GE Vernova Inc ($GEV) Q4 2025 Earnings Call

Good day, ladies and gentlemen, and welcome to GE Vernova's fourth quarter and full year 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'd now like to turn the program over to your host for today's conference, Michael Leitus, vice president of investor relations. Please proceed.

Welcome to GE Vernova's fourth quarter 2025 earnings call. I'm joined today by our CEO Scott Strazik 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 press release and presentation slides, both of which are available on our website. Please note that our 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. In addition, our 2026 guidance and our by 2028 outlook being presented today include the ProLEC GE acquisition. 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 risk and uncertainties. With that, I'll hand it over to Scott.

Thanks, Scott. Turning to slide six, we finished 2025 strong with robust orders, growing backlog and revenues, margin expansion, and significant free cash flow generation. In the fourth quarter, we booked orders of $22.2 billion, a 65% increase year-over-year, and a book-to-bill ratio of approximately two times. Equipment orders increased 91% while service orders increased 22%. All three segments delivered significant orders growth across equipment and services. As Scott mentioned, our backlog expanded to $150 billion, a year-over-year and sequential increase with equipment backlog increasing to $64 billion, up approximately $21 billion and 50% year-over-year. While our services backlog grew 10 billion or 13% year-over-year to $86 billion led by power. Revenue increased 2% with services growth in all three segments. Equipment revenue was flat year-over-year as 41% growth at electrification and 8% growth at power was offset by anticipated lower wind revenues. Price was positive in all segments. Adjusted EBITDA grew 6% year-over-year to $1.2 billion led by electrification and power. Adjusted EBITDA margin expanded 30 basis points with higher price and productivity more than offsetting higher contract losses at offshore wind as well as inflation and investments in growth and innovation. The strong adjusted EBITDA and working capital management drove positive free cash flow of $1.8 billion in the fourth quarter. Working capital was a $2.3 billion cash benefit driven primarily by down payments on higher orders and slot reservations at power as well as higher orders at electrification. Year-over-year free cash flow increased more than $1 billion driven by higher positive benefits from working capital and stronger adjusted EBITDA partially offset by higher capex investments supporting capacity expansion. We ended 4Q with a healthy cash balance of nearly $9 billion, up approximately a billion compared to the third quarter. During the fourth quarter, we returned $1.1 billion of cash to shareholders through share repurchases and dividends. Also, both S&P and Fitch upgraded our investment grade credit ratings and maintained positive outlooks on these upgraded ratings. In early February, we expect to issue roughly $2.6 billion of debt as we complete the previously announced acquisition of the remaining 50% ownership stake of ProLEC GE. We'll remain below one times gross debt to adjusted EBITDA after this debt issuance. We're encouraged by our strong financial performance in 2025. During the year, we secured $59 billion of orders led by power equipment orders more than doubling and electrification equipment orders growing more than 20%. Service orders increased 12% with growth in each segment. We delivered approximately $38 billion in revenue with 26% growth in electrification and 10% growth in power. We increased adjusted EBITDA by 46% and expanded margins 210 basis points driven by price, volume, and productivity more than offsetting the impact of growth and innovation investments and the impact of tariffs. Finally, we generated $3.7 billion of free cash flow, a year-over-year increase of $2 billion. As discussed in prior quarters, we continue to utilize lean to improve our billings and collection processes and drive better cash management and linearity. In 2025, we reduced days sales outstanding by two days compared to year-end 2024, resulting in over $200 million of additional free cash flow in 2025. Our growing backlog and healthy margin provides an excellent foundation for continued improvement in our financial performance moving forward. Turning to slide seven. Power delivered another strong year led by gas power. Power orders in 2025 grew more than 50% given robust demand for gas equipment and growth in services which combined increased backlog by more than $20 billion. Power grew revenue 10% for the year and expanded EBITDA margins by 100 basis points to 14.7% driven by higher price and productivity primarily at gas power and steam power. In the fourth quarter, power orders grew 77% led by gas power equipment tripling year-over-year on higher volume and pricing. We booked 41 heavy duty gas turbines, our largest orders quarter of the year, and an increase of more than 70% year-over-year, including 15 HA units. We also secured orders for 18 aeroderivative units. That's eight more than the fourth quarter of 2024. Power services orders increased 15% as customers continue to invest in their existing fleets. Revenue increased 5%. Services revenue increased due to higher gas transactional services and nuclear. Equipment revenue increased driven by nuclear as we progress in building our first SMR at the Darlington site with OPG as well as aeroderivative growth at gas power. This growth was partially offset by fewer heavy duty gas turbine shipments primarily due to the improved linearity of deliveries through 2025 compared to 2024. EBITDA margins expanded 160 basis points to 16.9% mainly driven by price and productivity more than offsetting additional expenses to support capacity investments at gas and R&D at nuclear along with inflation. Looking to the first quarter of 2026 at power, we expect continued year-over-year growth in gas equipment orders. We also anticipate high single-digit revenue growth driven by both higher equipment and services. We expect EBITDA margin of approximately 14 to 15% as volume, price, and productivity should more than offset additional expenses to support capacity and R&D investments as well as inflation. Given the typical seasonality of services outages, power revenue and EBITDA margin should be lower sequentially in the first quarter. Turning to slide eight, the wind team delivered similar EBITDA losses in 2025 despite the impact of tariffs driven by improved pricing and higher turbine deliveries at onshore wind offset by offshore due to the absence of contract cancellation settlement gain recorded in the third quarter of 2024 net of lower year-over-year contract losses. In the fourth quarter, wind orders increased 53% year-over-year, mainly due to improved onshore equipment orders, primarily outside of North America. However, it's still difficult to call an inflection point in US orders as customers still face permitting delays and tariff uncertainty. At offshore, we remain focused on executing our challenged backlog. Wind revenue decreased 25% in the quarter given lower onshore equipment deliveries as a result of softening orders over the last year. Wind EBITDA losses were $225 million in the quarter below the fourth quarter of 2024 levels due to higher offshore contract losses, including the impact of the recently issued US order to halt