JRo’s Notes: GE Vernova Q1:2025 Earnings

Before I get into the quarterly numbers, here are some important takeaways from GE Vernova’s (NYSE: GEV) first quarter 2025 press release and earnings call:

(1) Under the Company Updates section of GE Vernova’s press release each quarter GE Vernova starts by reporting fatalities. In Q1:2025 GE Vernova had three fatalities across its global operations, up from zero in Q4:2024. GE Vernova is not obligated/required to include fatalities in its earnings press releases, and even if it were (which it isn’t), it could choose to hide it somewhere at the end or in the footnotes. But GEV chooses to lead with fatalities and make the number prominent. The fact that it does demonstrates to me the transparency and importance that the GEV culture places on “achieving and sustaining fatality-free operations.”

(2) GE Vernova’s CEO Scott Strazik said that “put simply, the world is entering an era of accelerated electrification” with “the scale of load growth we’re seeing in North America the most significant since the post-World War II industrial buildout.” He said the only difference is that unlike then, the electricity demand growth is now “global.”

(3) GEV grew its total backlog to $123 billion. Of that, it has 29 gigawatts of gas turbines in backlog and another 21 gigawatts of gas turbine slot reservation agreements (SRAs) that are not yet in orders or backlog. Of the 29 gigawatts of existing gas turbine backlog, only a “fairly negligible” portion is earmarked to power data centers. Of the 21 gigawatts not yet in backlog (but under SRAs), about one-third is dedicated to the data center buildout. The other two-thirds are earmarked for “everything else that’s happening in the world right now.” This serves as your regular reminder (from me) that the infrastructure buildout is larger than AI. AI is one component (an important component, but only one component) of the much larger global infrastructure buildout and the electrification of everything. In 2017, the G20 estimated that the world needs $97 trillion in infrastructure investments by 2040, and that report doesn’t even mention artificial intelligence (AI), machine learning (ML), cloud, or data centers. More recently, Larry Fink (founder and CEO of Blackrock, which is the world’s largest asset manager) said the world needs $68 trillion in global infrastructure spend by 2040. Whether the right number is $97 trillion, $68 trillion, or even $50 trillion (roughly half of the G20 estimate), the two important things to me are that the number is huge and is spread over fifteen to twenty+ years providing the opportunity for long profit cycle growth. And, based on everything I know and believe today, I can’t imagine a future world where GEV is not a leading player in a global oligopoly providing the world with combine-cycle gas turbines, large transformers, switch gear, wind turbines and other products and services crucial to powering and electrifying the world.

(4) GE Vernova reaffirmed full-year 2025 guidance despite estimating $300 million to $400 million in additional costs resulting from tariffs and inflation, showcasing the company’s lean, agile, and adaptable business model (and culture). In fact, Strazik said the trade war and related supply chain volatility “is an opportunity for GE Vernova to differentiate itself as a great industrial company.” He then stressed again that the tariff turmoil “really is an opportunity for us to simply become a better industrial company.” I’ve been studying businesses and business leaders for over twenty years, and I can say with conviction that some of the best leaders don’t shy away from or retreat during times of crisis. Rather they use the crisis as an opportunity to invest counter-cyclically, to implement lasting cost structure improvements and supply chain efficiencies, to improve contract writing to include more robust contingencies, to deliver for clients when they need it most, and to emerge from the crisis stronger and more resilient with more market share and a longer runway of profitable growth. Scott Strazik and his team say the things (and do the things) that I wish all CEOs would say and do (see #1 above for another example of this).

(5) GEV continued its practice of value-accretive actions such as divestitures and selling off parts of subsidiaries. In Q1 it generated about $100 million of pre-tax proceeds by selling off an additional 2% of its ownership in China XD Electric. This management team is not sitting around idly. Rather it is going up and down its portfolio of assets looking for places to raise some cash to reinvest in the business (at higher margins and ROIC) or to return to shareholders. In the quarter it also acquired the gas turbine combustion parts business from Woodward, helping it to further vertically integrate and build a more resilient supply chain.

(6) GE Vernova repurchased $1.5 billion of stock year-to-date (while maintaining its large net cash position) and Strazik said the increased buyback were opportunistic because he and his team “see a more valuable company with even greater prospects ahead.”

