Q1 2025 GE Vernova Inc Earnings Call
Good day ladies and gentlemen, and welcome to GE Vernova's first quarter 2025 earnings conference call.
At this time, all participants are in a listen-only mode.
Liz: My name is Liz, and I will be your conference coordinator today. If you experience issues with the webcast slides refreshing or there appears to be delays in the slide advancement, please hit F5 on your keyboard to refresh. As a reminder, this conference is being recorded.
Liz: I would now like to turn a program over to your host for today's conference, Michael Lapides, Vice President of Investor Relations. Please proceed.
Michael Lapides: Thank you. Welcome to GE Vernova's first quarter 2025 earnings call.
Speaker Change: I'm joined today by our CEO , Scott Strazik, and CFO Ken Parks
Michael Lapides: Our conference call remarks will include both Gap and non-GAAP to neutral results. Reconciliation between Gap and non-GAAP measures can be found in today's Form 10 Cube, press release, and presentation slides, all of which are available on our website.
Michael Lapides: Please note that your Brewer commentary or variances on orders, revenue, adjusted in segment EBITDA and margin, discussing our prepared remarks or on an organic basis unless otherwise specified.
Michael Lapides: We will make forward-looking statements about our performance. These statements are based on how we see things today. While we may elect to update these forward-looking statements at some point in the future, we do not undertake enough any obligation to do so.
Michael Lapides: As described in our SEC filings, actual results may differ materially due to risk and uncertainties. And with that, I'll hand the call over to Scott. Thanks, Michael. Good morning, everyone. Welcome to our first quarter earnings call, our fifth, as a standalone public company.
Michael Lapides: It's a start. I have to share with you that I am as confident and optimistic today as any day since our spin that we are creating a stronger company at GE Vernova, one that will drive substantial value ahead.
Speaker Change: We start with the markets. We continue to see very strong and markets in power and electrification.
Speaker Change: Put simply, the world is entering an era of accelerated electrification driven by manufacturing growth, industrial electrification
Speaker Change: EVs in emerging data center needs, which is driving an unprecedented need for investment in reliable based load power, great infrastructure, and decarbonization solutions.
Speaker Change: As supply chains become more decoupled, with more redundancy built into the global system to manage trade complexities,
Speaker Change: To put today's investment super cycle into perspective in terms of energy needs and decarbonization.
The scale of load growth we're seeing in North America is the most significant sense of post-World War II industrial build out.
Speaker Change: But unlike then, the growth is global. The most popular country in the world, India, nearly 1.5 billion people, drives 80% of its electricity from coal.
Speaker Change: Saudi Arabia, which relies on heavy oil for nearly half of its power, has committed to a 50-50 mix of gas and renewables by 2030.
Speaker Change: These are just a few examples of the opportunities ahead as we help customers deliver more reliable and affordable power to the markets they serve.
Speaker Change: All this demand is driving growth, not only for new equipment, but also for services as increased utilization of our install base creates opportunities for additional service revenues, including upgrades.
Speaker Change: Service represents over 60% of our backlog, aft-strong margins, and provides significant revenue and cash flow visibility for years to come.
Speaker Change: While our end markets remain strong, we are not immune to the complexity of play given the current outline of tariffs in resulting inflation. We do expect our cost to go up to $400 million in 25.
Speaker Change: We are moving at pace to mitigate these pressures with pricing actions including use of existing contractual provisions and the acceleration of our GNA cost structure transformation.
Speaker Change: We continue to invest in our supply chain to strengthen the durability and resiliency of our operations.
Speaker Change: For example, in January we announced our plans to invest $600 million and add 1,500 new jobs in U.S. manufacturing as part of our $9 billion global commitment to R&D and CAPEX cumulatively through 28.
Speaker Change: We remain confident in our financial trajectory from here and are reaffirming our 25 financial guidance inclusive of the three to four hundred million dollars of tariff and resulting inflation that we estimate as of today net of our mitigating actions.
Speaker Change: In this dynamic environment, we will continue to act with urgency on further mitigation steps. This is an opportunity for GE Vernova to differentiate itself as a great industrial company.
Speaker Change: Overall, we have a solid balance sheet with an eight billion dollar cash balance, growing free cash flow and expanding backlog, which positions us to invest both in our business and in shareholder or creative actions.
Speaker Change: For example, in the first quarter we sold an incremental 2% in our China XD investment and completed our acquisition of Woodward's gas turbine parts business to further vertically integrate our gas power supply chain.
Speaker Change: As we begin our second years of public company, we are well positioned to meet the growing demand with Disciplined Execution.
Speaker Change: Turning to the next slide on our first quarter results. We continue to build a stronger backlog supporting the long-term growth potential in our businesses. On a sequential basis, our equipment backlog grew $2.4 billion in Q1 and our services backlog grew $2 billion.
We now maintain a total black log of $123 billion. $123 billion.
Speaker Change: Specifically the gas power. We grew equipment orders over 30 percent by booking seven gigawatts of gas turbine orders. Additionally, we secured seven gigawatts of new slot reservation agreements.
Speaker Change: In total, our gas turbine backlog has increased to 29 gigawatts, and we also have 21 gigawatts of
Speaker Change: All of these numbers and gigawatts aligned with McCoy reporting, which may differ from how our customers often announce projects as they cite the total combined cycle output of the plant, including the power from steam turbines.
Speaker Change: Concerning the focus on gas power demand, I wanted to provide some incremental context on where we are seeing the orders trend for the year.