construction of all offshore projects and lower onshore equipment volume partially offset by improved onshore services. For the year, wind losses came in at approximately $600 million, higher than our expectations of approximately $400 million outlined during our December investor event, driven by the US government's December 22nd stop-work order for offshore wind projects. Until that point, the team was on a path to achieve these expectations as they worked to complete the Vineyard Wind project in early January. The order created a potential delay of at least 90 days and we accrued and booked the estimated incremental contract losses for the extension of installation work. As a reminder, the project has 62 turbines in total and we've made significant progress with only 10 turbines needing blades and one turbine left to be installed at the time of the stop work order. At any time the order is in place, we are unable to execute the project. This and the resulting incremental cost are excused under a declaration of force majeure prompted by the government action. We understand that Vineyard Wind received an injunction of the stop work order yesterday. If given permission to resume work soon, we would work to complete installation of the remaining turbines by the end of March. At the end of March, we'll lose access to the vessel required to complete installation of the remaining turbines. If we're unable to complete the installation of the remaining 11 turbines, 2026 wind revenue could be negatively impacted by approximately $250 million due to our inability to bill the customer for those turbines. Because of our contract loss accruals and protection from incremental costs resulting from the stop-work order, we do not anticipate significant additional negative EBITDA impacts for the Vineyard Wind project beyond the amounts already recorded. For first quarter 2026, we anticipate wind revenue to decline at high teens rate year-over-year due to lower onshore equipment deliveries. We expect EBITDA losses to be between $300 million and $400 million down year-over-year primarily as a result of lower onshore equipment volume as well as the approximately $70 million impact of tariffs that started in 2Q of last year. Looking at 2026, we expect significant improvement in wind revenue in the second half of the year, given only 30% of our expected onshore turbine shipments are in the first half, as almost 70% of our 2025 equipment orders came later in the year. Also, the volume we're shipping in the first half has fewer contractual protections for tariffs since we signed these orders before their implementation. As a result, we expect EBITDA losses in the first half to be partially offset by profitability in the second half. Now turning to electrification on slide 9. Strong demand and price resulted in 21% orders growth and 26% revenue growth in 2025. Electrification equipment orders continued outpacing revenue, further increasing the equipment backlog to $31 billion, up more than 10 billion compared to the fourth quarter of 2024. EBITDA margins expanded 560 basis points to 14.9% driven by volume, favorable price, and productivity. In the fourth quarter, orders remained strong at roughly two and a half times revenue and increased 50% year-over-year to approximately 7.4 billion due to growing grid equipment demand, particularly for synchronous condensers, substations partially to support data center growth, and switchgear. We saw strong equipment orders growth in the Middle East, which increased over $1 billion. And in North America, which more than doubled year-over-year. Revenue increased 32% with growth across all regions. We saw strong volume and higher price driven by switchgear and HVDC equipment. EBITDA increased 63% in the quarter with margin expansion of 320 basis points to 17.1%. Margin expansion was led by more profitable volume, productivity, and favorable pricing. Looking to the first quarter of 2026, we anticipate continued solid equipment orders with healthy margins. First quarter electrification revenues should be similar to the fourth quarter of 2025 as we include ProLEC GE resulting in a significant year-over-year increase. We expect continued strong EBITDA margin expansion to 16 to 17% from volume, price, and productivity. Moving to slide 10 to discuss GE Vernova guidance for the first quarter of 2026. Based on our expectations for the segments as already outlined, we expect continued year-over-year revenue growth and adjusted EBITDA margin expansion. We also expect to deliver positive free cash flow in the first quarter of 2026 given our ongoing focus on aligning the timing of inflows and outflows along with the impact of down payments which correlate with the timing of orders. For the full year, we're increasing our 2026 guidance provided in December to now include the ProLEC GE acquisition. We now expect full year 2026 revenue to be in the range of 44 to 45 billion up from 41 to 42 billion with growth in both services and equipment. We continue to expect adjusted EBITDA margins of 11 to 13% as we deliver our growing backlog with favorable pricing plus improved operational execution. We're also increasing our free cash flow guidance to between 5 and 5.5 billion up from 4.5 to 5 billion. By segment, we continue to expect 16 to 18% of organic revenue growth in power driven by gas power. We anticipate power EBITDA margins to be between 16 and 18% as positive price, increased volume leverage, and productivity more than offset inflationary impacts and the additional expenses for AI, automation, and increased production. In electrification, we now anticipate revenue to be between 13.5 and 14 billion which represents 20% organic growth plus approximately $3 billion of revenue from ProLEC GE. We continue to expect EBITDA margin to expand to 17 to 19% as we deliver our more profitable backlog. In wind, organic revenue is expected to be down low double digits due to decreased onshore equipment revenues given the softness in orders. But we expect EBITDA losses to be approximately $400 million in 2026, which is consistent with our expectations discussed in December as improvement in onshore wind services and offshore wind offset the lower onshore equipment volume. We expect 2026 GEV adjusted EBITDA to be more second half weighted than 2025 with the highest revenue and EBITDA in the fourth quarter of 26. We expect higher second half gas power revenue as we ship more gas turbines in the second half of the year as we increase annual production capacity to approximately 20 gigawatts starting in midyear 26. We also anticipate typical gas services seasonality with the highest outage volume in the fourth quarter. We continue to expect electrification EBITDA to increase sequentially through the year following the completion of the ProLEC GE acquisition. And as mentioned earlier in wind, we expect higher second half onshore turbine shipments given our recent orders profile and better services profitability. At corporate, costs are typically uneven across quarters due to compensation timing and portfolio activity at our financial services business. We expect full year 2026 corporate cost to be between $450 and $500 million as we continue investing in AI, robotics, and automation to drive productivity over the medium and long term. Turning to slide 11, we're also increasing our by 2028 outlook to include ProLEC GE. We now project at least $56 billion of total revenue by 2028 up from $52 billion implying a low teens growth CAGR through 2028 and we

