GE Vernova Inc.

Good day, ladies and gentlemen, and welcome to GE Vernova's second quarter 2025 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.

Welcome to GE Vernova's second quarter 2025 earnings call. I'm joined today by our CEO, Scott Strazy, and our 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 press release and the presentation slides. all of which are available on our website. Please note that year-over-year commentary or variances on orders, revenue, adjusted and segment EBITDA and margin discussed during our prepared remarks are on an organic basis unless otherwise specified. 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 uncertainty. With that, I'll hand the call over to Scott.

Thanks, Michael, and good morning, everyone. We had a productive second quarter, positioning us well to continue to accelerate our growth and margin expansion. This era of accelerated electrification is driving unprecedented investments in reliable power, grid infrastructure, and decarbonization solutions. We see attractive end markets converging with better-run businesses, giving us a substantial opportunity to create value from here. At the start, I just want to share some market context as I see it today. Continued strength in gas power demand as we sign nine gigawatts of new gas equipment contracts in 2Q, of which seven went into slot reservation agreements and two went directly into orders. During the quarter, we also converted three gigawatts of SRAs from previous quarters into orders while shipping five gigawatts of equipment. This resulted in backlog remaining at 29 gigawatts while growing slot reservation agreements from 21 to 25 gigawatts, building our total backlog in slot reservation agreements to 55 gigawatts from the 50 we talked about at April earnings. We continue to see higher turbine prices and strong demand and still expect to have at least 60 gigawatts between backlog and reservation agreements by the end of the year at better margins with significant momentum into 26. But the power demand isn't limited to gas new units. We also see solid services demand growth as customers look to invest in their existing fleets. Not only are we seeing strength in gas services, Steam services orders were up 30% in Q2 in support of nuclear extensions and upgrades, and we booked significantly higher up rates in hydro, which increased 61%. We continue to work hard to ramp our production capacity at gas power and to meet this rising demand for services across our fleet. We also are pleased with the progress in our 300 megawatt small modular reactor, which is part of our higher R&D for this year. We are starting to see the initial proof points of our investment. We are in construction in Ontario on the first project. The NRC has now formally accepted TVA's application to construct at Clinch Riverside, which means the formal process has started, and I expect more customer announcements with our SMR technology in the second half of the year. Continued progress in electrification. We grow our equipment backlog an incremental 2 billion in 2Q25, led by Europe, with North America and Asia backlogs both sequentially increasing almost 10%. Demand in the Middle East is accelerating, as evidenced with our announcement on the Saudi grid stabilization equipment, synchronous condensers. We expect at least 1.5 billion of this agreement to become in order in the third quarter. Synchronous condensers provide voltage support, and frequency regulation to help balance the grid when generation levels are volatile, especially in areas with significant renewable intermittency. This is a technology we have manufactured for years, and now the market is starting to catch up. Investments in the reliability and resiliency of the grid are clearly growing globally. Technologies like synchronous condensers have been a small market over the last decade, but we see this as a credible $5 billion market opportunity a year going forward in our investing and positioning our businesses to serve this opportunity. Demand for data centers also remains strong in electrification. We've already received almost 500 million in orders in the first half 25 versus 600 million in full year 24. So this growth market continues to accelerate. We do see weaker European HVDC orders in 25. as we sit here today, with some projects canceled or moving to the right, as affordability challenges in the EU becomes even more real. But the momentum we are seeing elsewhere in this segment is more than offsetting it, and we continue to see a clear pathway to grow our electrification equipment backlog at least as much in 2025 as we did in 2023 and 2024. On wind, since the tax bill was signed on July 4th, We've experienced an increase in customer engagement in the US, so the potential certainly exists for an inflection towards growth, although permitting and managing through the interconnect queue are also key. It is early, and we'll see how the rest of the year materializes. I'm also encouraged with some wins we've had recently in international markets, Romania, Australia, Japan, Spain, Germany, markets where we expect to see orders. and second half, 25. The markets continue to come our way while we continue to work hard every day to run our businesses better. Ken will walk through the detailed performance by business, but I was pleased to see power deliver EBITDA margins north of 16%, with electrification approaching 15% in 2Q. But I would emphasize that as our teams continue to get their feet under them, we see real opportunity to continue to accrete margins higher. from here. On wind, we continue to ship more profitable onshore equipment, but that was more than offset in 2Q with our investments and our services quality programs in the field, in addition to the impact of tariffs on our offshore wind business. Year to date, we've lost approximately $300 million in the wind segment, but expect the business in the second half of 25 to be closer to break even. Our onshore fleet performance continues to improve, We've seen the availability of our fleet