Speaker Change: We currently have 50 gigawatts of gas turbines under contract or with a slot reservation.
Speaker Change: We expect to ship over 10 gigawatts of equipment in the remainder of the year and add contracts for more than two times that amount to end the year with over 60 gigawatts between backlog and reservation agreements. [inaudible]
Speaker Change: The second half of the year should see a heavier mix of combined cycle orders after a first half with more simple cycle or peaking applications.
Speaker Change: Driving the dollar value of orders in the second half of the year to be substantially higher than the first half
Speaker Change: Sitting here today, 26 and 27 are largely sold out. We are approaching filling out 28 and starting to sign agreements for later years.
Speaker Change: I give that context to just frame that I continue to see this market normalizing to a higher for longer gas market.
Speaker Change: The world needs more dispatchable power generation to support economic growth and national security. Gas power will provide a significant amount of the incremental dispatchable power while also being the force multiplier for more renewables where wind and solar resources make sense.
Speaker Change: With this strength, commercial activities accelerating for 29 and 30 deliveries.
Speaker Change: We remain focused on our fulfillment strategy of reaching 20 gigawatts of annualized deliveries in the second half of 26 and sustaining 20 gigawatts per year, starting in 27.
Speaker Change: We are gaining momentum and nuclear as well. Our customer and Ontario power generation received the license to construct the first SMR in North America earlier this month.
Speaker Change: We are also seeing increased interest in the US about expansions and existing nuclear sites as well as the development of SMRs with productive discussions with utilities, hyperscalers, and the administration.
Speaker Change: on what it takes to commission our first SMR in the US by late 2030.
Speaker Change: In the growth is not restricted to power. We continue to grow our equipment backlog and electrification systems with $2 billion of sequential backlog growth, up 10% versus year-end levels, on the strength of demand for Transformers and Switch Gear.
Speaker Change: Electrification remains our fastest growing business, and orders remain strong, particularly in North America and Asia, which were our strongest growth regions this quarter.
Speaker Change: I mentioned services earlier, and we will go into more detail here on what we saw this quarter.
Speaker Change: Customers continue to invest more in the install base, driving orders and high margin services.
Speaker Change: Services orders grew 16% as customers aim to get more capacity and better performance out of their plants.
Speaker Change: Gas Power, and onshore wind, drove double-digit services order strength, and steam services orders were up nearly 60% this quarter as our customers are increasingly investing in equipment upgrades, including at existing nuclear sites.
Speaker Change: to extend the life of their plants and get more capacity.
Speaker Change: to provide a bit more context on wind in the quarter. We were pleased with delivering our fifth straight profitable quarter and onshore wind.
Speaker Change: We're also pleased with our progress with our utilization robotic crawlers that inspect the inside of our blades both at the factory and at the site before we commission the turbine.
Speaker Change: We are investing over $100 million more year over year in 25 to improve the performance of our install base and remain confident these investments will yield a substantial improvement in fleet availability and services profitability in 2026.
Speaker Change: In offshore, we continue to make progress executing our existing backlog in the first quarter, commissioning on other 17 units across Dogger Bank and Vineyard Wind.
Speaker Change: We still expect to be materially complete with Vineyard Wind in 25 and to be mostly complete with Dogger Bank in 26. We also agreed to a termination of the last remaining offshore wind supply agreement associated with the 18 megawatt product we are no longer developing.
Speaker Change: Our only remaining contractual commitments are the two projects currently in execution. Our losses and offshore wind have improved sequentially, and absent this one-time charge, we are better year-over-year as well.
Speaker Change: From a margin perspective, power expanded, margin 70 basis points, while electrification expanded margin almost 700 basis points.
Speaker Change: Wind, Expanded Margin, 190 basis points while continuing to control what they can control. Given this is the one and market, we continue to see real softness in today.
Speaker Change: We continue to expect margin expansion across all three segments in 25.
Speaker Change: Lean remains core to how we operate, as we maintain an intense focus on improving safety, quality, delivery and cost, a focus we are embedding throughout GE Vernova that will benefit all stakeholders.
Speaker Change: In mid-February, we held our CEO Kaizen week with over 120 Kaizen's across 13 countries.
Speaker Change: across the segments and corporate functions. Overall, we identified over 500 safety improvements in total during Kaizen Week. We also identified enhancements to either capacity or delivery times that will create roughly $150 million in incremental revenues.
Speaker Change: Kaisins like these drive tangible, sustainable improvements across SQDC, while also benefiting both our customers, employees, and our financial performance.
Speaker Change: In Q1 we generated a billion dollars in free cash flow after spending over 400 million dollars between R&D and CAPEX combined.
Speaker Change: in improvement of 1.6 billion year-of-year, given working capital benefits, and higher EBITDA as we continue to run our businesses better.
We are also creating value for our shareholders.
Speaker Change: In the quarter, we returned 1.3 billion of capital to shareholders and continued in April for a total of 1.5 billion of capital returned so far this year.
Speaker Change: Overall, we repurchased approximately 5 million shares at an average share price of $299.
Speaker Change: We shared at our investor update in December that we would be opportunistic with our share-back buy-back program and today we see a more valuable company with even greater prospects ahead.
Speaker Change: Taking into account the dynamic supply chain environment matched with the strength in our businesses.
Speaker Change: As I discussed on the previous page, we are reaffirming our 25 financial guidance, expect to continue to grow backlogs
Speaker Change: Expand Margins, and deliver positive free cash flow throughout the year.
