Q4 2022 General Electric Co Earnings Call

Larry Culp: Good morning, everybody, and congrats on executing the spin. Thanks, Joe. Thank you. Yeah, so my question is really going to be focused on this free cash flow bridge for 2023 and specifically on the segments. I'm curious, you know, you talk about aviation free cash flow being up versus 2022.

Joe Mastrangelo: Good morning, everybody and congrats on executing the spin.

Speaker 2: Thanks, Joe.

Joe Mastrangelo: Yeah, so my question is really going to be focused on this free cash flow bridge for 2023. And specifically on the segments, I'm curious you talked about aviation free cash flow being up versus '22. I know that you threw out the $500 million impact in AVNA, but did the rest of GE aviation free cash flow grow as consistently with earnings in 2023? And then my second question on the segment is just around renewables. What are you anticipating for the large payments in the second half of the year and what impact that has to the free cash flow in 2023? Thank you.

My question is really going to be focused on this free cash flow bridge for 2023.

And specifically on the segments I'm curious you talked about aviation free cash flow being up versus 22.

Larry Culp: I know that you threw out the $500 million impact in AD&A, but did the rest of GE Aviation free cash flow grow consistently with earnings in 2023? And then my kind of second question on the segments is just around renewables and what are you anticipating for the large payments in the second half of the year and what impact that has to the free cash flow in 2023? Thank you.

I know that you throughout the the $500 million impact and a DNA, but to the rest of GE aviation free cash flow grow consistently with with earnings in 2023, and then my second question on the segment is.

Just around renewables and what.

What are you anticipating for the large payments in the second half of the year and what impact that has to the free cash flow in 2023. Thank you.

Carolina Dybeck Happe: Okay, Joe. So a couple of questions. So let me start with the free cash flow guidance for 2023 for the whole company. So if we look at our 2022 numbers [inaudible] four point eight, new jumping off points, excluding health care is $3.1 billion. So basically, we are assuming that in the midpoint of our guidance, we will improve free cash flow with about $700 million. And the majority of that comes from growing our profit. Midpoint is about $1.2 billion of improvement in op profit. To add to that lower interest, couple hundred million of tailwind and then some working capital improvement despite the high single digit growth. A couple of things that are partially offsetting that, the headwinds from AVNA that you mentioned, about half a billion. We have a restructuring cash out as well as higher cash tax since we made more money.

[Company Representative] (GE): Okay, Joe, so a couple of questions. Let me start with the free cash flow guide for 2023 for the whole company.

Okay, Joe So a couple of questions. So let me start with the free cash flow guidance for 2023 for the whole the whole company.

[Company Representative] (GE): So if we look at our 2022 numbers that we just printed, $4.8 billion new dumping loss point excluding, including healthcare is $3.1 billion. So basically we are assuming that in the midpoint of our guide we will improve free cash flow with about $700 million. And the majority of that comes from growing OP profit. Midpoint is about $1.2 billion of improvement in OP profit to add to that, lower interest, couple hundred million of tailwind, and then some working capital improvement despite the high single-digit growth. A couple of things that are partially offsetting that, the headwinds from AD&A that you mentioned, about $0.5 billion. We have a restructuring cash out, as well as higher cash tax since we made more money. So taking altogether, we expect earnings to be the biggest driver of the improvement.

So if we looked at that rate.

2022 numbers Jeff.

Printed four eight.

No jumping off points, excluding health care is $3 1 billion.

Yes.

We are assuming that.

The midpoint of our guidance, we will improve free cash flow with about $700 million.

And the majority of that comes from growing our profit.

Midpoint, it's about $1 2 billion.

Billion of improvement in op profit.

Add to that lower interest couple hundred million of tailwind and then some working capital improvement despite the high single digit growth.

Couple of things that are partially offsetting that. And from a D&A that you mentioned about half a billion. Our restructuring cash out as well as higher cash tax central made more money.

And from a D&A that you mentioned about half a billion.

Our restructuring cash out as well as higher cash tax central made more money.

So taking altogether, we expect earnings to be the biggest driver of the improvement and continue to benefit from our working capital management and overall, that's what gives us that confidence in our total free cash flow guide.

[Company Representative] (GE): We'll continue to benefit from our working capital management, and overall that's what leads us to have confidence in our total free cash flow guide. You also asked about the segments specifically, and on Aerospace. So if you look at Aerospace, clearly the improvement in profit is a big driver in Aerospace improved free cash flow when it comes to working capital. Mind you what Larry said about the really strong growth that we're expecting to see. So of course working capital will be pressured consumables, and also partly inventory from that kind of growth. But we do expect that the combination of profit growth, working capital management will more than affect the AD&A headwind of $0.5 billion. So we will improve cash also for Aerospace.

Confidence in our total free cash flow guide.

You also asked about the segments specifically and on aerospace. So if you look at aerospace, clearly the improvement in profit is a big driver in aerospace improved free cash flow. When it comes to working capital, what Larry said about the really strong growth that we're expecting to see, so of course working capital will be pressured and also partly inventory from that kind of growth, but we do expect that the combination of profit growth working capital management will more than offset the AVNA headwind of half a billion, so we will improve cash also for aerospace.

On aerospace if you look at aerospace clearly the improvement in profit is a big driver in aerospace improved free cash flow.

When it comes to working capital finally, what Larry said about the really strong growth that we're expecting to see of course working capital will be pressured.

And also part of inventory from that kind of growth, but we do expect that the combination of profit growth working capital management will more than offset the DNA headwind of half a billion. So it will improve cash also for aerospace.

[Company Representative] (GE): If you look at the Renova businesses, as Larry said, we basically expect it to be flat to slightly improving on cash as well. Here you have power would be slightly down, but we expect renewables to improve.

And then if you look at the renewable businesses, as Larry said, we basically expect it to be flat to slightly improving on cash as well. And here you have power will be slightly down where we expect renewables to improve.

We basically expect it to be flat to slightly improving on a cash as well.

And here you have power plants. It downloads, we expect renewables to improve.

Larry Culp: Down payments. Joe, that you were asking about, I think we said in our formal remarks that that should be in the $3 to 4 billion range. Some of those are for orders as they progress and orders to come, many of which we have been selected for. But again, the timing here, until the IRS finalizes the rules, the tax rules for developers could have a little bit of movement, and that's what we were trying to flag in the formal remarks. So it'll be backloaded in that regard, but we'll have much greater linearity in aerospace, as Carolina suggested.

H. Lawrence Culp, Jr.: The down payments, Joe that you were asking about, I think we said in our formal remarks, that should be in the $3 billion to $4 billion range. Some of those are for orders as they progress and orders to come, many of which we have been selected for, but again the timing here until the IRS finalizes the rules, the tax rules for developers could have a little bit of movement. And that's what we were trying to flag in the formal remarks. So it will be back loaded in that regard, but we will have much greater linearity in aerospace as Carolina suggested.

Yeah on payments, Joe that you were asking about.

We said in our formal remarks, but that should be in the $3 billion to $4 billion range. Some of those are for orders as they progress and orders to come.

Which we have been selected for but again the timing here until the IRS finalized the rules.

The tax rules for developers.

Could have a little bit of movement.

That's what we were trying to flag.

In the formal remarks, there will be back loaded.

In that regard, but I will have much greater linearity and aerospace was kind of arena suggested.

[Company Representative] (GE): Our next question comes from Josh Pokrzywinski with Morgan Stanley.

Operator: Our next question comes from Josh Pokrzywinski with Morgan Stanley.

With Morgan Stanley.

