Q1 2021 Vertiv Holdings Co Earnings Call
Brad over to your host for today's conference call non Max either Vice President of Investor Relations.
Great. Thanks, Grant and good morning, and welcome to <unk> first quarter 2021 earnings Conference call. Joining me today are Virtus Executive Chairman, David Cody Chief Executive Officer, Rob Johnson, Chief Financial Officer, David Fallon, and Chief strategy and development Officer, Gary needle prudent.
Before we begin I would point out that during the course of this call. We will make forward looking statements regarding future events, including the future financial and operating performance of burden. These forward looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. We refer you to the cautionary language included in it.
The earnings release, and you can learn more about these risks in our registration statement, our proxy statement and other filings with the SEC.
Any forward looking statements that we make today are based on assumptions that we believe to be reasonable as of the statements. We undertake no obligation to update these statements as a result of information or future events.
During this call. We will also present, both GAAP and non-GAAP financial measures, our GAAP results and GAAP to non-GAAP reconciliation can be found in our earnings presentation and press release.
Also the Investor Slide deck found on our website at Investor <unk> Dot com.
With that I'll turn the call over to executive Chairman David Cody.
Thanks Glenn.
This is now the fifth quarter, we've reported as a public company and I think you can see what I've seen and talked about this entire time.
This really is a great company and a really good industry with multiple ways to continue improving the top and bottom line.
Rob and his team as you can see we're making great progress with new products global growth and the process initiatives like the bird of operating system vertical product development customer view and functional transformation.
These process initiatives show that there are what are areas to improve upon and Rob on the team are focused on those.
But I think there'll also agree with me that the first quarter results show or something to be proud of and provide us a great start to the year, so with that I'll turn it over to Rob.
Thanks, Dave Thank.
Thank you for your guidance that you provide to me on the executive team and the support.
For <unk> that you always have given we really appreciate it.
To all of you on today's call. Thank you for being here and I'm eager to share more about our performance for the first quarter our outlook for the market and give you a glimpse of the few new products, Dave just talked about that are talented and innovative teams at virtu have developed.
Turning to slide three.
There are five key messages I want to convey today and we'll share them at a high level and David will elaborate more on the financial details in just a few minutes.
First I'm pleased to report sales were up more than 22%.
And orders were up 21% versus Q1 of 2020.
Growth happened in all regions across all major verticals and we ended the quarter with a record high backlog of $2 1 billion.
Second from a profitability standpoint, our adjusted operating profit was 112 million, which is up $92 million or 450% from last year's first quarter. This resulted in adjusted operating margin expansion of over 790 basis points, driven by higher sales and lower fixed costs on a percentage.
Basis.
Third our free cash flow at the end of Q1 was $43 million an improvement of $246 million.
Made possible by higher earnings and lower interest expense.
For the market is facing supply chain and commodity cost challenges and Verde theres non exempt we are aggressively working to secure supply needed. So that we can provide on time delivery to our customers first and foremost, while developing and executing strategies to share the cost with our customers where possible.
Supply chain constraints, coupled with inflation, we will see some incremental unexpected costs over the short term.
And fifth and final key message, we are raising our 2021 sales guidance by $125 million such that the new sales guidance is between $4 eight and $4 $9 billion.
And raising our adjusted operating profit guidance by $20 million. So our operating guidance is now $585 million to $605 million.
This demonstrates our confidence in the end markets and our confidence in our teams all across further to perform in accordance with our strategy and to meet the growing needs of our customers.
Let me elaborate on these five key points using the next few slides.
Turning to slide four.
We've been using this slide quarter to quarter to talk about our end markets and illustrate activity in each of our regions around the world.
A red button on the slide indicate sluggish performance.
Green bucket Green button indicate strong performance on a yellow button indicate something in between.
Cloud and Hyperscale and Colocation markets have been very strong and remained strong across all regions.
The demand for digital applications online education, telemedicine video and gaming is booming benefiting our cloud and co location customers and driving a strong and growing need for virtu products and services around the world.
And our enterprise small and medium business market, we're seeing signs of improvement as well.