increase by one percentage point since last year, positively impacting our customers with long-term service contracts. We are starting to free up more capacity in 3Q onwards for transactional-related work in the onshore install base. In offshore, we installed 34 units in 2Q and commissioned 33, our most productive quarter to date. Another variable that is giving me real confidence in the future is that we are now getting to a point in many of our larger businesses, certainly in both gas and grid solutions, where we have a solid enough lean foundation to evaluate robotics and automation in a more strategic ways, both in the factories and out in the field. Standard work in our functions is also laying the foundation to even more aggressively invest in AI. and drive real productivity improvement at pace. As I see it, robotics and automation are critical, but can only be invested into once a business has sufficiently eliminated the waste in their core processes. In a similar vein, a business must get to standard work before investing in AI. We are now ready for both, and these two themes are important parts of our strategy reviews that will take place in 3Q across the company. Better market conditions and continued operational improvement in our businesses are both important, as is our focus on leading the industry from a position of financial strength. We were pleased to deliver positive free cash flow again in Q2 and end the quarter with almost $8 billion of cash. So far this year, we've spent $1.6 billion on stock buybacks, repurchasing approximately 5 million shares. We are continuing to invest in our organic growth. Just last week, I was at our Charleroi factory in Pennsylvania, where we announced an incremental 250 jobs over the next two years with up to $100 million investment that will support a doubling of volume out of that factory from 25 to 28. We are also pleased with our progress in our small strategic acquisitions. A great example of this is our acquisition of Woodward's gas turbine parts business, which includes a factory that allows us to redirect work and optimize the layout of our Greenville plant with limited capex spending and improved productivity in our gas power supply chain. Prior to our acquisition, this site experienced 50,000 labor hours in 24. But after approximately 100 days since close, we now see a clear path to 90,000 hours in the factory by 28, freeing up space in our Greenville factory to drive more productive growth. These are the kinds of transactions we are working hard to add to our pipeline where we see clear opportunity to complement the growth in markets we serve with our lean discipline to do very attractive, lower risk, and accretive deals in our core. We were also excited to announce this week our acquisition of Altea, scheduled for an August 1st close. With this acquisition, we are buying an existing partner that uses AI and visualization technologies to help our customers manage and orchestrate the grid. We will be able to immediately integrate this with our GridOS as another important step forward for our electrification software business. I share all of that to just outline in my words what it means to lead from a position of financial strength, $1.6 billion stock buyback at very attractive valuation, smart vertical integration of supply chain opportunities in our core where we can rapidly increase productivity to gain substantial operating leverage and strategic additions of complimentary new technology to improve growth going forward. In all these cases, it is early but I expect us to deliver substantially more from here. Turn to the next slide on our second quarter results. We continue to build a stronger backlog, supporting the long-term growth potential in our businesses. Our equipment backlog grew from 45 to 50 billion in 2Q, up almost 7 billion in first half 25. We are growing this backlog at improved margins and consistent with prior communications. Look forward to showing you at fourth quarter earnings next January the full change in margin in the equipment backlog. Our services backlog also grew approximately $1 billion in the second quarter. We now maintain a total backlog of $129 billion. In light of the strength of our power and electrification results in first half 25 and forecasts for the remainder of the year, we've revised up our EBITDA margin expectations for both segments and increased our free cash flow expectations for the year in line with these expanded margins at modestly higher revenue levels. Ken will provide more details, but these updated estimates fully embed the cost of tariffs in 25, which we estimate to be trending towards the lower end of $300 and $400 million at today's announced tariffs. So almost one point of negative EBITDA margin embedded in the guide The teams are making real progress on a go-forward basis on how we are contracting for this, in addition to new sourcing strategies and more utilization of free trade zones. But for 2025, it is likely the impact remains within this band. The last thing I want to touch on, and which Ken will also give more details to in the later slides, is our announced planned restructuring costs, which we expect to incur over the next 12 months of approximately $250 to $275 million. It was very important to me that after our first year as a public company, we evaluated how our organization was performing and where we had opportunities to be more efficient and streamlined. More important than the savings this will yield is that this is an important step forward in the culture of the company I want GE Vernover to be. Even with the growth ahead of us, it is critical culturally we continue looking in the mirror and finding opportunities to get better with a lower cost structure. This is the first of many ways I expect us to be more productive while meeting the substantial growth ramp ahead in the early stages of this investment super cycle into the electric power system. With that, I'm going to hand it over to Ken to provide details on our second quarter results and our updated guidance.