Joshua Charles Pokrzywinski: So I just wanted to follow up here on renewables. It looks like there is some op profit improvement not maybe all the way back to what folks were perhaps expecting. Just wondering if you could parse what's getting better like selectivity or grid or price cost versus what's still kind of a more material headwind this year.

Larry Culp: Larry, I'm just wanting to follow up here on renewables. Looks like there's some profit improvement, not maybe all the way back to what folks were perhaps expecting. Just wondering if you could parse what's getting better, like selectivity or grid or price cost versus what's still kind of a more material headwind this year.

So.

I'm just wanted to follow up here on renewables. It looks like there is some op profit improvement not maybe all the way back to what what folks were perhaps expecting just wondering if you could parse what's getting better like selectivity or grid or price cost versus what's still kind of a more material headwinds this year.

Larry Culp: Josh, good morning. No, I think if you look at renewables, we think profitability will be significantly better. If I break it down at grid, we're really encouraged by the improvements the team has put in place. I think that's what yielded the profitable quarter here in the fourth, but more importantly sets them up to be profitable in 2023. Right. This was a business that people had given up on a few years ago. Particularly in Europe, we've seen tremendous interest really across the grid portfolio in line with this accelerated electrification that's underway. I think that's all good. They begin to contribute in the new year. I think from an onshore perspective, a little to Joe's question a moment ago on cash, the same thing applies to profitability.

H. Lawrence Culp, Jr.: Josh, good morning. No, I think if you look at renewables, we think profitability will be significantly better. If I break it down at grid, we're really encouraged by the improvements the team has put in place. I think that's what yielded the profitable quarter here in the fourth, but more importantly sets them up to be profitable in 2023. This is a business that people had given up on a few years ago and particularly in Europe, we've seen tremendous interest really across the grid portfolio in line with this accelerated electrification that's underway. So I think that's all good and they begin to contribute in the new year.

If I break it down it grid.

We're really encouraged by the improvements the team has put in place I think thats, what yielded the profitable quarter here in the fourth but more importantly set some off to be profitable.

2023, right. This is a business that people had given up on a few years ago and particularly in Europe, we've seen tremendous interest really across the grid portfolio.

In line with this accelerated electrification that's underway. So I think that's all good and they begin to contribute.

I think from an onshore perspective, a little to Joe's question a moment ago on cash, the same thing applies to profitability. I think the first half is going to continue to be challenged much in the way that 2022 has but as we work our way through the year, we would expect to see volume, we will see higher quality volume as a function of that sort of activity, and we could really see better pricing in our order book compared to our revenues, in our [inaudible] compared to our orders, and in our pipeline. We've talked about that before, I think that really is a sign that the industry is transitioning in anticipation of the IRA to one where volume capacity may be challenged by demand and that'll be good overall. But there's a whole host of things that we need to do operationally. I think we talked on the last call about improving our produceability and the robustness of what we do in manufacturing. At the same time, we have taken some structural cost actions, really the only place in GE  where that's the case with nearly 2000 of our associates in transition here as we look to get the renewables business onshore in particular in better shape for what lies ahead.

Larry Culp: I think the first half is going to continue to be challenged much in the way that 2022 has. But as we work our way through the year, we would expect to see volume. We'll see higher quality volume as a function of that selectivity. And we can really see better pricing in our order book compared to our revenues, in our tech selects compared to our orders, and in our pipeline. We've talked about that before. I think that really is a sign that the industry is transitioning in anticipation of the IRA to one where volumes may be capacity, may be challenged by demand, and that will be good overall. But there's a whole host of things that we need to do operationally. I think we talked in the last call about improving our producibility and the robustness of what we do in manufacturing.

We could really see better pricing.

And our order book compared to our revenues and our <unk> compared to our orders and in our pipeline. We've talked about that before I think that really is a sign that the industry is transitioning in anticipation of the IRA.

<unk>.

Volumes maybe.

<unk> may be challenged by demand and that'll be that'll be good overall, but there's a whole host of things that we need to do operationally I think we talked on the last call about improving our produce ability in.

And the robustness of what we do in manufacturing at the same time, we have taken some structural cost actions really the only place and GE.

Larry Culp: At the same time, we have taken some structural cost actions. Really the only place in GE where that's the case, with nearly 2,000 of our associates in transition here as we look to get the renewables business onshore in particular in better shape for what lies ahead, and then for offshore because we are going to double revenue, we're going to need to recognize the losses that go with the Haliade-X early on here. So grid much better onshore, wind in transition, a bit of a timing dynamic with offshore, and you put that together and that's really what gives you the renewables guide for 2023.

where that's the case with nearly 2000 of our associates in transition here as we look to get the renewables business onshore in particular in better shape for what lies ahead.

Nearly 2000 of our associates in.

And then for offshore, because we are going to double revenue, we're going to need to recognize the losses that go with the Haliade-X early on here. So grid much better, onshore wind in transition, a bit of a timing dynamic with offshore, and you put that together and that's really what gives you the renewables guide for '23.

We're going to need to recognize the losses that go with the Hollywood ex early on here, so grid much better onshore wind and transition a bit of a timing dynamic with with offshore and you put that together and that's really what gives you the renewables guide for 'twenty three.

[Company Representative] (GE): Our next question comes from Julian Mitchell with Barclays.

Operator: Our next question comes from Julian Mitchell with Barclays.

Larry Culp: Hi, good morning. Just wanted to ask about cash flow sort of through the year and also the uses of your cash. That's something maybe refreshing to talk about for the first time in a few years. But on the cash flow through the year, when we think about the seasonality, I think you had sort of free cash was minus $900 Q1 a year ago. How do you see the sort of the cash flow moving this year? It sounds like renewables may be a very big headwind in the first half and then swings in the second. So any color on the GE firmwide free cash as we go through the year and then maybe more for Larry sort of thoughts on capital deployment. You know there is starting to be some optionality now for GE partly because of the improving cash flow.

Julian Mitchell: Hi, good morning. Just wanted to ask about cash flow sort of through the year and also the uses of fuel cash that's something maybe refreshing to talk about for the first time in a few years. But on the cash flows through the year, when we think about the seasonality, I think you had sort of free cash was minus 900 first quarter a year ago, how do you see sort of the cash flow moving this year? It sounds like renewables might be a very big headwind in the first half and then swings in the second, so any color on the GE somewhat free cash as we go through the year.

Just wanted to ask about cash.

Cash flow sort of through the year and also the uses of fuel cash that's something maybe refreshing to talk about for the first time in a few years, but on the on the cash flows through the year.

When we think about the seasonality I think you had sort of free cash was minus 900.

First quarter, a year ago, how do you see the sort of the cash flow moving this year. It sounds like renewables might be a very big headwind in the first half and then and then swings in the second and so any color on the GE somewhat free cash as we go through the year.

And then maybe more for Larry your sort of thoughts on capital deployment. There is starting to be some optionality now for GE, partly because of the improving cash flow. It's mostly been debt reduction understandably for a few years, but maybe just help us understand your priorities on cash use.

Maybe more for Larry your sort of thoughts on capital deployment. There is starting to be some optionality now so GE, partly because of the improving cash flow.

Larry Culp: It's mostly been debt reduction understandably for a few years, but maybe just help us understand your priorities on cash use.

It's mostly been debt reduction understandably for a few years, but maybe just help us understand your priorities on cash use.

[Company Representative] (GE): Julian: Let me take the first part of that question on seasonality and on.

