Q3 2023 Vertiv Holdings Co Earnings Call
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Speaker 1: Good morning. My name is Bruno and I'll be your conference operator foot.
Good morning, My name is Bruno and I'll be your conference operator for today.
Speaker 1: At this time, I would like to welcome everyone to 13th quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise.
This time I would like to welcome everyone to third quarter 2023 earnings Conference call.
All lines have been placed on mute to prevent any background noise.
Please note that this call is being recorded.
Speaker 1: I would now like to turn the program over to your host for today's conference call, Lyn Maxeyner, Vice President of Investor Relations. Please go ahead.
I would now like to turn the program over to your host for today's conference call Lynn <unk>, Vice President of Investor Relations. Please go ahead.
Speaker 2: Great, thank you. Good morning and welcome to Vervative Third Quarter 2023 earnings conference call. Joining me today are Vervative's Executive Chairman, Dave Cody, Chief Executive Officer Jordano Obatopsy, and Chief Financial Officer David Fowler.
Great. Thank you good morning, and welcome to avert a third quarter 2023 earnings Conference call. Joining me today are verdicts executive Chairman, Dave Cody, Chief Executive Officer, Giordano, Alberta, BC, and Chief Financial Officer, David Fallon before we begin I'd like to point out that during the course of this call we will make.
Speaker 2: Before we begin, I'd like to 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 Virta. These forward-looking statements are subject to material risk and uncertainties that could cause actual results to differ materially from those in the forward-looking...
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 today's earnings release, and you can learn more about these risks in our.
Speaker 2: We refer you to the cautionary language included in today's earnings release, and you can learn more about these risks in our annual and quarterly reports and other filings made with the SEC.
Annual and quarterly reports and other filings made with the SEC.
Speaker 2: Any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or picture events.
Any forward looking statements that we make today are based on assumptions that we believe to be reasonable as of this date, we undertake no obligation to update these statements as a result of new information or future events. During this call. We will present, both GAAP and non-GAAP financial measures, our GAAP results and GAAP to non-GAAP reconciliations can be found in our earnings press release.
Speaker 2: During this call, we will present both GAAP and non-GAAP financial measures. Our GAAP results and GAAP to non-GAAP reconciliations can be found in our earnings press release and in the investors slide deck found on our website at investors.vertiv.com.
And in the Investor Slide deck found on our website at investors that burden dotcom.
Speaker 2: With that, I'll turn the call over to executive chairman Dave Cody.
With that I'll turn the call over to executive Chairman, Dave Cody.
Speaker 3: Morning, everyone. Well, we've delivered another strong quarter built squirreling on getting the fundamentals, right? Good operational execution throughout the organization.
Good morning, everyone well, we've delivered another strong quarter built squarely on getting the fundamentals right good operational execution throughout the organization.
Translated nicely.
Our pro forma guidance in the third quarter.
Speaker 3: I believe you're starting to see a trend in one we plan to continue.
Are you starting to see a trend in one we plan to continue.
Speaker 3: Financial and operating performance continues to strengthen significantly across the board.
Financial and operating performance continues to strengthen significantly across the board.
Speaker 3: And the most exciting part of that is we're still early in our path of improvement. Alignment to
And the most exciting part of that is we're still early in our path to some improvement.
Alignment is great and Mark matters.
Speaker 3: We have a great position in good industry, and our technology differentiation continues to strengthen.
We have a great position in a good industry and our technology differentiation continues to strengthen.
Speaker 3: Data continues to proliferate in good times and bad times.
Data continues to proliferate in good times, and bad times and that portends, a very favorable end market environment for the foreseeable future.
Speaker 3: And that portends a very favorable end market environment for the foreseeable future.
Operator: Good morning.
Speaker 3: We're intending to finish the year's straw. The benefits of our seed planning are taking hold and still to be fully realized. I'm in my-
Bruno: My name is Bruno and I'll be your conference operator for today. At this time, I would like to welcome everyone to 13th quarter, 2023 earnings conference call. All lines have been placed on meets to prevent any background noise. Please note that this call is being recorded.
Lending to finish the year strong the benefits of our seed planting are taking hold and still to be fully realized in.
Our end markets remain resilient.
Speaker 3: Operational execution continues to improve, and there is still a lot of runway ahead.
Operational execution continues to improve and there is still a lot of runway ahead.
Lynne Maxeiner: I would now like to turn the program over to your host for today's conference call, Lynne Maxeiner, Vice President of Investor Relations. Please go ahead. Great. Thank you.
Speaker 3: That is a great setup as we think about 2024 and beyond. So with that, I'll turn the call over to Gio.
It is a great setup as we think about 2024 and beyond.
With that I will turn the call over to Jill.
Well, thank you Dave.
Speaker 4: Well, thank you Dave. In the last 12 months, we have created intense focus on operational execution, including margin improvement and cash flow generation. Combined with a sense of urgency, which underpins high performance culture.
Lynne Maxeiner: Good morning and welcome to Vertiv 3rd quarter. 2023 earnings conference call. Joining me today are Vertiv's Executive Chairman, Dave Cote, Chief Executive Officer, Giordano Albertazzi, and Chief Financial Officer, David Fallon. Before we begin, I'd like to point out that during the course of this call, we will make forward-looking statements regarding future events, including the future financial operating experiments of Vertiv. These forward-looking statements are subject to material risk and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.
In the last 12 months, we have created intense focus on operational execution.
<unk> margin improvement and cash flow generation combined with a sense of urgency, which underpins our high performance culture.
Speaker 4: This quota shows progress across the board, exceeding our own expectations, demonstrating there is still more value the business can deliver. Here's some highlights.
This quarter shows progress across the board exceeding our own expectations, demonstrating there is still more value the business can deliver here are some highlights.
Speaker 4: Third quarter sales were up 17% organically. America continues to lead the growth up 40%. We continue to see headwinds in APAC, specifically in China. More on that in a few slides.
Third quarter sales were up 17% organically Americas continues to lead the growth.
Lynne Maxeiner: We refer you to the cautionary language, including today's earnings release, and you can learn more about these risks and our annual quarterly reports and other filings made with the SEC. Any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both gap and non-gap financial measures. Our gap results and gap to non-gap reconciliation can be found in our earnings press release, and in the investor's side deck found on our website at investors.vertiv.com.
40%, we continue to see headwinds in APAC, specifically in China more on that in a few slides.
Speaker 4: Very pleased with our orders, up 11%, excluding effects. We were not totally surprised by the strength in orders. We have seen pipelines...
Very pleased with our orders up 11% excluding FX we.
We're not totally surprised by the strength in orders, we have seen pipelines built but.
Speaker 4: Timing is never certain. We are encouraged by the order of booking acceleration. We believe this is a sign of good things to car.
Timing is not certain we are encouraged by the order booking acceleration. We believe this is a sign of good things to come.
Speaker 4: Adjusted a Parisian profit that was $296 million.
Dave Cote: With that, I'll turn the call over to Executive Chairman Dave Cote. Morning, everyone. Well, we've delivered another strong quarter, built squarely on getting the fundamentals right, good operational execution throughout the organization that translated nicely, outperforming guidance in the third quarter. I believe you're starting to see a trend in one we plan to continue. Financial and operating performance continues to strengthen significantly across the board. And the most exciting part of that is we're still early in our path with improvement.
Adjusted operating profit was $296 million.
Speaker 4: an adjusted operating margin of 17%.
And adjusted operating margin of 17%.
Speaker 4: operational execution is sharpening and certainly translating into margin performance.
Operational execution is sharpening and certainly translating into margin performance.
Speaker 4: We had another strong cash flow quota, an area of intense focus, and we are delivering. Of course, this has a nice effect on our leverage, which was 2.4 at the end of September , and guidance gets us close to 2.
We had another strong cash flow quarter.
An area of intense focus and we are delivering of course. This has a nice effect on our leverage which was two four at the end of September and guidance gets us close to two.
Speaker 4: X by your hand. Given our performance here today, we're raising our full year guidance again. We're now expecting sales for the full year to be up 21% organically, AOP between 1020 and 1030 million dollars, and adjusted free cash flow of $625 million at the midpoint.
X by year end, given our performance year to date, we are raising our full year guidance again.
Dave Cote: Alignment to great and market patterns. We have a great position in good industry and our technology differentiation continues to strengthen. Data continues to proliferate in good times and bad times, and that pretend a very favorable and market environment for the foreseeable future. We're intending to finish the year strong, the benefits of our seed planning are taking hold and still to be fully realized are in markets remain resilient. Operational execution continues to improve, and there is still a lot of runway ahead.
We're now expecting sales for the full year to be up 21% organically.
Between 10, <unk> 10, $30 million and adjusted free cash flow of $625 million at the midpoint.
Speaker 4: A very strong year continues to unfold, and we see that momentum enduring.
Very strong year continues to unfold and we see that momentum enduring.
Let's turn to slide four.
No changes on the market environment slide things are consistent with the picture. We gave 90 days ago has the markets overall.
Speaker 4: No changes on the market environment slide. Things are consistent with a picture we gave 90 days ago. Have the market overall.
Giordano Albertazzi: That is a great setup as we think about 2024 and beyond.
Giordano Albertazzi: So with that, I'll turn the call over to Geo. Well, thank you, Dave. In the last 12 months, we have created intense focus on operational execution, including margin improvement and cash flow generation.
Speaker 4: The data center and market remains strong with a cloud hyperscale and co-location continued to lead the growth. We see accelerating demand and a strong overall market for the foreseeable future.
The data center end market remains strong with a cloud hyperscale and Colocation continued to lead the growth, we see accelerating demand and a strong overall market for the foreseeable future differ.
Giordano Albertazzi: Combined with a sense of urgency, which underpins a high performance culture, this quarter shows progress across the board, exceeding our own expectations, demonstrating there is still more value the business can deliver. Here's some highlights. Third quarter sales were up 17% organically, America continues to lead the growth of 40%. We continue to see headwinds in APEC, specifically in China, more on that in a few slides. Very pleased with our orders, up 11% excluding effects, we were not totally surprised by the strength in orders.
Speaker 4: Different customers are at different points in their demand cycle, but they all recognize that strong future demand is coming.
Different customers are at different points in their demand cycle, but they all recognize that strong future demand is coming.
Speaker 4: There are encouraging signs from enterprise. We are hearing a more positive outlook, but still balanced against our macro concern.
There are encouraging signs from enterprise, we are hearing a more positive outlook, but still balanced against some macro concerns telecom is still weak some type of carriers that have delayed investments and there is a lull in the market. After a few years of a strong <unk>.
Speaker 4: Telecom is still weak. Some take-al-carriers have delayed invests.
Speaker 4: And there is a law in the market after a few years of a strong 5G invest.
The investment.
Regionally APAC remains a soft mainly due to a slow Chinese market, partially offset by encouraging signs in India and rest of Asia, We don't anticipate a sharp recovery in China, and I expect that it will stay soft until the backend of 2020.
Speaker 4: Regionally, APAC remains a soft mainly due to a slow Chinese market partially offset by encouraging signs in India and Restovasia. We don't anticipate a sharp recovery in China, and the fact that it will stay soft until the back end of 2020.
Giordano Albertazzi: We have seen pipelines built, but timing is never certain. We are encouraged by the order of booking acceleration. We believe this is a sign of good things to come. Adjusted operating profit that was $296 million and adjusted operating margin of 17%. Operational execution is sharpening and certainly translating into margin performance. We had another strong cash flow quota, an area of intense focus, and we are delivering. Of course, this has a nice effect on our leverage, which was 2.4 at the end of September, and guidance gets us close to 2X by Iran.
Now to the bright spots in APAC, India is quite convincing and order of investment happening and the trend is likely to continue for quite a while.
Speaker 4: Now to the bright spots in APEC, India is quite convincing. An order investment happening and the trend is likely to continue for quite a while. We are also seeing good activity in Malaysia, the Philippines and Southeast Asia in general.
We are also seeing good activity in Malaysia, the Philippines, and southeast Asia in general.
I continue to be quite encouraged by the market signals.
Speaker 4: I continue to be quite encouraged by the market tick.
Speaker 4: We are seeing the demand formation in the pipeline, in the order boat, in conversations with customers all over the world. There's a very good sec to slide five. Let's go to slide five.
We are seeing the demand formation in the pipeline in the order book in conversations with customers all over the world.
As a very good segue to slide five let's go to slide five please.
Speaker 4: Autos in Q3 were up 11% year on year and 16% sequ-
Orders in Q3 were up 11% year on year and 16% sequentially.
Giordano Albertazzi: Given our performance here today, we are raising our full-year guidance again. We are now expecting sales for the full-year to be up 21% organically, AOP between $1020 and $1030 million and adjusted free cash flow of $625 million at the midpoint. A very strong year continues to unfold and we see that momentum enduring.
Speaker 4: I have said throughout the pipeline activity is strong. We are seeing that translating to orders. So not entirely surprising, but encouraging the loss.
I've said throughout the year that pipeline activity is strong we are seeing that translate into orders so not entirely surprising but encouraging velocity.
Speaker 4: When he spent Q4 orders will also be positive year and year, I wouldn't be surprised if Q4 growth was like Q3's. Velocity is increased.
We anticipate Q4 orders will also be positive year on year I wouldn't be surprised if Q4 growth was like Q3s.
Velocity is increasing.
Speaker 4: Now we get a lot of questions on the amount of AI activity in our roadbook.
We get a lot of questions on the amount of.
Activity in our order book.
Giordano Albertazzi: Let's turn to slide 4. No changes on the market's environment slide. Things are consistent with a picture we gave 90 days ago. Have the markets overall. The data center and market remains strong with a cloud hyperscale and collocation continued to lead the growth. We see customers are at different points in their demand cycle, but they all recognize that strong future demand is coming. There are encouraging science from enterprise. We are hearing a more positive outlook, but still balanced against some macro concerns.