Our two Reds have now turned yellow, but it's still not clear when the entire enterprise segment will open up we are however, encouraged to see things moving in the right direction.
The communication networks market stayed constant in Americas and EMEA.
It improved in APAC over the quarter, and we were able to see a shift in the market from yellow to green.
Americas and APAC are performing strongly in this segment America's activity is driven by several large U S telecom carriers and the continued rollout of <unk>.
In the commercial industrial market. This quarter EMEA has shifted from red to yellow and because of that we are now showing solid yellow across all regions, indicating some positive movement in the commercial and industrial space.
All the end markets. We serve are good are very good shape now.
As illustrated by the raise of yellow and green across the slide for Q1.
Digital applications continued to increase their importance in everyday life.
There is no there are no longer nice to have but a necessity for individuals and for businesses.
The increasing needs means there is an increasing demand for the processing storage and transmission of data, which creates significant opportunity for virtu and.
And we are perfectly poised to go after that opportunity.
Moving to slide five.
I'd like to make a few comments regarding supply and demand as I mentioned earlier. The overall market demand is strong as evidenced by our order rates and backlog, which has resulted in us raising guidance.
Each of our regions saw revenue growth in the first quarter led by continued strength in cloud and Colocation markets.
Our cloud and Colocation customers continue to build data centers and aggressive, but balanced fashion and we will continue to partner with them to meet the strong and growing demand.
We continue to stay vigilant around COVID-19.
Keeping our employees, our customers and our partners safe wherever they are in the world that is our main priority.
We've made adaptations where necessary and have found solutions to business challenges brought on by COVID-19.
We remain confident on our ability to serve our customers and meet their needs.
Yes, similar to other companies, we are facing some supply chain issues due to market conditions there.
There are a couple of things that are going on here.
First we find ourselves dealing with some part shortages and materials for the most part we've identified solutions for those.
Second like many other companies, we are seeing cost increases from both material and the logistics side.
This is being tracked and managed and closely monitored and we are taking actions to offset the increased cost, but nonetheless. This is a short term headwind.
<unk> been planning to implement from footprint optimization programs, we have pivoted and decided to delay some of those programs to take advantage of the strong demand environment.
The footprint optimization optimization plan will be executed, but it will happen a little bit later than originally expected.
Moving to slide six I've talked to you in the past about our voted product development process the PD.
And you all know about the allocation of resources, we have made to research and development side.
So I wanted to show you a few of the new products.
Can't tell you how thrilled I am with the progress that's being made in our engineering teams and all of those that are responsible for executing our strategy to innovate design and build products for the future.
Here are some early results on this slide.
The first product shown on the upper left.
We will formally launch tomorrow and it's another way that we're helping our customers become more efficient and provide lower carbon offerings is a grid interactive UPN, which will allow data center operators to use the UBS to power their data center and during low power times to inject power back into the grid to drive the efficient use of <unk>.
<unk> equipment.
On the upper right.
Is the newest addition to our thermal offerings. We continue to continue to innovate in the thermal space to drive more efficiencies and to provide best solutions for our customers. This product provides liquid cooling for high density server and rack, providing customers with an efficient way to cool their high density applications.
Finally on the bottom of the chart you will see two of our new edge offerings. The.
The product on the lower left is a small UBS with very efficient very compact and utilizes the latest in lithium battery technology for longer time back on for longer backup time.
The product on the lower right is our newest single rack data center, which includes integrated UBS power distribution thermal management and our secure switch.
This is a pre configured solution and is a great example of the type of product, we are bringing to the market for distributed.
And new edge applications.
I really could talk hours about the research and development.
Verdict, but wanted to highlight a few of the new products. So you can understand how we're focusing our R&D efforts, allowing us to bring these innovative solutions and offerings to our customers into the market.
With that I'll turn it over to David for a closer look at the Q1 numbers and come back at the end with some final comments David.
Great. Thanks, Rob.
First turning to page seven this slide summarizes our first quarter results versus last year net sales were up $201 million or 22, 4% 19, 5% when adjusted for a $26 million foreign exchange.
