Good day, ladies and gentlemen, and welcome to the First Quarter 2022 General Electric Company Earnings Conference Call. My name is Brandon, and I'll be your conference coordinator today. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Steve Winoker, Vice President of Investor Relations. Please proceed.

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.

Steve, thanks, and good morning, everyone. I'd like to start by addressing the devastating war in Ukraine. The GE team stands proudly with the people of Ukraine. As we shared last month, we have suspended our operations in Russia with the exception of some essential activities, primarily in health care. We've also made a multimillion dollar contribution through philanthropic commitments and medical equipment to assist those who have been directly impacted by the events. I'm inspired by the more than 50 GE employees in the surrounding regions who have opened the doors of their homes to Ukrainian refugees and have volunteered their time to help with other refugee efforts. Now let me turn to our results, starting on Slide 2. I'm proud of how our team drove improved services, orders and cash as we managed through increasing challenges in the first quarter. Orders were up 13% organically, with strength in both services and equipment, and we saw double-digit growth in Aviation and Power. Revenue was up slightly, driven by growth in higher-margin services in all segments. We saw continued momentum at Aviation with revenue up double digits. This however was largely offset by supply chain constraints in all segments, especially Health Care and Aviation, U.S. policy uncertainty driving lower Onshore Wind North American deliveries at Renewables this quarter and continued selectivity at Power. In particular, selectivity, being more disciplined about what we sign up for, taking a closer look at the margins we underwrite and not competing everywhere, continues to be a critical element of our strategy at Power and Renewables. We're focusing on business that's aligned with our long-term growth and profit objectives. As you've been hearing from many other companies, we're operating in a challenging macro environment. Collectively, supply chain issues, the Russia-Ukraine War and China COVID impacts adversely affected revenue in the quarter by about 6 percentage points. I'll provide more detail shortly on these factors, and more importantly, the actions we're taking to mitigate them. Adjusted operating margin expanded 110 basis points, driven by higher services mix and continued cost out. Both Aviation and Power margin improved substantially, while Health Care and Renewables were meaningfully pressured due to both inflation and supply chain shortages. Strong services growth and margin expansion led to an adjusted EPS of $0.24, up 85% year-on-year. Free cash flow was roughly negative $900 million, as expected, given our seasonality. This was driven by receivables and inventory build for the second half and supply chain constraints. Importantly though, this was a $1.7 billion improvement, excluding discontinued factoring. Overall, services are recovering across our portfolio. Our total orders are strong and our cash generation continues to improve. Turning to Slide 3. At our Investor Day in March, we discussed some of the key risk factors that drove the range in our outlook. Since then, we're experiencing increased pressure from inflation, renewable energy and the Russia-Ukraine war. We're also watching two evolving areas, namely additional supply chain pressure and recent COVID impacts in China. We're holding the outlook range we shared in January and working through these pressures I just outlined. But given the fluidity around the duration and magnitude of these factors, we're trending toward the low end of that range. Carolina will run through the dynamics by business shortly, but let me spend a moment on Renewables. As Scott Strazik shared last month, our financial results here have been unacceptable, but they are fixable. First, continued U.S. policy uncertainty, along with higher prices, has reduced near-term demand in our profitable North America Onshore Wind business. Second, inflationary pressures are impacting GE with higher material and logistics costs. Third, proven and new leadership with Scott and Philippe Piron is transforming the business fundamentals, largely using their Gas Power and Power Conversion playbooks in their new roles. This all starts, of course, with what's in our control. We need to run the business better, and that's something we know how to do. We're using lean to improve safety and quality and product cost. We're taking an even harder look at our cost structure to size the business for the new realities. We're now managing the business in a more decentralized manner, closer to our customers as well as improving our own execution. We're being more selective on deals