Speaker 4: Those questions are often formulated as binary questions. Is it AI or is it not AI? But there is no binary answer. If we talk about technologies that univocally are applied to high-density GPU or compute.
Those questions are often formulated as binary questions is that AI or is it not AI, but there is no binary answer if you talked about technologies that universally applied to high density GPU compute.
Speaker 4: example liquid cooling, CDUs, or some rock level power distribution solutions.
As an example, liquid cooling cpus or some rack level power distribution solutions.
Speaker 4: I will still say our older book is in the tens of millions of dollars. But many elements of our portfolio, chillers, direct expansion cooling, heat rejection systems, switch gear, bus bars, UPS, you name them. Are you regardless if GPU or CPU compute, high density or normal density? So the volume supporting AI or future, AI-proof data centers load tests.
I will still say our order book is in the tens of millions of dollars, but many elements of our portfolio Chillers directory expansion cooling heat rejection systems switch gear Buzz Buzz UBS you name them.
Use regardless, if GPU or CPU compute high density or normal density so the volumes supporting AI or future AI proof data centers.
Giordano Albertazzi: Telecom is still weak. Some technical carriers have delayed investments, and there is a law in the market after a few years of a strong 5G investment. Regionally, AOPAC remains a soft mainly due to a slow Chinese market partially offset by encouraging science in India and Restovasia. We don't anticipate a sharp recovery in China, and the fact that it will stay soft until the back-hand of 2024.
Is way larger than that tens of millions.
Speaker 4: Also, many data centers are being designed to be multi-purpose. So the majority of our products will support many types of compute, including AI. That is the beauty of having a comprehensive portfolio of all critical infrastructure technologies across the entire span of the powertrain, the thermal chain, and IT-wide space infrastructure.
So many data centers have been designed to be multi purpose. So the majority of our products will support many types of compute including AI that is the beauty of having a comprehensive portfolio of all critical infrastructure technologies across the entire span of the powertrain the thermal chain.
<unk> and <unk>.
Wide space infrastructure.
Speaker 4: something that very few companies truly have.
I think that very few companies truly have.
Giordano Albertazzi: Now to the bright spots in AOPAC, India is quite convincing. A lot of investment happening and the trend is likely to continue for quite a while. We are also seeing good activity in Malaysia, the Philippines Paul, I continue to be quite encouraged by the market signals. We are seeing the demand formation in the pipeline, in the older boat, in conversations with customers all over the world.
Speaker 4: Different players, hyperscale, co-location, but also enterprise and edge will have different approaches to AI.
Different players Hyperscale Colocation, but also enterprise and edge will have different approaches to AI.
Speaker 4: I know that suits us well. Complexity, customization at scale, all things we're good at. So overall, AI is coming, and we anticipate it will show up in a more pronounced manner in 2024.
I know that suits us well complexity.
<unk> at scale all things we're good at so overall AI is coming and we anticipate it will show up in a more pronounced manner in 2024.
Now on to supply chain.
Giordano Albertazzi: There's a very good sign to slide five. Let's go to slide five, please. Orders in Q3 were up 11% year and 16% sequentially. I have said throughout the pipeline activity is strong. We are seeing that translating two orders, so not entirely surprising, but encouraging velocity. We anticipate Q4 orders will also be positive year and year. I wouldn't be surprised if Q4 growth was like Q3s, velocity is increasing.
Speaker 4: We are in a much different place than we were historically. Much different.
We are in a much different place than we were historically much different.
Speaker 4: I'm not just talking incrementally. Better than 90 days ago, because if you look at the progress over the last year, you tangibly see this in reduced lead times. Supplies of key components have been making substantial capacity investments, and we're seeing the benefit. We have qualified many additional suppliers with a sharp eye on geopolitical diversification and overall supply chain resilience.
Now not just still kind of incrementally.
Better than 90 days ago.
If you look at our progress over the last year you tangibly see this in our reduced lead times suppliers of key components have been making substantial capacity investments and we are seeing the benefit we have qualified many additional supplies with a sharp eye on geopolitical diversification and overall.
Fly chain resilience.
Speaker 4: We're doing capacity logs in key areas to make sure the supply base is strong for today and for the future. Under various growth scenarios, we will be ready.
We are doing capacity locks in key areas to make sure. The supply base is strong for today and for the future under various growth scenarios, we will be ready.
Giordano Albertazzi: Now we get a lot of questions on the amount of AI activity now wrote a book. Those questions are often formulated as binary questions. Is that AI or is it not AI? But there is no binary answer. If we talk about technologies that uniquely are applied to high density GPU or compute, for example, liquid cooling, CPUs, or some rock level power distribution solutions, I will still say our order book is in the tens of millions of dollars.
Let's move to slide six here, we want to provide some additional color around capacity.
Speaker 4: Here we want to provide some additional color around capacity.
Speaker 4: an important topic given the different growth scenarios that are indeed possible.
An important topic given the different growth scenarios that are indeed possible.
Speaker 4: We start in a strong place with 22 manufacturing plants around the world.
We start in a strong place with 22 manufacturing plants.
Around the world.
Speaker 4: It's much more believable to say you can't scale with this strong starting point.
As much mobile level, but to say you can scale with this strong starting point the.
Giordano Albertazzi: But many elements of our portfolio, chillers, direct expansion cooling, heat rejection systems, switch gear, buzz buzz, UPS, you name them. Use regardless if GPU or CPU compute, high density or normal density. So the volume supporting AI or future AI-proof data centers is way larger than that tens of millions. Also, many data centers are being designed to be multi-purpose, so the majority of our products will support many types of compute, including AI.
Speaker 4: The existing footprint was built with the idea that future growth would need to be accommodated. So you're seeing us scale, expand existing facilities, ramp up the two facilities, the two new facilities, to support growth. And we have buffer capacity in our plans today, roughly around an additional 25 percent to support more intense growth periods and can flex across facilities to optimize our production. And of course,
The existing footprint was built with the idea that future growth will need to be accommodated so you've seen us scale expand existing facilities ramp up the two facilities. The two new facilities to support growth and we have buffer capacity in our plants today roughly around additional $25.
<unk> to support more intense growth periods and can flex across facilities to optimize our production and.
And of course, we continue to invest.
Productivity is another capacity lever the utilization and productivity opportunities are plentiful.
Speaker 4: Productivity is another capacity level. The utilization and productivity opportunities are plan-tiful and candidly just starting. Vertical operating system is being deployed vigorously across the organization, unlocking further capacity.
Giordano Albertazzi: That is the beauty of having a comprehensive portfolio of all critical infrastructure technologies across the entire span of the power train, the thermal chain, and the IT-wide space infrastructure. So I think that very few companies truly have. Different players, hyperscale, co-location, but also enterprise and edge will have different approaches to AI. And now that suits as well, complexity, customization at scale, all things were good at. So overall AI is coming, and we anticipated it will show up in a more pronounced manner in 2024.
And candidly just starting vertical operating system has been deployed vigorously of growth of the organization unlocking further capacity.
Speaker 4: You know, I enjoyed tremendously running a plant during my early years with the company. So as a manufacturer in general is near and dear to my heart.
I enjoyed tremendously running a plant during my early years with the company. So there is a manufacturing generally is near and Dear to my heart.
Speaker 4: It has my and under the full attention. We'll continue to make capital investments to support growth.
It has my full.
Full attention will continue to make capital investments to support growth.
Speaker 4: We will be ready for what is ahead, but this can be done in a measured way that does not significantly change the cash flow profile of this business.
We'll be ready for what is ahead, but this can be done in a measured way that does not significantly change the cash flow profile of this business.
Speaker 4: We can invest for growth prudently and deliver strong free cash flow.
We can invest for growth prudently and deliver strong free cash flow.
Giordano Albertazzi: Now onto supply chain. We are in a much different place than we were historically, much different. I'm not just talking incrementally.
And with that over to you David.
Speaker 5: Great. Thanks, Gio. Turning in the presentation to page 7.
Great. Thanks, Thanks, Joe.
Turning in the presentation to page seven.
Giordano Albertazzi: Better than 90 days ago, because if you look at a progress over the last year, you tangibly see this in our reduced lead times. Supplies of key components have been making substantial capacity investments, and we're seeing the benefit. We have qualified many additional suppliers with a sharp eye on geopolitical diversification and overall supply chain resilience. We're doing capacity logs in key areas to make sure the supply base is strong for today and for the future.
Speaker 5: The slide summarizes our third quarter financial results. As you can see, strong financial performance continues across the board. Organic net sales, up 17% with 9% from volume and 8% from pricing. As Geo mentioned, we continue to see the Americas, which was up 40% organically, drive the growth engine, particularly in this past third quarter.
This slide summarizes our third quarter financial results as you can see strong financial performance continues across the board.
Organic net sales up 17% with 9% from volume and 8% from from pricing.
As Joe mentioned, we continue to see the Americas, which was up 40% organically drive the growth engine, particularly in this past third quarter.
Speaker 5: Adjusted operating profit was $162 million higher than last year's third quarter, mainly driven by $100 million price cost benefit, and $45 million of volume.
Giordano Albertazzi: Under various growth scenarios, we will be Let's move to slide six.
Adjusted operating profit was $162 million higher than last year's third quarter, mainly driven by $100 million price cost benefit and $45 million of volume.
Giordano Albertazzi: Here we want to provide some additional color around capacity. An important topic given the different growth scenarios that are indeed possible. We start in a strong place with 22 manufacturing plants around the world. It's much more believable to say you can scale with this strong starting point. The existing footprint was built with the idea that should the future growth would need to be accommodated. So you're seen as a scale, expanding existing facilities, ramp up the two facilities, the two new facilities to support growth.
Speaker 5: Uh adjusted operating profit was 40 plus million dollars higher than our prior guidance
Adjusted operating profit was 40 plus million dollars higher than our prior guidance.
Speaker 5: driven by $15 million higher than anticipated pricing and $30 million lower inflation as we have seen some core metals notably steel trending lower in the past quarter.
Driven by $15 million higher than anticipated pricing and $30 million lower inflation as we have seen some core metals, notably steel trending lower in the past quarter.
Speaker 5: We did have a one time $7 million benefit from a commercial concession as we note on the slide that also contributed to the favorability versus prior guidance.
We did have a one time $7 million benefit from a commercial concession as we.
Of note on this slide.
That also contributed to the favorability versus prior guidance.
Giordano Albertazzi: And we have buffer capacity in our plans today, roughly around 25% to support more intense growth periods and can flex across facilities to optimize our production. And of course, we continue to invest. Productivity is another capacity level. The utilization and productivity opportunities are planted full and candidly just starting. Vertible operating system is being deployed vigorously across the organization, unlocking further capacity.
Speaker 5: This commercial concession also favorably influenced adjusted operating margin by 40 to 50 basis points.
This commercial concession also favorably influence adjusted operating margin by 40% to 50 basis points.
Speaker 5: as a just operating margin reached 17% in the quarter. And that's 790 basis points higher than last year. A great indicator of the significant progress we have made in a relatively short period in driving operational execution. You know, certainly more work to do, but third quarter results should provide some confidence in our ability to achieve our longer term margin target.
Adjusted operating margin reached 17% in the quarter and that 790 basis point.
Higher than last year.
A great indicator of the significant progress we have made in a relatively short period in driving operational execution.
Certainly more work to do but third quarter results should provide some confidence in our ability to achieve our longer term margin targets.
Giordano Albertazzi: You know, I enjoyed tremendously running a plan during my early years with a company. So there's a manufacturing generation near and dear to my heart. It has my and does a full attention will continue to make capital investments to support growth. We will be ready for what is ahead, but this can be done in a measured way that does not significantly change the cash flow profile of this business. We can invest full growth prudently and deliver strong free cash flow.
Speaker 5: Moving to the right on this slide, we had another strong quarter of adjusted free cashflow generating $221 million in the quarter, a year over year improvement of $241 million.
Moving to the right on this slide we had another strong quarter of adjusted free cash flow generating $221 million in the quarter a year over year improvement of $241 million.
Speaker 5: We continue to see the benefit of higher profitability and improve working capital management really across the organization.
We continue to see the benefit of higher profitability and improved working capital management really across the organization.
Speaker 5: Cash taxes were higher, the inevitable result of driving higher profitability, but in general we are driving much more consistency and predictability with our cash flow. Controlling the things that matter, notably trade, work, and capital as we fully appreciate that sales and profitability mean little if they do not translate into cash flow, which is absolutely essential to drive long-term shareholder value.
Cash taxes were higher the inevitable result of driving higher profitability.
But in general we are driving much more consistency and predictability with our cash flow.
David Fallon: And with us over to you, David. Great. Thanks. Thanks, Joe. Turning in the presentation to page seven. The slide summarizes our third quarter financial results. As you can see, strong financial performance continues across the board. Organic net sales up 17% with 9% from volume and 8% from pricing. As Geo mentioned, we continue to see the Americas, which was up 40% organically drive the growth engine, particularly in this past third quarter. Adjusted operating profit was $162 million higher than last year's third quarter mainly driven by $100 million price cost benefit and $45 million of volume.
Trolling, the things that matter, notably trade working capital as we fully appreciate that sales and profitability mean little if they do not translate into cash flow, which is absolutely essential to drive long term shareholder value.
Speaker 5: Last on this slide, if you look at the bottom right hand corner, net leverage declined to 2.4 times at the end of the quarter, and is expected to be approximately 2.1 times by your end.
Last on this slide if you look at the bottom right hand corner net leverage declined to two four times at the end of the quarter and is expected to be approximately two one times by year end.
Speaker 5: Of course this net leverage improvement certainly correlates with improved cash generation. Clearly our balance sheet continues to strengthen which provides flexibility as we think about capital deployment and more to come on capital deployment in our November 29th investor conference.
