Q1 2024 Vertiv Holdings Co Earnings Call
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Good morning, My name is Jordan and I'll be your conference operator today at this time I'd like to welcome everyone to buses first quarter 'twenty 'twenty four earnings conference call.
Lines have been placed on mute to prevent any background noise. Please note. This call is being recorded.
Jordan: Now I'd like to turn the program over to your host for today's conference call than Mcdonald, Vice President of Investor Relations.
Dan McDonald: Great. Thank you Jordan and good morning, and welcome to Virtus first quarter 2024 earnings Conference call. Joining me today are Virtus Executive Chairman, David Cody Chief Executive Officer, Dr. Alberto <unk>, 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.
Dan McDonald: Forward looking statements regarding future events, including the future financial and operating performance Alberta. 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 annual and quarterly reports.
And other filings made with the SEC any forward looking statements that we make today are based on assumptions that we believed 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 also present, both GAAP and non-GAAP financial measures, our GAAP results and GAAP to non-GAAP reconciliation.
Dan McDonald: Can be found in our earnings press release and in the Investor Slide deck found on our website at investors that burden of dot com with that I'll turn the call over to executive Chairman Dave Cody.
David M. Cote: Well, we're pleased to bring a very good morning to our investors.
David M. Cote: Performance continues to strengthen demand is clearly accelerating and we're well positioned to capture the growth.
David M. Cote: And deliver and to deliver great returns for our investors.
David M. Cote: We demonstrated the flexibility of our capital deployment strategy initiating an opportunistic share repurchase in the first quarter and.
David M. Cote: At our current cash flow generation profile provides wonderful opportunity.
David M. Cote: We've made great progress, but our focus is on how much further we still have to go.
David M. Cote: Do you and the team are working process improvement everywhere.
David M. Cote: Hard work pay off the bonds as well.
We'll see the result.
David M. Cote: Sales growth profitability and cash.
David M. Cote: We intend to build a track record.
David M. Cote: In many years.
David M. Cote: We are well positioned.
David M. Cote: <unk> competitive advantage.
David M. Cote: These shifts underway the bigger center industry.
David M. Cote: Our goal is not just to be better than we were last year or the year before but to be better than everyone at serving our customers and running our business at world class levels.
David M. Cote: Central to accomplishing that is creating a high performance culture, we can't be great without.
David M. Cote: At a high performance culture is starting to take hold.
David M. Cote: Still very early on this journey.
David M. Cote: I'm excited about the years ahead.
David M. Cote: We started off strong and I'm more excited about 2025 and beyond.
Jordan: Good morning, my name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Vertiv's first quarter 2024 earnings conference call.
David M. Cote: The opportunity we have to continue to create tremendous.
Jordan: All lines have been placed on mute to prevent any background noise. Please note this call is being recorded. I'd now like to turn the program over to your host for today's conference call, Lynne Maxeiner, Vice President of Investor Relations.
David M. Cote: We've done yet.
David M. Cote: I'm also enjoying my discussions with G O.
David M. Cote: Each leader Hussein for my next trick and.
David M. Cote: And it's worth it.
David M. Cote: I've enjoyed it so with that I'll turn the call over to deal.
Lynne Maxeiner: Great. Thank you, Jordan. And good morning, and welcome to Vertiv's first quarter 2024 Earnings Conference Call. Joining me today are Vertiv's Executive Chairman, Dave Cote, Chief Executive Officer, Gio 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 and operating performance of Vertiv. These forward-looking statements are subject to material risk and uncertainty that could cause actual results to differ materially from those in the forward-looking statements.
David M. Cote: Thank you very much Dave and good day everyone.
David M. Cote: We go to slide three.
Deal: And as Dave mentioned, we had a good start with trying to 'twenty four.
Deal: Q1 sales were up 8% and we saw high single digit growth across the three regions. Our orders grew 60% year on year and 4% sequentially more to come on slide four this is an indicator of good market demand.
Lynne Maxeiner: 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. 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 also present both GAAP and non-GAAP financial measures.
Deal: A very relevant market position the strength in orders drove a very strong Q1 book to Bill at one five acts important to note.
Deal: Most of the orders.
Deal: Overage in Q1 is for deliveries beyond 2000 and for most of the acceleration comes from large orders, which typically have longer customer requested lead times adjust.
Lynne Maxeiner: Our GAAP results and GAAP to non-GAAP reconciliations can be found in our earnings press release and in the investor slide deck found on our website at investors.vertiv.com. With that, I'll turn the call over to Executive Chairman Dave Cote.
Deal: Adjusted operating profit was $249 million.
Deal: Corresponding to an adjusted operating margin of 15, 2%.
A significant $73 million and 370 bps improvement year on year.
David M. Cote: Well, we're pleased to bring a very good morning to our investors. Our performance continues to strengthen. Demand is clearly accelerating, and we're well positioned to capture the growth and deliver great returns for our investors. We demonstrated the flexibility of our capital deployment strategy, initiating an opportunistic share we purchased in the first quarter, and our current cash flow generation profile provides wonderful opportunities. We've made great progress, but our focus is on how much further we still have to go. Few in the team are working on process improvement everywhere.
Deal: Which demonstrates we are progressing on our roadmap to operational excellence as explained at our Investor day.
Deal: Our adjusted free cash flow was $101 million, an improvement of $76 million from Q1 last year in.
Deal: In Q1, we repurchased nine 1 million shares at an average weighted price of $66. A share. This included just buying back approximately 8 million shares from platinum advisers as they exited their position in that we deployed 600 million.
David M. Cote: Hard work doesn't pay off without results, so you will see the results in the audits and sales growth, profitability, and cash-in leads. We intend to build a track record of consistency over many years. We're well positioned to further differentiate and gain competitive advantage with the technology shifts underway in the data center industry. Our goal is not just to be better than we were last year or the year before, but to be better than everyone at serving our customers and running our business at a world-class level. Essential to accomplishing that is creating a high performance culture. We can't be great without that high performance culture starting to take hold.
Deal: The cash to do share repurchases, we believe it was a favorable time to do so.
Deal: Our net leverage at the end of the first quarter ticked up slightly to two two X driven by the opportunistic share repurchase in Q1, our full guidance suggests that we can comfortably to targeted one to two <unk> range as we may.
Deal: Our way through the year.
Deal: We again raised our full year guidance and expect full year 'twenty for organic growth of 12% and adjusted operating margins to expand to 17, 7%.
David M. Cote: We are still very early on this journey, but I'm excited about the year ahead. We started off strong, and I'm more excited about 2025 and beyond and the opportunity we have to continue to create tremendous shareholder value. We ain't done yet. I'm also enjoying my discussions with Gia. He ends each meeting saying, "So my next trick, and it's working, and I'm enjoying it." So with that, I'll turn the call over to Gio.
Deal: Overall, good progress towards our long term target of 20 plus percent.
Deal: I am pleased with our start to the year.
Deal: I am very encouraged by what we've seen in the data center market and now position within it.
Deal: Let's go to page slide four now.
Deal: Okay.
Deal: As you May have noticed we did not include the market environment slide this quarter it becomes difficult to differentiate it differentiates shades of colour for markets over very short periods of time in our last call was just about two months ago. We will continue to provide a view on how we see the marketing a few.
Giordano Albertazzi: Thank you very much, Dave. And good day, everyone.
Giordano Albertazzi: We go to slide three. And as Dave mentioned, we had a good start to 2024. Q1 sales were up 8%, and we saw high single-digit growth across the three regions. Our orders grew 60% year-on-year and 4% sequentially. More to come on slide four. This is an indicator of good market demand and of our very relevant market position. The strength in order drove a very strong Q1 book-to-bill at 1.5. Important to note.
Deal: Our earnings release, this material and in our accompanying remarks.
Deal: Certainly we're seeing a very strong data center market environment, and we feel we have a unique vantage point.
Deal: Profile of 75% data center exposure and decades of experience serving the industry.
Deal: It is an industry that has reliability at its core and Julie timings of technological transformation as the one underway now with AI, our customers lean on that knowledge strength that you've kind of added.
Giordano Albertazzi: Most of the orders, and the overage in Q1, are for deliveries beyond 24. Most of the acceleration comes from large orders, which typically have longer customer requests. Adjusted Operating Profit was $249 million, corresponding to an adjusted operating margin of 15.2%, a significant $73 million and 370 basis points improvement year on year, which demonstrates we are progressing on our roadmap to operational excellence, as explained at our investor day. Our adjusted free cash flow was $101 million, an improvement of $76 million from Q1 last year.