internationally, with our price and market focus on defined geographies where we've identified product fit, services opportunities and an ability to execute. This is already yielding improved order pricing, which was up high single digits in the quarter in our onshore International business. These actions won't materialize in our results right away, but we do expect renewable energy to return to being a profitable growth business over time. And rest assured, this is a business that's critical to the energy transition, thus one positioned for long-term growth. More broadly, in all of our businesses, we're driving growth, price and cost out. We're growing our more profitable services businesses, reconfiguring our supply chains and leading with innovation while increasing R&D spend. We're also raising list prices and price floors. And in services, we're utilizing escalation clauses in our agreements and we're focused on sourcing and productivity to reduce cost. Power, for example, continues to deliver profit and cash, supported by price escalation in our CSAs and improving steam business, a disciplined underwriting strategy and operational improvements despite the fulfillment challenges. And we're embedding lean deeply across GE, changing the way we work for the better. You've heard me talk about the core principles of lean before, which is all about serving the customer, eliminating waste and prioritizing ruthlessly. Earlier, I mentioned six points of pent-up revenue we need to work through to execute on the demand we're seeing, especially in Aviation and Healthcare. Let me give you a few quick examples of what we're doing to manage through the well-documented supply chain challenges out there. We hosted our Investor Day at Genba, showing up close how lean is transforming the company. Many of you saw at our aviation facility in Greenville how our team performs complex machining operations and detailed inspections on high-pressure turbine blades. Here, we're focused on reducing the site's blade delivery lead time. The team has used lean to improve the plant layout and create standard lines, improving part flow. These actions have reduced lead time by more than 10 days, and we're targeting an additional 10-day decrease. Through this work, overall inventory has been reduced as well. Our military business is also making progress. For the T700 program, we've improved first-time yield in key lines by about 40%, and shipments increased more than 35% sequentially. This supported high single-digit revenue growth at military in the quarter, with more improvement to come as we apply these learnings to other engine programs. In Healthcare, our ultrasound team shifted part of their work cadence from make to stock to make to order. This has simplified planning and execution, optimized infrastructure cost, and reduced lead time by 30%. Importantly, the team has also increased inventory turns by 50% since 2019, removing the waste from the system. And while lean is always important, it's during these dynamic times that lean really contributes and differentiates us in the eyes of our customers. In turn, as we make these kinds of continuous operational improvements, we better serve our customers and set ourselves up to reinvest for growth, driving innovation across GE, where we have significant impact with our customers. Just looking at what we market, sell and service today. At Renewables, we completed the Traverse Wind Energy Center with Invenergy recently. This is the largest wind farm constructed in North America in a single phase. And it's powered by more than 350 of GE's 2-megawatt platform turbines. At Aviation, we're developing technologies for the future. We've recently reached two key engine milestones. Our adaptive cycle XA100, with the second engine to test fired up in March, and our first T901 engine tested successfully in March as well, achieving max power, with performance matching our pretest predictions. We're also introducing new products, like Healthcare's Edison digital health platform. Powered by AI, this platform will aggregate data from multiple sources and vendors to help reduce staff burdens and improve the delivery of care. And at the same time, we'll continue to complement these organic investments with inorganic activity to improve our growth potential, whether with an acquisition like BK Medical or a sale, as seen this quarter with part of Steam Power's nuclear business. In summary, we're taking action in this difficult environment to serve our customers while investing in tomorrow's innovation. We're using lean principles to improve our results and our culture. We're confident this work is improving our operational and financial performance while fortifying our competitive positions around the world, ultimately unlocking further potential across our company. And with that, Carolina will provide further insights on the quarter.