Carolina Dybeck Happe: So Julian, let me take the first part of that question on seasonality and on how we see that happening through the year in 2023. Maybe let me just start with the first quarter. We are expecting [inaudible] of 10 to 15 in the first quarter, so actually better linearity than we've seen before in 2022. On cash, we still expect cash to be negative also in the first quarter of the new jumping off point is -1.2 so we expect it to be significantly better than that but still negative as is typical for our seasonality. In seasonality in general, I would say, we don't expect material changes to our seasonality, we are still sort of heavy second half loaded, both the revenue and profit and on cash actually even more backend loaded now that we are excluding healthcare. So expect lower volume in the first half and ramping in the second half renewable sequentially growing through the year and for aerospace sequentially growing further renewables significant sort of first half to second half ramp and powered more of that typical outage seasonality, where you see sort of large in Q2 an even larger 4Q and we also have the equipment deliveries in the second half. But I would finish by saying that improving operational linearity is a key priority for us and clearly more to do. Julian I would say with respect to capital allocation you are right. The boardroom conversations are fundamentally different than they were.

Carolina Dybeck Happe: So Julian, let me take the first part of that question on seasonality and on how we see that happening through the year in 2023. Maybe let me just start with the first quarter. We are expecting [inaudible] of 10 to 15 in the first quarter, so actually better linearity than we've seen before in 2022. On cash, we still expect cash to be negative also in the first quarter of the new jumping off point is -1.2 so we expect it to be significantly better than that but still negative as is typical for our seasonality. In seasonality in general, I would say, we don't expect material changes to our seasonality, we are still sort of heavy second half loaded, both the revenue and profit and on cash actually even more backend loaded now that we are excluding healthcare. So expect lower volume in the first half and ramping in the second half renewable sequentially growing through the year and for aerospace sequentially growing further renewables significant sort of first half to second half ramp and powered more of that typical outage seasonality, where you see sort of large in Q2 an even larger 4Q and we also have the equipment deliveries in the second half. But I would finish by saying that improving operational linearity is a key priority for us and clearly more to do.

Carolina Dybeck Happe: So Julian, let me take the first part of that question on seasonality and on how we see that happening through the year in 2023. Maybe let me just start with the first quarter. We are expecting [inaudible] of 10 to 15 in the first quarter, so actually better linearity than we've seen before in 2022. On cash, we still expect cash to be negative also in the first quarter of the new jumping off point is -1.2 so we expect it to be significantly better than that but still negative as is typical for our seasonality.

[Company Representative] (GE): How we see that happening through the year in 2023.

We see that happening through the year in 2023.

[Company Representative] (GE): Maybe let me just start with the first quarter.

Maybe let me just start with the first the first quarter.

[Company Representative] (GE): We are expecting an EPS of $0.10 to 0.15 in Q1. So actually better linearity than we've seen before in 2022 on cash. We still expect cash to be negative also in Q1. The new jumping-off point is -1.2. So we expect it to be significantly better than that, but still negative, as is typical for our seasonality and seasonality in general. I would say we don't expect material changes to our seasonality. We are still sort of heavy H2 loaded both on revenue and profit and on cash, actually even more back-end loaded now that we are excluding health care. So expect lower volume in H1 and ramping in H2, sort of renewables sequentially growing through the year. For aerospace sequentially growing through the year.

We are expecting.

Of 10 to 15 in the first quarter, so actually better linearity.

And we've seen before in 2022 on cash we still expect cash to be negative also in the first quarter of the new jumping off point is negative $1. Two can we expect it to be significantly better than that but still negative as its typical for our seasonality.

Carolina Dybeck Happe: In seasonality in general, I would say, we don't expect material changes to our seasonality, we are still sort of heavy second half loaded, both the revenue and profit and on cash actually even more backend loaded now that we are excluding healthcare. So expect lower volume in the first half and ramping in the second half renewable sequentially growing through the year and for aerospace sequentially growing further renewables significant sort of first half to second half ramp and powered more of that typical outage seasonality, where you see sort of large in Q2 an even larger 4Q and we also have the equipment deliveries in the second half. But I would finish by saying that improving operational linearity is a key priority for us and clearly more to do.

Carolina Dybeck Happe: In seasonality in general, I would say, we don't expect material changes to our seasonality, we are still sort of heavy second half loaded, both the revenue and profit and on cash actually even more backend loaded now that we are excluding healthcare. So expect lower volume in the first half and ramping in the second half renewable sequentially growing through the year and for aerospace sequentially growing further renewables significant sort of first half to second half ramp and powered more of that typical outage seasonality, where you see sort of large in Q2 an even larger 4Q and we also have the equipment deliveries in the second half.

Susan I'll, let in general I would say, we don't expect material changes to our seasonality. We are still sort of heavy second half noted both the revenue and profit and on cash actually even more backend loaded now that we are excluding healthcare. So expect lower volume in the first half and ramping in the second half renewable sequentially growing through the year and for aerospace sequentially growing further renewables significant sort of first half to second half ramp and powered more of that. Typical outage seasonality, where you see sort of launched <unk>, an even larger. And we also have them equipment deliveries in the second half. But I would finish by saying that improving operational linearity is a key priority for us. Clearly more to do. Julian I would say with respect to capital allocation and you are right. The boardroom conversations are fundamentally different than they were.

So expect lower volume in the first half and ramping in the second half renewable sequentially growing through the year and for aerospace sequentially growing further renewables significant sort of first half to second half ramp and powered more of that. Typical outage seasonality, where you see sort of launched <unk>, an even larger. And we also have them equipment deliveries in the second half. But I would finish by saying that improving operational linearity is a key priority for us. Clearly more to do. Julian I would say with respect to capital allocation and you are right. The boardroom conversations are fundamentally different than they were.

[Company Representative] (GE): [has a] significant sort of first half to second half ramp, and power more the, you know, the typical outage seasonality where you'd see sort o

Typical outage seasonality, where you see sort of launched <unk>, an even larger. And we also have them equipment deliveries in the second half. But I would finish by saying that improving operational linearity is a key priority for us. Clearly more to do. Julian I would say with respect to capital allocation and you are right. The boardroom conversations are fundamentally different than they were.

And we also have them equipment deliveries in the second half. But I would finish by saying that improving operational linearity is a key priority for us. Clearly more to do. Julian I would say with respect to capital allocation and you are right. The boardroom conversations are fundamentally different than they were.

But I would finish by saying that improving operational linearity is a key priority for us. Clearly more to do. Julian I would say with respect to capital allocation and you are right. The boardroom conversations are fundamentally different than they were.

Carolina Dybeck Happe: But I would finish by saying that improving operational linearity is a key priority for us and clearly more to do.

Clearly more to do.

Larry Culp: Julian, I would say with respect to capital allocation, you're right, the boardroom conversations are fundamentally different than they were just a few years ago. Right. We've now reduced our debt load by $100 billion. Really pleased with the way health care has spun and has traded here. You look at that effectively as a $30 billion dividend to shareholders. So we have a lot of options. I would say all options are on the table. However, job one remains the completion of what we announced, the transformation back in November 2021. Right. We want to make sure more than anything that we are setting up both aerospace and Vernova in the way that we describe them. So as we work through a number of, if you will, more tactical considerations, that overarching strategic objective will continue to be foremost in mind.

Julian I would say with respect to capital allocation and you are right. The boardroom conversations are fundamentally different than they were.

H. Lawrence Culp, Jr.: Julian I would say with respect to capital allocation you are right. The boardroom conversations are fundamentally different than they were. just a few years ago, right? We've now reduced our debt load by $100 billion, really pleased with the way health care is spun and has traded here. You can look at that effectively as a $30 billion dividend to shareholders. So we have a lot of options and I would say all options are on the table. However, job one remains the completion of what we announced, the transformation back in November of '21. We want to make sure more than anything that we're setting up both Aerospace and Vernova in the way that we describe them.

just a few years ago, right? We've now reduced our debt load by $100 billion, really pleased with the way health care is spun and has traded here. You can look at that effectively as a $30 billion dividend to shareholders. So we have a lot of options and I would say all options are on the table. However, job one remains the completion of what we announced, the transformation back in November of '21. We want to make sure more than anything that we're setting up both Aerospace and Vernova in the way that we describe them.