(7) Strazik said “we remain in the early stages of substantial margin expansion.” As a reminder from my Q4:2024 note on GEV, I see four major drivers of the margin and ROIC expansion opportunity…

•  GEV has $123 billion in backlog, but the margins on its out-year backlog are higher than the current business it is providing and billing to clients. Let me explain…GEV’s gas turbines (its largest business) are largely sold out until 2028 but demand is so high that customers are reserving slots out to 2029. This supply/demand imbalance gives GEV pricing power for its backlog years into the future.

• GEV’s business is roughly spit 50/50 today between equipment and services, but nearly two-thirds of its $123 billion in backlog is higher-margin services revenue.

• Its wind business is currently losing money (has a negative margin). Once it completes about $3 billion in offshore wind backlog that was priced at a loss (is unprofitable), the margins in its wind business should inflect positive. It expects to complete most of this offshore backlog by 2026 (but some of this negative margin will drag into 2027).

• A lot of companies claim to implement “lean” practices, but GEV has a true lean culture across SQDC (safety, quality, delivery, and cost) and gives internal case studies of how lean is leading to efficiencies across all aspects of its business and how lean is being used to aggressively manage working capital and to improve the cash conversion cycle.

OK, now onto some more of the quarterly numbers…

GE Vernova’s Q1:2025 revenue increased 11% (or 15% organically). Organic order growth increased 8%. Top line growth was driven by strong demand and pricing power in all segments. The company also realized significant margin improvement across all segments, and I think the runway of margin improvement and profitable growth is long for all of the reasons mentioned above. The company’s net income margins improved 480 basis points leading to net income of $264 million. GE Vernova generated $975 million in free cash flow (FCF), which is up from negative $661 million from the same period last year. This equates to a FCF margin of 12% and FCF conversion (on GAAP net income) of 369%. The FCF was driven by working capital improvements as well as larger down payments for slot reservations in the out years (once again suggesting the demand to GEV’s gas turbines is very strong and growing). This strong FCF allowed GEV to repurchase $1.5 billion of stock YTD at an average price of $299 per share and to pay its first quarterly dividend of $0.25 per share, while still maintaining about $8.1 billion in cash on the balance sheet. It has about $1 billion of debt (but almost all of that is leases) so it has net cash of roughly $7.1 billion. Its net cash is equal to about 14% of its total assets and 7% of its market cap. GEV generated a ROE of roughly 20% and ROIC of 8%. These are remarkable numbers considering the company was not profitable about a year ago.

GEV reiterated full-year 2025 guidance (a strong signal given the geopolitical uncertainty brought on by tariffs) calling for revenue of $36 billion to $37 billion (implying growth of 3% to 6% year-over-year), adjusted EBITDA margins in the high-single digit percent range (which implies margins expansion over 2024), and free cash flow of $2 billion to $2.5 billion (implying growth of 18% to 47% over 2024).

And as a reminder, GEV’s financial targets for 2028 call for organic revenue growth of high-single digits, adjusted EBITDA margins of 14% in 2028 (up from 5.8% in 2024), and for the company to generate cumulative FCF of $14 billion between now and then at a FCF conversion of 100%. It has committed to returning 1/3 of that $14 billion to shareholders through dividends and share repurchases. Well, that $10 billion of additional (unearmarked) capital creates optionality upside from either additional buybacks or M&A. Beyond that, additional optionality could possibly come from small modular reactors (SMRs), but that very likely won’t have a potential impact until 2030 and beyond. That’s fine, we’re long-term owners and like to see possible demand drivers years into the future.

To conclude, the excellent investor Quoc Tran wrote in his Q1:2025 letter to investors that GE Vernova’s “power equipment install base generates 25% of the world’s electricity.” And here’s another factoid…in an April 1, 2025 report Goldman Sachs estimated that GE Vernova has roughly 50% market share of gas turbines in the U.S. I’ve come across similar numbers in my own research, and I think that GE Vernova is very early in a long-duration profit cycle that should be driven by not only data center demand, but also from onshoring of industrial production, the aging electrical grid that requires repair, hardening, and buildout, renewable energy, and the electrification of everything. As I stated above, I think GEV is a lynchpin to the reindustrialization of North American (and really the world) and I think this can be further seen through its recent joint ventures and partnerships with leading technology and energy companies including Amazon Web Services, Chevron, NextEra, and NRG Energy.