General Electric Company (GE) Earnings Call Transcript & Summary

Good morning, everyone. This is Markus Mittermaier. I'm the UBS electric equipment and multi-industry analyst, and I'd like to welcome everyone to our virtual Global Industrials and Transportation Conference. I'm delighted to have Scott Strazik with us this morning. Scott is the CEO of GE's Gas Power business. He's been at GE for more than 19 years across various of GE's businesses, including being the CFO of GE Aviation's commercial engine operations and CFO of the Gas Power Systems business. In 2017, he became President and CEO of the Power Services business. And since November '18 is in his current role as the CEO of GE Gas Power. We also have Steve Winoker with us, Head of Investor Relations at GE. Hi, Steve. And Scott, we'll have a lot to talk about obviously, so welcome to the UBS conference. And I'll hand it over to you for a few opening remarks. And just as a little announcement before we do that, for the audience, you should have the slides in front of you. [Operator Instructions] So with that, over to you, Scott. Thank you very much.

Thanks, Markus. I appreciate the opportunity to be here today to talk about Gas Power's journey and why we're excited about our business going forward. It's still early days in our transformation, but we're encouraged with our progress. There are 3 themes on Page 2, which we'll cover over the next 10 minutes or so and then get into the Q&A. Number one, we continue to make progress in stabilizing the equipment business, including our early progress on lean that I'll share. Number two, services business is a balanced story right now. Contractual book is performing well, with a solid path to grow cash and expand margins with better performance in the field. Transactional upgrades is experiencing top line pressure due to COVID and almost more impactful to volatile oil pricing on customers dependent on oil revenues. We have quickly embraced this reality and are accelerating incremental fixed cost reductions that we'll talk about today. Number three, we see a path to generate high single-digit operating margins in '21, positive free cash flow in '21, with a ramp towards 90% free cash flow generation by '22. If we shift to Page 3, we have roughly a $4 billion equipment revenue business that continues to stabilize. In '20, we'll ship 45 to 50 gas turbines and expand margins by 200 to 300 basis points from low single digits to mid-single digits. On the markets at large on the left-hand side, a few things. We continue to believe a 25- to 30-gigawatt market is an appropriate underwriting assumption for the gas business going forward. '19 was substantially higher, but '20 likely closer to the low end of this range due to the disruptions caused by COVID and oil price volatility. We expect a tough 2Q '20 orders profile, as low as 0 heavy-duty gas turbine orders. Projects, moving to the right, are IPP deals and LNG expansion projects that are far along. Permitting, substantial investments to date that we're highly confident we'll close but over a longer period versus the 6- to 12-month pre-COVID period of time. China is an important country for us as gas supply continues to grow, but we also acknowledge the competition is steep. It's a small part of our business today with less than 5% of our profitability, but an opportunity for growth through the right deals. On the right-hand side, number one, we are focused on delivering for our customers with the best, most dependable technology. If I give a quick update on our fastest-growing and largest part of the market with our HAs, we have 44 gas turbines running with over 600,000 hours of operation, an incremental 30 being commissioned and 31 in backlog. We have replaced 53 of the 54 gas turbines impacted by our stage 1 blade issue in '18 and continue to monitor the fleet with an aggressive fleet leader program and see no signs of oxidation risk. The HA portfolio, which represents about 15% of our CSA backlog, will generate almost $300 million in cash in '20 and is projected to grow at 10% per year as more units go COD. Number two, we continue to focus on winning the right deals at the right margins. Over 90% of our backlog is on deals we have underwritten since '17 with higher contingencies, and we've taken down our turnkey backlog by $1.5 billion in the last 2 years. We are confident that accelerating lean capabilities will drive further improvement in cost out, which I will cover in the next couple of pages. On Page 4, I wanted to share how we are working differently and embedding lean into our culture. It would have been very easy to stop our continuous improvement work with COVID-19, but just last week, we held 30 lean action workouts across China, India, Korea and Vietnam, covering the 10 sites you can see on the page. The focus of these events was on value stream mapping to identify wastes and streamline cycle time, implementing appropriate andon systems put the operator at the center and focusing on how we use cranes to improve the health and safety of our employees. We had teams in the field leading the events with many more supporting the week remotely. We are early in our journey on lean, and I am very early in my maturation as a leader in using lean to run our business better, but I'm proud of our team's learning and problem-solving culture that will deliver for our customers. The goal of these sessions is that by the end of the week, we have solved a problem. In this past Friday, Larry and I couldn't resist the opportunity to virtually sit-in on the team's final report out. Just one example that you can see on Page 5 is a direct pull from last week's report out from Phu My, our repair services plant in Vietnam with about 90 employees. The volume in this plant has grown 20% as we've moved