Q1 2024 GE Vernova Inc Earnings Call
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I would now like to turn the program over to your host for today's conference Michael Lapidus, Vice President of Investor Relations. Please proceed.
Michael Lapides: Thank you welcome to <unk> first quarter 2024 earnings call I'm joined today by our CEO, Scott is crazy and our CFO Ken Parks. Our conference call remarks will include both GAAP and non-GAAP financial results reconciliations between GAAP and non-GAAP measures can be found in <unk>.
Today's press release and in the presentation slides available on our website.
During this call we will make forward looking statements about our performance. These statements are based on how we see things today. However, while we may elect to update these forward looking statements at some point in the future. We specifically do not have any obligation to do so as described in our SEC filings actual results may differ.
Materially due to risks and uncertainties with that I'll hand, the call over to Scott.
Scott: Thanks, Michael.
Scott: Morning, everyone and welcome to our first earnings call. After successfully completing our launch as an independent company on April 2nd.
Scott: We delivered solid results in the first quarter I'm pleased with how we're executing on the strategy, we laid out at our Investor day on March six.
Scott: We're excited about the opportunity ahead for GE Eva Nova.
Purpose built company to electrify and Decarbonize the world even in the last seven weeks since our Investor day. The drumbeat of dialogue is only growing louder with the customers and policymakers on the challenges and opportunities ahead to meet growing demand, while accelerating our de carbonization.
Scott: Pathway.
Scott: These macro trends are creating real opportunities for us to continue to lead in the energy transition, while we are running our businesses better driving disciplined growth margin expansion and higher free cash flow.
Scott: If we shift to the left hand side of the page lean remains at our core driving continuous improvement in safety.
Speaker Change: Polity delivery and cost and as we do with most of our meetings at G. Even over I want to start today on safety.
Speaker Change: Our focus here is driving real results with our injury and illness rate improving 5% over the last 12 months, we have had no fatalities year to date.
We'll always rungi, even over with safety as the top priority to ensure every employee contractor and partner we work with goes home safely each day.
Just give a little more color on lean we executed on over 800 kaizen events in Q1 'twenty four alone.
Speaker Change: Like to share with you. An example of the progress we are making with one of the kaizen events, where I participated for three days in January and our grid automation business in Ontario, Canada.
Speaker Change: Grid automation is an important business inside electrification that provides protection and controls for electrical substations on the grid.
In addition to solutions for monitoring and diagnostics for a central electrical equipment like Transformers and breakers.
Speaker Change: This business is experiencing double digit topline growth, but still as parts of its supply chain using batch processing for inventory.
Speaker Change: If the kaizen event three teams executed on transforming batch processing of generator protection panels into lean line with single piece flow.
Speaker Change: Kissing on pre wiring activity first.
Since the Kaizen event in January we've seen our work in progress inventory reduced by over 50%.
Scott: Output has increased 15%.
Scott: And we've decreased the distance parts travel to site by roughly 80% for this pre wiring.
Speaker Change: This is just one example of what is happening every week across GE, even over to enable us to decrease delivery times increase output and lower costs ultimately improving outcomes for our customers.
In addition to embedding lean within our facilities. We are also using lean to simplify our business operations and reduce our costs.
Speaker Change: Our Q1 G&A growing versus Q1 'twenty three is not one of the areas. Our leadership team is happy about as we sit here in April.
Speaker Change: But our expenses now reflect the additional cost of our standup as a public company as.
Speaker Change: As well as the cost transferred from GE corporate on I T Finance and HR.
Speaker Change: We are laser focused on action with urgency leveraging lean to eliminate waste in our G&A processes.
Speaker Change: Now I'd like to spend a minute on the right hand side of the page on our three business segment trends in the markets they serve.
Speaker Change: Our power businesses led by gas power and the over 7000 gas turbines in the fleet are continuing to see strong uptick in demand are.
Speaker Change: Our utilization of the gas fleet, depending on geography is growing low single digits driving continued strength in our high margin services business.
Speaker Change: In addition, with expected increases in electricity demand growth in the coming years, along with a continued shift away from coal interest in adding incremental gas capacity is growing.
Speaker Change: Customers are focused on how capacity additions. This decade can be dumped decarbonize in the next decade with both hydrogen.
