GE Vernova Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Published first sustainability report, highlighting progress in electrifying and decarbonizing the world. In 2023, added 29 GW of new capacity with 42% in developing markets, carbon intensity ~25% below global average.
• Power segment saw strong orders and revenue growth, with services demand growing meaningfully. Electrification segment had 24% revenue increase and achieved double-digit EBITDA margin.
• Wind segment: Onshore improved profitability, offshore addressed blade issues through root cause analysis and remediation efforts. Focus on lean initiatives, safety (noted a fatality in onshore wind in Sweden), and cost management.
• Monetized 16% ownership stake in GE Vernova T&D India, generating ~$700M pre-tax proceeds.

Segment Performance

• Power: Led by Gas Power, delivered strong double-digit orders and revenue growth with over 200 basis points of margin expansion. Orders increased 34% this quarter, driven by equipment and services. Year-to-date, 14 gigawatts of new gas turbine orders, nearly double last year's level. Revenue grew 13%, EBITDA increased 45% with 240 basis points of margin expansion.
• Electrification: Delivered a 24% revenue increase in the quarter, driven by stronger volume and price. Achieved double-digit EBITDA margin for the first time with nearly 700 basis points of expansion. Orders grew 17%, revenue up 24%.
• Wind: Onshore was most profitable in 12 quarters, expanding margins. Offshore faced challenges with blade issues, contract losses, but working on remediation. Wind orders declined 19% due to lower onshore equipment orders outside of North America.

Guidance

• Reaffirmed 2024 guidance: expects revenue towards the high end of $34B to $35B, adjusted EBITDA margin 5% to 7%, and free cash flow between $1.3B and $1.7B, trending towards higher end.
• Power: expects mid-single-digit organic revenue growth with EBITDA margin expansion at the higher end of 150-200 basis points from services strength and productivity.
• Electrification: now expects high-teens revenue growth, aiming for upper end of high single-digit EBITDA margins.
• Wind: expects revenue essentially flat year-over-year, with positive price, productivity, and cost savings in onshore partially mitigating offshore losses, moving closer to profitability.

Risks

• Offshore wind blade issues: Caused contract losses and execution delays. Root cause was a manufacturing deviation in Canada, with a small proportion of blades affected.
• Safety incident: Experienced a fatality in an onshore wind site in Sweden, working to accelerate adoption of lifesaving rules.

Question and Answer

Q: Circling back on offshore as there was clearly a lot of news there in September. Maybe just remind us kind of as you look today, how you're thinking about the pace of that $3 billion of offshore backlog being worked down? And then there was a good update on the turbine blade issues in North America. Maybe just anything on what's going on with the U.K. project, please?

A: You bet, Julian. I mean it's a start. Clearly, the last 4 months for offshore wind have been difficult for us. I mean the delayed project execution has cost us time on when we had previously talked about completing the backlog we have to go which previously we had said we'd be largely complete by the end of 2025. In light of what we've kind of been managing through the last 4 months, that's moving to the right but we're also at a period of time where we're evaluating alternatives, things like incremental vessels, things like that, that can increase the pace and we're committed to kind of giving you transparency to the burn down of the approximately $3 billion backlog we have left to go when we get together on December 10, as we outline our both '25 financial objectives and our long-range financial targets associated with that. On the blade piece of the equation, just going right there, we've been very intentional and focused on this since the event in July. We can tell you today that the root cause was what we framed up in July. There was a manufacturing deviation at one of our factories in Canada. We have been very systematically reviewing all of our blades in offshore wind and we can say today that a very small proportion, low single-digit proportion of our manufactured blades in totality also had a manufacturing deviation similar to the blade that we experienced the failure in Vineyard Wind. In those cases, we're taking action on those blades and we're doing that right now and really now getting to a point of shifting back to execution out at sea. To your question on Dogger Bank, we're fully in installation and commissioning in Dogger Bank today. In the case of Vineyard, we have been installing both towers and the cells and just got guidance to start to begin reinstalling blades at Vineyard yesterday. So I think this blade chapter, we've learned a lot from the last 3 to 4 months. And now this is back to project execution and we'll give you more on the burn down of the $3 billion to go on December 10.

Q: Maybe I could ask a question on power. I think you guys said that you expect power equipment orders to accelerate in the fourth quarter. I guess can you talk a little bit about what you're hearing from customers to provide confidence in that outcome?

A: You bet, Nicole. I mean, I'll hit on it. And although the power orders in the third quarter were up 34% and as we said in our prepared remarks, for gas, as an example, we've taken 14 gigawatts of new orders 3Q year-to-date which is twice those equivalent levels in the first 3 quarters of last year. When we look at the pipeline coming from here, we do expect our fourth quarter to be our strongest quarter of 2024. And although it's early and we'll firm this up before December 10, we see the 2025 orders looking very similar to 2024, if not modestly better orders levels than 2024. And that we can clearly see in front of us and are very comfortable articulating. There is a healthy back -- pipeline beyond that, that we'll work. But we can say that with quite a bit of definition for '24 and '25 that very quickly by the time you get into the first quarter of next year, we're really going to be focused on filling slots primarily in 2028. And that is at that level of 70 to 80 gas turbines per year probably on the lower end in '26, the higher end beyond that because the capacity starts to cut in, in the middle of '26. We don't necessarily see today going materially higher than that 80 number that we've talked about most recently but we're looking at tactical ways to go modestly above that if and when it makes sense. But it's not likely to be another material shift to the extent today's run rate of 55 gas turbines a year, we've now secured capacity to 80, that took us 6 months working with the supply chain to secure. And we're really just continuing to firm that up and make tactical adjustments. No major headlines beyond the updates we've given recently on that.