Of course, this net leverage improvement certainly correlates with improved cash generation clearly our balance sheet continues to strengthen which provides flexibility as we think about capital deployment and more to come on capital deployment in our November 29 Investor Conference.
Speaker 5: Next turning to page eight, this slide summarizes our third quarter segment results. The America's region continues its strong growth trajectory with organic net sales up 40 percent, including 28 percent from volume and 12 percent from pricing. We continue to see substantial year-over-year improvement in adjusted operating margin in the Americas, up 910 basis points, which is largely driven by favorable price cost and fixed cost leverage.
Next turning to page eight this slide summarizes our third quarter segment results.
David Fallon: Adjusted operating profit was $40 plus million higher than our prior guidance driven by $15 million higher than anticipated pricing and $30 million lower inflation as we have seen some core metals notably steel trending lower in the past quarter. We did have a one time $7 million benefit from a commercial concession as we note on the slide that also contributed to the favorability versus prior guidance. This commercial concession also favorably influenced adjusted operating margin by 40 to 50 basis points, as a just operating margin reached 17% in the quarter, and that's 790 basis points higher than last year. A great indicator of the significant progress we have made, an interrelatively short period in driving operational execution.
The Americas region continues its strong growth trajectory with organic net sales up 40%, including 28% from volume and 12% from pricing we can.
Continue to see substantial year over year improvement in adjusted operating margin in the Americas up 910 basis points, which is largely driven by favorable price cost and fixed cost leverage.
Speaker 5: APAC top line, moving to the center section of the graph, continues to be negatively impacted by China, with organic net sales in that region declining 7% from last year.
APAC top line moving to the center section of the graph.
<unk> continues to be negatively impacted by China with organic net sales in that region declining 7% from last year.
Speaker 5: From a sub-region perspective, the rest of Asia, so everything outside of China, continues to grow nicely year over year, up low, double digits in the third quarter.
From a sub region perspective, the rest of Asia. So everything outside of China continues to grow nicely year over year up low double digits in the third quarter.
Speaker 5: Adjusted operating margin for APEC remained flat year over year despite the lower sales at 19.1% really a strong testament to their focus on cost control while continuing to drive margin enhancements.
Adjusted operating margin for APAC remained flat year over year, despite the lower sales.
At 19, 1% really a strong testament to their focus on cost control, while continuing to drive margin enhancements.
David Fallon: You know, certainly more work to do, but third quarter results should provide some confidence in our ability to achieve our longer term margin targets. Moving to the right on this slide, we had another strong quarter of adjusted free cash flow generating $211 million in the quarter, a year over year improvement of $241 million. We continue to see the benefit of higher profitability and improve working capital management really across the organization. Cash taxes were higher, the inevitable result of driving higher profitability, but in general, we are driving much more consistency and predictability with our cash flow, controlling the things that matter, notably trade, working capital as we fully appreciate that sales and profitability mean little if they do not translate into cash flow, which is absolutely essential to drive long term shareholder value.
Speaker 5: Now we do anticipate that APAC will return to mid to low single digit year over year growth in the fourth quarter in part due to typical fourth quarter seasonality in China.
Now, we do anticipate that APAC will return to mid to low single digit year over year growth in the fourth quarter in part due to typical fourth quarter seasonality in China.
Speaker 5: But this region will likely be down for full year 2023 versus 2022. And we are not planning for a sharp recovery in China at the beginning of 24. Rather, we are expecting sales activity to be relatively muted at least until the back half of next year.
But this region will likely be down for full year 2023 versus 2022, and we are not planning for a sharp recovery in China at the beginning of 'twenty four.
Rather we are expecting sales activity to be relatively muted at least until the back half of next year.
Speaker 5: The EMEA region was relatively flat organically in the third quarter, which was slightly better than we anticipated in guidance.
The EMEA region was relatively flat organically in the third quarter, which was slightly better than we anticipated in guidance.
Speaker 5: Flat year over year sales from the quarter was mostly due to timing, as we expect a significant sequential increase in the fourth quarter with full year organic sales growth in that region in the upper single to low double digits.
That year over year sales in the quarter was mostly due to timing as we expect a significant sequential increase in the fourth quarter with full year organic sales growth in that region in the upper single to low double digits.
David Fallon: Last on this slide, if you look at the bottom right hand corner net leverage declined to 2.4 times at the end of the quarter and is expected to be approximately 2.1 times by your end. Of course, this net leverage improvement certainly correlates with improved cash generation clearly our balance sheet continues to strengthen which provides flexibility as we think about capital deployment.
Speaker 5: EMEA continues to deliver strong adjusted operating margin, almost 28% this quarter, an increase of 1,030 basis points compared with last year's third quarter with the improvement driven by favorable price cost and good fixed cost control.
EMEA continues to deliver strong adjusted operating margin almost 28% this quarter, an increase of a 1030 basis points compared with.
David Fallon: And more to come on capital deployment in our November 29th investor conference.
With last year's third quarter with the improvement driven by favorable price cost and good fixed cost control and.
Speaker 5: And finally on this page, corporate costs in the third quarter were approximately $7 million higher than last year driven by both our ND investment and an incremental $3 million foreign exchange law.
And finally on this page corporate costs in the third quarter were approximately $7 million higher than last year, driven by both R&D investment and an incremental $3 million foreign exchange loss.
David Fallon: Next turning to page 8, this slide summarizes our third quarter segment results. The America's region continues its strong growth trajectory with organic net sales up 40% including 28% from volume and 12% from pricing. We continue to see substantial year over year improvement and adjusted operating margin in the Americas up 910 basis points, which is largely driven by favorable price cost and fixed cost leverage.
Speaker 5: Our current guidance assumes second half corporate costs in the aggregate to be consistent with the first half. Next, turning to page 9.
Our current guidance assumes second half corporate costs in the aggregate to be consistent with the first half.
Next turning to page nine.
This slide summarizes our fourth quarter guidance.
Speaker 5: We expect a strong finish to the year with adjusted operating profit in the range of $295 million to $305 million and adjusted operating margin at 16.3% at the midpoint, 360 basis points higher than last year's fourth quarter.
We expect a strong finish to the year with adjusted operating profit in the range of 295 million to $305 million and adjusted operating margin at 16, 3% at the midpoint 360 basis points higher than last year's fourth quarter.
David Fallon: APAC top line moving to the center section of the graph continues to be negatively impacted by China with organic net sales in that region declining 7% from last year. From a sub region perspective, the rest of Asia, so everything outside of China continues to grow nicely year over year, upload double digits in the third quarter. Adjusted operating margin for APAC remain flat year over year despite the lower sales at 19.1% really a strong testament to their focus on cost control while continuing to drive margin enhancements.
Speaker 5: Adjusted operating margin is expected to be down sequentially from the 17% in the third quarter. As Regional Mix plays a role with higher A-PAC volume and recall that the third quarter was favorably impacted by the commercial concession that we talked about a couple slides ago.
Adjusted operating margin is expected to be down sequentially from the 17% in the third quarter as regional mix plays a role with higher APAC volume and recall that the third quarter was favorably impacted by the commercial concessions that we talked about a couple of slides ago.
Speaker 5: Adjusted free cash flow is also projected to be lower sequentially as we expect catbacks to ramp up about 35 million dollars. A lot of that driven by timing and working capital use should be approximately 35 million dollars higher in the fourth quarter versus the third quarter as sales are expected to increase about 100 million dollars sequentially.
Adjusted free cash flow is also projected to be lower sequentially as we expect capex to ramp up about $35 million a lot of that driven by timing and working capital use should be approximately $35 million higher in the fourth quarter versus the third quarter as sales are expected to.
David Fallon: Now, we do anticipate that APAC will return to mid to low single digit year over year growth in the fourth quarter in part due to typical fourth quarter season alley in China. But this region will likely be down for full year 2023 versus 2022 and we are not planning for a sharp recovery in China at the beginning of 24. Rather, we are expecting sales activity to be relatively muted at least until the back half the next year.
Increase about $100 million.
Sequentially.
Speaker 5: China Cash Collections are our watch item for the fourth quarter with larger customers paying a bit slower given the macro environment there and the impact on cash availability.
China cash collections are a watch item for the fourth quarter with larger customers paying a bit slower given the macro environment, there and the impact on cash availability.
Speaker 5: Next, moving to slide 10, our full-year guidance.
Next moving to slide 10.
Our full year guidance.
Speaker 5: We are increasing projected full-year sales by approximately $30 million and adjusted operating profit to a billion 20 to a billion 30 and increase of over $580 million from 2022. This revised guidance is approximately $75 million higher than previous guidance.
We are increasing projected full year sales by approximately $30 million and adjusted operating profit to $1 20 to $1 30 and.
David Fallon: The Amir region was relatively flat organically in the third quarter which was slightly better than we anticipated in guidance. Flat year over year sales in the quarter was mostly due to timing as we expect a significant sequential increase in the fourth quarter with full year organic sales growth in that region in the upper single to low double digits. Amir continues to deliver strong adjusted operating margin, almost 28% this quarter. An increase of a thousand thousand 30 basis points compared with last year's third quarter with the improvement driven by favorable price cost and good fixed cost control.
An increase of over $580 million from 2022.
This revised guidance is approximately $75 million higher than previous guidance.
Speaker 5: with $40 million from the third quarter beat and $35 million from the raise in the fourth quarter.
With $40 million from the third quarter beat and $35 million from the raise in the fourth quarter.
Speaker 5: Full year adjusted operating margin is expected to be 15%. 730 basis points higher than last year, with approximately 500 basis points from higher variable contribution margin, and over 200 basis points from fixed cost leverage.
Full year adjusted operating margin is expected to be 15% 730 basis points higher than last year with approximately 500 basis points from higher variable contribution margin and over 200 basis points from fixed cost leverage.
David Fallon: And finally on this page corporate costs in the third quarter were approximately $7 million higher than last year driven by both our D investment and an incremental $3 million foreign exchange loss. Our current guidance assumes second half corporate cost in the aggregate to be consistent with the first half.
Speaker 5: And finally on this page, we are increasing adjusted free cash flow guidance by $75 million to $625 million at the midpoint. $885 million higher than last year.
And finally on this page we are increasing adjusted free cash flow guidance by $75 million to $625 million at the midpoint.
$885 million higher than last year.
Speaker 5: This improvement demonstrates our focus on cash and the operational process improvements that have taken a hold across the organization. And our commitment to delivering strong and consistent free cash flow is a crucial part of our high performance culture. And I believe this could be a harbinger of continued good things to come.
This improvement demonstrates our focus on cash and the operational process improvements that have taken a hold across the organization.
David Fallon: Next turning to page nine. This slide summarizes our fourth quarter guidance. We expect a strong finish to the year with adjusted operating profit and the range of 295 million to $305 million. And adjusted operating margin at 16.3% at the midpoint. 360 basis points higher than last year's fourth quarter.
And our commitment to delivering strong and consistent free cash flow is a crucial part of our high performance culture and I believe this could be a harbinger.
Continued good things to come.
Speaker 4: And with that said, I turn it back over to you. Well, thank you, David. Thanks a lot. And let's go to slide 11. So, so many initial thoughts on 2024. Let me say we see more tailwinds than headwinds. Our starting point is strong. The data center market continues to accelerate. And the AI is forming. Tailwind that will likely build you more evidence in 2020.
And with that said I turn it back over to Joe.
Thank you Debbie Thanks, a lot and let's go to slide.
David Fallon: Adjusted operating margin is expected to be down sequentially from the 17% in the third quarter. As regional mix plays a role with higher a pack volume and recall that the third quarter was favorably impacted by the commercial concession that we talked about a couple slides ago. Adjusted free cash flow is also projected to be lower sequentially as we expect cat backs to ramp up about $35 million. A lot of that driven by timing and working capital use should be approximately $35 million higher in the fourth quarter versus the third quarter as sales are expected to increase about $100 million sequentially.
11, so so many initial thoughts on 2020 full let's say, we see more tailwind than headwind. Our starting point is strong the data center market continues to accelerate and AI is forming a tailwind that will likely be more evident in 2024.
Speaker 4: Our supply chain resilience is a much greater level of maturity. This is important as we think about the demand profiles that may emerge for next year and beyond.
Our supply chain.
Our supply chain resilience is at a much greater level of maturity. This is important as we think about the demand profiles that may emerge for next year and beyond.
Speaker 4: Violence investments in the business will continue, R&D capacity, things that will support the growth of the business for the years to...
Balanced investments in the business will continue R&D capacity things that will support the growth of the business for the years to come.
Speaker 4: We will continue our relentless focus on operational execution and implement that vertive operating system increasingly deeply. This will support continuous improvement, consists
David Fallon: China cash collections are our watch item for the fourth quarter with larger customers paying a bit slower given the macro environment there and the impact on cash availability. Next moving to slide 10 are full year guidance. We are increasing projected full year sales by approximately $30 million and adjusted operating profit to a billion 20 to a billion 30. An increase of over $580 million from 2022. This revised guidance is approximately $75 million higher than previous guidance with $40 million from the third quarter beat and $35 million from the raise in the fourth quarter.
We will continue our relentless focus on operational execution and implement that vertical operating system increasingly deeply this will support continuous improvement consistently we have started making progress but much more to come there are headwinds to certainly China is a slow and Rick.
Speaker 4: We have started making progress, but much more to come. There are headwinds too, certainly China is a slow and recovery doesn't appear near to.
Calvary doesn't appear near term.
Speaker 4: worth noting, we anticipate more normal seasonality returning in 2024 and for the narrative that typically means our financial measures in absolute dollars get stronger sequentially as the year progresses.
With noting we anticipate more normal seasonality returning in 2024 and four <unk> that typically means a financial measures in absolute dollars get stronger sequentially as the year progresses.