more work to best-cost countries. The team was able to drive real reductions in lead time across the board that you can see on the page. In isolation, small wins but small wins that add up. So why does this matter? And how does it translate to our financials? As a business last year, we reduced our raw days on hand globally by 7 days, contributing $200 million reduction in factory raw material and WIP inventory and we are confident we'll reduce these balances further in '20. This type of work provides us momentum towards free cash flow improvements we'll share later. Moving on to Page 6 on services. We talked about a roughly $9 billion business in March, but due to the impacts of COVID, we're seeing the range at $8 billion to $9 billion. If we start on the left-hand side with the environment, 2Q utilization for the GE gas fleet varies by region. The U.S., our largest region, has remained strong with low gas prices, but Europe has been down double digits. In the short term, utilization most impacts cash flows from our contractual fleet. And on that front, we're seeing limited impact year-to-date. We've rescheduled approximately 20% of our first half outages to the second half, primarily due to travel and customer restrictions impacting our first half versus second half revenue profile for the year. And finally, oil-dependent nations are working through budget constraints, and we are seeing the impact of upgrades and transactional orders in revenue. Our pipeline is relatively unchanged but closure timing is difficult, driving the need for accelerated cost actions. On the right-hand side, a few things. Our $50 billion CSA book continues to perform well. While revenues vary with outage activity in the field, our cash flows from this book are strong, and we are focused on further productivity for our customers and long-term margin expansion for our business. Real progress in servicing the fleet for our customers, on-time delivery greater than 70% and severe quality events impacting customers down over 50% first 4 months of this year. This is also a time for us to catch up on overdue supplier backlog. With a high demand cycle with shared suppliers and aviation slated to ease go forward, this should help us in '20 and into '21. In total, we do see a tough first half '20 services top line versus '19, with second quarter top line down double digits. We do expect a partial recovery in 3Q, 4Q as we execute on these outages and convert on our commercial pipeline. While the current environment is more challenging than we expected coming into the year, our installed base is an asset with very attractive margins and a dependable cash annuity stream for a long time. On Page 7, bringing it all together for what our turnaround means for GE and investors. On the left-hand side, we start with the business that had negative high single-digit operating margin rates in '18. With disciplined underwriting and project execution, we will expand margins in our equipment backlog, delivering mid-single-digit margins this year, with momentum to do better. As a result of COVID, we've accelerated our cost actions and now see a path to $1 billion reduction in fixed costs, up from the $800 million we previously committed. On services, despite a tailwind from the non-repeat of charges that we took in '18, we're planning conservatively for a low volume case. We are focused on services margin expansion and growth as areas of improvement. We're confident we can execute on these plans and deliver high single-digit margins starting in '21. On the right-hand side, I want to take you through our cash trajectory. We used $2.2 billion of cash in '18. Through improvements in earnings and better working capital management incorporating lean tools we discussed, we improved our free cash flow in '19 by approximately $900 million and expect a similar improvement in '20, positioning us to turn positive in '21. Lastly, our cash flows are burdened with significant [Audio Gap] legacy factoring programs, acquired Alstom pension liabilities and elevated restructuring outflows that all decline significantly starting in '22, giving us a clear path to roughly 90% free cash flow conversion. What that means for us is despite the fact that we expect a tough first half when it comes to new unit orders and services volume, we see a business with roughly flat top line going forward that we can expand margins on with a smaller cost structure and better operations, generating substantially higher and stable cash flows. So in summary, solid progress 18 months into our turnaround, with more work ahead of us. Fundamentally, we are becoming a better-run, more nimble business. We simplified our structure, focusing on the life cycle economics of the gas business. Lean is allowing us to respond faster to changes in demand, protect for cash. And we're back to basics. One example is no reliance on long-term factoring programs. This is why even in a tougher environment than we anticipated this year because of COVID and oil price volatility, we are targeting our sixth straight quarter with year-over-year cash flow improvement and still on track to deliver meaningful cash flow improvement in '20. And looking forward, we continue to believe gas will play an important role in the energy transition. We have approximately half of the global gas installed base. There's still 1 billion people in the world without access to reliable and dependable power. And more than 1/3 of the world's electricity is generated by coal today, and we believe the most effective path to decarbonization is a combination of renewables and coal-to-gas switching. We are excited about our opportunities going forward and our turnaround is positioning us for better operating and financial leverage. With that, Markus, I'm going to hand it back to you.