Speaker Change: With that, I'm going to hand it over to Ken to provide details on Q1 results.
Ken Parks: Thanks, Scott. Turning to Slide 5, we delivered a strong start to 2025 with continued orders and revenue growth and adjusted EBITDA margin expansion.
Ken Parks: Importantly, we improve free cashflow by $1.6 billion year-over-year reflecting strong-down payments and working capital management, including further improvement in linearity.
Ken Parks: Demand remained robust in the first quarter as we built $10.2 billion of orders, an increase of 8% year over year, and approximately 1.3 times revenue.
Services orders grew double digits with growth in each segment.
Ken Parks: Equipment orders grew low single digits, primarily driven by strength and power, partially offset by lower orders and onshore wind, as expected.
Ken Parks: and a tough comparison and electrification due to a large HVDC order recorded in the first quarter of last year.
Ken Parks: As a result of the strong orders, our backlog continued to grow both Euroyear and sequentially across equipment and services.
reaching a hundred and twenty three billion dollars.
Ken Parks: Equipment Margin and Backlog remains healthy, reflecting higher price as well as our focus on disciplined, profitable growth.
Ken Parks: Revenue increased 15% with higher equipment and services revenues in all three segments.
Ken Parks: Equipment Revenue grew 22% with double-digit growth in onshore wind, power, and electrification while services revenue increased 8%.
In addition, price was positive in each segment. [inaudible]
Ken Parks: Adjusted EBITDA, increased nearly 70% to approximately $460 million, and adjusted EBITDA on a margin expanded 170 basis points.
Ken Parks: Margin improved in all three segments driven by more profitable volume, price and productivity, which more than offset investments as well as inflationary impacts.
Ken Parks: We generated positive free cashflow in the first quarter of approximately $1 billion, a significant first quarter milestone for GE Vernova.
Ken Parks: Free cash flow improved $1.6 billion dollars year over year, reflecting higher down payments from rising orders and slot reservation agreements at power, along with ongoing actions we're taking to improve linearity.
Ken Parks: Working capital in the quarter was an approximately $1 billion cash benefit, which more than offset CapEx investments to support capacity expansion, along with higher cash taxes on growing EBITDA.
We're using Lean to drive better cash management and linearity.
Ken Parks: For example, the power team continues to focus on accelerating the cash conversion cycle.
Ken Parks: By implementing stronger daily management and new standard work, the team improved the timely payment of end voices.
Ken Parks: These actions decrease the power past dues balance by nearly 30% and reduce day sales outstanding by three days, resulting in approximately $150 million of additional free cash flow in the quarter. [inaudible]
Ken Parks: We continue to leverage our lean culture across GE Vernova to deliver consistently better financial results.
Ken Parks: In 1 Q2 025, we generated approximately $100 million of incremental pre-tax proceeds by selling an additional partial ownership stake in our China XD Grid business.
Ken Parks: The proceeds are classified outside of free cash flow, and the gain was removed from adjusted EBITDA.
We continue to own just over 10% of China XD.
Ken Parks: Our strength and free cashflow profile enabled us to repurchase $1.2 billion a stock and pay our inaugural dividend in the quarter.
Ken Parks: We ended 1 Q2 025 with a healthy cash balance of $8.1 billion, which gives us confidence in navigating this dynamic environment.
Ken Parks: As Scott mentioned, we have continued share repurchases this month, completing approximately $300 million in April .
Ken Parks: Importantly, we remain committed to maintaining a solid investment grade balance sheet.
Ken Parks: In March, Fitch revised its GE Vernova ratings outlook to positive from stable and affirmed our investment grade credit rating of triple B.
Ken Parks: Our growing backlog with expanding backlog margin provides an excellent foundation for further improvement in our financial performance moving forward.
Ken Parks: Turning to power on slide six, the segment delivered another strong quarter with continued robust orders growth, increased revenue, and further EBIT Dom Margin expansion.
Ken Parks: Power orders grew 28% led by equipment at gas power and services strength
Ken Parks: In gas power, equipment orders increased more than 30% as we book 29 heavy duty gas turbines including 8 HA units.
Ken Parks: This was almost double the number of heavy-duty units booked in 1Q of 2024.
Ken Parks: Power services orders were strong, increasing 18% primarily driven by gas and steam.
Revenue increased 16% lead by gas power. [inaudible]
Equipment Revenue Growth was driven by increased HA deliveries.
Services increased mainly from higher volume as well as price. [inaudible]
Ken Parks: Ibadon Margins, expanded 70 basis points to 11.5% as productivity, price, and volume more than offset the impact of inflation and additional expenses to support R&D and capacity investments at nuclear and gas power respectively. Thank you very much.
Ken Parks: Looking at the second quarter of 2025 at Power, we expect continued year over year growth and gas equipment orders.
Ken Parks: We also anticipate mid single digit organic revenue growth, given expected equipment strength, as well as continued services growth.
Ken Parks: On a reported basis, we expect a low single-digit increase reflecting the impact of the restructure of a portion of the steam business in the second quarter of 2024.
Ken Parks: We expect EBITDA margin of approximately 14-16%. As productivity and price should more than offset inflation as well as additional expenses to support R&D and capacity investments at nuclear and gas power.
Ken Parks: Based on the current outline of tariffs and resulting inflation, we do not expect a material impact to our second quarter financials at power or electrification.
Speaker Change: and Michael Lapides. Thank you for watching. This is a production of the U.S. Department of State.