We still expect to achieve adjusted EVA margins of 20%. We're increasing our cumulative GE Vernova free cash flow generation from 25 to 28 by approximately $2 billion to at least $24 billion, which incorporates nearly $1 billion of incremental capex from Prolec GE to support increased transformer production. This brings our expected cumulative capex and R&D investments through this period to approximately $11 billion. At electrification, by incorporating Prolec GE into our 28 by 28 outlook, we now expect approximately $4 billion of incremental revenue on top of high teens organic growth and we maintain expectations for 22% EBITDA margins. We're not including any synergies from the Prolec acquisition into our updated outlook, but we see real opportunities in both revenues as well as costs. Overall, the combination of rising demand combined with the consistently stronger execution, investments into our business, and the acquisition of Prolec GE sets us up nicely going forward. With that, I'll turn it back to Scott.

Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone. If you wish to withdraw your question or your question has already been answered, please press star one. Our first question comes from Joe Ritchie with Goldman Sachs.

Hey, guys. Good morning. So let's just, I'm just going to focus my one question on gas power equipment orders. Clearly incredible momentum in 2025. I think your original expectation was for backlog and for SRAs to be roughly around 60 gigawatts and you ended at 83. Now you have an expectation of 100 gigawatts by the end of 2026. Scott, maybe just talk about the nature of your discussions. Have they changed at all? The types of customers? And then also you did mention that you expected the margin in your backlog to be better as well. So it sounds like the pricing discussions have also been positive. Thank you.

The next question comes from Julian Mitchell with Barclays.

Hi, good morning. Just wanted to circle back to the gas power equipment market because I suppose we get a lot of questions from investors around smaller turbine makers looking to grab share, looking to take advantage of the fact that you're trying to be measured on capacity increases and there are very long lead times. And obviously there was an announcement of someone looking to repurpose ancient narrow body engines for power gen. So I just wondered, I suppose two things. One was how serious do you think the threat of market share gains from that plethora of smaller players is? And do you think that they could have some negative effects on pricing in the equipment market as their capacity and share gain efforts ramp up in the years ahead? Thank you.