Speaker Change: And carbon capture.
Speaker Change: Gas power services orders increased double digits in the first quarter and equipment orders grew 75% versus last year, showing the robust demand for services into our install base and trends for new gas capacity.
Speaker Change: We are accelerating our focus and our strategy working with our supply chain partners and how to potentially create incremental capacity to meet this growing demand.
Speaker Change: I along with others on the leadership team are spending time with the team in Greenville in a few weeks to focus specifically.
Speaker Change: On this.
Speaker Change: Turning to wind, we continue to expand margins as we improve this business benefiting from a better onshore wind backlog and a lower cost structure in total.
Speaker Change: Even in a very low volume Q1.
Speaker Change: With just over 1 billion of onshore wind revenue the onshore wind business still delivered positive EBITDA for the third straight quarter.
Speaker Change: As discussed at <unk> earnings, we expect second half revenue will be substantially higher than first half revenue with a larger north American mix.
Speaker Change: While we remain cautious on the exact timing of significant onshore wind orders growth in the U S.
Speaker Change: As our customers navigate the challenges that come with permanent new projects. We are very excited about where this business performance can go as the orders and revenue accelerate in the medium term.
Speaker Change: In offshore we are working through our existing backlog and while we believe offshore is key to the energy transition.
Speaker Change: We will remain highly selective.
Speaker Change: On new orders.
Speaker Change: Finally electrification our fastest growing segment profitable growth continues to accelerate as customers modernize and invest in the grid.
Speaker Change: Significant demand exists for a number of our products such as Transformers and switch gears products key to ensuring a reliable electricity system and for connecting new generation.
Speaker Change: Orders this quarter were over two times revenue, which we expect will drive revenue and profit growth well into the future given healthy margins on what we added to backlog.
Speaker Change: All of our three business segments electrification is the one where we have the best opportunity to challenge ourselves on both growth and margins. We can achieve in the medium term given this segment has the strongest demand and pricing dynamics.
Speaker Change: Turning now to our first quarter performance, where we delivered a solid start to the year.
Speaker Change: We will continue to be disciplined on our topline growth in Q1 had orders down 1% and organic revenue growth of 5% versus the prior year.
Speaker Change: Our backlog continued to grow up over 8 billion compared to Q1, 'twenty three with healthy margins.
Speaker Change: Overall, we expanded margins, increasing almost 500 basis points.
Speaker Change: All three segments improved margins driven by price productivity and continued cost reductions combined with high single digit services growth.
Speaker Change: In the quarter, we improved free cash flow compared to last year and expect a meaningful acceleration in cash flow as we move through the year.
Speaker Change: We are reaffirming the guidance provided at Investor day in March.
Speaker Change: For more details around that and our first quarter performance.
Speaker Change: I will turn the call over to Ken.
Ken: Thanks Scott.
Ken: Turning to slide five I'll speak to our results on an organic and adjusted basis, which best represents the underlying performance of our business.
Ken: As Scott mentioned, we delivered solid results with significant EBITDA margin expansion in each of our segments and continued improvement in free cash flow.
Ken: Orders reached $9 $7 billion and were approximately one three times first quarter revenue further expanding our backlog to $116 billion.
Speaker Change: Year over year orders declined slightly as lower equipment orders in wind and electrification more than offset strong equipment orders empower and double digit growth in total service orders.
Speaker Change: Importantly, we continue to drive our strategy focused on disciplined profitable growth.
Speaker Change: As a result, the equipment margin and backlog remained healthy.
Speaker Change: Revenue grew 5% with strength in electrification and power, partially offset by lower revenue in wind.
Speaker Change: Services were strong growing 8% led by power.
Speaker Change: All three segments benefited from positive price in the quarter.
Speaker Change: EBITDA margins expanded 470 basis points year over year with all segments delivering at least 300 basis points of expansion in the quarter.
Speaker Change: The first quarter expansion includes the impact of Standalone cost in line with our expectation.
Speaker Change: These costs are not included in the prior year results.
Speaker Change: Margin expansion was driven by price productivity and volume. We also continue to benefit from our announced restructuring actions, which together these more than offset inflation and higher R&D investments.