Speaker Change: Turning to wind on slide seven, EBITDA margin improved even as we are investing more to enhance performance on short-fleet performance.
Speaker Change: Wind orders decreased 43% driven by lower onshore wind equipment as a result of ongoing US policy uncertainty and permitting delays
Speaker Change: In offshore, we remain focused on executing our existing Challenge Backlog . .
Speaker Change: Wind Revenue increased 15% in the quarter on higher onshore equipment deliveries and price, partially offset by lower offshore revenue as we executed on the updated delivery schedule.
Speaker Change: EBITDA losses improve 7% driven by more profitable onshore equipment volume.
Speaker Change: Services cost increased in one queue as we're deploying more crews and cranes to accelerate improvement in the onshore installed fleet performance.
Speaker Change: At Offshore, EBITDA losses included a one-time termination of a supply agreement of approximately $70 million.
Speaker Change: As we've discussed, we remain cautious on the timing of an onshore order inflection in North America as customers continue to navigate growing interconnection cues, policy uncertainty and higher interest rates.
Speaker Change: We expect the win segment to grow revenue high single digits in 2 Q2 025 driven by higher onshore equipment deliveries.
Speaker Change: EBITDA losses should remain relatively consistent with 1 Q2 025 as the impact of higher year over year onshore volume is offset by higher services costs to further improve the operating performance of the installed onshore fleet and the estimated impact of tariffs primarily at offshore.
Speaker Change: Turning to electrification on slide 8, we had another quarter of robust demand, significant revenue growth, and EBITDA margin expansion.
Speaker Change: orders remain strong at approximately $3.4 billion. Roughly 1.8 times revenue driven by the growing need for grid equipment.
Speaker Change: While we saw substantial orders growth for switch gear and transformers in North America and Asia, total orders decreased low single digits year over year due to a large HVDC order recorded in the first quarter of 2020.
Speaker Change: Equipment orders outpaced revenue further expanding the equipment backlog to approximately $22 billion up more than $7 billion compared to the first quarter of 2024.
Speaker Change: Revenue increased 18% driven by higher volume and price, particularly at grid solutions where we saw meaningful growth in switch gear and transformer equipment volumes.
Speaker Change: The segment delivered another quarter of double-digit EBITDA margins with 680 basis points of margin expansion on more profitable volume, increased productivity and favorable pricing.
Speaker Change: In the second quarter, 2025, we anticipate continued solid equipment orders at healthy margins.
Speaker Change: Electrification revenue growth should be in line with our full-year guidance driven by higher volume and favorable pricing primarily at grid solutions as we expect modest EBITOM margin expansion sequentially.
Thank you for joining us. Have a great day.
Speaker Change: I'll now turn to slide 9 to discuss GE Vernova guidance further.
Speaker Change: For the second quarter based on our expectations for the segments which I've already outlined, we expect continued year-over-year revenue growth and adjusted EBITDA margin expansion in the quarter.
Speaker Change: While we expect to generate positive free cash flow in the second quarter driven by our continuing focus [inaudible]
Speaker Change: Better Cash Linearity, and increased EBITDA. We do anticipate lower free cash flow year over year due to the approximately $300 million
Speaker Change: We continue to expect to deliver positive, free cash flow in all four quarters this year.
Speaker Change: For the full year, we're reaffirming the 2025 guidance which includes the impact of tariffs as currently outlined and resulting inflation which is estimated to be approximately 300 to 400 million dollars net of mitigating actions.
Speaker Change: As Scott mentioned, we are actively navigating this dynamic environment and taking action.
Speaker Change: Some of our GNA cost out acceleration and supply chain actions will occur in 2025, but we expect benefits beyond this year.
Speaker Change: We continue to expect full-year 2025 revenue to be in the $36 to $37 billion range amid single-digit year-over-year increase with growth in both services and equipment.
Speaker Change: We also expect continued expansion and adjusted EBITDA margin to high single digits as we deliver our growing backlog at better pricing and with better execution.
Speaker Change: We anticipate free cash flow to be between two and two and a half billion dollars.
Speaker Change: By segment, we continue to expect mid-single-digit organic revenue growth and power driven by higher gas services and equipment, with power EBITDA margins between 13 and 14 percent.
Speaker Change: In wind, we expect revenue to be down mid single digits, given our continued geographic selectivity and onshore, and the benefit of the one time settlement from an offshore contract termination in 2024.
Speaker Change: We expect 2025 wind EBITDA losses to be between $200 and $400 million, improving year-over-year driven by onshore margin expansion within the high single-digit range, and slightly lower losses at offshore.
Speaker Change: In electrification, we anticipate continued strong demand and favorable price to drive mid to high teams organic revenue growth with 11 to 13% EBITDA margins as we deliver a more profitable backlog.
Speaker Change: We continue to expect 2025 adjusted EBITDA to be more second half-weighted, similar to last year.
Speaker Change: We anticipate typical gas services seasonality with the highest outage volume in the fourth quarter.
Speaker Change: In addition, Wind EBITDAH should improve in the second half compared to the first largely due to the timing of onshore turbine deliveries already in backlog and improved services profitability.
Speaker Change: We also expect electrification earnings to grow sequentially through the year.
Speaker Change: Finally at corporate, EBITDA can be uneven across quarters, like 2024, as it includes the portfolio activity at our financial services business.
Speaker Change: We also expect the timing of cost savings to be more back in-loaded as we drive additional GNA Cost Transformation.