Tailwind.
We continued our strong momentum with orders, which were up 21% in the first quarter after increasing 10% in full year 2020.
Adjusted operating profit increased $92 million or over 450%.
Primarily driven by the profit flow through from the higher sales in our benefit.
From spec transaction costs from last year's first quarter.
All translates into a 790 basis point improvement in adjusted operating margin.
Adjusted EPS of 21, 86 times higher than last year, driven by the improved operation and a 54% benefit from the $174 million loss on extinguishment of debt and $21 million back transaction costs in last year's first quarter.
Our sales and profitability performance converted into strong free cash flow of $43 million to.
$246 million higher than last year's first quarter, and we will review some of the drivers of this improved free cash flow in a couple of slides.
So turning to page eight this slide summarizes our first quarter.
<unk> results net sales in the Americas were up $35 million or 75% driven by growth strong growth with hyperscale customers in our critical infrastructure and solutions product segment.
Net sales in APAC increased to $133 million or 60% in part due to an approximate $15 million COVID-19 impact on sales from last year's first quarter, but we otherwise experienced strong growth across most APAC subregions end market vertical including data centers telecom.
In commercial industrial.
Net sales in EMEA were up $33 million or 16% predominantly in the critical infrastructure and solutions product segment, driven by several larger co location projects.
From a profitability perspective, adjusted operating margin improved across all three regions, primarily due to the leverage benefit of relatively flat or lower fixed costs on <unk>.
Inefficiently higher net sales in each region, providing a practical example of the potential margin benefit of maintaining fixed cost constant while growing the top line.
Next turning to slide nine.
This chart bridges first quarter free cash flow from last year.
The $246 million increase is primarily a result of higher adjusted operating profit lower cash interest payments and improved trade working capital. In addition to a $21 million year over year benefit from.
<unk> cash transaction costs last year.
$43 million of free cash flow on quarter was higher than our internal expectations.
Primarily driven by the timing of our cash.
Disbursement of.
Of approximately $25 million.
At the end of March due to a system implementation. So we anticipate it.
That cash outflow to occur at the end of March actually occurred at the beginning of April.
Although it does not impact debt free cash flow, we received a $107 million at the beginning of the first quarter pursuant to the final public warrant redemption.
And this certainly facilitated a record high liquidity of $1 $1 billion and a record low net debt.
Leverage ratio of two three times at the end of the first quarter.
Next turning to slide 10.
We wanted to address that change yet related to the accounting.
For our warrants.
Last week, we issued a press release and filed an 8-K, providing more detail on this matter.
Pursuant to new guidance released by the FCC on April 12, we changed the.
The historical and prospective accounting for both our public and private warrants to record a liability for the fair value of these warrants.
And with any subsequent change in fair value adjusting the liability and recording a non cash non operating gain or loss in the P&L.
When our stock price increases the liability increases and we recorded a noncash loss on our stock price decline the liability declines and we recorded a noncash gain.
As a result of this change we will file an amended 2020 10-K in the coming days, reflecting these changes, including recognizing additional non cash non operating expense of approximately.
Ultimately a $144 million in fiscal year 2020, as our stock price.
Increased significantly during the year.
We also recognize the $14 million non cash loss in the first quarter.
This warrant gain or losses recorded below operating profit and it will not impact any of our non-GAAP operating metrics, including adjusted operating profit adjusted EPS and free cash flow.
So next turning to slide 11 looking forward. This page summarizes our second quarter financial guidance.
We expect first quarter top line momentum to continue in the second quarter.
With net sales up 20% at the midpoint with strong growth across all three regions and our second quarter sales is also expected to be up 10% sequentially from the first quarter.
We guide towards adjusted operating profit of $125 million at the midpoint.
Up 21% from last year, despite a $30 million headwind.
From one off COVID-19 cost actions in last year's second quarter, and a $25 million increase in year over year growth in R&D investments.
Adjusted operating margin, we expect it to be relatively flat.
Yeah.
With contribution margin percentage percentage.
Slightly lower than last year due to.
Commodity and logistics inflation.