Deal: Advanced technology deep domain expertise global scale $24 seven local service globally.
Deal: These are true Differentiators, we built over the decades, serving the data center industry and understanding it's truly unique requirements.
Deal: Not easy to replicate.
Deal: If you look at that.
Deal: That side of slide four.
Deal: Extremely strong order growth as we said pipeline velocity clearly increased as evidenced by backlog being up $800 million in first quarter. This acceleration rolled into Q1, some orders we expected for future periods.
Giordano Albertazzi: In Q1, we repurchased 9.1 million shares at an average weighted price of $66 a share. This included buying back approximately 8 million shares from Platinum Advisors as they exited their position in Vertiv. We deployed $600 million of cash to do share repurchases.
Deal: It is also clear that AI is starting to scale and that's particularly true in the Americas. We already explained the accelerated dynamics of large projects. So no surprise that most of the impact is on future years.
Deal: That gives us a better visibility.
Deal: We think about the years ahead.
We anticipate orders will remain strong, but I want to caution 60% order growth is not the new expectation. We are there are reasons specific to Q1. That's important that's very high level of order growth. For example, Q1 was our <unk>.
Giordano Albertazzi: We believe it was a favorable time to do so. Our net leverage at the end of the first quarter ticked up slightly to 2.2x, driven by the opportunistic share purchase in Q1. Our 24 guidance suggests that we will return comfortably to our targeted 1 to 2x range as we make our way through the year. We again raise our four-year guidance and expect four-year 24 organic growth of 12% and adjusted operating margins to expand to 17.7%, overall good progress towards our long-term target of 20 plus. I am pleased with the start of the year. And I'm very encouraged by what we see in the data center market and our position within it. GoToPage
Deal: Comparison, given that Q1, 'twenty three orders were down 23% uranium.
Deal: <unk>, Israel will get tougher as plentiful progresses and precise timing on orders can fluctuate.
Deal: So while I don't want to suggest false precision seeing orders down Q1 to Q2 sequentially would not be a surprise it is expected and not particularly worrisome given the very high absolute value of Q1 orders, we are anyway expecting good order growth year on year in.
Deal: Q2.
Deal: Our book to Bill of.
Giordano Albertazzi: Next slide, please. As you may have noticed, we did not include the market environment slide this quarter. It becomes difficult to differentiate shades of color for markets over very short periods of time, and our last call was just about two months ago. We will continue to provide a view on how we see the market in our future earnings release materials and in our accompanying remarks. Certainly, we're seeing a very strong data center market environment, and we feel we have a unique vantage, our profile of 75% data center exposure, and our decades of experience serving the industry. It is an industry that has reliability at its core.
Deal: One five acts is very strong also here, we're not anticipating that this is the new normal we believe book to Bill should remain above one X throughout the year, which suggests the absolute dollar of orders. We are anticipating remains at high levels given the sales guide.
Deal: And so the range we provided.
Deal: How that looks quarter to quarter depends on multiple factors like pipeline velocity and our customers.
Deal: Build schedules on capacity.
Deal: I'm comfortable with the investments, we're making and it will support our customers. As a reminder, we have two manufacturing plants globally as explained in the past we have a stringently cadence than rigorous process to manage further capacity expansion decisions.
Giordano Albertazzi: And during times of technological transformation, such as the one underway now with AI, our customers lean on the knowledge strength that it can bring: Advanced Technology, Deep Domain Expertise, Global Scale, 24-7 Local Service, Globally. These are two differentiators we built over the decades serving the data center industry and understanding its truly unique requirements.
Deal: We previously previously provided of 75 to 100 million dollar range for Capex. This year, we expect to be at the high end of that range. So please assume $200 million capex in 2004 still comfortably within that two 5% to 3%.
Deal: Range of sales, we provided at our Investor Conference.
Deal: The ramp up of production of liquid cooling globally continues as planned and Im happy to report we have production underway already at two of the three plans. We shared with you we were planning to activate in 'twenty. Four we are on track with the capacity ramp up as shared in February we continue.
Giordano Albertazzi: So if you look at the left side of the slide, the four, extremely strong order growth, as we said. Pipeline velocity clearly increased, as evidenced by backlog being up 800 million in the first quarter. This acceleration brought into Q1 some orders we expected for the future. It is also clear that AI is starting to scale. And that's particularly true in the Americas.
Deal: To see strong momentum with AI related orders.
Deal: While we are not disclosing specific detail on our liquid cooling orders.
Deal: More broadly AI related orders, we did see the pipeline for AI projects more than doubled in the last two months.
Giordano Albertazzi: We have already explained the accelerated dynamics of large projects. So it is no surprise that most of the impact is in future years. That gives us better visibility as we think about the years ahead. We anticipate orders will remain strong, but I want to caution: 60% order growth is not the new expectation. We are, there are reasons specific to Q1 that supported that very high level of order growth. For example, Q1 was our easiest comparison.
Deal: We are starting to see AI scaling in North America. This is consistent with a GPU roadmaps.
Deal: We're by next generation chips will require liquid cooling the pipeline is reflecting that technology shift not only in terms of liquid cooling, but in terms of the whole powertrain and thermal chain, we're working closely with our customers to get their infrastructure waiting for what is ahead.
Giordano Albertazzi: Given that Q1, 23 orders were down 23% year-on-year, the comparison will get tougher as 24 progresses, and precise timing on orders can fluctuate. So while I don't want to suggest false precision, seeing orders down from Q1 to Q2 sequentially would not be a surprise.
Deal: Now to the right side of slide four scale.
Deal: Hi, Chase continue to operate as expected not without an occasional bump, but thats, where our constantly improving supply chain resilience comes into play.
Deal: We continue to build out our supply chain to support deployment of liquid click technology with the same rigor and resilience we have built in our existing supply chain. The geopolitical environment is becoming increasingly complex. We are working to constantly increase the resilience of our business.
Giordano Albertazzi: It is expected and not particularly worrisome given the very high absolute value of Q1 orders. We are anyway expecting good order growth year on year in Q2. But, also here, we're not anticipating that this is the new normal.
Deal: Looking at material inflation, a mixed bag, but we know things can change quickly. We continue to believe we are in an inflationary world and the price cost plans, we're executing reflects that view.
Giordano Albertazzi: We believe book-to-bill should remain about 1x throughout the year, which suggests the absolute dollar of orders we are anticipating remains at high levels given the sales guidance and range we provide. How that looks quarter to quarter depends on multiple factors like pipeline velocity and our customers' build schedule. I'm comfortable with the investment we are making, and it will support our customers. As a reminder, we have 22 manufacturing plants globally, as explained in the past.
Deal: Let's now turn to slide five.
Deal: There is an intense focus on thermal management lately.
Deal: So as the market leader in data center cooling we are uniquely positioned.
Deal: <unk> for that opportunity.
Deal: Power is also very central to the evolution of data center design and to enable AI deployment and to fuel the overall market acceleration.
<unk> has a complete power offering the whole powertrain to serve the data center market.
Deal: Quite relevant in both the power distribution and power quality segments of the data center market. The acquisition of a Eni expanded portfolio to include medium voltage switchgear low voltage switchgear and busway offering.
Giordano Albertazzi: We have a stringently cadenced and rigorous process to manage further capacity expansion decisions. We previously provided a $75 to $200 million range for CapEx this year. We expect to be at the high end of that range. So please assume $200 million for CapEx. Still comfortably within the 2.5 to 3% range of sales we provided at our investor companies.
Deal: We often get asked about capacity, we talked about liquid cooling in February we want to spend a minute on power now.
Deal: We are expanding our operational capacity significantly across the powertrain to support customer demand.
Deal: A good example, our basketball and switch gears, we have already doubled our capacity since we acquired Eni at the end of 'twenty one.
Giordano Albertazzi: The ramp-up of the production of liquid cooling globally continues as planned, and I'm happy to report we have production underway already at two of the three plants we shared with you. We were planning to activate them in 24.
Deal: And we are on track to double it again by the end of 'twenty five to support the growth we see ahead.
Giordano Albertazzi: We are on track with the capacity ramp-up as shared in February, and we continue to see strong momentum with AI-related work. While we are not disclosing specific details on our liquid and cooling orders, or more broadly, AI-related orders, we did see the pipeline for AI projects more than double in the last two months, and we are starting to see AI scaling in North America. This is consistent with the GPU roadmap, whereby next-generation chips will require liquid cooling.
Deal: Heard me talk about always maintaining a circa 25% capacity, we will need to cover demand peaks.
Deal: This on average continues to be the way we manage capacity.
Deal: The ability to operate end to end across the powertrain similar to what we do with a thermal chain.