Speaker 4: Let's go to flight 12. Once more, remind everyone that we have our first investor conference on the 29th of November . So here are the topics we plan to cover that day. And we'll be sharing a lot of exciting information. I look forward to spending the day with you, talking about our strategy, technology, using the markets, operations, and financial framework.
Go to slide 12.
One small remind everyone that we have our first investor conference on the 29th of November. So here. The topics we plan to cover today and will be sharing a lot of exciting information and I look forward to spending the day with you talking about our strategy technology used on the market.
David Fallon: Full year adjusted operating margin is expected to be 15% 730 basis points higher than last year with approximately 500 basis points from higher variable contribution margin and over 200 basis points from fixed cost leverage. And finally on this page we are increasing adjusted free cash flow guidance by $75 million to $625 million at the midpoint. $885 million higher than last year. This improvement demonstrates our focus on cash and the operational process improvements that have taken a hold across the organization and our commitment to delivering strong and consistent free cash flow is a crucial part of our high performance culture.
<unk> and financial framework.
Speaker 4: We hope you will be able to join us, preferably in person or remote.
We hope you will be able to join us.
Variably in person or remotely.
Let's go to slide 13.
I will say, we have meaningfully evolved from where we were a year ago, you can see that across all the key takeaways on this slide.
Speaker 4: I said we have meaningfully evolved from where we were a year ago. You can see that across all the key takeaways on this slide. A lot of improvements. It has been quite intense and fun. And we are still quite far from our full...
A lot of improvements it has been quite intense and fun.
We're still quite far from our full potential.
Speaker 4: I want to thank our team around the world.
I want to thank our team around the world.
Speaker 4: For the passion and the hard work, tackling challenges every day, making sure we exceed our customer expectations, helping the entire industry scale and holding ourselves accountable for delivering strong results every quarter.
For the passion and hard work tackling challenges every day, making sure we exceed our customer expectations, helping the entire industry scale and holding ourselves accountable for delivering strong results every quarter.
David Fallon: And I believe this could be a harbinger of continued good things to come.
David Fallon: And with that said, I turn it back over to you.
David Fallon: Well, thank you, David. Thanks a lot.
Giordano Albertazzi: And let's go to slide. 11.
Giordano Albertazzi: So so many initial thoughts on 2024. Let's say we see more tear wins than headwinds. Our starting point is strong. The data center market continues to accelerate. The AI is forming a tearwind that will likely be more evidence in 2024. Our supply chain is a much greater level of maturity. This is important as we think about the demand profiles that may emerge for next year and beyond. Balance investments in the business will continue R&D capacity.
Speaker 4: I am sure you can see the early signs of a high-performing culture.
I am sure you can see the early signs of a high performing culture.
Speaker 4: with that over to the operator.
With that.
Over to the operator.
Over to you rune.
Speaker 1: Thank you. Ladies and gentlemen, we will now begin the question and answer session.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session.
Speaker 1: In order to ask a question, please press start in the number one on your telephone keypad. In the interest of time, please limit yourself to one question, and if you have a follow-up, please rejoin the queue. Now we will pause for just a moment.
In order to ask a question. Please press Star then the number one on your telephone keypad.
In the interest of time, please limit yourself to one question and if you have a follow up please rejoin the queue now.
Now we will pause for just a moment to compile the Q&A.
Giordano Albertazzi: Things that will support the growth of the business for the years to come. We will continue our relentless focus on operational execution and implement the vertive operating system increasingly deeply. This will support continuous improvement consistently. We have started making progress but much more to come.
Speaker 1: Our first question comes from Scott Davis from Milo's Research. Scott, your line's not open, please proceed.
Our first question comes from Scott Davis from Mileage Research Scott. Your line is now open. Please proceed.
Speaker 3: Hey, good morning, everybody. Including Dave Cody. Good morning. Good morning.
Hey, good morning, everybody.
<unk> good morning.
Giordano Albertazzi: There are headwinds too. Certainly China is a slow and recovery doesn't appear near term worth noting. We anticipate more normal seasonality returning in 2024 and for vertive that typically means our financial measures in absolute dollars gets stronger sequentially as the year progresses.
Good morning, Scott.
Yes.
Speaker 6: Where I'm looking at. I'm good, Dave. I'm not as good as you are. The last couple quarters you've net worth has gone up a little bit, but.
I'm looking at.
Good Dave Im not as good as you are.
Over the last couple of quarters.
Net worth has gone up a little bit but.
Speaker 6: But I am a share owner so I appreciate it.
But I am a shareowner so.
I appreciate it.
Speaker 6: Um, where I'm looking at slide 11, you know, where does telecom fit in this tailwind headwind or, or is it the lack of kind of telecom being on here? I mean, it's more of a neutral or or just.
Where I am looking at slide 11.
Where does telecom fit in this tailwind headwind or or is it the lack of kind of telecom being on here I mean, it's more of a neutral or.
Giordano Albertazzi: Let's go to slide 12.
Giordano Albertazzi: Once once more remind everyone that we have our first investor conference on the 29th of November. So here the topics we plan to cover that day and we'll be sharing a lot of exciting information. Now look forward to spending the day with you talking about our strategy, technology using the market operations and financial framework. We hope you will be able to join us preferably in person or remotely.
Or just.
Just stop there.
Speaker 4: yeah no it's got um... i would say um... telecom is a new to uh... right now and it is a picture uh... on the speaking that the fact that uh... telecom is soft is is no new news this uh... this quarter that's something that we already signals for at least
Yes, Scott I would say telecom is neutral.
Right now in this whole picture.
Honestly speaking the fact that.
Telecom itself there is no new news. This this quarter, that's something that we already signals for at least the last to the last two calls so we see that continuing in 2024. So if anything we can be surprised by by the opposite in the in the in the industry.
Speaker 4: the last two, the last two calls. So we see that continuing in 2024. So if anything, we can be surprised by the opposite. In the industry, there is some expectations. As soon as we're later, the extreme edge.
Giordano Albertazzi: Let's go to slide 13. I'll say we have meaningfully evolved from where we were a year ago. You can see that across all the key takeaways on this slide. A lot of improvements. It has been quite intense and fun and we are still quite far from our full potential.
There is some expectation sooner or later the extreme edge will happen.
Speaker 4: will happen in the, let's say.
In the let's say.
Speaker 4: Telecom perimeter operations, but again, not counting on that, but having the right technology available and the customer reach if that happens.
Telecom.
Inventory operations, but again not counting on that but having the right technology available and customer reach if that happens.
Giordano Albertazzi: I want to thank our team around the world for the passion and the hard work tackling challenges every day making sure we exceed our customer expectations helping the entire industry scale and holding ourselves accountable for delivering strong results every quarter. I am sure you can see the early signs of a higher performing culture.
Okay. That's helpful and just as a quick follow up price. This has been an industry historically were.
Speaker 6: And this is a quick follow up price. You know, this has been an industry historically where price wasn't really a big deal until you had the, not meaningful contributor one way or another until you had the supply chain debacle and needed to get after some, but.
Price wasn't really a big deal.
So you had the.
Not meaningful contributor one way or another until you had the supply chain debacle and needed to get after some butt.
Speaker 6: Do you have to start giving back some of that when you get into 2024? Is there a new paradigm just because you're perhaps your kind of value-based selling and
Operator: With that, over to the operator. Over to you, bro.
Does do you have to start giving back some of that when you get into 2024 is there a new paradigm just because youre.
Operator: Thank you.
Perhaps you're kind of value based selling.
Operator: Ladies and gentlemen, we will now begin the question and answer session. In order to ask a question, please press start in the number one on your telephone keypad. In the interest of time, please limit yourself to one question, and if you have a follow-up, please rejoin the queue.
Speaker 6: you know, kind of figure out how to hold that, hold the line on price a little bit more effectively than maybe in the past.
Kind of figure out how to.
Operator: Now we will pause for just a moment to compile the Q&A.
To hold that hold the line on price a little bit more effectively than maybe in the in the past.
Speaker 4: Yes, Scott, certainly value is a big element. The industry and the line technology is becoming more compact.
Yes, Scott certainly value is a big element the industry and let's say underlying technology is becoming more complex.
Speaker 4: We will talk certainly about high density, we'll talk about the overall net increment on the installed power and the need for total cost of ownership, efficiency, et cetera. So the world is becoming more complex.
But we will talk certainly about.
Scott Davis: Our first question comes from Scott Davis from Milo's research, Scott, your lines now open, please proceed. Hey, good morning, everybody, including Dave Cody. Good morning. Morning, Scott, how are you? I'm good, Dave. I'm not as good as you are. The last couple quarters, your net worth has gone up a little bit. But I am a share owner, so I appreciate it.
High density will talk about the overall net increment installed power and and the need for total cost of ownership efficiency et cetera.
The world is becoming more complex.
Speaker 4: value in terms of the technology that you deliver matters and we talked about vertice ability to exercise the pricing muscle both in terms of profits and in terms of translating value in the initial price both in terms of project price process and in general pricing new technology
Value in terms of the technology that you deliver matters and we've talked about vertical ability to exercise the pricing muscle both in terms of process.
And in terms of translating value in the initial price both in terms of.
Scott Davis: I'm looking to slide 11. Where does telecom fit in this tailwind headwind, or is it the lack of kind of telecom being on here? I mean, it's more of a neutral, or just, I don't know, I'll just stop there. Yeah, no, Scott. I would say Telecom is a neutral right now in this whole picture. Honestly speaking, the fact that telecom is soft is no new news this quarter. That's something that we already signals for at least the last two calls.
Project price process and.
General pricing new technology, but.
Speaker 4: But it's also true that the industry, in the industry in general, there is more demand than Kapa.
It is also true that.
The industry and the industry in general there is more.
Demand than than capacity, so that is certainly a <unk>.
Speaker 4: So that is certainly a fearful environment in many respects.
Favorable environment in many respect on to say that we see in the future.
Speaker 4: I'm gonna say that we see in the future diminishing prize gains, we have certainly enjoyed a lot of that kind of catching up after inflation. But again, we continue to be positive about the future with that sort of respect.
Diminishing price gains we are certainly.
Enjoyed it.
A lot of that kind of catching up after offset inflation.
Scott Davis: So we see that continuing in 2024. So if anything, we can be surprised by the opposite. In the industry, there is some expectations. Sooner or later, the extreme edge will happen in the, let's say, telecom perimeter operations. But again, not counting on that, but having the right technology available and the customer reach if that happens.
But again, we continue to be positive about the future investment with respect.
Sounds encouraging we'll see you all at the analyst day. Thank you.
Looking forward.
Speaker 1: Our next question comes from Nicole Deblis from Deutsche Bank. Nicole, your line is now open. Please go ahead.
Our next question comes from Nicole <unk> from Deutsche Bank Nicole. Your line is now open. Please go ahead.
Okay.
Thanks, Good morning, guys.
Good morning, Nicole.
Scott Davis: Okay, it's helpful. And this is a quick follow up price. You know, this has been an industry historically where price wasn't really a big deal. Until you had the not meaningful contributor one way or another until you had the supply chain debacle and needed to get after some. But does, do you have to start giving back some of that when you get into 2024? Is there a new paradigm just because you're, you know, perhaps you're kind of value based selling and, and, you know, kind of figure out how to, how to, how to hold that, how to hold the line on price a little bit more effectively than maybe in the, in the past.
Maybe we could just start with the comments that you guys made about 2024 I think it's an important distinction with one half versus two half since our comps are really difficult in the first half and I guess the follow up to that comment as you know.
Speaker 7: Maybe we could just start with the comments that you guys made about 2024. I think it's an important distinction with one-half versus two-half since the comps are really difficult in the first half and I guess the follow-up to that comment is, you know, do you still expect to be able to grow organically in the first half of the year or is that going to be totally back half-weighted just because of the comp dynamic?
Do you still expect to be able to grow organically in the first half of the year or is that going to be totally back half weighted just because of the comp dynamics. Thanks.
Okay.
Speaker 4: As Nicole, as I mentioned, let me elaborate, as I mentioned, we are going more towards normal, is what is historically normal first half, second half. In 2023, my respect, a little bit abnormal, in the sense that we had a pent up backlog, let me say almost a 2022 backlog residue.
Yes, Nicole as we as I mentioned, let me elaborate on as I as I as I mentioned, we are going more towards a normal is what is historically normal.
First half second half.
Scott Davis: Yes, Scott, certainly value is a big element. The industry and the, and the line technologies becoming more complex. We will talk, certainly, about high density. We'll talk about the overall net increment on the installed power and the need for a total cost of ownership, efficiency, et cetera. So the world is becoming more complex value in terms of the technology that you deliver matters. And we talked about the ability to exercise the pricing muscle, both in terms of process.
2023 many respects.
<unk> in the sense that we had.
Pent up backlog, let me say almost a 2022.
Backlog residue that we.
Speaker 4: that we moved because of the shortage of components, et cetera, moved to the first half of the year. So that makes certainly a more flat H1, H2 year. In this moment, we are thinking something that probably will be around a 45%, 55% top line for a staff second half, given it takes something else too early to say, but that's probably the thought that's all.
That we moved because of the shortage of components et cetera move to to the first half of the year. So that makes certainly.
More flat H, one H two.
Yeah.
In this moment, we think it's something that probably will be around $45, 55% topline first half second half given take something that's too early too early to say, but that's probably the thought that's all process.
Scott Davis: And in terms of translating value in the initial price, both in terms of project price process and in general pricing new technology. But it's also true that the industry, in the industry in general, there is more demand than that capacity. So that is certainly a fearful environment in many respects. I'm going to say that we, we see in the future diminishing price gains. We, we have certainly enjoyed a lot of that kind of a catching up after, after inflation. But again, we continue to be positive about the future with that.
Speaker 4: You know, I would be surprised, and it's again, early, but I would be surprised if H1-24 were below 20-23. So, I think it was going to be positive all the way through, but again, we like to be clear about the seasonality.
