GE Vernova Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Market Context: Continued strength in gas power demand with 9 GW of new gas equipment contracts, slot reservation agreements growing to 25 GW, backlog at 29 GW. Electrification saw growth in grid equipment, with synchronous condensers in demand. Wind had increased customer engagement in U.S. post-tax bill.
• Backlog: Equipment backlog grew from $45B to $50B in 2Q, services backlog grew ~$1B, total backlog at $129B.
• Investments: Progress in small modular reactor, robotics and automation in factories and field, strategic acquisitions like Woodward's gas turbine parts business and Alteia.
• Margin Expansion: Power delivered EBITDA margins north of 16%, Electrification approaching 15%, with opportunities to accrete margins higher.

Segment Performance

• Power: Orders grew 44%, led by Gas Power equipment nearly tripling year-over-year. Revenue increased 9%, EBITDA margins expanded 40 basis points to 16.4%. Equipment orders grew 5%, with Power equipment revenue up 23%. Services orders had mid-single-digit growth.
• Wind: Orders decreased 5% year-over-year, driven by lower Onshore Wind equipment orders outside of North America. Revenue increased 9% but EBITDA losses increased. Onshore Wind had double-digit revenue growth but services costs offset. Offshore Wind incurred additional costs due to tariffs.
• Electrification: Orders remained strong at ~$3.3 billion, revenue increased 20%, EBITDA margin expanded 740 basis points to 14.6%. Equipment orders continued to outpace revenue, expanding the equipment backlog to ~$24 billion.

Guidance

• Full-year revenue trending towards higher end of $36B-$37B range.
• Adjusted EBITDA margin expected 8%-9%.
• Full-year free cash flow raised to $3B-$3.5B.
• Power organic revenue growth guidance 6%-7%, EBITDA margin 14%-15%.
• Wind revenue down mid-single digits, EBITDA losses trending towards bottom of $200M-$400M range.
• Electrification organic revenue growth guidance ~20%, EBITDA margin 13%-15%.

Risks

• Actual results may differ materially due to risks and uncertainties.
• Tariffs impact on offshore wind business.
• Volatility in European HVDC orders.

Question and Answer

Q: Maybe I just wanted to start with the Electrification segment. So a couple of different things there. One was just on the demand outlook. Maybe give a bit more color on the regional differences. It seems like Europe is maybe losing steam, Asia, picking up. And pricing, I think in Europe, you talked about maybe softening the last 6 to 12 months. And then on the margin front at Electrification, the updated guide for this year puts you close to touching distance of the medium-term margin goal. So maybe any thoughts around that and how you keep the discipline on big projects there?

A: Thanks, Julian. I'll start. I mean, to take it in reverse on the margin guide, I think it's fair. I mean, we're pleased with where we are with Electrification performance through the first half of the year, approaching 15% in the second quarter EBITDA margins. And we do expect modest incremental improvement sequentially in 3Q and 4Q. So to your point, I think this is an area that will we'll go through our strategy reviews here in the summer into the fall and likely have an update for you at the end of the year on the by '28 margin expectations in Electrification. Now on the first part of your point, we do continue to see growth regionally, whether it be Europe, North America or Asia. But what I would tell you is the big projects, so call it the long transmission line HVDC projects that are quite a bit more lumpy, there's a lot more scrutiny in those projects today. So the orders that we're seeing are more core transformers, switchgears. We're encouraged with our grid stabilization equipment solutions like synchronous condensers. We've announced the transaction with Saudi but we see real opportunities in many markets that have high renewables penetration rates for those solutions. And we're still seeing price but at a decelerating rate. So this becomes a dynamic where we need to continue to drive variable cost productivity. You're seeing that in our margin performance through the first half but we're going to have to keep driving that because we don't expect to continue to get price at the same level that we have experienced over the previous 18 months.

Q: I wanted to pivot over to the Gas Power business. So a lot of investor focus on pricing that gets disclosed in some of these deals on the equipment side. Curious what you can talk about on the service side, what you're seeing in pricing for your existing installed base but also what you're seeing on new deals that are being signed?

A: Thanks, Mark. I'll start. I think this is another good illustration to connect dots with what's happening in the market. When you even look at the PJM pricing that was confirmed yesterday with the capacity market, that's driving incremental demand for incremental services and frankly, justifies incremental pricing into our services book for upgrades that can create incremental capacity for things like those capacity markets. So you're right, we talk a lot more about equipment new build pricing but we are also in a price up environment in services that will materialize through our income statement in the years ahead. So it's early in that regard but we've been on that journey for the better part of the last 12 to 18 months and we'll continue to see that translate into the income statement in the subsequent, let's say, 12 to 24 months because it's shorter cycle conversion than our new units.