GE Aerospace

Thank you. Thank you.

Thanks, Brandon. Good morning and welcome to GE's first quarter 2020 earnings call. I'm joined by our chairman and CEO, Larry Culp, and CFO, Carolina Dibakapa. Before we start, I'd like to remind you that the press release and presentation are available on our website. Note that some of the statements we're making are forward-looking and are based on our best view of the world and our businesses as we see them today. As described in our SEC filings and on our website, those elements can change as the world changes. With that, I'll hand the call over to Larry.

Steve, thanks. Good morning, everyone. We hope you and your families are healthy and safe. Our thoughts are with all of those affected by this global pandemic. We recognize this is a very difficult and challenging time for everyone. On behalf of GE, I want to express our gratitude to those on the front lines in the medical community, many of whom were privileged to call our customers, working tirelessly to protect all of us. Thank you. When we last spoke during our Outlook call in March, we were encouraged by the continued strength in aviation and healthcare and the progress made in power and renewables. In the eight weeks since, the world has fundamentally changed. As we all know, the COVID-19 pandemic evolved rapidly, hitting hard and hitting fast. While this is an earnings call, our goal today is to provide you with the most current and relevant information we have, and as always, to be as open and transparent as we possibly can. So forgive us if we run a little long today. The COVID-19 dynamics at GE, like the economy at large, are fluid and still evolving, but clearly challenging in the near term. With that, I'll start with our response to COVID-19, Carolina, who is joining our earnings call for the first time, will cover the financials. Then I'll wrap with a more in-depth view of our current operations. Moving to slide two, during this unprecedented time, we're focused on three areas. First, the health and safety of our employees and our communities. We established a COVID-19 task force that is working to ensure we're doing everything in our ability to protect the health and safety and aligning with various government directives and medical advisories in real time. To that end, we've encouraged those employees who are not directly performing customer-facing essential jobs to work from home wherever possible. But given the mission-critical work we do at GE, not everyone can stay home. I'd like to acknowledge our employees out in the field and in our factories for their unwavering dedication as they continue to deliver for our customers, supporting essential services like hospitals, power generation, airlines, and national defense. We're ensuring they have what they need to do their job safely. This includes temperature screenings, face coverings and gloves as necessary, and physical distancing, all keeping with national, state, and local guidelines. I'm also inspired by the support that our employees have shown each other. We recently established an employee relief fund, and more than 75 senior leaders across GE have contributed portions of their salary to support those affected by this crisis. Our second priority is continuing to serve our customers. In healthcare, we're ramping production of critical medical equipment used to diagnose and treat COVID-19 patients, including respiratory CT monitoring solutions, x-ray, anesthesia, and point-of-care ultrasound product lines. Already, our team has doubled production of ventilators and plans to double again by the end of June. Healthcare's digital and AI solutions are helping hospitals remotely monitor multiple patients at once and automate rote tasks so clinicians can spend more of their precious time focused on life-saving work. Across all of our businesses, we're in constant communication with employees, customers, suppliers, and governments to maintain business continuity without disruption. Our third priority is preserving our strength. First and foremost, sound liquidity is crucial, and solidifying our balance sheet remains a key focus. With the recent closing of the biopharma transaction, we've received $20 billion of net proceeds. This provides GE with optionality to protect our company and remain flexible. And importantly, we've retained a $17 billion leading healthcare business at the center of an ecosystem striving for precision health. Preserving our strength in a time like this also requires a different operating model. Here I draw on my experience as a CEO managing through 9-11 and the global financial crisis. There are three steps in this model. Embrace reality, redefine winning, and execute the plan. Easy to say, hard to do. Starting with embrace reality, this is necessary in a time like this when so much has changed and remains uncertain. For us, it means recognizing that we're facing significant headwinds in aviation, and we may be for a while. We wish it were otherwise, but that's not our reality. Next, redefine winning. We came into 2020 with a plan that defined winning as profitable growth, margin expansion, and cash generation. Now, we need to adjust to the altered environment to focus and inspire our team. Let me share some ways we're doing this. While safety has always been a top priority for GE, COVID-19 has reshaped our safety agenda. In terms of our financial priorities, improving our cash generation and decremental margins in the second half are key focus areas. And in healthcare, we clearly didn't come into the