Speaker Change: The first quarter is our seasonally lowest free cash flow quarter, followed by sequentially improving quarters as the year progresses.
Speaker Change: While we had a net outflow of $661 million. This wasn't an approximately $150 million improvement over last year and was largely driven by improved earnings partially offset by higher working capital outflows.
Speaker Change: Working capital wasn't on approximately $500 million outflow in the quarter driven by inventory build as we prepare to deliver second half volume along with higher disbursements, partially due to settlements of payables with GE and preparation for the spin.
Speaker Change: Increased milestone collections on equipment projects, partially offset these outflows.
Speaker Change: Turning to power on slide six the segment delivered strong first quarter results with orders and revenue growth as well as EBITDA margin expansion.
Speaker Change: Orders grew 24% led by higher equipment orders at gas power.
Speaker Change: During the first quarter, we booked eight H a gas turbine orders.
Speaker Change: Or more than the same quarter last year and equal to H orders in the full year of 2023.
Speaker Change: We also booked orders for 18 Aero derivative units.
Speaker Change: Services grew low double digits driven by gas.
Speaker Change: Revenue grew 4% higher outages drove gas services growth along with favorable price.
Speaker Change: EBITDA nearly doubled and grew over 60% organically with 340 basis points of margin expansion as higher margin services volume, along with price and productivity more than offset the impact of inflation.
Speaker Change: We're off to a good start and power our gas fleet utilization has been trending higher this year up low single digits benefiting from continued coal to gas switching and the increased demand for reliable and dispatch will power.
Speaker Change: We will continue to evaluate strategies to meet a potential further acceleration in gas power demand as the outlook solidifies.
Speaker Change: Turning to wind we continue to make good progress on our turnaround driving improved EBITDA, even at lower revenue levels.
Speaker Change: Orders declined 40% largely attributable to lower onshore orders, we remain focused on disciplined profitable growth in selected geographic areas, such as North America, where our scale and strong manufacturing footprint provides advantages to our customers importantly.
Speaker Change: Importantly, we see North American developers rebuilding their project pipeline.
Speaker Change: As evidenced by the growing onshore interconnection queues.
Speaker Change: Revenue declined 7% from lower onshore equipment volume, partially offset by higher offshore equipment deliveries as we continue to execute on our offshore backlog.
Speaker Change: When services increased over 20% driven by higher onshore onshore part sales in the U S.
Speaker Change: EBITDA margins improved 400 basis points versus the prior year from continued cost reductions and positive price.
Speaker Change: Onshore EBITDA was positive for the third consecutive quarter, while offshore which still generated loss improved sequentially.
Speaker Change: Wind results are demonstrating clear signs of progress.
Speaker Change: We're integrating onshore and offshore centered around three key workhorse products, which is resulting in improved quality better availability and incremental cost savings.
Speaker Change: Combined with higher second half onshore volume projections based on our existing backlog, we anticipate improving profitability as we move through the year.
Speaker Change: In electrification, we had a very strong quarter of revenue growth and EBITDA margin expansion.
Speaker Change: Orders were strong at $3 $6 billion more than two times first quarter revenue, although 10% lower year over year, given the large tenant H B D. C orders recorded in the first quarter of 2023.
Speaker Change: Within grid solutions, the largest business in our electrification segment, we saw increased demand for high voltage switchgear equipment and Transformers, both in the U S and in Europe.
Speaker Change: Revenue grew 21% with strength in equipment led by growth in grid solutions across the business.
Speaker Change: Segment, EBITDA margin expanded approximately 600 basis points, driven by volume productivity and price.
Speaker Change: Grid solutions generated another quarter of positive EBITDA and continued improvement year over year.
Speaker Change: Strong demand is driving continued electrification revenue growth EBITDA margins are expanding as a result of the volume growth along with favorable pricing and productivity.
Speaker Change: Equipment backlog in this segment is up $6 billion compared to the first quarter of 2023 with healthy margins.
Speaker Change: Turning to slide nine based upon our solid start to the year, we're reaffirming our guidance provided at our Investor day last month.
Speaker Change: For full year 2024, we continue to forecast revenue in the $34 billion to $35 billion range with adjusted EBITDA margin at the high end of mid single digits.