Speaker Change: Overall, we drove strong results Q1 2025 with continued growth, significant margin expansion, and increasing pre-cashflow generation.
Speaker Change: We're very encouraged by the rising demand and consistently stronger execution we're seeing at power and electrification, as well as the improvements we're making at wind, enabled by our lean culture.
With that, I'll turn it back to Scott.
Speaker Change: Thanks Ken. We are pleased with our performance to start the year and are excited about our future as we help our customers electrify and decarbonize the world.
Speaker Change: I have increased conviction that GE Vernova is well positioned to lead. Markets remain robust in power and electrification. At wind, markets remain tough. We continue to execute better in all three segments.
Speaker Change: We remain in the early stages of substantial margin expansion, and I am pleased with our momentum and adoption of lean.
Speaker Change: We are reaffirming our 2025 guidance and are taking action to mitigate the current outline of tariffs and resulting inflation.
Speaker Change: Our balance sheet is solid, and we're growing free cash flow, which gives us confidence in our ability to invest in the businesses, while also returning significant capital to shareholders.
Speaker Change: Our team is core to all of these efforts and we are accelerating a stronger culture to ensure GE Vernova can meet its full potential.
Speaker Change: We are just getting started. With that, I'll head back to Michael for the Q&A portion of the call.
Michael Lapides: Before we open the line, I'd ask everyone in the queue to consider your fellow analists and ask one question so we can get to as many people as possible. Please return in the queue if you have follow-ups. With that, operator, please open the line.
Speaker Change: Please, in gentlemen, if you wish to ask a question, please press star 1-1 on your telephone. If you can't draw your question or your question has already been answered, please press star 1-1 again.
Our first question comes from Nicole DeBlase with Deutsche Bank Thank you.
Yeah, thanks. Good morning, guys. Good morning, Nicole. Good morning.
Can we start with the terrace impact?
Speaker Change: I guess can you talk about what's embedded in 300, 400 million with respect to the impact on cogs on a growth basis versus the mitigation actions?
Speaker Change: Scott and Ken, if you guys could talk a little bit more about what the mitigation focuses with respect to price versus G&A, and if you expect to fully offset tariffs by the time we get to 2026, thank you.
Speaker Change: Yeah, we're we obviously as we start this and look at the 300 to 400 million dollars what we can tell you is that the teams are actively working to not only identify what we see as the 2025 impact, but as you pointed out at the last part of your question
Speaker Change: Continuing to drive this to where we can minimize the ongoing costs that it affects the company over time.
We do believe in this environment that...
Speaker Change: However, tariffs end up whether they be a continuing impact at the level that they're at or that they do adjust down that this will result in not just for us but for all companies.
Speaker Change: A continued increase in the cost base. Therefore, it gives us the opportunity to take a look at our supply base as well as our GNA structure and make sure that I think, you know, we've used the words make sure that we are operating as a great industrial company both with a strong supply base as well as a GNA.
workforce.
Speaker Change: As far as gross to that, I'll say away a little bit from the actual gross numbers but what I will tell you are a couple of stats that are probably important and not also surprising.
Speaker Change: The biggest tariff impact to us really sits in the China base, and it's not so much that that's where the majority of our spend is, but it's really just based upon the rate of the tariff that you've heard that has been announced.
Speaker Change: We've talked to you in the last couple of months as we've been trying to stay really, really close.
to the terror situation, that when it was China... [inaudible]
Speaker Change: Canada and Mexico, it impacted about 5% of our total direct spend which is about 20 billion dollars on an annual basis.
Speaker Change: Now with the expanded tariffs, you know, across the world beyond China, Canada, Mexico, and pulling in some of the spend on steel, which is an impact to us. It really impacts about a quarter of our total direct spend on an annual basis. So what are our mitigating actions? So what are we going to do?
Speaker Change: There are some places where we can pass it through under contracts that have inflationary clauses and we're looking actively at that right now.
Speaker Change: There are some of our contracts on the equipment side where we have the opportunity to talk to our customers about how this might come through with a change in...
Speaker Change: Change in law kind of clause, and if those changes in laws do create a higher cost base, we have the opportunity to add a minimum to go back to our customers and talk about that.
Speaker Change: We're also looking at ways where we can move our supply chain around.
Speaker Change: Brown, right? So in the case of China, there's probably about two thirds of our China spend that today is already dual qualified in other places. Now that can't move immediately because we have contracts in progress. Let's see if we can do that.
Speaker Change: But we are looking at the activity that will help us to move that along and have the opportunity to reduce the cost overall
Speaker Change: I'll wrap it up a little bit with a comment on the GNA side.
Speaker Change: You know, back in March of 2024, when we started with our first investor day with the broader community, we talked about a target to really transform our GNA structure or call it our back office structure that supports this new combined group of 12 companies that became GE Vernova.
Speaker Change: and we set a target to reduce cost by about a half a billion dollars by 2028 at that point in time. The teams have been working hard with that initiative well before the concept of what might happen with tariffs because we knew it was the right thing to do. We're going to have to do it.
Speaker Change: We updated that number for you in December and said we were going to achieve about $600 million now.
Speaker Change: Really what we're doing through this process is accelerating that exact work that we've been working on for the last.
Speaker Change: Year and a half plus, as we've been preparing to make this company even more streamlined from an operational perspective both within the manufacturing side of the operations as well as in the back office side.
Speaker Change: The one business within the portfolio that were maybe most affected on as offshore wind, and when you think about offshore wind with a two year backlog, we're trying to expedite and close out.