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 three 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 were a use of cash, 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 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, with 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 the 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 pricing actions, which are showing early success; qualifying alternative parts; redesigning product configuration; and reducing discretionary spend. The Healthcare team remains focused on innovation and commercial growth investments, with R&D investments up double-digits this quarter. A couple of key solution highlights from the quarter include: the FDA approval of the Entitled Control Software platform to automate anesthesia delivery and a subscription model for our handheld ultrasound tools. Looking ahead, our current view at Healthcare is that supply and inflationary challenges will persist at some level through 2022. Sequential improvement depends on supply chain constraints easing, especially in China, and our ability to leverage lean to improve output and strengthen our pricing discipline. We are working to offset headwinds with price increases. But given product fulfillment timing, this will likely have a more meaningful positive impact in the second half. We also continued to manage SG&A and discretionary costs to improve margins. Our supply chain constraints in Healthcare is well positioned to achieve high teens to 20% margins over time. Turning to Renewables. Our results were challenging. So let me give you more context. We're seeing pressure in the U.S. Onshore Wind, largely due to the PTC dynamics, and higher prices suppressing demand as customers delay decisions. Grid is positioned to support modernization needs as demonstrated by our contract this quarter to supply a digital subscription for the Empire Offshore Wind 1 project. And we've started to see increased interest within Europe as countries recognize the need to meet their energy goals. On the quarter, orders were down double-digits. Onshore equipment orders decreased, consistent with the inflation-driven customer delays and the U.S. market decline. Our selectivity strategy is impacting both wind and grid. Grid was also down as we lapped the large HVDC order versus last year. However, with automation orders remain strong, up double-digits. And overall, services grew mid-single digits. Revenue declined, with all businesses down as we saw lower equipment revenue with 280 fewer wind turbine deliveries year-over-year. Grid was also down due to increased selectivity. This was partially offset by significant services growth, primarily driven by onshore repower. Segment margin declined substantially, driven by volume reduction in our most profitable market, U.S. onshore, combined with cost inflation in materials, such as steel and transportation costs, across the business. Onshore Wind margin declined and was negative, pressured by volume, mix and the new product transitions. We continued to transition to newer product offerings internationally and executed on lower margin projects in North America. On the positive side, we saw benefits from lower cost and savings associated with prior restructuring projects across our businesses. At Grid, margins improved slightly with the restructuring benefits, offsetting lower volume and our rundown of low-margin legacy backlog. Today, due to lower volumes in Onshore Wind North America and the additional inflation we've seen, we expect Renewables to be below the outlook range. The business full-year result will depend largely on North America volume, the inflationary environment, and execution of cost and price actions. Overall, these results are disappointing, and we know we have a lot to do here, but we have a proven playbook and a leadership team driving pricing to market and selectivity and taking a hard look at the right cost structure. Long term, we're confident the team will drive profitable growth given the market demand for renewable energy generation as the world adds 1,000 gigawatts of wind capacity in the next decade and our strong portfolio. Moving to Power, where our team is driving operational improvements. Better results reflect progress with Gas Power, Steam and Power Conversion as lean takes hold, positioning the business for long-term success. Global gas generation and GE utilization remained resilient, up mid-single digits as the market manages through the uncertainty and disruptions in Ukraine. Despite recent price volatility, gas continues to be a reliable and economic source of power generation. And over the next decade, we expect the gas market to remain stable, with gas generation growing low single digits. Orders were strong, and we improved the quality of the backlog for the future. Significant growth in equipment was driven by large H-Class order, with continued aero momentum. Our new business underwriting remained disciplined as we grow our backlog profitably. Services orders were also up, driven by gas, with growth in both our contractual and transactional business. Revenue was down mid-single digits, primarily driven by equipment as we shipped 3 fewer H-Class units year-over-year. This was consistent with our backlog ship dates, which will result in back-end loaded equipment revenue this year. Aero continued to grow, shipping 7 more units versus last year. And services was up 1%, driven by gas and power conversion. And recall, we deconsolidated the Baker Aero joint venture last year, so that is now excluded from our organic metrics. Segment margin expanded 360 basis points. Gas Power margin was positive and improved. We are seeing progress in Steam with meaningful margin improvement due to the increased focus on services, reduced cost structure, and project and legal charges from last year that did not repeat. Similarly, the focus on services and selectivity at power conversion generated positive margin, making four quarters of profitability. And for 2022, we expect to deliver margin expansion, driven by Aero deliveries, transactional services and continued improvement in steam. And while we expect a dip in our CSA revenue, driven by a lower planning outage profile in 2022, really based on multiyear technology cycles, we expect to increase next year. And we expect continued strong service fleet utilization and cash generation. Power remains on track to meet its full year outlook. Though the team faces a relatively higher exposure to Russia than the other businesses with Russia comprising of about 4% of revenue at high incremental margin. Importantly, our commitment to selectivity and operational execution is enabling us to win the right orders, grow services and increase free cash flow generation. Finally, I'll spend a moment on corporate. As a reminder, we rolled the remainder of capital, including EFS under corporate. Adjusted corporate costs, which we expect to be uneven through the year, decreased by more than 40% year-over-year. This was primarily driven by better EFS performance and improvements in functions and operations. While excluded from our adjusted results, insurance net income was approximately $180 million, up year-over-year. This was driven by favorable claim experience in our LTC portfolio and continued investment return favorability. This quarter, we also completed our annual cash flow test. As expected, we funded $2 billion in line with permitted practice. Additionally, our team is preparing to implement the industry-wide FASB accounting standard beginning in January 2023. As disclosed previously, this will result in a GAAP charge but does not impact projected cash funding. At Q2 earnings, we'll provide more detailed update.