Really pleased with the way health care is spot and has traded here you can look at that effectively as a $30 billion dividend to shareholders.

So we have a lot of options and I would say all options are on the table. However.

Job one remains.

The completion of what we announced the transformation backing off in November of 'twenty, one right, we want to make sure more than anything that we're setting up both aerospace and for Nova.

So as we work through a number of, if you will, more tactical considerations, that overarching strategic objective will continue to be foremost in mind. But no doubt about it, it's a different conversation and it's a much more enjoyable conversation to have than where we were back in '18 and '19.

A number of if you will more tactical considerations that overarching strategic objective, we will continue to be foremost in mind, but no doubt about it it's a different conversation and it's a much more enjoyable conversation to have.

Larry Culp: But no doubt about it, it's a different conversation and it's a much more enjoyable conversation to have than where we were back in 2018 and 2019.

We were back in 18 and 19.

[Company Representative] (GE): Our next question comes from Andrew Obin with Bank of America.

Operator: Our next question comes from Andrew Obin with Bank of America.

Larry Culp: Yes, good morning. Morning, Andrew. Just a couple of questions, I think, on Vernova. First, I think there's a lot of sort of talk in the industry about on wind to structurally change the contract. Right. Because overall industry is just not in particularly good shape. So question one, where are we, you know, in conversation with large customers who seem to want more capacity yet sort of the contract terms are not really helping the industry make any money? Where are we in structural renegotiating the contract structure? And I think the second question just on power overall, more traditional power, but, you know, focus is on profit growth, not revenue growth. What are the key levers you focused in 2023? Guidance seems to suggest modest margin expansion. Are there any headwinds in gas and services that you're facing in 2023? Thank you.

Andrew Burris Obin: Hi, yes, good morning. Good morning Andrew. Just a couple of questions I think on Vernova. First, I think there is a lot of talk in the industry about wind to structurally change the contract because overall the industry is just not in particularly good shape. So question one, where are we in conversations with large customers who seem to want more capacity yet sort of the contract terms are not really with help from the industry to make any money? Where are we in structural renegotiating the contract structure?

Andrew Burris Obin: Hi, yes, good morning.

Andrew Burris Obin: Good morning Andrew. Just a couple of questions I think on Vernova. First, I think there is a lot of talk in the industry about wind to structurally change the contract because overall the industry is just not in particularly good shape. So question one, where are we in conversations with large customers who seem to want more capacity yet sort of the contract terms are not really with help from the industry to make any money? Where are we in structural renegotiating the contract structure?

Carolina Dybeck Happe: Good morning Andrew.

Good morning.

Andrew Burris Obin: Just a couple of questions I think on Vernova. First, I think there is a lot of talk in the industry about wind to structurally change the contract because overall the industry is just not in particularly good shape. So question one, where are we in conversations with large customers who seem to want more capacity yet sort of the contract terms are not really with help from the industry to make any money? Where are we in structural renegotiating the contract structure?

Just a couple of questions I think on.

Sure.

First I think there is a lot of talk in the industry about on wind.

To structurally change the contract right because the overall industry is just not in particularly good shape.

So question, one where are we in conversations with large customers who seem to want more capacity.

That's sort of the contract terms are not really with help from the industry make any money.

Or are we in structural renegotiating the contract structure.

And I think the second question just on power overall, more traditional power, but focus is on profit growth, not revenue growth, what are the key levers you are focused on in '23? Guidance seems to suggest modest margin expansion, are there any headwinds in das and services that you are facing in '23? Thank you.

More traditional power, but.

Focus is on profit growth not revenue growth what are the key levers you were focused in 'twenty three guidance seems to suggest modest margin expansion are there any headwinds in das and services that are you facing in 23. Thank you.

Larry Culp: Andrew, I'll take the first part of that. Carolina, perhaps, can jump in on the second part. I would say that, you see, I think in the press.

H. Lawrence Culp, Jr.: Andrew, I'll take the first part of that. Carolina perhaps can jump in on the second part. I would say that you see I think in the press more discussion offshore than you do onshore relative to renegotiation given that some of the PPAs that are in place in the wake of the inflation that is run over every every part of our economy makes those more challenging arrangements. We're just really starting in our offshore business so we see a little bit of that, but frankly not a lot given our relatively small position.

On the second part I would say that.

You see I think in the press.

Larry Culp: More discussion offshore than you do onshore relative to renegotiation. Given that some of the PPAs that are in place in the wake of the inflation that has run over every, every part of our economy, makes those more challenging arrangements. We're just really starting in our offshore business, so we see a little bit of that, but frankly not a lot given our relatively small position. I think the way you see those dynamics playing out for us again in the wake of the IRA in particular here in the US is that customers really want what we refer to as workhorse products. I think the technical specmanship, the arms race, is a thing that is quickly, a dynamic that's quickly fading here. And customers want to make sure that they know they can get.

More discussion offshore then you do onshore.

Relative to renegotiation given that some of the Ppas that are in place in the wake of the inflation that is.

Ron over every every part of our economy makes those more more challenging arrangements.

We're just really starting in our offshore business.

So we see a little bit of that but frankly not a lot.

Given given our.

Relatively small position.

I think the way you see those dynamics playing out for us again in the wake of the IRA in particular here in the US is that customers really want what we referred to as workhorse products. I think the technical speckmanship, the arms race is a dynamic that's quickly fading here and customers want to make sure that they know they can get units onshore in particular over the next several years that they can count on both in terms of performance and delivery. I think that in turn is leading not to renegotiations, that's not the nature of the business, but as we look at new business the reason we're seeing better pricing. I think that the industry is going to need to work through that so there will be a new equilibrium. The carats offered by the IRA are incredibly helpful in that regard. At least we anticipate that they will be once the IRS rules are finalized. And that in turn is why I think you'll see us step up in volume over the next several years and presumably convert these better sold price levels in the real margins and real cash.

Again in the wake of the IRI in particular here in the U S.

Is that.

Customers really want what we referred to as workhorse products.

Thank you.

The technical Speckman ship. The arms race is a thing that is quickly a dynamic that's quickly fading here and customers want to make sure that they know they can get.

Larry Culp: Units onshore in particular over the next several years that they can count on, both in terms of performance and delivery. I think that in turn is leading not to renegotiations. That's not the nature of the business. But as we look at new business, right. The reason we're seeing better pricing, I think, is that the industry is going to need to work through that so that there will be a new equilibrium. The carrots offered by the IRA are incredibly helpful in that regard. At least we anticipate that they will be once the IRS rules are finalized. That in turn is why I think you'll see us step up in volume over the next several years and presumably convert these better sold price levels into real margins in real cash.

Units onshore in particular over the next several years that they can count on both in terms of performance and delivery.

That in turn is.

Leading not to renegotiations, that's not the nature of the business, but as we look at new business.

the reason we're seeing better pricing. I think that the industry is going to need to work through that so there will be a new equilibrium. The carats offered by the IRA are incredibly helpful in that regard. At least we anticipate that they will be once the IRS rules are finalized. And that in turn is why I think you'll see us step up in volume over the next several years and presumably convert these better sold price levels in the real margins and real cash.

I think that the industry is going to need to work it.