Speaker Change: and maybe a more pronounced impact on some of the other businesses for...
President Trump was at the Rose Garden. He's been on ...
Speaker Change: April 2nd in the afternoon to Friday afternoon. We had countermeasures and plans in place 48 hours later. And we're going to use this moment to become a better company together. [inaudible]
Thanks, Nicole.
Our next question comes from Mark Strouse with JP Morgan.
Mark Strauss: Good morning, Mark. Hey, hey, everybody. Good morning. Thanks for taking my questions. I wanted to start with the power segment.
Mark Strauss: I appreciate the update on the slot reservations. Are you able to provide more color on those 21 gigs by customer type, by geography? I know you've got a lot of different irons in the fire, but how much of that is coming from data centers, for example. Thank you.
Mark Strauss: Sure, Mark. I mean, a couple important data points. I'd say of the total 50 gigawatts that we have on contract between the backlog and the slot reservation agreements.
Mark Strauss: About 60% of that is in the US. So geographically, that gives you an idea for where this growth is coming.
Mark Strauss: and then of the 29 gigawatts that are already on backlog, when it comes to data centers, it's fairly negligible. I mean, we started executing on a few smaller projects that have been announced like Crusoe and Texas.
but it's a very small amount.
with a slot reservation agreement that 21 gigwops. [inaudible]
Mark Strauss: About a third of it is aligned with the data center buildouts. So what you're seeing here is a very strong shift towards the US.
and in slot reservation agreements. [inaudible]
Mark Strauss: A lot of data center contracts that we expect to start to convert to orders in the second half of the year. Thanks, Mark.
Our next question comes from Joe Ritchie with Goldman Sachs.
Morning, Joe. Hey, guys. Good morning.
Hey, just quickly on this...
Speaker Change: I'm both a slot reservation agreement and the 29 gigawatts that are already in your backlog. We often get the question on cancellation risks just given, you know, the generations that we're seeing particularly from the data center market. Can you maybe just talk about the stickiness or resiliency of both the backlog and the slot reservations? Yes, thank you very much.
Speaker Change: Yeah, I mean, I'd start. I would just emphasize that even with the slot reservation agreements, I mean, we've got directionally 20% of those contracts paid for today.
Speaker Change: The reason they're not on order today is because the customers are still working through their EPC contracts, they're still working through site selection and air permits.
Speaker Change: and as they do those things, although they've secured the timing of a slot, that gives us the confidence that the accuracy of that slot relative to the ultimate delivery is that much more firmed up to recognize it as an order. So,
the 29 gigawatts that are on backlog.
Speaker Change: Barry Firm on schedule, I think the 21 gigawatts that are on slot reservation agreements, we could see some movement on slots as final EPCs and sites are selected. But if you just take a step back, Joe.
Speaker Change: We're at a point now where 26 and 27 are largely sold out. 28 is materially sold out, although we still have some slots we're selling, and I think
Speaker Change: The material development, even in the last 90 days, is we now have orders for 29 and we're in active discussions for slots in 2030.
Speaker Change: And I make that point to just really reinforce that it's very clear with the customers that there's a need for more gas over a longer period of time.
Speaker Change: There will be some movement amongst the slots I would expect over the next five years.
Speaker Change: But I see very little, quote-unquote, cancellation risk, but there will be some movement that our supply chain will have to be nimble with as the slot reservation agreements turn to orders and final dates get finalized.
Thanks for your question, Joe. Thank you.
Speaker Change: Our next question comes from Chris Dendrinos with RBC Capital Markets
Chris Dendrinos: Yeah, good morning and thank you. I wanted to ask about pricing dynamics and previously in December you all had indicated that you were taking pricing on gas turbines and I'm curious what the environment is like today. Are you still able to push pricing further in gas and then also in electrification? Thanks.
Chris Dendrinos: Yeah, in gas, we continue to be in a price-up environment. I think the price on what we recognize and orders in the first half of 25 is going to be better than the second half of 24. The second half of 25 will be better than the first half.
Chris Dendrinos: We continue to take price up, including in the month of April , in light of the tariff dynamic to a further extent. Those pricing actions in April aren't yet leading to orders, per se, but that continues to be the direction of travel. [inaudible]
Chris Dendrinos: Those price-up moves in gas remain much deeper than where we are in electrification. We do continue to be
Chris Dendrinos: Gaining price and electrification, but at a slower rate than what we were experiencing in 24, let's say, and it varies a little bit by geography and by product type. So switch gears in North America remain very strong in price.
Chris Dendrinos: A little bit more of a normalization with some of our product and solutions in Europe as an example.
Maybe just one.
Chris Dendrinos: and Scott has talked, we talked about this back in December , but just think about the timeline that it takes to go from, from a concept of an order to the booking of an order, and we gave you some numbers in, in January as we close the year at that talked about. [inaudible]
Another 12 full points of margin in our backlogs. [inaudible]
Chris Dendrinos: across the company and that coming in both the electrification segment. Thank you very much.
Chris Dendrinos: I give you that because just as you think about that kind of growth in our margin and backlog that we quoted through the end of 2024
Chris Dendrinos: A lot of the pricing dynamics that Scott is talking to you right now where the prices have continued to go up as we've seen the acceleration of the demand. That incremental pricing really isn't already sitting in our order. Some of it's in our SRAs.
Chris Dendrinos: But those as they continue to get finalized will create additional margin in our backlog which will support future growth and profitability in both the electrification and power businesses.
Thanks, Kevin, perfect.
