Blaire Shoor:

Thanks, Liz. Welcome to GE Aerospace's second quarter 2024 earnings call. I'm joined by Chairman and CEO, Larry Culp; and CFO, Rahul Ghai. Many of the statements we are making are forward-looking and based on our best view of the world and our businesses as we see them today. As described in our SEC filings and website, those elements may change as the world changes. Now over to Larry.

Rahul Ghai:

Thank you, Larry, and good day, everyone. Starting with CES. Air traffic growth remained robust with departures up 9% year-to-date, and we continue to expect to be up high-single digits for the full-year. Passenger departures are expected to be up high-single digits as narrowbody remains solid with LEAP up nearly 30% in the second quarter, more than 3x that of overall narrowbody market. Dedicated freight departures are now expected to be up mid-single digits versus a prior expectation of low-single digits. Moving to CES' second quarter results. Sustained commercial momentum drove significant orders growth, up 38% this quarter. Both services and equipment were up more than 35% with strong spare parts demand. Revenue grew 7%, with services volume and price more than offsetting lower engine deliveries. Services grew 14% from mid-teens internal shop visit growth with strength in time and material visits and improved pricing. As expected, year-on-year shop visits grew more than spare parts. Equipment revenue declined 11% from 26% lower engine shipments. This was partially offset by customer mix and price. Supply chain constraints impacted shipments across both narrowbody and widebody with LEAP down 29%. Profit was $1.7 billion, up 21%, with margins expanding 320 basis points, driven by improved performance in services from higher volume, pricing and mix, lower engine shipments and improving LEAP services profitability also supported profit and margin expansion. This more than offset the impact of lower spare engine deliveries and increased investments that impacted equipment offer. Taking a step back, at CES, we delivered a strong first half with services revenue up 13% and overall segment profit up nearly 20%. Turning to DPT. The sector remains resilient with U.S. defense spending expected to grow low-single digits and international up mid-single digits. With FLIGHT DECK, we are focused on running this business better to deliver more predictably while continuing to invest in the future of Combat. We recently achieved a significant milestone delivering two 901 engines for the U.S. Army's Improved Turbine Engine Program, or ITEP, for integration and testing on the UH-60 Black Hawk. The T901 engine will ensure that war fighters have the performance, power and reliability necessary to maintain significant advantage on the battlefield for decades to come. Turning to our results. Orders were down 25%, primarily due to timing of orders in Defense & Systems. Defense book-to-bill was 0.9 in the quarter and 1.0 for the first half. Revenue grew 1%. Defense & Systems revenue was down 6%. Engine deliveries were down approximately 60% from supply chain challenges and a tough year-over-year compare when we delivered significantly higher units. This more than offset pricing and services growth. Propulsion & Additive Technologies grew 16% with growth across several businesses, from higher output and improved pricing. Profit was $344 million, up more than 70% year-over-year, with margins expanding 580 basis points from higher output, favorable product mix, productivity, price and the absence of program-related costs. Through the first half of the year, DPT delivered high single-digit revenue growth and significant operating profit improvement. The business remains well positioned to deliver growth over the medium term with a backlog of nearly $17 billion. Spending a moment on corporate. Adjusted cost and intercompany eliminations were roughly $130 million, down nearly 40% year-over-year. This $80 million improvement is from actions taken to streamline our cost structure, accelerate elimination of wind-down costs and favorable interest income that more than offset higher intercompany eliminations. As part of our continued efforts to simplify and focus on our core, this quarter, we completed the sale of Electric Insurance. We also reached an agreement to sell the licensing business and a reinsurance agreement to exit a block of our life and health insurance business. Combined, these actions will result in proceeds of roughly $700 million of investing cash flow. Looking ahead, given the strong results and the momentum in our business, we are raising our profit and cash guidance. We are reducing our revenue guidance given lower engine output expectations. Growth is now projected to be up high-single digits due to lower equipment revenue in CES. We now expect CES equipment revenue to be up high single to low-double digits from prior guidance of up high teens. This includes our updated full-year LEAP output expectations of flat to up 5% year-over-year. We continue to expect CES services to grow mid-teens, putting overall growth of CES at low-double digits to mid-teens. Consistent with prior guidance, we expect DPT growth of mid- to high-single digits. Operating profit is now expected to be in a range of $6.5 billion to $6.8 billion, up $250 million at the midpoint from prior guidance with margin expansion year-over-year. This improvement is primarily from CES, with operating profit now expected to be $6.3 billion to $6.5 billion from $6.1 billion to $6.4 billion previously, reflecting improved services performance and impact of lower equipment sales. DPT profit guidance is unchanged, and corporate costs and intercompany eliminations are now expected to be below $900 million from approximately $1 billion previously. Our expectations for interest expense and tax rate are unchanged, and we are raising our adjusted EPS guidance range to $3.95 to $4.20, up more than 50% year-over-year at the midpoint from higher profit growth. We are also raising our free cash flow guidance to $5.3 billion to $5.6 billion with above 100% conversion of net income given profit growth. While we still expect to reduce working capital for the year, the improvement is expected to be lower given the impact of supply chain challenges to inventory. Overall, free cash flow is up approximately $700 million year-over-year at the midpoint. All in, GE Aerospace is positioned for significant revenue, profit and free cash flow growth with strong conversion in 2024. Larry, back to you.

Blaire Shoor:

Before we open the line, I'd ask everyone in the queue to consider your fellow analysts and ask one question so we can get to as many people as possible. Liz, can you please open the line?

Robert Spingarn:

Good afternoon.

Rahul Ghai:

Hey, Rob.

Lawrence Culp:

Well, Rob, I think that you really put your finger on one of the important underlying dynamics here, not only in the quarter, but as we think about the second half and even the next few years, the CFM56 is clearly still the workhorse of the industry, right? I mean if we look at utilization in a time when people thought we might begin to see a little bit of a fade, utilization year-over-year is consistent with the CFM56, delighted to see the LEAP up 4 points from a share perspective. So overall GE narrowbody powered propulsion is probably north of 70%. So I think the CFM is going to have a longer life in many fleets. And clearly, that's going to help us in the aftermarket, both from a volume and from a scope perspective.

Operator:

Our next question comes from Myles Walton with Wolfe Research.

Lawrence Culp:

Myles, we can hear you loud and clear. We're not too far away, I suspect. I think if you go back to April, what we said was three quarters of the challenge with respect to deliveries was really rooted in these 15 supplier sites again with nine different companies. And rather than finger point, our mindset was we're going to problem solve. And we've gone in deeply again with FLIGHT DECK to really try to understand these constraints at the core. And the slide that you see in the deck, I think, is evidence that, that approach, that collaborative problem-solving rather than finger-pointing is really yielding results. We didn't expect that we would see a blanket impact immediately, but to be able to point to two-thirds of those sites showing strong, nearly doubling of their sequential outputs, inputs to us, I think really tells us something, right, that this approach is going to have impact. Unfortunately, we didn't have all of the impact that we would have liked across those 15 and we need everybody's ore in the water, if you will. We need everybody contributing, particularly with respect to new engine deliveries. But I think given what we have seen here in July, the way that we're working across different commodity classes shows that this approach is a better way to get more, not only here in the third quarter or the second half, but as we think about what is a multiyear ramp, right, the airframers that we talk to here at Farnborough certainly in the airlines as well. No one loves the fact that a new narrowbody order may not be delivered until 2029 or 2030. So it's all about the ramp. We've got years in front of us, thankfully, what a wonderful business challenge to have. But I really like the way our suppliers have met us here, embrace the tools. And we just need more time working in this fashion in order to have the full effect that we, our airframer and our airline customers all desire.

Sheila Kahyaoglu:

Hi. Good morning, Larry and Rahul. How are you?

Sheila Kahyaoglu:

Maybe if I could ask about the CES margins, which were pretty awesome. So just looking at the LEAP deliveries in the quarter Q1 versus Q2, Q2 had 70 less LEAP deliveries in the quarter. So about a $10 million profit swing depending upon your loss assumption there. So CES margins of 27% in Q2 versus Q3 – versus Q1 of 2023 implies that the core service margin improved about 1,000 to 1,500 basis points depending on what you want to choose, so 25% to 35% plus. So what drove that despite shop visits being better than spares? And how do we think about the second half progression?

Operator:

Our next question comes from the line of David Strauss with Barclays.

Lawrence Culp:

Good morning, David.

David Strauss:

Larry, can you just maybe dig into this – the lower LEAP shipments in the quarter? I know you're talking about things progressing with these nine suppliers, but at the same time, obviously, deliveries were way down in the quarter. I would imagine they were 100, 125 short of kind of your internal expectations. Can you kind of just square that things are getting better, but deliveries were a lot lower than expected? Thanks.

Operator:

Our next question comes from the line of Seth Seifman with JPMorgan.

Rahul Ghai:

Hey, Seth.

Seth Seifman:

I wondered just to kind of follow-up on that last question and thinking about the progression on the delivery side. I think you need a pretty significant increase off of the Q2 equipment revenue level to get to the guide for the year. Is it going to be possible to make much progress in Q3? Should we expect a much more significant progress in Q4? And any other color that you can provide about the sequential dynamics across the company?

Lawrence Culp:

You got it.

Gautam Khanna:

Yes. Hey, good morning. Thank you, guys.

Gautam Khanna:

And good results.

Lawrence Culp:

Thank you.

Lawrence Culp:

Well, maybe we'll just take those in reverse order, and I'll start. I think that we really aren't trying to slowdown in a meaningful way. We're really trying. The way I think about it is we're trying to make sure that we're calibrated with respect to what we need from everybody because as you point out, different folks are in different places, as we think about the back half, as we think about 2025, as we think about 2026. I think part of why this has been so challenging and maybe even head scratchingly so for some, is that the industry was dialed down to almost zero in the pandemic. And what we don't want to do and the reason we do carry probably more inventory today, well, at year-end than we would like is we don't want to turn down the folks that are performing well unduly as we calibrate the ramp rates with those that will, in all likelihood, paces. So we've taken a view that in some instances, the inventory is in effect an investment with the supply base for ourselves to make sure that we've got a more predictable ramp. Remember, a lot of lean is rooted in flow, and flow really is around availability to the extent that we've got some folks that are performing. We don't want to, if you will, penalize them as we think about all that we're going to need from them, not only over the next six months, but frankly, over the coming years.

Operator:

Our next question comes from the line of Scott Deuschle with Deutsche Bank.

Rahul Ghai:

Good afternoon.

Scott Deuschle:

Hey, Larry. Not to beat a dead horse, but just following up on Myles' earlier question. I was wondering if you could offer some more detail on those, I guess, six or so remaining supplier sites that are the key bottlenecks at this point? Basically trying to understand if we're down to the investment casting and forging suppliers at this point or if it's a broader side of bottlenecks. And I appreciate you not wanting to pointing fingers, but just get a sense for whether there's something in common undergirding this remaining set of suppliers? Thanks.

Operator:

Our next question comes from the line of Robert Stallard with Vertical Research.

Rahul Ghai:

Good afternoon, Robert.

Lawrence Culp:

Well, I think we'll leave to our customers' commentary on everything they're managing. We're focused on what we can manage, right? And I think that the updated guide here, the color around LEAP specifically, is certainly that of high confidence. It wouldn't come out of our mouths. It wouldn't be in our prepared remarks otherwise. But again work to do. Work we’re I think we're encouraged by with respect to the second quarter impact, the start to July as well. But we've got a lot of work in front of us. We've got many days to do that work. That's where this team is focused completely. I can assure you.

Noah Poponak:

Hey, good morning everyone.

Noah Poponak:

You show on Slide 17 that the CES services orders are growing much faster than revenue and the absolute dollar levels are much higher. I guess, eventually, overall aftermarket has to normalize as we fully recover air travel growth. What's behind that? How much of that is the LEAP? And does that suggest that CES services growth can actually accelerate next year versus this year?

Operator:

Our next question will come from the line of Gavin Parsons with UBS.

Lawrence Culp:

Good morning.

Lawrence Culp:

Gavin, as you would imagine, we follow all of that pretty closely, both, well, in the U.S., here in Europe globally. We really have not seen any effect on our business. And to Rahul's comments a moment ago, will remain watchful, but don't anticipate that. Again, I think to the earlier question, with services orders up 36% in CES in the second quarter, that's the way our customers are speaking to us. I look at where we are here in the third quarter just in terms of how much of the spares activity we have in backlog, I think it's in the 90% range at this point. So well positioned very early here in the quarter. And again, I would just also point to the utilization that we see on the CFM56, still strong. No real change this year. And the uptake, the upshot of the LEAP taking four points of market share. So GE-powered narrowbody activity remains strong. You just take the comments that were out here in Europe yesterday, it seemed to be more pricing oriented than anything else. So we'll keep a weather eye out. But right now, our challenge, our struggles to keep up with this exceptionally strong demand, both in the aftermarket and again with new make.

Jason Gursky:

Hey. Good morning, everybody.

Jason Gursky:

Hey. Larry, I was wondering if you could just spend a few more minutes on the rise and maybe provide an update on development milestones there and how the customer conversations are going, at this point, you mentioned that you're showcasing the engine there, at Farnborough, I'm just kind of curious what you think customer acceptance is going to – is shaping up to look like at this point?

Blaire Shoor:

We have time for one last question.

Matthew Akers:

Hi. Good morning, guys. Thanks for the question.

Matthew Akers:

I wanted to ask, what are kind of your latest thoughts on LEAP kind of breakeven timing just given volumes are running a little bit lower than we thought and it sounds like you're deploying a lot of resources to work through some of the supplier issues. Just curious if the timing has shifted at all?

Blaire Shoor:

Larry, any final comments?

Operator:

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

Steve Winoker:

Thanks, Liz. Welcome to GE Aerospace's first quarter 2024 earnings call. I'm joined by Chairman and CEO, Larry Culp; and CFO, Rahul Ghai. Many of the statements we're making are forward-looking and based on our best view of the world and our businesses as we see them today. As described in our SEC filing and website, those elements may change as the world changes. With the spin-off of GE Vernova successfully completed earlier this month, GE Vernova will report its results separately on April 25. While included in our consolidated first quarter results, we're focusing today's commentary and Q&A primarily on GE Aerospace. Now over to Larry.

Rahul Ghai:

Thank you, Larry, and good morning, everyone. Larry, I fully share your enthusiasm as we embark on the next chapter of our journey as a standalone company. We will cover GE Aerospace's results on a standalone basis, the same as a full year guide. Also, for simplification, our results will be prepared on a reported basis, and we are limiting non-GAAP free cash flow adjustments to spin-related matters. Overall, GE Aerospace delivered a solid start to the year with all headline metrics up double-digits. Demand remained resilient. Orders grew 34% with similar growth rates in both Commercial Engines & Services or CES, and Defense & Propulsion Technologies or DPT. Revenue was up 15% from pricing, spare parts volume and an increase in wide-body and defense engine deliveries. Operating profit was $1.5 billion, up 24% with margins up 140 basis points to 19.1%. The profit growth was driven primarily by price, growth in services volume and favorable mix. Profit and margins were up in both CES and DPT. Adjusted corporate costs and elimination, including prior GE corporate costs were $130 million, down more than 20% year-over-year. Post the GE Vernova spin-off, we expect to incur roughly $300 million for the remaining wind-down of GE corporate office and close to $250 million to set up standalone infrastructure for GE Aerospace. We will continue to adjust these items from earnings and cash. Free cash flow was $1.7 billion, doubling year-over-year with higher earnings and working capital improvements offsetting AD&A outflow. Specifically, working capital was a source largely from strong collections and progress payments, while inventory was a headwind. The strength of our operational and financial fundamentals gives us confidence to return 70% to 75% of our available cash to investors. Earlier this month, we initiated a quarterly dividend at $0.28, a 250% increase. And at our Investor Day, we announced a $15 billion share buyback, a testament to the strength of our balance sheet. Through a new capital return framework, we are well positioned to create significant shareholder value while we continue to invest in growth, innovation and focused M&A. Now turning to CES and DPT results. Starting with CES, a $24 billion business with 70% of revenue generated from services. As Larry mentioned, demand continues to be robust. For the year, we now expect departures to grow high single-digits. Total departures are off to a stronger start versus our prior expectation, growing 11% in the quarter with particular strength in China. We continue to expect departure growth to moderate throughout the year. We expect passenger traffic growth in high single-digit range for the year, a slight improvement. Narrow-body remains solid with increased CFM56 fleet utilization and significant LEAP growth. Further, we now expect freight demand to be up low single-digits versus a prior expectation of down mid single-digits. Heightened geopolitical conflicts have increased the need for air cargo and improved its relative economics. As a result, commercial momentum continues. CES orders were up 34% this quarter. Both services and equipment were up double-digits, largely driven by strong demand for LEAP and spare parts across our platforms. Overall, customer dynamics remain positive with strong order books from both airlines and airframers. On narrow-body platforms, we won more than 300 LEAP-1B engines and a multiyear services agreement from Akasa Air. And on widebody platforms, recent key wins included 90 GEnx engines for Thai Airways, 16 GE9X engines for Ethiopian Airlines and 10 GEnx engines for LATAM Group. This improving demand backdrop underscores our confidence in our annual guide and longer-term outlook. Now looking at CES' first quarter results. Revenue grew 16% with volume up low double-digits and the remainder driven primarily by higher price. Services growth of 12% was driven by pricing and strong spare part volume, which grew faster than internal shop visits that were up 3%, impacted by material inputs challenges. Equipment growth of 31% was driven by pricing and deliveries, which were up 2% with higher wide-body engine mix. LEAP shipments were roughly flat year-over-year given the supply chain challenges. As expected, spare engine shipments were down slightly. Profit was $1.4 billion, up 17% with margins expanding 10 basis points from pricing, spare part sales and mix. This more than offset higher inflation investments and a change in estimated profitability on long-term service agreements on a mature platform, which negatively impacted both services revenue and profit by roughly $200 million. At CES, we are pleased with the strong start to the year, delivering significant growth and profit improvement. Turning to DPT, which includes both Defense & Systems and propulsion and additive technologies. This is roughly a $9 billion business, where services make up approximately 55% of the revenue. Looking at the sector broadly, national defense budgets are growing with U.S. spending expected to grow low-single digits and international spending up mid-single digits. Our defense customers’ ask of us is clear, support their readiness while delivering more and more predictably. Turning to our first quarter results. Orders were up 34%, underscoring strong demand and the quality of our franchisees with defense book-to-bill of 1.1x. Revenue grew 18%. Defense unit deliveries grew by 45 engines on an easier compare. This combined with pricing and growth in classified programs, increased Defense & Systems revenue by 17%. Propulsion and Additive Technologies grew 19%, primarily from growth at Avio and Unison to support GEnx and LEAP. Profit was $250 million, up 26%, with margins expanding 80 basis points. Volume and pricing, net of inflation, more than offset investments and defense equipment mix. In all, improved delivery and pricing drove strong revenue and profit growth this quarter. Given our solid start and constructive outlook for rest of the year, we are raising our full year profit and cash guidance, as outlined on Slide 11. We continue to project at least low-double digit revenue growth. In CES, we still expect revenue growth of mid to high teens. In services, we continue to expect mid-teens revenue growth with shop visit output growing faster than spare part sales. We are anticipating reduced LEAP output in the range of 10% to 15% growth, but continue to expect overall equipment revenue growth of high-teens from improving widebody mix. In DPT, we continue to expect mid to high single-digit revenue growth, primarily driven by equipment growth. Operating profit is now expected to be in a range of $6.2 billion to $6.6 billion, up from $6 billion to $6.5 billion previously. CES operating profit guidance is now expected to be in a range of $6.1 billion to $6.4 billion, up $100 million at the mid-point from favorable revenue dynamics. DPT profit guidance is unchanged. In corporate, we continue to expect cost and eliminations of about $1 billion, including $600 million of corporate expenses and roughly $400 million of eliminations. We now expect margins to expand roughly 50 basis points for the year versus flat previously. Now as a standalone company, we are initiating adjusted EPS in a range of $3.80 to $4.05, up more than 30% year-over-year. This includes first quarter adjusted EPS of approximately $0.92, up more than 40% year-on-year. And on free cash flow, we expect higher profit to flow through to cash, delivering more than $5 billion with conversion well above 100% of net income. Overall, we are encouraged by the strong start and the market environment that gives us confidence to raise our performance expectations for the year. Larry, back to you.