Speaker Change: We expect free cash flow in the range of $700 million to $1 $1 billion.
Speaker Change: Following our outflow in the first quarter. This implies free cash flow of $1 4 billion to $1 $8 billion over the balance of the year.
Speaker Change: With continued improvement as we move through each of the three quarters ahead.
Speaker Change: By segment, we continue to expect mid single digit organic revenue growth in power driven by higher gas services and equipment with approximately 100 basis points of EBITDA margin expansion.
Speaker Change: In wind, we expect revenue to be essentially flat and to approach profitability from positive price productivity and cost savings.
Speaker Change: As previously noted we anticipate higher U S onshore volume in the second half compared to the first and expect that to drive full year onshore EBITDA margins to high single digits.
Speaker Change: In electrification, we anticipate continuing strong demand and favorable price to drive low double digit organic revenue growth with mid single digit margins due to the higher volume and price as well as productivity benefits.
Speaker Change: In addition, our 2024 adjusted EBITDA margin guidance, anticipates 300 million to $350 million of corporate and other costs, which includes approximately $200 million of incremental standalone costs.
Speaker Change: Looking specifically at the second quarter, we expect modest year over year top line growth and continued EBITDA margin expansion across the segments.
Speaker Change: Relative to last year's second quarter power should grow its topline from higher equipment and services revenue.
Speaker Change: EBITDA margins should benefit from the volume and pricing growth as well as ongoing productivity.
Speaker Change: Wind revenue is expected to decline, but ebitdas should further improve as we see the positive impact from better pricing and reduce costs.
Speaker Change: Electrification should continue to deliver strong top line growth along with improved margins from favorable pricing higher volume and resulting productivity.
Speaker Change: We expect continued free cash flow improvement year over year in the second quarter year over year favorability is anticipated to be better than what we delivered in the first quarter as we continue to execute on our working capital velocity improvement actions.
Speaker Change: We're very encouraged with the solid financial performance to start the year, we see continued healthy demand for our products and services and our execution is driving stronger EBITDA margins and increased free cash flow.
Speaker Change: We're also confident in the strength of our balance sheet. Upon launch on April 2nd our cash balance was $4 $2 billion and we remain committed to maintaining our investment grade rating.
Speaker Change: With that let me turn it back to Scott.
Scott: Thanks, Ken.
Scott: All in we are pleased with our momentum to start the year.
Scott: Market dynamics continue to drive strong demand that will lead to multi decade growth across power wind and electrification segments.
Scott: Whether it is helping our customers meet rising electricity demand to decarbonize their systems or to modernize and expand the grid, we are uniquely positioned to.
Scott: To support their needs.
Scott: Our power segment generate 70% of its revenues from services as we support our large installed base that drives strong consistent and growing free cash flow.
Scott: Wind is a key part of the energy transition, representing only 7% of the world's electricity today.
Scott: By 2040, when we'll need to be closer to 25% in order for the world to achieve its de carbonization goals.
Speaker Change: We expect to continue expanding margins in wind.
Speaker Change: Our electrification segment is our highest growth business and margins and backlog continue to rise.
Speaker Change: We are seeing customers significantly increased planned grid related investments to improve reliability and connect more zero carbon power sources.
Speaker Change: As discussed earlier, our lean operating system sustainability.
Speaker Change: Ability and innovation are the core of our company.
Speaker Change: We are committed to driving sustainability and to help customers advance their efforts to deliver on electrification.
Speaker Change: And de Carbonization.
Speaker Change: We are running our businesses better and benefiting from increasing demand as electricity markets evolve.
Speaker Change: We expect to deliver growing EBITDA and free cash flow for a long time.
Speaker Change: And when we put all this together, we see a clear opportunity to create substantial value for all stakeholders going forward.
Speaker Change: With that I'll hand, it back to Michael for the Q&A portion of the call.
Michael: Thank you Scott before we open the line I'd ask everyone in the queue to consider your fellow analysts and ask one question. So we can get to as many people as possible. Please return to the queue. If you have follow ups operator, please open the line.
Operator: Ladies and gentlemen, if you wish to ask a question. Please press star one one on your telephone.
Speaker Change: You wish to withdraw your question or your question has already been answered. Please press star one one again.