Great. Thanks so much for these thoughts, and there's quite a lot of detail here that we need to get through. So let me start by obviously focusing on the turnaround journey. You made -- you gave some interesting data points. So if my back of the envelope here is right, I kind of look at your high single-digit margins, cash conversion, that looks like we end up gas positive cash flows of around about $1 billion-plus by 2022, which comes from, as you said, negative $2.2 billion in '18. So given the importance of this in the overall power turnaround to get part of the free cash flow positive, one, is that the right ballpark? And two, where do you stand? Has -- is there a risk sort of like that things might slip further on COVID? I mean it sounds like it's all pretty much under control, but maybe let's start there.

Sure. I mean I think as it relates to that financial framework and the path forward, we certainly feel good about the structural cost that's coming out, and that gives us a little bit more oxygen for this financial profile going forward. This new units business is continuing to stabilize, which is important. Now we've got to continue to watch the market when you start making projections into '22 with nominal dollars because nominal cash flow performance is clearly going to be impacted by where the market goes over this year and next year, but we still feel like the 25- to 30-gigawatt market assumption is right. And we've grounded our underwriting assumptions on services to be an approximately flat business. So when we look at our cash profile going forward, yes, last year was negative $2.2 billion, $900 million improvement last year. We see a clear path to a similar improvement this year, still negative but a significant improvement. Turning positive in '21 and substantially more positive in '22, but the nominal number, Markus, relative to a 90% free cash flow target is going to also be dependent on exactly where the market goes with new units on gigawatts and that flowing through to revenue in '22. But overall, we feel comfortable with that sequence of events and turning positive next year and to a substantially higher free cash flow conversion in '22.

Got it. Okay, great. So let's peel this onion a little bit here on new unit demand, right? So you kind of said, obviously, Q2 could look bad at sort of 0 number. We've heard views broadly in the market that 2020 could have a 50% drop and still a tough '21, whereas others say spend should be largely stable, given sort of the underlying economics here on the utility side. Where do you stand if you kind of look beyond Q2 and the trends that you see for 2020 on new unit demand? And then I'll ask the services in a second, but let's start on new units here.

Sure, Markus. We do continue to assume that a 25- to 30-gigawatt market is the right underwriting assumption. Last year was a lot higher at 39 gigawatts. When we look at the market right now, we do think we'll be at the low end of that 25 to 30 gigawatts. But if you take a step back and you look at the world, Asia. Taiwan has 13 gigawatts of nuclear that's going to get retired in the next 5 years that will be replaced with gas. Malaysia, we're commissioning 5 gas turbines right now in Malaysia in a country that's taking out a lot more LNG capacity. Bangladesh is a country where we have multiple projects. We're starting HA commissioning on, where power density really matters with a country where agricultural independence is so important. So when you see a world with LNG supply, just on projects that are in construction right now, that's going to grow by 20% in the next 5 years, with a lot of it going to Asia. That's the foundation, along with North America, to a 25- to 30-gigawatt market. In North America or really in the Americas at large, including Mexico, you still have, in the North America alone, over 250 gigawatts of coal. That is going to come down. It's going to come down, driven by growth in renewables but also the economics of very cheap gas. So we look at the world and say, Asia and the Americas is a foundation of 25 to 30 gigawatts. Look at places like Europe that have been very light new unit markets for us for the last handful of years. Very high renewables penetration, many countries at the 30%-plus level, if you add nuclear into the mix, getting up to 50%, but also a continent that still has 20% of their power coming from coal. Over 250 gigawatts of coal in Europe, where what I would say is the last 250 gigawatts of coal in Europe is a lot harder to replace than the first 250 because you're depending on that for baseload power. And because of that, we're seeing more pipeline and more activity in Europe that encourages us, but it's hard to know exactly when it will close. And then the big open switch is the Middle East because the Middle East has massive demand in need but real budget constraints and real volatility. And for us, we continue to underwrite the market, assuming the Middle East is going to be small. But if we were to have confidence to a much bigger market than 25 to 30, I think the Middle East would have to be more stable and we'd have to have another confidence interval there. But we still think 25 to 30 makes sense. There are going to be years that are higher like last year. There are likely will be some years that are going to be lower, but 25 to 30 feels like a good underwriting assumption.

