GE Vernova Q1 2025 Earnings Report

Thank you. Welcome to GE Vernova's first quarter twenty twenty five earnings call. I'm joined today by our CEO, Scott Strazek and 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 today's Form 10 Q, press release and presentation slides, all of which are available on our website.

Please note that year over year commentary or variances on orders, revenue, adjusted and segment EBITDA and margin discussed during our prepared remarks are on an organic basis, unless otherwise specified. 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 any obligation to do so. As described in our SEC filings, actual results may differ materially due to risks and uncertainties.

And with that, I'll hand the call over to Scott.

Thanks, Scott. Turning to Slide five, we delivered a strong start to 2025 with continued orders and revenue growth and adjusted EBITDA margin expansion. Importantly, we improved free cash flow by $1,600,000,000 year over year, reflecting strong down payments and working capital management, including further improvement in linearity. Demand remained robust in the first quarter as we booked $10,200,000,000 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.

Equipment orders grew low single digits, primarily driven by strength in power, partially offset by lower orders in onshore wind as expected, and a tough comparison in electrification due to a large HVDC order recorded in the first quarter of last year. As a result of the strong orders, our backlog continued to grow both year over year and sequentially across equipment and services, reaching $123,000,000,000 Equipment margin and backlog remains healthy, reflecting higher price as well as our focus on disciplined profitable growth. Revenue increased 15% with higher equipment and services revenues in all three segments. 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.

Adjusted EBITDA increased nearly 70% to approximately $460,000,000 and adjusted EBITDA margin expanded 170 basis points. Margin improved in all three segments driven by more profitable volume, price and productivity, which more than offset investments as well as inflationary impacts. We generated positive free cash flow in the first quarter of approximately $1,000,000,000 a significant first quarter milestone for GE Vernova. Free cash flow improved $1,600,000,000 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. Working capital in the quarter was an approximately $1,000,000,000 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. For example, the Power team continues to focus on accelerating the cash conversion cycle. By implementing stronger daily management and new standard work, the team improved the timely payment of invoices. These actions decreased the power past dues balance by nearly 30% and reduced days sales outstanding by three days, resulting in approximately a hundred and $50,000,000 of additional free cash flow in the quarter. We continue to leverage our lean culture across GE Vernova to deliver consistently better financial results.

In 1Q twenty twenty five, we generated approximately $100,000,000 of incremental pretax proceeds by selling an additional partial ownership stake in our China XD grid business. 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. Our strengthened free cash flow profile enabled us to repurchase $1,200,000,000 of stock and pay our inaugural dividend in the quarter. We ended 1Q twenty twenty five with a healthy cash balance of $8,100,000,000, which gives us confidence in navigating this dynamic environment.

As Scott mentioned, we have continued share repurchases this month, completing approximately $300,000,000 in April. Importantly, we remain committed to maintaining a solid investment grade balance sheet. In March, Fitch revised its GE Vernova ratings outlook to positive from stable and affirmed our investment grade credit rating of BBB. Our growing backlog with expanding backlog margin provides an excellent foundation for further improvement in our financial performance moving forward. Turning to Power on Slide 6.

The segment delivered another strong quarter with continued robust orders growth, increased revenue and further EBITDA margin expansion. Power orders grew 28% led by equipment at Gas Power and Services Strength. In Gas Power, equipment orders increased more than 30% as we booked 29 heavy duty gas turbines, including eight units. This was almost double the number of heavy duty units booked in one q of twenty twenty four. Power services orders were strong, increasing 18%, primarily driven by gas and steam.

Revenue increased 16% led by gas power. Equipment revenue growth was driven by increased deliveries. Services increased mainly from higher volume as well as price. EBITDA 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 and D and capacity investments at nuclear and gas power, respectively. Looking at the second quarter of twenty twenty five at Power, we expect continued year over year growth in gas equipment orders.

We also anticipate mid single digit organic revenue growth given expected equipment strength as well as continued services growth. On a reported basis, we expect a low single digit increase, reflecting the impact of the divestiture of a portion of the steam business in the second quarter of twenty twenty four. We expect EBITDA margin of approximately 14 to 16%, as productivity and price should more than offset inflation as well as additional expenses to support R and D and capacity investments at nuclear and gas power. 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. Turning to wind on slide seven.

EBITDA margin improved even as we are investing more to enhance onshore fleet performance. Wind orders decreased 43, driven by lower onshore wind equipment as a result of ongoing U. S. Policy uncertainty and permitting delays. In offshore, we remain focused on executing our existing challenged backlog.

