JRo’s Notes: GE Vernova Q2:2025 Earnings

Key quotes from the press release and earnings call…

“GE Vernova had a productive second quarter, positioning us well to continue to accelerate our growth and margin expansion from here. We grew our backlog by more than $5 billion and increased our Gas equipment backlog and slot reservation agreements from 50 to 55 gigawatts. With strength in Power and Electrification, we are raising our revenue, adjusted EBITDA margin, and free cash flow expectations for the year. We are at the beginning of an investment super-cycle into more reliable baseload power, grid infrastructure and decarbonization solutions. Our near-term results are improving, but more importantly, our long-term potential is accelerating faster.”

“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.”

“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.”

“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 River site, which means the formal process has started and I expect more customer announcements with our SMR technology in the second half of the year.”

“Demand for data centers also remain 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 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 ’25 as we did in ’23 and ’24.”

“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 way, 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 improvements at pace. As I see it, robotics and automation are critical but can only be invested into once the 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 2 themes are important parts of our strategy reviews that will take place in 3Q across the company.”

“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.”

“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 complementary new technology to improve growth going forward. In all these cases, it is early but I expect us to deliver substantially more from here.”

“We continue to build a stronger backlog, supporting the long-term growth potential in our businesses. Our equipment backlog grew from $45 billion 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.”

“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 million to $275 million. It was very important to me that after our first year as a public company, we evaluated how our organization is 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 Vernova 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.”

“We continued to generate positive free cash flow with approximately $200 million in the second quarter, reflecting stronger adjusted EBITDA. Working capital in the quarter was an approximately $600 million cash benefit driven by strong down payments from rising orders and slot reservation agreements at Power, which more than offset cash taxes along with CapEx investments supporting capacity expansion. As we’ve discussed in prior quarters, we continue to utilize lean to improve our billings and collection processes to drive better cash management and linearity. In the second quarter, we reduced days sales outstanding by 2 days sequentially, resulting in an approximately $200 million of additional free cash flow in the quarter. As expected, free cash flow decreased year-over-year due to the absence of a $300 million arbitration refund that we received in the second quarter of 2024, as well as a lower positive benefit from working capital and higher cash taxes on higher adjusted EBITDA. As a result of our improving free cash flow linearity through the year, we continued to return cash to our shareholders in the second quarter with a total of approximately $450 million of share repurchases and dividends. So far this year, we’ve repurchased $1.6 billion of stock and we’ll continue to execute our buyback authorization opportunistically as we firmly believe there is incremental value embedded in our stock. We ended second quarter 2025 with a healthy cash balance of approximately $8 billion and with no debt, which gives us confidence to invest in the business for growth and return cash to shareholders through dividends and share repurchases while maintaining a solid investment-grade balance sheet. In the first half of this year, both S&P and Fitch affirmed our investment-grade credit rating and increased their ratings outlook to positive from stable.”

“We booked 20 heavy-duty gas turbines, including 7 HA units, which was 6 more heavy-duty units compared to the number booked in the second quarter of 2024. We also secured orders for 27 aeroderivative units compared to only 1 unit last year. We’re seeing incremental demand for our aeroderivative technology, particularly to support data centers.”

“Importantly, [electrical] equipment orders continue outpacing revenue, further expanding the equipment backlog to approximately $24 billion, up more than $6 billion compared to the second quarter of 2024. Revenue increased 20%, driven by strong volume and higher price at Grid Solutions where we saw meaningful growth in HVDC, switchgear and transformer equipment volume. The team is executing well on its capacity expansion plans and we continued to increase output in the second quarter. The segment delivered another quarter of significant EBITDA growth with margin expansion of 740 basis points to 14.6% on more profitable volume, increased productivity and favorable pricing, primarily at Grid Solutions.”

“We’re actively navigating this ongoing dynamic environment and taking action, including the acceleration of our $600 million G&A cost reduction road map. In 2024, we reduced our adjusted G&A cost by approximately $170 million and we expect to decrease our cost by a similar amount in 2025. To accelerate the achievement of our $600 million target, we’ve launched a restructuring program subject to local regulatory information and consultation requirements to be executed over the next 12 months and anticipate approximately $250 million of annualized G&A savings beginning in 2026.”

“We continue to position GE Vernova to serve the accelerating growth we see in the markets, real strength in Power and Electrification but potential for an inflection point forward on Wind that we’ll monitor in the second half of the year. Margins are improving but we are just getting started. Our team is seeing more opportunity every day and as lean starts to take hold and spread across the business, I like what I’m seeing in this regard. Good cash performance first half of the year and pleased with our capital allocation, whether it be the stock buyback year-to-date, our organic investments for growth or the small but strategic M&A we are doing. We are creating a unique special company that serves the world in a way like no other. We don’t take that for granted. I certainly don’t.”

“But what I would tell you is the big projects [in the electrification segment], so call it the long transmission line HVDC projects that are quite a bit more lumpy, there’s a lot more scrutiny in those projects today. So the orders that we’re seeing are more core transformers, switchgears. We’re encouraged with our grid stabilization equipment solutions like synchronous condensers. We’ve announced the transaction with Saudi but we see real opportunities in many markets that have high renewables penetration rates for those solutions. And we’re still seeing price [in the electrification segment] but at a decelerating rate. So this becomes a dynamic where we need to continue to drive variable cost productivity. You’re seeing that in our margin performance through the first half but we’re going to have to keep driving that because we don’t expect to continue to get price at the same level that we have experienced over the previous 18 months.”