And I would be surprised.
<unk> early but I would be surprised if.
If.
A H 124 below 22003 so.
I think it was going to be positive all the way through that but again.
I too to to be clear about the seasonality because thats all.
Thanks, John that's really helpful. And then the comments that you guys made about capacity and investing in the SaaS I guess, if we kind of look at the multiyear Capex picture are you trying to send the message that capex does need to grow from current levels or do you think that you can kind of expand capacity gradually at the current levels of spam.
Speaker 7: Thanks, Gio, that's really helpful. And then the comments that you guys made about capacity and investing in the business, I guess if we kind of look at the multi-year CapEx picture, are you trying to send the message that CapEx does need to grow from current levels, or do you think that you can kind of expand capacity gradually at the current levels of spend?
Scott Davis: Thanks. Sounds encouraging. We'll see y'all at the animals day. Thank you. Looking forward.
Thanks.
There will be some capex growth as a matter of fact just size our topline growth.
Nicole DeBlase: Our next question comes from Nicole DeBlase from Deutsche Bank. Nicole, your line is now open. Please go ahead. Thanks. And maybe we could just start with the comments that you guys made about 2024. I think it's an important distinction with one half versus two half since the comps are really difficult in the first half. And I guess the follow up to that comment is, you know, do you still expect to be able to grow organically in the first half of the year or is that going to be totally back halfway to just because of the comp dynamic. Thanks.
And then there will be an element of a proportionality, but it will be probably a little bit more than than that again I think this is a unique.
Trends in the industry the main industry that we that we serve and.
As we said we have many ways to make sure that we make that capacity available.
Productivity being one room, making sure that we use everything that we have created in terms of capacity over the last couple of years, but yes.
Yeah, we.
If the conditions as we believe will favor that we think we can be a little bit more aggressive, but I want to once more.
Nicole DeBlase: Nicole, as we as I mentioned, let me elaborate on as I as I mentioned, we are going more towards normal is what is historically normal first half, second half. 2023, my respect, a little bit abnormal in the sense that we had a pent up backlog. Let me say almost a 2022 backlog residue that we are that we moved because of the shortage of components, et cetera, moved to the first half of the year.
The highlight the fact that we do not believe that.
This will.
<unk> meaningfully change the cash flow profile.
The business overall.
Thanks, Joe I'll pass it on.
Our next question comes from Amit <unk> from Evercore Amit. Your line is now open. Please go ahead.
Okay.
Speaker 8: Thanks for being my question. I'm thinking, Ratson, we really good set a numbers here. I guess the first one I had was, do your orders accelerated really nice? Getting was up to 11% year over year. You sound more positive going forward on this as well. How much of this uplift you think in order is driven by volume versus pricing? And any sense if the duration of order that customers are putting in is starting to stretch out as well, and maybe that's also happening. Anything you talk about, pricing versus volume versus duration on orders would be really helpful.
Thanks, a lot for taking my question and congrats on a really good set of numbers here I guess the first one I had was you know.
Nicole DeBlase: So that makes certainly a more flat H1 H2 year. In this moment, we think it's something that probably will will be around a 45 to 55% top line for staff, second half, given take something as too early, too early to say, but that's probably the thought that thought process. You know, I would be surprised. And it's again early, but I would be surprised if if if a H1 24 were below 2023. So we I think it was going to be positive all the way through, but again, we would like to to be clear about the seasonality.
All of those accelerated really nicely and was up 11% year over year, you sound more positive going forward on this as well.
How much of the uplift you think in orders is driven by volume versus pricing and any sense, if the duration of.
All of the customers are putting in is under stretch out as well and maybe that's helping also anything you can talk about pricing versus volume versus duration on orders would be really helpful.
Okay. So.
Speaker 4: I would say that there is a lot of volume in the orders that we're taking. As we are saying, we are printing nice price numbers this year sales. We expect that to trim a little bit. And the future growth will have a very good volume.
I would tell you that there is a lot there is a lot of volume in India. In the orders that were taken is as I say, we are as we are saying we are.
Yes.
We're printing nice prize number numbers. This year sales, we expect that too to trim a little bit.
And the growth.
Nicole DeBlase: That's all. Thank you. That's really helpful. And then the comments that you guys made about capacity and investing in the business. I guess if we kind of look at the multi year capEx picture, are you trying to send the message that capEx does need to grow from current levels, or do you think that you can kind of expand capacity gradually at the current levels of spend. Thanks. There will be some CapEx growth as a matter of fact, just as our top line grows up.
Future growth will have a very good a very good volume components. When it comes to the duration I think youre asking duration in terms of.
Speaker 4: when it comes to the duration, I think you're asking duration in terms of how far out.
How far out are.
Speaker 4: are the orders that we're receiving and covering. And I would say it's a little bit of a mixed bag. On the one hand, there are shortened lead times that I mentioned in a few occasions and also earlier today are favorable in terms of accelerating what is the so-called run rate, more territory business, which is always good, great also, in terms of install-based creation for future service revenue. But we see also increasingly the big part of the business, the big players, be them hyperscalers or be them the large collocation players, increasingly look out in terms of coverage.
The orders that we're receiving covering.
And I would say, it's a little bit of a mixed bag on one hand, the shortened lead times that I mentioned.
In a few occasions and also earlier today.
Nicole DeBlase: I mean, there will be an element of a proportionality, probably a little bit more than that. Again, I think this is is a unique trend in the industry, the main industry that we that we serve. And as we said, we have many ways to make sure that we make the capacity available productivity in one. We make sure we use everything that we have created in terms of capacity over the last couple of years.
A favorable in terms in terms of accelerating what is the so called run rate more.
Territory business, which is always good great also.
In terms of installed base.
Creation for future service revenue, but we see also increasingly.
The big part of the business the big play is be them scale those or be them.
Nicole DeBlase: But yeah, we if the conditions as we believe will favor that, we think we can be a little bit more aggressive. But I want to once more highlight the fact that we do not believe that this will materially, meaningfully, change the cashflow profile of the other is and so on.
The logical locations.
<unk> players.
<unk> look out in terms in terms of coverage so it's.
Speaker 4: So it's really good combination of this.
It's really good combination of the two.
Speaker 8: got it, that is really helpful. And if I could get your perspective on this, there's an expectation that new data and the deployments will add, I don't know, 15, 20 gigawatts of incremental power consumption in the next few years. And you think about these wax going from, 10 kilowatts of 50, 100.
Got it that is really helpful. And then if I could get your perspective on this.
Expectation that new data center deployments with I don't know 15, 20 gigawatts of incremental power consumption in the next few years.
Nicole DeBlase: Thanks, Joe, I'll pass it on.
And you think about these wax going from you know 10 kilowatts of 5100.
Amit Daryanani: Our next question comes from Amit Daryanani from Evercore. Amit, your line's not open, please go ahead. Thanks for being my question. I think I'm rats on a really good set of numbers here. I used the first one I had was, you know, do your orders accelerated really nice getting us up to 11% year over here, you sound more positive going forward on this as well. How much of this uplift you think in order is driven by volume versus pricing in any sense, if the duration of, you know, order that customers are putting in is starting to stretch out as well.
Speaker 8: Can you talk about what does it do to your power management side of the portfolio? Do we need a completely different set of power solutions versus what we have today? What does that imply for WiredTap? I think everyone's always focused on the cooling side, which is obviously incredibly positive, but I'd love to know, how does this play out on the power management side as we shift into these higher density racks?
Can you talk about what does it do to your power management side of the portfolio do we need a completely different set of power solutions versus what we have today, what does that imply for water because I think I would always focused on the cooling side, which is obviously an incredibly positive, but I'd love to know how does it play out in the power management side as you're shifting to these higher density racks.
Speaker 4: Well, it's an absolutely good point that, you know, it's a very important part of our portfolio as well as a thermal part and one that will benefit from the expansion, the acceleration, the gigawatts that you are mentioning. Thank you.
Well, it's absolutely good point to that.
Very important part of our portfolio as well as the thermal part and one that will benefit from the expansion of exploration.
Amit Daryanani: And maybe that's helping also. Anything you talk about, you know, pricing versus volume versus duration on orders would be really helpful. Okay, so I would say that there is a lot, there is a lot of volume in the orders that we're taking. As a saying, we are, as we are saying, we are, you know, we're printing nice price number numbers this year, sales, we expect that to trim a little bit. And the growth and the future growth will have a very good volume components.
The Gigawatts that you are mentioning.
Okay.
Speaker 4: But mentally, the powertrain that we have from medium voltage switch gear all the way to a bus bus and PDU, so the entire powertrain, if they're not gonna change, dramatic, it's just gonna be more deployed more because it's more power that needs to be, you know,
Fundamentally the powertrain that we have.
The.
Medium voltage switchgear, all the way too.
Boss Boston.
<unk>, so the entire power powertrain.
Is that going to change.
It's just going to be more.
Broad more because it's more power that needs to be.
<unk>.
Speaker 4: transferred from the grid to the chip. So it's good news. It's a net volume increase. There will be some fine tuning in what exactly happens in terms of power distribution inside the rack. Some PDU solutions will be designed for high density, but it's a relatively small portion of the total power trend that we'll expand as a lot.
<unk> transferred from the grid to the to the chip. So it's good news. It's a net volume increase there will be some fine tuning and what exactly happens in terms of power distribution inside the rack. Some <unk> solutions will be designed for high density, but it's rare.
Amit Daryanani: When it comes to the duration, I think you're asking duration in terms of, you know, how far out are the orders that we receive in covering. And I would say it's a little bit of a mix back. On the one hand, the short and lead times that I mentioned in a few occasions, and also earlier today, are fearful in terms of accelerating what is the so-called run rate, more territory business, which is always good, great also in terms of install days creation for future service revenue, but we see also increasingly the big part of the business, the big players, be them, app rescuers or be them, the large collocation players increasingly look out in terms of coverage. So it's really good combination of the two.
<unk>.
A small portion of the total powertrain that will expand as as a lot.
Speaker 4: The other aspect is positive for the power side of our business is that power is, as we said, several times in the industry, it's very vocal about that. An overall constraint, power of availability for new data centers. And that drives operators to think about alternative.
The other aspect is positive for the power side of our business is that power.
As we said several times as an industry is very vocal about that.
And overall constraint power availability for new for new data centers in that.
Drives operators to think about alternative ways to pass so.
Speaker 4: ways to power. So dynamic power solution, microgrades, battery, energy storage systems, et cetera, all future opportunities that we are keenly looking into and for which we are cooperating with a big place.
Dynamic power solution micro grids.
The battery.
Energy storage systems et cetera, all future opportunities.
That we are keenly looking into and for which we are cooperating with with the big players in terms of.
Amit Daryanani: Got it, that is really helpful. And if I could get your perspective on this, you know, there's an expectation that new data and the deployments will add, I don't know, 15, 20 gigawatts of incremental power consumption in the next few years. And you think about these racks going from, you know, 10 kilowatts of 5000. Can you talk about what does it do to your power management side of the portfolio? Do we need a completely different set of power solutions versus what we have today?
Speaker 4: in terms of proof of concept, et cetera, something, a future good opportunity for us.
Proof of concepts et cetera, something.
Future.
Good opportunity for us.
Perfect. Thank you.
Okay.
Speaker 1: Our next question comes from Nigel Coe from Wolf Research. Nigel, your line's now open, please go ahead.
Our next question comes from Nigel Coe from Wolfe Research Nigel Your line is now open. Please go ahead.
Amit Daryanani: What is that imply for work? I think everyone's always focused on the cooling side, which is obviously incredibly positive, but I love to know how did it play out on the power management side as we shift into these higher density racks? Well, it's an absolutely good point that, you know, it's very important part of our portfolio as well as a thermal part, and one that will benefit from the expansion, the acceleration, the gigawatts that you are mentioning.
Oh, Thanks, Good morning, everyone and thank you Emily <unk> on the Investor Day, I, just wanted a bit more yes, I just want a bit more detail on the geographics.
Speaker 3: And thank you for the preview on the university. It's a bit more, yeah, I just want a bit more detail on the geographic.
Speaker 9: EMEA negative this quarter you talked about some project delays looks like it's bouncing back nicely in the fourth quarter
EMEA negative this quarter you talked about some project delays it looks like its bounced back nicely in the fourth quarter, how does that break in 2024, where do you see the pockets of strength or weakness in Europe, right now, especially given the macro and then you talked to you called out China.
Speaker 9: How does that break in 2084? Where do you see the pockets of strength of weakness in Europe right now, especially given the macro? And then you call it a China, you know, you're not expecting that to recover until back in the 24. But is there enough growth in India, Philippines, et cetera to drive, to kind of offset that in 20?
Second up to recover and so back end of 'twenty four but is there enough growth in India, Philippines et cetera.
Amit Daryanani: Fundamentally, the power train that we have from medium voltage switch gear all the way to bus and PDU, so the entire power train, if they're not going to change, it's just going to be more deployed, more because it's more power that needs to be, you know. Transferred from the grid to the chip. So it's good news, it's a net volume increase. There will be some fine tuning in what exactly happens in terms of part distribution inside the rack.
To drive.
Offset that in April.
Speaker 4: Well I think it's a little bit premature to.
Well I think it's a little bit premature.
Yes.
Right.
Speaker 4: I know absolutely to be exactly tail on on even due to graphics within within a A-PAC. But again, we are very encouraged from what we see in India and the Southeast Asia. China again, we
No absolutely.
B exactly to tail off.
Even.
Geographics within.
Within.
APAC, but again.
We are very encouraged from what we see in India and and.
And.
South East Southeast Asia.
China again.
Speaker 4: We of course continue to be a strong player in China, a strong local player in China, but we have kind of a prudent process.
<unk>.
We of course continues to be.