Rahul Ghai:

Thanks, Larry. Steve, I want to personally thank you for your trusted advice and friendship, as I joined the company and as we executed the launches of GE Aerospace and GE Vernova. Your strategic and operating depth and your collaborative style have been instrumental in our transformation. And I know many on this calls and on the calls in the year past are appreciative of your responsiveness to their questions and the work you have done to simplify our financial disclosures while communicating our transformation with clarity and candor. We wish you all the best, and I’ll pass it back to you, in the spirit of making you work till the last day, for questions.

Operator:

[Operator Instructions] Our first question comes from the line of David Strauss with Barclays.

Steve Winoker:

Good morning.

Larry Culp:

Yes. I would say that, that clearly is a change here in the update this morning. Dave and company are going to talk about their rates tomorrow, I’m sure, on their earnings call. So we’ll leave that conversation with them. But rest assured, as we are with all of our customers, we’re well calibrated and aligned with respect to what we need to do, what they need from us as we look forward. But I think all of us, particularly at this moment, before we talk about rates, always come back to make sure we’re doing all that we can on the safety and quality fronts to ensure the best possible performance of our products, both as they’re being manufactured and then in turn, deployed in the field.

Ron Epstein:

Hey, good morning.

Ron Epstein:

If you could talk a little bit about the orders. I mean, they’re up pretty spectacularly. Commercial Engines and Services up 78%. Defense, Propulsion and Technologies, up 72%. How much is that volume versus pricing?

Operator:

Our next question will come from the line of Sheila Kahyaoglu with Jefferies.

Larry Culp:

Good morning.

Rahul Ghai:

Okay. A couple of things in there, Sheila. Let me start with where you started, which was the 2 points of margin headwind that we had spoken to on the January call and on our Investor Day. So if you go back, we had expected 2 points of margin pressure from LEAP OE ramp, introduction of 9X and the step-up in R&D to support LEAP durability, introduction of 9X and develop the future of flight. Now with the pushout of LEAP volume, that headwind of the 2 points is marginally lower. But now if you step back and look at our overall guide for the year, listen, strong start to the year. We are pleased with where we are. And that has given us confidence to raise guidance for the full year and we expect the momentum to fully continue as we get into the second quarter. And overall, for first half, we are expecting about low double-digit revenue growth and about half of profit and free cash for the year, so far more linear year than we’ve done in the past. And overall, as you step back and look at the full year, profit up $150 million at the midpoint of our guide to a range of $6.2 billion to $6.6 billion, call it, mid-teens profit growth and more than 30% EPS growth. So it will be a good year if you deliver these numbers.

Myles Walton:

Thanks. Good morning and good luck, Steve. If I adjust CES for the $200 million long-term contract adjustment, the CES margins are up like 250 basis points year-on-year despite this OE growth at 2x aftermarket growth. And I hear what you’re saying, a roll on the spares exceeding shop visits. But is there anything else under the surface that really explains that kind of counterintuitive margin expansion?

Operator:

Our next question will come from Robert Stallard with Vertical Research.

Larry Culp:

Good morning.

Larry Culp:

Well, I would say that we do see, I think, some knock-on positive effects in the aftermarket, both here in 2024, but also in some of our projections. I think it was just even last month at Investor Day, we talked about how retirements have been lower than we would have anticipated, thus that should yield 200 incremental shop visits in 2024 relative to what we anticipated. I think as long as capacity demand remains strong, I get a report every morning at 6 a.m. this morning showed our departures on a worldwide basis across all of our platforms up 7.8%, right? That’s part of what Rahul alluded to in our prepared remarks with respect to our more optimistic outlook with respect to passenger demand. We know the airlines are looking to generate as much lift as they possibly can. And to the extent that they're paced by deliveries, retirements will slow. And that installed base will be worked. Unfortunately, much of that came from our factories, and we're well positioned to support that. Does that push out the timing of perhaps peak CFM56? Yes. But it's early, right? And I don't think we're going to try today to take a quarter in that timeframe as to when that might occur. But it's a positive dynamic for us in the aftermarket, both with existing platforms and increasingly with the LEAP.

Seth Seifman:

Hey, thanks very much. Good morning everyone and congratulations, Steve, and thanks for all the help. Wanted to ask about shop visit growth and sort of the any challenges around the guidance for the year and the level of visibility that you have, sort of starting off with 3% and needing to get to kind of at least a mid-teens type of number for the year. And that being constrained by various challenges in supply chain and internal productivity and kind of how much confidence you have around that ramp and shop visit growth.

Operator:

Our next question will come from the line of Ken Herbert with RBC Capital Markets.

Steve Winoker:

Thanks, Ken.

Larry Culp:

Well, Ken, you're spot on. We're taking that again to level set everybody from an outlook I had is down mid-singles this year to now a positive low single-digit number. I think there is some influence here from what's happening in the Middle East. But I think we're just seeing a higher demand overall from an air cargo perspective. That will principally course through our wide-body exposure more so than the single aisles. And I don't think we're going to quantify it here, but that's certainly part of what is behind the improved service outlook and thus, the improved overall outlook for the rest of this year.

Operator:

Our next question comes from the line of Gautam Khanna with TD Cowen.

Steve Winoker:

Thanks, Gautam.

Gautam Khanna:

So you guys mentioned the lower LEAP production this year. I assume it’s a function of lower one BOE needs. But I was curious if you could just help us understand how we should think about the LEAP OE versus spares provisioning mix this year versus your prior expectations? And also wondering, given the lower rate on LEAP, are you going to be slowing down some of your LEAP suppliers? Or given the comments you made on the constraints within the supply chain, are you still pushing all these guys to continuously raise production to work as hard as they can?

Rahul Ghai:

So on the spare engine, Gautam, overall, our spare engine ratio came down slightly in the first quarter on a year-over-year basis. And we do expect the full year spare engine ratio to be down as well versus 2023 kind of as we’ve communicated before. So really not a lot of change here from the change that we are making in the LEAP install engine output to translate into spare engines. So we still expect the spare engine ratio to be down year-over-year. And it will be – it will keep coming down over the next couple of years, I would say, on a gradual basis, Gautam, just given where LEAP spare engine has been in the past. So we expect a continued decline here in the spare engine ratio over the next couple of years gradually.

Scott Deuschle:

Hey, good morning.

Rahul Ghai:

Good morning, Scott.

Rahul Ghai:

We do expect, Scott, that as we go through the year, as you go through the decade, I should say, that there will be more T&M contracts. Keep in mind, as Russell spoke at Investor Day, our 2030 target for LEAP is we do about 60% or so of the shop visits between us and Safran, and 40% are done externally. And of that 60%, there will be a mix between CSAs and T&M, but we are actively working to increase the T&M population. Our CBSA partners are standing up there helping us as well. So we would see a migration from CSAs to T&M contracts with about 60% of the shop visits done in-house here between Safran and GE Aerospace, and the remaining 40% being done by our channel partners.

Robert Spingarn:

Good morning.

Robert Spingarn:

Congrats to the team for this new chapter and getting through the spins, and congrats to you, Steve. I wanted to ask you, Larry, about RISE, just to change the topic a little bit, and the potential here to deliver 20% improvement in fuel consumption versus current engines, both air framers appear interested in RISE. And if competing engine OEMs aren't providing an open fan architecture, could we find ourselves in a position where RISE is or CFM is the only engine provider for the next-gen narrow bodies? Or do you think that the need for competition changes that dynamic?

Operator:

Our next question will come from the line of Noah Poponak with Goldman Sachs.

Rahul Ghai:

We can.

Noah Poponak:

Hi. Sorry it cut out on my end. But, good morning everyone and let me add my congratulations to completing the spin. And Steve thanks a lot for all your help getting up to speed.

Noah Poponak:

Rahul, could you spend another minute on the free cash in the quarter and for the full year. If you're going to have any seasonality that looks like the company used to or the industry often does through the year, that number in the first quarter would imply a lot of upside to the five. I know you highlighted working capital, timing, it didn't look like that big of a number in the quarter on an absolute basis. Maybe it's just normally weaker. So yes, I guess how much bigger is the greater sign on the five now than it was before? Or did you just truly have pure timing in the quarter?

Operator:

Our next question will come from the line of Matt Akers with Wells Fargo.

Larry Culp:

Good morning.

Larry Culp:

Well, it really is a broad-based enhancement of our existing domestic footprint. I'm sure you've seen some of the line item details that were publicized locally across the country. I think more than anything, what we wanted to do was make sure we were supporting the fixed capital investments required to operationalize FLIGHT DECK to prepare for the capacity expansions and in some instances, be it additive or in some other technologies like CMCs that we were getting out ahead of demand to the fullest extent possible. Again, back to the reality of the skylines we talked about earlier. So that's what we'll do. That's kind of the announcement that we made here recently. I'm sure there will be follow-on announcements as we continue to invest. But the most important investments, I think we make are those that we make in our people. And much of what we do from a training development perspective, especially, vis-à-vis, FLIGHT DECK, is really geared toward making sure that the people who come in every day are able to do great work and put those fixed assets to their highest and best use.

Operator:

This question will come from the line of Jason Gursky with Citi.

Rahul Ghai:

We can.

Jason Gursky:

Yes. Okay. Does go quiet right before you're allowed to go on the line. Hey Steve, thanks for all of the help over the last year or so. And Blair, look forward to working with you. I'm sure you're listening in. Larry, a clarification point here and then just a really quick question. On the clarification side of things, I think in your commentary about volume on LEAP during your prepared remarks, you talked a little bit about the supply chain being a bit of a constraint there. So I want to make sure that that's the case in addition to whatever is going on with Boeing. And then on the question side of things, the – just kind of curious how the customer tone is these days on the narrow-body side when with those airlines where you're competing for slots against the Pratt & Whitney engine, whether the tone of those conversations is any more constructive for you in the competitive environment is looking more optimistic for you on head-to-head competition against the Pratt engine. Thanks.

Steve Winoker:

So Larry, any final comments?

Operator:

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

Steve Winoker:

Thanks, Liz. Welcome to GE's fourth quarter 2023 earnings call. I'm joined by Chairman and CEO Larry Culp, and CFO, Rahul Ghai. We are also pleased to have GE Vernova CEO, Scott Strazik here to share additional insights of our performance and business guidance. Many of the statements we're making are forward-looking and based on our best view of the world and our businesses as we see them today. As described in our SEC filings and on our website, those elements may change as the world changes. Over to Larry?

Rahul Ghai:

Thank you, Larry. And good morning, everyone. Turning to slide 4, we will speak to results on an organic basis. We close out the year with another solid quarter. Orders were up across all segments driven by services up 24%, revenue increased 13% with all segments up double digits. Adjusted operating profit was up 20%, supporting margin expansion of 50 basis points driven by volume and price net of inflation. This was partially offset by negative mix from higher equipment and investments in growth. Adjusted EPS was $1.03, up 56%. Free cash flow was $3 billion from stronger earnings and positive working capital largely driven by progress collections, including recent sizable orders. This was partially offset by payables including the actions we have taken to support our suppliers. For the full year, revenue increased 17%. Aerospace and Renewables led the way benefiting from robust demand, better execution and pricing. Services was up 15% and equipment up 19%. Profit, EPs and cash all finished above the high end of our guidance. Adjusted operating profit increased $2.5 billion to $5.7 billion. Adjusted margin expanded by over 300 basis points driven by aerospace growth, sizeable renewables improvement and price across the three businesses, partially offset by inflation on long lead items and investments in growth. Adjusted EPS increased more than $2 supported by strong profit growth and lower interest from debt reduction. Free cash flow was up over $2 billion to $5.2 billion driven by significantly better earnings. In 2023, working capital was a $1.6 billion source of cash from progress collections, partially offset by inventory build, given robust growth and continued supply chain challenges. A moment in corporate. We ended the year with just over $1 billion of cash use and adjusted costs of roughly $460 million. This improved year-over-year due to lower functional expenses and higher interest income. Overall, it represents significant progress since 2021 when costs were $1.2 billion. We are pleased to see digital turn profitable as the team prepares to formally join GE Vernova. Our industry leading software helps utilities, Grid operators and others address the growing complexity of energy transition. And GE Aerospace and GE Vernova are ready to go. The teams are fully staffed and corporate headcount, which was close to 5,000, just a few years ago, stands at less than 200 people who will be with us into second quarter to execute the final spin. This temporary cost in the first half of 2024 is embedded in GE Aerospace’s full year guidance. Stepping back, we are pleased with our performance in 2023. In 2024, on a standalone basis, we expect GE Aerospace and GE Vernova to grow revenue, profit and cash. We will share more on business guidance shortly. Now turning to GE Aerospace, this quarter, demand remained robust with GE and CFM departures growing high teens year-over-year, orders were up 10% with solid services and commercial engine orders. Revenue was up 12% driven by commercial, up 15%. Profit was up 8% benefiting from increased services volume and pricing net of inflation. This was partially offset by unfavorable equipment mix from the expected higher installed and lower spare engine deliveries and higher investments. Reported margins are roughly flat year-over-year and down 70 basis points organically as unfavorable mix and investments offset higher volume and price net of inflation. In Commercial, services revenue was up 23% from higher volume, pricing and heavier work scopes. External spare parts increased with higher LEAP volume and internal shop visits were up slightly. Lean is enabling us to create new capacity to meet higher demand and decrease turnaround time and cost. For example, our MRO team in Prestwick, Scotland, use Lean to remove 76 hours of waste from the engine disassembly process, which will help them to go from servicing 3.5 engines a week to 5 engines a week. Revenue grew 1% with LEAP deliveries up 22% as expected, our mix continued to shift towards install engines. In Defense, book-to-bill was 1x underscoring solid demand and the quality of our franchises. Revenue was down 1% driven by lower services. While equipment grew double digits from higher combat engine deliveries. For the year, revenue was up 22%. Commercial services increased 30% with external spare parts up significantly. And internal shop visits up 10%. Commercial engines grew 21% with total engine deliveries up 25% and spare engine ratio consistent with 2022. Defense grew 7% with book-to-bill of approximately 1.2x for the second consecutive year, and orders were up 9%/ Profit was $6.1 billion increasing over $1 billion or 25% from services growth and pricing net of inflation. This was more than offset negative makes from higher LEAP volume and investments. Margins of 19.2% expanded 90 basis points on a reported basis and 50 basis points on an organic basis. Free cash flow of $5.7 billion increased approximately $800 million with improving earnings and working capital more than offsetting AD&A pressure. Now I'll hand it to Scott who will cover GE Vernova.

Rahul Ghai:

Thanks Scott. With the spin just around the corner. First quarter will be the last time our reporting combined GE results, including GE Aerospace and GE Vernova. For this first quarter, we expect high single digit revenue growth driven by GE Aerospace. Adjusted EPS of $0.60 to $0.65, more than doubling year-over-year, driven by profit improvement and the absence of preferred stock dividend and free cash flow growth in line with net income growth. Our 2024 annual guidance reflects each business operating independently for the full year, incorporating standalone and other impacts that each will incur separately. I'll now hand it over to Scott and Larry to share the overall GE Vernova and GE Aerospace guides. And we will provide further details for both businesses in March. Scott, back to you.

Larry Culp:

At GE Aerospace, we're also excited about 2024. We expect another year of solid revenue growth, at least low double digits, including mid to high teens growth in commercial, which includes high teens growth in engines and mid-teens growth in services. Mid to high single digit growth for defense and systems, including our propulsion and additive technologies business. On our current reporting bases, the guidance implies $6.6 billion to $7.1 billion of operating profit, improving double digits at the midpoint of the range. On a standalone basis, including roughly $600 million of corporate and other standalone cost. This comes to approximately $6 billion to $6.5 billion of profit and applies flat margins year-over-year given the growth in LEAP , initial 9X shipments for the 777X platform and other growth investments. For free cash flow, we expect to generate over $5 billion, which remains well above 100% conversion, including standalone impacts. Our teams are looking forward to sharing additional insights in detail with you at our March Investor Day. In closing, 2023 was an excellent year. GE Aerospace drove double digit growth and GE Vernova delivered substantially better results. Both are on track for continued growth in 2024. While our sights are on the future, we're proud of what we've accomplished with over $100 billion in debt reduction behind us and $7 billion returned to shareholders in 2023, we remain fully focused day in and day out on using lean to improve how we serve our customers and deliver value for shareholders. Underpinning all of this is the GE team. My sincere thanks to all of you for the important work you did in 2023. I've never been more confident in the path ahead. We've created industry leaders that will carry GE’s commitment to innovation and continuous improvement while grounded in vital missions. At GE Aerospace, inventing the future of flight and at GE Vernova, electrifying and decarbonizing the world. We're ready to go. Steve, over to you.

Operator:

[Operator Instructions] Our first question comes from Myles Walton with Wolfe Research.

Larry Culp:

Myles, I think from a from a CES or commercial engine and services perspective. We're going to see engines lead the way, engines will be up high teens plus, I think you're going to see services in the mid-teens area. Specific to your question from a LEAP perspective, what we anticipate right now is a 20% to 25% increase in unit growth, I think we'll see installs get ahead of spares so that spares ratio will begin to moderate, more in line with the historic average of a typical lifecycle. So that's really where we are with respect to the narrowbody specifics you have there.

Joe Ritchie:

Hey, guys, good morning. Still like the end of an era, yea, as I said feels like the end of an era way to go out on a good note. So my one question is for Scott. So Scott, I'm just trying to bridge the free cash flow comments 2023 to ‘24. Clearly you guys have some numbers out on the slides. But the 2023 numbers look like it’s not apples-to-apples, right? Like not burden for corporate, it looks like you're expecting a pretty meaningful pickup in 2024. So maybe just talk to us about the puts and takes and what's embedded in the low and the high end of the guide for ‘24.

Operator:

Our next question will come from the line of Ken Herbert with RBC Capital Markets.

Larry Culp:

Ken, good morning, I think that what we're anticipating on the services side is, in effect, mid-single digit departure growth really being the foundation, we will see I think internal shop visits grow more rapidly, then we're likely to see spare parts, we're going to get pricing benefit, we're going to see work scope improvements. And that's really how you ladder up from that departures number to what we would expect to see in terms of mid-teens, services growth. Rahul?

Operator:

Our next question will come from the line of Julian Mitchell with Barclays.

Rahul Ghai:

Julian, let me just kick it off. And let me start with the second part first and then I'll hand it to Scott on the orders. As you think about the free cash flow guide for Vernova, we will definitely provide more details as Form 10 comes out and then we have the Invested Days but just keep in mind, as we've previously discussed. Vast, vast majority of the GE debt will retain with GE Aerospace. So there's not a lot of interest impact on GE Vernova. So that's the way to think about the free cash flow for next year. More details to come on the capital structure. Scott, do you want to take the orders part?

Operator:

Our next question will come from the line of Sheila Kahyaoglu with Jefferies.

Larry Culp:

Sheila, there's a lot there. I think from a, let's take safety first. I'm strongly of the view that the industry not to speak for the industry. But having been close to this business for almost two years. Everybody understands the fallen responsibility we have the world over, I think from a GE Aerospace perspective is you and I've talked the operating framework, the lean transformation that's been underway here is very much rooted in an SQDC approach to safety, first and foremost, before quality before delivery before cost. And we not only talk that way, we work hard to make sure we operate that way day in and day out. Fortunately, at GE Aerospace, we have a long history of being hyper focused on safety. If you go back, for example, to I think 2013, our safety management system was really the first of its kind, we were the first OEM to implement such a scheme well before the FA required the industry to do so. And we have been building on that. But that approach never assumes perfection, right? So we layer in all sorts of checks and audits, process capabilities to make sure that we're doing all that we possibly can to deliver safety, to deliver quality over time. And that applies in the commercial realm and applies on the defense side ,legacy, platforms, new platforms like LEAP, and 9X. And I'd also say that when we talk about our leadership behaviors of humility and transparency and focus, that really helps undergird all of that work, because if we have an opportunity to improve if we miss something, we want folks to come forward, share that with us. So we get after it get to the root cause and lay in corrective action. So that's really the general approach from 9X perspective. We do know that will be a pressure on us in 2024. We're assuming EIS May of 25 will begin to ship engines in the back half of ‘24. It's really the beginning of the lifecycle for that platform. We're thrilled to be underwing on the 777X. It's an exciting platform. But it will be a financial headwind for us for the foreseeable future as we ramp not only the volumes, but obviously improve the overall cost structure of that business with an eye toward building the installed base and the service annuities that will come over time.