“So you’re right, we talk a lot more about equipment new build pricing [in the power segment] but we are also in a price up environment in services that will materialize through our income statement in the years ahead. So it’s early in that regard but we’ve been on that journey for the better part of the last 12 to 18 months and we’ll continue to see that translate into the income statement in the subsequent, let’s say, 12 to 24 months because it’s shorter cycle conversion than our new units.”

“Much of what we’re seeing [in the power segment] is a pricing positive dynamic there. We are seeing incremental equipment but both on the service side as well as on the equipment side, we’re seeing positive pricing on the orders themselves.”

“Just think to yourself in the second half of the year, the mix of combined cycle [gas turbine] orders that will be booked will be substantially larger. So you’re going to see an orders dollar connection to gigawatts that will be larger in the second half of the year. The first half of the year has been more simple cycle [gas turbine] orders. So that’s where you’ve got to think about the gigawatt dollar connections and the mix between whether it’s a simple cycle or a combined cycle deal and we’ll have substantially more combined cycle orders in the second half of the year.”

“I think on gas, we’re really in the exact same place we’ve been, which is, first things first, let’s get to a 20 gigawatt run rate, which we should get to in the second half of 2026. On top of that, we’ve talked about wanting to get to 4 to 5 years of backlog and that’s backlog between slot reservations and explicit RPO. And we’ve talked about the fact that we’ll get to at least 60 gigawatts by the end of the year. So that’s directionally 3 years of backlog. So for us to really lean into the incremental capacity, I think we’ve got more work to do, both in proving out that we can deliver what we’ve already committed but then seeing that backlog growth more towards the 80 to 100 gigawatts versus where we think we’ll be at the end of the year, which is 60 gigawatts.”

“Now on Electrification, we do continue to gain conviction that we can ramp up in these businesses within our existing factories with incremental investments into more — both machining but also more labor. That’s the 250 incremental jobs we announced in Pennsylvania. Some of that’s simply more shifts. The reality is, that’s a plant that if you go back a few years ago, was 1 shift, 5 days a week, we’re very quickly 6 days a week, 3 shifts. And as we leverage lean, we’re finding capacity and finding opportunities to do things better. And that’s in Pennsylvania but that is extrapolated across a number of our electrification factories and we’ll be all part of what we need to work through in our strategy cycle here and come back to you at the end of the year with an updated view on revenue trajectory for Electrification through 2028.”

“Well, there’s a need for incremental bridge power and the beauty of aeroderivatives is, they can be commissioned faster and that’s needed in the environment today and our customers are able to price at a premium for expedited power. So aeroderivatives are a very attractive solution right now. They may, in the end, lead to customers having strategy where they become backup over time because maybe the plant will get connected to the grid in 3 to 5 to 6 years once the system hurdles the interconnect queue at large. But in the near term, demand for aeroderivatives is very strong and that’s in the U.S. but it’s also in global markets. At the end of the day, the need for incremental electrons right now is driving continued strength and upgrades.”

“In relation to that, though, as that activity increases for wind and solar for, call it, the near to medium term, there also is very clear market sentiment that in the back half of the decade into the next decade, there’s going to be a need for more gas. So this theme of more gas longer and this is a U.S.-centric comment related to the tax bill, I would say our pipeline of activity for gas demand is only growing. But it’s growing at even more healthy levels for ’29 deliveries, ’30, ’31 in periods of time where maybe prior to the bill being signed, some of our traditional customers may have been intending more wind or solar but looking to the other side of the tax bill, see more incremental gas making sense. And that is at least today what we see. There may very well be more incremental activity for wind, in our equipment we serve or sell to serve solar but then I think in the medium to long term, this is another bull case for gas. And those conversations are accelerating as we speak.”

“We are definitely pleased with our progress in Electrification to be at almost 15% EBITDA margins today with modest improvements in the second half of the year. So we’ll get through our strategy process in Electrification and come back to you on a new by 2028 financial outlook. What I would tell you in that regard is we’re also gaining real confidence and conviction on our ability to continue to expand our markets in Electrification. We’re having very productive conversations with the hyperscalers on incremental solutions we can provide them. And I do expect our R&D to continue to ramp up in Electrification in 2026 and that’s something we’ll share with you as we get to the end of the year. Similar themes in Power. We’re pleased to be approaching the 14% to 15% [EBITDA margin] band with Power also. And as we’ve been saying for a period of time, that’s primarily the strength of services and core operations. I mean the better equipment backlog does not cut in [hit the income statement in terms of improved profitability], in Power until the second half of ’26 and really 2027. So where we are sitting in Power today, we also have an opportunity to go through the strategy processes this year and likely update that by ’28 financial guide. On Wind, that’s probably of our 3 business segments, the one that as we look out to 2028, we’re still sitting at a very similar expectation as where we were in December ’24. That’s the business segment that we’re probably still sitting at by 2028, 10% EBITDA expectations.”