Michael: Okay.
Michael: Our first question comes from the line of Mark Strouse with Jpmorgan.
Mark Wesley Strouse: Yes. Good morning, Thank you very much for taking our questions and congrats on getting that span across the finish line.
Mark Wesley Strouse: So I guess my my one question would be kind of starting on the equipment side.
Speaker Change: It's pretty noteworthy.
Mark Wesley Strouse: Books, H H H H H H turbines in the quarter equal to all of 2023. My question is broader than just the H H turbines, but can you just kind of give a bit more color on the sales pipeline you have.
Speaker Change: When we should expect that to convert to orders.
Speaker Change: Is it rational to think about book to bill being greater than one for the year and just kind of an update on when those orders might convert into revenue. Thank you.
Speaker Change: Thanks, Mark I'll take that I mean for sure in the gas business. We are seeing increased demand for new capacity additions in the first quarter that was very focused on both North America and the middle East and it was growth in both H as but also are derivative applications.
Speaker Change: As I mentioned earlier, it is forcing us to kind of revisit our capacity additions and think through how we can continue to support this growth and what's coming from here and I do think it's very practical to think this year that are our orders and in gas equipment could very well be larger than our revenue with a growing backlog.
Speaker Change: And then you really have to think about our conversion cycle of really two to three years from order to revenue with our gas equipment book, but exciting start to the year. Good sentiments and acknowledgment that gas is going to play a critical role here. This decade, but I also think acknowledgment from a number of our customers that theyre getting more.
Speaker Change: And some conviction in our ability to decarbonize gas and future decades, with hydrogen and carbon capture so good start a lot more to do.
Speaker Change: Our next question comes from the line of Joe Ritchie with Goldman Sachs.
Joseph Alfred Ritchie: Hey, Good morning, guys can you hear me, Okay, we can Joe good morning.
Joseph Alfred Ritchie: Okay, great Yeah, congrats on on.
Joseph Alfred Ritchie: Getting out as a public company I. So my one question just maybe staying on power for a second it is pretty notable CD service order is also up double digits I'm curious how much of that is being driven by this.
Joseph Alfred Ritchie: Adding new orders on the equipment side in getting those orders on contract versus what Youre seeing on the spot market and really the basis of my question is really just trying to understand whether we're in a period of time now where you have not been adding a ton of generation capacity and could we be in a period of time where serve.
Joseph Alfred Ritchie: With us.
Joseph Alfred Ritchie: He is a really healthy level of growth going forward.
Speaker Change: You bet, Joe I mean at the start I would just emphasize that double digit orders growth really isn't connected to new capacity additions are orders there and that's really the existing installed base and is evidence of our customers investing in that installed base I mean, as Ken framed up utilization of the fleet is growing.
Speaker Change: You're seeing a customer base that clearly sees the integral role that gas is going to play and is investing into that fleet with different operating parameters and as we look through this year and the end and what we see in gas services. We do continue to see gas services strength throughout throughout 2024.
Speaker Change: Our next.
Speaker Change: Question comes from the line of Moses Sutton with BNP Paribas.
Moses Nathaniel Sutton: Hi can you hear me.
Moses Nathaniel Sutton: Yes.
Moses Nathaniel Sutton: Hi, Thanks for taking my question I guess continuing on the gasoline here.
Moses Nathaniel Sutton: The fourth point on Gigawatts is I know it can be lumpy, but it's 40% higher than the average quarter last year, how whats. The maximum you can see this annualized in the short to medium term.
Moses Nathaniel Sutton: And can you talk a little bit more about geography, middle east versus U S versus the other.
Moses Nathaniel Sutton: They're on a new equipment orders in detail.
Speaker Change: Yeah, I would just emphasize again.
Moses Nathaniel Sutton: The first quarter orders were very centric in the middle East and and in North America. We had previously gone through a cycle with real growth in Asia, We still see a lot of pipeline there, but the first quarter was more centered on those regions, but when we look at our pipeline. There is there's healthy global demand.
Moses Nathaniel Sutton: For new gas additions the U S has a healthy pipeline, we're revisiting really how we serve that market because simultaneously, we're saying services demand growth and new gas capacity capacity demand growth and with it. It's it's having us work with our supply chain partners.