Carolina, thanks. Before I close, I'll briefly touch on the real progress we're making on our plan to create three independent investment-grade industry leaders. As always, it starts with our team. As we shared at our Investor Day, we've added three new Board members: Steve Angel; Bella Goren; and Tom Mihaljevic, who bring deep domain expertise in our key industries. And we're delighted to add to our existing leadership bench, Scott Reese, who joined as CEO of our Digital business, which will be part of GE's Global Energy portfolio going forward. And in Healthcare, we welcome Chief People Officer, Betty Larson, and General Counsel, Frank Jimenez. We remain very enthusiastic about the opportunities these spins will unlock for our already strong franchises as they will help drive greater focus, accountability and alignment with our customers and the markets they serve. We're committed to making sure each proposed company is set up with an investment-grade rating, strong capital and governance structures, and best-in-class talent that will position them for long-term success. As you heard from our Healthcare leaders last month, planning work for the spin-off is well underway, and we're on track to launch Healthcare early next year. We've received positive feedback from our customers and many investors. And we have dedicated cross-functional teams working through stand-alone operating and capital structures, governance branding and a range of other work streams to ensure operational readiness. We have more than 1,000 people today engaged in the separation planning work, moving forward with purpose in important areas. We're progressing the carve-out audits. And we have finalized the IT infrastructure and legal entity separation plans. A lot of work has been completed, more to come, but we're on our way. Pete and his leadership team are focused not only on successfully executing the intended spin, but also deeply embedding lean and developing long-term plans to accelerate top and bottom line growth as an independent company. At the same time, GE remains focused on serving our customers. The majority of our teams are fully dedicated to running the business and driving lean improvements to further strengthen our foundation ahead of the spins. As we move forward, we're confident about our path to create three outstanding companies well positioned for the future, with global leadership positions, lean cultures and innovation prowess to solve for the critical needs of our customers. I'm grateful for the focus and dedication of the GE team. I continue to be inspired by their extraordinary commitment. I'm excited about our ability to realize the full potential of these businesses as we move forward. To close on Slide 11. It's been a busy start to the year to say the least. This quarter presented its challenges with rising inflation, renewable energy and Russia-Ukraine chief amongst those challenges. And we continue to monitor additional supply chain constraints and the COVID impacts in China. But we're managing through, focusing on what we can control, and there is a lot that we can control. The recovery in services is a bright spot, with all businesses growing service revenue this quarter as well as strong underlying demand in Aviation and Healthcare. I'm confident that our team is leveraging lean and decentralization, focused on safety, quality and delivery, and taking action to drive growth, price and cost out. And we continue preparing our plans to stand up three strong independent companies, focused on growing critical sectors, in Aviation, where we're on the cusp of a post-COVID recovery and new engine ramp with our airframe customers, accelerating our mission to create a smarter and more efficient future of flight. In Healthcare, where we're innovating in precision health to drive efficiency and improve patient outcomes. And in Energy, where we see tremendous opportunity to provide affordable, reliable and sustainable power. Overall, I hope you see what I see, that our businesses are positioned for success as we continue to scale lean and drive innovation, delivering better results for our shareholders today and tomorrow. Steve, with that, let's go to questions.