Through that so there will be a new equilibrium. The carats offered by the IRI are incredibly helpful. In that regard at least we anticipate that they will be once the IRS rules are finalized and.

And that in turn is why I think you'll see us step up.

In volume over the next several years.

And presumably convert these better as sold price levels and the real margins in real cash.

[Company Representative] (GE): To Power. I have to just start by saying, looking at where we landed the year, what the team delivered $1.2 billion of profit and 7.5% op margin, really getting to high single digits. That's quite an achievement. Building on that for 2023 for power, we have a couple of positives. We have more CSA outages. We talked about 2022 being a low CSA outage year. 2023 will be a higher CSA outage year, so that's good. We also have aeroderivatives growing, but we do expect to have product mix execution with equipment deliveries as well as inflation. So price-cost for power, having had a big price impact in 2022, when you lap that in 2023, being pressured by the inflation coming through in the P&L, being such a long cycle business.

Carolina Dybeck Happe: On power, I have to just start by saying looking at where we landed the year and what the team delivered $1.2 billion of profit and 7.5% of off margin really getting to high single digits, that's quite an achievement. And building on that for 2023 for power, we have a couple of positives. We have more to [inaudible] outages, we talked about '22 being a low CSA outage year, '23 will be higher outages, so that's good. We also have Aero derivatives growing but we do expect to have a mixed equation with our equipment deliveries as well as inflation. So price cost for power, having had a big price to impact in 2022, when you lap that in 2023, being pressured by the inflation coming through in the P&L being such a long cycle business. So overall, we expect earnings growth and on the cash side also strong services collections, but offset by distributions are down slightly on the cash side, but still very high cash conversion number.

Power.

To just start by saying looking at where we landed the year and what the team delivered $1 2 billion of profit and seven 5% of margin really getting to high single digits.

Quite an achievement.

And same thing on that for 2023.

For power, we have a couple of positive and they have more to say outages. They talked about 'twenty two being a low CSA outage air 20 favorite would be higher.

Outages. So that's good we also have.

Aero derivatives growing but we do expect to have.

Mix equation with our equipment deliveries.

Well as inflation, so price cost for power, having had a big price the impact in 2022, when you lap that in 2020.

Being pressured by the inflation coming through in the P&L being such a long cycle.

[Company Representative] (GE): So overall, we expect earnings growth and, on the cash side, also strong services collections, but offset by distributions down slightly on the cash side, but still a very high cash conversion number.

Okay.

So overall, we expect earnings growth.

And on the cost side also strong services collections, but offset by distributions sit down.

On the cash side, but still very high cash conversion number.

[Company Representative] (GE): Our next question comes from Nigel Coe with Wolfe Research.

Operator: Our next question comes from Nigel Coe with Wolfe Research.

Larry Culp: Hello, can you hear me? We can go ahead. Nigel. Oh, hi. Good morning. My line just went dead there. First of all, thanks for all details. We covered all the ground so far. I did want to go back to the offshore losses and cash outflow in 2023. Just wondering how do you see that curve developing? I don't know if you want to quantify it in 2023 in terms of the headwinds facing, but how do you see that progressing in 2024, 2025, and maybe just given the magnitude of the losses in 2023 for renewables in total, are we still confident in the bridge back to 2024 profit.

Nigel Coe: Hello, can you hear me?

You can go ahead Michael.

H. Lawrence Culp, Jr.: We can. Go ahead Nigel.

Carolina Dybeck Happe: Hi Nigel.

Nigel Coe: Good morning. My line just went there. First of all, thanks for the details because [inaudible] so far. I did want to go back to the offshore losses and cash outflow in '23. Just wondering how do you see that curve developing? I don't know if you want to quantify it in '23 in terms of the headwinds facing but how do you see that progressing in '24, '25 maybe just given the magnitude of the losses in '23 for renewables in total, are we still confident in the bridge back to '24 profits?

And just went through.

First of all thanks for the details because all around the sofa I did want to go back to the.

Offshore losses, and cash outflow in 'twenty three.

Wondering how do you see that that curve.

I don't know if you want to quantify it in 'twenty three in terms of the headwinds facing but how do you see that progressing in 'twenty four 'twenty five.

Maybe just given the magnitude of the losses in <unk> and 'twenty three for renewables in total.

And the bridge back to 'twenty four profit.

Larry Culp: Nigel? I don't know if we got all of that. Let me speak to the offshore dynamic. I think what we're going to see in 2023 is pressure. We talked a little bit earlier about the doubling of revenue, the dynamics with the Haliade-X being new, and how that rev rec will lead to profit pressure from a cash dynamic. We'll also see disbursements as those projects move forward. We should see some milestone payments, some of which will be back-end loaded as well. And they too have a little bit of timing.

H. Lawrence Culp, Jr.: Nigel, I don't know if we got all of that. Let me speak to the offshore dynamic. I think what we're going to see in '23 is pressure. We've talked a little bit earlier about the doubling of revenue, the dynamics with the Haliade-X being new and how that Rev Rec will lead to Op profit pressure. From a cash dynamic, we'll also see disbursements as those projects move forward. We should see some milestone payments, some of which will be backend loaded as well and they too have a little bit of timing variability around them, we need to execute in order to see that in '23 as opposed to '24.

All of that let me speak to the offshore dynamic.

I think what we're going to see in 'twenty three as pressure.

We've talked a little bit earlier about the doubling of revenue the dynamics with the Hollywood X being new and how that Rev. Rec will lead to.

Op profit pressure.

From a cash dynamic will also see disbursements as those those projects move forward.

We should see some milestone payments some of which will be backend.

Backend loaded as well and they too have a little bit of timing.

Larry Culp: Variability around them. We need to execute in order to see that in 2023 as opposed to 2024. But as we look forward, I think what we gotten from customers is a lot of good feedback relative to where we go next with the evolution of the Haliade-X. And that's where our product teams and our engineering teams are focused. I think the timing of when we see the next tranche of orders is such that it's going to be potentially more a 2024 than a late 2023 dynamic. And that too will create some of that pressure that is not atypical for a business that is effectively in startup mode. I wish it were otherwise, but again, I think given what we're seeing in grid and what we should see in onshore, once we have clarity with the IRA, that will help buffer us in many respects.

Variability around them, we need to execute in order to see that in in 'twenty three as opposed to 24.

But as we look forward, I think what we've gotten from customers is a lot of good feedback relative to where we go next with the evolution of the Haliade-X, and that's where our product teams and our engineering teams are focused. I think the timing of when we see the next tranche of orders is such that it's going to be potentially more a '24 than a late '23 dynamic and that too will create some of that pressure that is not atypical for a business that is effectively in startup mode. I wish it were otherwise, but again I think given what we're seeing in grid and what we should see in onshore, once we have clarity with the IRA, that'll help buffet us in many respects.  But when you look at Vernova overall for that free cash flat to slightly improving guide, that's really what we're referring to.

Gotten from customers is a lot of good feedback relative to where we go next with the evolution of the Hollywood acts and Thats, where our product teams and our engineering teams are focused.

I think the timing of when we see the next tranche of orders is such that it's going to be.

Essentially more a 'twenty four than a late 'twenty three dynamic and that too will create some of that pressure.

That is not atypical for a business that is effectively in startup mode.

Wish it were otherwise, but again I think given what we're seeing in grid and what we should see.

In onshore once we have clarity with the IRA that'll help buffet us in many respects, but when you look at <unk> overall for.

Larry Culp: But when you look at Vernova overall for that free cash flat to slightly improving guide, that's really what we're referring to.