Amit Daryanani: Some PDU solutions will be designed for high density, but it's a relatively small portion of the total powertrain that we'll expand as a lot. The other aspect is positive for the power side of our business is that power is, as we said several times in the industry, it's very vocal about that. An overall constraint, power availability for new data centers, and that drives operators to think about alternative ways to power. So dynamic power solution, microgrades, battery, energy storage systems, etc., all future opportunities that we are keenly looking into and for which we are cooperating with the big players in terms of proof of concept, etc. Something in the future. Good opportunity for us.
A strong player in China, and a strong local player in China, but we have kind of a prudent posture in the way we look at that.
Speaker 4: in the way we look at the next year.
Amit Daryanani: Perfect, thank you.
Next at the next year when it comes to EMEA.
Speaker 4: When it comes to Imiya, I am encouraged by the pipelines. I'm very encouraged by the pipelines in Imiya.
I am encouraged by the pipeline so I'm very encouraged by the pipeline.
In EMEA.
Speaker 4: and also the conversations with the various customers. You do say that the macroeconomics are not phenomenal in India.
And also the conversations with with various with various customers.
And you say that the macroeconomics are not phenomenal in EMEA.
And the geopolitics are as as hard as it gets.
Speaker 4: And the geopolitics are as hard as a gap. There is clearly a big question mark when it comes to the Middle East. For us not a big part.
There is clearly a.
Big question, Mark when it comes to the to the Middle East for Us not a big part of our market absolutely not big part of our let's say our revenue but it's.
Speaker 4: Absolutely not a big part of our revenue.
<unk>.
Speaker 4: We don't know what will happen, but overall, you know, for what we can control, absolutely a strong position in EMEA and good population.
We don't know.
What will happen, but overall four wall, what kind of control.
Absolutely strong positioning EMEA and good and good pipelines.
Great. Thanks, Jeff a quick one on pricing because I think it's important.
Speaker 9: Thanks, yeah. A quick one I'm pricing because I think it's important to sort of like that this because there is some concern around price rollback. Are you seeing any price sensitivity or price based negotiations or price based competition across your businesses in any meaningful extent? And then maybe David, did he get a pine perhaps on the carry forward from all queue pricing into 2024? We calculate about two points plus of price carry forward. Is that in the right zone?
Nigel Coe: Our next question comes from Nigel Co from Wolf Research. Nigel, your lines are open. Please go ahead. Thanks, good morning, everyone. And thank you for the PDU on the university. It's a bit more detail on the geographic. EMEA negatives, this quarter, you talked about some project delays. It looks like it's bouncing back nicely in the fourth quarter. How did that break in 2024? Where do you see the pockets of strength of weakness in Europe right now, especially given the macro?
Sort of like this because there is some concerns around price.
Rollback.
Seen any price sensitivity or price based negotiations or price based competition across your businesses in any meaningful expense maybe.
Maybe David if you could opine, perhaps on the carryforward from <unk> <unk>.
Into 2024 week talking about two points plus of price carryforwards.
Is that in the right zone.
Speaker 4: So, Amir, I'll start with the general comments about the market. I mean, we all live in a commercially active world, don't get me wrong. So...
So maybe I'll start with a general comments about the market I mean, the way I will live in a commercially active well don't we don't get me wrong. So.
Nigel Coe: And then you called out China, you know, you're not expecting that to recover until back in the 24. But is there enough growth in India, Philippines, etc., to drive, to kind of offset that in 2024? Well, I think it's a little bit premature to get a lot of people back to work. No, absolutely, to be exactly tail on even geographic within APAC. But again, we are very encouraged from what we see in India and Southeast Asia.
Speaker 4: different geographies, especially different types of market, different go-to markets have slightly different dynamics from a price standpoint, but overall, we are optimistic about our ability to continue to have commercial ads.
<unk>.
On a different different geographies, especially different types of market different go to markets have slightly different dynamics from a price standpoint, but overall.
We are.
Optimistic about our ability to continue to.
To have a commercial advantage.
Speaker 5: Yeah. And, and Nigel, on your, on your, uh, question on, uh, on price and carry out, unfortunately, probably a little, uh, premature to give specific numbers that there, there certainly will be some benefit.
And Nigel on your on your question on on pricing carrier, Unfortunately, probably a little premature to give specific numbers that there certainly will be some benefit.
Nigel Coe: China, again, we of course continue to be strong player in China, a strong local player in China. But we have kind of a prudent posture in the way we look at the next year. When it comes to EMEA, I am encouraged by the pipelines. I'm very encouraged by pipelines in EMEA. And also the conversations with the various customers. And you do say that the macroeconomics are not phenomenal in EMEA, and the geopolitics are as hard as a gap.
Speaker 5: You know, it probably is not reasonable to anticipate 8% pricing every year going for it like we've seen this year and You know even the 7% last year But we do anticipate to have some carry over impact and and one thing we can safely say is it is certainly our intention of going forward even beyond 24
Yes.
He is not reasonable to anticipate 8% pricing every year going forward like we've seen this year and.
Even the 7% last year.
But we do anticipate to have some carryover impact in.
The one thing we can safely say is it is certainly our intention going forward even beyond 'twenty four.
Speaker 5: to the price cost positive.
To the price cost.
Price cost positive.
Okay I appreciate the color. Thanks.
Okay.
Speaker 1: Our next question comes from Andrew Oben from Bank of America. Andrew, your line is now open, please go ahead.
Our next question comes from Andrew <unk> from Bank of America. Andrew Your line is now open. Please go ahead.
Nigel Coe: There is clearly a big question mark when it comes to the Middle East, for us not a big part of our market, absolutely not a big part of our revenue, but we don't know what will happen. But overall, for what we can control, absolutely a strong position in the media. Yeah, and good, and good guidelines. Great. Thanks, yeah.
Hi, guys good morning.
Good morning, Andrew.
Speaker 10: Can you hear me? Hey, how are you? Yeah, can you hear me? Yeah, so as you look at your AI, yeah, yeah, as you look at your AI-related pipeline,
You hear me.
Hey, how are Ya yadkin.
Yes, as you look at your AI related pipeline.
Speaker 10: So are we building more for new build locations or is it more retrofit of existing data centers? What is...
So are we building more for Newbuild locations.
Or is it more a retrofit of existing data centers, what does it look like from your perspective.
Okay.
Speaker 4: Retrofaces will be an opportunity, definitely. In this moment, we predominantly, we predominantly, but not exclusively, see a new build. But there is also quite encouraging conversations about red.
Nigel Coe: A quick one I'm pricing because I think it's important to sort of like that this because there is some concerns around price rollback. Are you seeing any price sensitivity or price based negotiations or price based competition across your businesses and any meaningful expense? And then maybe David, if you could apply in perhaps on the carry forward from or cue pricing into 2024, we calculate about two points plus of price carry forward.
Retrofit will be an opportunity definitely in this moment, we predominantly we predominantly but not exclusively.
C.
<unk> new build but there is also quite encouraging conversations about about retrofit.
Speaker 4: That is, you know, things are very much in
That's.
Yes things are very much in flux. Thanks, so very much in flux, we participate in both conversations very actively.
Speaker 4: Thanks a very much in flux. We participate in both conversations very often.
Nigel Coe: Is that in the right zone? So here I'll start with the general comments about the market. I mean, we all live in a commercially active world. Don't get me wrong. So different different geographies, especially different types of market different go to markets have slightly different dynamics from a price standpoint. But overall, we are optimistic about our ability to continue to have commercial advantage. Yeah, and Nigel, on your question on pricing carry, unfortunately, probably a little premature to give specific numbers that there certainly will be some benefit.
Speaker 10: And just to follow up, where are you guys in terms of, and I know these questions have sort of been asked, but US capacity utilization today, and how much extra US capacity would be in place by year and 24 under current plans, and all secures to know how flexible can you be, and what I say US, I will find, include Mexico, but how flexible can you be in pooling capacity from other regions into the US, as there are very different electrical standards?
And just a follow up what are you guys in terms of I know.
These questions have sort of been asked but you.
U S capacity utilization today.
And how much extra U S capacity would be in place by year end 'twenty four under current plans and also curious to know how flexible can you be in what I would say your fiber if I include Mexico, but how flexible can you be in pulling capacity from other regions into the U S. As there are very different electrical standards. Thank you.
Speaker 4: Yeah, no, absolutely. I would say that the general plus 25 percent that we were signaling during the slideshow earlier is definitely applicable to pretty much homogeneously across the world and certainly true for the North American business.
Yes, no absolutely I would say that the general plus 25% that we.
The signaling during the during the.
The slide show earlier example.
The applicable is definitely applicable to.
Pretty much homogeneous across the world.
Nigel Coe: You know, it probably is not reasonable to anticipate 8% pricing every year going forward like we've seen this year. And even the 7% last year. But we do anticipate to have some carry over impact and one thing we can safely say is certainly our intention of going forward even beyond 24 to be price cost price cost positive. Okay, I appreciate the kind of things. Yes.
And certainly true for for the North American for the North American business.
Speaker 4: as of now. And as I was saying, we will continue to invest. But we do have a very explicit and well-accastrated initiative to make sure that we use and leverage the global capacity also for the U.S. And something that we're doing already partially today, and different degrees, different lines of business.
As of now.
As I was saying, we will continue to invest but we do have it.
Very explicit and well orchestrated.
Initiative to make sure that we use and leverage the global capacity deals. So also for the for the U S and something that we are doing already partially today and different degrees different lines of business.
Speaker 4: but something that we will be able to accelerate and accentuate as we go ahead. And in terms of American codes versus other type of codes.
But it's something that we will be able to accelerate and accentuate as as we go ahead.
Andrew Obin: Our next question comes from Andrew Oven from Bank of America. Andrew, you're landed on open, please go ahead. I guess good morning. Good morning. Can you hear me? Hey, how are you? Yeah, so as you look at your a, I, yeah, as you look at your a, I related pipeline. So are we building more for new build locations? Or is it more retrofit of existing data centers? What does it look like from your perspective?
In terms of <unk>.
American.
Codes versus other type of codes.
Speaker 4: You know, that's something that is just about having the right certification of a plant outside the North American or American region, and it's something that we have or that we are accelerating to panacea.
Is that something that is just is just about having.
Right.
<unk> and all of the plant outside the North American or American.
Region, and it's something that we have or that we are accelerating depending on the technology.
Speaker 4: So it's very, very much in focus and very much something we do and that we will accelerate going forward.
So very very margin focused and very much something that we do and that we will accelerate going forward.
Andrew Obin: Retrofit will be an opportunity, definitely. In this moment, we predominantly, we predominantly, but not exclusively, see, see new build, but there is also quite encouraging conversations about about red, of it. You know, things are very much in flux. Things are very much in flux. We participate in both conversations very actively.
Thanks, so much.
Thank you.
Speaker 1: Our next question comes from Andy Kapowitz from Citigroup. Andy, your line is now open. Please go ahead.
Our next question comes from Andy Kaplowitz from Citigroup, Andrew Your line is now open. Please go ahead.
Good morning, everyone.
Good morning, Good morning, I know you said that the.
Speaker 11: Good morning. I know you said that the positive order inflection you're seeing hasn't really been that unexpected, but can you talk about how you're thinking about the longevity of the current order inflection? Would you expect the order growth to continue to accelerate in the 24? And then how are you thinking about the duration of the up cycle? Do you see the AI contribution as sort of a big gold rush and it flames out or could it last?
Good morning, I know you said that the positive order inflection you're seeing hasn't really been that unexpected but can you talk about how youre thinking about the <unk> of the current order inflection would you expect order growth to continue to accelerate in the 'twenty four and then how are you thinking about the duration of the up cycle do you see the contribution is sort of a big.
Andrew Obin: And just to follow up, where are you guys in terms of, I know these questions have sort of been asked, but US capacity utilization today, and how much extra US capacity would be in place by year and 24? And the current plans and all secures to know how flexible can you be, and what I say you are fine, include Mexico, but how flexible can you be in pooling capacity from other regions into the US as there are very different electrical standards?
Gold Rush and then it flames out or could it last quite a long time.
Speaker 4: The second, the last part of your question, we believe this is a long-term trend in the sense that we all believe that AI will be pretty pervasive, and this is just the beginning. This is a multi-year, truly many years cycle, many years cycle, we believe.
The second your second or the last part of your question. We believe this is this is a long long time.
Trend.
Andrew Obin: Thank you. Yeah, no, absolutely. I would say that the general post 25% that we were signaling during the slideshow earlier is definitely applicable to pretty much homogeneously across the world, and certainly true for the North American business as of now. And as I was saying, we will continue to invest, but we do have a very explicit and well orchestrated initiative to make sure that we use and leverage the global capacity also for the US.
In a sense that we will believe that AI will be a pretty pervasive and and this is just this is just the beginning this is a multi year.
Truly many years cycle.
Many years cycle, we believe.
And Joe maybe just thinking about the mix of orders you mentioned enterprise markets.
Speaker 11: And you know, maybe just in thinking about the mix of orders. You mentioned enterprise markets, you know, maybe some encouraging trends there. How much of the incremental order growth is from hyper scale and co-ocustomers? Are they now a larger percentage of your orders versus enterprise? And then, you know, how would you characterize the enterprise market? You mentioned the positive signs, but obviously, you know, rates are higher and you have concerns around.
Some encouraging trends there.
How much of the incremental order growth is from Hyperscale and Colo customers are they now a larger percentage of your orders versus enterprise and then.
How would you characterize the enterprise market you mentioned some positive signs, but obviously rates are higher.
Concerns around the economy, so color would be helpful.
Andrew Obin: And something that we're doing already partially today, at different degrees, different lines of business, but something that we will be able to accelerate and accentuate as we go ahead. In terms of American codes versus other type of codes, it's just about having the right certification of a plant outside the North American or American region, something that we have or that we are accelerating depending on the technology. So very, very much in focus and very much something we do and that we will accelerate going forward. Thanks so much.