Deal: Testament to both.
Deal: The most complete digital infrastructure solutions.
Deal: This is an important reason why we are a partner of choice for our customers and work with them on designing the infrastructure for the high density future.
Deal: And with that David over to you.
Giordano Albertazzi: The pipeline is reflecting that technology shift, not only in terms of liquid cooling but in terms of the whole power train and thermal chain. We're working closely with our customers to get their infrastructure ready for what is ahead. Now to the right side of slide four.
David: Thanks, Joe turning to page six.
David: This slide summarizes our first quarter financial results strong performance to start the year.
David: Organic net net sales increased 8% with all three regions growing relatively consistently in the high single digits sales were above the high end of guidance with EMEA. The primary driver of that over performance.
Giordano Albertazzi: Supply chains continue to operate as expected, not without an occasional bump, but that's where our constantly improving supply chain resilience comes into play. We continue to build out our supply chain to support the deployment of liquid cooling technology with the same rigor and resilience we have built in our existing supply chain. The geopolitical environment is becoming increasingly complex.
David: Adjusted operating profit of $249 million was $73 million higher than last year's first quarter mainly.
David: Mainly due to favorable price cost and higher volume, we exceeded the high end of guidance driven by the sales beat and higher productivity than expected in our model.
Giordano Albertazzi: We are working to constantly increase the resilience of this. Looking at material inflation, a mixed bag, but we know things can change quickly. We continue to believe we are in an inflationary world, and the price-cost plans we're executing reflect that. Let's now turn to slide five.
Our adjusted operating margin increased 370 basis points to 15, 2%.
David: Further demonstrating our continued focus on.
David: On operational excellence and that is certainly driving results, but as we have mentioned still plenty of opportunity and much to do.
Giordano Albertazzi: There is an intense focus on thermal management lately, and rightfully so. As the market leader in data center cooling, we are uniquely positioned to address that. But power is also very central to the evolution of data center design and to enable AI deployment and to fuel the overall market acceleration. Vertiv has a complete power offering, the whole powertrain to serve the data center model, which is quite relevant in both the power distribution and power quality segments of the data center market.
Moving to the right our first quarter adjusted diluted EPS was <unk> 43.
David: 19 cents higher than last year, primarily driven by the higher adjusted operating profit and also a small tailwind from income taxes.
David: On the far right adjusted free cash flow was $101 million for the quarter, which was four times higher than last year's first quarter with the higher profitability flowing through to free cash flow.
David: As Joe mentioned net leverage was two two times at the end of the quarter.
Giordano Albertazzi: The acquisition of AE&I expanded the Vertiv portfolio to include medium voltage switchgear, low voltage switchgear, and bathway. We often get asked about capacity. We talked about liquid cooling in February; we want to spend a minute on power now. We are expanding our operational capacity significantly across the powertrain to support customer demand. A good example is bus bars and switchgears.
David: And despite the $600 million share repurchase.
David: Net leverage is only slightly higher than the one nine times at year end as we continue to expand EBITDA, while generating cash.
David: And based on forward expectations, we anticipate net leverage to decline to two times or lower in the third quarter if not sooner.
David: As mentioned.
David: The $600 million $9 1 million share repurchase in the quarter included $525 million and approximately 8 million shares.
David J. Fallon: We have already doubled our capacity since we acquired ENI at the end of 21, and we are on track to double it again by the end of 25 to support the growth we see ahead. You heard me talk about always maintaining a circa 25% capacity when you want to cover peak demand. This, on average, continues to be the way we manage capacity. The ability to operate end-to-end across the powertrain, similar to what we do with a thermal chain, is testament to Vertiv having the most complete digital infrastructure. This is an important reason why we are a partner of choice for our customers and work with them on designing the infrastructure for high density. And with that, David, over to you.
David: From platinum as they exited their position.
David: All in we repurchase shares in an average price of $66.
David: Which looks pretty good at this point.
David: Turning to page seven.
David: This slide summarizes our first quarter segment results.
David: We had relatively balanced growth across the regions Americas grew 7%.
David: Driven by Hyperscale and Colocation and this growth was on top of an extremely challenging comparison to first quarter 2023, where Americas grew over 60.
David: <unk> from the prior year adjusted.
David: Operating margin in the Americas expanded 340 basis points from last year's first quarter to 23% with the increase primarily driven by favorable price cost.
David J. Fallon: Thanks, Gio. Turning to page 6. This slide summarizes our first quarter financial results. A strong performance to start the year. Organic net sales increased 8%, with all three regions growing relatively consistently in the high single digits. Sales were above the high end of guidance, with EMEA the primary driver of that overperformance. Adjusted Operating Profit of $249 million was $73 million higher than last year's first quarter, mainly due to favorable price costs and higher volume.
David: And also productivity.
David: APAC sales increased 9% organically a stronger number than we've seen.
In this region in quite a while with this growth driven by continued strong market demand in India and the rest of Asia with both those sub regions growing low double digits.
David: Although not as strong as the rest of the region, China sales grew low single digits in the quarter encouraging but.
David J. Fallon: We exceeded the high end of guidance driven by the sales beat and higher productivity than expected in our model. Our adjusted operating margin increased 370 basis points to 15.2%, further demonstrating our continued focus on operational excellence, and that is certainly driving results. But, as we have mentioned, there is still plenty of opportunity and much to do.
David: As we see China stabilizing.
David: Albeit at low levels, and we expect China growth to remain stable, but muted throughout 2024.
David: APAC adjusted operating margin increased 380 points driven by fixed cost leverage.
David: An improved contribution margin in China, as we continue to focus on costs.
David: Given the market headwinds there.
David: EMEA grew 10% organically, which was higher than anticipated.
David J. Fallon: Moving to the right, our first quarter adjusted diluted EPS was $0.43, $0.19 higher than last year, primarily driven by the higher adjusted operating profit and also a small tailwind from income tax. On the far right, adjusted free cash flow was $101 million for the quarter, which was four times higher than last year's first quarter, with higher profitability flowing through to free cash flow. As Gio mentioned, net leverage was 2.2 times at the end of the quarter.
David: Partially driven by strength.
David: With switch gear and bus bar.
David: EMEA adjusted operating margin expanded 510 basis points to 18, 4% driven.
David: Driven by fixed cost leverage and improved contribution margin.
David: Both from price cost and productivity Corp.
David: Corporate costs of $40 million increased $7 million from last year's first quarter, primarily driven by a one time benefit last year.
David: For the full year, we expect corporate cost to be in the range of $150 million to $160 million.
David J. Fallon: And despite the $600 million share repurchase, net leverage is only slightly higher than 1.9 times at year end, as we continue to expand EBITDA while generating cash. And based on forward expectations, we anticipate net leverage to decline to two times or lower in the third quarter, if not sooner.
David: Next moving to slide eight this is a look at our second quarter guidance, we are expecting organic sales growth of approximately 12% with Americas up mid teens.
David: APAC high single digits, and EMEA low double digits.
David: We anticipate an $18 million year over year foreign exchange headwind in the second quarter.
David J. Fallon: As mentioned, the $600 million, $9.1 million share repurchase in the quarter included 525 million and approximately 8 million shares from Platinum as they exited their position. All in, we repurchase shares at an average price of $66, which looks pretty good at this point. I'm turning to page seven.
David: As the U S. Dollar has strengthened against most for most foreign currencies over the last several months.
David: We expect second quarter, adjusted operating profit between 315, and $335 million and adjusted operating margin of 16, 9%.
David: Up 240 basis points at the midpoint with expected benefits from price cost partially off set by continued growth investments.
David J. Fallon: This slide summarizes our first quarter segment results. We had relatively balanced growth across the regions. Americas grew 7%, driven by hyperscale and co-location. And this growth was on top of an extremely challenging comparison to first quarter 2023, where Americas grew over 60% from the prior year. Adjusted operating margin in the Americas expanded 340 basis points from last year's first quarter to 20.3%, with the increase primarily driven by favorable price costs and also productivity.
David: Next turning to slide nine.
David: Our full year 'twenty for guidance.
David: Based upon a favorable start to the year and visibility into a strong sales pipeline for the rest of the year. We are increasing estimates for our organic sales growth from 10% at the midpoint to approximately 12% with higher expectations across all three regions.
David: In addition, we are increasing the midpoint of adjusted operating profit guidance from $1 3 billion.
In our prior guidance for 135 billion, primarily driven by contribution margin on incremental sales.
