the award to provide turbo compressor technology for the 2.5 NCPA BP Tortue FLNG project. BHG will provide technology for 4 compressor trains.
Our aeroderivative gas turbine based solution is well proven in similar FLNG applications, achieving best in class reliability and availability rates. This award, together with the subsea win on the Tortue project, demonstrates the strength and breadth of our full stream portfolio for offshore gas fields. We were also pleased to recently be selected by KBR to include BHGE Technology in their standardized mid scale LNG facility design.
Gas turbine
technologies will provide ideal power ratings, speed and power flexibility, long maintenance intervals and industry leading efficiencies for KBR designed LNG facilities. In the quarter, we also secured an important win in our upstream production business in Saudi Arabia for the Bery oilfield. Our equipment will help Saudi Aramco to produce an additional 250,000 barrels of crude oil per day and also help to transport additional low pressure gas to a nearby gas plant. This win is a further example of our commitment to Saudi Arabia's IKIVA program. In Digital Solutions, we continue to see growth across our leading hardware technologies.
In our Industrial Inspection business, we are driving growth with customers across end markets such as electronics, automotive, aviation and additive manufacturing. As evidence of this success, Frost and Sullivan announced our position as global market leader in industrial CT applications in 2018, a great win for the inspection technologies team. To continue this success, we are developing new products and expanding our local presence. As some of you know, we opened our 1st major customer solution center in Cincinnati in mid-twenty 18 to support the growing need for our nondestructive testing. Our Cincinnati center has significantly surpassed our initial expectations, and we are planning to open new centers in Asia and Silicon Valley in 2019.
Also in the quarter, we launched Lumin, a digitally integrated monitoring system for methane leaks. By using advanced data analysis, this technology helps to reduce emissions and increase safety for operators. Lumin includes a full suite of methane monitoring and inspection solutions, which are capable of streaming live data from sensors to a cloud based software dashboard. We have launched this technology on more than 10 individual pilot projects, and we'll continue to introduce it to customers globally. Livent is a perfect example of BHGE's leading sensor portfolio, which we use to develop software solutions and is part of our commitment to support a net zero carbon future.
In closing, we delivered a solid Q1. Our total year outlook is unchanged, and we are encouraged by stabilizing commodity prices, strengthening international markets and a robust LNG project pipeline. Our company is positioned to benefit from multiple growth drivers. We remain focused on our priorities of gaining share, improving margins and generating strong cash flow. With that, let me turn the call over to Brian.
Thanks, Lorenzo. I'll begin with the total company results and then move into the segment details. Orders for the quarter were 5 point and oilfield services, which was up 14%, partially offset by and oilfield services, which was up 14%, partially offset by lower order intake and Turbomachinery due to timing. We delivered solid orders growth across both equipment and services. Equipment orders were up 17% and service orders were up 4%.
Sequentially, the decline was driven by typical seasonality across all segments following our strong 4th quarter. Remaining performance obligation was $20,500,000,000 down 2% sequentially. Equipment RPO ended at $5,500,000,000 Services RPO ended at $15,000,000,000 Our total company book to bill ratio and our equipment book to bill in the quarter were both 1.0. Revenue for the quarter was $5,600,000,000 down 10% sequentially. The sequential decline was driven by seasonality across Turbomachinery was down 27%, digital solutions was down 14% and oilfield services was down 3%, partially offset by Oilfield Equipment up 1%.
Year over year revenue was up 4% driven by Oilfield Services which was up 12% and Oilfield Equipment up 11%, partially offset by Turbomachinery down 11% and Digital Solutions down 1%. Operating income for the quarter was $176,000,000 which is down 54% sequentially. Operating income was up $217,000,000 year over year. Adjusted operating income was $273,000,000 which excludes $97,000,000 of restructuring, separation and other charges. Adjusted operating income was down 45% sequentially and up 20% year over year.