Thanks, Larry. Before we open the line, I'd ask everyone to 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?

And from Wolfe Research, we have Nigel Coe.

I want to return to the guidance. We understand your concerns about working towards the lower end of the range. Can we specifically discuss Renewables and Power, as well as Renewables and Healthcare, in light of first-quarter performance? Even the lower end for these two segments seems challenging. I'm curious if we could explore in more detail the outlook you have for improved results in these areas, whether it's related to pricing, backlog quality, or cost reduction initiatives. What do you see that could enhance performance and bring it within those ranges for the full year? How does the ramp-up look for the second half?

Well, I think we start with Healthcare, Nigel. We're clearly seeing more inflation there. And the price cost challenges we've discussed before I think continues to be top of mind. We're encouraged by what we've seen with respect to improved pricing in the order book here of late. That is yet to match up with what we're seeing in terms of price in our recognized revenue. But that will come. So I think as we look sequentially through the rest of the year, that will be less of a headwind for us as we make that progress. I think we're doing a lot of good work with not only our suppliers, but within our own facilities, to make sure that we're able to match output with demand, right? This is not a demand issue. Orders in the quarter for Healthcare increased by 8%. It's really about improving throughput. I don't want to place all the blame on our suppliers. We are actively working with them and enhancing our own facilities to boost supply reliability. However, we are facing some backlogs. We've discussed this previously, and I believe we are making solid progress with some of our major suppliers regarding our A parts. Yet, we continue to face challenges with the B and C parts. Nevertheless, through redesigns, resource adjustments, better communication with suppliers, and our internal improvement initiatives, I anticipate we will see steady progress over the year. This will enable us to increase volume while improving pricing over time. With the current demand environment, I expect Healthcare to show improvements as the year progresses. I think with respect to Renewables, what we really want to highlight here is that we're fundamentally taking, I think, a more measured and more conservative posture with respect to the outlook in Onshore Wind. There's, I think, considerable uncertainty with respect to the PTC and other incentives. That is creating a bit of a pause with customers. I think the timing of that resolution is unclear. Congress can, and I believe will, take action this year. But at this point, with the passage of time, I think we know that the orders later in the year are likely to be delayed, if not pushed into '23. That will create some pressure for us particularly from an order and, in turn, a cash perspective. But that, coupled with the pricing actions, which I'm pleased by, right, because we do need to see improved price in Renewables, particularly in wind. While it's a short-term pause with respect to demand, it's the right thing for the business, and I would argue, the industry. We're taking some of those tough decisions. But if you look at even ex U.S., we saw a high single-digit increase in our pricing moves internationally in Onshore Wind. That's part of the improvement plan. And again, I think something that you'll see play out through the course of the year. But in the absence of that volume in onshore North America, that creates a more muted outlook for us in Renewables in '22.

To be specific about the second half, at the beginning of the year, we discussed the orders, and as Larry mentioned, we are expecting growth in the second half where we are now seeing the orders. 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.

From Bank of America, we have Andrew Obin.

Yes, I have a question about your range. You mentioned that you are maintaining the range set in late January, but you are currently trading below it. So, I have two questions. First, what circumstances would need to happen for you to reach the upper end of the range? I find it interesting that it’s still a possibility. Second, when discussing the range, are you approaching EPS and free cash flow differently? Which of these do you consider to be lower risk?

Well, let me take the first part of that. Maybe Carolina will take the second part of that. Andrew, I think what we really wanted to make sure people understood here was that we've got a number of pressures, again, inflation. We talked about Renewables a moment ago, and incrementally, the Ukraine-Russia situation. I think depending on the pace of some of these sequential improvements we've just touched on, be it our pricing actions, be it our throughput actions, let alone some of this policy uncertainty being resolved, that could, I think, give us a bit of a lift here beyond the low end of the range. Clearly, throughput is not strictly a Healthcare dynamic for us. We're really encouraged by the strong order books in Aviation, up 30% overall. As you saw, services up over 35%. But we really have a lot of work to do, again, with the supply base and in our own shops to keep pace with that.

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.

From Citigroup, we have 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?

