Release Date: April 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: Congrats on getting the spin across the finish line. So I guess my one question will be kind of starting on the equipment side, pretty noteworthy. You booked 8 HA turbines in the quarter, equal to all of 2023. My question is broader than just the HA turbines, but can you just kind of give a bit more color on the sales pipeline you have, when we should expect that to convert to orders? Is it rational to think about book-to-bill being greater than 1 for the year? And just kind of an update on when those orders might convert into revenue.
A: Thanks, Mark. I'll take that. I mean, for sure, in the Gas business, we are seeing increased demand for new capacity additions. In the first quarter, that was very focused on both North America and the Middle East, and it was growth in both HAs, but also Aeroderivative applications. As I mentioned earlier, it is forcing us to kind of revisit our capacity additions and think through how we can continue to support this growth and what's coming from here. And I do think it's very practical to think this year that our orders in Gas equipment could very well be larger than our revenue with a growing backlog. And then you really have to think about a conversion cycle of really 2 to 3 years from order to revenue with our Gas equipment book.
Q: Congrats on getting out as a public company. So my one question, just maybe staying on Power for a second. It is pretty notable to see the service orders also up double-digits. I'm curious how much of that is being driven by just adding new orders on the equipment side and getting those orders on contract versus what you're seeing on the spot market? And really, the basis of my question is really just trying to understand whether we're in a period of time now where you have not been adding a ton of generation capacity. And could we be in a period of time where services sees a really healthy level of growth going forward?
A: You bet, Joe. I mean, at the start, I would just emphasize that double-digit orders growth really isn't connected to new capacity additions or orders there. That's really the existing installed base and is evidence of our customers investing in that installed base. I mean, as Ken framed up, utilization of the fleet is growing. You're seeing a customer base that clearly sees the integral role that gas is going to play and is investing into that fleet with different operating parameters. And as we look through this year and what we see in Gas services, we do continue to see Gas services strength throughout 2024.
Q: I guess continuing on the Gas theme here. 4.9 gigawatts is -- I know it could be lumpy, but it's 40% higher than the average quarter last year. How -- what's the maximum you could see this annualized in the short to medium term? And can you talk a little bit more about geography, Middle East versus U.S. versus other. Any thoughts there on new equipment orders in detail?
A: Yes. Moses, I would just emphasize again, the first quarter orders were very centric in the Middle East and in North America. We had previously gone through a cycle with real growth in Asia. We still see a lot of pipeline there, but the first quarter was more centered on those regions. But when we look at our pipeline, there's healthy global demand for new gas additions. The U.S. has a healthy pipeline. We're revisiting really how we serve that market because simultaneously we're seeing services demand growth and new gas capacity demand growth. And with it, it's having us work with our supply chain partners to look at over the medium term, how we can serve that demand. So we're working our way through that, and I'll come back with further updates in that regard as we work through the year.
Q: This is David Ridley-Lane on for Andrew. Can you talk about the composition of Electrification orders this quarter, 2.2x book-to-bill is very impressive. Kind of what are the products and conversion timelines on those orders this quarter?
A: Yes. Thank you, David. The composition of the orders, we saw good backlog growth in the Grid businesses and across components of the Grid business. So power transformers, Grid services, saw that happen there. The composition is in the areas where in that space we tend to see longer delivery cycles. So one of the things that we talked about last year was that we saw about 500 basis points of expansion in our Grid backlog, our equipment backlog for the Electrification business, a lot of that being in Grid.
Q: Yes. I guess just really, really strong momentum coming into the year. I'm curious, how does that kind of compare against your internal expectations? And then should we interpret this as perhaps you're outperforming what your expectations were coming in? And does that mean continued strength into the back half of the year?
A: Yes. It's a really good question, and thank you for it. As you think about the year, we're always going to be a little bit more seasonally focused towards the second half of the year versus the first. So when I give you this answer, the reality is, are we doing well against our expectations? Yes, in a very good out of the start performance for the first quarter. Keep in mind, that's our relatively smallest quarter of the year, but the strength of what we're seeing in the orders and the execution, whether it be pricing, productivity, cost reductions, very, very good.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