Our adjusted operating income rate for the quarter was 4.9%, up 60 basis points year over year. Corporate costs were $100,000,000 in the quarter, down 9% sequentially and up 2% year over year. Depreciation and amortization was $350,000,000 down 1% sequentially and down 10% year over year. Tax expense for the quarter was $67,000,000 Earnings per share were $0.06 down $0.22 sequentially and $0.10 year over year. Adjusted earnings per share were $0.15 down $0.11 sequentially and up $0.06 year over year.
Free cash flow in the quarter was a usage of $419,000,000 This was driven by annual payments associated with employee compensation as well as higher inventory, which we built in anticipation of increasing levels of activity in the coming quarters. In addition, we experienced some delays in receivables collection. These have largely resolved themselves in the Q2. Our cash flow expectations for the year are unchanged. Now I will walk you through the segment results.
In Oilfield Services, revenue for the Q1 was $3,000,000,000 down 3% sequentially driven by a softer North American market. North America revenue was down 6% sequentially. Canada and U. S. Onshore played out largely in line with the outlook we gave on our Q4 call.
In addition, we experienced lower utilization of our offshore pressure pumping vessels. International revenue was flat versus the prior quarter with growth in the Middle East and Sub Saharan Africa offset by declines in Asia Pacific and Europe. Operating income was $176,000,000 down 22% sequentially. Decremental margins were moderately higher mainly due to lower utilization on our offshore pressure pumping fleet as well as slightly higher ramp up costs on our new international contracts. In the Q2, we expect mid single digit revenue growth sequentially.
We expect strong incrementals as utilization for our offshore pressure pumping vessels returns to normal levels and the negative impact from the contract ramp up costs abate. Turning to Oilfield key project awards from BP and Beach Energy. Service orders were up 21% versus last year and up 18% sequentially. This improvement was driven by increased activity and successful execution of our expanded service offering as well as higher orders in our surface pressure control in North America. Revenue was $735,000,000 up 11% versus the prior year.
This increase was driven by improving subsea production systems volume partially offset by lower revenues in flexible pipe systems. Operating profit was $12,000,000 up $18,000,000 year over year driven by increased volume and better cost absorption in Subsea Production Systems. In the Q2, we expect the business to be flat sequentially as higher revenues in SPS are offset by lower volume in our Flexibles business. Moving to Turbomachinery. Orders in the quarter were $1,300,000,000 down 12% versus the prior year mainly due to timing of equipment orders, which were down 14% year over year.
LNG equipment orders were up significantly. However, the declines in other turbomachinery segment more than offset this growth. Service orders were down 12%, driven primarily by fewer upgrades, which was partially offset by higher transactional services orders. Overall, we continue to expect a very strong orders year for TPS in 2019, primarily driven by LNG. Revenue for the quarter was $1,300,000,000 down 11% versus the prior year.
The decline was driven by the sale of our natural gas solutions in 2018 and lower equipment installations. This was partially offset by higher contractual services revenue. Operating income for Turbomachinery was $118,000,000 down 1% year over year. The sale of NGS and higher technology spend on LNG offset the benefits from our cost out efforts and improved business mix. The operating income rate in the Q1 was 9.1%.
In the Q2, we expect TPS revenues and margins to be roughly flat sequentially as better margins in the core business continue to be offset by our accelerated technology spend. Our total year outlook for TPS remains unchanged. Finally, on Digital Solutions. Orders for the Q1 were $659,000,000 up 2% year over year. Strong growth in Bently Nevada, measurement sensing and inspection technologies was partially offset by declines in pipeline and process solutions.
Regionally, we saw continued orders growth in North America, China and the Middle East. Revenue for the quarter was $592,000,000 down 1% year over year. Growth in measurement and sensing and our pipeline business was more than offset by declines in our controls business due to the continued softness in the power end market. Operating income was $68,000,000 down 6% year over year driven by lower volume and unfavorable product mix, only partially offset by better cost productivity. In the Q2, we expect Digital Solutions to be down slightly year over year on revenues and margins as the weak power end market continues to impact the business.