Right. That's interesting. I mean there's obviously some seasonality, with '17, '18 weak then '19 strong, as you say. This year, you kind of get the COVID effect maybe to some extent. But I mean, it's interesting, you said in your prepared remarks that growth in China, for example, could be there through the right deals, right? And if I think back sort of China in and of itself, even if they only switch a small sliver of their coal capacity over to gas, which is in the sort of long-term plans, that in and of itself, I mean, could be a 7- to 10-gigawatt a year market sort of for many, many years to come. How are you thinking about that? Because that plus what you've mentioned in Europe and North America with sort of maybe the upside in the Middle East could lend itself maybe to a higher range than what you just mentioned. How are you thinking about China here, given what's going on with local players, Shanghai Electric, et cetera?

Sure. China is an important market for us. I would agree, I think China could be consistently 5 to 10 gigawatts of new unit demand on its own. When you think about China at the moment, there's only about 100 gigawatts of gas capacity in the country, but there are over 1,100 gigawatts of coal. So China is going to go through the same transition we've seen in many other countries. And coal will -- gas will play a bigger role in replacing coal. They need the fuel. That fuel will come over time from Russia. It will come over time from LNG, but China matters. Now strategically, in the context of us for China, what I would say is, as China moves from an F-class market to an H-class market, just as many other parts of the world have made that shift to F to H, I think we're going to like the deals a lot more that we see as we underwrite. Because when you look at our overall market share globally in the 50-hertz markets, in F-class, it's approximately 25% the last 5 years. H-class 50-hertz markets, our share is 15 points or so higher. So we have a more competitive position with H. We've done very well with the coal-to-gas switching. That's exactly why with Harbin, with our partnership there, we are localizing more technology for H to position ourselves for that transition because it matters. But it's also a very competitive market. And especially right now, as the proportion of F to H still tends to be a little bit more F, we're going to be selective on the deals that we win. But China is a priority. We're confident in our partnership with Harbin. We're confident with our H technology in the 50-hertz market, and we look forward to growing our H share in China as the market moves and as that mix between 100 gigawatts of gas and over 1,100 of coal normalizes as it is normalizing in most other parts of the world today.

Interesting. Okay. Now that's helpful. Maybe can I switch to sort of capacity versus demand, right? I mean obviously, capacity utilization in the OEMs has been very weak. Probably that is an understatement. But what's your view here today after all the cost actions and capacity adjustments? I mean there's a certain sort of minimum capacity, I guess, that you need to have in place for the view that you have a new unit demand plus to support the service business. But where are we sort of globally in terms of capacity adjusted versus demand?