Operator:

Our next question will come from the line of Andrew Obin with Bank of America.

Rahul Ghai:

Sure, Andrew. So if you look at the first quarter guide, Aerospace is going to start the year strong revenue up mid-teens with the commercial growth rates in the first quarter kind of in line with what we are projecting for full year. And the margins on a business as usual kind of pre all the standalone expenses, we do expect margins to be flat to slightly up for the first quarter on a year-over-year basis for Aerospace. For Renewables, as Scott said there will be profit improvement during the year. But that improvement will be more backend loaded. As we start converting the higher margin Onshore wind orders that Scott referenced in his prepared remarks. We start shipping those orders that we got in ‘23 into the second half of 2024. So there's a bit of lag between order to revenue conversion. And so the renewable improvement will be more backend loaded, the first quarter for renewables will look a lot like the fourth quarter for renewables. So think about roughly in the same zone. And for Power, typical seasonality with low single digit growth, some margin expansion year-over-year in the first quarter. But just one other point I want to make on the first quarter is that given the both Vernova and Aerospace themes are fully staffed up to become standalone public companies, and we are operating with a very, very small corporate staff. And the historic corporate expense will now be fully absorbed in the two businesses, and the corporate expense in first quarter will be effectively zero. So majority of that expense going to Aerospace and the balance to Vernova. But the way to think about first quarter margins for both companies is just as we think to after absorption of incremental cost. And just given in line with the reported margin guidance that we provided for full year. So that's the way to think about the first quarter margins.

Seth Seifman:

Hey, thanks very much, and good morning. I don't want to kind of, you've just given us the 2024 guidance. So I apologize for jumping ahead here. But when we think about the margin cadence in Aerospace, apples to apples kind of flattish as we go from ‘23 to ‘24. When you think about going to kind of the 20 percentage that you talked about, for ‘25. How do we think about the key drivers as we bridge that?

Operator:

Our next question will come from the line of Andrew Kaplowitz with Citi Group.

Scott Strazik:

Andy, you bet. I mean, if we go back to our original guide in ‘24 going back to March, I mean, we're largely in line with the expectations there. But if we take a step back, Gas Power stronger than our expectations in March. Onshore Wind and Grid are both stronger. And to your point, we talked today about Onshore wind being high single digit margins in ‘24 and Grid being mid-single digit margins. Now, Gas has already gotten to low double digit margins, and will continue to accrete, but Offshore is tougher than where we were in March. And that's challenging a little bit of that strength in our three largest businesses with Gas, Grid and Onshore representing about 80% of our revenue today. But also taking into account that tough Offshore backlog, we've got two more years to execute through that. So when you think about our three largest businesses continuing to be stronger than where we were, while we really reduce our Offshore backlog from $6 billion to approximately $4 billion and approximately two years to go. We see a clear pathway in ‘24 to accrete margin. But also then to continue to accrete our margin beyond as we liquidate the rest of the top economics with Offshore in ‘25. And then find the oxygen to really share with you some of our smaller businesses we don't talk about as much. But you heard Rahul mentioned earlier, the fact that our digital business returned to profitability. And we're really excited about some of those areas like Grid software, that we'll share more with you when we get to March 6. So those really are the key dynamics of ‘23 to ‘24. And looking a little bit further out than even that.

Operator:

This question will come from the line of Scott Deuschle with Deutsche Bank.

Rahul Ghai:

Yes, sure, Scott. So as you look forward to 2024, I think it's going to be another strong year, right? We've guided to $6.5 billion, $6.6 billion to $7.1 billion of profit on a current basis. And then $6 billion to $6.5 billion on a standalone basis. This is often including EH&S, all the public company expenses, including what $100 million to support the wind down of GE corporate office, which will now be with us kind of two second quarter. So this implies about a $750 million of profit growth low double digit at the midpoint of that growth. Margins, we do expect that those margins to be flat about two points of margin pressure that we are expecting more than half a point of that is coming from LEAP OE ramp, introduction of 9X engines and the strong LEAP services growth. And as I said, to set earlier, even though LEAP services are turning profitable, just as we would have expected, it is still negatively impacting the margins. And the rest of that two point headwinds coming from incremental R&D to support improving further improvement in LEAP durability, introduction of 9X and then develop the next generation of products for the future of flight. This margin pressure is completely offset with benefit from volume, productivity due to strong services growth that we're expecting. So overall, again, it's a step that is in line with our expectations that we had laid out for the medium term outlook in March of 2’3. Larry?

Steve Winoker:

Liz, before we wrap, I want to remind folks that GE Aerospace will report GE's first quarter results in late April with GE Vernova holding a separate call, as result like we did with GE Healthcare, we will focus our comments in late April on Aerospace leaving GE Vernova commentary to Scott and his team. Larry, any final comments?

Operator:

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

Steven Winoker:

Thanks, Liz. Welcome to GE's third quarter 2023 earnings call. I'm joined by Chairman and CEO, Larry Culp; and CFO, Rahul Ghai. Some of the statements we're making are forward-looking and based on our best view of the world and our businesses as we see them today. As described in our SEC filings and on our Web site, those elements may change as the world changes. Over to Larry.

Rahul Ghai:

Thank you, Larry. Turning to Slide 4, I'll speak to the quarter on an organic basis. Overall, we delivered meaningful growth across our headline metrics. Orders were up double digits, with services up 15% driven by commercial aerospace and equipment up 22% with growth in all segments. Revenue increased 18% benefiting from strong market demand, improved execution and pricing. Aerospace was led by commercial services and engines. Renewables was led by grid and offshore and power from heavy duty gas turbines and aero derivatives. All segments contributed to adjusted margin expansion of 760 basis points. This included the absence of last year's wind-related charges and the benefits of volume, price, net of inflation and productivity and continued investments in growth. Adjusted EPS was $0.82, up almost $1.00 year-over-year. Excluding last year's wind-related charges, adjusted margin still expanded 400 basis points and EPS was up $0.59, or more than triple what we delivered last year. We generated $1.7 billion of free cash flow, up roughly $1 billion largely driven by earnings. Working capital was a positive $400 million flow, driven by disciplined receivables management while inventory remained inflated due to continued supply chain challenges. Year-to-date, free cash flow was $2.2 billion, up $2.5 billion, reflecting higher earnings, reduced working capital and improved linearity. Switching to corporate. Results improved significantly due to energy financial services gain on sale from investments and higher interest income. Also, as we prepare to reduce costs, as we prepare to become standalone businesses, for the year, we now expect expenses in the $500 million range. At insurance, we completed our annual review of liability cash flow assumptions under the new accounting standard. This resulted in an immaterial adjustment to earnings indicating claims experience is consistent with our models. Given GE Aerospace’s strength and GE Vernova’s improvement, we are raising full year guidance and now expecting revenue growth of low teens, up from low double digits, adjusted EPS of $2.55 to $2.65, up $0.40 at the midpoint, largely from improvement in operating profit that we now expect to be in a range of $5.2 billion to $5.5 billion and free cash flow of $4.7 billion to $5.1 billion, up $550 million at the midpoint largely from higher earnings and lower AD&A outflow. Now spending a moment on each business, starting with GE Aerospace, demand remains robust with GE and CFM departures growing mid teens year-over-year. Orders were up 34% with strong growth in both equipment and services. Revenue was up 25%, led by commercial engines and services up 29% and defense growing 8%. Profit grew over $400 million or more than 30%. Notably, margins expanded 120 basis points to reach 20.4%. Higher services, volume and pricing net of inflation more than offset investments and adverse mix. In our commercial business, services strength continued to drive profit with services revenue up 31% from volume, pricing and heavy work scopes. External spare parts were up more than 35% and internal shop visits grew 2% with supply chain constraints impacting growth. Commercial engines revenue grew 23% with LEAP deliveries up 12% year-over-year. We are now planning for a 40% to 45% increase in LEAP deliveries this year, down from our 50% target at the beginning of the year. We now expect OE revenue to grow low to mid 20s and services revenue to be up mid to high 20s for the year. In defense, book-to-bill remains strong this quarter, again, greater than 1 and 1.3x year-to-date, highlighting the strong demand environment and quality of our franchisees. Revenue grew high single digits with strength in services and Edison works offsetting lower unit deliveries. Based on GE Aerospace's year-to-date strength, we are raising revenue growth to the low 20s and profit to be about $6 billion, up roughly $1.2 billion year-over-year, with free cash flow growth trending better than prior expectations. Moving to GE Vernova. Lean, along with better underwriting, selectivity, and productivity, is delivering stronger results we mentioned earlier at grid and, now, onshore. At renewables, orders grew again, up 3% this quarter and up more than 80% year-to-date to nearly $18 billion. Grid orders increased over 50% this quarter. And while primarily in equipment business today, we are starting to grow grid services that was up double digits this quarter. In onshore, North American equipment orders for the quarter were up nearly 40% and, year-to-date, are up more than 2.5x over prior year. The IRA continues to be transformative, establishing multiyear U.S. demand visibility for future growth. Internationally, onshore orders were down meaningfully, but at better margins consistent with our strategy of greater selectivity. Revenue grew 14%. Grid increased with double-digit growth at each business. At onshore, North American equipment growth was more than offset by lower repower and international equipment. At offshore, revenue more than tripled year-over-year and grew sequentially with higher nacelle output. Profit improved from our turnaround efforts. Excluding last year's elevated reserve, renewables margin still expanded roughly 600 basis points, driven by continued price and productivity. Onshore and grid margins expanded due to price and productivity, and grid margins also benefited from additional volume. For the year, renewables now expects low double-digit revenue growth. We are maintaining the guidance for significantly better year-over-year profit with onshore and grid improvement more than offsetting the offshore pressure. Turning to power. We delivered solid year-over-year revenue growth and margin expansion with seasonally lower outages. Equipment orders grew slightly as higher heavy-duty gas turbines more than offset lower aeroderivative units. Services declined slightly as high single-digit growth in gas transactional services was offset by aeroderivative and steam services. For the year, we still expect total services orders to grow low single digits. Revenue grew 9%, largely on price and higher scope on heavy-duty gas turbine and aeroderivative equipment. Services grew again, up low single digits. Profit grew roughly 60% with 200 basis points of margin expansion, driven by higher volume, pricing, and productivity, which more than offset inflation pressure. Year-to-date, power orders have grown low single digits, revenue mid-single digits and margins have expanded over 100 basis points. This was led by services, including higher gas utilization, up low single digits, benefiting from a continued coal to gas switching. We also shipped nine HA units this year and now have more than 47 gigawatts of installed capacity, continuing to extend our HA services billings to $1 billion by mid 2020s. In the fourth quarter, power is well positioned for sequential profit growth from seasonally higher services volume. For the year, power continues to expect low single-digit revenue growth with better year-over-year profit. Taken together, for GE Vernova, we are now expecting high single-digit revenue growth and profit improvement of over $800 million year-over-year at the midpoint. We are raising the low end of our profit guidance driven by both renewables and power and now expect negative $300 million to negative $100 million of operating profit, as we continue to expect flat to slightly improved free cash flow. Overall, we are really encouraged proving with grid and onshore that we can deliver better results. This, combined with power's continued strong performance, will drive meaningful profit and cash flow improvement at GE Vernova next year. And with that, let me turn it back to Larry.

Steven Winoker:

Before we open the line, I'd ask everyone in the queue to consider your fellow analysts and ask one question so we can get to as many people as possible. Liz, please open the line.

Scott Deuschle:

Good morning.

Scott Deuschle:

Rahul, is the lower LEAP delivery guide a function of softer narrow-body deliveries at the airframers or is this more related to challenges to your own production ramp-up? And then how should we think about the impact to 2024? Thank you.

Operator:

Our next question comes from the line of Nigel Coe with Wolfe Research.

Larry Culp:

Good morning, Nigel.

Larry Culp:

I would say, Nigel, that we're really pleased overall with renewables. Again, with onshore turning profitable in the quarter, with grid now profitable two quarters in a row with the prospect of being profitable, I think for the full year, that's really I think sets us up very well. But offshore will be difficult. That's what's behind those underlying numbers for this year and for next. I do think we're making the operational progress that we talked about, both the 6 megawatts and the new projects with Dogger Bank and with Vineyard. But it is a problematic financial profile. We'll work our way through the $6 billion backlog over the next couple of years as we indicated. I think with the progress and the momentum we've got in grid and with onshore, with power as well, we've got -- we should deliver sequential improvement in profitability from here. But offshore will be difficult. I think what we're encouraged by though is that the application of what we've done in the other businesses around selectivity is really relevant here. We know the industry is ready for a reset. You've seen that in the comments from a number of folks in New York State over the last couple of weeks as well. So we think we can make a much better business with offshore wind, but we're staring at some challenges that we need to address here in the fourth quarter and in '24 for sure.

Seth Seifman:

Good morning, everyone.

Larry Culp:

Good morning.

Rahul Ghai:

Yes. So let's start with the second part of the question first, Seth, and we'll go back to where you started. So on the spare part revenue, spare part revenue was up about 35% or more than 35% this quarter. I would say three main things; volume, pricing, and increased work scope. Volume growth continues from mid teens departures in the quarter and then stronger departure growth in the first half, which leads to volume in the third quarter. And also keep in mind that it's less of a challenge to kind of ship spare parts versus completing a shop visit or an engine, so that also helps with shipping spare parts when the volume is strong. The second part I would say going back to pricing, we implemented a high single digit price increase this quarter. Now we had pulled forward the price increase from the fourth quarter to the third quarter, so we got a couple of months of incremental price in the quarter. And then combine that with what Larry has been pushing for the last 12 to 18 months is just very, very strong pricing discipline. So it's not just about implementing a price increase, it's also about managing the implementation of that price increase. So I think we're doing a better job of that. The last thing I would say is the work scopes have been heavier, both on the narrow-bodies and on the wide-bodies. So wide-bodies, they're coming back to kind of second shop visits. Narrow-bodies is primarily a phenomena of customers kind of trying to constrain spending in challenging times, especially in China last year. So now as they are a little bit more cash with departures growing, they are -- the work scopes are increasing. So I would say those are the three main levers of higher spare parts growth in the quarter, which was more than 35%. I would not attribute any of that to pre-CLP buy. Now as you look forward to the first part of your question between spare parts growth and shop visits, spare parts I would say are strong. We expect a mid-20s growth in the fourth quarter which will be in line with where the departures are. Shop visits I think for the year, we're in that kind of low teens to mid teens category. I think that's what we are thinking right now given how challenging supply chain has been and shop visits were up a couple of points in the third quarter. So we think for the year, we're kind of in the low teens to mid teens range.

Julian Mitchell:

Hi. Good morning.

Julian Mitchell:

Good morning. Maybe just my question around renewables and sort of fully understand the offshore backlog, but maybe just wanted to focus on a couple of other things. One was are you seeing any shift in the kind of new orders on new equipment orders picture in renewables just because it seems a tougher environment for project development and financing in general across different industries, just wondered if your perspective on that had changed for the coming quarters. And sort of allied to that, because of the working capital dynamics of renewables with customer advances and so on, any thoughts around sort of what level of cash balance Vernova should have upon spin and sort of any mix of GE versus external financing for that or funding for that cash balance?

Rahul Ghai:

And just to add to that, Julian, not only is the demand environment good, but as Larry kind of mentioned in his prepared remarks, we are seeing better pricing and the selectivity to strategy that Scott, Larry, Vic, or everybody has been pushing come through. Our grid backlog margins were up about three points and onshore backlog margins were up about seven points in the quarter. So that should obviously help through the turnaround efforts in 2024. So strong demand environment, good pricing on the renewables orders. Now switching to your second question on the cash balance, first and foremost, we do expect both Vernova and Aerospace to be investment grade at spin, right? So that's kind of priority number one. And as we announced back in September that we do expect that Vernova will spin in a net cash position. So we're working through our framework on exactly what that number looks like. Obviously, what we want to do is we want to make sure that both companies have enough operating cash at the time of spin. In addition, what will also happen is as you probably noticed in our 10-Q, we have about $2 billion of restricted cash. And most of that is with Vernova right now as we think about where that cash balance is. So as we think about the cash balance at spin, it will be the restricted cash for both businesses plus the operating needs of that business. And there's enough cash on the balance sheet at GE to make sure that this happens, and we definitely don't need to tap into any external markets to make sure that both companies have enough cash at spin. And we'll give you an update as we get closer to spin.

Sheila Kahyaoglu:

Thank you. Good morning, Larry and Rahul.

Sheila Kahyaoglu:

And Steve. Maybe if I could ask about aerospace margins. Same as last quarter, very good, 19.4 year-to-date, above 20% in the quarter, just help lift the guide up, which still implies a sequential step down in Q4. So the OE mix headwind with the 450 bps in the fourth quarter to hit the 1,650 is I guess a lot of it. Do you still expect 250 basis points of OE headwind this year? How does that filter into '24 and the breakeven by '26? Thank you.

Operator:

Our next question comes from the line of Deane Dray with RBC Capital Markets.

Larry Culp:

Good morning, Deane.

Larry Culp:

Deane, thanks for noticing, right, to be up $1 billion in the quarter year-over-year; to be at, what, 2.2 here year-to-date, this was the time of the year in years past where we were kind of holding our breath waiting for all the cash flow in the year to come in, in the fourth quarter. I think what you see again is a much more linear approach to running the business coupled with obviously steady demand through the course of the year, both at Aero and across Vernova. So much of what we've tried to do in moving away operationally from the year end dynamics, let alone the quarter end dynamics, I think has borne some fruit. But we are far from I'll say a perfectly level loaded business at both Aerospace and Vernova. But we know as we continue to make progress, there will not only be the positive cash effects that you're pointing at. But frankly, there's a lot of cost we think we can pull out over time as well as we drive greater linearity and have less month end, quarter end, year-end sprints, which we know we can do, but we rarely do efficiently.

Operator:

Our next question comes from the line of Andy Kaplowitz with Citigroup.

Larry Culp:

Good morning, Andy.

Larry Culp:

Well, Andy, I would say that we have made some progress, but we are far from satisfied. You clearly saw the high single digit growth in the quarter and now year-to-date. I think we'll be in that zone for the year. But the supply chain challenges that we've talked about, which has made some of our equipment shipments somewhat lumpy, both with respect to our internal process yields and our material availability from our suppliers, is still job one in this business, right? I think if you look at what we've done inside of our own shops, we're really encouraged by the process improvements that we've been able to lay in. If you look at some of the delays that are a function of quality internally in the third quarter, we were at our lowest level in the last two years. Still plenty to do, but that's a lot of progress. We're adding capacity, not only in production, but in our test cells, particularly up the road here in Lynn. And we have put even more people into the field with the supply base. Rahul mentioned earlier some of the delays that we have seen in terms of on-time performance by our suppliers. And that covers an array of commodities, be it just general raw materials, castings, forgings, valves, and the like, there's a lot of work to do to create that flow that Deane and I were talking about a moment ago. I think in terms of the top line environment, again, really encouraged by the progress that we're seeing with FARA. I think we are heartened by what the Congress is poised to do with respect to continuing to support the XA100. And we know as we look forward, just given the dynamics in the world, there's going to be plenty of opportunity for us, both on rotorcraft and in combat, to continue to grow this business. And it's a business we don't talk a lot about. It may be a bit overshadowed by commercial. But that's not the way we're operating today. And I think as we get ready for the Vernova spin, there'll be more time and attention paid externally on defense, and I think the team is very much looking forward to that. We're doing a lot of good work, plenty of opportunities, but we need to execute better. And again, we need our suppliers hand in hand in that effort.

Jeffrey Sprague:

Thank you. Good morning, everyone.

Jeffrey Sprague:

Good morning. Could we just talk a little bit more about cash flow and kind of what you're thinking into next year? The spear to my question, Larry or Rahul, is we're still dealing with kind of a sizable difference between actual free cash flow and adjusted free cash flow. I think some of this is warranty and other things working through the system. Can you just elaborate a little bit on the factors in the disconnect and can we get to maybe a normalization of these factors as we think about the independent companies in 2024?

Operator:

Our next question comes from the line of Andrew Obin with Bank of America.

Larry Culp:

Good morning.

Larry Culp:

With respect to onshore, Andrew?