Moses Nathaniel Sutton: To look at over the medium term, how we can serve that demand. So we're working our way through that and I'll come back with further updates in that regard as we worked through the year.
Moses Nathaniel Sutton: Yeah.
Speaker Change: Our next question will come from the line.
Speaker Change: Andrew <unk> with Bank of America.
Speaker Change: Yes, Hi, good morning. This is David Ridley Lane on for Andrew.
Speaker Change: Can you talk about the composition of our electrification orders this quarter to two times book to Bill is very impressive you know kind of what are the products and conversion timelines on those on those orders. This.
Speaker Change: This quarter.
Speaker Change: Yeah. Thanks, Thank you Dave.
Speaker Change: The composition of the orders we saw good growth in the grid businesses and across.
Dave: All components of the grid business, so power Transformers grid services.
Speaker Change: All that happened there that the the composition is in the areas where in that space, we tend to see longer delivery cycles.
Speaker Change: So one of the things that we talked about last year was that we saw about 500 basis points of expansion in our in our grid backlog our equipment backlog for the electrification business a lot of that being in grid. The good news with that is because they are longer cycle deliveries.
Speaker Change: While we feel really good about is the margin expansion that we're seeing in that business and the fact that electrification is anticipated to get to mid single digits EBIT margins in 2024, and we talked about that continuing to expand into 2025, but the strong order backlog orders and backlog that's coming into electrification.
Speaker Change: We will be something that supports margin expansion on those higher backlogs in margin as we move out past 2025 timeframe, so really good opportunities within the electrification space.
Speaker Change: Good orders across the business and a good timeline in front of it for us for the business to benefit from stronger margins.
Speaker Change: Our next question comes from the line of Chris <unk>.
Chris: With RBC capital markets.
Chris: Yes. Thank you good morning.
Chris: I guess just.
Chris: Really really strong momentum coming into the year I'm curious how does that kind of compare against your internal expectations and then should we interpret this as perhaps here you're outperforming what your expectations were coming in and does that mean continue to strengthen into the into the back half of the year. Thanks.
Chris: Yes.
Speaker Change: It's a it's a really good question and thank you for it as you think about the year, we're always going to be a little bit more seasonally focus towards the second half of the year versus the first so when I give you. This answer. The reality is is are we doing well against our our our expectations, yes, and a very good.
Speaker Change: Good out of the start performance for the first quarter EBIT.
Speaker Change: Keep in mind, Thats, a relatively smallest quarter of the year, but the strength of what we're seeing in the orders and the execution, whether it be pricing productivity cost reductions very very good I would tell you that that gives us confidence that we can reaffirm to you. The statements we've made about.
Chris: The year.
Chris: It doesn't mean, we're going to change anything at this point in time, but the momentum out of the gates really gives us incremental confidence that we are on a path to deliver exactly what we told you for the year.
Chris: Our next question comes from the line of James West with Evercore ISI.
James Carlyle West: Hey, good morning, guys and congrats again on the first quarter out of the box.
James Carlyle West: Thanks, James Thank you James.
James Carlyle West: Scott curious I want to go back to electrification, that's where I think you're most bullish we're most bullish definitely on that.
Scott: Well, you know getting inbounds from not just the normal players electrification, but you know tech company executives to come and investors trying to lever into the themes of.
James Carlyle West: AI and data center growth and I'm curious, what you're seeing in the end markets.
James Carlyle West: How your conversations are evolving because it seems like for broadly the markets coming into this idea or this realization that.
James Carlyle West: Power demand is going to run well ahead of a deployment, let's just say the boardroom.
James Carlyle West: James I agree I think the demand.
James Carlyle West: The demand is real and the uptick is very clear with the different counterparties that we're working with both our traditional customers and iterating with or maybe their end customers to understand what the art of the possible is whether it be the technology companies the hyperscale or.
James Carlyle West: The conversations are very focused on a lot of what we've been talking about inside GE Vern over for the last few years, which is it's going to be in all of the above technology portfolio needed to serve this growing market gas is going to play a critical role. It's a power dense solution that supports the operating parameters.