Thank you for watching!
Our next question comes from Andrew Percoco with Morgan Stanley .
Speaker Change: You know, if you're the market's getting a lot more worried about a recession, have you seen...
Speaker Change: Any change in behavior from your customers, I'm thinking particularly about the gas power business, maybe some of the co-located data centers versus the traditional regulated utilities, because there have been any change in cadence of conversation or appetite from customers as you've seen the world change pretty dramatically in the last few weeks. And then maybe there's a follow-up question to a prior question.
Speaker Change: Are you changing at all your contract structure with these long lead time orders to maybe better protect yourself for future changes in tariffs? I'm just wondering if there's any fundamental changes to the contract structure just given the world that we're living in. Thank you.
Speaker Change: Andrew, it's only a few weeks, as you said, but generally speaking, we continue to see the same growth trajectory today than we were projecting on April 1st. So what we're trying to emphasize in the call today is all indications are
Strong Growth ahead.
Speaker Change: All that said, we do have some cost pressures now that we need to go after, and that's why we're calling out the three to four hundred million for this year. I think ten framed perfectly the tariff dynamic for 25, but we run the company with the views that
Speaker Change: The tariffs are going to change the inflation dynamics will evolve, but there's some cost pressure here that we expect that then we need to countermeasure and that's everything that can framed up and...
Speaker Change: If we do that well, we're going to be all that much better a company on the other side. So the growth remains strong. We do have some tariff inflation pressure. We've got a countermeasure. I want to come to the contract.
Speaker Change: and I think those are really the key things. I think it's really a nuance to the contract question but...
Speaker Change: Stronger Underwriting to make sure that we're driving discipline growth and one of the things that we are truly looking at right now is not a necessarily a change in contracting but really looking closely at these cash curves. [inaudible]
Speaker Change: The reason I bring that up is we bring a lot of cash in upfront on the down payments. Scott mentioned, you know, approximately 20% of down payments on orders and SRAs. But in this environment where we're bringing things in to support those contracts at a higher cost.
Speaker Change: We will watch very closely when the milestone payments need to occur as we're incurring costs so we always stay in a positive positive.
Speaker Change: Cash Curve. I put that point out there because we often get the question around, hey, you've got a great amount of money coming in on the up front, how do you manage it through the process to ensure that you're positive the whole time? And that's one of the things that we're looking at closely now.
Thanks again.
Our next question comes from Nigel Coe with no research.
Warren Nigel, Hay Nigel. Thank you.
Natalie, maybe I'm even... [inaudible]
Speaker Change: Robert, that goes as I'll meet. Thanks for the question.
Speaker Change: which is a bit surprising. So I'm just wondering maybe you could weigh in with your perspective on what you're seeing in kind of your kind of front log and opportunity set for data centers as a list of gas. And then what is the, what is the kind of the key to getting these thought reservations into orders? Is it permitting, financing? And I know you've said over the next 12 months or so, but just wondering what that looks like. Thanks. Thank you very much.
Speaker Change: You bet, Nigel. I mean, to go work it backwards. It really comes down to the customer securing their EPC. In some cases, they're choosing amongst a few sites. So think to yourself, they may have put in air permit requests and multiple states for potential buildouts. They're negotiating with the EPCs. The EPC, the EPC. The EPC. The EPC. The EPC.
Speaker Change: And as those things firm up, we'll firm them up in orders. The reality with a lot of the slot reservation agreements is it's less the concern on financing capability, but until you've got that final site selection and EPC partnered to build the plan.
Speaker Change: with the capital and the cash, these customers are providing for us. We don't view the cancellation risk.
to be very material. [inaudible]
Speaker Change: You are right. We said about a third of the 21 gigawatts are direct to a data center project. The other two thirds are everything else that's happening in the world right now. I mean we have...
Speaker Change: Electrification Growth for more than just data centers, I mean, it's beyond base load power also because the healthy amount of these are also F-class gas turbines, it just strengthens the durability and the resiliency on the grid. So,
Speaker Change: We don't think the one third is a bad directional view of where the orders profile is going from here, whether that be in the US or globally.
Thanks Nigel.
Our next question comes from Julian Mitchell with Barclays.
Hi, good morning.
Speaker Change: Maybe just wanted to start with the EBITDA margin guide, so you've got the power and electrification.
Speaker Change: Numbers on slide 9 for the year at sort of 13-ish percent of the high-infraletification, the low-end for power, but I guess if I look at your Q1 results and your Q2 comments, it looks like the first half
Speaker Change: In both power and electrification, you should be at the full year margin numbers and normally you get a half on half step up in
Speaker Change: Margins in those businesses in the second half. So I'm just trying to understand, you know, anything you'd call out in any sort of bridge items or anything that would imply, you know, less than normal seasonal ramp, is it the tariff waiting coming in?
Speaker Change: Hard in Q3. Is it, you know, plant capacity, addition, ramp up costs in power? How much is this natural contingency? Any color on that, please?
Yes, sure.
Speaker Change: The first quarter is obviously our smallest quarter of the year, so we are performing well in the businesses beyond
Speaker Change: exactly in line or better than where we expected to perform coming out of the gates.
Speaker Change: The guides that you talked about, we certainly do have a new placeholder in there that wasn't there when we set the guide, which is the increase in cost due the tariffs that we've sized to the $300 to $400 million.
Speaker Change: Impact, the one that we can more immediately estimate what's going to impact this is the one that hits the wind piece of the business.