Yes, certainly. What we are observing is that the pressure we have discussed regarding the first quarter is likely to continue into the second quarter. However, we anticipate that it will start to ease after that. This easing should allow our Aviation sector to ship all the engines they need in the second half. Additionally, in Healthcare, we expect to achieve about 9% organic growth, assuming we've met all our customers' needs. This growth is expected in the second half and will positively affect both our profit and cash flow. If you look at the Renewables side, it's probably more of a sort of slower trend there, highly impacted by the inflation. We do have, as I mentioned earlier, sort of good orders with reasonable margins in the second half. So we have a positive mix also first half to second half, which isn't necessarily inflation. But sort of as we continue to work through, that would also improve. What I would say, we expect to go through all the businesses through the year and get sort of stronger momentum; it will be price. So the pricing actions that we're working through, especially in the longer cycle businesses, you sort of start to see improved pricing in the order side. And Larry mentioned that earlier today, that even if you take Onshore Wind International, which is an important area for us to increase prices, we actually had high single-digit pricing, for instance, in the first quarter in orders. So as the orders translate into sales and revenue, we'll start to see more impact from pricing as we go through the year.

From JPMorgan, we have Steve Tusa.

I have a couple of follow-up questions. First, can you share your current expectations for working capital this year and if there have been any changes since the guidance provided at the March event? Additionally, could you clarify your outlook for the second quarter? It seems there was some confusion following the fourth quarter of 2021, which led to several adjustments in the first quarter. It would be helpful if you could provide a clearer range regarding the expected results compared to the $0.24 and the negative $800 million in free cash for the second quarter.

Steve, thanks for asking two questions there. If I start with the working capital, we expect, even at the low end of the guide, 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 Q2 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 Q2 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.

From RBC, we have 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.

Deane, I would say that with respect to the macro, again, I think inflation pressures have become more acute in certain areas. And we're working hard to offset that in a number of ways, both from a procurement, from a utilization perspective, let alone on the price side. We can get into that in more detail if you'd like. Again, I think in Renewables, we're assuming a resolution, but probably a late resolution in that regard with respect to some of the incentives here and the clearing of this pause customers are taking in the wake of price increases that we and others are trying to put across. There is clearly inflation due to pressures from both metals and logistics that have increased in the Renewables sector as well. Additionally, the situation between Russia and Ukraine is contributing to these challenges. We are closely monitoring supply constraints and are actively working to mitigate them with both our suppliers and within our own operations. We can enhance our relationship with suppliers by clearly communicating our needs and timing. We are implementing strategies, particularly in Aviation, to assist suppliers in overcoming bottlenecks. Progress is being made, especially with A parts and C parts. We are diligently observing the situation while striving to increase output in our facilities. We are also monitoring developments in China, given the impact of lockdowns, especially around Shanghai, on demand and output in the first quarter. The future trajectory remains uncertain. Thus, we are focused on inflation, the conditions in Renewables, and the situation in Russia, which are the main pressures we are facing.

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.

From Melius Research, we have Scott Davis.

I wanted to focus on Healthcare because it's a crucial part of the situation here. Considering the lost sales due to supply chain issues, how should we view that? Is any of that loss permanent, or is it just delayed? Additionally, are there penalties for late deliveries in the contracts that would affect profitability when those units are eventually shipped?

Fortunately, we make very good margins across the Healthcare portfolio, which is likely our highest gross margin business. In a quarter like the one we just experienced, where orders increased by 8% and shipments rose by 2%, we are building backlog, which is typically a positive sign. However, since we haven't cleared all the orders received in the second half of last year, we are also accumulating a past due or delinquent backlog. This situation usually doesn't carry penalties associated with longer cycle businesses. Therefore, we need to get that product out and recognize the revenue once we do. I believe you will see a strong impact on both the profit and loss statement and the cash flow statements. There is still a significant amount of work to do with our suppliers and within our own facilities, which we are actively addressing. It can be challenging for those outside the organization to notice our progress. Fortunately, this situation is not related to demand; it's primarily about throughput, and that's where we are concentrating our efforts. We are experiencing inflationary pressure, which is why Pete and the team are raising prices where possible. We have seen notable improvements in our order book in this respect. To convert that into revenue, we need to address the backlog, and we are seeing some progress on that front now. However, in some instances, we will require a few more months. Overall, I am optimistic that when we combine these efforts, it will contribute positively to the sequential improvement we expect to see in Healthcare throughout 2022.