Speaker 4: Yeah, definitely co-location and hyperscale are a very large part of our mix and our
Yes definitely.
Colocation in Hyperscale.
Our very large part of our of our mix in our App and our order and order intake.
Speaker 12: in our order intake and growing, actually, in terms of speed of growth. So well, very well covered.
Andy Kaplowitz: Thank you.
And and growing actually in terms of speed of speed of growth so well very.
Well cover that what we see is that the.
Speaker 12: What we see is that the acceleration in compute power and any way of utilization and that is the volume of data that is further accentuated by AI is going to require some infrastructural on the enterprise side of the equation.
Exploration in compute power in any way utilization and.
Volume of data that is further accentuated by.
AI is is going to require some infrastructure also on the enterprise side of the equation.
Speaker 12: more distributed compute, more edge compute, or sometimes even...
More distributed compute more.
Edge compute or sometimes even.
Speaker 12: even on-prem or proprietary data centers. So clearly the biggest part of the acceleration.
Even on trend.
Prior to re Datacenters, so clearly the biggest part of the acceleration.
Andy Kaplowitz: Our next question comes from Andy Capowitz from CT Group.
Speaker 12: He will come from the hyperscale, colon and cowed, but we are...
He has come in and it will come from.
Jeffrey Sprague: Andy, your line is open. Please go ahead.
The Hyperscale Colo and cloud.
But we are.
Jeffrey Sprague: Good morning, everyone. Good morning. I know you said that the good morning. I know you said that the positive order inflection you're seeing hasn't really been that unexpected, but can you talk about how you're thinking about the longevity of the current order inflection? Would you expect where your growth to continue to accelerate in the 24? And then how are you thinking about the duration of the up cycle? Do you see the AI contribution as sort of a big gold rush and it flames out or could it last quite a long time?
Speaker 12: optimistic and positive about the enterprise business plus the enterprise business constitute a big portion of what I refer to our more distributed territory territory go to market and and type of segment
Optimistic and positive about the enterprise business plus the enterprise business constitute a big portion of what I was referring to.
Our more distributed territory.
Territory go to market and.
And type of segment and.
Speaker 12: And we are held by improving lead times. We are accelerating the part of the market.
We are.
By improving lead times, we are we are accelerating that part of the market.
I appreciate it Joe.
Jeffrey Sprague: The second of your second, the last part of your question. We believe this is a longer, long-term trend. In a sense that we'll believe that AI will be pretty pervasive. And this is just the beginning. There's a multi-truly many as a cycle. Many as a cycle. We.., to leave. And you know, maybe just in thing but the mix of orders. You mentioned enterprise markets, you know, maybe some encouraging trends there. How much of the incremental order growth is from hyper scale and co-ocustomers?
Thank you.
Okay.
Speaker 1: Our next question comes from Mark Delaney from Goldman Sachs. Mark, your line's not open, please go ahead.
Our next question comes from Mark Delaney from Goldman Sachs. Mark. Your line is now open. Please go ahead.
Speaker 13: Yes, good morning. Thanks for taking the question and congratulations on the good results. So maybe you could elaborate a bit more on what you're seeing in China and some of the causes of the weakness and on a related topic to what extent eating geopolitics and export restrictions for AI could impact word in China, even if it's an indirect effect in bird of zone products aren't directly put on to any sort of export control.
Yes. Good morning, Thanks for taking my question and congratulations on the good results I was hoping you could elaborate a bit more on what youre seeing in China and some of the causes of the weakness in unrelated topic to what extent anything geopolitics and export restrictions for AI could impact where they are in China, even if it's an indirect effect.
And <unk> on products arent directly put on to any sort of export control list.
Speaker 12: Yeah, well, we see China as really a general market situation.
Yes, well we.
We see we see China as really the general market.
General market situation.
Jeffrey Sprague: Are they now a larger percentage of your orders versus enterprise? And then, you know, how would you characterize the enterprise market? You mentioned the positive signs, but obviously, you know, rates are higher and concerns around the economy. So color would be helpful. Yeah, definitely, co-location and hyper scale are a very large part of our mix in our order intake and growth, actually in terms of speed of growth. So well, very well covered there.
Speaker 12: more so than anything to do with export restrictions in our case, which is very reminded everyone that no data flows through our stuff. If anything we power and cool, we power cool
And more so than than anything to do with the export restrictions.
Just wanted to remind everyone that the Doe data flow through all stuff.
If anything we power and cool.
We cool.
It infrastructure so.
Speaker 12: So, clearly, the
Clearly the.
<unk>.
Speaker 12: The market is not strong in China right now. And we participate to the market as a...
The market is.
Is not strong in China, right now and we participate to the market as is.
Okay.
Jeffrey Sprague: What we see is that the acceleration in compute power and any way of utilization and the volume of data that is further accentuated by AI is going to require some infrastructures on the enterprise side of the industry, more distributed compute, more edge compute, or sometimes even on-prem or proprietary data centers. So clearly, the biggest part of the acceleration is coming. It will come from the hyper scale, color, and cloud, but we are optimistic and positive about the enterprise business.
Speaker 12: A very local supplier, as a very local player. The majority of our supply chain is local. So we operate as a giant supplier and we...
It's very local supplier as a very local player.
The majority of our supply chain is local.
So.
We operate as a Chinese supplier and we.
Speaker 12: you know, move with with that market and that mark.
Move with the with that market and that market in this moment is now strong.
Speaker 13: That's helpful, thanks for that, Gio. And my other question is just around pricing, and it came in better than your guidance in the third quarter. There's now a larger tailwind in terms of pricing in 2023 guidance relative to what you'd assumed last quarter. Can you just talk a little bit more on what's been driving the pricing strength that you're seeing in 3Q and for the year, and to what extent it's more about mix or like-to-like pricing? Thank you.
That's helpful. Thanks for that my other question is just around pricing and came in better than your guidance in the third quarter or there is now a larger tailwind.
In terms of pricing in 2023 guidance relative to what you just say on the last quarter can you just talk a little bit more on what's been driving the pricing strength that youre seeing in <unk> and for the year and to what extent, it's more about mix or like for like pricing. Thank you.
Jeffrey Sprague: Plus, the enterprise business constitutes a big portion of whatever is referring to our more distributed territory, territory, go-to-market and type of segment. And, you know, we are held by improving lead times. You know, we are accelerating that part of the market. Appreciate it, Jill.
Speaker 12: Well, again, there is a number of actions that we have implemented from a pricing standpoint that clearly the mix, the sequence of orders that we execute and a certain degree of being on the safe side and in guiding have all contributed to this price cost upside. So, we have a number of actions that we have implemented from a pricing standpoint that clearly the mix, the sequence of orders that we execute and a certain degree of being on the safe side and in guiding have all contributed to this price cost upside.
Well again, there is a number there is a number of actions that we have implemented from a pricing standpoint.
Clearly the mix the sequence of.
Jeffrey Sprague: Thank you.
Orders that we that we execute and.
No.
So to a degree of being on the safe side and in guiding have all contributed to this.
These.
Mark Delaney: Our next question comes from Mark Delaney from Goldman Sachs. Mark, your line is not open. Please go ahead. Yes. Good morning. Thanks for taking the question and congratulations on the good results. Let me elaborate a bit more on what you are seeing in China and some of the causes of the weakness.
Price cost upside.
Got it thanks, so much and congrats again on the good results.
Thanks Mark.
Speaker 14: sexual
Speaker 1: Our next question comes from Steve Tuzza from JPMorgan. Steve, your line is now open. Please go ahead.
Our next question comes from Steve Tusa from Jpmorgan, Steve. Your line is now open. Please go ahead.
Mark Delaney: And on a related topic, to what extent do you think geopolitics and export restrictions for AI could impact where it is in China, even if it is an indirect effect in vertigo's own products aren't directly put on to any sort of export controlist? Yeah. Well, we see China as really a general market situation. More so than anything to do with export restrictions in our case, which is very reminder, everyone that no data flows through our stuff.
Hey, how are you guys.
Okay. Okay.
Hello, Scott.
Speaker 15: So I just wanted to delve into the comments around the first half of next year a little more.
So I just wanted to delve into the comments around the first half of next year a little more.
Speaker 15: We've been hearing that there have been some, and you guys sound pretty confident on this in the fourth quarter, some not only early indications of orders for next year from hyperscalers, but some real big orders in the last couple of weeks.
We've been hearing that there have been some and you guys sound pretty confident on this in the fourth quarter some.
Not only early indications of orders for next year from Hyperscale or his butt.
Like some real big orders in the last couple of weeks.
Speaker 15: and that the only real concern is like when they're going to actually want delivery, i.e. when suppliers are going to produce.
Mark Delaney: If anything, we power and cool. We power cool, high-key infrastructure. So, clearly the market is not strong in China right now. And we participate to the market as a... He's a very local supplier, as a very local player, the majority of our supply chain is local, so we operate as a chance supplier and we move with that market, and that market in this moment is not strong.
And that the only real concern is like when theyre going to actually.
Want delivery I E like when suppliers are going to produce.
Speaker 15: I'm just curious as to if you're kind of seeing that profile, if you're seeing those orders yet and that, you know, your kind of caution on next year is just more about not knowing really when those things will ship, given that, you know, we're in kind of a very growthy and perhaps...
I'm just curious as to if youre kind of seeing that profile that youre seeing those orders, yet and that youre kind of caution on next year is just more about not knowing really when those things will ship.
Given that we're in kind of a very growth Ian perhaps fluid situation, where these guys are.
Speaker 15: fluid situation where these guys are figuring out the best way to to go about this and i'm just curious if they have tangible uh... you know that demand is early October and i think
Figuring out the best way to go about this and I'm just curious as to how tangible.
That demand is early in October and I think I don't know it would make sense to me that you guys are talking a lot about capacity here and proving that you have the capacity.
Speaker 15: I don't know, it would make sense to me that you guys are talking a lot about capacity here and proving that you have a capacity which would be juxtaposed against what I think people are viewing as a quote-unquote soft.
Which would be juxtaposed against.
Mark Delaney: That's a couple of things with that geo, and my other question is around pricing and you know, came in better than your guidance in the third quarter, there's no larger tail end in terms of pricing in 2023 guide intervals, which is what you just seen in the last quarter. You use to talk a little bit more on what's been driving the pricing strength that you're seeing in three key and for the year and you to what extent it's more about mix or like pricing, thank you.
What I think people are viewing as a quote unquote soft start to next year I'm, just trying to kind of put that altogether and understand how concrete. This visibility on orders is that you guys have early in the quarter here in the fourth quarter.
Speaker 15: I'm just trying to kind of put that all together and understand how concrete this visibility on orders is that you guys have early in the quarter year, in the fourth quarter.
Speaker 4: You know, as I said, when we were sharing the slide, going through the slides, you know, we have, we expect a fourth quarter that is probably going to be up more or less the same.
Now as I said a bit in.
When we're issuing the slide going through the slides we have we.
We expect.
<unk>.
Fourth quarter is probably going to be up.
Mark Delaney: Well, again, there is a number, there is a number of actions that we have implemented from a pricing standpoint that clearly the mix, the sequence of orders that we that we execute and certainly agree of being on the safe side and in guiding have all contributed to this. This price cost upside. Thanks so much and graph again on the results. Thanks a lot.
More or less the same.
Yes.
Speaker 4: We think something around what we experienced in Q3. So we're quite optimistic about that. I would say that we should not read too much in the first half, second half. That's the normal nature of the industry.
We think something around what we experienced in Q3 so.
Our web site.
Quite optimistic about that I would say that we shouldn't answer.
Read too much in the first half second half thats, the normal nature of the industry and again it would have been the same.
Speaker 4: And again, it would have been the same of 23 first half wearing not for the supply constraint that marred the entire 2022 for us and for everyone else. So that if anything, there was an artificial drift.
23 first half.
Were it not for the.
The supply constraint that mob the entire 2022 for us and for everyone else. So that if anything there was an artificial.
Steve Toza: Our next question comes from Steve toza from JP Morgan Steve your lunch now open please go ahead. Hey, how are you guys? Hello, good.
Drift.
Speaker 12: of a backlog from, let's say, the second half of 22 to the first half of 23, that balanced the two halves in 23 in a way that is not so...
Of the backlog from let's say the second half of 'twenty two to the first half of 'twenty three that that balanced.
The two halves in 'twenty three.
Steve Toza: So I just wanted to delve into the comments around the first half of next year a little more. We've been hearing that there have been some and you guys sound pretty confident on this in the fourth quarter some not only early indications of orders for next year from hyperscalers but you know like some real big orders in the last couple of weeks. And that the only real concern is like when they're going to actually want delivery i.e, like when suppliers are going to produce.
That is not so.
Speaker 12: kind of a normal in our type of business. So I would not read too much into it. We are happy about our pipeline. We are happy about the order pace.
Kind of a.
Normal in our type of business, so I would not read too much into it. We are we are happy about our pipeline, we're happy about the the order pace.
Steve Toza: I'm just curious is to if you're kind of seeing that profile if you're seeing those orders yet and that you know you're kind of caution on next year is just more about not knowing really when those things will ship given that you know we're in kind of a very growthy and perhaps fluid situation where these guys are you know still figuring out the best way to go about this. So I'm just curious as to how tangible you know that demand is early at October and I think I don't know it would make sense to me that you guys are talking a lot about capacity here and proving that you have a capacity which would be juxtaposed against you know what I think people are viewing as a quote unquote soft start to next year.
Speaker 12: And, yes, a lot of those orders will be coming from Hyperscale and Colo and that type of market. And, really, those orders are placed today for tomorrow.
And yes, a lot of those orders.
We will be coming from Hyperscale, and Colo that type of that type of market and really those orders are placed.