David J. Fallon: APEC sales increased 9% organically, a stronger number than we have seen in this region for quite a while, with this growth driven by continued strong market demand in India and the rest of Asia, with both those sub-regions growing at low double digits. Although not as strong as the rest of the region, Chinese sales grew low single digits in the quarter, encouraging, but as we see China stabilizing, all be it at low levels, and we expect Chinese growth to remain stable but muted throughout 2024.
And as a result, we are increasing midpoint guidance for adjusted operating margin to 17, 7% with the primary driver there being fixed cost leverage.
David: 17, 7% full year adjusted operating margin guidance demonstrates our continued relentless focus on operational improvement across the business and is a stepping stone on our path to 20% plus.
David: But as always pleased but never satisfied.
David: Our projected 2024, adjusted diluted EPS of $2.32 at the midpoint.
David J. Fallon: APAC's adjusted operating margin increased 380 points driven by fixed cost leverage and improved contribution margin in China as we continue to focus on costs given the market headwinds there. AMIA grew 10% organically, which was higher than anticipated, partially driven by strength with switchgear and busbar. Amiya's adjusted operating margin expanded 510 basis points to 18.4%, driven by six cost leverage and improved contribution margin, both from price, cost, and productivity. Corporate costs of $40 million increased $7 million from last year's first quarter, primarily driven by a one-time benefit last year. For the full year, we expect corporate costs to be in the range of $150 to $160 million. Next, moving to slide eight.
David: It presents an over 30% increase compared to last year, and Thats, primarily driven by the higher adjusted operating profit.
David: Now there is some noise in our adjusted EPS, an effective tax rate calculations for the first quarter.
David: And.
David: Also for full year to a lesser extent.
David: And those are primarily driven by accounting requirements around the $177 million first quarter charge from change in fair value of warrant liabilities.
David: And instead of investing valuable time on this call. We provided additional information on slides 21, and 'twenty two in the appendix and we will be more than happy to answer questions and review this information with analysts and investors. After this call.
David J. Fallon: This is a look at our second quarter guidance. We are expecting organic sales growth of approximately 12% with America's up mid teens, APAC High Single Digits, and EMEA Low Double Digits.
David: And finally moving to the far right on this slide we are holding the midpoint of our adjusted free cash flow guidance at $825 million, which is.
David: Approximately 92% free cash flow conversion for the year.
David J. Fallon: We anticipate an $18 million year-over-year foreign exchange headwind in the second quarter, as the U.S. dollar has strengthened against most foreign currencies over the last several months. We expect second quarter adjusted operating profit between $315 and $335 million, with an adjusted operating margin of 16.9%, up 240 basis points at the midpoint, with expected benefits from price costs partially offset by continued growth investment. Next, turning to slide nine, our full year 24 guidance.
As we expect higher adjusted operating profit to be offset by higher taxes.
David: Higher net cash interest as we use cash for first quarter share repurchases and as Joe mentioned, we are increasing our full year estimate for capex to $200 million to further support.
David: <unk> for future growth.
Jill: And with that said I turn it back over to Jill Thank.
Jill Thank: Thank you. Thank you David.
Jill Thank: Let's go to slide 10.
Jill Thank: I looked at the data Center World Conference last week.
Speaker Change: I would say the excitement was absolutely possible.
Speaker Change: <unk>.
Speaker Change: Very clear signals from the data center market when it comes to demand.
David J. Fallon: Based upon a favorable start to the year and visibility into a strong sales pipeline for the rest of the year, we are increasing estimates for organic sales growth from 10% at the midpoint to approximately 12% with higher expectations across all three regions.
Speaker Change: Our thought leadership was on display and power thermal and specifically liquid cooling as we shed insights in collaboration with the some of the industry's technology leaders and we can.
Speaker Change: Elaborated to Chubb the roadmap for the future of digital infrastructure.
David J. Fallon: In addition, we are increasing the midpoint of adjusted operating profit guidance from $1.3 billion in our prior guidance to $1.35 billion, primarily driven by contribution margin on incremental sales. And as a result, we are increasing the midpoint of adjusted operating margin guidance to 17.7%, with the primary driver there being fixed cost leverage. The 17.7% full-year adjusted operating margin guidance demonstrates our continued relentless focus on operational improvement across the business and as a stepping stone on our path to 20% plus, but as always, pleased but never satisfied.
Speaker Change: We value the value of Knowhow strengthening serving this market today is unprecedented in my long industry experience, we liked that a lot as we become more central to the enablement of AI deployment, we are scaling our global capacity to match the ambitions of the industry.
Speaker Change: You need broad shoulders to keep up with that pace, we're moving fast and mobilizing around the globe.
Speaker Change: Our ability to continue to grow.
Speaker Change: So cute well is grounded in the high performance culture, we are creating and in the <unk> operating system, we are continuing to deploy.
Speaker Change: Density of what we do is rapidly increasing and the organization lets continue to do things right and fast.
David J. Fallon: Our projected 2024 adjusted diluted EPS of $2.32 at the midpoint represents an over 30% increase compared to last year, and that's primarily driven by higher adjusted operating profit. Now, there is some noise in our adjusted EPS and effective tax rate calculations for the first quarter and also for the full year to a lesser extent. And those are primarily driven by accounting requirements around the $177 million first quarter charge related to the change in fair value of warrant liabilities.
Speaker Change: Is the expectation I am driving every single day with a relentless focus.
Speaker Change: And holding the entire relative team and me in the first place accountable to deliver results.
Speaker Change: The winners will be determined by their portfolio and their strength of execution.
Speaker Change: I believe you me, we fully intend to keep winning with that said.
Speaker Change: Over to you Joseph for the Q&A.
Joseph: Thank you, we'll now begin the question and answer session in order to ask a question. Please press Star then the number one on your telephone keypad.
David J. Fallon: Instead of investing valuable time on this call, we provided additional information on slides 21 and 22 in the appendix. And we'll be more than happy to answer questions and review this information with analysts and investors after this call. And finally, moving to the far right on this slide, we are holding the midpoint of our adjusted free cash flow guidance at $825 million, which is approximately 92% free cash flow conversion for the year.
Joseph: In the interest of time, please limit yourself to one question and if you have a follow up question. Please rejoin the queue, we'll pause for just a moment to compile the Q&A.
Joseph: Our first question comes from Jeff Sprague of vertical Research partners. Jeff. Please go ahead.
Jeffrey Todd Sprague: Thank you good morning, everyone.
Jeffrey Todd Sprague: So you're enjoying this day.
Jeffrey Todd Sprague: Wonder.
Jeffrey Todd Sprague: If you could just give us a little bit more color on.
David J. Fallon: As we expect higher adjusted operating profit to be offset by higher taxes and higher net cash interest as we use cash for first quarter share repurchases. And as Gio mentioned, we are increasing our full year estimate for CapEx to $200 million to further support capacity for future growth. And with that said, I turn it back over to Gio.
Jeffrey Todd Sprague: Just kind of the AI complexion is playing out as it relates to your suite of products.
Jeffrey Todd Sprague: You've said in the past its early days and it's a bit early to know.
Jeffrey Todd Sprague: What really changes in your customers' configurations and the like is there anything that you would point out or add incremental from your.
Giordano Albertazzi: Well, thank you. Thank you, David. Let's go to slide 10.
Jeffrey Todd Sprague: General opening comments there.
Jeffrey Todd Sprague: Okay.
Speaker Change: Hi, Good morning, Jeff and thank you and thank you for the for the question. So.
Giordano Albertazzi: I was at the Data Center World Conference last week, and I would say the excitement was absolutely powerful. So, very clear signals from the data center market when it comes to demand. Our thought and leadership was on display in power, thermal, and specifically liquid cooling, as we shared insights and collaborated with some of the industry's biggest technology companies, and we collaborated to chart the roadmap for the future of digital infrastructure. We value the value of know-how strengthening. Serving this market today is unprecedented in my long industry experience.
Speaker Change: As I said we.
Speaker Change: See an acceleration that is that is certainly quite convincing the whole AI space.
Speaker Change: When I was referring to doubling.
Speaker Change: Client side in the last in the last two months that in and of itself is a very strong is a very strong signal.
Speaker Change: The type of demand that we see it's certainly around liquid cooling.
Speaker Change: And.
Speaker Change: And we think can be precluded from doing much we think something that is consistent with the with the capacity.
Giordano Albertazzi: We like that a lot. As we become more central to the enablement of AI deployment, we are scaling our global capacity to match the ambitions of the industry. I need broad shoulders to keep up with that pace.
Speaker Change: Of that if we gave a couple of months back but truly the demand is accruals across the board it's across the board in terms of the entirety of the powertrain and thermal change. So just like we were expecting there are some technologies that are specific to high density compute or anyway.