And despite higher year over year dollar fixed costs due to last year's COVID-19 actions and incremental investment spending this year.
<unk> cost as a percentage of sales should be slightly lower.
Finally, adjusted EPS is expected to increase approximately seven or 44% at the midpoint driven by the higher adjusted operating profit and lower interest expense.
Next turning to slide 12.
To summarize our revised full year 2021 financial guidance.
Including higher net sales expectations.
The $4 nine.
$9 billion up 12% from 2020 and $125 million higher than our prior guidance.
$60 million of that from the first quarter.
And our $60 million from the first quarter and $65 million over the remainder of the year based on our strong first quarter orders performance in backlog.
We are increasing our adjusted operating profit guidance to $595 million up $20 million from prior guidance.
And we will provide some detail of this increase on the next slide including quantifying the expected net.
Financial impact of the commodity and freight headwinds as Rob discussed.
Full year adjusted EPS is expected to be $1 11.
Kevin <unk> higher than our prior full year guidance driven by higher projected adjusted operating profit about license, there and lower interest expense from our first quarter term loan refinancing.
About <unk>.
Finally, we are increasing our full year projected free cash flow to $300 million.
Up $15 million from our prior guidance of $285 million.
Turning to slide 13.
This chart bridges, our full year adjusted operating profit.
From prior to current guidance, a net increase of $20 million with a favorable $35 million coming from an incremental $125 million of net sales however, converting at a rate lower than our average contribution margin due to product mix and.
Higher marginal manufacturing costs, including <unk>.
Expedited freight in some cases as we manage our capacity to meet the higher customer demand.
Partially offsetting these volume benefits as a $15 million net headwind.
<unk> $25 million from commodity and freight inflation, approximately $15 million from commodities and $10 million from freight.
Both disproportionately impacting the Americas.
This cost inflation, partially offset by an assumed.
$10 million of incremental pricing and we believe there is further opportunity for.
Additionally, on incremental pricing as we progress through the year.
With that said I turn it back over to Rob.
Well thanks, David.
Overall, I'm very proud of the team and what we've accomplished since becoming public we've been executing our strategy is to stay the Coty has alluded whether its the loss of the further product development from all.
The levers we've talked about and we feel really good about.
The next two to three years as we as we continue to execute that strategy I believe our results for this quarter have demonstrated the hard work on the effort of the 20000 employees, we have around the world.
As I look into the balance of 2021, we continue to anticipate above market top line growth and increase in profitability and a strengthening balance sheet, all while continuing to invest in the strategic areas as we've talked about R&D and sales and marketing.
To all the employees on the call today. Thank you again for your dedication and your tireless effort to take care of our customers to all the investors. Thank you for being on the call today and for your support over the past year on.
I'll now turn it over to the operator, who will open up the line for questions.
We will now begin the question and answer session in order to ask your question plus star from the number one on your telephone keypad.
Pause for just a moment to compile the Q&A.
Our first question today will come from Andy.
<unk> with Citigroup. Please go ahead.
Hey, good morning, guys.
Okay.
Good morning, Ryan.
Last quarter, you had mentioned that you thought quarter growth can sustain in the high single digit range, but obviously Q1, you reported low 20% order growth. So maybe you can give us more color into what was the incremental upside versus your expectations was it more continued hyperscale and curl outperformance or was it an enterprise.
Beginning to come back and has your order outlook improve for the next few quarters, where you can sustain this double digit type of order growth.
Yes, great question, and you're absolutely dead on with the <unk>.
The Colo and Hyperscale typically those on floor fall into our flow rate business. So those orders come when they when they come on when you look them in the pipeline, but when they want to release them and typically youll.
Get those orders anywhere from 369 months in advance of deploying those on.
What we've seen certainly is a tightening market and longer longer potential lead times and.
I think as we look at the global build out continue was just stronger than we necessarily expected in and probably saw people, making sure. They get in line to get their supply going forward, so, but im encouraged going forward and you've seen on I know a couple of others that released today, Google and Microsoft and we're seeing strong.
