GE Vernova Inc. (GEV) Earnings Call Transcript & Summary

Excellent. That's helpful. You had made a couple of points on the services side of things as well. I wanted to maybe double-click on that a little bit. Could you quantify maybe for us? Well, you gave us some quantification of the gas services opportunity. And I'm thinking about it into the 2030s, describe how this kind of inflects? How does this change the overall kind of power business complexion for GEV?

You bet. I mean we talked in December of '25 about the Power Services revenue growing from $12 billion in '25 to $22 billion in '35. And most of the financial measurements we put out on the street, I would certainly view that $10 billion growth in services over 10 years to be a conservative marker for 2035. And by the time we get to at a future Capital Markets Day, and we're talking about a 2030 financial case, we'll outline how much of that's equipment and services. And that 2030 revenue number will certainly make the 2035 marker of $22 billion look low. The reality is we continue to grow the installed base at a very healthy ramp. And as we ship equipment late this decade and then 4 years later, directionally, when it has its first outage event, these catalysts are going to drive a business that continues to grow services through the next decade. So I mean on our end, I completely respect and understand the debate on, okay, how many years can Vernova ship 30 gigawatts of new gas in the next decade, 30, 31. We're already into '32 selling right now, but it's a healthy debate. All that said, what we've got to do a better job for you is to show you from 30 to 40. What we're debating how many years we're at 30 gigawatts, how much the services revenue growth is annually. And it's not going to be an inflection point being there's not a hockey stick with services revenue, it's just every year, you're adding 50, 100, 125 heavy-duty gas turbines that are going to run baseload and the strength of that services annuity should grow throughout the next decade.

Absolutely. And I appreciate the color you gave on how you think about the HA side of things in terms of revenue contribution, what that could accumulate to over time. So very interesting. Maybe could we shift to the electrification side of things. On the data center end market and end customer. You've seen orders already double what you had experienced in 2025 at this point. How do we think about going forward? What's driving maybe the end market and also your strategy there? You mentioned some new products. So maybe I would be curious about that, but is it new products, new scope gaining share of your traditional offerings there?

Yes. I mean, for context, for everyone in the room, we did about $2 billion of data center orders in '25. We have done north of $5 billion through the first half of '26. So we're seeing real traction there. All that said, we won't likely go at that same run rate in the third and the fourth quarter that we were at in the first half of the year. The reality is some of these data center orders can be a little bit lumpy. So the $2.5 billion run rate, which ultimately in the first half of the year, data center orders and electrification are almost 40% of electrification's total orders, it's probably more like 20% of our electrification orders in 3Q and 4Q, while growing the backlog, both the electrification backlog and the data center backlog in 3Q, 4Q, but maybe not at the same run rate as the first half of the year to be clear. Now the new products that I mentioned in the prepared remarks will start to cut into the order book in the second half of the year. Certainly, the MV-UPS we're expecting more EMS solutions, solid-state transformers, more of a '27 opportunity than '26 for orders. Those new products aren't the only things we're working on. We see more opportunities, and we'll share more of those new products in the future. We also just are having a more and more intimate relationship with our customers between power gen and electrification in a world where those teams have very difficult jobs. We are one of the few companies in the world that can serve them largely with power gen and electrification in a way that we can make their jobs easier, not just commercially in our interactions, but also in the technical solution. So one of the things that gives me so much confidence in where we're going is how much time the hyperscalers are spending at our Advanced Research Center in Niskayuna, New York with us, showing us how they want to run their data centers and collectively, we are co-creating what those future products need to look like. We have hyperscaler racks at our research center in Niskayuna, New York connected to our equipment in which we're simulating where their performance can go from here. And when you get to a point that you're co-creating with your customers on their end performance, you've got a disproportionate opportunity to grow that business. And that's why you see in Vernova, the R&D of electrification growing faster than the other 2 businesses. We don't need to create as many new products in power generation as much as I love the business. Electrification, it's a great opportunity for us, but we're also investing in the CapEx of the factories to meet the ramp, our Prolec acquisition. We've already talked about the fact that we've taken up our revenue guidance in Prolec, and we acquired the business in February because we're seeing an ability to get more output out of the existing factories. We see more of that coming. And those are opportunities that we have after acquiring Prolec that gives us even more commercial and technical flexibility with the end customers and gives us a lot of humble confidence that this is a part of our business that we're going to grow significantly from here.