And Julian, I know you know this, but we obviously play in a piece of that as well, right? So, we have aeroderivative units and I think last year we booked orders for about 63 of those which was up significantly year-over-year. Because of us playing in that market, it informs those comments that Scott just made, which is we know how the customers are thinking about utilizing that equipment in the midterm.

The next question comes from Nigel Coe with Wolfe Research.

Thanks. Good morning. So my one question is on the backlog margins specifically for Power. So 11 points of improvement year-over-year is really impressive. Maybe just could you talk about the 17 points of improvement since year end 22? The starting point would have been about a break even. I just want to confirm that. And then based on where you're pricing turbines today, would you expect backlog margin to continue improving in 2026?

The next question comes from Mark Strouse with JP Morgan.

Hey. Good morning, everybody. Thanks for taking my questions. Scott, maybe switching gears to the electrification segment. Just kind of stepping back, kind of leading up to the spin, just kind of the opportunity that you've been talking about, kind of investing in that business to expand it from what it's been over the last decade or so. Obviously you're clearly making progress with the orders. You talked about kind of record orders in 4Q. To the extent that it's possible, can you just kind of update, you know, how much of that do you think is really driven by just kind of the overall market strength versus what GE is doing specifically to gain market share? Thank you.

And then it's a great opportunity to think about the Prolec acquisition right because you talked about what are we able to do not only just from a market but from a GEV perspective bringing things together. This was one of the primary reasons that we were so excited about the Prolec acquisition because there were terms and conditions around the arrangement which allowed us to keep things within certain markets that now that it's totally going to be consolidated by GEV and fully owned by GE, we're able to optimize where we can have transformers go around the world. So that's a really good thing. But one of the other opportunities as well is Prolec is a provider of distribution transformers which are a key part of what's going into data centers. So this opportunity of bringing GEV together and how it's benefiting the electrification business runs right exactly to what Scott says but it gave me the opportunity to remind everybody what the importance of this Prolec acquisition is.

The next question comes from Alexander Virgo with Evercore ISI.

Yeah, thanks. Morning everybody and appreciate taking the question. Can we stay on electrification please and just integrating Prolec. I'm surprised there hasn't been a little bit more of an accretion on the original margin guidance. So, I wondered if you could just talk a little bit about costs to integrate and investment that you might need to do to make sure that you get the benefit of what you've just talked about and think about how that margin profile might look as we look out to the 2028 guidance. Thanks very much.

The next question comes from David Raso with Morgan Stanley.

Hey, good morning. Thanks so much. I was wondering if you could touch on the nuclear space. You know, we've seen a lot of momentum on the policy side, deal side in the SMR space. Wondering if you could talk to your project opportunities. Have things accelerated? Could there be opportunities for more SMR deals to come? Thanks.

The next question comes from Nicole DeBlase with Deutsche Bank.

Yeah, thanks. Good morning, guys. Scott, I wanted to get your thoughts on something a bit higher level. A few weeks ago, we had this announcement from Trump kind of pushing for an emergency power auction. I'm really really curious about your reaction to that both with respect to the potential impact on gas power demand, the market in the US as well as GEV. Thank you.

The next question comes from Amit Mehrotra with UBS.

Hey Scott. Hey Ken. Thanks for taking my question. Just one clarifying question. Can you just update us on what you're sold out through? I think last time it was 2028 on both heavy duty and aeroderivatives. I mean these backlog numbers are eyepopping, so I assume we're going out quite further. And then just one clarification on electrification. I know you talked about it earlier, but it just seems like the organic growth expectations have maybe come down for 26 when you include Prolec in there relative to the 20% you had last year. Maybe I'm doing my math wrong, but if you could just clarify that point, that'd be helpful.

Let me do the last part first and then I'll hand it back to Scott. No, the organic growth expectations haven't come down. When we give you the organic growth number, we're giving it to you without Prolec. So, to just make that easy, we're saying the organic growth for electrification and then just add the $3 billion on top of it. So there's been no change in the expectations for electrification negatively.

Operator, we have time for one more question, please. This question comes from the line of Andrew Kaplowitz with Citigroup.

Good morning. Thanks for fitting me in. Scott, can you give us more color in your assessment of how your teams are doing on that variable cost productivity that you talk about and what that might mean for the next couple years? Obviously, you reiterated those 22% EBITDA margin targets for 28 in Power and Electrification, still early days on lean. What are you seeing on the ground as you begin to ramp up capacity more significantly? Can you remind us how your contracts are structured for rising commodity costs?

Before we wrap up, let me turn it back to Scott for closing comments.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.