<unk> continued to see strong growth there on a global basis, so I'm positive to that and as I mentioned earlier in the call on my script I was going through we are seeing signs of really good life in the enterprise, we'll see when that fully turns back on and that could be additive as we as we watch that come back to life.
Thanks for that Robin and David can you give us a little more color into the Q2 guide in the sense that you're actually forecast keeps yourselves to be up 100 million versus Q1, but adjusted operating margin at the midpoint looks relatively similar so I think you said fixed costs will be lower as a percentage of sales versus.
A year ago on Q2, but what does that metric looked like versus Q1, and what are the headwinds sequentially, maybe FX not as good the dial and more negative price versus cost and high investments and maybe you could go over the pieces for us a little bit that'd be helpful.
Yes, absolutely. Thanks, Thanks for the question Andy.
If you look at the components sequentially. So Q1.
Adjusted operating profit was 112, we're guiding $125 $13 million increase.
We do anticipate.
To see a straight pass through.
From a profit perspective on the higher sales I think.
Sales are up $110 million or so sequentially, we do expect to see a 40% drop there.
On.
On those additional sales so you don't see any.
Negative impact.
From a contribution margin percentage perspective in Q2 versus Q1.
Really a little bit of a drag quarter over quarter.
Q2 from Q1 is on the fixed cost side so.
We anticipate probably about $20 million of higher fixed cost in Q2 versus Q1.
And a lot of that is driven by the timing.
R&D and growth investments in fact.
We had planned $10 million of R&D and growth investments in the first quarter.
And.
A good portion of that actually slipped into Q2.
Because of the timing of hiring in the launching.
A few projects but.
The other <unk>.
Element that has an impact sequentially.
Is.
The annoying.
FX gain and loss.
Dynamic so we had a $7 million.
FX transaction gain in in the first quarter.
Based on the weakening of the euro at the end of the quarter. The Euro has since recovered from $1 17 up to close to 121, so we probably have about a $10 million headwind.
From that FX transaction.
Gain loss dynamic in Q2 versus Q1, so all that flushes out.
Relatively flat adjusted operating margin.
Right around $10 to $10 three.
But.
Yes.
As a result of the timing on some of the fixed costs.
<unk> dollar increase in <unk>.
Adjusted operating profit is probably lighter than what some expectations are.
Very helpful color. Thanks, guys.
Thanks Danny.
Yeah.
Okay.
Our next question will come from Mark Delaney with Goldman Sachs. Please go ahead.
Yes, thanks, very much for taking the questions.
You mentioned that product mix and higher margin on manufacturing costs are impacting margins. This year I was hoping you could be a little bit more specific on what those issues are and are you expecting those to be more temporal issues or is that something that could continue into next year.
Yes.
Yeah. Thanks, Matt This is David.
Start and Rob and Gerry can add on.
So.
Yes, we called out and the additional.
$15 million in this current guidance versus prior guidance.
It relates to these additional mix and.
Incremental manufacturing costs.
From a product perspective, if you look at our product segments.
Our critical infrastructure and solutions product segment.
<unk>.
Relatively lower margin than the other two.
And.
Some of that or a good portion of the $125 million incremental sales.
Or in that that product segment.
And so if you look at incremental 15, probably.
Half of that is related to.
That product mix the other half is related to satisfying the demands on our customers.
So I mentioned in my comments.
We have.
In order to meet customer demands in certain cases, we've had to enlist the expedited freight.
In addition, we have ramped up.
Our capacity in some of our facilities, including adding shifts from temporary labor and as a result some of the.
Marginal incremental sales are coming in at a little bit lower.
Contribution margin than we would otherwise anticipate.
We would expect.
These additional manufacturing costs certainly be the temporary we do have a long term capacity planning project debt is ongoing.
Which will support the higher growth and we believe we.
We'll be able to transition away from a lot of these higher incremental cost from the second half of the year. So a lot of the incremental costs that we're seeing we.
Do you anticipate in the second quarter.
Thank you for that that's helpful.
So the question I was hoping to better understand how the company is thinking about deploying free cash flow going forward and I think that's been really good progress reducing debt lowering our interest expense and the opportunity has been discussed at some point in the future perhaps the company.