With that, I will turn the call back over to Phil. Thanks. With that, Kevin, let's open the call for questions.
Thank Our first question comes from James West with Evercore ISI.
Hey, good morning guys or actually good afternoon to you.
Hi, James. Hey, James.
Hey, Lorenzo, in your prepared comments about LNG, obviously, very bullish, but kind of holding the line from where you were last quarter. It seems to me that even in the last 3 months, we've had more of an acceleration and a rush to kind of FID LNG projects. Do you think you're perhaps conservative at this point on with respect to the number of projects that will go forward this year? And could we see upside surprises to that? And then I guess secondarily to that, any changes in the competitive dynamics on the LNG side given your dominant position?
Yes, James, we feel good about the 100,000,000 tonnes. And if you break it down, you can see year to date, you've got the FID of Golden Pass, that's 16,000,000 tons. You've got BP Tortue, another 2,500,000 tons. And also, if you put in the LNG Canada, 14,000,000 tons at the end of last year, you've got 35,000,000 tons that's taken place so far. You've also got the FERC approval that came through this quarter for a number of projects in North America, Venture Global with Calcasieu Pass, Tellurian Driftwood and also Port Arthur, Sempra's LNG project.
So we're working closely with these customers. So we feel good about those continuing and reaching milestones internationally. We've also got Qatar, Mozambique projects and of course, Arctic, too. So I'd say 100,000,000 tons looks good, and we continue to feel positive. Regarding the competitive landscape, as we said before, competition has always been there.
We feel good about our proven technology and also the incumbency we have. And also as you look at the new technology that we've been releasing, the LM9000. So it's going to remain competitive. But again, we're taking the steps from a technology standpoint to make sure that we can compete and stay ahead.
Okay, great. That's great. Thanks. And then Brian, with respect to kind of full year estimates that are out there, I know you guys don't give specific guidance, but it seems to be that this is a sector obviously that's had negative earnings revision cycle for a long period of time, but we may be at a bottom here and to kind of finding our way to where we can at least meet expectations, if not exceed expectations. Do you have any concerns around kind of where consensus is shaking out for the full year?
Yes. James, I actually feel pretty good about where we are and how the year is shaping up for us. And if you take a look at it by segment, in OFS, the international business is growing as we expected, and we still see that in the high single digit range. And the main areas of that growth are really in the Middle East, and we're seeing some growth in the North Sea. In North America, the business looks more flattish given the current backdrop.
And of course, we're watching North America closely and it's a bit early for visibility into the second half. But as I said, we are watching that. And you got to remember, we do have the synergies and the cost out in the OFS business that we are driving, and that's a tailwind for OFS. You highlighted the LNG cycle here. I like how we're positioned there from a TPS standpoint and our general outlook is unchanged.
But for the year specifically, we expect higher services activity. We like the mix of business in our equipment backlog. And then Rod and the team are continuing to drive cost out, and we are investing more in the first half, to get ready for this LNG ramp. So that's a slight headwind versus the cost out that they're driving. And then in OSE, as we've said, I expect better results in 2018, but that's going to be slightly tempered by the FPS business where we're seeing lower volume and higher volume in the SPS business.
And then finally on digital, roughly flat versus 2018. The industrial end markets are looking pretty strong right now. We are seeing continued weakness in the power end markets, but we'll continue to watch that as the macroeconomic environment develops throughout the year. So to sum up as I started, I feel pretty good about where we are and how the year is shaping up.
Thank you. Our next question comes from Angie Sedita with Goldman Sachs.
Thanks. Good morning, guys.
Good morning, Angie. Hi, Angie.
So on the Oilfield Services, clearly, you had a good quarter with better than expected revenues and nice margins as well. So maybe Lorenzo, you can talk a little bit about the opportunity set that you see in the international markets for gaining additional share And where you are on your targets? If you think about where you want to be on oilfield service market share, are we still in early stages or midway through those share gains? And then just some commentary on the pricing outlook as you gain share with margin?