Larry Culp:

I would say that when you look at the backlog that we have and with what's in the sales pipeline, I wouldn't say that we are sold out, but there is a limit to what we're going to be able to deliver in '24 and '25. And I think our customers are mindful of that. It's a little bit why we have seen, I think, the level of activity thus far this year with an eye to not only deliveries this year, but '24 and '25. I'm always hesitant, Andrew, to talk about capacity, particularly in a business like this as truly being fixed because there's so much underlying process improvement that can unleash capacity. It's not strictly a function of, if you will, fixed capital investments that we've made. Not that we would be averse to that, but I think we wanted to really pare down the overall cost structure, not strictly an effort focused on manufacturing capacity and really put ourselves in position to grow off a lower cost base, do that in ways that will allow delivery to be an advantage and then gradually, smartly add any fixed capital that we might need. If you look at the underlying performance that the onshore wind team has delivered here in the third quarter, will deliver in the fourth quarter, I think it's poised to deliver in '24 and beyond, you see all that coming home, which we're pleased to see, of course.

Operator:

Our next question comes from the line of Joe Ritchie with Goldman Sachs.

Larry Culp:

Hi, Joe.

Larry Culp:

Sure. I think to your first question, Joe, the answer is pretty simple. Yes, we should be in a position to bring forward Vernova ahead of our typical earnings announcement timeframe early in the second quarter. I would say with respect to onshore wind, again, a lot of improvement. It will be a profitable second half, not unfortunately a profitable full year. We've got a shot at doing that at grid, as I mentioned earlier. But I think as we look at '24 in onshore, we should be in the low single digit range with obviously the intention as we go through the budget cycle here in November and December to see if we can put together a credible plan to do better. But that's the way I would think about it just given the back half momentum that we'll have entering into next year.

Larry Culp:

And, Joe, just to make sure we're clear about the shipments, the progress that you're seeing at Dogger Bank and Vineyard, operationally, I think we're pleased to see that. I know our customers are to see those initial installations and the initial generation of power. However, right, that progress is what triggers the revenue recognition, which in turn carries the losses. So that's a little bit of what is operationally encouraging, but financially difficult to work our way through. So just wanted to clarify that point.

Operator:

The next question comes from the line of Chris Snyder with UBS.

Rahul Ghai:

So, you're right. There's lots of really good stuff happening in the company. Price is clearly a positive for us. It was a positive -- we were price-cost positive in '22 in Aerospace. We'll be price-cost positive in '23 in Aerospace. Not at the -- not only at the overall company level, but even at commercial and at defense. So that -- the business is doing really well on kind of getting the price increases and managing the inflation. We've made progress on productivity as well. So that's the other part. Not to the extent that we would have liked, but it is progress. And we are encouraged by even the underlying progress on productivity that is currently sitting in our inventory numbers that will roll through next year. So there is positive momentum on productivity. So all that is a positive. And as you think about kind of the 20% margin number for 2025, obviously, that's still -- we're still at the end of 2023. So it's a couple of years away. But as you think about where we're going to end the year to 2025, we're going to end the year, call it, at $6 billion of profit. We said between, call it, between $7.6 billion and $8 billion of profit for 2025. So we still have a 1 billion-ish of profit growth every year between '24 and '25. So that's a mid-teens profit growth, which is pretty good. And the benefits of volume, price, productivity will be partially offset by this LEAP headwind that we spoke about. We start shipping 9x as well. So, 9x, that's going to create some incremental pressure. And then we'll continue to invest in R&D. So that's the construct to get to the 20% margins.

Larry Culp:

Steve, thank you. Just to close, appreciate everybody's time today. Obviously, very strong performance so far this year. A lot of progress toward the launches of both GE Aerospace and GE Vernova. And frankly, I've never been more confident in our company's future. We appreciate your time today and your investment and support of our company.

Steven Winoker:

Thanks, Liz. Welcome to GE's second quarter 2023 earnings call. I'm joined by Chairman and CEO, Larry Culp; and CFO, Carolina Dybeck Happe. GE Aerospace CFO Rahul Ghai will also assume the role of GE’s CFO in September will join us for Q&A. Some of the statements we're making are forward-looking and based on our best view of the world and our businesses as we see them today. As described in our SEC filings and on our website, those elements may change as the world changes. Over to Larry.

Carolina Happe:

Thanks, Larry. It's truly an honor to be part of GE’s ambitious transformation. And I'm incredibly proud of the work this team has done to build lasting value. And a special thank you to our finest ambitious teams for their extraordinary efforts. Now turning to slide 3, which I'll speak to on an organic basis. In the second quarter, we delivered double-digit growth across all headline metrics. Orders increased 58% up in all segments, equipment was up significantly led by renewable. This includes two large HVDC projects with Tennet at Grid and higher margin orders at U.S. Onshore Wind. Aerospace is also up with solid defense engine orders. Services was up 21%, the growth in all segments largely driven by commercial Aerospace strength. Revenue increased 19% with both equipment and services up. Also here, Aerospace led the way as lead engine deliveries nearly doubled and services grew. Renewables also grew led by Onshore Wind and Grid with improved pricing. Adjusted margin expanded 160 basis points driven by volume, price and productivity. This was partially offset by mix inflation and investment. Taken together adjusted EPS was $0.68 nearly double what we delivered last year, driven by profit growth in all segments and meaningful deleveraging. Free cash flow was $415 million more than double what we delivered last year, driven by earnings growth. Looking at the flows, we reduced working capital from the first quarter, given the sequential revenue growth and preparation for large second half deliveries, receivables and inventory were use of cash. This was more than offset by progress payments and contract assets utilization driven billings. At both GE Aerospace and GE Vernova we’re implementing weekly cash management and already seeing some linear progress. Importantly, our first half free cash flow underscores these efforts up $1.5 billion year-over-year. This includes $0.5 billion lower working capital than in 2022. Now a moment on corporate. Adjusted costs were up year-over-year primarily driven by non-repeat of 2022 timing benefits. We’re preparing for standalone cost structures with functional headcount down 10% year-to-date. And for the year, we continue to expect expenses in the $600 million range. We also continue to simplify and strengthen the business foundations prior to the launches of GE Aerospace and GE Vernova. This quarter, we partially monetized our GE Healthcare stake, and today we announced that we will call the remainder of the outstanding GE Preferred Stock in September, further simplifying our balance sheet and reducing financing costs. And we took action to reduce our exposure to legacy liabilities. As we have disclosed for some time, our runoff Polish mortgage portfolio, Bank BPH, has been subject to ongoing litigation along with other Polish banks. We approved the adoption of a settlement program and associated with that we recorded a charge of $1 billion in discontinued operations. Importantly, no incremental cash contributions from GE are required in connection with the charge as the current cash balances of Bank BPH are adequate. Overall, we're very pleased with our spin progress and first half, which includes adjusted EPS up more than three times compared to a year ago. So given the strength of GE Aerospace, and the improvement at GE Vernova, for the full year, we're now expecting revenue growth in the low double digit range up from high single digits. $2.10 to $2.30 of adjusted EPS, up from $1.70 to $2 and that includes 4.7 billion to 5.1 billion of operating profit. And finally, we now guide for a range of $4.1 billion to $4.6 billion for free cash flow up from $3.6 billion to $4.2 billion. And on that happy note, back to you Larry.

Steven Winoker:

Thanks Larry. Before we open the line I'd ask everyone in the queue to consider your fellow analysts and ask one question so we can get to as many people as possible. Liz, please open the line.

Sheila Kahyaoglu:

Good morning everyone. Thank you. I want to ask about Aerospace profitability. When we look at year-to-date margins for the first half, Aero margins are 18.9% and the full year implied guidance is 18.5%. So what are the dynamics of contraction in the second half given the commentary in the release prior was -- the commentary in your release is good market strength, efficiencies are coming through, you've shipped 46% of the LEAP in H1, slightly ahead of your prior expectation of sequential improvement for the year? So what happened that margins contracted in the second half?

Rahul Ghai:

Yes, thanks Larry, morning Sheila. So you know first let me just go back to how good the second quarter was which you referenced, we had 28% organic growth. Commercial engines up more than 50%, service continuing a really strong run with 30% plus growth. Defense recovering as Larry said in his remarks to be up double digit on revenue growth for the first half. And profit was up more than 30% year-over-year with margin expansion. And the quarter was better than what we had expected going back all the way to April. So but more importantly as we looked at the quarter it gave us the confidence to raise the full year. And our profit is up $1 billion for the year at the midpoint of the guide with the year-over-year margin expansion. So that's a positive change as well. And relative to April we're raising the full year profit by about $250 million at the midpoint of the guide with about $400 million of revenue increase. So that's about a 60% incremental drop through and that is happening even though most of the revenue increase in our guide is coming from commercial OE as we are raising the commercial OE outlook from approximately 20 to mid-to-high 20s. So the business is doing better on execution and the improvement in the spare parts growth is helping as well. Now to your question on the sequential view between first half and second half, the key driver of the sequential growth is commercial -- is coming from commercial OE, which is up probably 60% between first half, second half. And that's the reversal of what we saw last year. Last year, most of the first half and the second half growth was coming from commercial services. And within commercial OE, there is a spare installs dynamic happening as well, with installs being as a percentage of total shipments, increasing as we get into the second half of the year. So that's why you're seeing a sequential step down in margin. But again, it's going to be a really good year. We're going to expand margins and grow profit about $1 billion for the year.

Andrew Obin:

Oh, yes. Good morning. I'll stay in the Power lane, given that there are more illustrious analysts now covering the stock. Offshore, interestingly, you noted favorable year-over-year orders in offshore, and I thought the commentary was that you were not looking at offshore orders. And also if you could comment on the industry dynamic because it seems that folks are pulling out of offshore as the overall pricing dynamic is not favorable. So people are pulling away from contracts. So more color on offshore would be great. And great quarter. Thank you.

Operator:

Our next question comes from the line of Seth Seifman with JPMorgan.

Rahul Ghai:

So let me start with the first question on pricing Seth. So again, I think the price continues to be a positive driver in terms of earnings growth across both defense and commercial. And we are price cost positive both in the quarter and expect to be price cost positive for the year. So the trends continue to be good, and that is similar to what we saw last year. So really no change in terms of how we are driving incremental pricing to cover the inflation that we are feeling in the business. Now, in terms of our spare part sales, yes, the spare part sales you are right, I mean, it was really good, really good growth in the quarter, more than 40%. And I would say three large drivers of the spare part growth. First, the price increases that we just spoke about, but it is just not the increase, it is also the discipline with which we are driving the business so that we are making sure that we are extracting the most out of the price increases that we are putting in place. The second was the customer mix was favorable as well. So, that helped drive spare part sales. And the third I would say is if you go to back to 2022, China was really weak last year, especially in the second and third quarters because of the shutdown in China. So, the year-over-year growth trends were helped by a weak compare in the second quarter in China. Now, that dynamic is going to shift a little bit as we get into the second half of the year, because if you recall, China came back really strongly in the fourth quarter to get ready for the reopening in first quarter. So, that’s going to impact our spare part growth in the second half of the year on a year-on-year basis. So, overall, I think we’re really pleased with how spare parts are trending, good growth in the quarter and expect continued growth of the second half of the year on a year-over-year basis although at a slower rate.

Julian Mitchell:

Hi, good morning. Maybe I just wanted to focus on the renewables business. I guess you had a very strong revenue uplift but the sort of incremental perhaps, if we're looking sequentially or year-on-year were not particularly strong, so maybe help us kind of pause that out in terms of maybe it's offshore losses getting a lot wider. And that's offsetting better incrementals, maybe at that Onshore and Grid, maybe just talk through some of those dynamics. And then as we're thinking about the second half for renewables and the sort of entry rates into 2024. How do we think about the losses narrowing, is it sort of linear or there's a step function sometime next year, because of offshore mix or something?

Rahul Ghai:

So just to add to into what Larry just said, so if you look at Vernova we are raising both revenue and profit guidance for the year, about $250 million of the profit raises from midpoint. And it's coming both with power and renewables contributing to the race. About a third of that is from the second quarter performance in power, driven by the strength of the services business and about two thirds from renewables in the second half of 2023, with improvement in both Onshore and Grid, Onshore mainly because of the backlog, margins improving and in Grid from volume and productivity. So good progress in both businesses year-over-year and on a sequential basis.

Robert Spingarn:

Morning, everyone.

Robert Spingarn:

Larry, maybe on the product development side, perhaps a little high level. But Airbus has said that an A220-500 is a matter of when and not if. And they've also openly talked about the desire to add a second engine to the family. And so given that, that aircraft would directly compete against the MAX 8, do you feel the need to get the LEAP-1B on to the A220 family?

Operator:

Our next question comes from a line of Deane Dray with RBC Capital Markets.

Larry Culp:

Good morning, Deane.

Carolina Happe:

Thank you Deane.

Larry Culp:

Dean, we should have mentioned that earlier. Thanks for asking me about that. Part of what we've tried to do, in addition to our selectivity effort in terms of the types of opportunities that we pursue, is also make sure that, frankly, we are driving more standardized offerings. I would say that we are seeing probably more in the order book than in the P&L today the positive effect of that. I'd also say coupled with that is just a, frankly, a more conservative forward estimation of cost and that that will play out over time. We'll see how conservative those estimates are. But I know that the team for the last several quarters is really not that too far into the future. These will be the cost position that we anticipate having when we deliver on this growing backlog. So you put all that together, in addition to the quality improvement that we put across the sharply reduced cost structure that we have in the business. I think that's why we've got particularly an Onshore Wind, the optimism we do about the back half, and profitability in 2024.

Jeffrey Sprague:

Thank you. Good morning, everyone.

Jeffrey Sprague:

Hey, good morning, hey, just to follow up on renewables maybe just love to get your thoughts on the trajectory of free cash flow, kind of stuck with the same language, right flat to improving, but I'm wondering if inside that, given the better trajectory of profitability, apparently, and what looks like some decent orders that should be coming with deposits attached if in fact, the free cash flow outlook for renewables has improved for the year. And if you have anything to share about how you'd view 2024 playing out? Thank you.

Operator:

Our next question comes from Nigel Coe with Wolfe Research.

Larry Culp:

Yes, so on Poland, Nigel, I didn't fully follow your third quarter question. So let's come back to that. But let me start with Poland. So we've been working to simplify the legacy liabilities. And it's a meaningful step forward in that direction prior to spend. We're approving a settlement program. And that significantly reduces our exposure to future losses. And as Carolina said in her prepared remarks, there's no incremental GE cash from taking this reserve, as the bank has adequate cash balances. So we feel good to get this as much as we can behind us, obviously, the situation is revolving. But at this point, it's a really good step forward as we clean up and simplify all the legacy liabilities.

Larry Culp:

Yes. So on third quarter, expect high single-digit revenue growth in the quarter and then EPS range of about $0.45 to $0.55 with sequential profit growth in both Aerospace and in Renewables. And we will see a pretty strong growth in Power in the third quarter on profit, and expect the margins to go up 3 to 4 points on Power. And if you look at the EPS that we're providing, the range that we're providing of $0.45 to $0.55, that's about 2x what we did last year even if we exclude the charge. So it's a significant improvement from that. And for Aerospace, going back all the way to prior questions, profit will be up sequentially, but the margin rates could be down slightly given the majority of the first half to second half increase is coming from commercial OE. And then Renewables will continue to see sequential improvements, given Onshore Wind and Grid performance. And then as I said, Power, given the outage activity in the third quarter, we do expect good improvement there and free cash. And the free cash kind of flat to up slightly in the quarter with earnings growth and working capital reduction offsetting the D&A headwind.

Andrew Kaplowitz:

Good morning everyone, Carolina, thanks for your help. Could you give us some little more color into the improvement you're seeing in your defense business, you talked about orders more than doubling revenue was up 31%. This defense growth and profitability really turned the corner for you guys. And how do we think about its contribution to growth and margin over the next couple of quarters and into ‘24? I know you said that you spent at least high single digit growth or defense but this GE Defense now have an extended runway for growth?

Rahul Ghai:

No, Larry, I think you covered it. I think it's good to see the recovery happening in the second half -- in the second quarter kind of puts us back on track for the full year. And we're seeing good demand and good improvement in year-over-year delivery. So we expect a good half in the back half of the year.

Joseph Ritchie:

Hey good morning guys and Carolina thank you for all the help throughout the years.

Joseph Ritchie:

So really my question -- well, congrats on all the progress you're making, cleaning up the balance sheet with the pref redemption, the Polish mortgage announcement today. I'm just curious from this point forward, how are you thinking about capital allocation pre-spend? And then any color that you can give us on just the progress of the spend? I know you said early 2024, but just any other hurdles that you see from here to there.

Steven Winoker:

Liz, we have time for one last quick question.

Christopher Snyder:

I appreciate the time. So I want to ask on renewables. Revenue was up 12% in the first half of the year. And with the full year guidance calling for high single-digit revenue growth, it's I guess implying like a fall down to low singles in the back half of the year. Can you just maybe talk about what's driving that? Because it doesn't seem to jive with orders up well over 100% for the first half. Thank you.

Steven Winoker:

Thanks, Rahul. Larry, any final comment?

Operator:

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

Steven Winoker:

Thanks, Liz. Welcome to GE's first quarter 2023 earnings call. I'm joined by Chairman and CEO, Larry Culp; and CFO, Carolina Happe. Some of the statements we're making are forward-looking and based on our best view of the world and our businesses as we see them today. As described in our SEC filings and on our website, those elements may change as the world changes. As a reminder, similar to our fourth quarter call, our remarks will be brief today, reflecting the company we are now and we'll move more quickly to Q&A. Over to Larry.

Carolina Happe:

Thanks, Larry. Turning to Slide 3, which I'll speak to on an organic basis. In the first quarter, top line momentum was strong with robust market demand and execution driving growth. Orders increased 26%, all segments up. Equipment was up significantly led by renewables, almost doubling its order intake. Notably, grid booked 2 large HVDC orders with Tenet and U.S. Onshore Wind is seeing the initial positive impact of the Inflation Reduction Act, including higher margin orders. Services was up 12%, largely driven by commercial aerospace activity. Revenue also increased double digits with strength in both equipment and services. Aerospace was a significant driver with substantial LEAP engine deliveries and shop visit growth, and we're encouraged by equipment growth in other areas such as Gas Power and Grid. Adjusted margin expanded 330 basis points, driven by services volume, price outpacing inflation and productivity. Together, doubling operating profit and debt reduction drove substantial accretion to adjusted EPS, up $0.36 year-over-year. Free cash flow was $102 million, positive. Importantly, it was up $1.3 billion year-over-year with half of the improvement from earnings and half from working capital. From a flow perspective, this was driven by higher earnings and some AD&A timing, partially offset by working capital as we build inventory to support second half growth. In addition to the strong earnings results, this was GE's first positive free cash flow in the first quarter since 2015. This achievement reflects our team's intense focus in sealing disciplined processes to enhance linearity and eliminate waste while driving operational efficiency and improved earnings and cash flow. A moment on corporate. Adjusted costs were down over 10% year-over-year, primarily driven by ongoing cost-out efforts and interest income as well as improvement in digital. For the year, we expect costs of around $600 million, half the amount in 2021 and in line with reduced corporate needs and progress setting up stand-alone cost structures. At insurance, as previously discussed, we now have adopted the industry-wide accounting standard for LDTI and we implemented first principles models. As of the end of 2022, the impact from this transition was $2.7 billion reduction in GAAP equity. These changes, including first principles, did not impact cash funding. We also funded the expected $1.8 billion during the quarter, in line with the permitted practice. Overall, we're pleased with the first quarter, delivering significant growth, margin, EPS and cash improvement. Based on this performance and market demand, we are raising the low end of our full year adjusted EPS range by $0.10 and our free cash flow range by $200 million. So we now expect adjusted EPS of $1.70 to $2 and free cash flow of $3.6 billion to $4.2 billion. And on that positive note, back to you, Larry, to discuss the businesses.

A - Steven Winoker:

Thanks, Larry. Before we open the line, I'd ask everyone in the queue to consider your fellow analysts and ask 1 question so we can get to as many people as possible. Liz, please open the line.

Robert Spingarn:

As you might expect, I'm going to start with an Aerospace question, if that's okay. I want to ask, with the LEAP Engine, as the program matures and the time on wing improves and the installed base grows, can you eventually get LEAP aftermarket margins to the CFM56 level?

Robert Spingarn:

Would you -- Larry, would you say when you think about productivity versus volume versus initiatives of pricing, et cetera, when we think about that margin expansion, how would you bucket those?