Turning to doing some tuck in M&A or perhaps even larger scale M&A, which there's been some success with.
Historically I know, there's a few acquisitions the company has been pretty happy with.
And I think investors are interested in what potential that there may be to do that type of average.
Acquisitions going forward is there any updated thoughts you can share about how youre thinking about supply and free cash flow on board.
As M&A some day that Youre considering.
Yes, Hi, Mark this is Rob I appreciate the question and I'll start and then throw it over to David but as we.
We've talked about before on past calls, we do have an active funnel of potential companies that we think would make sense to be part of our portfolio that day.
<unk> always said opportunities present.
Present themselves they are not necessary in timing not when you want them to and so we continue to work through that list and keep those tight relationships and have eyes on things.
As we've talked about before it's always been about deleveraging first and I think we've done a pretty good job doing that and have ourselves on a pretty good position to do some things.
The opportunity positions itself, we are actively always actively looking on.
But nothing nothing thats eminent that we can we can talk about today day.
EBITDA.
No I totally agree Rob and I would say this is a <unk>.
Very pleasant position to be in as a CFO. So I think free snack transaction last year, we were over six times levered.
So to get that down closer to two really demonstrates the free cash flow.
DNA of this business and.
Absolutely provides us the flexibility to be strategic.
With our balance sheet, we certainly don't have a strategy.
To do a deal because we think we need to do a deal, but we will be patient and.
We certainly have the flexibility to do something relatively quickly if the right opportunity.
Arises.
Thank you.
Our next question will come from Amit.
So Ross <unk> with Evercore ISI. Please go ahead.
Thanks, a lot for taking my question. Good morning, everyone I have two as well.
So when I think about the 10% organic growth we're talking about the terms on 'twenty. One can you perhaps saw some dimensions on how do you think about the various segments through on the Hyperscale Enterprise communications doing and maybe what I'm really trying to get to is I want to understand what happens to your growth vector enterprise goes from yellow to green over the next flow view.
Well the economics, thanks for the thanks for the question.
And Gary and I will work. This one together with you, but I would say in general.
We've looked at things as conservatively seeing enterprise come back on online, although I've been talking for a couple of quarters. The thing that gives me the comfort that it will is the quoting activity and the level of quotes.
So I would say that as we see the enterprise turned from yellow to green certainly theres potentially some upside from that perspective, but I would say in general.
We continue to see the strength in the Colo and Hyperscale and as I mentioned on my comments, we think we're being very diligent about the build outs as we go forward based on capacity needs that we see kind of around the globe, Gary any thoughts on if that's right around <unk> debt.
We were pleased to be able to upgrade that enterprise segment from red to yellow. We noted a lot of conversation around that in February. So we've definitely seen enough strength, where I was pointing to quoting on the pipeline, where we felt comfortable upgrading that segment to go from yellow to green I think we need a little bit more.
And maybe towards the end of the year, we will get there.
Little bit unclear, but certainly feel squarely comfortable that that enterprise is coming back on the segments that we've traditionally talked about.
Got it.
Just a follow up to fiscal 'twenty, One guide from a profit dollar based on that day was a $65 million investments in growth and be thats called out.
Yeah.
Is this do you think.
Operating on that.
International interest.
Yeah.
Operator, we'd probably want to move to the next as the farmer gets back in the queue I think we lost him.
Sounds good we'll take the next from one are you there.
On Europe can.
Nuomi.
Yes, we can hear you now talk about perfect.
We blame it on the mute function.
You ask you on the fiscal 'twenty, one operating profit guide on we talked about the $65 million of investments from growth in R&D.
I would love to understand.
How do you think about payback from these investments.
Think about the $65 million kind of on a one year thing or credit Suisse team for a couple of years.
Yes, great question.
First I'll answer the last part of that and then get to get to get to the first week.
I have talked about in our strategy that we wanted to we want to get to about 6% overall for R&D and so we've seen.