Yes, Markus. I'd say it's hard to call a number, but I think it's a given that there continues to be overcapacity in the industry today. And that's exactly why, in our case, we've had to reduce our cost structure by $1 billion, the $3.5 billion to $2.5 billion cost structure and why by the end of this quarter, we will have reduced our headcount by approximately 3,000 people over the last 18 months, reduced indirect costs by 25%. But what I would say on capacity broadly, if we toured my Greenville facility today, as we would walk through Greenville today, 70% of the hours in Greenville are actually for services. We still have the capacity for our new units, but only 30% of Greenville today is actually for new units. So we've been in the process of repurposing for a smaller 25- to 30-gigawatt market. We've been in the process of reallocating more services and more repair work into the larger footprints at play. And I think that's helped us. Now it doesn't mean that there's not more work to do on both cost, on footprint dynamics, on continuing to shift work to the most competitive location we possibly can, which we will continue to do. But it's not just about the rooftop itself. If I look at, for context, in HA equipment suite, gas turbine generator, steam turbine, the material and labor associated with the gas turbine, 90% of it's material in labor. 10% of it is the overhead. Now we want to continue getting after that overhead dynamic. Lean is helping us with labor, but I spend an immense amount of my time right now on how we go after the material component and continue to drive product cost out. So this is a dynamic that is about continuing to make smart trades. And in the case of the $1 billion or so of costs that we will have taken out over 3 years, we will spend approximately $500 million of restructuring cash to do that. So good return, good payback. The big footprint, the big factory plays have different trade space in it. And that's why as we've been going through this journey, we've been also very focused on repurposing as much as simply shutting down for capacity, and that's changed our mix drastically in the last 3 years.

That's interesting. So if I put my paranoid hat on here, right, and I kind of get everything you said. And if we look ultimately at future R&D spend, warranty, et cetera, how would that -- how does that cash need in the business sort of -- you took that structural cost out, but how much of that are you confident really sort of like sticks versus at some point, maybe R&D coming back and it's like further investments being required here? How do you think about that long term?

Sure. What I'd say is even in the context of the $1 billion of structural costs that's come out, our NPI spend has stayed reasonably flat through this period of time. So we're continuing to invest a very similar amount of money in technology over the last 3 years. What I would also tell you, Markus, is we have spent a substantial amount of money since we launched the H going back to '14 and '15 through today, 5 different frames of HA gas turbines with a lot of material sciences, a lot that, frankly, we benefited from the aviation spend that's taken place and picked and chosen which of the material sciences we could embed into our HA fleet. But what that's put us in a position on after 5 years of ramping up that H spend and the H launch is it's also expanding the art of the possible for us to now leverage that spend on upgrades across the fleet, on things that we already have within our product portfolio. So I wouldn't come away as we talk about structural costs thinking that we're taking down our spend in technology. We haven't been. That said, I do think there's an evolution from what has been a very heavy lift on H over the last 5 years that may expand in some other spaces, more of an investment in services and otherwise leveraging and parlaying that HA technology in places that continue to make our entire gas turbine fleet of 7,500 gas turbines the most competitive they can be and the highest position they can be on the dispatch curve.

Interesting. Okay. Great, great for that. Thanks for that color. Some questions here from the audience are coming in, particularly around sort of the Siemens Energy spin later this year. So maybe 2 questions here trying to summarize this. Do you see sort of your customers react to this in any way already? And then secondly, they've announced some performance guarantees here for that business. Can you quantify what performance guarantees that GE Power has? And to what extent maybe rating sort of like at the GE level could influence that?

I wouldn't really speculate, Markus, on exactly the interplay with what Siemens' commitments are and what their announcements represent. But I'll tell you, in my experience in this business, that our customers are playing for the long game. You're making billion-dollar investments often in building power plants, and you want to know who you're going to interact with for a long time and not just building and commissioning that plant but servicing it. And those are big decisions technically. They're big decisions financially. They're also big decisions from a relationship perspective because we're in a complicated industry where things go wrong. And where I see the posture of our customer base is one in which they want to know that the people they're interacting with believe in the future of gas and that are going to be here through the life cycle of the economics. And we believe in the future of gas and the transition that's taking place in the energy ecosystem. And I think that continues to lead to very healthy discussions with our customer base on opportunities today and opportunities tomorrow.

Great. And on the performance guarantees, is there anything that you can talk about?

No, Markus, I wouldn't really speculate on the Siemens' commitments there.

Okay. I know the question was more on U.S. side but I think that's fair enough. So we'll -- maybe switching over to services, right? And again, starting maybe at the near term here. You've mentioned, in terms of outages, that you've seen a delay on sort of 20% of outage is switching, most of that into the second half. I think 5% you've said are not rescheduled into the second half. Is this really related to access? And what happens to those 5%? Maybe let's start there again and then we go towards more long term on the services as well.