But when you look at Vernova overall for that free cash flat to slightly improving guide, that's really what we're referring to. I think with respect to profitability, no change in expectation. Again, if we get the volume that I think everyone anticipates coming here in the North American market, our best market where we're seeing healthier pricing coupled with better execution from a manufacturing from a cost perspective, grid being profitable and offshore coming along, we should do that in '24, we need to do that next year. And when you see that cash that profit will then turn into cash and then also the timing that we've talked about on working capital with the progress down payments and more of that happening in 2024.

But when you look at Vernova overall for that free cash flat to slightly improving guide, that's really what we're referring to. I think with respect to profitability, no change in expectation. Again, if we get the volume that I think everyone anticipates coming here in the North American market, our best market where we're seeing healthier pricing coupled with better execution from a manufacturing from a cost perspective, grid being profitable and offshore coming along, we should do that in '24, we need to do that next year.

But when you look at Vernova overall for that free cash flat to slightly improving guide, that's really what we're referring to.

What we're referring to. I think with respect to profitability no no change in expectation. Again, if we get the volume that I think everyone anticipates coming here in the North American market, our best market, where we're seeing healthier pricing coupled with better execution from a. Factoring from a cost perspective. Grid being profitable and onshore or offshore rather coming along we are we should do that in 'twenty four we need to do that next year and when you say that cash that that. Profit will then turn into cash and then also the timing that we've talked about on working capital with the progress down payments and more of that happening in 2024.

I think with respect to profitability, no change in expectation. Again, if we get the volume that I think everyone anticipates coming here in the North American market, our best market where we're seeing healthier pricing coupled with better execution from a manufacturing from a cost perspective, grid being profitable and offshore coming along, we should do that in '24, we need to do that next year.

Larry Culp: I think with respect to profitability, no change in expectation, right? Again, if we get the volume that I think everyone anticipates coming here in the North American market, our best market, where we're seeing healthier pricing coupled with better execution from a.

I think with respect to profitability no no change in expectation. Again, if we get the volume that I think everyone anticipates coming here in the North American market, our best market, where we're seeing healthier pricing coupled with better execution from a. Factoring from a cost perspective. Grid being profitable and onshore or offshore rather coming along we are we should do that in 'twenty four we need to do that next year and when you say that cash that that. Profit will then turn into cash and then also the timing that we've talked about on working capital with the progress down payments and more of that happening in 2024.

Again, if we get the volume that I think everyone anticipates coming here in the North American market, our best market, where we're seeing healthier pricing coupled with better execution from a. Factoring from a cost perspective. Grid being profitable and onshore or offshore rather coming along we are we should do that in 'twenty four we need to do that next year and when you say that cash that that. Profit will then turn into cash and then also the timing that we've talked about on working capital with the progress down payments and more of that happening in 2024.

Larry Culp: Manufacturing, from a cost perspective, grid being profitable and onshore or offshore, rather coming along, we should do that in 2024. We need to do that next year.

Factoring from a cost perspective. Grid being profitable and onshore or offshore rather coming along we are we should do that in 'twenty four we need to do that next year and when you say that cash that that. Profit will then turn into cash and then also the timing that we've talked about on working capital with the progress down payments and more of that happening in 2024.

Grid being profitable and onshore or offshore rather coming along we are we should do that in 'twenty four we need to do that next year and when you say that cash that that. Profit will then turn into cash and then also the timing that we've talked about on working capital with the progress down payments and more of that happening in 2024.

Carolina Dybeck Happe: And when you see that cash that profit will then turn into cash and then also the timing that we've talked about on working capital with the progress down payments and more of that happening in 2024.

[Company Representative] (GE): When you say that profit will then turn into cash and then also the timing that we've talked about on working capital with the progress down payments and more of that happening in 2024.

Profit will then turn into cash and then also the timing that we've talked about on working capital with the progress down payments and more of that happening in 2024.

[Company Representative] (GE): Our next question comes from Jeff Sprague with Vertical Research Partners.

Operator: Our next question comes from Jeff Sprague with Vertical Research Partners.

Larry Culp: Hey, thank you. Good morning, everyone.

Jeffrey Todd Sprague: Hey, thank you, good morning, everyone.

Larry Culp: Hey, good morning. You know, just sort of a multi-parter for me if I could. I'm sorry. Just first on renewables, I just do want to confirm that the free cash flow guide includes the expectation of this $3 to 4 billion of payments. But my larger question is really, you know, how we think about normal conversion going forward. You know, kind of the implied free cash flow conversion on the guide here, you know, today for 2023 is 180%, 190%, 200% or so relative to net income. Right. So how do we expect that to normalize over time? And maybe you could provide just a little bit more color on that bridge from net income to free cash flow.

Multiple: Good morning, Jeff.

Jeffrey Todd Sprague: Just sort of a multi parter for me if I could I'm sorry. But just first on renewables, I just do want to confirm that the free cash flow guide includes the expectation of this $3 billion to $4 billion of payments. But my larger question is really how we think about normal conversion going forward, kind of the implied free cash flow conversion on the guide here today for '23 is 180, 190%, 200% or so relative to net income. So how do we expect that to normalize over time, and maybe you could provide just a little bit more color on that bridge from net income to free cash flow. Carolina, you started walking us through the delta a little bit but still just kind of the absolute difference between the two would be interesting to bridge. Thank you.

Just first on on renewables I, just do want to confirm that the free cash flow guide includes the expectation of this $3 billion to $4 billion of payments.

But my my larger question is really.

How we think about normal conversion going forward.

Kind of the implied free cash flow conversion on the guide here today for 'twenty, three is 180, 190% to 200% or so relative to net income right. So.

How do we expect that to normalize over time, and maybe you could provide just a little bit more color.

On that bridge from net income to free cash flow Carolina, you started walking us through the Delta a little bit.

Larry Culp: Carolina, you started walking us through the delta a little bit, but still just kind of that absolute difference between the two would be interesting to bridge. Thank you.

But still just kind of the absolute difference between the two.

It would be interesting to bridge. Thank you.

[Company Representative] (GE): Sure, Jeff. So to start with, you are right. As Larry mentioned earlier this morning in our guidance for renewables, we are expecting $3 to 4 billion of payments in the free cash flow. When we talk about free cash flow conversion, and you know me, I always talk about cash, but it's important to see where it is, where it comes from. So broadly speaking, we do expect to operate at more than 100% free cash flow conversion for the next few years. And why is that? A couple of different parts. First part depreciation and amortization being higher than CapEx. And then I'll talk more about the working capital opportunities and timing as well. But with the depreciation and amortization, an important distinction, we expect depreciation to be largely in line with the CapEx. So basically continue to invest. It's really the amortization that makes the difference.

Carolina Dybeck Happe: Sure, Jeff. So to start with, you are right. We mentioned earlier this morning in our guide for renewable, we are expect $3 billion to $4 billion of payments in the free cash flow. When you talk about free cash flow conversion, and you know me, I always talk about cash, but it's important to say where it comes from. So broadly speaking, we do expect to operate at more than 100% free cash flow conversion for the next few years. And why is that? A couple of different parts. First part, depreciation and amortization being higher than Capex and then I'll talk more about the working capital opportunity and tightening as well.

We mentioned earlier this morning in our guide for renewable.

I expect in the $3 billion to $4 billion of payments.

And the free cash flow.

When you talk about free cash flow conversion.

I always talk about cash, but it's important to stay right where it comes from so broadly speaking, we do expect to operate at more than 100% free cash flow conversion for the next few years.

And why is that a couple of different times.

First part depreciation and amortization being higher than Capex.

then I'll talk more about the working capital opportunity and tightening as well.