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. EBITDA losses improved 7% driven by more profitable onshore equipment volume. Services costs increased in 1Q as we're deploying more crews and cranes to accelerate improvement in the onshore installed fleet performance. At offshore, EBITDA losses included a onetime termination of a supply agreement of approximately $70,000,000 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 queues, policy uncertainty and higher interest rates. We expect the wind segment to grow revenue high single digits in 2Q twenty twenty five, driven by higher onshore equipment deliveries.

EBITDA losses should remain relatively consistent with 1Q twenty twenty five 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. Turning to electrification on slide eight. We had another quarter of robust demand, significant revenue growth, and EBITDA margin expansion. Orders remained strong at approximately $3,400,000,000 roughly 1.8 times revenue driven by the growing need for grid equipment. While we saw substantial orders growth for switchgear 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 twenty twenty four.

Equipment orders outpaced revenue, further expanding the equipment backlog to approximately $22,000,000,000, up more than $7,000,000,000 compared to the first quarter of twenty twenty four. Revenue increased 18%, driven by higher volume and price, particularly at Grid Solutions, where we saw meaningful growth in switchgear and transformer equipment volumes. The segment delivered another quarter of double digit EBITDA margins with six eighty basis points of margin expansion on more profitable volume, increased productivity and favorable pricing. In the second quarter twenty twenty five, we anticipate continued solid equipment orders at healthy margins. Electrification revenue growth should be in line with our full year guidance, driven by higher volume and favorable pricing primarily Solutions as we expect modest EBITDA margin expansion sequentially.

I'll now turn to slide nine to discuss GE Vernova guidance further. 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. While we expect to generate positive free cash flow in the second quarter, driven by our continuing focus on better cash linearity and increased EBITDA, we do anticipate lower free cash flow year over year due to the approximately $300,000,000 nonrecurring arbitration refund received in the second quarter of twenty twenty four. We continue to expect to deliver positive free cash flow in all four quarters this year. 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 300,000,000 to $400,000,000 net of mitigating actions.

As Scott mentioned, we're actively navigating this dynamic environment and taking action. Some

of

our G and A cost out acceleration and supply chain actions will occur in 2025, but we expect benefits beyond this year. We continue to expect full year 2025 revenue to be in the $36,000,000,000 to $37,000,000,000 range, a mid single digit year over year increase, with growth in both services and equipment. We also expect continued expansion in adjusted EBITDA margin to high single digits as we deliver our growing backlog at better pricing and with better execution. We anticipate free cash flow to be between $2,000,000,000 and $2,500,000,000 By segment, we continue to expect mid single digit organic revenue growth in power driven by higher gas services and equipment with power EBITDA margins between 1314%. In wind, we expect revenue to be down mid single digits given our continued geographic selectivity in onshore and the benefit of the onetime settlement from an offshore contract termination in 2024.

We expect 2025 wind EBITDA losses to be between $200,000,000 and $400,000,000 improving year over year driven by onshore margin expansion within the high single digit range and slightly lower losses at offshore. In Electrification, we anticipate continued strong demand and favorable price to drive mid- to high teens organic revenue growth with 11% to 13% EBITDA margins as we deliver a more profitable backlog. We continue to expect 2025 adjusted EBITDA to be more second half weighted, similar to last year. We anticipate typical gas services seasonality with the highest outage volume in the fourth quarter. In addition, wind EBITDA 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.

We also expect electrification earnings to grow sequentially through the year. Finally, at corporate, EBITDA can be uneven across quarters, like 2024, as it includes the portfolio activity at our financial services business. We also expect the timing of cost savings to be more back end loaded as we drive additional G and A cost transformation. Overall, we drove strong results in 1Q twenty twenty five with continued growth, significant margin expansion, and increasing free cash flow generation. 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.

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. With that, operator, please open the line.

Yes, thanks. Good morning, guys.

Good morning.

Yeah. We're we obviously as we start this and look at the 300 to $400,000,000, 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, continuing to drive this to where we can minimize the ongoing cost that affects the company over time. We do believe in this environment that 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, 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 G and A 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 g and a workforce. As far as gross to net, I'll stay 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.

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. We've talked to you in the last couple of months as we've been trying to stay really, really close to the tariff situation that when it was China, Canada, and Mexico, it impacted about five percent of our total direct spend, which is about $20,000,000,000 on an annual basis. Now with the expanded tariffs 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?

