GE Vernova Inc.

Good day, ladies and gentlemen, and welcome to GE Brnova's second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. My name is Liz, and I will be your conference coordinator today. If you experience issues with the webcast slides refreshing or there appears to be delays in the 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, Michael Lapidus, Vice President of Investor Relations. Please proceed.

Thank you, Operator. Welcome to GE Vernova's second quarter 2024 earnings call. I'm joined today by our CEO, Scott Strasik, 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 10Q, the press release, and in the presentation slides, all of which are available on our website. Please note that year-over-year commentary or variances on orders, revenue, adjusted EBITDA, and margin discussed during our prepared remarks are on an organic basis. 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. With that, I'll hand the call over to Scott.

Thanks, Michael. Good morning, everyone, and welcome to our second quarter earnings call. We delivered strong results in the quarter with adjusted EBITDA margin expansion across all three segments and substantial improvement in free cash flow. macro trends are continuing to create meaningful opportunities for us to lead in the energy transition. First, we're seeing increasing demand for power generation driven by manufacturing growth, industrial electrification, EVs, and emerging data center needs. Second, there is a significant need for grid infrastructure investments to support both energy security and reliability goals. And third, Our customers are investing to decarbonize their power systems, which drives demand for low and zero carbon generation, as well as new grid connections. We're serving this robust market demand while simultaneously running our businesses better, driving disciplined growth, margin expansion, and higher free cash flow. Turning to slide four, I'll spend a few minutes on each of our segments. Our power segment, led by Gas Power, delivered growth in both equipment and high-margin services orders and revenue, while also achieving 180 basis points of margin expansion. Power orders increased 30% this quarter, led by strength in equipment orders, which more than doubled year over year. Notably, we recently commissioned our 100th HA gas turbine in South Korea. The H-class fleet is an important source of growing services revenue and billings for our power segment. In the second half of this year, we expect continued strength in orders with heavy-duty gas turbines, including HA units, to be higher versus first half 2024. Electrification is our fastest growing segment. Profitable growth continues as customers modernize and invest in new products such as transformers and switchgears that are key to ensuring a reliable electricity system and connecting new generation sources. For example, orders more than doubled this quarter in North America, which continues to be a key growth opportunity for this segment. Overall, the electrification segment has grown its backlog by over 25% since the start of the year. I'm pleased with the team's progress on margins, which expanded 360 basis points this quarter. And I have conviction we can drive significant margin expansion given the electrification segment's strong demand and strong industry pricing dynamics. We are thoughtfully investing to increase our output levels for this rising demand. For example, we are almost doubling capacity, our Stafford facility in the UK, to deliver HVDC transformers. Right now, wind remains the most challenging segment. While we grew onshore backlog in the quarter, we remain cautious on the timing of an inflection in onshore orders as customers navigate the challenges that come with permitting new projects and higher interest rates. We are nearly two years into our onshore wind quality improvement program, and we are making progress with no new significant issues identified. we continue to look for ways to implement the improvements into our existing fleet at a faster pace. In order to deliver for customers, we are adding crews to the field and gaining access to more cranes to accelerate our work. For our new units, we are leveraging technologies, including our blade inspection robot, to enhance our manufacturing process. At Offshore, we have converted almost $800 million of our backlog to revenue in the first half of the year. Last week, we had a turbine blade event at our Vineyard Wind project. The turbine was shut down safely and no one was injured. With safety always as a top priority, we are working with our customer and the appropriate agencies to determine the root cause and then implement corrective actions and a restart plan. While we continue to work to finalize our root cause analysis, Our investigation to date indicates that the affected blade experienced a manufacturing deviation. We have not identified information indicating an engineering design flaw in the blade or information of a connection with the blade event we experienced in an offshore wind project in the UK, which was caused by an installation error out at sea. We are working with urgency to scrutinize our operations across offshore wind. Pace matters here. but we are going to be thorough instead of rushed. Going forward, we remain highly selective on potential offshore wind new orders focused on achieving substantially higher pricing and disciplined commercial terms. In the wind segment overall this quarter, we expanded margins by 400 basis points and see opportunities for further expansion. We still expect the wind segment to approach profitability this year and become profitable in 2025. Longer term, wind should play a critical role in the energy transition. Now, over to the right side of the page. We are driving continuous improvement in safety, quality, delivery, and cost. On safety, after 10 consecutive months of fatality-free operations, June was a tough month for us. An employee of ours in Malaysia lost his life driving to a work site in his personal car in a one-car accident on a public road, and a contractor working at our direction in Turkey lost his life with an arc flash event at a wind farm. Safety will always be the top priority at GE Vernova, and both events reinforce our need to continue to get better to ensure our employees and contractors return home at the end of work. Turning to quality, where we are always working to improve our outcomes for our customers. For example, in a year where gas outages increased double digits, our team has reduced quality deviations by 15% from live outage. Our lean enabled digital outage platform that reduces cycle times and improves the field execution experience for our customers. We're also using lean to improve delivery. In electrification, the team in France recently executed a series of Kaizen's tackling material flow, scheduling, and increasing capacity. As a result of the new processes we implemented, one of the production cells increased its output of certain switchgear components by 135%, from 17 per week to more than 40 per week, helping to drive the growth we are seeing in our electrification segment and ultimately improving outcomes for our customers. Finally, we are using Lean to simplify our operations and reduce G&A costs. We are focusing on reducing our G&A and driving productivity at our corporate center and in our segments. We began executing cost-out initiatives in the second quarter to give me increased confidence in our ability to realize G&A reductions in 2025. Turning to the next slide for a look into our strong second quarter financial performance. Orders were robust with 2Q24 marking the second largest order quarter we've delivered over the last three years, and we saw healthy equipment backlog growth across multiple businesses, especially in gas power and grid. We delivered disciplined top-line growth led by the strength in price and services value. We expanded adjusted EBITDA margins by over 300 basis points with expansion across all segments. Notably, we generated positive free cash flow with an over $1 billion improvement year over year, as well as sequentially, and ended the second quarter with a $5.8 billion cash balance. We are raising our 2024 guidance and now expect revenue to trend towards the higher end of our $34 to $35 billion range, largely on electrification. We now expect our adjusted EBITDA margin to be 5% to 7%, up from previous expectations of the higher end of mid-single digits. The improvement is driven by power, which we now expect will deliver 150 to 200 basis points of organic margin expansion, and electrification, where we expect high single-digit margins. We are also raising our 2024 free cash flow guidance. We expect to deliver between $1.3 billion and $1.7 billion, up from the prior $700 million to $1.1 billion range. Overall, with continued demand growth, further margin expansion, and strong free cash flow, we feel confident about the momentum in our business for years to come. I will now turn the call over to Ken for more details on our second quarter performance and our latest guidance.