Yes. And when you suggest that some of the order flow is going to be lumpy in the second half, that's data center specific within electrification. And I was curious if you could give the outside of the data center end market, what should we be focused on in terms of what you're seeing in terms of end customer demand?

Yes. I mean we continue to see outside the U.S. strong HVDC orders growth. We were in the public domain, a winner of a large HVDC project in India that will cut in as an order in the fourth quarter, but that's almost $1.5 billion transaction in isolation. We continue to see real need in the end markets for both resilience and reliability and opportunities to support there. So I expect us to continue to grow our backlog in a very healthy way in both 3Q and 4Q in electrification. But by default, electrification can be a little bit more lumpy, both with data centers and frankly, the nondata center business with examples like the India HVDC project, where -- that's one that will go to order in the fourth quarter, although we were awarded publicly in the final results a few weeks ago, the results. So real progress in the business will be a little bit lumpy, and we'll keep driving it from here.

Yes. Understood. You had mentioned Prolec. Could you give us an update on how that integration is going as you've brought it into the company. Any surprises that you would call out for investors?

Even more opportunity to fulfill within the existing footprint than I anticipated prior to close. Spending a lot of time inside the factories in Shreveport, Louisiana, Goldsboro, North Carolina, and Waukesha, Wisconsin. We're seeing real opportunity with modest amounts of CapEx to drive very capital-efficient growth in those factories to an even larger extent than we anticipated. So relative to the financial framing of the business, when we announced the deal, I certainly would expect our 2028 financials to be materially better than the incremental revenue and margin than we projected in October. So we're pleased. We also are getting very positive feedback from the customers on the streamlined nature and incremental flexibility we have on how we serve them. Now that we don't have a partially-owned JV that had its own captive market for North America transformers that also gives us more flexibility to serve our North American customers from outside North America. And we talked about that in the past that year-to-date through 2Q, we've had $800 million of orders selling into North America from our international factories that prior to closing the deal, we were unable to do because the JV was the exclusive provider in North America. So we're pleased. We're bullish on the art of the possible from here and working it hard every day.

Excellent. Maybe following on to the M&A side of things. On the -- on your free cash flow, you've now increased free cash flow guidance multiple times this year. I was curious on capital allocation. How do you prioritize whether it's M&A? I'm curious to get your perspective on that versus internal organic CapEx, R&D, as you mentioned, and then, of course, share buyback or return of capital to investors here.

Yes. And I mean I would start -- I mean, we've had a very strong cash performance. Sometimes we'll get the question on how does that project going forward. What I would just continue to reinforce for everybody is the strong cash performance, although there is a lot of increased progress payments or deposits, the change in our progress balance is still less than the change in our margin and backlog, i.e., the cash is less than the incremental profit that we're booking. And I make that point to just say that cash balance that we have at $13 billion and the cash performance we expect going forward gives us complete optionality to play offense, creating value for this company, and that's exactly what we're going to do. Now we have demonstrated to date and we'll continue to demonstrate that we will be very opportunistic with the stock buyback program when the market is volatile. I mean through the second quarter of this year, since we launched the program over 18 months, we've acquired 12.4 million shares at an average price of $560. That wasn't necessarily buying the same amount of stock every day. That's taking advantage of moments of disruption. The third quarter has given us another good opportunity to continue to do that and we will continue to do that because we have an immense amount of conviction and the value we're going to create for this company going forward. But it's not going to be where we put all of our capital. We would like to do more M&A, but you need to be patient on M&A. And at the end of the day, there's a number of hurdles we need to get through. We have very high expectations internally for our organic growth with our businesses, both the top line growth and the margin expectations. If we're going to do incremental M&A, it needs to be accretive to our internal financial case, maybe not on both growth and margins, but certainly one or the other. It needs to be M&A in which we really see target companies in which the technology is differentiated. A lot of stuff that we see today may be good profitability in '27 and '28 because of, let's say, supply/demand imbalances. But if you're going to buy a company, you need to have a lot of conviction over the next 10 to 20 years of financial performance. And for us, that means there needs to be a real technology differentiation that integrated within Vernova creates real returns for us. And on top of that, candidly, you need a seller that wants to sell. And although that is evolving quite quickly this autumn relative to what I would say the mood in the seller's demeanor was in the spring. You need 2 that want to get to a smart economic outcome. So we're thrilled with Prolec. I would like to do more M&A. It almost certainly would be M&A within our core because our management teams have more than enough that they're juggling right now that they don't need new balls in the air, but it needs to be acquisitions that are accretive to our financial case with technology differentiation and where the economics make sense. And we're going to be patient in that regard. So we may very well sit on a cash balance for a period of time while those right opportunities present themselves, but when they do, we will act. And while that takes time to play out, we will continue to return real capital to our shareholders. And with conviction in every case where we see organic opportunities to grow our business, yes, we're going to invest in those businesses and those opportunities. And that continues to be a great filter for us, frankly, in relation to M&A because the reality and a lot of things that we look at with an M&A lens, when you really look in the mirror as to whether we should be able to do it ourselves. The answer is yes. And that's exactly what we'll do first before we put that inorganic capital to work.