Yes, Angie. As we look at the international markets, we see it continuing to be mid to high single digit growth rates. We feel good about the momentum that continues in the Middle East. Obviously, as you look at the North Sea, there's been some key wins with Equinor and the Norwegian continental shelf that's driving some of our growth there. And as you look at Sub Saharan Africa, Asia Pacific, that will remain challenging with some slower market growth.
And Latin America, we'll see some pockets of opportunity. I think overall, the international revenue from the projects that have been won in the 2017, 2018 time frame. And what we're focused on is really winning deals that are accretive to our operations as we've won with Adnan drilling, Marjan, Qatar drilling, and we feel good about the trade offs that we're making between the margins and share gains. So international continues to be a spot of focus for us as we go forward.
Yes. Angie, I would just add on that.
What we're seeing in the international market is not really idiosyncratic
to us. It's, market is not really idiosyncratic to us. It's seen across the industry. And I think we're doing a nice job of looking at deals and looking at markets and making the right trade off between share and margin. And it's something we spend a lot of time with Maria Claudia and the team on as we evaluate these deals.
And we're happy with where we are from a share point right now, but there's always more we can do, and we are looking to continue to grow share in areas where we can improve returns.
That's helpful. And then maybe if you go to Oilfield Equipment and talk about some of the wins you're seeing with Subsea Connect and the opportunity set for the rest of the year and even the margin outlook going into 2020 and if flexible pipe could be an add as we go into
2020? Yes. Angie, if
you look at where we are, very happy with the wins that we're seeing in Oilfield Equipment, some early wins with Subsea Connect. We did talk about 2018, better volume in that business, and Neil and the team have taken a lot of structural cost out and taken a lot of product cost out of the products. So you'll start to see some of that come through as we see more SPS volume here in the second half. And that's definitely a tailwind as we go into 2020 from all the cost out of the actual product and the wins we're seeing with Subsea Connect. From a flexible pipe business standpoint, we did have softer orders in 2018, and you're seeing that play through in 2019 and having an impact on the business.
But we did talk about 2019 seeing some potential growth in Flexible Pipes. The projects are definitely out there. As you know, these big project timings can move from 1 quarter to another. But right now, things are pretty much playing out as we anticipated. And I'd say it should be a tailwind as we go into 2020.
But overall, we feel good about the trajectory of our OFE business, how we're positioned in the market and the offshore market in general.
Angie, I would say we're very pleased with the Subsea Connect we launched in November 2018 and it's a new modular approach towards deepwater technology. It provides a lot of standardization opportunity to become more productive for the operators. And we're offering a lot of flexibility for the different operators. So Subsea Connect is definitely doing what it said it would do.
Thank you. Our next question comes from Jud Bailey with Wells Fargo.
Thanks. Good morning. Good afternoon to you guys. Question, if I could, maybe for Brian. Could you maybe give us some more color on TPS orders, given that you booked Golden Pass and also Tortue, and I can appreciate everything outside of LNG was down.
It seems like orders should have been higher. And so could you help us maybe size up to the extent you can kind of what's going on there given where orders shook out overall?
Yes, Judford. To start with, as you know, we don't give LNG specifics by deal due to the competitive sensitivity of that information. But we did have LNG orders up significantly year over year. The majority of the other segments were down and were offsetting that. We still feel very good about the overall LNG orders this year and the FIDs that are going to come through, as Lorenzo mentioned.
And if you take a look at the other segments, there are lots of opportunities there. We are seeing more activity. But as you know, deal timing can move across quarters depending on when customers decide to run some of these FIDs. So overall, the market backdrop is pretty constructive. I will say that as we previously talked about, we will make some trade offs between relatively higher margin projects, particularly in LNG and some of the segments where we have higher margins versus others that we had flow through the backlog over the course of the last couple of years when things were a bit softer.
So look, I wouldn't be surprised if some of the lower margin segments are actually down on orders year over year, and we're spending a lot of time looking at that mix of business and making sure we're doing what we need to do for our customers but also optimizing returns during the cycle.