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. 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 in law kind of clause. And if those changes in laws do create a higher cost base, we have the opportunity at a minimum to go back to our customers and talk about that. We're also looking at ways where we can move our supply chain around. Right?

So in the case of China, there's probably about two thirds of our China spend that today is already dual dual qualified in other places. Now that can't move immediately because we have contracts in progress, but we are looking at the activity that will help us to move that along and have the opportunity to reduce the cost overall. I'll wrap it up a little bit with a comment on the G and A side. Back in March of twenty twenty four, when we started with our first Investor Day with the broader community, we talked about a target to really transform our G and A structure or call it our back office structure that supports this new combined group of 12 companies that became GE Vernova. And we set a target to reduce cost by about $500,000,000 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 updated that number for you in December and said we were going to achieve about $600,000,000 now. Really, what we're doing through this process is accelerating that exact work that we've been working on for the last 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. So lots of words to say, lots of things going on, but what I would close that off by saying is we don't put a checkbox and say 300,000,000 to $400,000,000 count on that to be the number today and going forward. We will continue to work to make this company even better from a cost perspective.

Good morning, Andrew.

Good morning, Scott. Thanks for taking the question, and congrats on a strong start to the year. I mean, Scott, it doesn't sound like you're worried at all about the outlook. It sounds like you're still very confident in what you're seeing. But I'm just curious, since April 2, since the implementation of the tariffs, since it appears the market is getting a lot more worried about a recession.

Have you seen 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. Has there been any change in cadence of conversation or appetite from customers as we've seen the world change pretty dramatically in the last few weeks? And then maybe as a follow-up question to a prior question, 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.

I think the only it it's really a nuance to the contract question, but, you know, we've talked a lot in the last eighteen months or so about stronger underwriting to make sure that we're driving disciplined growth. And one of the things that we are truly looking at right now is not necessarily a change in contracting, but really looking closely at these cash curves. The reason I bring that up is we bring a lot of cash in upfront on the down payments. Scott mentioned 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 higher cost, we will watch very closely when the milestone payments need to occur as we're incurring costs.

So we always stay in a positive cash curve. I put that point out there because we often get the question around, hey, you've got a great amount of of money coming in on the upfront. 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.

Hi, good morning. Maybe just wanted to start with the EBITDA margin guide. So you've got the Power and Electrification numbers on Slide nine for the year at sort of 13 ish percent at the high end for Electrification, 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 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 margins in those businesses in the second half.

So I'm just trying to understand anything you'd call out in any sort of bridge items or anything that would imply less than normal seasonal ramp? Is it the tariff waiting coming in hard in Q3? Is it plant capacity addition ramp up costs in power? How much is just natural contingency? Any color on that, please.

It's a good start, Julian. It's ninety days. Let's get through the second quarter, and much like we did last year, we'll we'll see where we are in the summertime.

Hey. Good morning, team. Thank you very much. Maybe following up on my namesake here a little bit in tone. Just the FCF range, you got about $500,000,000 for the 200 to 2,500,000,000.0 You talk about 300 to $400,000,000 in impacts here.

Are there other mitigating impacts from a cash perspective, just to understand there? Or is it just kind of an acceleration of the SG and A that we should be looking for in the back half of the year? And then related, if I can, your commentary on onshore your commentary on wind 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 slowing, given the permitting regime at late? How do you think about the longer term trends on that front?

Yeah. On the first half of the question, I would tell you that, look, we will see what we typically see on profitability expanding as we move through the year. You know, our fourth quarter is our largest outage quarter and therefore service quarter in the power businesses, which which is one of our our most profitable businesses. You will see more of the savings from SG and A. 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 gonna deliver, and that's more of a second half weighted dynamic as well.

So those are really the big variables that drive first half to second half.

Good morning, Andrew.

Good morning, everyone. Thanks for fitting me in. Orders that you said in Electrification had a difficult comparison in Q1. But in the recent past, you said that you expect a similar annualized growth rate in your equipment backlog in 2025 as you saw in 2024 and 2023. Is that still what you expect, Scott?

And can you update us on your capacity capability in electrification? I know you didn't change 2025 revenue guidance, but I know you've been pushing on capacity in that segment. Maybe you could update us on the potential increase in capacity that you could see as early as 2026?

Before we wrap up, let me, hand it back to Scott for closing comments.