year expecting to increase our ventilator production fourfold, but we will. And finally, execute the plan. We're moving with speed, discipline, and intensity to improve our cost structure and targeting more than $2 billion of cost actions and more than $3 billion of cash actions. And this is where Lean is particularly relevant, from daily management to traditional Kanban systems, which help reset inventory levels, to new problem-solving tools we're rolling out across GE. Let me share a recent example from Gas Power. In our Greenville facility, the team used Lean to cut the distance that a single part travels during production from three miles – yes, three miles – to a mere 165 feet, flashing the time it took to make that part by 42%. These are the sort of operational efficiencies that are more essential than ever in this environment. So that's our approach here. We're facing the pandemic head on while continuing to execute our long-term strategy for GE. Moving to slide three, you'll find a snapshot of our first quarter results, and Carolina will take you through this in detail. But first, a few top line thoughts. As I noted, we entered the year with momentum. However, as COVID-19 continued to spread globally, and I'm not going to sugarcoat this, we got hit hard in some of our highest margin parts of our best performing businesses. This is especially true at aviation services, where COVID-19 caused a rapid decline in commercial aviation demand, and even essential travel became difficult in the second half of March. A similar situation also transpired at power services, where travel restrictions caused by COVID-19 impacted our field personnel. And across all of our businesses, we started to see some project fulfillment and execution issues. At the same time, healthcare performed well due to urgent demand for our products used in the fight against COVID-19. Taking a step back, about 80% of our roughly $400 billion backlog is in services, which have a long time horizon. And while services have been hurt in the near term, those capabilities remain one of our greatest strengths. They keep us close to our customers with deep strategic relationships, especially through periods of volatility. So in the spirit of embracing reality, let me frame for you what we're seeing right now at a high level, and then I'll do a deeper dive after Carolina reviews the first quarter. In aviation and at GCASP, Airlines are conserving cash, not flying the planes they have, limiting maintenance spend where they can, and all the while deferring orders in many places. No one can predict when and how leisure and business travel will resume, but the reality is likely it's not soon. So we're redefining winning from margin expansion in 2020 to improving our decremental margins this year, which requires we aggressively adjust our cost structure. That's what winning looks like for aviation, and they're moving forward with a comprehensive plan. To be clear, we'll get back to targeting those 20% operating margins post-pandemic. In healthcare, we've been on the front lines, combating COVID-19 since the early days in Wuhan. This is fundamental to our mission. While we've seen demand surge for certain products, other products, including those in our high margin pharmaceutical diagnostics business, have been negatively impacted as multiple procedures are deferred. Healthcare is likely to rebound faster than aviation, but we're still fast-tracking additional cost-out actions, targeting an incremental $700 million since Karen and the team spoke with you in December. In power and renewable energy, the impact of COVID-19 has been more limited to date. Specifically at power, we're experiencing outage delays and restrictions in field service travel and we're monitoring new unit orders and services. To offset this, we're further right-sizing the cost structure, and in power, we already reduced headcount by 700 in the first quarter. Now, clearly across GE, there are a number of large variables that are unknown at this point, including the full duration, magnitude, and pace of recovery across our end markets, operations, and supply chains. We're also monitoring how the resulting interest rate environment will impact pension obligations and our runoff insurance business. So let me tell you what we do know. The second quarter will be the first full quarter with pressure from COVID-19, and we expect that our financial results will decline sequentially before they improve later this year. The bottom line is we have some challenging times ahead, but this too shall pass. I'm confident the underlying reset we took over the last 18 months to focus GE's portfolio and instill a greater focus on customers and lean, give us a running start for what we face today. Moreover, I see in our response to COVID-19 signs of how we're moving faster to change GE for the good. More lean work to help reduce inventories in the face of demand challenges in aviation. Travel restrictions spurring on the use of remote digital technology to complete field work and renewables. and more capital discipline across the board. With new leaders assimilating faster and with real impact, healthcare comes to mind. So all of this in combination with the planned actions we'll discuss later are accelerating our transformation of GE. With that, I'll turn it over to Carolina. But before I do, let me say how pleased I am to have her on board. In two short months, it's clear we share the same perspectives of embracing reality and operational bias reaction and executing with speed.