Some ratchets up over the last couple of this year and last year and even next year to get to that 6% and we plan on kind of holding it at that based on the knee right really what we're doing is taking a look at the funnel of projects the collaboration that's needed by our customers and.
Doing what we need to do to really drive innovative solutions that will help us outpace the market growth and take share as we go forward certainly there's not.
A lack of activities that we believe we can do to create more value for our customers and ultimately more value for the shareowners.
But as you think about it going forward you think about it is getting to about a 6% level.
Level, and we think that that would be sufficient with the growth rate that we're going to have.
Which would give us additional R&D dollars every year, just holding it 6% David any other thoughts.
Yeah, just from a numbers perspective, so that $65 million.
At least for 2021 $35 million on as R&D and.
With the remainder 30 related to sales and marketing and to Rob's point on R&D.
Last year, we spent $230 million.
D.
Add another $35 million this year, that's $2 65 and based on the most recent top line guidance, that's four 5% to 5%.
So to get the 6% there is certainly going to be some additional.
Step changes over the next couple of years and of course, the dollar amount also increases all other things being equal just with the top line, increasing and the one thing I can tell you is debt. This is not a capital rationing exercise.
There is an efficiency and productivity perspective, you can only do so many so debt.
The ability to increase this dollar spend.
We're not chasing the last dollar so.
There is plenty of opportunity for us to continue to invest and <unk>.
All of these projects have really really good returns and that's probably it was the first question.
And.
That payback period is anywhere from 12 to 24 months.
Depending on that specific project.
Perfect. Thank you.
Okay.
Our next question will come from Nicole <unk> with Deutsche Bank. Please go ahead.
Yeah. Thanks, good morning, guys.
Good morning, Nicole.
Good morning, Paul.
So can we start with the outlook for revenue.
When you think about.
Organic growth is getting better.
Patients, particularly with respect to like.
<unk> can you talk about that.
Yes.
John any color you have on the second quarter.
Nicole you were cutting in and out a little bit.
Hospital to restate. The question that you were getting every third word here yes.
Yes, sorry about that.
Yeah.
A little bit yeah. Okay. I was just looking for color on fully.
Organic revised.
Segment.
Yeah.
Yes. This.
David.
I can ask Robyn and Gerry to add some color.
Don.
<unk> guidance as it relates to our product segment perspective, and we can give some color on that but certainly from.
Our regional perspective, if you look at Q2.
This year.
Versus last year, and 17% expected organic growth give or take.
That's going to be pretty strong across all three.
All three regions so.
Probably low single digits in the Americas and both.
APAC and EMEA.
Somewhat over.
On a 20% growth. So this is not a situation recently mentioned that is this is not a situation, where we anticipate another 40 or 50% growth in one region and all the other the other two regions are single digit so.
We're expecting strong growth in Q2 across all three.
Regional segments.
Now when you look at first half versus second half and.
All the numbers are out there so everybody can do the math.
It certainly does imply lower organic growth in the second half of the year. So.
Organic growth in the first half of between 15, and 20% that would imply low single digits in in the second half of the year.
What we can tell you is.
We do not expect that low single digit to the uniform in Q3 and Q4, we do anticipate Q3 from a percentage growth perspective to be higher than the year over year growth debt. We see in Q4. So Q4 last year, if you recall.
Present of very very challenging comp right, we had sales over.
One 3 billion.
Including exceptional sales in EMEA based on timing on some larger projects and also.
APAC, so there could be some conservatism built into our guidance in the fourth quarter. We just don't have the visibility at this point to really lean forward too much on Q4 and we.
We do anticipate debt to have more information related to orders and pipeline.
When we update our guidance.
Q2.
Okay, that's very helpful. Don.
From my follow up.
Guys are trying to offset some of these extra costs with pricing can you just talk about the general pricing environment.
<unk> landscape.
That's a great question Nicole.
We have as we've talked about before being able to get price. The last the last year couple of years and I think we're getting pretty good at doing that.
We've had times before where our freight costs have gone up like they have been we've been able to institute surcharges.
Sometimes that's lagging and I mentioned, a few animas on my comments some of the lagging to pick that up and then based on contracts and orders working with our customers everyone understands the commodity prices are going up steel has doubled the type of thing.