James Carlyle West: As of a lot of things like data center needs, but at the same time, we're doing a lot of work right now on how wind growth can fulfill that demand in solar is going to play an important role we're having conversations on into next decade, how small modular reactors is going to play a role and regardless of the power generation source.
James Carlyle West: Electrification equipment is critical and whether that'd be the transformers that the electrical equipment inside the data centers. It gives us real opportunity to grow our business from here. So it's tough to call exactly when these conversations translate into orders and that may not be.
James Carlyle West: Tomorrow, but the demand is certainly real and the medium term and we're really encouraged about our opportunity to serve that market.
James Carlyle West: Our next question will come from the line of Mohit <unk> with Mizuho.
Mohit: Hey, a morning, thanks for taking our questions.
Mohit: Congratulations on the first quarter here.
Mohit: Just two small ones for me. So first on electrification theme could you talk about where are the geographic mix of the orders, we're getting from and separately on offshore wind if you could talk to the nicer does.
Mohit: The RFP for the manufacturing and logistics.
Mohit: Pulse on if you would reflect spending on that thanks.
Speaker Change: Sure I'll start with the electrification question on the mix of the orders our business in general is more heavily weighted to Europe.
Speaker Change: We do have North America presence for sure and I would say the orders are coming probably more primarily across the European base, but we are seeing good interest and good demand in North America, we continue to focus that business on not only being heavily European base, but we see a great market as outlined by <unk>.
Speaker Change: Scott and some of his comments previously to be really good as the U S is starting to focus more heavily on its grid optimization strategies. So while we've seen a mix today, that's probably a little bit more heavily focus to Europe, we see great opportunity for that business to expand the really good things that they're doing in Europe into north.
Speaker Change: Erica maybe I'll give the offshore wind question, let Scott answer that one but thanks, Ken hit on on offshore wind I first just reinforce it we view offshore wind is an important part of the energy transition here and we've been very appreciative of our iteration in partnership with New York say stayed a nicer to and the New York three auction.
Speaker Change: With that.
Mohit: As that offshore wind has been in generally over the last few years, it's been hard to get projects to a point that they're ready to thrive, but through our iteration with our customers and where we're going I want to tell you. We're excited about our future product here at 15, and a half megawatt product that has an ability to have a power boost up to 16 and a half megawatts.
Mohit: We're working hard to have a prototype that prototype running by the end of 2025.
Mohit: And when we look at where we are with our Hollywood X product today. The 14 megawatt product by the time you get into 2026, we're going to have somewhere in the neighborhood of $5 million to $6 million operating hours with that product. So there's a lot to work on today, we believe that offshore wind is going to play an important role in the energy transition.
Mohit: And appreciative for the iteration in a partnership with New York State and then many other states and geographies, we're working on to build the industry, but at the same time, we've been pretty consistent for a while that we are only going to add to that backlog with materially different economic terms than what is in our.
Mohit: Backlog today, and that's a combination of many things price other terms and really leaning in on projects that are set to thrive and theres a lot of complexity and offshore win that we're all learning from and we're going to keep working on it every day because we do believe it's going to play a role in the energy transition, but we're only going to add to the bag.
Mohit: Backlog, when it's meaningfully different than what we're executing on today.
Mohit: Our next question will come from the line of Rob Wertheimer with Melius research.
Robert Cameron Wertheimer: Yes, hi.
Robert Cameron Wertheimer: I guess I'd like to start with power and I know, you've given comments on geographic strength and so forth but.
Robert Cameron Wertheimer: Could you talk about U S utility demand and just I think we've all woken up to kind of.
Robert Cameron Wertheimer: Shift in the world that AI is pulling forward on electricity demand.
Robert Cameron Wertheimer: What's the reaction of utilities to that or are they two years ahead of US do you have a lot in pipeline or is that something that's shifting kind of in real time now and then if you would could you remind us or discuss briefly the economics on aero derivatives on both.
Robert Cameron Wertheimer: New newbuild the actual new order.
Speaker Change: Service. Thank you.
Speaker Change: Rob I appreciate the question I would I would say that our utility customers have been working towards a demand build here over the last few years, but admittedly the load growth projections for many of our customers.
Robert Cameron Wertheimer: Have become a steeper demand curve sooner in the last let's say six to 12 months and that is accelerating discussions on our end on things like framework agreements to secure capacity for them with future heavy duty equipment, while they firm up.