Okay. I appreciate that. I guess if I could maybe follow-up on that. So if I think about the non LNG OEM kind of order portion, I guess, do we think that kind of normalizes back into over 2Q and 3Q to a little bit higher levels? Or is that like a good baseline to use unless we see some bigger orders start to come through?
Just trying to understand kind of what the new normal may be for non LNG orders, just to have a rough kind of estimate.
Yes, sure. Look, I do think it will, to use your words, normalize a bit and maybe not be at the same levels that you're seeing in terms of the year over year. But again, I wouldn't be surprised if for the total year in some of those segments, we're not down as we make those trade offs. So we are down in the Q1 year over year. But again, I don't know that it will be to this level as we look at the rest of the year.
Thank you. Our next question comes from Sean Meakim with JPMorgan.
Thanks.
To follow on the question on LNG competition and the read through to your expectations for 2019, how should we think about the level of OEM orders needed to exit 2019 at that mid to upper teens profitability that you've kind of put out there as a bogey for exiting the year?
Yes. Hi, Sean. If you think about it, the orders that we're going to be booking right now in LNG really don't have an impact on margin rates in TPS here in the second half. The timing of when that converts to revenue really depends on the scope of the project, greenfield versus brownfield, those types of things. But in a typical greenfield, within the 1st 6 months of FID, you actually book the order.
But the revenue really starts up a little bit 6 months but goes really through 24 months of post FID. And we recognize the revenue based on milestones like construction progress, testing and installation. So that's really a later impact. So what you see in Turbomachinery, really this year is a couple of things. One is, we expect to benefit from better mix in the equipment backlog like I talked about, And we do expect higher services activity throughout the year, and the transactional service orders in the Q1 certainly are a good indicator that things are playing out as we'd expected here early on in the year.
We are continuing to drive cost out in the portfolio. And then the incremental LNG spend that we had talked to you about earlier really should abate here in the second half of the year. So you've got a profile that looks a lot like last year in terms of margin progression, and the dynamics are really playing out that way. So look, we booked a lot of orders in the second half of twenty eighteen that you saw. That certainly helps second half of twenty nineteen.
And what we're booking right now plays out really in 2020 beyond.
So it sounds like no walk back from prior expectations around the margin progression aside from what you've already called out for the first half.
Yes, that's right. As I said, I feel good about how we're positioned there and don't see anything that changes that right now.
Okay. I appreciate that. It's very helpful. And then just thinking about cash a little bit, anything beyond typical seasonality as we look at the working capital draw in the Q1? And I'm just curious how much room is left to optimize OFS working capital metrics, just thinking about some of those key initiatives, Brian, that you've been focused on for the last year plus?
Yes. Yes, Sean, as I did say, we did expect a usage in the Q1. You've got outside of working capital, you've got the typical bonus and employee related compensation that happens in the Q1. Inventory, we did build intentionally to fulfill the increased volume that we're seeing coming to the portfolio. And I'd say the one area that was lower than we anticipated in the quarter was around collections, and that was mainly timing.
And a lot of that came in the 1st week after the quarter closed and has pretty much fixed itself by now. So there's nothing structural there, from a working capital standpoint. And look, we do have opportunities to continue to improve. I mean, we've reduced day sales outstanding by 23 days since we merged. We've increased payable days by 27 days, and we've improved inventory almost by a turn.
We've got dedicated teams continue to look at this, and I do think there's still opportunities in those working capital metrics to help us continue to grow without it being such a large drag on working capital. And we are all focused on free cash flow generation and managing working capital better. So, feel good about the dynamics and the framework that we laid out earlier in terms of free cash flow and our ability there to generate high free cash flow.
Thank you. Our next question comes from Marc Bianchi with Cowen.
Hey, thank you. Most of my questions have been answered, but I guess I'd like to explore the electric frac fleet opportunity a little bit more. Is there any way you could help size this opportunity relative to some of the LNG awards that you talk about, any way to put some dollars around that, maybe dollars per fleet and compare the profitability?