But with the depreciation and amortization, an important distinction. We expect depreciation to be largely in line with the Capex, so basically continue to invest instead of the amortization that makes a difference and now that we are excluding healthcare, it's about $600 million of [inaudible] and we would expect that to continue for years.

An important distinction, we expect depreciation to be largely in line with the Capex. So basically continue to invest instead of the amortization that makes a difference and now that we are excluding healthcare, it's about $600 million of defense and we would expect that to continue for years.

[Company Representative] (GE): And now that we're excluding health care, it's about $600 million of difference. And we would expect that to continue for years. And on working capital, I would say there are a couple of different parts here. We do continue to see opportunities in improving our working capital management, especially after the year with the pressure that we've seen on the supply chain. So we see opportunities both to improve DSO and inventory terms on receivables and inventory. But also when we look at progress and contract assets, we expect both to be sources given where we are in the cycle. Finally on AD&A, it's not working capital, but it's also a driver. And this year we're expecting negative $500 million of flow. And we've had a couple of years with positive flow from AD&A. So for the next couple of years you can expect that to be pressure.

And on working capital, I would say there are a couple of different parts here. We do continue to see opportunities in improving our working capital management, especially after a year with the pressure that we've seen on the supply chain. So we see opportunities both to improve [inaudible] and inventory turns on receivables and inventory. But also when we look at progress in contract assets, we expect both to be forces given where we are in the cycle.

A couple of different parts that we can do continue to see opportunities in improving our working capital management, especially after a year with the pressure that we've seen on the supply chain. So we see opportunities both to improve DSO and inventory turns.

And inventory.

But also when we look at progress in contract assets.

We expect both to be forces given where we are.

Title.

Finally on AVNA, it's not working capital, but it's also a drag there. And this year, we're expecting negative half a billion dollars of flow. And we've had a couple of years with positive flow at AVNA. For the next couple of years, you can expect that to be pressure, but over time, we would also see that normalizing. So overall, we do see opportunity to continue to improve and will continue to work that, but for now we're focused on growing earnings. Our next question comes from the line of Chris Snyder with UBS.

Finally on AVNA, it's not working capital, but it's also a drag there. And this year, we're expecting negative half a billion dollars of flow. And we've had a couple of years with positive flow at AVNA. For the next couple of years, you can expect that to be pressure, but over time, we would also see that normalizing. So overall, we do see opportunity to continue to improve and will continue to work that, but for now we're focused on growing earnings.

And we've had a couple of the ask at positive <unk> for the next couple of years, you can expect that to be.

[Company Representative] (GE): But over time we would also see that normalizing. So overall we do see opportunity to continue to improve, and we'll continue to work that. But for now we're focused on growing earnings.

Pressure, but over time, we would also see that normalizing.

Overall, we do see opportunity to continue to improve and will continue to work that but for now we're focused on growing earnings.

[Company Representative] (GE): Our next question comes from the line of Chris Snyder with UBS.

Our next question comes from the line of Chris Snyder with UBS.

Operator: Our next question comes from the line of Chris Snyder with UBS.

Larry Culp: Thank you. I wanted to turn the conversation over to the aerospace business and specifically margins. I understand the general flatlining of margins in 2023, given the mix towards equipment. But I guess my question is how long should we expect these mixed headwinds to persist? Should we model margins higher coming out of 2023, and is there anything keeping the segment from returning to the 21% level achieved in 2018, 2019? Thank you.

Chris Snyder: Thank you. I wanted to turn the conversation over to the Aerospace business and specifically margins. I understand the general flatlining of margins in 2023 given the mix towards equipment. But I guess my question is how long should we expect these mix headwinds to persist? Should we model margins higher coming out of 2023? And is there anything keeping the segment up from returning to the 21% level achieved in 2018, 2019? Thank you.

I understand their general Flatlining of margins in 2023, given the mix towards equipment.

So I guess my question is how long should we expect these mix headwinds to persist should we model margins higher coming out of 2023 and is there anything keeping the segment up from returning to the 21% level achieved in 2018 2019. Thank you.

Larry Culp: Well, we're delighted to talk about aerospace, so let me jump in. We had a very strong finish as you saw, margins up to nearly 19%. But Chris, as you know, this LEAP dynamic and frankly, mix overall will be a pressure for us in 2023. I think as we look at margins next year, rather this year we would expect they would be flat, but the revenue growth will give us an opportunity to drive profit growth up, call it 15%. I call out two things in 2023. One, we do expect new units to grow more rapidly than services. That's a headwind in and of itself. And then the LEAP dynamic, both within services and within new units, will create the mixed pressure that I suspect we'll remind folks about through the course of the year.

Unknown: Well, we are delighted to talk about Aerospace, so let me jump in. We had a very strong finish as you saw margins up to nearly 19%. But Chris, as you know, this leap dynamic and frankly mix overall will be a pressure for us in '23. I think as we look at margins next year, rather this year, we would expect they would be flat, but the revenue growth will give us an opportunity to drive profit growth up call it 15%.

So let me let me jump in.

Had a very strong finish as you saw margins up to nearly 19%.

But Chris as you know.

This leap dynamic.

And frankly mix overall will be a pressure for us in 'twenty three I think as we look at margins next year, rather this year, we would expect they would be flat, but the revenue growth will give us an opportunity to drive profit growth up call it 15%.

I called out two things in '23, one, we do expect new units to grow more rapidly than services. That's a headwind in and of itself and then the leap dynamic both within services and within new units will create the mix pressure that I suspect we'll remind folks about through the course of the year.

To grow more rapidly than services.

A headwind in and of itself and then the leap dynamic both within services and within new units.

We will create.

<unk>.

The mix pressure that I suspect will remind folks about through the course of the year.

Larry Culp: That said, I don't think we look at 18% as some sort of ceiling that we cannot pierce. We continue to have, I think, a lot of optimism about the LEAP program and the opportunity to improve margins both with new units and in the aftermarket as we go forward. Program is still very much a young one, I think. At the same time, we know price cost hasn't been as challenging, but it has been challenging at aerospace. We'll do a better job, I'm sure, as we go forward, and our lean efforts, I think, very much is in its infancy. You'll see that both in the P and L and, I think, in the cash flow statement. So I don't think this is necessarily a 23 and done dynamic.

That said, I don't think we look at 18% as some sort of ceiling that we cannot pierce. We continue to have I think a lot of optimism about the leap program and the opportunity to improve margins both with new units and in the aftermarket as we go forward. The program is still very much a young one.

Ceiling that we cannot peers. We continue to have I think a lot of optimism about the leap program and the opportunity to improve margins.

Both with new units and in the aftermarket as we go forward program is still very much a young one.

I think at the same time, we know price cost hasn't been as challenging but it has been challenging at Aerospace. We will do a better job I'm sure as we go forward and our lean effort I think very much is in its infancy, you'll see that both in the P&L and I think in the cash flow statement. So I don't think this is necessarily a '23 and done dynamic. That said, our expectations would be as we go forward all in to continue to drive top line growth, profit dollar growth, and margin expansion at Aerospace.

A <unk> 23 and done dynamic. That said our expectations would be as we go forward all in to continue to drive top line growth profit dollar growth. And margin expansion at aerospace.

Larry Culp: That said, our expectations would be, as we go forward, all in, to continue to drive top line growth, profit dollar growth, and margin expansion at aerospace.

That said our expectations would be as we go forward all in to continue to drive top line growth profit dollar growth. And margin expansion at aerospace.

And margin expansion at aerospace.

Larry Culp: Liz, we have time for one more question.

Unknown: We have time for one more question.

[Company Representative] (GE): Our next question comes from Dean Dray with RBC. Thank you.

Operator: Our next question comes from Deane Dray with RBC.