Jordan: We're moving fast and mobilizing around the globe. Our ability to continue to execute well is grounded in the high-performance culture we are creating and in the Vertiv operating system we are continuing to deploy. The intensity of what we do is rapidly increasing, and the organization must continue to do things right and fast. This is the expectation I am driving every single day with relentless focus and holding the entire Vertiv team, and me, in the first place, accountable for results. So the winners will be determined by their portfolio and their strength of execution. And believe me, we fully intend to keep winning. With that said, I'll turn it over to you, Jordan, for the Q&A.
Speaker Change: GPU based.
Speaker Change: Compute but there is.
Market and market demand expansion that.
Speaker Change: It's simply more megawatts being being deployed that is impacting the entire range again, it's not just one piece of the portfolio is the entire range.
Speaker Change: The early many respect for the industry and the industry in the design of future.
Yeah.
Speaker Change: Exactly structure is still unfolding, but we are pleased to be able to follow.
Speaker Change: Our customers and to support our customer across the entire spectrum related decision structurally.
Speaker Change: And then just kind of widening the lens on supply chain. So it sounds like yours is where you need it to be sure. We're working hard to keep it that way, but just kind of the general Big picture here Geo in terms of.
Jordan: Thank you. We'll now begin the question and answer session. In order to ask a question, please press the star, then the number one on your telephone keypad.
Jordan: In the interest of time, please limit yourself to one question. And if you have a follow-up question, please rejoin the queue. We'll pause for just a moment to compile the Q&A. Our first question comes from Jeff Sprague of Vertical Research Partners. Jeff, please go ahead.
Speaker Change: Site preparation craft labor utility feeds to deliver these megawatts and alike.
Speaker Change: What are you seeing or hearing.
Speaker Change: From the field in terms of the ability to kind of.
Speaker Change: Drive revenues higher kind of in the 25% in 2006. It seems like the demand is there. My question is really about being able to put the product in the ground.
Jeffrey Todd Sprague: Thank you. Good morning, everyone. I'm sure you're enjoying this day.
Speaker Change: Jeff I'll be very brief concerning the second question.
Giordano Albertazzi: I wonder, Gio, if you could just give us a little bit more color on, you know, how just kind of the AI complexion is playing out as it relates to your suite of products. You know, you've said in the past, it's early days, and it's a bit early to know what really changes in your customers' configurations and the like. Is there anything that you would point out or add incrementally from your, you know, kind of general opening comments there?
Speaker Change: This ratio has now dramatically has not dramatically changed from what we were saying we were seeing last time again, the industry is growing because there'll be kind of a bigger growth in absolute terms.
Speaker Change: Yes.
Speaker Change: Forget that this is about building.
Speaker Change: Data Center. This is about getting permits and getting power. So there is a lot of course of public also debates about this or sell restaurants to do that.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Giordano Albertazzi: Good morning, Gavin. Thank you. Thank you for the question.
Speaker Change: Our next question comes from Amit <unk> of Evercore. Please go ahead.
Giordano Albertazzi: So, as I said, we see an acceleration that is certainly quite convincing in the whole AI space. When I was referring to doubling pipeline size in the last two months, that, in and of itself, is a very strong signal. The type of demand that we see is certainly around liquid cooling. When we think liquid cooling, we pretty much think something that is consistent with the capacity curve that we gave a couple of months ago, but truly, the demand is across the board.
Speaker Change: Yes.
Amit: Good morning, everyone. Thanks for taking my question.
Amit: Yes.
Amit: I was hoping you could put some context around.
Amit: Hello.
Amit: Amit.
Amit: Your line is.
Amit: You said that.
Amit: Amit. Please go ahead.
Amit: Hi, hopefully you heard me well.
Speaker Change: We can hear you now.
Speaker Change: Alright perfect.
Amit: I guess my question was really around the order growth number at 60% is extremely impressive and I get the compare is a bit easier but.
Amit: Nonetheless, I was wondering if you could talk about how much of this growth do you think is driven by duration kind of expanding versus unit uptick that's happening is the way to think about those two metrics and then as you think about these orders really becoming revenues should we start to think about revenue growth accelerating.
Giordano Albertazzi: It's across the board in terms of the entirety of the powertrain and thermal change. Just like we were expecting, there are some technologies that are specific to high-density compute or, anyway, GPU-based compute, but there is a market demand expansion that is simply more megawatts being deployed that is impacting the entire range. It's not just one piece of the portfolio; it's the entire range. It's still early in many respects for the industry, and the industry and the design of future exact structures are still unfolding, but we are pleased to be able to follow our customers and to support our customers across the entire spectrum.
Amit: What are your longer term targets in 'twenty five and beyond at this point. Thank you.
Speaker Change: Well thank you.
Speaker Change: Everyone out.
Speaker Change: Amit. Thank you for the thank you for the for the question certainly we're very happy about our our load in order number.
Speaker Change: The majority of the of the OTA overage, let's say is the same.
Speaker Change: In when we're going through the slides is is indeed in the majority of the acceleration is coming from large projects. Indeed.
Speaker Change: And what we have seen in the large projects that.
Speaker Change: Has been a some.
Speaker Change: Thanks June if you will of the requested.
Speaker Change: The lead time or delivery date so.
Giordano Albertazzi: And then just kind of widening the lens on the supply chain. So it sounds like yours is where you need it to be. I'm sure you're working hard to keep it that way.
Speaker Change: Perhaps I was more talking about <unk>.
Speaker Change: To get to 18 months.
Speaker Change: A window in terms of the requested delivery now this won't be a service a little bit longer. So I think in terms of 12 to 18 months or so there has been a little bit of a.
Giordano Albertazzi: But just kind of the general big picture here, Gio, in terms of site preparation, you know, craft labor, you know, utility feeds to deliver these megawatts and the like. What are you seeing or hearing from the field in terms of, you know, the ability to kind of, you know, drive revenues higher, you know, kind of into 25 and 26? Seems like the demand is there, right? My question is really about, you know, being able to put the product on the ground. Jeff, I'll be very brief.
Speaker Change: Window of coverage changing.
Speaker Change: Behind US is good I mean, we.
Speaker Change: We have more visibility of what our customers do and that gives us the flexibility to execute even more orderly and partially if you will on everything and align and the like.
Speaker Change: On the supply chain.
Speaker Change: What does that mean in terms of the future use.
Giordano Albertazzi: Jeff, I'll be very brief on the second question. The situation has not dramatically changed from what we were seeing last time. Again, the industry is growing. Could there be kind of a bigger growth in absolute terms? Yes, but let's not forget that this is about building data centers. This is about getting permits and getting power. So there is a lot, of course, of public debate about this.
Speaker Change: Probably premature but again.
Speaker Change: While we fix fill to the conversation we had at Investor day in terms of the general dynamics of the market. What we see today is on the <unk>.
Speaker Change: On the upper end of the ranges that.
Speaker Change: That we shared with you so positive in that respect.
Speaker Change: Our next question comes from Steve Tusa of Jpmorgan. Please go ahead.
Charles Stephen Tusa: Hi, guys good morning.
Charles Stephen Tusa: Hey, Tim.
Jordan: Our next question comes from Amit Daryanani of Evercore. Amit, please go ahead. Yeah. Um, good morning, everyone. Thanks for my question. You know, I was hoping
Charles Stephen Tusa: Just a question on the market I guess, what's your you guys cover a lot here and you talked to all the consultants.
Jordan: Good morning, everyone. Thanks for asking my question.
Jordan: You know, I was hoping you would put some context around your line has... you should be there. Amit, please go ahead. Hi, hopefully you can hear me well. We can hear you now.
Charles Stephen Tusa: Your estimate of.
The quarterly rate of gigawatt ads.
Tim: For the industry here in the U S.
Tim: The run rate, we're at just roughly.
Tim: Well.
Tim: Going into this detail would would be.
Tim: Given.
Tim: An updated view of what we shared with you back in.
Amit Daryanani: All right. Perfect. Gio, I guess my question was really around, you know, the order growth number at 60% is extremely impressive, and I understand the comparisons a bit easier. But, you know, nonetheless, I was wondering if you could talk about how much of this growth is driven by the duration kind of expanding versus unit uptake that's happening. Is there a way to think about those two metrics?
Tim: At the end of November.
Tim: So I will go back to comment.
Amit: I'm sorry, Amit.
Amit: So we see.
Amit: The projections and expectations that we shared with you.
Amit: Still hold true we gave some headwinds.
Amit: We see that the tailwind that again, we shared.