Our customers are pretty good about working with us and going through that certainly we're able to go forward price things.
At that time, you'll hire cost rate and we're able to get that so we feel good we have $10 million I think they've chosen us bridge of incremental additional pricing this year.
Well Wow.
That's something we're striving for we think we could probably do better than that.
But based on what we see based on where we're at that's kind of what we built and built into our plan, but no we've.
We've got a pretty good process now on our ability to drive drive prices through.
With our customers on a global scale.
Great. Thanks, I'll pass it on.
Yeah.
The next question will come from Scott Davis with <unk> Research. Please go ahead.
Good morning, everybody.
Scott.
I appreciate the commentary as usual but.
I'm going to go back to a few questions ago on the enterprise side.
<unk> medium segment.
What's your sense of the age of the installed base on that and that category, meaning.
When you go from yellow to Green is it going to be kind of green on steroids, because not only is everybody.
Back in the building, but they are back in the building with all the equipment that's going on a job pretty quickly is that a fair way to think about it.
Well I guess the way to kind of think about it Scott would be that.
During during COVID-19 period people have haven't been spending and on equipment will I can't give you an exact what the installed base would definitely looked like and what that ramp would be what we are seeing early signs of as people upgrading their.
Closet.
As they drive more to cloud and Colo upgrading their network closets refurbishing old gear, certainly, where there's or batteries and that type of thing. So certainly win when it goes to bright green, we would expect to see.
Probably stronger than traditional growth from that from that enterprise, because theres been and the reason I say that as we see the quoting activity, we see what's happening at the engineering side of things and we do believe when that frees up I don't know if it all happens overnight or if it's a slow kind of like we saw on this last quarter slowly easing back into it.
I mean, I think a lot of it's going to be determined around what happens with the back to work with the COVID-19 vaccine, which we can't predict but I think those things can be correlated and tied to people, saying I feel good about spending again when people are back on the office. They are used to this level of service at home now with a role working they're going to want to make sure.
They're geared in the office is where it needs to be.
Okay. That's helpful on.
Just a point of clarification. The is there anything on your covenants or kind of structure.
This is my first back coverage.
To be fair.
That would preclude buybacks of any magnitude.
This is day, but Scott there is not there is not.
Okay. So if your leverage ratio were to get let's say under two turns or something and you wanted to do a buyback debt.
That's in the cards correct.
That is one of the options on the table for us absolutely.
Okay perfect. Thanks, I'll pass it on good luck.
Our next question comes from Jeff <unk> with vertical research. Please go ahead.
Thank you good morning.
First question, maybe actually related to discuss.
Services in Americas.
What at what point do we start to see some traction there or does it end up being actually tied to.
Kind of new equipment on the enterprise side I wouldn't think it's directly related but they're kind of seem to be tracking similar.
Yeah, Hey, Jeff It's Gary.
So I would say I think there's a couple of things one is first quarter on Americas for service was down a little bit from there because of two main issues. One is if you remember we had those horrible storms that rolled through most of the U S. A lot of it in the southeast and Texas area, So that prevented us from slight accessing pushing jobs on a little bit the other portion of it.
It was decent.
Decently large commercial and industrial service business in the U S.
And that was lagging just because a lot of that is vector towards utilities oil and gas, which obviously were depressed from an order standpoint last year. So that business is coming back online now which are really pretty strong order rates. There number one two clearly the weather issue is temporary.
That is behind us so we would expect to see acceleration in net service business, particularly in the Americas as the year goes on.
Great.
And on the new three phase product moving.
Competitors.
Scott something similar or as we're talking about in this part of what they're talking about developing with that is actually.
On build a SaaS model to where they can share.
With the utility on some of the savings are selling back to the grid.
That sort of thing.
Available with your product and exploring new business models like that maybe you could just elaborate a little bit more on that particular product anything else interesting on the pipeline.
Great Geoff Hi, this is Rob.
Absolutely so when we get.
Where we are on the belief the good interactive we've actually had.
Pilots.