From Morgan Stanley, we have Josh Pokrzywinski.

We have covered a lot of ground in other areas, but I would like to take a moment to discuss Aviation. There appears to be a significant difference between commercial services and shop visits, with services increasing at about double the rate of shop visits. How sustainable is that figure? Is it influenced by higher-value projects coming from wide-body aircraft? How should we understand this performance discrepancy, and what are your expectations for future trends?

Josh, you're right. We have significant momentum in services right now, with revenues increasing by 26% in Aviation this quarter. This growth isn't solely due to the number of shop visits. We are actively working to ensure our capacity and supply lines can keep up with demand. It's a favorable challenge to have, with strong demand present. Additionally, we are supplying parts and other service elements to third parties, especially as companies are reducing their inventories in preparation for the post-COVID ramp. We're seeing a spike in certain areas as a result. Overall, there's a lot of positive activity, and our main challenge will be maintaining our pace for the rest of the year.

Brandon, we have time for two more questions.

From Goldman Sachs, we have Joe Ritchie.

I have a clarifying question and a quick one about the transition to 2023. For this year, is the 25 to 75 basis points of margin expansion in Healthcare still possible if we end up at the lower end of the guidance? Additionally, as you look towards 2023, it seems the gap in net income from 2022 to 2023 is increasing. I'm curious if your confidence in reaching approximately $7 billion in net income by 2023 has diminished at all, considering the external factors at play.

So Joe, I’ll begin with the first part. Looking at the Healthcare guidance, we mentioned a margin expansion of 25 to 75 basis points. This will depend on how much the supply chain improves in the second half due to the pent-up demand. We have strong orders, and if we can manage to fulfill those at a good pace in the second half, we will be able to reach the higher end 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 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?

Sure. Joe, I think a lot of what we've talked about here in terms of the sequential improvements in those areas that are within our control really are the most important planks in the bridge to '23. But I obviously start with cash, as you know, and when I think about, if you will, the low end of that $5.5 billion, $6.5 billion guide for cash this year, if we just take the $5.5 billion, it doesn't really take us much to get to that $7 billion figure we've talked about for next year. Again, I think Aviation is moving forward in this regard. And the AD&A headwinds we've talked about for this year, probably $0.5 billion shouldn't repeat next year. We talked a moment ago with Scott relative to Healthcare and the sequential ramp from here. We think demand will continue to be robust. Again, in this post-COVID world, we see investment both on the private and the public side. So as we clear that backlog, probably carry a little bit of that back into next year, we're going to move. And I think with respect to Power, you continue to see steady improvement. In all, what we really need out of Renewables is a little bit of the same, right? Not a dramatic turnaround going into next year. So a lot of work to do still this year, but we think we're on a path for '23, along the lines of what we've discussed previously.

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

From Barclays, we have 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.

Well, Julian, let me address the latter part of your question while Carolina retrieves the referenced materials. When we discuss throughput, it inherently includes a productivity aspect. However, we must ensure that safety and quality take precedence before delivery and cost, so we are effectively getting products out. Much of the lean initiatives, which you observed in Greenville, enable us to increase capacity to overcome bottlenecks without unnecessarily overextending resources, which could compromise productivity. A significant challenge in both Aviation and Healthcare is to remain committed to this approach. I believe the lean approach focuses primarily on productivity. In our prepared remarks, we mentioned the need to adjust the cost structure in Renewables to fit the new realities and uncertainties we are facing. Scott has been in that business for about 100 days, and he and the team are closely examining opportunities to address cost areas that require attention. This work is ongoing and intensifying. Again, as we prioritize, we aim to alleviate supply constraints and actively manage purchasing costs and pricing with greater effort.

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 three 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, any final comments?

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, and your time today. Of course, Steve and the IR team stand ready to assist you as you consider GE in your investment processes.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.