Amit: <unk> with the happy with what we see there is a certain much debate in mixed into exactly how many gigawatts have been deployed in North America and other parts of the world.
Giordano Albertazzi: And then, as you think about these orders really becoming revenues, should we start to think about revenue growth accelerating, you know, versus your longer-term targets in 2025 and beyond? I'm at that point. Thank you.
Giordano Albertazzi: Well, Giordano, Amit, thank you for the question. Certainly, we're very happy about our order number. The majority of the order average, let's say, as we're saying in the way we're going through the slides, is indeed, and the majority of acceleration is coming from large projects. And what we have seen in large projects is that there has been some extension, if you will, of the requested lead time or delivery dates. So, in the past, I was more talking about a nine to 18-month window in terms of the requested delivery. Now, what we observe is a little bit longer. So, I think in terms of 12, 18 months or so, there has been a little bit of a window of coverage changing behind this. But it's good.
Amit: I think its better we referenced due to that.
Amit: As the market is still in a very dynamic situation right now.
Speaker Change: Okay, and then just on orders I would assume from this level.
Speaker Change: Backlog will absolutely continue to grow every quarter I mean, you talked about the book to Bill I wanted to have not being sustainable.
Speaker Change: Kind of a wide range should we assume that it should.
Speaker Change: Remain above one every quarter and then just I know youre not going to give particular here but.
Speaker Change: Is the price at this stage now <unk>.
Speaker Change: Decelerating.
Speaker Change: Stable or accelerating relative to what you guys have talked I've talked about in the fourth quarter as far as orders are concerned.
Speaker Change: So.
Speaker Change: [laughter] tick.
Second and third question.
Speaker Change: Oh the <unk>.
Speaker Change: Orders and backlog.
Speaker Change: [laughter] I'd go back.
Giordano Albertazzi: I mean, we have more visibility of what our customers do, and that gives us the possibility to execute orders even more orderly and punctually, if you will, on everything in the line supply chain. What does that mean in terms of future use? Probably premature. But again, while we stick still to the conversation we had at Invest Today in terms of the general dynamics of the market, what we see today is clearly at the upper end of the ranges that we shared with you. So positive in that respect.
Speaker Change: Surprised Steve.
Speaker Change: Second and third place in backlog.
Speaker Change: We believe that for the remainder of the year will be on or above.
One when it comes to book to Bill.
Speaker Change: Whether that happens every quarter is a little bit.
Speaker Change: From mature to say again, there are a lot of dynamics a lot of dynamics at play.
Speaker Change: Price I'd go back to the.
Speaker Change: The comments, we made in February whereby with that okay. When all this goes in.
Speaker Change: Prize, we're talking about.
Speaker Change: Talking about price cost was satisfied with the price cost that we that we see and certainly is consistent.
Jordan: Our next question comes from Steve Tusa of J.P. Morgan. Steve, please go ahead.
Speaker Change: On one hand with the guidance, we are giving you now obviously, but it also is consistent with.
Jordan: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host for the industry here in the U.S., you know, kind of the run rate we're at just roughly.
Speaker Change: Let's say the direction of travel and the vision that we shared with you at Investor Day.
Speaker Change: Okay. Thanks, a lot.
Yeah.
Speaker Change: Thank you. Our next question comes from Scott Davis of Melius Research Scott. Please go ahead.
Scott Reed Davis: Hey, good morning, everybody.
Scott Reed Davis: Good morning, Scott.
Scott Reed Davis: Hi.
Scott Reed Davis: No. This is a little bit of a.
Giordano Albertazzi: Well, going into this detail would give you, you know, an updated view of what we shared with you back at the end of November. So I will go back to the comment I made earlier. I'm sorry, Amit.
Scott Reed Davis: Obvious question, perhaps but.
Scott Reed Davis: Little color would be helpful and as it relates to your book to Bill.
Scott Reed Davis: Percentage of cooling as a percent of your.
Scott Reed Davis: Your backlog increasing proportionately with.
Scott Reed Davis: These new chips like.
Scott Reed Davis: That would be 200, the GBP 200, these <unk> chips.
Jordan: So we see that the projection and expectations that we shared with you still hold true. We gave you some headwinds. We see that the tailwinds that, again, we shared are happening. And we're happy with what we see. There is so much debate and literature on exactly how many gigawatts are being deployed in North America and other parts of the world that I think it's better we refer to that as the market is still in a very dynamic situation.
Speaker Change: I don't know much about but I read about them.
Speaker Change: It seems that it required <expletive> ton of cooling as you said in your Investor day, but are you seeing that exact dynamic in your book to Bill.
Bill: Yes, without going to too much into into the details and the.
Bill: The direction and industry is growing certainly not defined by a single quarter worth of odors or does mix. We have we are happy with our with our with the trajectory of liquid cooling, but when and when we look in general too.
Bill: Look in general.
Jordan: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at www.profile-investment.com.
Bill: The mix of our bookings, we've seen balanced accruals across our portfolio.
Bill: The cooling the power.
Bill: Sure.
Bill: The modular service, so a pretty balanced picture.
Bill: Pick back to what we are saying is that there is an element of.
Bill: Tam expansion on the thermal on the thermal side of cooling side as we said when we were talking about moving between 253.
Bill: Millions per megawatt to 335, so that is probably also something that one may.
Giordano Albertazzi: So, um, second and third question. So on the orders and backlog, I go back as I'm not so surprised, Steve. So second and third question.
Bill: Soon underline but again.
Bill: It's early in.
Bill: Lets say just looking at one quarter, but we are happy about the trajectory of <unk>.
Giordano Albertazzi: Backlog, we believe for the remainder of the year, will be on or above one when it comes to book to bill. Whether that happens, every quarter is a little bit premature to say that there are a lot of dynamics. There are a lot of dynamics at play. Price, I go back to the comments we made in February, whereby we said, okay, well, we're not exposing price, we're talking about price cost, and we're satisfied with the price cost that we see, and certainly is consistent. On the one hand, with the guidance we are giving you now, obviously, but also it's consistent with the direction of travel and the vision that we shared with you at Investec. Okay, thanks a lot.
Bill: Liquid cooling orders.
Speaker Change: Okay, that's interesting and Joe as a follow up here.
Joe: Here is liquid cooling capacity is there anything, particularly complicated about the production processes.
The manufacturing is just kind of in your wheelhouse.
Joe: Or is it a little bit of a different animal.
Joe: Raising the risk profile of adding capacity.
Joe: We've been we've been manufacturing engineering designing a.
Joe: Thermal thermal management products across the board, whether its liquid whether its refrigerant, whether its a smaller or ginormous.
Joe: Chillers or whatnot.
So.
Joe: Certainly.
Joe: It takes a know how Budd, we see and know how of that is <unk>.
Joe: Consistent with.
Joe: With our experience and certainly also.
Benefiting from the experience of <unk>.
Jordan: Thank you. Our next question comes from Scott Davis of Melius Research. Scott, please go ahead.
Joe: <unk>.
<unk>, we on boarded recently, but all in all we see.
Joe: Feel we feel confident in.
Scott Reed Davis: Hey, good morning, everybody.
Giordano Albertazzi: [inaudible] I know this is a little bit of an obvious question, perhaps, but, you know, a little color would be helpful. And as it relates to your bookkeeping, the percentage of cooling is a percent of your. You know, these new chips like the... It seems that they require a hell of a lot of cooling, as you said in your investor day, but are you seeing that? [inaudible] Without going too much into the details and the direction in which the industry is going, certainly not defined by a single quarter's worth of orders next.
Joe: In the consistency of this technology with what we have learned over the decades.
Speaker Change: Okay. That's helpful. I'll pass it on and best of luck guys and congrats on a good start thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Andy Kaplowitz Citigroup on the please go ahead.
Andrew Kaplowitz: Good morning, everyone.
Andrew Kaplowitz: Hum.
Andrew Kaplowitz: About whats going.
Andrew Kaplowitz: Morning can you talk about what's going on by region. You mentioned, some encouraging low single digit growth in China. So has it turned the corner there and then as India, becoming big enough, where it now matters from your Asia Pac growth moving forward.
Andrew Kaplowitz: Well in general we clearly.
<unk> 2023 with about 55% of our revenue.
Andrew Kaplowitz: In the Americas.
Andrew Kaplowitz: Is and continues to be.
Giordano Albertazzi: We are happy with the trajectory of liquid cooling, and when we look in general at the mix of our bookings, we see it balanced across our portfolio, the cooling, the power, the modular, the service, so a pretty balanced picture. Think back to what we are saying is that there is an element of time expansion on the thermal side, the cooling side, as we said when we were talking about moving between two, five, three millions per megawatt to three, three, five, so that is probably also something that one may assume, underline. But again, it's early in, let's say, just looking at one quarter, but we are happy about the trajectory of our liquid cooling orders.