Larry Culp: Good morning, everyone. Hey, Dean.

Deane Dray: Thank you and good morning, everyone.

[Company Representative] (GE): Good morning, Dean.

Larry Culp: First is a follow-up to Jeff's free cash flow question. Larry, when you joined GE, you talked about an initiative to kind of smooth out the free cash flow cadence for the year, trying to avoid that historical hockey stick. And look, there's still some seasonal impacts you can't get away from, like scheduled outages that will impact the Q4. But has there been progress? Is that still something? That's an initiative here in terms of smoothing out free cash flow. And then I had a follow-up macro question.

Multiple: Hey, Deane. Good morning Deane.

Deane Dray: First is a follow up to Jeff's free cash flow question. Larry, when you joined GE, you talked about an initiative to kind of smooth out the free cash flow cadence for the year trying to avoid that historical hockey stick, and look, there's still some seasonal impact you can't get away from like scheduled outages that will impact the fourth quarter. But has there been progress, is that still something that's an initiative here in terms of smoothing out free cash flow? And then I had a follow up macro question.

You can't get away from like scheduled outages.

That will impact the fourth quarter, but has there been progress is that still something that's an initiative here in terms of smoothing out free cash flow and then I had a follow up macro question.

Larry Culp: I would say that there has been progress. There's still a lot more to do. We talk about it. When you hear us use the word linearity, right, gets back to Lean 101. We just want to make every hour of every day count. Every day, every week, every week of every month. There's still a bit of a dynamic. Some of this is us, some of this is our customers, where we migrate toward quarter end, we migrate toward year end. So I'm encouraged by the progress, and I think more people today understand how we can be more linear. If you look at just the reviews we've had the first three weeks of this year at Aerospace, right, we're looking at how we have started this year, how we've started this month vis-à-vis December, vis-à-vis January a year ago.

H. Lawrence Culp, Jr.: I would say that there has been progress, there is still a lot more to do. And we talk about it when you hear us use the word linearity, it gets back to lean 101, we just want to make every hour of every day count, every day of every week, every week of every month. And there is still a bit of a dynamic, some of this is us, some of this is our customers where we migrate toward quarter end, we migrate toward year end. So I'm encouraged by the progress and I think more people today understand how we can be more linear.

There is still a lot more to do and we talk about it when you hear us use the word linearity.

Right gets back to lean 101, we just want to make every hour of every day count every day every week every week or every month and there is still a bit of a dynamic. Some of this is some of this as are our customers.

Where we migrate toward quarter end, we migrate toward year end.

I'm encouraged by the progress and I think more people today understand how we can be more linear.

If you look at just the reviews we've had the first three weeks of this year at Aerospace, we're looking at how we have started this year. How we've started this month vs December vs January or a year ago, those are the sort of operating cadences which really helped us in that regard. So pleased but we're not done.

We're looking at how we have started this year.

We've started this month vis vis December vis vis January a year ago, those are the sort of operating cadences.

Larry Culp: Those are the sort of operating cadences which really help us in that regard. So please. But we're not done. Appreciate that. And then, just given the uncertain macro, can you cite any changes, any meaningful changes in demand indicators that you're looking at, whether it's quote activity, front log, anything that you could share here this morning?

Which really helped us in that regard so.

Pleased but we're not done.

Deane Dray: Appreciate that. And then just given the uncertain macro, can you cite any changes, any meaningful changes in demand indicators that you're looking at whether it's quote activity, front log, anything that you could share here this morning?

Anything that you could share here this morning.

Larry Culp: Well, we're looking at just about everything that we can, obviously, in aerospace. We're watching not only departures, bookings, and everything that can precede that. The only thing that we have seen, and this isn't a proprietary view, Dean, is obviously freight has softened here as the short cycle economy has done the same. I think with respect to Vernova, we look at utilization in gas and wind. We can see what's happening in real time. Even in Europe, we've been encouraged, I think, by the utilization of the gas fleet. That said, we don't want to suggest that we're immune with 60% of revenue now in services tied to those real time dynamics. We're watching carefully.

H. Lawrence Culp, Jr.: We're looking at just about everything that we can. Obviously, in Aerospace we're watching not only departures, bookings, and everything that can proceed that. The only thing that we have seen, and this is in our proprietary view Dean, is obviously freight has soften here as the short cycle economy has done the same.

Not only departures bookings and everything that can proceed that the only thing that we have seen and this is in our proprietary view Dean is obviously freight has soften here is the short cycle economy has done the same.

I think with respect to Vernovo, we look at utilization in gas and when we can see what's happening in real time. Even in Europe, we've been encouraged I think by the utilization of the gas fleet. That said, we don't want to suggest that we're immune with 60% of revenue now in services tied to those real time dynamics, we're watching carefully but we wouldn't be guiding a high single digit topline number this year if we weren't confident that our positioning both with the Aerospace recovery in the energy transition sets us up to do well here in '23.

For Novo, we look at utilization in gas and when we can see what's happening in real time.

Even in Europe, we've been encouraged I think by the utilization of the gas fleet.

That said, we don't want to suggest that that we're immune.

With 60% of revenue now and services tied to those real time dynamics, we're watching.

Larry Culp: But we wouldn't be guiding a high single digit top line number this year if we weren't confident that our positioning both with the aerospace recovery and the energy transition sets us up to do well here in 2023.

Carefully but.

We wouldn't be guiding a high single digit topline number this year, if we weren't confident that our positioning both with the aerospace recovery in the energy transition sets us up to do well here in 'twenty three.

Larry Culp: That's real helpful. Thank you. Thanks, Steve. Larry, any final comments?

Deane Dray: That's really helpful. Thank you.

H. Lawrence Culp, Jr.: Thanks, Deane.

Unknown: Any final comments?

Larry Culp: Steve, we've covered a lot of ground here this morning. I would just wrap up with.

H. Lawrence Culp, Jr.: Steve, we've covered a lot of ground here this morning. I would just wrap up with the group saying that 2022 really I think was a historic year for us. We finished very strongly. The plans, the spins are advancing. We couldn't be I think more thrilled with how things have played out for health care, but more importantly, we're excited about what lies ahead. We certainly appreciate everybody taking the time today to join us, your interest in our company, and your investment in GE. And again, we hope to see many of you in March in Cincinnati.

Larry Culp: The group saying that.

The group, saying that.

Larry Culp: 2023 really, I think, was a historic year, or 2022 rather was a historic year for us. We finished very strongly.

2023, really I think was a historic year for 'twenty, two rather was a historic year for US we finished.

Very strongly displant spins are advancing we couldnt be I think more thrilled with how things have played out for health care, but more importantly, we're excited about what lies ahead certainly appreciate everybody taking the time today to join US your interest in our company and your investment in GE and again, we hope to see many of you in March.

Larry Culp: The spins are advancing. We couldn't be, I think, more thrilled with how things have played out for healthcare. But more importantly, we're excited about what lies ahead. Certainly appreciate everybody taking the time today to join us. Your interest in our company and your investment in GE. And again, we hope to see many of you in March in Cincinnati.

In Cincinnati.

[Company Representative] (GE): Thank you. Thanks, everybody. Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.

Thank you everybody. Thank you ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.

Unknown: Thank you everybody.

Operator: Thank you ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.

Thank you ladies and gentlemen, this concludes today's conference. Thank you for participating.

May now disconnect.

[Company Representative] (GE): The conference will begin shortly. To raise and lower your hand during Q and A, you can dial 11.

The conference will begin shortly two reasons lower Johan during Q&A, you can dial star one one. [music]. Okay. [music]. Yeah. [music]. Yeah. Yeah. [music].

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