GE Aerospace

Good day, ladies and gentlemen, and welcome to the General Electric First Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. My name is John. I'll be your conference coordinator today. If at any time during the call you require assistance, please press star followed by zero, and a conference coordinator will be happy to assist you. If you experience issues with the slides refreshing or there appear to be delays in slide advancement, please hit F5 on your keyboard to refresh. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Steve Winokur, Vice President of Investor Relations. Please proceed.

Thanks, John. Good morning, all, and apologies for the delay due to technical reasons. We had to switch to a backup line. It was choppy for a lot of investors, and we wanted to make sure everyone could hear us. I am joined today for our first quarter 2021 earnings call by our chairman and CEO, Larry Culp, and CFO, Carolina Dyback-Hoppa. 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.

Good morning, all. Despite continued challenges in aviation and a still difficult comparison to last year, the first quarter marked a solid start to 2021. I'm confident this sets us up well to deliver on our 21 commitments and profitable growth for the long term. Looking at the first quarter numbers on slide two, orders were down 8% organically, primarily driven by aviation services and power equipment. It was partially offset by continued strength in healthcare and renewables, as well as growth in power services. We're seeing better performance in our shorter cycle service businesses. Ex-aviation service orders were up 6% organically in the quarter. Our backlog stands at $833 billion and remains a strength with approximately 80% geared towards services where we have higher margins. Industrial revenue was down 10% organically. Services continued to be a main focus as they were down 14%. While services may fluctuate quarter to quarter, especially as we've seen during the pandemic, we still expect growth in services this year. Ex-aviation, industrial revenue was up 1% organically. Adjusted industrial margin was 5.1%, up 110 basis points organically. Notably, we saw organic expansion year-over-year with three of our four businesses improving as our cost actions 2020 continue to take hold. Adjusted EPS was $0.03, with the majority of businesses improving, offsetting aviation. Carolina will provide more color shortly. Industrial free cash flow was a negative $845 million. Encouragingly, this was up $1.7 billion ex-BioPharma, driven by better earnings and working capital. In all, we're seeing continued progress, especially on margins and cash flow. And we believe these improvements are sustainable. As we look to the second quarter, we expect industrial free cash flow growth of similar magnitude to what we saw this quarter. And despite ongoing volatility as the world fights through the pandemic, the guidance we provided a month ago remains changed. Turning to slide three. There's a lot we're doing day in and day out to build momentum across GE. Shared last month, we agreed to combine GCAS with AirCap, marking a significant catalyst in our journey to focus GE on its core four industrial businesses, power, renewable energy, aviation, healthcare. And each business is critical to the global markets they serve. This transaction enables us to further strengthen the company for the long term, at closing bringing our total debt reduction to more than $70 billion over the last three years, while drastically simplifying GE in a number of ways, including our financial reporting. All the while, we've been fortifying GE's foundation. This starts first with our resilient and passionate team. They have been instrumental in driving our lean transformation forward, and I'm grateful for their service. As we scale lean across the company, we're working to deliver safety, quality, delivery, and cost improvements as well as high-quality growth. One recent example comes from digital services and renewables. We heard from our customers that our, quote, cycle times and responsiveness needed improvement. A Lean Kaizen event revealed multiple systems and inconsistent processes in the way. Through value stream mapping, we developed standard work to decrease cycle time by 70%, enabling us to bid for and win more business. This has already led to more than $70 million of backlog growth. Opportunities like these for high-impact deployment of lean abound throughout our company. We're coupling lean with a significant decentralization effort. This means managing not just the four segments we report, but the nearly 30 businesses underneath them, where the work GE has done. This combination of lean and decentralization is maximizing value for our customers while increasing accountability at the business level. And even though it's still early in our journey, we're seeing tangible operational and financial results. For example, at a recent operating review with Power Conversion, I was thrilled to see how the team's strategy has come together, optimizing their operations through lean and redefining their market focus. This has led to double-digit order growth in the quarter and three consecutive quarters of organic margin expansion. This stronger foundation sets us up to spend more time playing offense. Our first priority is investment to drive organic growth efforts. We're improving our team's abilities to market, sell, and service the products we have today. And at the same time, we're strengthening our offerings with new product introductions. As you may have seen recently, we've had some major wins across the portfolio. In renewables, we were selected to supply more than 530 turbines to North Central wind energy facilities in Oklahoma. marking the largest onshore wind project in GE's history. At aviation, CFM secured LEAP engine and service agreements from Southwest Airlines and Scandinavian Airlines to power 100 MAX and 35 A320neo aircraft. Meanwhile, at healthcare, we've launched new ultrasound solutions, the V-Scan and Venu, the industry's first AI offering for cardiac imaging. These innovations are supporting clinicians who need fast, reliable insights at the point of care now more than ever. And while we're continuing to invest in technology and innovation to serve our customers and to lead our markets into the future, fortifying our competitive position globally is of paramount importance. Over time, we will look to augment our organic efforts with inorganic investments that accelerate the implementation of our strategy and create real value for customers and investors alike. So as we think about what we're playing for, it is the long term, building a world that works. At GE, our technology and expertise across critical markets enable us to lead, along with our customers, in creating a more sustainable future. Our renewables and power businesses sit at the heart of the energy transition. Our opportunities were on full display last week during Earth Week. In renewables, we've held the number one position in North America onshore wind two years running. And this is the fastest growing source of new power generation capacity. At GasPower, we're playing a vital complementary role in decarbonizing at scale as customers shift from coal to gas. And as we modernize the power grid with digital and automation solutions, we have an opportunity to have an even bigger impact. In healthcare, we're at the forefront of the precision health revolution. We have a leading position in many imaging modalities, and we're growing our digital and AI capabilities, which will enhance the personalization of diagnostics and therapeutics. Take an area like cancer screening. Our solutions are improving patient outcomes, helping clinicians rule out false positives, and streamlining workflows for providers and payers alike. And as we look to the future of flight, no business is better positioned than our aviation business. In the near term, our focus is getting people back into the air safely. And as the market recovers from COVID, we're well-placed with the largest and youngest engine platform, with more than 37,000 commercial engines and more than 60% of our fleet that has not yet had a second shop visit, underscoring the value our platform will generate for decades to come. As we tackle the world's most complex challenges, We're also passionate about delivering for our customers across our vast global install base. It's our services that keep us close to our customers day in, day out, and create a significant source of recurring revenue. By staying true to our purpose and our customers, we'll unlock further upside potential in growth, profit, and cash generation, leading to high single-digit free cash flow margins over the next few years. Stepping back, we're on a positive trajectory in 2021 and beyond. We're focused on delivering on our commitments, and I'm confident that our continued efforts will build a stronger and more focused GDE. With that, Carolina will provide further insights on the quarter.