Operator:

Our next question comes from Nigel Coe with Wolfe Research.

Larry Culp:

Nigel, thank you. I think that we take a great deal of conviction about the path forward just given the last couple of quarters and, frankly, the lack of surprises, right? You've seen that. We've seen that. Neither of us have been happy about that. But credit to the team, I think we've gotten to a place where despite the losses, there are fewer surprises and we're seeing less of that. The drivers are just what you're highlighting here, both in terms of higher quality top line as we have improved the pricing and the selectivity of the orders that we're taking on and in turn, the adjustments that we've made to the cost structure. We talked about the headcount reductions, but that is really only part of what we've done from a cost and from a productivity perspective. The quality improvements help and will continue to help over time. So I think in Onshore Wind, I would certainly expect to see again a slight improvement in the second quarter, but it will be in line with what we've seen here in the first. It's really a second half story, and everything that we see today continues to give us the confidence that we'll see an improvement in Onshore in the second half and we should be profitable. We'll see, I think, some challenges as we look at the segment overall, given some of the ramp dynamics we've talked about in Offshore. But between what we'll see in the second half with Onshore, the improvements at Grid, again, this will be a year of profitability at Grid. I think we're feeling good about the setup as we exit '23, getting ready for '24. Carolina, anything you'd add there?

Operator:

Our next question comes from the line of Sheila Kahyaoglu with Jefferies.

Larry Culp:

Sheila, you're spot on. We're very pleased with the margin that we posted here in the first quarter. But I think we continue to try to temper expectations with respect to margin expansion this year as we go forward sequentially. A lot of things really broke our way in the first quarter. I think we still expect to have a robust dollar profit growth year, right, with the guide that we have of $5.3 billion to $5.7 billion. We should be up at the midpoint, 15% year-over-year in dollars. And there were a number of things that broke our way. We didn't see as much mix pressure as we thought we would see in the first quarter. The strength in services certainly helped. But that mix pressure, both within equipment and between equipment and services will, I think, evolve through the course of the year, where we will see equipment grow in all likelihood at a rate greater than services, particularly given the LEAP shipments. And we know that inflation will continue to be a headwind for us. We're encouraged by some of the moderation that we see in certain commodities, but particularly in aerospace, given the fact that we've got so much in inventory, there's '22 inflation that we still need to work through the P&L, which will play out through the course of the year. That said, I mean, we feel very good about the margin structure in this business, as we shared with you in March. But all in, I think we'll see moderation off of this 19% level in the first quarter. But net-net, still a very good profitability growth year for GE Aerospace.

Julian Mitchell:

Maybe just my question would be around free cash flow. Should we expect sort of second quarter to be around breakeven-ish and common with prior years? And then sort of 2 specific drivers I was curious about. One was that $500 million AD&A headwind. I saw it was a source in Q1. How do you see that playing out the balance of the year? And just sort of testing your conviction level in that wind down payments, $3 billion to $4 billion free cash tailwind you talked about back at Q1. Just sort of how you see that and the AD&A playing out from here over the balance of the year and what that Q2 free cash might be?

Larry Culp:

Julian, I would just add that with respect to the orders and win in North America, I think we feel as optimistic as we did back in March in frequent contact with the administration. They're well along in the work that they're doing to release the final guidance. We expect to see that this quarter. And I think we said in March, every week matters here. So the sooner businesses, customers have certainty, the better. But we're quite optimistic.

Seth Seifman:

So wanted to follow up on the commercial aftermarket and kind of the strength in the first quarter and the moderation that's implied through the remainder of the year. It seems like channels have been running in kind of the 3.5 to 3.7 range the past 3 quarters. Seasonally, we probably see an uptick in the second quarter, which would imply another quarter of very healthy growth kind of above the guidance range for aftermarket for the year. And so is there anything that really gives you pause about the second half of the year? And how are you thinking about where -- what the upside might be to that aftermarket forecast?

Operator:

Our next question comes from Andrew Kaplowitz with Citigroup.

Larry Culp:

Andy, I think you've really outlined the answer to your question in many ways, right? We know it won't be about the balance sheet. We know it won't be the internal preparation that will pace when we spin GE Vernova. It will really be a function of business performance. And again, I think we're really encouraged by what we've seen the last couple of quarters, not only in terms of the sequential progress, but the team's ability to deliver on those commitments. We know we've got a lot of work to do here in the second quarter, in the second half to continue the progress in Onshore Wind. But between the prospect of better volumes, again, better pricing, combining with those volumes and all of the work that we've done to improve the cost structure, I think sets us up for that positive year in '24. Really excited about what we're seeing at Grid. We've talked about the big orders out of Europe a couple of times here. Go at that mask the underlying improvements, both in terms of price and costs broadly across the Grid portfolio. They'll be modestly profitable this year. And those are really the 2 big businesses within renewables. And that sets us up to work through some of these growing pains in Offshore to position Vernova to go in '24. You asked about the quality efforts at Onshore Wind. The list continues to be fundamentally a static list. I think we knocked off 4 or 5 of those items this quarter. We're about 20% of the way through that body of work. We'll probably get to roughly half of that by the end of the year. We've got some more challenging, more time consuming issues to knock off the list later this year. But again, I think the team is working to plan and doing all we can to help customers in that regard. And as we help customers, we help ourselves. So again, I think we are on track. A lot of work to do. But I think we're optimistic that, that work will be done and GE Vernova will be a stand-alone independent investment-grade industry leader in the energy transition sometime early next year.

Deane Dray:

I want to stick with renewables, if we can. And could you give some specifics on how selectivity is working today? I mean you had some -- especially with regard to what was booked and just how that reflects disciplined underwriting and so forth?

Carolina Happe:

And we're also following up very clearly on not only what the margins are in the P&L, but also in orders and even in tech select and a much sort of stricter strike zones for that.

Joshua Pokrzywinski:

I just want to follow up on that last question on pricing in particular. I guess if you look at order dollars that you printed versus gigawatt orders or unit orders, seems like a healthy gap in there. I would imagine most of that is price, although maybe some mix as well. At the same time, I guess, we're not fully clarified from the IRS on some of this rule-making language. Is price today sort of at the run rate you would expect? Or are there other dynamics that maybe emerge here with more clarity about sources of production and domicile and some of those elements?

Carolina Happe:

Yes. And if you think about it, we're talking about sort of tech selected orders. It will take, well, about 1 year before you see it in the P&L. So of course, that delta between price and cost in the P&L will take a little longer to come through because of the cycle.

Christopher Snyder:

I wanted to follow up on some of the prior comments on aviation top line. So the segment grew another like mid-20% organic in Q1. The guide implies about low teens by my math for the rest of the year. And I certainly appreciate the comps get tougher, but I was hoping you could provide some color on how we should expect the cadence of that organic growth deceleration over the rest of the year. And then longer term, I would appreciate any views or color on how far the segment is from seeing organic growth compress back to the mid- to high single-digit rate called out at the Investor Day for the long term.

Scott Strazik:

Yes. And I would just add, Chris, just to your specific cadence numbers, just look at the comps, third quarter, fourth quarter steps down pretty considerably, particularly in the fourth quarter just based on that comp math, and we can talk about it later.

Joseph Ritchie:

So just going back to renewables for a second. The orders, the wind turbine orders were up 75%. I know up until now, I know Scott's been pretty reluctant to book any Offshore projects. I'm curious whether this includes any new offshore units. And then secondly, on Onshore Wind. Just given the bookings so far this year, I'm curious like what's the expectation for Onshore Wind profitability exiting the year? Can you turn a profit in Onshore Wind exiting 2023?

Steven Winoker:

Joe, thanks. Liz, we have time for -- let's make time for 1 last question. Thanks.

Gautam Khanna:

I was wondering if you could elaborate on supply chain and aerospace, what the pacing items still are? And if you have any metrics around pace of improvement? We've seen in Q1 versus maybe Q4 or late last year anyway, second half of last year.

Steven Winoker:

Great. Larry, any final comments?

Operator:

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

Steve Winoker:

Thanks, Liz. Welcome to GE’s fourth quarter and full year 2022 earnings call. I am joined by Chairman and CEO, Larry Culp and CFO, Carolina Dybeck Happe. Keep in mind that some of the statements we are making are forward-looking and based in our best view of the world and our businesses as we see them today. As described in our SEC filings and on our website, those elements may change as the world changes. As a reminder, GE completed the separation of our healthcare business this month. GE Healthcare will report separately on January 30. So while included in our 2022 results, we are focusing today’s commentary primarily on GE Aerospace and GE Vernova, our portfolio of energy businesses. Our remarks will also be simpler and shorter today, reflecting the company we are now and we will move more quickly to Q&A. I will now hand the call over to Larry.

Carolina Dybeck Happe:

Thanks, Larry. Turning to Slide 3, I will speak to the key drivers of our performance. I will do it on an organic basis and including GE Healthcare. In the fourth quarter, top line momentum continued as orders grew significantly across all segments. Revenue was up 11%, with services up 13%. By segment, revenue at Aerospace, Power and Healthcare was up double-digits, driven by market demand, price realization and improving delivery. This was partially offset by renewables largely due to lower volume resulting from U.S. PTC lapse and our heightened commercial selectivity. Adjusted margin expanded 290 basis points. Power was particularly robust, offsetting renewables. Overall, our price and cost-out actions outpaced inflation. Revenue and profit growth resulted in over 50% EPS growth. Free cash flow was $4.3 billion, primarily driven by strong earnings and improving working capital. All accounts were a source of cash, except receivables, which as expected, was a use from revenue growth. Moving to the full year, orders were up 7%, with 22% growth in Aerospace and 13% growth in Power. Total services orders were up 12% supporting profitable growth in 2023. Revenue was up 6%, largely driven again by Aerospace, up 23%. More broadly, higher margin services were up double-digits, while total equipment revenue decreased 4%. Collectively, supply chain headwinds and macro pressures impacted our performance by about 4 points. Importantly, margins, EPS and free cash flow, all significantly improved year-over-year and finished in line or above the most recent outlook we shared in October. Adjusted margin expanded 160 basis points led by Aerospace and Power. Robust services growth, pricing has almost $1.5 billion of cost out actions drove improvement. This was partially offset by inflationary pressures especially at our shorter cycle businesses and pressure from renewables. Operating profit growth and debt reduction drove EPS up more than 50% for the full year. Free cash flow was $4.8 billion, up over $2 billion or over 80% improvement, driven by earnings and reduced debt. In 2022, working capital was a source of cash as accounts payable, progress collections and contract assets all contributed to the solid performance. Now, a moment on corporate. In 2021, we ended the year with $1.2 billion of costs. We continued to reduce cost in 2022, including a few hundred million dollars of market-driven favorability. We now have a smaller, linear cost structure. And in 2023, we expect costs of about $600 million or roughly half of the 2021 sales line. Free cash flow, we expect to improve significantly given our progress with debt reduction and lower costs. We continue to execute our restructuring plans and reduce our cost structure post the healthcare spin, setting up fit-for-purpose, standalone structures for GE Aerospace and GE Vernova. Stepping back, we are encouraged by our improved volume and pricing and our significant cost-out actions exiting the quarter. This will help us drive continued growth in 2023. Now back to you, Larry, to discuss our businesses.

Steve Winoker:

Thanks, Larry. [Operator Instructions] We ask that you please save any GE Healthcare questions until their earnings call next week. Liz, can you please open the line?

Joe Ritchie:

Good morning, everybody, and congrats on executing the spin.

Joe Ritchie:

Yes. So my question is really going to be focused on this free cash flow bridge for 2023. And specifically on the segments, I’m curious you talked about Aviation free cash flow being up versus 22%. I know that you threw out the $500 million impact in AD&A, but did the rest of GE Aviation free cash flow grow consistently with earnings in 2023? And then my kind of second question on the segment is just around renewables. And what are you anticipating for the large payments in the second half of the year and what impact that has to the free cash flow in 2023? Thank you.

Larry Culp:

Down payments, Joe that you were asking about, I think we said in our formal remarks that should be in the $3 billion to $4 billion range. Some of those are four orders as they progress and orders to come, many of which we have been selected for. But again, the timing here until the finalizes the rules, the tax rules for developers could have a little bit of movement, and that’s what we were trying to flag in the formal remarks. So it will be back loaded in that regard, but we will have much greater linearity in aerospace as Carolina suggested.

Josh Pokrzywinski:

Larry just wanted to follow-up here on renewables. It looks like there is some profit improvement, not maybe all the way back to what folks were perhaps expecting. Just wondering if you could parse what’s getting better like selectivity or grid or price cost versus what’s still kind of a more material headwind this year?

Operator:

Our next question comes from Julian Mitchell with Barclays.

Carolina Dybeck Happe:

Julian, let me take the first part of that question on seasonality and on how we see that happening through the year in 2023. Maybe let me just start with the first quarter. We are expecting an EPS of $0.10 to $0.15 in the first quarter. So actually better linearity than we’ve seen before in 2022. On cash, we still expect cash to be negative also in the first quarter. The new jumping off point is a negative 1.2. So we expect it to be significantly better than that, but still negative as is typical for our seasonality. And seasonality, in general, I would say we don’t expect material changes to our seasonality. We are still sort of heavy second half loaded both on revenue and profit and on cash, actually even more back-end loaded now that we are excluding healthcare. So expect lower volume in the first half and ramping in the second half. sort of renewables sequentially growing through the year – sorry, aerospace sequentially growing through the year, renewables significant for the first half to second half ramp and power more the typical outage seasonality where you’d see sort of large 2Q and even larger 4Q and we also have equipment deliveries in the second half. But I would finish by saying that improving operational linearity is a key priority for us and clearly more to do.

Operator:

Our next question comes from Andrew Obin with Bank of America.

Larry Culp:

Good morning Andrew.

Andrew Obin:

Just a couple of questions, I think on Vernova, First, I think there is a lot of sort of talk in the industry about – on wind to structurally change the contract, right, because overall industry is just not in particularly good shape. So, question one, where are we in conversations with large customers who seem to want more capacity, yet sort of the contract terms are not really helping the industry make any money? Where are we in structurally renegotiating the contract structure? And I hand the second question just on power overall, more traditional power, but focus is on profit growth, not revenue growth. What are the key levers you are focused in ‘23, guidance seems to suggest modest margin expansion? Are there any headwinds in gas and services that you are facing in ‘23? Thank you.

Carolina Dybeck Happe:

To the power, I have to just start by saying looking at where we landed the year and what the team delivered, $1.2 billion of profit and 7.5% of op margin, really getting to high-single digits, that’s quite an achievement. And building on that for 2023, for power, we have a couple of positives. We have more CSA outages. We talked about ‘22 being a low-CSA outage year, ‘23 will be higher CSA outage year, so that’s good. We also have aeroderivatives growing. But we do expect to have a tough mix equation with equipment deliveries as well as inflation. So, price cost for power, having had a big price impact in 2022 when you lap that in 2023, being pressured by the inflation coming through in the P&L being such a long-cycle business. So, overall, we expect earnings growth and on the cash side, also strong services collections, but offset by distribution, so down slightly on the cash side, but still a very high cash conversion number.

Nigel Coe:

Can you hear me?

Nigel Coe:

Hi. Good morning. Just went – my line just went there. First of all, thanks for all the details. We have covered a lot so far. I did want to go back to the offshore losses and cash outflow in ‘23. Just wondering how do you see that curve developing? I don’t know if you want to quantify it in ‘23 in terms of the headwinds facing. But how do you see that progressing in ‘24 or ‘25? And maybe just given the magnitude of the losses in ‘23 for renewables in total, are we still confident in the bridge back to ‘24 profit?

Carolina Dybeck Happe:

And when you see that cash – that profit will then turn into cash and then also the timing that we have talked about on working capital with the progress down payments and more of that happening in 2024.

Jeff Sprague:

Hi. Thank you. Good morning everyone.

Carolina Dybeck Happe:

Good morning Jeff.

Carolina Dybeck Happe:

Sure, Jeff. So, to start with, you are right. As Larry mentioned earlier this morning, in our guide for renewables, we are expecting the $3 billion to $4 billion of payments in the free cash flow. When we talk about free cash flow conversion, and you know me, I always talk about cash, but it’s important to see where it comes from. So, broadly speaking, we do expect to operate at more than 100% free cash flow conversion for the next few years. And why is that, a couple of different parts. First part, depreciation and amortization being higher than CapEx. And then I will talk more about the working capital opportunities and timing as well. But with the depreciation and amortization, an important distinction. We expect depreciation to be largely in line with the CapEx to basically continue to invest. It’s really the amortization that makes the difference. And now that we are excluding healthcare, it’s about $600 million of difference, and we would expect that to continue for years. And on working capital, I would say there are a couple of different parts here. We do continue to see opportunities in improving our working capital management, especially after the year with the pressure that we see on the supply chain. So, we see opportunities both to improve to so and inventory turns on receivables and inventory. But also when we look at progress and contract assets, we expect both to be sources given where we are in the cycle. Finally, on AD&A, it’s not working capital, but it’s also a driver. And this year, we are expecting negative $0.5 billion of flow and we have had a couple of years with positive flow from AD&A. So, for the next couple of years, we can expect that to be pressure. But over time, we would also see that normalizing. So, overall, we do see opportunity to continue to improve and we will continue to work that. But for now, we are focused on growing earnings.

Chris Snyder:

Thank you. I wanted to turn the conversation over to the aerospace business and specifically margins. I understand the general flat lining of margins in 2023, given the mix towards equipment. But I guess my question is, how long should we expect these mixed headwinds to persist? Should we model margins higher coming out of 2023? And is there anything keeping the segment up from returning to that 21% level achieved in 2018, 2019? Thank you.

Steve Winoker:

Liz, we have time for one more question.

Deane Dray:

Thank you. Good morning everyone.

Carolina Dybeck Happe:

Good morning Deane.

Larry Culp:

I would say that there has been progress. There is still a lot more to do. And we talk about it, when you hear us use the word linearity, right, it gets back to Lean 101. We just want to make every hour of every day count, every day, every week, every week of every month. And there is still a bit of a dynamic. Some of this is us, some of this is our customers, where we migrate towards quarter end, we migrate towards year-end. So, I am encouraged by the progress. And I think more people today understand how we can be more linear. If you look at just the reviews we have had the first three weeks of this year at aerospace, right. We are looking at how we have started this year, how we have started this month, vis-à-vis, December, vis-à-vis, January a year ago. Those are the sort of operating cadences, which really help us in that regard. So, pleased, but we are not done.

Larry Culp:

Well, we are looking at just about everything that we can. Obviously, in aerospace, we are watching not only departures, bookings and everything that can precede that. The only thing that we have seen, and this is in a proprietary view, Deane, is obviously, freight has softened here as the short-cycle economy has done the same. I think with respect to for Vernova, we look at utilization in gas and when we can see what’s happening in real time. Even in Europe, we have been encouraged, I think by the utilization of the gas fleet. That said, we don’t want to suggest that we are immune with 60% of revenue now and services tied to those real-time dynamics we are watching carefully, but we wouldn’t be guiding a high-single digit top line number this year if we weren’t confident that our positioning both with the aerospace recovery and the energy transition sets us up to do well here in ‘23.

Larry Culp:

Thanks Deane.

Larry Culp:

Steve, we have covered a lot of ground here this morning. I would just wrap up with the group saying that 2023 really, I think was a historic year for ‘22 rather the historic year for us, we finished very strongly. The plans, the spends are advancing. We couldn’t be, I think, more thrilled with how things have played out for healthcare. But more importantly, we are excited about what lies ahead. Certainly appreciate everybody taking the time today to join us, your interest in our company and your investment in GE. And again, we hope to see many of you in March in Cincinnati.

Operator:

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

Steve Winoker :

Thanks, Denise, and welcome to GE's third quarter 2022 earnings call. I'm joined, as usual, by Chairman and CEO, Larry Culp; and CFO, Carolina Dybeck Happe. GE Healthcare, CEO, Peter Arduini, is also here with us to share insights on pre-spin, progress and performance. Keep in mind that some of the statements we're making are forward-looking and based on our best view of the world and our businesses as we see them today. As described in our SEC filings and on our website, those elements may change as the world changes. And with that, I'll hand the call over to Larry.