Two days ago Tomorrow those are allowed.
Speaker 12: Those are aligned with big side deployments, with fairly.
Aligned with the big side deployments.
With with fairly.
Speaker 4: forward-looking project plans.
Forward looking.
Project plans.
Speaker 12: I look at it as something quite normal starting to happen.
Look at it as something quite normal starting to happen again.
Speaker 15: right that that that makes sense and then just just one last one on any updates on um... how this uh... liquid cooling um... strategy is progressing and i think we're going to hear more about on the twenty nine to put them any any updates there on how you guys are going going about that uh... solution
Right that makes sense and then just just one last one on any updates on.
How this liquid cooling strategy is progressing nicely I'm going to hear more about it on the 29th but.
Any any updates there.
How you guys are going about that.
Solution.
Well.
Speaker 4: Well, we are very happy about the way things are progressing in terms of portfolio, in terms of partnerships, etc. And yeah, as I've said on several occasions, we see this piece as additive because it's adding a dimension.
Steve Toza: I'm just trying to kind of put that all together and understand how concrete this visibility on orders is that you guys have early in the quarter here in the fourth quarter. No, it's just a bit in when we're sharing the slide going through the slides you know we have we we expect a if fourth quarter that is probably going to be up more or less the same that we think something around what we experienced in Q3 so we're quite we're quite optimistic about that I would say that we should not read too much in the first half second half that's the normal nature of of the industry.
We are happy.
Hey by the way.
Things are progressing in terms of.
And in terms of portfolio in terms of partnerships et cetera.
And.
Yeah.
As I said in several occasions, we see that as a.
We see this piece is.
As additive because it's adding a.
Speaker 12: a link to the cooling chain, so to speak, the thermal chain. We'll certainly have more details at Investor Day here, but feel pretty good about what we're doing also with our partners and the biggest chip manufacturers.
A link to the.
Ah.
Cooling chain, so to speak so thermal chain.
Certainly have more detail at investor at Investor day, but pretty pretty feel pretty good about what we're doing also with the with our partners.
Steve Toza: And again it would have been the same of 23 first half were in not for the supply constraint that mod the entire 2022 for us and for everyone else so that if anything there was an artificial drift, of a backlog from let's say the second half of 22 to the first half of 23, that balanced the two halves in 23 in a way that is not so normal in our type of business. Those are aligned with big side deployments with fairly forward looking project plans. So I look at it as something quite normal starting to happen again. Right, that makes sense.
And the biggest.
Chip manufacturers.
Okay.
Great. Thanks, a lot.
Our next question comes from Jeff Sprague from Medical Research Jeff. Your line is now open. Please go ahead.
Speaker 1: Our next question comes from Jeff Spree from Medical Research. Jeff, your line is now open. Please go ahead.
Speaker 16: Hey, thank you. Good day everybody. And just a couple for me. What if we could talk about service a little bit obviously isn't growing anywhere near the rate of equipment, which I think is tied to the mix of where the equipment is going. But all this talk about, you know, system integration, complexity and the like.
Hey, Thank you good day everybody.
A couple for me.
Wonder if we could talk about service a little bit.
It obviously isn't growing anywhere near the rate of equipment, which I think is tied to the mix of where the equipment is going but all this talk about system integration complexity and the like what is the prospect for service growth to accelerate here or.
Speaker 16: What is the prospect for a service growth to accelerate here, or service revenue per unit, or, you know, permegawatt deployed however you might frame it? Maybe you could give us some perspective there.
Service revenue per unit or per megawatt deployed however, you might frame. It maybe you could give us some perspective there.
Speaker 12: Yeah, service is accelerating for us towards a double-digit growth territory, which of course, we like. It is in the nature of service, especially the lifecycle part of service. I always like to think in terms of project services, the services that you sell with new equipment, say, and instead the lifecycle, the duration of the life of the kit.
Yes service is.
Is accelerating for us.
Towards a.
Double digit growth territory, which which of course, we like it is in the nature of all serve as especially the lifecycle part of service well I always like to think in terms of a project services the service isn't to sell with new equipment say.
And inside the lifecycle the duration.
The duration of the life of the kit.
Speaker 12: The latter is very important from a profit standpoint, from a customer experience standpoint, but also very important because it compounds over time. But it's built on the install base that we are growing. So we are happy about the direction. We want to accelerate further and we'll accelerate further.
The latter is very important from a process from.
Steve Toza: And then just one last one on any updates on how this liquid cooling strategy is progressing and I think we're going to hear more about it on the 29th, but any updates there on how you guys are going about that solution. Well, we are happy, very happy by the way things are progressing in terms of in terms of portfolio in terms of partnerships, etc. And yeah, as I said several occasions, we see that as we see this piece as as additive because it's adding a link to the cooling chain, so to speak, certain thermal chain. We'll certainly have more details at investor at investor day here, but pretty, pretty, pretty good about what we're doing also with with our partners and the biggest chip manufacturers.
Profit standpoint from a customer experience standpoint, but also very important because it compounds over time, but it is built on the installed base that we that we are growing so we are happy about the direction, we want to accelerate further and will accelerate further.
Steve Toza: Great. Thanks a lot.
Speaker 12: But definitely a component of service that is being able and uniquely given our global footprint and experience, uniquely able to accompany our customers in the complex.
But definitely a component of service that is.
Being able and uniquely given our global footprint and experience uniquely able to accompany our customers in the complexity from an installation commissioning startup standpoint or retrofit standpoint.
Speaker 4: from an installation commissionings, that up standpoint, all retrofits standpoint.
The company cut.
Speaker 4: Accompanying our customer on the journey of high density, be it cooling high density, very complex, and power high density is something that, A, we are well-equipped for, uniquely experienced and geographically positioned,
We're on the journey of a high density bid.
Cooling high density are very complex.
And.
Power High density is something that we are well equipped for use.
Uniquely.
Experienced and geographically position.
Speaker 12: but also getting ready for it. So I've never been more...
But also getting getting ready for it so I am I am.
Never been more.
Speaker 12: excited about our service opportunity going forward.
Excited about our service opportunity going forward.
Jeffrey Sprague: Our next question comes from Jeff from medical research. Jeff, you're lined and I'll open please go ahead. Thank you, everybody. And just a couple for me, what if we could talk about service a little bit, obviously isn't growing anywhere near the rate of equipment, which I think is tied to the mix of where the equipment is going. But I'll just talk about, you know, system integration complexity and the like, what is the prospect for a service growth to accelerate here or, you know, service revenue per unit or, you know, per megawatt deployed however you might frame it.
Speaker 16: Then maybe you could address a capital deployment. A little bit more and maybe we'll hear more about that next month, but...
And then maybe you could address capital deployment.
A little bit more and maybe you will hear more about that next month.
<unk>.
Speaker 16: Maybe your appetite for M&A, your, you know, your view on whether the organization is up to digesting something else or share purchases in the cards, maybe just what the priorities might be.
Maybe your appetite for M&A.
Sure.
Your view on whether the organization is up to digesting something else or share repurchases in the cards, maybe just what the priorities might be.
Speaker 4: I would say that it's certainly a very relevant question and our Investor Day is relatively soon, about a month, and I think the best thing is to just ask you to be patient for us.
I would say that.
Certainly a very relevant question then and our.
Invest.
Investor days realm.
Relatively it is relatively soon about about a month and I think the best thing is to.
Jeffrey Sprague: Maybe you could give us some perspective there. Yeah, service is accelerating for us towards a double digit growth territory, which which of course we like. It is in the nature of service, especially the life cycle part of service. The services that you sell with new equipment say and inside the life cycle, the duration, the duration of the life of the kit. The latter is very important from a process from a profit standpoint, from a customer experience standpoint, but also very important because it compounds over time, but it's built on the install base that we that we are growing.
Just ask you to be patient for us.
Speaker 12: with us for another month, and we will certainly go into those details together on the 29th of November . Bear with us for now.
With us for another month, and we will certainly go into those details together on the 29th of November bear with Us for now.
Great. Thank you see you then.
Thank you.
Speaker 1: Our next question comes from Lance Vitanza from TD Cowen. Lance, your line is now open, please go ahead.
Our next question comes from less Vitanza from TD Cowen Lance. Your line is now open. Please go ahead.
Okay.
Thanks, guys. My question is around how <unk> is positioned specifically with respect to liquid cooling and direct to chip technologies are there notable gaps in your product portfolio and if so how do you expect to address them.
Speaker 17: Thanks, guys. My question is around how Vertiv is positioned specifically with respect to liquid cooling and direct-to-chip technologies. Are there notable gaps in your product portfolio, and if so, how do you expect to address them?
Jeffrey Sprague: So we are happy about the direction we want to accelerate further and we'll accelerate further. But definitely a component of service that is being able and uniquely given our global footprint and experience uniquely able to accompany our customers in the complex, from an installation commissioning start-up standpoint, all retrofits standpoint. Company are a customer on the journey of a high-density, a bit cooling high-density, very complex. And power high-density is something that A, we are well equipped for, uniquely experienced and geographically positioned. But also getting ready for it.
Okay.
Speaker 12: Hey Lance, we feel very good about our liquid cooling portfolio and it's a broad portfolio and it's a portfolio that stretches direct to chip immersion cooling so we feel good with with what we have today in the
Hey, Lance.
We feel very good about our liquid cooling portfolio.
And.
It's a broad portfolio.
And it's a portfolio.
That stretches direct to chip emotion cooling. So we feel we feel good with what we have today in the portfolio.
Speaker 18: And again, absolutely more when we're together. Yeah, go ahead.
And again.
Absolutely.
Yes go ahead.
No no. Please continue.
Speaker 6: No, I was saying that would be a big My poll was just going to
No I was saying that would be a big.
Follow up was just going back to again.
Speaker 17: Yeah, so just specifically, do you worry about potentially being disintermediated, so to speak, by either hyperscalers or chip manufacturers directly embedding their own or someone else's technology into the chip or into the rack and thus bypassing vertive? Is that something that you worry about?
Yes. So just specifically do you do you worry about potentially being disintermediation, so to speak by either a hyper scaler or chip manufacturers directly embedding their own or someone else's technology into the chip or end of the rack.
Jeffrey Sprague: So I am, I've never been more excited about our service opportunity to go in full.
Jeffrey Sprague: And then maybe you could address capital deployment, a little bit more, and maybe we'll hear more about that next month, but maybe your appetite for M&A, your view on whether the organization is up to the adjusting company else or share purchases in the cards, maybe just what the priorities might be. I would say that is certainly a very relevant question. And our investor, investor day is relatively soon about about a month.
And thus bypassing <unk> is that something that you worry about.
Speaker 12: We are working very closely with both hyperscalers and cheap manufacturers. And the whole landscape of high-density cooling and power looks very promising to us. And again, more when we're together.
We are working very closely with with both Hyperscale is achieved.
Chip manufacturers.
And the.
The whole landscape of high density cooling and power looks very promising to us and again more when we're together also into sometimes.
Thank you.
Thanks Philip.
We currently have no further questions. So I would like to hand over back to Joe Johnson for closing remarks.
Speaker 1: We currently have no further questions, so I would like to hand over back to Giordano for closing.
Jeffrey Sprague: And I think the best thing is to, you know, just ask you to be patient for us with us for another month. And we will certainly go into those details together on the 29th of November, bear with us for now. Right. Thank you. See you then. Thank you.
Speaker 4: All right, thank you very much. Thank you very much. So, again, 2023, certainly shaping up as a strong year. We're happy about that. Again, an opportunity for me to thank the creative team around the world for their hard work, dedication and focus.
Alright. Thank you very much. Thank you very much so.
Again.
2023, certainly shaping up.
As a strong a strong year, we're happy about that.
Again, an opportunity for me to thank the votive team around the world for their hard work dedication and focus.
Speaker 4: So we definitely have seen the benefits of a stronger execution. And we really appreciate your support. We look forward to connecting with all of you in November at our investor conference with that. Thank you very much and have a splendid.
We definitely have seen the benefits of a stronger execution.
Lance Vitanza: Our next question comes from Lance Detanzer from TD Cohen. Lance, your lines are not open. Please go ahead. Thanks, guys. My question is around how vertive is positioned specifically with respect to liquid cooling and direct to chip technologies. Are there notable gaps in your product portfolio? And if so, how do you expect to address them? Hey Lance, we feel very good about our liquid cooling portfolio. And it's a broad portfolio. And it's a portfolio that stretches direct to chip immersion cooling.
And we really appreciate your support.
We look forward to connecting with all of you in November at our Investor Conference with that thank you very much and have a blended day.
Speaker 1: Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. Thank you.
Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines. Thank you.
Yeah.
Yeah.
Lance Vitanza: So we feel good with what we have today in the portfolio. And again, absolutely, go ahead. No, no, please continue. No, I was saying that would be a big. Yeah, so specifically, do you worry about potentially being disintermediated, so to speak, by either hyperscalers or chip manufacturers directly embedding their own or someone else's technology into the chip or into the rack and thus bypassing vertive? Is that something that you worry about?
Okay.
Lance Vitanza: We are working very closely with both hyperscalers and cheap manufacturers, and the whole landscape of high-density cooling and power looks very promising to us. And again, more, one word together, also an interest of time. Thank you.
Lance Vitanza: Thanks a lot.
Giordano Albertazzi: We currently have no further questions, so I would like to hand over back to Giordano for closing remarks. All right. Thank you very much. So again, 2023, certainly shaping up as a strong year. We're happy about that.
Giordano Albertazzi: Again, and hopefully for me to thank the Vertiv team around the world for their hard work, dedication and focus. So we definitely are seeing the benefits of a stronger execution. And we really appreciate your support.
Giordano Albertazzi: We look forward to connecting with all of you in November at our investor conference with that. Thank you very much and have a splendid day.
Operator: Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. Thank you. Thank you very much.