Andrew Kaplowitz: The biggest region and if you think about AI. So there is it predominantly in America.
Andrew Kaplowitz: Americas in North America.
Andrew Kaplowitz: Americans, who will continue to be very very very strong.
Andrew Kaplowitz: We like we like what we see in Asia David was.
Andrew Kaplowitz: Explaining the situation in <unk>.
Andrew Kaplowitz: In China so.
Andrew Kaplowitz: Some encouraging early early signs, but but early early to say.
Again.
Andrew Kaplowitz: EMEA I wanted to talk in terms of what the.
Andrew Kaplowitz: Impact is we start to see some movements in Asia.
Andrew Kaplowitz: India is an important.
Andrew Kaplowitz: Location for us it is important to patients in terms of manufacturing capabilities and capacity.
Andrew Kaplowitz: So.
Andrew Kaplowitz: We are pretty optimistic that.
Andrew Kaplowitz: I will eventually rollover and activate demand.
Andrew Kaplowitz: Also also in Asia.
Giordano Albertazzi: Okay, that's interesting. And Gio, as a follow-up to your liquid cooling capacity, is there anything particularly complicated about the production processes so that the manufacturing is just kind of in your wheelhouse? Or is it a little bit of a different animal?
Speaker Change: Yeah, maybe a little bit behind.
Speaker Change: Yeah.
Speaker Change: So I'll take that.
Speaker Change: <unk> commented upon something like nine to 12 month lag.
Giordano Albertazzi: You know, raising the risk profile of adding capacity?
Speaker Change: Yes.
Speaker Change: And again, we two months later, that's what we see unfolding.
Speaker Change: And just a quick follow up I think we know at Hyperscale or as Youre doing in November you mentioned the split in revenue I think was 50 50 with with enterprise is that now putting more to hyperscale or has given their growth.
Giordano Albertazzi: We've been manufacturing, engineering, and designing thermal management products across the board, whether it's liquid, whether it's refrigerant, whether it's small or ginormous chillers or what not. So certainly, you know, it takes our know-how, but we see a know-how that is consistent with our experience and certainly also benefiting from the experience of all the Cloutier team we have onboarded recently, but all in all, we feel confident in the consistency of this technology with what we have learned.
Speaker Change: And are the enterprise customers doing.
Speaker Change: So.
Speaker Change: <unk>.
Speaker Change: Just just to caveat that question when we talk about hyper scale is we typically combined hyperscale and colocation.
Speaker Change: Yeah.
Speaker Change: The separate numbers, so it's that kind of the big players.
Speaker Change: A lot of acceleration as I said last time that was happening in that part of the business. So.
Speaker Change: So we also in November when we gave our.
Speaker Change: And our prediction or our projection of the market dynamics, we saw that part of the market to accelerate the most and that's still what we see.
Speaker Change: And so very happy with what we indicated.
Giordano Albertazzi: That's helpful. I'll pass it on. Best of luck, guys. And congratulations on a good start. Thank you. Thank you. Our next question comes from Andy Klapperwitz of Citigroup. Andy, please go ahead. Good morning, everyone.
Speaker Change: Back then.
Speaker Change: Eventually convinced.
Jordan: Our next question comes from Andy Klapperwitz of Citigroup. Andy, please go ahead. Good morning, everyone. Good deal. Can you talk about what's going on? Good morning. Can you tell me what's going on by region?
Speaker Change: Adi.
Speaker Change: Acceleration in your packs will will benefit the enterprise lots of them, but.
Speaker Change: When that is happening is we are still a bit premature to say and for the time being we go back to the.
Andrew Kaplowitz: Well, in general, we clearly closed 2023 with about 55% of revenue in the Americas, so the Americas is and continues to be the biggest region. And if you think about AEI federated predominantly in the Americas, North America, the Americas will continue to be very, very, very strong. And Gio, just a quick follow up.
Speaker Change: The the range that we gave back then enterprise and distributed around 3% to 5%.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Mark Delaney of Goldman Sachs.
Yes, thanks very much for taking the question I think incremental margins are tracking to be in the high 30% range for 2024 based on the new annual guidance compared to the mid 30% range that had been assumed previously does that type of leverage in the high 30% range something that might be sustained beyond 2020 for especially with <unk> bookings and backlog covers given it.
Speaker Change: More visibility and likely put it in a better position to execute on price cost.
Speaker Change: Yes. So this is David.
For the full year, our incremental is estimated to be right around 40%. It was 62% in the first quarter.
David: We guided to 38% in the second quarter and that does ramp down as you go through the year.
David: Primarily driven by some more challenging comparable from a contribution margin.
David: Year over year.
David: In the second half, but we're certainly pleased.
David: With those incrementals that we're guiding to and consistent with what we said in the November Investor Day.
David: Our long term target is to get to 20% plus.
David: And that's in the timeframe of 26 to 28.
David: If we get there earlier in that period in 2006, we estimate mid 30.
David: Incrementals, maybe a little bit south of that if it's 27%.
Giordano Albertazzi: I think we know what hyperscalers are doing. In November, you mentioned the split in revenue, I think it was 50-50 with enterprise. Is that now tilting more to hyperscalers given their growth? What are the enterprise customers doing? So we, just to caveat that question, when we talk about hyperscalers, we typically combine hyperscalers and co-location. So we do not give separate numbers.
David: Or 28, but of course, those incrementals become a little bit more challenging every year.
David: That we do increase that contribution margin, but.
David: We're still very optimistic that we'll be able to hit that long term range.
David: In that time frame.
Speaker Change: Thanks, David Thats helpful. Context, then my other question was thinking about the addressable market opportunity you talked about the whole powertrain on slide five of your deck.
Giordano Albertazzi: So it's that kind of big players. A lot of acceleration, as I said last time, is happening in that part. So we also, in November, when we gave our projection of market dynamics, we saw that part of the market accelerate the most. And that's still what we see, and so I'm very happy with what we indicated back then. Eventually, I'm convinced the AI acceleration and impact will benefit the enterprise. But when that happens, it's still a bit premature to say, and for the time being, we go back to the range that we gave back then: enterprise and distributed IT around 3 to 5%.
Speaker Change: And.
Speaker Change: You should have various a variety of opportunities to address maybe you can help us understand how much of that addressable market vertical conserve today and are there areas you can augment with either R&D or perhaps tuck in M&A to improve.
Speaker Change: Sam you are addressing.
Speaker Change: Two aspects.
Speaker Change: <unk> been vocal about what we think the Tampa megawatts somebody that there was this thing to say.
Speaker Change: We believe.
Speaker Change: It will be.
Speaker Change: Available for us.
I wanted to remind everyone we.
Speaker Change: We believe we have the most complete port.
Speaker Change: Portfolio.
Speaker Change: Did you give critical infrastructure.
Speaker Change: But again.
Speaker Change: The Tam debt.
Speaker Change: Is on the traditional let's say data center design at two five to three.
Speaker Change: <unk> megawatts.
Speaker Change: Going up a half half a million with.
Jordan: Our next question comes from Mark Delaney of Goldman Sachs.
Speaker Change: With AI.
Speaker Change: And in high density.
Mark Delaney: Yes, thanks very much for taking the question. I think incremental margins are now tracking to be in the high 30% range for 2024 based on the new annual guidance compared to the mid 30% range that had been assumed previously. Is that type of leverage in the high 30% range something that might be sustained beyond 2024, especially with Vertiv's bookings and backlog giving it more visibility and likely putting it in a better position to execute on price costs?
Speaker Change: That's what we see and of course as you know and as we've said several times, we are continuing to invest in it.
Speaker Change: In engineering and R&D.
Speaker Change: Of.
Approximately 13%.
And and.
Speaker Change: Clearly acquisitions.
Speaker Change: And acquisitions.
Speaker Change: Certainly as we have demonstrated.
David J. Fallon: Yeah, so this is David. For the full year, our incremental is estimated to be right around 40%. It was 62% in the first quarter. We guided 38% in the second quarter, and that does ramp down as you go through the year. Primarily driven by some more challenging comparables from a contribution margin year over year in the second half, but we're certainly pleased with those incrementals that we're guiding to and consistent with what we said at November Investor Day.
Speaker Change: The quarter that enabled us to add technologies.
Speaker Change: To our portfolio.
Speaker Change: It is.