Sure. In the near term with outages, in Europe and in the Middle East, there were a number of outages that we did not have high confidence we were going to be able to get the right teams to the right locations because of border restrictions that we proactively worked with our customer base to move to the second half of the year. In the U.S., there was a little bit of a different dynamic where there were customers that proactively came to us and said, "Listen, we don't really want any partners, suppliers, third parties on site right now with the intensity of COVID. Let's reschedule for the fall." And that's been a proactive process with our customers to what we framed up earlier and you just reinforced. Most of those outages have moved to the second half of the year, a few into '21. But that is one dynamic that definitely has had an impact within our financial profile in the near term, tougher top line first half. We'll see some recovery 3Q and 4Q. Other things within services is how the machines are running. And in that regard in the U.S., our largest market, the machines are running well. We see growth relative to a year ago. In comparison, we do have markets in Europe that we have seen double-digit declines in utilization. And depending on the country, they continue to be a little bit tough. But where it matters most for us in our contractual book, the utilization is good, our cash is holding. The outage shift is really timing. And the biggest main event for us, which has really been driving the countermeasures of increased cost actions, is it's very hard to have the transparency right now or the same level of confidence on some of the upgrade transactions closing and some of the larger transactional deals in the Middle East, which is why we've had to accelerate some of our cost actions in the near term because the pipeline exists, but my confidence interval to close is a little tougher right now with those big, large transactions on the services side.

Got it. But that sounds more like sort of delayed. I mean ultimately, this has to happen. Or how should we think about that?

Yes. In the case of the upgrades, when you think about that, a lot of that is in parts of the world that need power. They're buying the upgrades for output. The CapEx required to increase output to an existing plant is substantially less than it is to build a new plant. So the upgrades are going to happen before the new unit build happens. So when you think about that interplay we talked about earlier with the new unit market being 25 to 30 gigawatts, in the Middle East being, let's say, upside case that we aren't counting on anytime soon. I think before you see the Middle East build an immense number of new plants, you're going to see a lot more upgrades happen first. And that's for the output but also the efficiency, which is also an interplay with utilization with our fleet that a big factor on why our North America fleet is still running so well through COVID, part of it's gas prices. The other part of it is a lot of the U.S. has been upgraded. And because a lot of the U.S. fleet has already been upgraded, the position of those gas turbines on dispatch curve is the most competitive spot and they're the first to run. So there are a lot of compelling reasons for the upgrades to happen. The pipeline is not going away. But we think it's going to be softer in the near term, and we've had to not just take more cost out but also approach our supply chain in a different way. And in a very tough dynamic with COVID, I've come away with a lot more confidence in this business's ability to manage cash and manage inventory and manage our supplier relationships with market changes in a way that we could not have done 3, 4, 5 years ago, which is how we're holding the cash profile as we are and what we talked about, that gives me confidence in a better day from here.

Okay. Great. Helpful. Maybe switching again sort of to more broader theme in services. We've obviously come out of a few years now with very difficult pricing, at least in some parts of that gas turbine universe. Where are you there, sort of like on new contract, on renewals, on pricing and also the outage in the world that you kind of -- or the warranty periods that you kind of underwrite at the moment? Is that healthy? And do you think that you and the industry can make decent money here over the life of these assets?

I do. Yes. And even if I compare it, Markus, for me, when I came to this business in the summer of '13, most of the deals that I would look at when I was the CFO were F-class deals that would run 3,000 to 5,000 hours a year on average. Now most of the deals we're looking at are H-class plants that are replacing coal, that are replacing nuclear with a very high confidence interval that they're going to run closer to 6,000 to 8,000 hours a year. So beyond just pricing, which we like the pricing in our services business and feel like over a 12- to 20-year period of time of the contract duration that we have with these H-class deals that we're winning, not only will we get cost scale over time but we think the utilization is going to be substantially higher than what they are for F-class, which gives us that much more confidence that, that annuity stream on the back end is that much more healthy. And I would argue the launch of where we are with the H-class product with 105 on backlog today and a lot more coming into the system, another 30 that are being commissioned in the near term and another 30 that we haven't shipped with a healthy pipeline of new deals, is a big dynamic from 20 to 30, that probably isn't appreciated yet in the value of this business because they're running a lot. We only have 44 running today and we're already going to generate $300 million of cash flow this year because they are running a lot and they're at the top of the dispatch curve, and we're highly confident that will continue from here. So the pricing is fine, but what I would also emphasize is we're going to continue managing cost. We're going to continue to manage to be more productive for our customers and for our business model. But the utilization of the deals we're looking at gives us even more confidence that this is a steady cash flow annuity stream that we will like for a long time.