Carolina Dybeck Happe :

Thanks, Larry. Turning to Slide 5, I'll share the insights from the quarter on an organic basis. While orders were down 7%, revenue was up high single digits with double-digit growth in aerospace and healthcare. Equipment declined 6% with continued U.S. onshore volume pressure and a largely planned decrease at Power. On a sequential basis, revenue increased more than $0.5 billion as we're making progress on our second half ramp. Services for the bright spot, with orders and revenue up double digits and growth across all segments. Aerospace led the way with orders up 28% and revenue up 33% as market demand remained strong. Recall services represent half of our revenue and an even larger percentage of our backlog. Overall, adjusted margin contracted 190 basis points. This was largely driven by the renewables reserves, which impacted margin by 270 basis points. Meaning, if we exclude this, margin would have expanded 80 basis points. Our actions are taking hold, and we are seeing early signs of supply chain easing. Volume, together with price, contributed almost 300 basis points of margin expansion, offsetting headwinds from inflation and logistics costs. Aerospace was a major contributor, up 280 basis points with strength in services. Adjusted EPS was down $0.18. Excluding the renewables reserves, it would have been up $0.22. Continuing EPS was negative, primarily driven by an insurance transaction, which I'll cover momentarily, and increased separation costs as expected. Regarding our updates to the margin and EPS outlook, we are now including additional pressure from the elevated warranty and related reserves at renewable. About half of this charge is incremental to our prior view. We also expect to offset healthcare pressure, largely due to inflation and investments with strength in the other businesses. Moving to cash. We generated free cash flow of $1.2 billion. Strong adjusted earnings contributed to this. Working capital, again, had a very limited impact on free cash flow despite high single-digit growth this quarter. Looking at the dynamics. First, receivables, the use of cash. Our terms were focused on collecting the accounts receivable from second quarter, improving year-over-year DSO by two days. But deliveries continue to occur later in the quarter, resulting in high quarter-end receivable balance. Inventory was also a use of cash. This is typical as we build for significant fourth quarter volume, leading to inventory and accounts payable growth. Progress was a source mainly due to the timing of down payments. Contract assets was also a source. Continued strength in aerospace and gas power utilization drove billings. AD&A was positive $300 million. Given the year-to-date impact and our fourth quarter estimate aligned with the current airframer aircraft delivery schedules, we now expect full year AD&A to be about 0. Year-to-date, free cash flow is approximately $500 million. In the fourth quarter, we expect higher collections given the large receivables balance and reduced inventory due to the strong quarterly deliveries. So in line with typical seasonality and our operational efforts, the fourth quarter cash flow will be significantly higher and we expect free cash flow of about $4.5 billion for the year. This is aligned with the color we shared last quarter. Now a moment on Corporate. Adjusted costs were down over 50% year-over-year. This was primarily driven by lower EHS and other costs and progress in functions and operations. For the year, we expect corporate costs of less than $700 million, which includes a few hundred million of favorability primarily from interest rate and FX dynamics. As we prepare for the planned spin of GE Healthcare, we're looking at our corporate costs to ensure what remains is sized appropriately. Therefore, we plan to take restructuring actions to reflect today's reduced feed for corporate-led activity and footprint. The program is expected to deliver roughly $450 million in annualized cost-out over the next few years with about $700 million of expense, the majority in the fourth quarter. At the Insurance, we further derisked our portfolio by terminating several reinsurance contracts. This reduces counterparty risk and improves administration, settling our receivable from the reinsurer in exchange for $2.5 billion of assets that we can deploy in our current investment strategy. Given the assets need to be transferred at fair market value and the current rate environment, this was an after-tax charge of roughly $300 million. We expect to recoup this over time as the assets mature. While excluded from our adjusted results, insurance net income was roughly $250 million loss. And without the charge, was approximately positive $80 million. This quarter, we also completed our annual LRT. As expected, this resulted in a positive margin with no impact to earnings and this for the third consecutive year. In discontinued operations, we recorded charges of about $100 million in our runoff Polish BPH mortgage portfolio, primarily driven by unfavorable results for banks in ongoing litigation with borrowers. This brings total litigation reserves related to this matter to approximately $1.1 billion. Now turning to our businesses. Aerospace, aerospace delivered a very strong quarter. Orders growth up 6% was driven by services, while equipment orders were down against a tough comp, especially in military. Revenue was up 25%, led by substantial growth in Commercial Services, up 47%. This was driven by internal shop visit growth strong spare part sales to our external MROs and favorable price. Commercial engine revenue also grew significantly on higher shipments, both year-over-year and sequentially. LEAP shipments improved, up over 100 units sequentially, and we're starting to see better flow through our factories. Military revenue was down year-over-year, driven by lower shipments and engine mix. However, tangible improvements on 2700s helped drive a sequential increase in engine units. Segment margin expanded 280 basis points, driven by commercial services growth and favorable price cost. This more than offset negative mix from higher commercial engine shipments and increased growth investments. Based on strong year-to-date performance and continued improvement in services, we expect full year Aerospace margins to be high teens with greater than 20% top line growth. Overall, Aerospaces strong market growth and business fundamentals reinforce the significant long-term opportunity here. Turning to Renewables. Orders were down 40%. Recall, we had record orders last year due to offshore where the project-driven profile remains uneven, making this a difficult comparison. Importantly, services, excluding repower, grew double digits and all Grid product lines grew. Revenue declined 10%. Over two-thirds was driven by lower U.S. volume at onshore from the PTC labs and our heightened new business selectivity. This more than offset services growth of 40% and better pricing across many businesses. Segment margin declined significantly year-over-year, primarily driven by the warranty and related reserves at onshore. The remainder of the decline was driven by lower U.S. volume at onshore and net inflation pressure in all businesses. Excluding onshore, though, all businesses improved reported profitability year-over-year. While we previously included about half of this elevated reserve in our full year expectations, the incremental impact this quarter is pressure versus our prior view. We now expect an annual loss of about $2 billion. The IRA is a significant catalyst, medium to long term. However, near term, customers continue to defer investments into the future impacting orders and associated cash. While 2022 has been disappointing, the actions we're taking, combined with the external catalysts we've discussed puts us on a much stronger footing as we head into 2023. Moving to Power. As expected, we're managing through a lower CSA outage year typical third quarter seasonality and second half timing dynamics for some equipment deliveries and service outages pushed to the fourth quarter. Looking at the market. Global gas generation and GE utilization grew mid-single digits year-to-date, with strength in Europe and in the U.S. While we continue to monitor gas prices and availability, gas remains a fuel of choice on dispatch cars globally to meet growing electricity demand. In the third quarter, orders were up 20%. This was driven by higher HA and aero derivative units as gas and services growth in all businesses. Importantly, our team continues to prioritize disciplined underwriting and project selectivity as we build our installed base pipeline. And as we've said, equipment orders remain uneven quarter-to-quarter. Revenue declined 5%, primarily driven by gas equipment and film where we continue to exit our new build coal business. We shipped two fewer HA and two fewer aero units year-over-year. Meanwhile, services grew 6%, driven by gas, where price and transactional services growth offset the lower expected CSA outage volume. Segment margin declined 100 basis points. This was mainly due to lower CSA outages and unfavorable equipment mix at gas, together more than offsetting the price escalation. But still, margins continued to improve, driven by selectivity and the associated cost-out. Looking at the fourth quarter, we continue to expect significant sequential and year-over-year growth in equipment and services. This sets Power up to deliver its outlook of low single-digit revenue growth and margin expansion. And Power remains on track for earnings growth and cash generation this year and next. Now I'm happy to welcome Pete, who will cover GE Healthcare.

Lawrence Culp :

Pete, thank you. I share your excitement. I think we're going to have some fun. I'd like to close on Slide 12. GE continued to build momentum in the third quarter. Aerospace delivered a very strong quarter. Renewables is taking action to reset for profitable growth. Power remains on track for stable earnings and cash and Healthcare, as Pete just outlined, improved performance. Lean and decentralization are the key enablers of this momentum, driving safety, quality, delivery and cost improvements, which serve as the foundation of all we do at GE. And these improvements are sustainable. Take my 2021 Kaizen week team at Lean. One year later, the team has enhanced our closed-loop machining process on the T700 mid frame. Now while there's always more to do, this process is delivering close to 100% first-time yields compared to about 50% previously. Real lien sticks and we're scaling it across lines, sites and businesses. And with that Lean foundation, GE continues to lead with innovation. At Aerospace, we completed testing on our second XA100 adaptive cycle engine partnering with the U.S. Air Force. It's an innovative engine that pairs power with efficiency. Healthcare made further progress in the home care space, expanding its live core relationship and announcing a new collaboration with AMC Health to enable remote patient monitoring. Empower secured an order from Kindle Energy to provide a class power generation equipment. This will help support Louisiana's ongoing energy transition, initially fueled by natural gas, with the ability to use up to 50% hydrogen by volume. It's clear our businesses are creating a smarter and more efficient future of flight, driving decarbonization through the energy transition and enabling precision healthcare. And we're set to unleash their full potential through our plans to launch three independent investment-grade industry leaders, starting with GE Healthcare in just two short months. Steve, with that, let's go to questions.

Operator:

[Operator Instructions] The first question comes from Nigel Coe from Wolfe Research. Please go ahead.

Lawrence Culp :

Good morning, Nigel.

Lawrence Culp:

Nigel, let me take that in order. I think what we have laid out today, what we've been working on all year really puts us in a position for Onshore Wind to be profitable in 2024. That's not the end state, but it's an important way point for us given recent performance, obviously. The charge that we're taking here, the $500 million is geared toward resolving the fleet availability issues that we've touched on. I think that gives us ample room to tend to what we need to deal with and move forward from there. That not only helps us with fleet availability, but the other design and manufacturing improvements we referenced, in addition to the restructuring, are what really set us up to be more profitable and to be flat out profitable in 2024. So next year will be another year where we'll probably have parentheses around the op profit numbers, but then we get to where we need to be in '24, and we'll move on from there. We really aren't expecting in the short term, Carolina touched on this, meaningful help from the IRA. In fact, we're going to -- we've seen some business move from '22 to '23 in as a result of customers taking a pause, waiting for the incentives that they'll enjoy in all likelihood next year in a way that they couldn't access this year. But we've never had more clarity, we've never had I think, better visibility about U.S. government support for onshore wind than we do now for the rest of the decade. But none of the operating actions that we've highlighted here are relying on that legislation. Remember, we didn't think that was going to happen when we talked to you in late July. That was a pleasant third quarter surprise. So everything we've been doing operationally is geared toward a lower level of volume, profitability in that context. But the Inflation Reduction Act just, I think, improves the prospects for this business for a decade meaningfully.

Anthony Petrone :

Thanks and congratulations to the team on getting to close to the first spin with GE Healthcare. So this question will be for Pete and Helmut on the call. Pete, just as we head into spin here, we've had a number of companies in the medical device space report already as well as several large hospital customers. And I think I would classify the environment right now is highly mixed. And still a lot of variables out there, certainly as it relates to 2023. Specifically, last week, we had two large hospital operators elect to not issue guidance. On the flip side, some of the medical device companies have actually posted slightly better procedures. Turning to the GE Healthcare business sequentially, it actually looks like orders improve a bit. So with that as context, maybe just your background as the company speaks to its hospital customers and maybe just a very early view on your high-level thoughts on 2023. Thanks a lot and congratulations to the team again.

Steve Winoker :

Thanks. Next question, please.

Andy Kaplowitz:

Good morning everyone.

Andy Kaplowitz:

So cash in Q3 was higher than your own expectations coming in, but you mentioned that you're planning to take, I think, $1 billion plus of additional restructuring between Corporate and Vernova the majority of the corporate restructuring in Q4. So how do we think about the rightsizing of your businesses in the context of cash? And I know you've really said you need to assess what your cash generation would look like versus that old $7 billion plus guidance for '23. But could you give us more color into the puts and takes of how to think about cash going to '23 versus the 4.5% this year?

Lawrence Culp:

And Andy, I think our current intent now that we have just come out of our strat plan cycle, and are heading into budgets here over the next several weeks is to effectively do what we've, I think, done in the last several years and provide that forward-looking outlook cash and everything else at fourth quarter earnings in January.

Operator:

The next question comes from Brendan Luecke from Alliance Bernstein. Please go ahead.

Lawrence Culp:

Brendan, I'm sorry, could you ask the last part of that again, please?

Lawrence Culp:

Brendan, I don't think so whatsoever. I think that in many respects, one could argue that it has been the pursuit of scale that has led us in part to our current underperformance. We have led the last several years, as you know well, here in North America in the U.S. It's a market where we've got a home field advantage. It tends to be one of the better geographies in the entire onshore wind space. And I think all you're really seeing is do with respect to the restructuring, the selectivity efforts and the change in our product road maps is to really make sure that we are in a position to lead through this order's trough, particularly in North America, but come out of it not only with better products, better value propositions, better cost structures but ultimately, better performance as we move forward here, both for our customers and investors. I don't think that anything that we're doing here does anything to undermine our competitiveness. I would argue it will enhance our competitiveness, particularly at a time when I think many customers are looking forward here when the IRA kicks in, and we're going to go quickly from a trough period to a time of scarcity where it won't be about one upsmanship or specmanship, it will really be about reliability. We're going to lead in that fashion. We can be better than we are today. And I know that's what Scott and the rest of the Onshore Wind team are committed to. It may mean that we don't play in as many markets as we have historically. I think that will be a good thing because we have no intention of being all things to all people in any of our businesses. That's particularly important in onshore wind. I think it's part of what you've seen, Scott and the team do effectively in running what we refer to as the power playbook as they've transformed that business. And that's certainly going to be an important part of the program in Onshore Wind and, frankly, more broadly across Renewables, but it's particularly acute given the relative size of the operating loss today in onshore.

Operator:

The next question comes from Jeff Sprague from Vertical Research. Please go ahead.

Lawrence Culp:

Jeff, maybe I'll take the latter, and I'll let Carolina to speak to the former. But I think you're exactly right in terms of what we're seeing in aerospace, I mean overall revenue is up 25%. The business just is facing welcome after the COVID drought in incredible levels of demand, we know we're going to continue to see that in the fourth quarter and in '23. I think from an aftermarket perspective, specifically, we've got a number of things that really helped us only from a volume, and frankly, from a margin and cash performance this quarter in the aftermarket. Shop visits were up year-over-year and sequentially, the scope within those shop visits was more robust. We saw a favorable mix with respect to our parts business as well, really, I think, as we and our partners and service to the airlines, are trying to keep the current fleet in the air as much as we possibly can. So a little bit of the tempering with respect to the fourth quarter margins is that we see some of that mix moving it the other way. It will still be, I think, a more than respectable second half, but we benefited a little bit in the third quarter. We'll probably give up some of that in the fourth. But that said, I think the operating mindset that we have is really to continue to drive shorter turnaround times, higher on-time delivery and really do all that we can to help the airlines meet what has been clearly quite robust demand on the part of the flying public. And having been with a number of these customers recently, not only the airline leadership, but a number of others in the travel and leisure hospitality spaces. They're excited about the end of the year outlook here and going into '23. So we want to be part of the solution in that regard, and we're obviously well positioned to do just that. Carolina, AD&A?

Steve Winoker:

Thanks. Denise, next question.

Nicole DeBlase:

Yes, thanks. Good morning, guys.

Nicole DeBlase:

Just on the Vernova spin, now that you guys are kind of expecting Renewables to still have parentheses around the profit number in 2023, does that change at all the potential timing of the spin? Just thinking about the rating agencies and how you guys want to be investment grade rated in all of the businesses, would it benefit that business to start to see positive profitability before the spin actually is consummated? Thank you.

Steve Winoker:

Denise, next question.

Steve Tusa:

Hi, good morning. So Carolina, you were out in mid-September talking about cash that was close to breakeven. I mean what's the -- what was the swing factor in the last couple of weeks of the quarter? And then just a quick one on healthcare. What are you guys planning on doing with the proceeds or the stock that you're keeping on your balance sheet after the spin? Thanks.

Steve Winoker:

Okay, Denise, next question please.

Andrew Obin:

Hi, guys. Good morning. So you had a disclosure that in third quarter, you agreed to terminate substantially all long-term care insurance exposure previously seated through single reinsurance company, so $300 million after-tax charge in the third quarter. So I guess the question is, are you guys cleaning up things? Does this make it easier to do a transaction, long-term care down the road? Are these things connected?

Steve Winoker:

Thanks. Next question.

Joseph Ritchie:

Thanks. Good morning, everyone. My question is for Peter. And so I really want to try to understand the path for normalizing free cash flow in the healthcare business because -- it seems like you're running about $1.4 billion behind this year as of the middle of the year, things will only improve a little bit sequentially in the third quarter. So maybe just talk about that path beyond 2022?

Steve Winoker:

Denise, let's try to get in two more questions. A quick one first from, I think -- can you go next.

Julian Mitchell:

Thanks very much for squeezing me in. So yes, I'll try and be quick for Steve's comment. It's really on Vernova. Just any color around the cash flow this year and where that will look in '24. And then on that EBIT guide, I think minus $2 billion Carolina had mentioned for this year going to 0 plus in 2024. A big -- what are the big swings? I think there's $500 million of costout, there's maybe $700 million, $800 million of warranty coming back. How does that balance split? Any color at all? Volume, price cost, FX, any help on that?

Lawrence Culp:

And I think, clearly, Julian, we're feeling the other side of that in the absence of a healthy order book with the PTC labs all the more, given some of the postponement that we've seen here of late relative to business we anticipated this year. But I think Caroline has got it right. We'll be in a more normal environment in terms of the order book and the attendant flows. I also think some of the product rationalization that we've hit on will help us from a working capital perspective as well, right, with the -- just the variance in the extreme customization that we've fallen to in a couple of areas. There's no way that hasn't had us carrying more inventory then we aspire to carry in this business. So a lot that we can do. But again, I think the template that you've seen over the last several years at Power is a pretty good road map here for what we are working on and what you'll see more clearly in the financials in that business in the next several years.

Operator:

The next question comes from Deane Dray from RBC. Please go ahead.

Lawrence Culp:

Deane, you're exactly right. We've just been through a couple of weeks with Renova, in fact, just given the breadth of the portfolio, timely, obviously, in the wake of not only what's happened in in Ukraine and turn Europe but also the IRA. We recently did the same with the Aerospace team. I think I referenced that in the prepared remarks. We actually ran through the healthcare strat plan earlier in our calendar that is normal simply to make sure we have that as a front-end load to all the subsequent work that Pete and the team have done in part the Form-10 that just came public. I would say overall, from a process perspective, really quite pleased in all three instances as to how far we've come over the last several years, frankly, just sharpening up our strategic intentions around those critical questions. You've heard me ask a lot over the years, what game are we playing and how do we win. I think that as we look at the macro, Deane, we don't have a unique house view here as to how things are going to play out. I think like others, we're concerned just around the host of issues that are out there. But that said, at Aerospace, we have tremendous demand. Again, the customers I speak to on a regular basis are quite bullish about their outlook. They need us to continue to support them, and we intend to do that. I'm sure you'll hear later this week from our airframer customers and the ramps that are underway in new plane production, we want to do the same with them. So we're not unmindful of the macro at Aerospace, but we've got a lot of activity to work through and perhaps a little bit of a secular exemption to some of the near-term economic uncertainty. Pete, I think, spoke well to healthcare. But here, again, post COVID in addition to the backlog work down that we will pursue, I think, healthcare modernization -- Pete mentioned China, I think we're going to see the same thing here in the U.S., Europe, also a priority. I think that bodes well, particularly for how we play in precision health. And then, again, given the support here in the U.S. around the inflation Reduction Act primarily for wind and grid, but to a degree, gas. But also this more pragmatic approach to the trilemma I think, is going to really help both Renewables and Power as we move forward, and that's not a '23 dynamic. So again, I don't want to suggest that any of our businesses are insulated or immune from the broader economic context -- but I do think we've got specific secular drivers in addition to so much that is within our control to work through it. And that's what we're going to do. We're going to control the controllable, stay true to the Lean agenda and put forward the best fourth quarter and the best 2023, we possibly can.

Lawrence Culp:

Steve, thank you. Just to close here, the team, the GE team delivered again in the third quarter, led by Aerospace, a very strong quarter. The spins are on track, starting with Healthcare in early January. As Pete mentioned, before then, we hope to see many of you at our GE Healthcare Investor Day on the 8th of December. And we do appreciate your time today, your interest in GE, your investment in our company. And we stand by Steve, Carolyn and the rest of the IR team to help as you consider GE and GE Healthcare in your investment processes.