Excellent. Appreciate that color. I did want to, let's see, upfront, you had also mentioned onshore wind. I wanted to sneak in just a little bit of a question you had mentioned pivoting profitable, maybe directionally '27, looking better than '26. What are you seeing in that end market? We've had soft order intake for some time now.

Yes. I mean, unlike our other 2 businesses, it remains soft order intake, and I wouldn't expect different orders dynamic in the third quarter per se. I mean the second half orders, yes, will be materially larger than the first half orders in onshore wind. But relative to a historical precedent, we continue to have elements of uncertainty with tariffs 232 classifications with permitting with end customers. We have a very high pipeline of activity. We have a lot of what we call technology selections where customers are permitting with our technology, but it's different than a gas slot reservation agreement that has like 25% down. It's more of an MOU, I would say, than a lot of firm cash. And there are opportunities for an inflection point with onshore wind. The country certainly needs more wind, but unlike the other 2 businesses, I wouldn't say that we are close to that inflection point right now. The one part of the business, we see the most opportunity is with repowerings because the reality is we have a huge installed base in the U.S., there's over 30 gigawatts of our installed base that have repowering potential and as it stands today, the PTC tax credits expire at the end of '30. So there's an urgency to take advantage of that dynamic. But I would say it's still early to complement that market opportunity with the uncertainties with things like tariffs and permits that have the market softer. And I would expect it to remain softer certainly through the second half of this year. But even with that softer market, because of the fact that we've really governed our offshore wind economics and our onshore wind services profitability is getting much better, the profitability of our wind segment will be drastically better going forward.

Excellent. With the last minute here, I thought maybe I'd ask in terms of the next Capital Markets Day, could you give us an indication of what we might hear at your next update in terms of business updates, forecast elements that you think need to be communicated to us?

Before we get to the next Capital Markets Day, I think we're going to put a lot of proof points on the board in the near term to demonstrate how much value we're going to create in the company from here. I mean I look forward to our third quarter earnings call. It will continue to affirm both the growth and margin expansion of the company. That's important in October. You get to a January earnings call and a number of things will be clear. We will have delivered a complete '26. We'll provide our change in equipment margin and backlog in '26, which is a very important page because that really tells you the equipment margins for '29 and '30 largely. That will be in our January earnings call. We'll also provide you a '27 financial outlook in our January earnings call and likely at that earnings call set the date of our next Capital Markets Day. Next Capital Markets Day, I would expect certainly in the spring, no later than -- or certainly before the summer, most definitely. And the reason that we're waiting for that window of time for that meeting is because we wanted to get '26 actuals on the books first. We wanted you to see that change in margin and backlog in the equipment book. And then we'll set both our 2030 financial outlook at that Capital Markets Day. But frankly, we'll spend a lot of that meeting on why we have so much conviction that 2030 to 2040 is an even better decade for us than 2020 to 2030. And I look forward to all those proof points on the value we're creating in the company and appreciate all of you, both today and in those future sessions joining us to see the future of the company we're creating.

Excellent. Perfect. Thank you so much, Scott.

David, thank you.