Interesting. So a couple of follow-ups here. So of the 44, how many of those are on these sort of like 20-year CSA-type contracts?

Sure. Over 80% of the total 105 that we have on order right now are on CSA. Those that don't tend to be some large national utilities that, by default, will generally sign up for long-term parts arrangements for us relative to CSAs, but for a very long time, this is 100% captive GE business that gives us very high confidence in that annuity stream going forward.

Interesting. And then kind of like the very simple math here, and I know that may be too simplistic, but $300 million cash flow out of 44, simply speaking, can I scale that with the installed base that you have going forward? Or is it more complex than that?

I would say you're going to -- we're continuing to grow the part of our gas turbine fleet that is at the top of the dispatch curve and that is going to run a lot, and we're highly confident that $300 million as we shift from 44 Hs running to 70 to 100 here over the next many years is going to grow quite a bit. At the same time, there is a back-end tail of the portfolio, too, where some gas turbines will retire, and some will come off that we'll also have to compensate in that cash flow stream. But in totality, the H product portfolio and the units that we're putting on the grid today, we like the financial profile of them and are excited about servicing them and supporting our customer base for a long time.

Great. And you've mentioned it earlier, your sales are like on the Hs, while we are still there, you had this sort of like stage 1 blade issue a few years ago, right? So where do you stand there at the moment? Is there risk sort of like on service profitability going forward? How should we think about that?

We've replaced 53 of the 54 blades that were impacted by the stage 1 B issue. We -- of the 600,000 hours, it's north of 600,000 now, 616,000 hours or thereabouts that we have with the H portfolio, over 300,000 of those hours are with the new blades. We continue to very aggressively work our fleet leader program. That's north of 12,000 hours right now as a fleet leader. We pull the machines back, we cut up the blades. We see no sign of oxidation risk. And with each quarter and each year, we're adding more Hs to a portfolio to give us more confidence that there's cost productivity that we will generate into that fleet over time that will ultimately drive margin enhancement from what we're underwriting on day 2 -- day 1. That gives us a lot of motivation to continue to invest in this fleet. This is a portfolio dynamic that we came in too late practically. When we launched our H in 2014, the competitors had 50-some-odd Hs that they were already -- that they had already won. Many of those running before ours, many of those probably going through their first outage cycle right now. But since we launched our H, we've had 45% share. We like the deals, we like where we're going. The $300 million is where we are today. But as you look at this business into the '20s, we haven't had any of our H machines yet go through their first major outage cycle. And as that happens 4 to 5 years after commissioning, there's a lot that investors are going to like about this part of the portfolio.

That's very interesting. I know we are out of time here. So before I offer you the chance for any sort of like final comments, let me apologize to the audience. I know we had an overwhelming interest here in this session and the webcast was down for parts of it, so apologies. There will be a replay available of all of this. But Scott, thanks again for doing that. I think there's a lot more questions, and maybe we can do this again at some point given the interest level here. But is there any sort of parting thoughts that you have for us before we wrap it up? And thank you again.

Markus, I appreciate the opportunity to share with you today. I'm proud of the team that I'm able to lead. I'm proud of the team that we have in the field and the factories, the essential workers that are going after it every day, especially in the last 3 months being very complicated. This is a multiyear turnaround. We are 18 months into it. We are encouraged, but I'd emphasize that every day, we know we've got a lot more work to do. And I look forward to the opportunity to share with you on behalf of the team that I'm proud to lead our progress and future opportunities. So thanks for the window to talk, Markus.

Great, thank you very much. And all the best.

Thank you.