Robert Cameron Wertheimer: Project sites for development that make more sense for them. So there clearly is a macro theme in the U S. Specifically with our with our U S utility customers that many of them are going to have incremental gas capacity additions, but like any power project, it's not a stir.
Robert Cameron Wertheimer: Eight line to kind of get things to closed through permitting and otherwise and customers are working very hard on that so.
Robert Cameron Wertheimer: We are bullish on capacity addition.
Robert Cameron Wertheimer: <unk> optionality or opportunity ahead for us with our utility customers and are going to work at very hard on the second part of your question with Arrow derivatives. This is one of the more exciting growth parts of gas powered the reality is the Ara derivative product line is so well suited to be the complement.
Robert Cameron Wertheimer: Two two to 300 megawatt blocks of wind or solar that just need fast ramping technical solutions to support that zero carbon power. So in many ways. When we talk about gas power being a force multiplier that enables other zero carbon power.
Robert Cameron Wertheimer: Sources to grow faster Aero derivatives is the perfect illustration of that now.
Robert Cameron Wertheimer: The general economics for Us where there are derivatives are the equipment margins are more healthy than they are on a heavy duty gas turbine project.
Robert Cameron Wertheimer: Cuz admittedly the services annuity stream in the operating profile of those Aero derivative units may not be as high or is consistent that we can count on because they're really they're more as a support to those wind or solar farms that get developed.
Robert Cameron Wertheimer: When we underwrite gas projects and a heavy duty project, where it's something like the coal to gas switching.
Robert Cameron Wertheimer: A larger proportion of the economics around the services with Aero derivatives, a larger proportion of the economics for us are with the day one.
Robert Cameron Wertheimer: Equipment revenue.
Speaker Change: Liz I think we have time for one more question.
Speaker Change: This question will come from the line of Pablo <unk> with Raymond James.
Pablo: Thanks, Laura.
Pablo: Taking the question you.
Pablo: You mentioned that onshore wind already achieved positive EBITDA in the quarter.
Pablo: Given the seasonality of the overall wind segment do you anticipate getting to positive EBITDA for the segment as a whole at any point before the end of the year on a quarterly basis.
Speaker Change: So what we said in our guidance is that we anticipate that with the continued improvement in win as well as the delivery of our offshore wind backlog, but which.
Speaker Change: As generating losses, but improving as we deliver that backlog.
Speaker Change: Is that we would approach profitability for 2024.
Speaker Change: Now that that does have a lot of really good fundamentals built within that which is number one we talked about the fact that revenue for onshore wind in the first half would be challenged in the sense of our developers our customers are working to rebuild their pipelines and that we would see the orders start to come in as we move through the year.
Speaker Change: Year, but what we do feel on the second half of the year is based upon the backlog that we have on hand in the onshore wind business, we expect to see revenues in onshore wind be measurably higher than the second half than we than we're seeing in the first half of the year that will contribute to improve productivity because as.
Speaker Change: We said, we're anticipating onshore wind to be more of the high single digits.
Speaker Change: <unk> EBITDA margin business for 2024 in totality I give you that background because the good the good performance in all of our businesses as well as wind out of the gate has us on track to approach profitability for 2024, if we reached that at a sooner.
Speaker Change: Point, we will know that as we move through some of the bigger quarters of the year, but our guidance is is that we will get close to profitability. This year for this segment in totality.
Speaker Change: Before we wrap up let me turn it back to Scott for closing comments.
Michael: It's Michael.
Michael: Everyone in short I Hope you can hear the excitement in our voices on the opportunity we have in front of us to serve this market.
Michael: I also want to thank our employees the process of separating from a 130 year old plus company, while continuing to focus on serving our customers in the operations is not always an easy balance and I think in the first 90 days of the year. Our teams did an excellent job of that I also want to thank our customers for their continued trust in us and the.
Speaker Change: Continued iteration that we're having right now on these growth markets that we're facing into.
Speaker Change: Everyone on the call today. Thank you for your interest in <unk>, We're just getting started but I really like our chances from here. So thanks for the time and with that I think we'll wrap the call.
Speaker Change: Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.