Yes, Mark. Just again, if you look at the electric frac market, it's going to vary by the different fields. We see a good opportunity for our TPS business. Where it's going to be most prevalent is if you look into areas such as the Permian where there's challenges around logistics, power and flare gas emissions. So you're able to take some of the gas and instead of utilizing the flaring the gas, you can actually utilize it within the electric frac.
So if you look at some metrics, you think about 20,000,000 horsepower translates into about 15 gigawatts of power. So the market potential is there. And for us, it's a very interesting new market entry with the pressure pumpers and also the packages. And it's starting to be offered now and starting to grow with our customers.
Yes, Mark, if you think about it, the sheer size of this from an individual transaction is much, much lower dollar value versus LNG or some of the larger projects and things that we have. But you can have a very profitable business here in selling our turbine technology. And in this space, we've got a lot of options here, the LM2500 technology, our Nova 16 technology. And the value proposition is really all around less people at site. You've got less equipment to mobilize and demobilize, one trailer versus multiple.
And then if you think about it for the operator that actually owns the well, taking that flare gas potentially, putting into a gas turbine and using that for your fuel is a pretty significant cost reduction. So there's a really good value proposition here that will drive better economics for customers as well as allow us to have pretty good economics as we sell the equipment here. But from an actual dollar size individual transaction, it's a lot lower than what you typically see in Turbomachinery for these larger transactions.
Okay. Thanks for that, Brian. I do have one more kind of unrelated on CapEx. I noticed this quarter, you've combined the kind of the capital expenditures and the gain on disposal. Just wondering if as we roll through the rest of the year in the context of your up to 5% of revenue guidance for CapEx, should we be thinking about that number that you reported here in the Q1 as being the relevant number for
the up to 5%?
Or are we going to see something different in the Q and think about kind of that actual outlay of CapEx being the relevant number for the guidance?
Yes, yes. Mark, that's really the way to think about it here. I mean, if you think about it, the gross CapEx is really not a material change versus last year, other than specific international projects like ADNOC and some of the deals that we've won in the Middle East. And in the Q1, I'd say it's pretty representative of where we're investing in our CapEx spend and new tools to drive growth as well as in Turbomachinery as we're launching new products there. So the numbers that you see there in the Q1 are pretty representative of how we think about the up to 5% of revenue.
Thank you. Our next question comes from David Anderson with Barclays.
Hi. I was wondering if you could just talk about the path towards normalized and peak margins in TPS over the next several years. Kind of moving beyond 2019, just thinking about how the LNG equipment orders convert into revenue, I would expect the first wave maybe is a little bit lower margins, but you also have the aftermarket starting to build in from last cycle. Can you just talk about the interplay of those two functions when you think you hit normalized and perhaps when you think you could hit peak margins in TPS?
Yes, Dave, if you think about it, it's a little bit earlier question. What you're seeing right now really is not going to convert into what coming through right now in orders really isn't going to start converting into revenue until 2020. You'll start to see some of the things from the second half of last year later in 2019. And we talked about tailwinds in 2019 in the second half that will improve margin rates. The other dynamic that you have is really the service revenue.
And we talked about contractual services revenue being up, in 2019, and we are starting to see that play out. And that's really from LNG installs from a few years ago. So as you look at that portfolio, you really got to take a look at and you can see when equipment was installed and when LNG started to be produced in all these different projects, to see how that services revenue starts to roll off. But right now, we are seeing an upcycle in the contractual services revenue. You'll start to see more equipment rolling off next year from the orders that we booked this year.
And then we do have a healthy CSA backlog that's going to continue to produce high margin revenue in 2020 2021.
Do you have a sense as to when that service side kind of peaks from last cycle? Is that a 2021 event along those lines?
Yes. No, look, you're going to have some times where it doesn't grow as much. But based on what we have installed and where they are in the operating cycle, I would expect that services revenue to continue growing. Year on year, you'll have some different growth rates. But in general, that service revenue, for the foreseeable future, we would expect it to grow.