Operator:

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

Steve Winoker:

Thanks Sheryl. Welcome to GE's second quarter 2022 earnings call. I'm joined by Chairman and CEO, Larry Culp; and CFO, Carolina Dybeck Happe. Keep in mind that some of the statements we're making are forward-looking and based on our best view of the world and our businesses as we see them today. As described in our SEC filings and on our website, those elements may change as the world changes. With that, I'll hand the call over to Larry.

Carolina Dybeck Happe:

Thanks Larry. Diving into the results. Turning to slide seven, I'll share the highlights from the quarter on an organic basis. Orders were up 4% and revenue up 5%, with growth led by aerospace. On a sequential basis, adjusted revenue improved $1.6 billion or 10%, a significant step-up reflecting progress towards our second half ramp. Services revenue was a particular strength in the quarter as we delivered double-digit service revenue growth compared to last year, with aerospace leading the way, up 47%. Equipment declined 6%, driven by renewables. Healthcare and power equipment revenues were bright spots, with healthcare up 5% despite supply constraints and power up 18%, reflecting strong aeroderivative shipments. Year-to-date, organic growth was 3%. Both quarter and year-to-date, this includes five points of pressure from supply chain disruptions, COVID impact in China, and the Russia-Ukraine war with the latter contributing roughly one point of impact year-to-date. On adjusted margin, both aerospace and power saw expansion. Overall, as a result of the actions we're taking, focused on pricing drove more than 100 basis points of margin expansion in the quarter. Services mix particularly in aerospace, contributed favorably. We also saw improved contract margin reviews or CMRs with strength from contractual escalations and engine utilization. Cost reductions were more than 150 basis points of year-over-year benefit, largely restructuring savings and some timing-related corporate benefit. Partly offsetting these improvements was approximately 200 basis points of margin headwinds from inflation and logistics costs, net of sourcing actions. In Aerospace & Power, the net impact of price/cost and inflation was positive, healthcare and onshore wind both took steps to address cost and price, but it wasn't enough to offset the inflation. Lastly, adjusted EPS was up about $0.56 or about two and a half times, driven by profit growth plus lower interest expense from our debt reduction actions. About $0.15 of earnings was timing related that we either do not expect to repeat or had originally expected in the third quarter. Continuing EPS was negative, primarily driven by the unfavorable mark-to-market impact from our Baker Hughes and AerCap positions. In total, we delivered a strong quarter marked by revenue up mid-single-digits significant profit growth, and margin expansion. These results and our focus on execution gives me confidence that we will achieve the low end of full year growth, profit, and EPS outlook even in a tough environment. Year-to-date, we have delivered more than one-third of our EPS guide, in line with typical seasonality. Moving to cash. We generated $200 million of free cash flow, driven by strong adjusted earnings, which was positive, excluding the mark-to-market impact previously mentioned. Despite a limited impact on free cash flow in the quarter, supply chain challenges are contributing to inventory pressure and later deliveries and billings. First, on working capital dynamics. Receivables for the use of cash driven by billings from sequential revenue growth and also pressured by later deliveries in the quarter. This was partially offset by collection strength, where we saw a seven-day DSO improvement year-over-year. Inventory up across all businesses was a large use of cash. A portion of this is typical, building for the second half volume growth leads to inventory and accounts payable growth in material resets outpacing disbursement. This quarter, however, supply chain challenges also contributed to elevated inventory levels across inputs and outputs. Inputs were pressured by the impact on inflation and additional purchases needed to support second half deliveries for customers. For output, fulfillment challenges led to higher inventory. Progress was a source of cash, mainly due to aerospace collections on equipment orders to support production. Contract assets was a use of cash. We saw continued strength in aerospace utilization, resulting in higher billings, offset by service revenue in aerospace and positive CMRs. In the second half, we expect free cash flow to be significantly greater than the first half due to higher collections on revenue growth and disburse was in line with the first half inventory build. However, supply chain constraints are delaying deliveries and pushing collections to the following periods. So as a result, much of the third quarter free cash flow is likely to shift to the fourth quarter, while late fourth quarter deliveries would leave a higher receivable balance at the end of the year to be collected in 2023. Combined with lower progress payments from renewable energy orders, we expect this to result in a deferral of about $1 billion of free cash flow out of 2022. Turning to the business, Aerospace delivered a very strong quarter as the commercial market continued to recover. Orders grew across the board, up 26% with both commercial engines and services up substantially, reflecting continued robust customer demand. Revenue was up, driven by significant growth in commercial services with shop visits, 14% higher year-over-year and continued strength in spare parts sales. Supply constraints, including material availability negatively impacted revenue by 9 points, primarily in commercial engines. Military growth was driven by services. While engine deliveries slowed due to temporary setbacks, specifically in T-700 shipments, we expect tangible improvements in the second half. Commercial Engine revenue was down slightly as supply chain disruptions continued to impact deliveries. Total engine shipments were down 7%, largely due to lower GEnx production, while LEAP shipments were up 7%. Segment margin expanded by almost 15 points, primarily driven by commercial services growth, lower OE shipments, as well as actions improving pricing structures to address inflation and CMR performance. CMR alone drove over 8 points of improvement given the negative CMR last year. For the total year, largely due to China's first half slowdown, we now expect shop visits to be in the high-teens range. We also expect lower commercial engines revenue, trending below 20% growth year-over-year due to continued supply chain challenges. However, we continue to expect more than 25% commercial services growth from ongoing strength in spare parts sales, and that's more than offset the lower shop visit volume and OE volume. Therefore, we still expect to achieve greater than 20% growth and $3.8 billion to $4.3 billion of operating profit for the year. Moving to health care. Market demand remains solid, while supply and inflation challenges continue to impact the market. Underlying customer orders indicate continued commitment to investment and we're encouraged by signs that supply chain pressures will ease in the second half of this year. We continue to monitor hospital investment plans and procedure activity. Second quarter orders grew 1%, but that was against a tough comparison to the second quarter of last year when orders increased 11% as well as the impact from COVID in China. Orders increased mid-single digits in services, partially offset by a slight decline in equipment orders. Comparisons continue to be challenging through the second half. Revenue in the second quarter was up 4%, with mid-single-digit growth in equipment and low single-digit growth in services. Growth was driven by Imaging, Ultrasound and HTS services sales, and it was offset by the continuing supply chain constraints, including those related to COVID impact in China. We call that fulfillment challenges started in the second quarter of 2021. And when excluding supply chain impact in both periods, revenue growth would have been 5% this quarter, highlighting how we proactively manage sourcing and logistics. COVID in China impacted growth in both equipment and PDx revenue. With China broadly reopening in early June and our Shanghai PDx facility fully operational, our equipment and PDx revenue in China is expected to rebound in the third quarter. Segment margin was impacted by material and logistics inflation with some sequential improvement. Net of sourcing actions, margins contracted about 300 basis points year-over-year, but were up about 200 basis points sequentially. We are making progress with price and sales positive for the first time in recent history. Looking ahead, healthcare is focused on driving cost reductions and implementing LEAN through supply chain actions, to deliver for customers and address cost and price structures as we work to offset inflation and logistics pressures. We are also prudently investing in future innovation, aiming at high-return differentiated technologies. Our commitment to R&D investments is demonstrated by the double-digit year-over-year increase this quarter. For example, we launched Voluson Expert 22, our most advanced ultrasound yet. This latest addition to our Women's Health portfolio has AI-powered tools and our proprietary lyric architecture to unlock new imaging and processing power, achieving higher resolution detailed images and scanning flexibility revealing final anatomy in 2D, 3D and 4D with ease. In addition, our inventory levels are elevated as we prepare for an anticipated ramp in orders fulfillment in the second half of 2022. As Larry mentioned, we're making good progress on the healthcare spend. We have an opportunity to impact both patients and customers as healthcare transitions into an independent public company. Looking at the full year, order demand remains solid, and we're expecting mid-single-digit revenue growth while closely monitoring customer order activity due largely to inflation pressure, we now expect 2022 operating profit to be about $3 billion, slightly below our prior outlook. Turning to renewables. Orders were down due to continued pressure from onshore North America market dynamics and the selectivity in international, impacting both equipment and services repower upgrades. Partially offsetting this were Grid and Hydro, which won a large order for the upgrade of the Igarapava hydro power plant. Grid had orders growth across all businesses, including significant growth in grid automation. Revenue declined with roughly two-thirds of the decline from lower onshore wind North America deliveries. The remainder of the decline was primarily driven by Onshore Wind International as planned. Grid and onshore services, excluding repower, both were up low single-digits, reflecting our focus on driving growth in these businesses. Segment margin declined significantly although up 160 basis points sequentially. Roughly half the year-on-year decline was a result of volume reductions in our most profitable market, US onshore. The remainder of the decline was split roughly equally between net inflation pressures across our businesses and higher-than-expected new product costs in onshore international as we take measures to improve durability across our fleet. This was partially offset by grid where margins improved from higher volume and benefits from prior restructuring actions, and we also recovered costs associated with legacy hydro projects of about $70 million. In summary, we knew coming into this year that renewables would be challenging. Offshore wind is a long-term investment in an industry still not at full maturation. Grid, a critical part of the energy transition, is where we're making good progress today. Our priority is onshore wind where many pressures are converging. The ongoing paralysis in Washington with the PTC expiration is hitting our most profitable market, impacting demand. This is coupled with additional inflationary pressures and slip durability actions. For 2022, due to these dynamics, we no longer expect a step-up profit in the second half. Clearly, we have more work to do here. We're taking swift actions to turn around this business, running our power playbook. Given the strength of our portfolio and the fundamental importance of renewable energy in the energy transition, we remain confident that we will drive profitability over time. Moving to power, starting with the market. Global gas generation and GE utilization remained resilient, growing low single-digits. Despite higher gas prices and availability challenges, gas remains a fuel of choice on the dispatch curves around the globe to meet the growing electricity demand. We continue to expect the market for gas generation to grow low single-digits over the next decade. Orders were down in the quarter, largely reflecting the uneven equipment order profile we've seen quarter-to-quarter. Services declined due to lower gas outages in line with our multiyear technology cycle. Importantly, power orders grew low single-digits in the first half of the year, driven by equipment strength in the first quarter. The team remains focused on disciplined underwriting and backlog quality. Revenue was up mid-single-digits, primarily driven by margin-accretive aeroderivative strength, shipping 14 more units versus last year. Overall, services revenue was flat. We delivered strong transactional services growth in gas and power conversion, which was offset with the expected lower gas outage volume. Segment margin reached high single-digits in the quarter and expanded 30 basis points. At Gas Power, margins remain resilient from improving price structure to address inflation and aero equipment and transactional services volume growth. This helped offset the mix headwind. At still margins improved significantly due to continued focus on productivity as well as project and legal charges from last year that didn't repeat. We're focused on expanding our services opportunity and expect higher CSA outages next year. In the second half, we expect more growth as H-class and Aero delivery ramp alongside the continued strength of transactional services and the improvement at still. Power is set up well to grow profit in 2022, we are reaffirming our outlook for low single-digit revenue growth and margin expansion. Finally, a moment on corporate. Adjusted corporate costs decreased over 50% versus last year and 65% year-to-date. We saw lower functions and operations costs from some timing benefit in addition to lower elimination. Given the favorability in the first half, we now expect corporate costs of below $1 billion for the year. While excluded from our adjusted results, insurance net income was approximately $140 million. This was down year-over-year as COVID favorability supplies and trends continue to normalize. As we have previously disclosed early this year, aligned with the industry, we plan to adopt the GAAP LDTI accounting standard. The transition adjustment is being applied retroactively to the beginning of 2021. As a result, we expect a negative equity impact of about $7 billion to $8 billion after tax using January 21 rates. This is driven primarily by the lower discount rates. Using June 30, 2022 rates, the transition adjustment would be $4 billion to $5 billion, taking effect in the first quarter of 2023. Also embedded in this estimate is the $1.5 billion to $2 billion after-tax equity impact primarily from adopting the LTC first principles approach, which complements the LDTI and incorporates a more granular modeling assumptions. The first principle model are considered an industry best practice and allow for additional transparency driven by refined modeling that improves claims projections. Importantly, we do not expect any additional cash funding needs as a result of these changes currently. We will finalize our CFT results in the first quarter of 2023. We also currently expect our LRT margin to remain positive and will report results in the third quarter of this year. We've provided more info on this in the 10-Q that we filed today. In discontinued operations, our run-off Polish BPH mortgage portfolio ended the quarter with a gross balance of about $2.1 billion. And this quarter, we recorded charges of about $200 million, primarily driven by unfavorable results for banks in ongoing litigation with borrowers. This brings the total litigation reserves related to this matter to approximately $1 billion. Stepping back, despite the volatile environment, we are pleased by the progress we made this quarter. We delivered order, revenue and profit growth and positive cash. This gives me confidence in achieving the outlook for 2022 that we've shared today. Now Larry, back to you.

Steve Winoker:

Before we open the line, I'd ask everyone in the queue to consider your fellow analyst again and ask question, so we can get to as many people as possible. Sheryl, can you please open the line?

Deane Dray:

Thank you. Good morning everyone.

Carolina Dybeck Happe:

Good morning.

Carolina Dybeck Happe:

Well, thank you, Deane. There was a lot of questions on cash. We'll take them step by step. So, to start with the $1 billion of working capital push up that we mentioned earlier today, it's really two-thirds that is timing, I would say, a combination of inventory versus receivable from the businesses. and then about one-third is progress in the PTC dynamics from renewables. So, that's the split of the $1 billion. Then you asked about the guide for 2022 free cash flow, and what does that mean then per business? So, what I would say is that if we start with what we talked about today, $1 billion -- about $1 billion of push out compared to what we've talked about before. So, if you take them segment by segment, it really means that in aerospace, we expect to be down due to the supply constraints. Healthcare, similar. So, basically, I would say, trending flat due to the supply constraints here on deliveries. For renewables, and here, we already in the first quarter, I talked about that we expected to sort of be below our original guide, but still better than last year. Now, we have additional pressure, so about a third is added to the renewables number or reduced from renewables numbers. And then for Power, we have conviction in the existing outlook and corporate, we also expect to land in the existing guidance. So, that's overall the 2022 impact of the changes in the free cash flow guide.

Carolina Dybeck Happe:

Yes. So what that means basically is that we still expect to see the same drivers as we shared in March, but we're monitoring the volatility as Larry spoke about. And we do expect earnings to be a bigger contributor in the sort of the 2023 improvement. It will start off a lower 2022 base, but it will still be the main part of improvement for 2023. And if I look at the earnings at a big improvement part. Then on top of that, we have -- as usual, we have the delta between depreciation, amortization and CapEx, you'll have, what $1 billion of amortization that's non-cash. And then you add to that the working capital part, and we do expect to continue to focus on improving the efficiency, and we expect working capital to continue to be a source of cash, and that will be helped by what I just mentioned, at least in 2023 by the two-thirds of the $1 billion of push out. Well, I would say our more conservative view of the US onshore wind market creates more uncertainty about when we get the progress part and possible restructuring. So overall, we still expect a significant improvement on profit as well as free cash flow for 2023.

Julian Mitchell:

Hi, good morning and best wishes Carolina. Maybe just wanted to focus my question around the sort of operating profit for the second half. So I think you're saying you're at the low end, so sort of $6 billion of full year adjusted op profit is the new guide. That implies, I think, about $3.4 billion of second half op profit versus $2.6 billion in the first half. So you had about an $800 million increase half-on-half. I suppose my point was that in the -- just maybe you could confirm that. And then I just want to understand that step-up in profit in the context of the revenue step-up because I guess your old revenue guide of $76 billion you have a very big implied sort of revenue increase, $1 billion or so in the second half, half-on-half. I'm assuming that number is lower. But maybe help us understand the sort of revised revenue guide for the year and how we're thinking about the half-on-half step-up, what kind of operating leverage we should expect and what price cost is doing in the back half?

Operator:

Our next question comes from Joseph Ritchie from Goldman Sachs. Your line is now open.

Larry Culp:

Good morning Joe.

Larry Culp:

Well, Joe, thanks for flagging that page. I think what we're trying to do was just help everybody understand that despite some of these supply chain challenges, you don't need us talking about that macro, it's well documented. It's really about -- at least for us, what are we going to do. And I think in both instances, in Aerospace and Healthcare, we're making some good progress that we just need to make more of. And I think as we do that, we'll not only unlock some of this pent-up organic growth. We talked about 500 basis points overall from the quarter, but particularly in services and aerospace and just healthcare broadly that's going to be, I think, not only good growth but highly accretive growth. With respect to margins, I think both businesses are marching toward 20%. As we said earlier, with respect to 2023 and beyond, we're really now in the throws of our strat plan process with each of the businesses. As you can imagine, a lot of opportunity in aerospace that we need to work through healthcare, similar but different in that they're preparing for the spin. But I think later on in the year, when you speak with Pete and Helmut, if they get ready, it will be clear that margin expansion and strong cash conversion are very much an important part of their story. I think, first and foremost, they want to demonstrate outsized growth, and we think we're going to be well positioned, both in terms of commercial execution and the innovation investments to do that. And hopefully, that cash conversion can be reinvested both organically and inorganically. But I think in both instances, you're going to see nice margin expansion as we move forward. As to when we hit 20%, give us a little bit of time and we'll give you an updated view later this year.

Steve Tusa:

Hi. Good morning.

A – Carolina Dybeck Happe:

Good morning

A – Carolina Dybeck Happe:

So if you start with the health care part and the health care margins, because what you're asking is really was the confidence in improving the second half. I would say what we saw that clearly is that we get good orders in, but we still have fulfillment issues and the inflation continues to pressure. And therefore, we now expect profit dollars to be slightly below our prior guidance, so $3 billion, and that on a mid-single-digit top line growth. And I would say for the second half, with what we're seeing, we are seeing fulfillment and pricing improved meaningfully, and we expect that to continue. And of course, the combination of that will help with significant margin expansion in the second half. I commented on sales price in the prepared remarks earlier. It was the first time we saw a positive in recent history. We've talked about how we've had that in orders, and now we see it come through in sales, and we expect it to continue to improve through the year as well as getting deliveries out. In parallel, we're also taking actions and the team is working really hard on implementing more lean and decentralization to drive redundant costs out. Sort of early stages of that, but we expect to see more of that take hold in the second half. And I would say that at the same time, we are investing in R&D and in commercial activities to really drive the growth for the future. And then you had a question on the third quarter margins as well -- of in general third quarter. So what we're seeing. So I would start with the headlines, I would say third quarter top line would be trending in mid-single digits. EPS, we would expect to be down year-over-year. And free cash flow, we would expect to be better than previous quarter, but down year-over-year. And if you take that a little bit into the context of the second quarter a bit, I mentioned this morning that we had some timing impact. So some of the EPS sort of improved second quarter will impact the third quarter. We had sort of the nonrecurring benefits. We also expect to see higher aerospace deliveries, OE deliveries. So, that's going to be a headwind from profit and margins. And then with this typical seasonality in power, in the second quarter, we have the outages and we have a bit lower margin outages in the third quarter. So, overall, that's why we get there on EPS. And I would say on free cash flow, so it's a combination. You have sort of the impact on the second quarter, the positive impact on the second quarter, but also what happens in the third quarter with the OE deliveries moving out, we also expect to have a bigger impact on AD&A. And then I would say, finally, we commented on this morning is that we do see the impact of the supply constraints, which basically leads to sort of orders going out later in the quarter, which means the second quarter deliveries pushed out in the third, third into the fourth, and the fourth into the beginning of next year, which also puts pressure on working capital. So, you can expect to continue to see that in the third quarter. And that's why we expect flow to be slightly up quarter-over-quarter, but down year-over-year.

Andrew Obin:

Yes, good morning Larry. Happy Birthday, Carolina.

Carolina Dybeck Happe:

Hi Andrew.