Speaker Change: and that's because when you have a piece of the portfolio, specifically the offshore windside, that's got a couple of contracts that are running at losses, pretty much anything that you estimate for incremental cost.
is going to flow through and affect you right there, so that's...
Speaker Change: One variable on that business that we do see a very clear path to how much it's going to affect us at this point in time.
Speaker Change: We've inclined both the power and electrification businesses are running well [inaudible]
Speaker Change: Against where we thought they were going to be, both on an order's perspective. David.
and importantly on an execution perspective.
Speaker Change: But we do want to continue to measure how these tariffs are going to roll into each of those businesses.
Speaker Change: as we move through the year. That said, we still feel extremely confident of the guide that we've given you on all three businesses as well as GE Vernova overall for the year.
Speaker Change: It's a good start, Julian. It's 90 days. Let's get through the second quarter and much like we did last year. We'll see where we are in the summer time.
Our next question comes from Julian Dumoulin-Smith with Jeffries
Hey, good morning, Keith. Thank you very much.
Speaker Change: May be following up on my namesake here a little bit in tone. Just the FCF range, you got about a half billion for the two to two and a half. You talk about three to four hundred million impacts here. Are there other mitigating impacts from a cash perspective, just to understand there? Where's it just kind of an acceleration of the SGNA that we should be looking for the back after the air? And then related if I can, your comments are a win certainly took a little bit of a tone lower here. On onshore specifically, how do you think about that, especially given the top of the funnel seems to be flowing, and giving up?
Ken Parks: from the Permitting Regime at Late. How do you think about the longer-term trends on that front? Can I start in the back half? I think you'd do the first half. I'd say on wind.
Ken Parks: Let's just keep context that we have over 200 gigawatts of projects the country does in the interconnect queue. We continue to see there be an important role for win to play, but we need to see progress on permitting.
Ken Parks: I think there's a real question on the price embedded in those projects that are in the Interconnect Q, where are the tax incentives going? I think clarity on permitting process today and ultimate incentives are going to be important to drive clarity those projects get into closure. Thank you, Peter.
Ken Parks: Backlog of pipeline, let's say, of projects, we're focused on controlling what we can control with the business to get ourselves ready for that growth inflection point and when it comes we're highly confident that we'll capture our fair share.
Ken Parks: That's unwend on the first half of the question. Can be you want to hit on it? Yeah, on the first half of the question I would tell you that you'll look we will see.
Ken Parks: We will see what we typically see on profitability expanding as we move through the year.
Ken Parks: You know, our fourth quarter is our largest outage quarter and therefore service quarter and the power businesses, which is one of our most profitable businesses.
Ken Parks: You will see more of the savings from S-GNA. And in fact, the other piece of this is that in the wind business we anticipated a softer first half than a second half because we anticipated based upon our backlog where the turbines were going to deliver and that's more of a...
Great.
Speaker Change: Our next question comes from Andrew Obin with Bank of America.
I guess, good morning.
Speaker Change: Good morning, Andrew. Good morning. I think the EPA has been quite busy issuing directives and specifically with the focus on
Speaker Change: Endangerment Binding. And I guess the question I have, when you talk to utilities, A, does this change their plans for spending and specifically, do you see any changes to expectations or what's happening on the ground on actual permitting? Thank you.
Speaker Change: No one the first part of the question is to whether that's driving a change in customer behavior. Certainly there's a lot of collaboration happening right now with the industry on how to break through with permitting reform, both at a federal and a state level.
Speaker Change: The reality is it's hard to get a lot of oxygen in the room for that right now. I think this year's going to be very much about firming up the tax cuts and how that gets funded, Andrew, and the permitting topic is probably...
Speaker Change: follows, so that kind of directionally takes us into 26 more than 25 as I see it today.
Liz, I think we have time for one more question.
This question comes from Andrew Kaplowitz.
Citi Group, [inaudible]
Speaker Change: In the recent past, you said that you expected similar annualized growth rate in your equipment backlog in 25, as you saw in 24 and 23. Is that still what you expect Scott? Can you update us on your capacity capability and electrification? I know you didn't change.
Speaker Change: 25-revenue guns, but I know you've been pushing on capacity in that segment, so maybe you could update us on the potential increasing capacity that you could see as early as 26 . . .
Speaker Change: have a similar trajectory of backlog growth in 25 relative to what you experienced in 23 and 24. We are making progress on capacity generally, and you're going to see that growth and revenue growth really throughout 2025 into 2026.
Speaker Change: No change, and again, a lot of this is within our control. [inaudible]
Speaker Change: Adding shifts, adding workers, it's quote-unquote easier stuff and I don't make light of it than things that are outside of our control where we're waiting for certain long lead parts to ramp up in businesses like gas. So...
Speaker Change: I like our chances to continue to really ramp up our electrification revenue through 25 and into 26 from here
Speaker Change: Before we wrap up, let me hand it back to Scott for closing comments Michael, I appreciate it at the wrap I know we're we're short on time I just would reinforce them.
Speaker Change: Solid Quarter, more importantly, great prospects from here. And as we wrap with a lot of humility and with a lot of appreciation, I just want to...
Scott Strazik: and continue to thank our customers for their trust for our employees that are...
Kier every day to serve our customers and our owners. [inaudible]
Scott Strazik: And for all of you, and your interest in investment and GE Vernova, we're excited. This is our fifth earnings call. We've just passed a year and we really feel like we're just getting started and the best is yet to come. Thanks everyone.
Speaker Change: Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.