And then on the OFS side, you talked about reentering a number of international markets that Baker or kind of your predecessor had exited over the prior years. Just curious, where are you in that process now? Are you kind of where you want to be? I think you talked about kind of the talking about market share of kind of the gains. But are there more opportunities?
Do you think you can have regained kind of satisfactorily what you've lost in the prior cycles? And I'm just trying to think about how do you strike that balance obviously between gaining share and improving margins in OFS as you think about this?
Yes, Dave. As we've mentioned, we've heightened our commercial intensity and we're always going to look at the trade offs between share and margin. When we're taking on projects, we're looking for them to be accretive to the operations. I'd say we've made good progress in the Middle East over the course of 2018. We're continuing to focus there.
We see international markets within Eastern Europe and also some of Africa as opportunities. So we're making very good progress, but there's still some more we can do. But again, we'll take into account the trade off of margin and share.
Thank you. Our next question comes from Chase Mulvehill with Bank of America.
Hey, good afternoon. Hi, Chase. I'm going to come back to the TPS orders. So if we kind of I guess, there's more moving pieces in base orders, I guess, than I really appreciated in TPS. So the order rate was down about 12% year over year.
Could you talk through what the biggest kind of year over year declines were within TPS? And then maybe do you think for 2019 that orders will be up?
Yes, Chase, as I said, LNG was up significantly in the quarter. The other segments were down enough to obviously offset that growth there. And if you look, it really varies by segment. And taking a look at it by quarter, Chase, is really difficult given the nature of the projects and when they're FID ing. So I think you really have to take a look over the course of a few quarters here.
And that's really how I look at the business over rolling quarters to see what we're doing visavis the market. But the speed at which different parts of the business grows really governed by customer FID. So the on and offshore is really going to be driven by some of these large projects and when they decide to FID. But as we said earlier, we do expect the total year to be up significantly given the LNG cycle that we're seeing and what we expect to FID there. And in addition, I'll just reiterate what I said earlier that we are taking a look, a hard look at the opportunities, and we will make some trade offs based on margin and returns here as we see a pretty positive backdrop for Turbomachinery in total.
Chase, I think it's important to remember as you look at the LNG, it's always been lumpy, and it will continue to be lumpy as we go forward. But again, the expectation hasn't changed for the year and TPS should have a good orders here.
Okay. All right. That's good color. Appreciate it. And then if we think about OFS business and particularly in North America, if we kind of look at your peers on a sequential performance basis, you underperformed your peers a little bit, but it was a bit surprising just given that you don't have pressure pumping.
So maybe could you kind of give us some moving pieces in the Q1, kind of what kind of surprised to the downside? Which business segments do you think kind of underperformed in Q1?
Got you. Again, if you look at what we expected and also what we discussed, sequential revenue was a decline in North America, largely driven by Canada and U. S, really played out as much as we'd said it would, and we continue to feel very good about our positioning. If you think about our Well Construction segment, we've indicated that it would be lower. But if you look at our drilling systems and again, what we're doing from a technology differentiation, feel good about outpacing the rig count as we go forward as well.
So I think artificial lift and chemicals, we continue to grow. So very much in line as we anticipated the Q1 would be. Yes.
And look, I'd just say well construction pretty much played out as we thought it would. We're coming off of a very strong 4th quarter, and feel pretty good about where Maria Claudia and the team are positioned in North America and globally right now.
Thank you, ladies and gentlemen. That concludes the Q and A portion of today's conference. I'd like to turn the call back to Lorenzo for closing remarks.
Yes. Thanks a lot. And maybe just a few words in closing. We're pleased with our Q1 results and specifically with the outlook for our business. Our financial outlook for 2019 remains unchanged.
And when looking at the outer years, I see multiple growth drivers for our company. We remain focused on our priorities of gaining share, improving margins and delivering strong cash flow. Thank you for joining us today and for your interest in our company. We look forward to speaking to you again soon.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect and have a wonderful day.