Larry Culp:

Andrew, I would say that if I can just open the aperture a bit relative to the question, it's important that everybody understand that the supply chain challenges in the aerospace industry are far broader than any one commodity at the moment. I mean we see that not only in our own supply chains, but particularly in the wake of Farnborough and the conversations we had there with the airframers and others, this is something that we're grappling with broadly. I've had an opportunity just in the four weeks that I've been in harness at Aerospace to sit with a number of the CEOs and their teams of our core forging and casting suppliers. Here again, Andrew, no silver bullet. This is a ramp that's going to, I think, have us all very much on our toes. I think what we're trying to do is make sure that, first and foremost, our signaling to the vendors, it is crystal clear and consistent as we possibly can. I think over time, we've sent many signals, often mixed signals, and it's really tough for them to operate accordingly. I think similarly, both have indicated there are a number of ways in which we can collaborate around design, let alone capacity additions that will serve everybody and ultimately, our end customers better. So, there's a lot of work to do. It will be a multiyear task to ramp as the industry is clearly poised to ramp, but that's a high-class problem where I come from and one, we're very keen to tackle with our supplier partners in service of our airframe customers, and that's exactly what we're going to do.

Scott Davis:

Hey, good morning, everybody.

Carolina Dybeck Happe:

Good morning, Scott.

Carolina Dybeck Happe:

Yes, I would say on FX, for us, -- our reported sales were 2%. So we had a negative three points top line from currency. While on the profit and EPS, it's really a material impact. For us, this is mainly a translation impact because on the transaction side, and you were sort of commenting on that yourself, Scott, that much of our renewable sales are really US dollar-denominated. Aerospace, no exception. And then with the longer projects that we have, where we have FX exposure, we actively manage that and hedge against those. So I would say, if you assume the same rate still for the full year, we would expect a similar impact for the full year. So that is on the top line and small on the bottom line. When it comes to the different businesses, yes, well it's the ones that are more outside of US based that are impacted. So you see healthcare and renewables in different ways, but they will both be impacted by the translation impact. But overall, it's a small one for GE, for the business that I mentioned.

Andy Kaplowitz:

Good morning, everyone. Happy Birthday, Carolina.

Larry Culp:

Hey, Andy.

Larry Culp:

Andy, I think what we had indicated back in April is that we would see another approximately $400 million of profit drain in the second quarter. Unfortunately, it played out in just that fashion, but we thought we'd see second half a reduction in that drain, approximately $600 million 1st to second half. Again, that's not happening, unfortunately. I break it down really due to three drivers, all of which we've touched on, one, just this more conservative posture in the face of the realities in Washington, relative to demand, convertible demand here in 2022, the inflationary pressures that have been well discussed and the fleet durability investments that we indicated we're going to make here as well. So I think you're going to see a second half that resembles the first half more than we would like, but we are working through that. We'll talk again about targets for 2023 later, this is still a business that we have confidence in. Even though we may have a lull in demand here in the short-term, whether it be energy security, whether it be climate, there will be demand for this business in the US and broadly in attractive markets over the medium and long-term, and I think we're well positioned to play there. It's important that everyone remember that while we talk about renewables as a segment, we've got three different dynamics within the segment. We've got offshore wind, which is a growth play for us. We knew that would be an investment over the next -- over several years; grid, which is rapidly approaching breakeven and it too has, I think, a role to play in the energy transition. How long it takes us to get to breakeven. Again, Andy, we'll talk about it in more detail later. But most importantly, we are going to deal with the fixed cost, the so-called fixed cost in the business. But that's just one plank of the plan, right? We've got to do a much better job in terms of modularity and design to not only improve quality and delivery, but frankly, to bring down unit costs. What we've talked about in terms of selectivity and price is really important here. We can't chase every order and we need to continue to make substantial improvement with respect to capturing value for what we deliver. The decentralization of renewables as a segment and even within the businesses, is something that will help not only, I think, reduce cost, but more importantly, improve our execution day in, day out. And that's against the backdrop, not on like we did a few years ago with gas, where we're just going to take a more conservative view for planning purposes of volume, mindful that this low in the market, again, will be short-lived. So, there's a lot going on there. We're going to need some time to work through it. But given what's got and team did in gas and power broadly over the last several years, I think we have, again, confidence that we'll run a similar set of plays to get not only to break even, too, but far more respectable returns in that business.

Operator:

Thank you. Our final question comes from Josh Pokrzywinski from Morgan Stanley. Your line is now open.

Larry Culp:

Hey Josh.

Josh Pokrzywinski:

So, to keep Steve happy, I'll keep it brief here on my end. Just on the aviation ramp here, they're kind of a little later to the party on supply chain maybe versus some of these ship-oriented businesses like health care. What's the confidence from here in terms of maybe the ability to ramp sequentially. Talk a little bit about the context of by, I think, Andrew Obin's question, but maybe with shop visits as well, where you had some issues in the first quarter, I think, relative to plan. And related to that, how long can the spares dynamic sort of offset whatever gap is forming there? Thanks.

Steve Winoker:

Great. Larry, any final comments before we wrap?

Steve Winoker:

Thank you

Steve Winoker:

Thanks, Brandon. Welcome to GE's First Quarter 2022 Earnings Call. I'm joined by Chairman and CEO, Larry Culp; and CFO, Carolina Dybeck Happe. Keep in mind that some of the statements we're making are forward-looking and are based on our best view of the world and our businesses as we see them today. As described in our SEC filings and on our website, those elements may change as the world changes. With that, I'll hand the call over to Larry.

Carolina Dybeck Happe:

Thanks, Larry. Let's dive right into our results. Turning to Slide 4. I'll provide color on the quarter on an organic basis. Overall, orders were strong when revenue up 1% remained pressured, especially in Renewables due to U.S. onshore. The constraints that Larry detailed, including supply chain disruptions, Russia-Ukraine and China, weighed on our ability to ship, which further hurt revenue. Taken together, these constraints reduced the total growth by about 6 points. Plus, our selectivity actions impacted revenue by another point. It's important to highlight that this was largely an equipment dynamic, and services remained strong, up 15%, with growth in all businesses. Notably, Aviation & Commercial Services rose 37% as the market recovery accelerated. We continued to enhance profitability, expanding our adjusted margin 110 basis points, reflecting the mix shift to higher-margin services and continued cost productivity. On the positive side, both Aviation and Power expanded with more than 300 basis points, driven largely by favorable services mix. Within Power, steam showed significant expansion, reflecting our strategy to exit less profitable segments like new build coal as well as benefits from prior cost actions. There was approximately 200 basis points of additional margin headwinds from inflation and logistics costs net of sourcing actions at the total company level. This was greater than expected, especially in our shorter-cycle businesses like Healthcare. While we achieved positive pricing on deliveries this quarter, particularly in Aviation and Power, it was not enough to offset inflation. Despite the tough macro environment, we are continuing to prioritize investing in the future, with R&D up double-digits. We remain focused on leading with innovation through high-return, strategically differentiated technologies, such as Aviation next-gen programs and Healthcare imaging platforms like the CT Photon Counting. Finally, we increased adjusted EPS 85%, driven by margin expansion. In the standard work from continuing to adjusted EPS, I'd call out 3 additional adjustments this quarter. First, separation costs related to the planned business operation; Second, the asset impairment due to our previously announced plan to sell the nuclear activities within our Steam business to EDF; and third, Russia and Ukraine charges, primarily related to sanction activities at Aviation and certain power businesses. In all, we delivered significant order growth and continued margin expansion this quarter. Moving to cash. Free cash flow was negative $880 million, a use of cash which we expect seasonally. This was an improvement of $2.5 billion year-over-year on a reported basis or up $1.7 billion, excluding discontinued factoring programs. The improvement was largely driven by lower interest expenses and derivatives on reduced debt, as expected, as well as improvement at Aviation and Power, in line with earnings growth and utilization. This was offset by significant headwinds, including supply chain disruptions. This quarter, working capital was the biggest component of negative free cash flow.And looking at the dynamics, receivables for the use of cash, this was driven by growing CSA billings through the quarter at Aviation and supply chain constraints, driving higher deliveries late in the quarter. Inventory was also a use across the businesses of $1 billion. We expected inventory to grow in the first quarter as inventory was built to support second half volume, but this was further impacted by material shortages delaying shipments of finished goods. We still see opportunities to improve both inventory turns and receivable DSOs. In this challenging environment, it is much harder to implement though, but we are still seeing pockets of improvement. Take the Onshore Wind in North America. Our team in Pensacola, Florida held a case in event focused on hub costing. Using standard work, they reduced lead time to prep the hub costing for the assembly line by 80%, so from 9 hours to under 2. And as a result, the team also increased productivity by about 50% and reduced inventory by more than 80%. Contract assets and progress collections were a source of cash. Strength was driven by utilization, outpacing service visits in Aviation and Power as well as progress payments in Aviation and Renewable Energy. In all, our efforts to improve working capital management are slowly taking hold despite the difficult supply chain environment. We see real opportunity for the company to build on this momentum, keeping us on track to reach more than $7 billion of free cash flow for 2023. Our success in strengthening our balance sheet and improving cash flow provides us with more optionality to drive value, both through growth investments and capital return initiatives. To that end, our Board recently authorized up to $3 billion in share repurchases as a potential capital allocation alternative. Moving to the businesses. Aviation results reflect continued recovery in commercial markets as demand remains strong. However, supply chain disruptions presented headwinds to our top line performance this quarter. This will be a key watch item as we progress through the year, but we still expect improvement across the business as deliveries and shop visits ramp. For the quarter, orders grew significantly, with both commercial engines and services up substantially again. Military orders were down, largely due to a tough comp in the previous year when we recorded big CF6 and T408 engine wins. Demand remains robust. Revenue was up due to meaningful growth in Commercial Services, again, the shop visits up 18% year-over-year. Growth in shop visits this quarter would have been even higher without the material availability and fulfillment issues we experienced. Military was up as lean improvements begin to materialize. As we apply the T700 learnings across other programs, we expect tangible progress through the second half of 2022. Commercial engine revenue was down double-digits, driven by supply chain disruptions and lower production rates on GE and X. You can see the impact of wide-body mix here as engine shipments were down just 4% year-over-year, with LEAP narrowbody up 27%. The supply chain constraints were mainly related to labor and material availability due to COVID disruptions in our facilities and at our suppliers, which we're actively managing. Segment margin expanded 310 basis points to 16.2%, primarily driven by commercial services growth as well as positive pricing and productivity. This was partially offset by higher LEAP engine shipments, inflation and additional growth investments. Looking ahead at the remainder of the year, we expect demand to remain strong as the market continues to recover in most parts of the world despite uncertainty in China due to the recent COVID impact. We're managing through this and the supply chain disruptions. We still expect shop visits to ramp through the year up to 25%, driven by the ongoing recovery and customer confidence. And this supports the total year growth of 20% or more. Moving to Healthcare. Market demand continues to be strong, though the first quarter was impacted by supply chain and inflationary challenges. Orders were up high single-digits year-over-year. This was driven by high single-digit growth in Healthcare Systems and mid-single digits in PDx. Elective procedure volumes recovered from January. COVID cases subsided in February and March, with volumes improving sequentially, though hospital staffing shortages continue. Revenue was up 2%, with services growing low single-digit and equipment flat. Growth was impacted by the continued supply chain constraints, primarily in electronics, COVID impact in certain China regions, further limiting what we can buy and ship, and affecting revenue toward quarter end, lower volume in Russia and Ukraine, a region that accounts for about 2% of Healthcare's annual sales. And finally, COVID has delayed site readiness and some equipment installations, mainly due to customers' labor and construction material shortages. Absent these constraints, we estimate that the revenue growth would have been about 7 to 8 points higher or a year-over-year growth of approximately 9%. Segment margin was significantly impacted by increased material and logistics inflation, which net of our sourcing actions resulted in a headwind of about 4 points. We've been leveraging every tool at our disposal within our control. This includes

Steve Winoker:

Thanks, Larry. Before we open the line, I'd ask everyone queue to consider your fellow analyst again, and ask one question so we can get to as many people as possible. We have a hard stop at 9:00. Brandon, can you please open the line?

Nigel Coe:

I want to turn back to the guide. Obviously, we're recognizing your comments about working to the low end of the range. But can we focus on Renewables and Power -- Renewables and Healthcare based on 1Q performance? Even the low end for those 2 segments looks like a long put. So I'm wondering if we could maybe just in more detail talk about the line of sight you have to better results in those 2 segments, be it pricing, backlog quality or cost reduction, whatever you see out there to improve the performance and get it into those ranges for the full year? How does that second half ramp look?

Carolina Dybeck Happe:

And maybe to sort of -- specific on the second half there. So basically, if you think about it, the beginning of the year, we talked about the orders, and as Larry mentioned, sort of what Healthcare would have been, so we are expecting that growth to come in the second half where we see the orders now. And we also have a seasonality before the first half and the second half of the year, as you know. So there's a big growth of volume and profit and cash just the seasonality through the second half. And I don't talk to that sort of the strengthening of the organic growth that we're seeing through Healthcare. But actually, also within Renewables, we have a second half where we know that the orders in the second half on onshore wind U.S. and a couple of customers are also better, so that will also improve the second half numbers.

Andrew Obin:

Yes. So a question regarding your range. You did say that you are holding the range initiated in late January, but currently trading too low. And so 2 questions really. A, what would it take, what kind of circumstances would it take to hit the upper end of the range? Because I do find it interesting that you -- it's still out there. And the second question, when you talk about the range, are you thinking differently about EPS versus free cash flow? Which one is lower risk?

Carolina Dybeck Happe:

Yes. And if you just compare sort of the EPS range and the cash flow range, what we're commenting on is we're saying that our guide is at the low end. And that goes for sort of both KPIs. I would say from a risk opportunity perspective, there's less risk on the cash flow side than on the EPS side.

Andy Kaplowitz:

Carolina, maybe can you give us more color into your assumptions for the cadence of the year, both on EPS and free cash flow? Maybe quantify how might additional supply chain and China pressure impact Q2 versus what are your assumptions for how these pressures might alleviate through the rest of the year? And there, how your own self-help and pricing initiatives might help your earnings progression?

Operator:

From JPMorgan, we have Steve Tusa.

Carolina Dybeck Happe:

Steve, thanks for asking 2 questions there. If I start with the working capital, we expect, even at the low end of the guide, to be -- to have a positive impact from working capital. As you know, in 2021, we had a good $2 billion of positive flow of working capital, and we expect that to be an even higher positive flow in 2022. I would say, if you look at it part by part, we still expect high single-digit growth. We expect receivables to be under pressure, where we would expect inventory to improve, and basically the other places of working capital also to be a positive flow for the year. So we would expect that to continue to improve in 2022 as well. And thank you for coming back on the 2Q question. I think I missed that one from you, Andy. Sorry about that. So if we talk about the second quarter where we are, Larry spoke about what's pressuring the first quarter. So clearly, we continued to see that into the second quarter as well. We have the inflation. We have Russia-Ukraine. And we have the renewable situation. And we have the back-end loaded second half as we usually would have. I would say though that there's a lot of good things going on as well, especially the aviation return to flight as we expect that to continue to ramp through the year as well as I talked about the power part as well. If we look for the second quarter specifically, working capital will have the typical seasonality, and that means that 2Q is pressured by working capital. So overall, for the second quarter, we are expecting low single-digit growth, some OMX expansion sequentially and a free cash flow that's better sequentially but still negative.

Deane Dray:

Can you provide some more color on what the macro assumptions are that are embedded in the guidance for the year? And just to clarify, and I know this is fast changing, but you said it was a 6 percentage point revenue headwind between Russia, supply chain and the China shutdowns. Are you able to parse out those 3 factors? That would be helpful.

Carolina Dybeck Happe:

Yes. And when we talked about 6%, so that's the impact on the top line. And 5% of that is from supply chain, and we said 1%, we attribute to sort of the China and the Russia situation.

Scott Davis:

Good. I wanted to focus just a little bit on Healthcare because it's a pretty important part of the story here. Obviously, the lost sales that you get when you have the problems in supply chain, is there a way to think about -- is any of that lost forever? Or is it just pushed to the right? And are there late delivery penalties or anything in the contracts that would imply that you really can't make money when you do ship those units out?

Operator:

From Morgan Stanley, we have Josh Pokrzywinski.

Larry Culp:

Josh, you're right. I mean, we've got a lot of momentum right now in services. Revenues were up 26% in the quarter in Aviation. It's not simply a function of shop visits. And there's a lot we're doing even there to make sure that our own capacity and our supply lines are set to keep pace with this ramp. Again, a high-class challenge to have, demand is robust. But in addition, we're feeding parts and other elements of the service mix to third-parties, which particularly now as people deal with an inventory depletion as everybody is working down inventories during COVID to get ready for this post-COVID ramp, we're seeing some of that spike in certain areas as well right now. So there's a lot of good going on. And again, I think we're -- our primary challenge is going to be to keep pace with the rest of the year.

Operator:

From Goldman Sachs, we have Joe Ritchie.

Carolina Dybeck Happe:

So Josh, maybe I'll -- sorry, Joe, I'll start with the first part. So if we look at the Healthcare and the guide that we have, we said 25 to 75 bps. I would say that it will depend on how much the supply chain eases in the second half because of the pent-up demand that we have. There's great orders in there. And getting those out at a good pace in the second half, then we would be able to get to the part of that range. I would say though that on top of that, it's what Larry talked about before, we also have the work done on pricing. We have the work done on productivity and as well as sort of pushing the right mix even in Healthcare. So it's still a possibility, but it's, of course, tougher now with lower part of the range. And for '22 to '23, Larry?

Steve Winoker:

Okay. Last question, please, we'll squeeze in.

Julian Mitchell:

Maybe just a quick question on the points around offsets to some of the headwinds. You had that EBIT bridge on slide, I think, 112 of the Investor Day deck. You have the price cost inflation bucket and the productivity bucket. Can you just sort of give us dollar numbers on what you're expecting for those two in 2022 now? That price cost aspect, in particular, how big could that headwind be? And what was it in Q1? And then on the productivity side, I didn't really hear you talk about accelerated restructuring today. So I just wondered kind of what's going on, on the productivity side to make sure that you can limit the negative impact of these gross headwinds into '22 and not have them bleed too much into next year.

Carolina Dybeck Happe:

And actually, Julian, I vividly remember that slide so I didn't even have to look it out because it's really about how we get from our profit, from sort of 4.6 to where we go in 2022. But just start with the first quarter because you asked about that as well. So in the first quarter, we did see positive price, but it did not offset the cost on inflation, even net of the cost actions. But we do expect that to improve through the year as the pricing impact continues to get larger, but also as our work. And we talked about it in 3 different categories. We talked about sourcing actions, we talked about productivity, and we talked about restructuring. So if you take for the full year, I would say, what we say now, price cost we thought would be basically flat. But what we're seeing now, inflation is strengthening, and therefore, we expect that to be a negative net. But we do expect to be able to offset that with the productivity plans that we have as well as the current restructuring that we've talked about. Another big important part to grow the profit is going to be on the volume side, which we also talked about then. And we are saying high single-digit, but the low part of that, that still means reasonable growth. So that's going to be a good important part of how to get to the profit number for the full year. You asked if we're not doing anything more or what are we doing on productivity and restructuring? What we tried to talk to earlier today was that each of the businesses are going through their plans, both on productivity and how to sort of right-size their organization. So I would say, as we're speaking, all teams are working to increase those numbers and increase the actions since they're also seeing the effect of inflation.

Larry Culp:

Steve, thanks. I would just wrap up here by highlighting the fact that our teams continue to deliver for our customers in what was clearly a difficult operating environment. And we're laser-focused on positioning all of our franchises, all of our strong franchises for the long term. And I'd just like to wrap by thanking our employees and our partners for their hard work and our investors for their continued support. We appreciate your interest, your investment in GE, in your time today. Of course, Steve and the IR team stand ready to assist you as you consider GE in your investment processes.

Steve Winoker:

Thanks, Brandon. Welcome to GE’s fourth quarter 2021 earnings call. I am joined by Chairman and CEO, Larry Culp; and CFO, Carolina Dybeck Happe. Keep in mind that some of the statements we are making are forward-looking and are based in our best view of the world and our businesses as we see them today. As described in our SEC filings and on our website, those elements may change as the world’s changes. Note that we plan to hold an investor event on March 10 in Greenville, South Carolina at our power and aviation plants to provide more in our 2022 outlook with an up-close look at our lean progress and innovation. We are covering a lot of ground today with the quarter, the year, our reporting changes and outlook. So, we will run a little long. Appreciate your patience and we will still make time at the end for Q&A. One quick note, I have been getting a number of questions this morning on changes – on the changes we are making and the relevance to consensus. Consensus is not comparable to our current numbers given the changes we are about to walk through, most notably insurance, which was about $0.40 in ‘21. So with that, I will hand the call over to Larry.