Speaker Change: Something that is part of our capital allocation strategy, but again, it's never it's never binary is like.
Speaker Change: That technology is that we work on organically and sometimes that organic then the matches very well.
Speaker Change: Organic opportunity and again instead of speculating about the future.
David J. Fallon: You know, our long-term target is to get to 20% plus AOP, and that's in the timeframe of 26 to 28. If we get there earlier in that period, in 26, we estimate mid-30 incrementals, maybe a little bit south of that, if it's 27, or 28. But of course, those incrementals become a little bit more challenging every year as we do increase that contribution margin, but we're still very optimistic that we'll be able to hit that long-term range in that timeframe.
Speaker Change: I would refer back to what we did with terra and liquid cooling by which we had.
<unk>.
Speaker Change: Direct sorry, an inorganic.
And we've gone acre, let's say orchestrated effort.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Andrew Open of Bank of America, Andrew. Please go ahead.
Andrew Kaplowitz: Yes, good morning, how are you.
Andrew Kaplowitz: Good good thank you get back to you Andrew.
Andrew Kaplowitz: Yes.
Andrew Kaplowitz: I would put out a press release on the Nvidia relationship can you comment.
Speaker Change: You know what.
Speaker Change: <unk>.
Speaker Change: Exactly the nature of the relationship are you being standardized from that product and also how are you guys getting ready for the Blackwell product you need to do anything technologically to be ready for higher power consumption there.
Giordano Albertazzi: Thanks, David, that's helpful context. My other question was thinking about the addressable market opportunity. You talked about the full powertrain on slide five of your deck and you showed a variety of opportunities to address. Maybe you can help us understand how much of that addressable market Vertiv can serve today, and are there areas you can augment with either R&D or perhaps Tuck and M&A to improve the SAM you're addressing? Thanks.
Speaker Change: Well, it's a multifaceted.
Speaker Change: Relationship and then the non shallow lets say thats certainly being part of the.
Speaker Change: Of the network.
Speaker Change: <unk> network of Nvidia, we should certainly essentially.
Speaker Change: From a commercial and go to market standpoint, there is an element of simplification of our liquid cooling but.
Jordan: In our space, we've been vocal about what we think the TAMP megawatts, that is probably the easiest thing to say, we believe will be available for us. I want to remind everyone that we believe we have the most complete portfolio of digital critical infrastructure. But again, a TAMP that is on the traditional, let's say, data center design at $2.5 to $3 million per megawatt, going up half a million with AI and high density.
Speaker Change: Very very importantly is the relationship that we have and I worked together at the engineering level. So.
Speaker Change: So it's a very very important when it comes to the future technologies.
Speaker Change: <unk>.
Speaker Change: Specifically backlog technology, it's clear.
Speaker Change: That's technology that requires nuclear pooling so.
Speaker Change: Thats also.
Speaker Change: The fact that we have now in the market a clear leader with something that is unique vocally liquid cooled as as a chip that will.
Speaker Change: Drive liquid cooling like recruiting to band it if you want to drill.
Speaker Change: Sure.
Speaker Change: Connect develops with what I've said about about liquid cooling that that is.
Jordan: That's what we see and of course as you know and as we said several times, we are continuing to invest in engineering and R&D, a CAGR of approximately 13% and acquisitions, and acquisitions certainly as we have demonstrated with Coulter that enable us to add technologies to our portfolio is something that is part of our capital allocation strategy but again, it's never binaries like technologies that we work on organically and sometimes that organic then matches very well an inorganic opportunity and again, instead of speculating about the future and I would refer back to what we did with Coulter and liquid cooling by which we had both an inorganic and an organic, let's say orchestrated effort.
Speaker Change: Jim.
Speaker Change: Is that a legitimate.
Speaker Change: In terms of our portfolio our portfolio is a portfolio for the next generation.
Speaker Change: And next generation statement, there would be more generations and we talked in several locations about.
Speaker Change: As such a level going into two phase instead of just a single phase liquid cooling.
Speaker Change: And again as we then locally.
Speaker Change: <unk>, explaining we are on that part of the technology as well.
Speaker Change: Got you and as we think about the ramp of this new technology right. Because I think it was of last year. It was fairly small percentage of your portfolio and I completely understand how youre very well positioned to continue to have very strong position there from a technology standpoint.
Speaker Change: Is this ramp in technology do you need to invest and the question we get from investors basically.
Speaker Change: Given that it's brand new technology should we expect it to be margin dilutive at least in the first stages as you ramp up to full production. Thank you.
Speaker Change: So.
Speaker Change: This was a small and in the past and Jennifer for the for the industry is that the.
Jordan: Our next question comes from Andrew Obin of Bank of America. Andrew, please go ahead.
Speaker Change: The current the current <unk>.
Speaker Change: Generations can very well be air cooled so.
Andrew Burris Obin: I guess so. Good morning. How are you?
Speaker Change: So the majority of the deployments.
Giordano Albertazzi: Good, good. Thank you. Good day to you, Andrew.
Speaker Change: GPU.
Giordano Albertazzi: You guys put out a press release on the NVIDIA relationship. Can you comment? Unknown Speaker, what exactly is the nature of the relationship?
Speaker Change: Air cooled using the infrastructure exists and that's true across the industry or I don't know if thinking about the relative here when it comes to the investment in in CDU capacity.
And I refer back to our February earnings call well that is it's pretty well explained.
Giordano Albertazzi: Are you being standardized on that product? And also, how are you guys getting ready for the Blackwell product? Do you need to do anything technologically to be ready for higher power consumption there?
Speaker Change: And we are progressing.
Speaker Change: Capacity.
Speaker Change: Capacity growth.
Giordano Albertazzi: Well, it's a multi-faceted relationship. And, in a nutshell, I would say that certainly being part of the network, the partner network of NVIDIA, which is certainly essential from a commercial and go-to-market standpoint, there is an element of certification of our liquid cooling. But very, very importantly is the relationship that we have working together at engineering level. Connect the dots with what I said about liquid cooling; that is a legitimate question. But in terms of our portfolio, our portfolio is the right portfolio for the bank.
Speaker Change: <unk>.
Speaker Change: When it comes to margins.
Speaker Change: So the new technology.
Speaker Change: What we indicated.
Already back then is the margin profile that we see is consistent with with with our thermal business certainly consistent with the with the long term trajectory to 20 plus percent that we shared with you.
Speaker Change: As our as our long ago.
Speaker Change: Fantastic. Thank you so much.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from Nigel Coe of Wolfe Research module. Please go ahead.
Nigel Coe: Thanks, Good morning, everyone.
We're kind of on the ground, but some.
Nigel Coe: Hey, guys. So there's quite a few investor questions out there on the backlog aging how much of the backlog is set for 2025 and beyond so maybe some color on that would be helpful.
Nigel Coe: My question was really more about maybe some color on the on Prem you mentioned, so let's see let's see.
Nigel Coe: A lot of the.
Nigel Coe: Our focus right now is on the AI Gpus in the hyper scales, but so what are we seeing on the on Prem.
Nigel Coe: And then finally, the other thing that caught my attention was the capacity increase on switch gear. So I'm just wondering what that doubling in capacity sort of underwrites in terms of your outlook for Eni for the next couple of years.
Giordano Albertazzi: And next generation, there will be more generations. And we talked in several locations about such a level going to two phase, sort of just a single phase liquid cooling. And, and again, as we have been vocally and publicly explaining, we are on that part of the
Speaker Change: [laughter] three in one thank you. Thank you Nigel so when it comes to the backlog agent we will not.
Speaker Change: And I'll go go too much into details.
Speaker Change: About.
Speaker Change: The indication we have is.
Giordano Albertazzi: Gotcha. And as we think about the ramp of this new technology, right, because I think as of last year, it was a fairly small percentage of your portfolio, and I completely understand how you're very well positioned to continue to have a very strong position there from a technological standpoint. But is this a breakthrough in technology? Do you need to invest? And, you know, the question we get from investors, basically, given that it's a brand new technology, should we expect it to be margin dilutive, at least in the first stages as you ramp up to full production?
Speaker Change: We have an element tells us stretching a little bit of all the requests on the requested delivery dates and lead times that makes our hour.
Speaker Change: It makes our coverage.
Speaker Change: Longer.
Speaker Change: Prem versus high for coal certainly we see this.
Speaker Change: Stage the acceleration in.
Speaker Change: Dominantly in Hyperscale.
Speaker Change: And the Colo type of.
Speaker Change: Cloud.
Speaker Change: High density.
Speaker Change: But yes.
Data Center World.
Speaker Change: Predominantly.
Giordano Albertazzi: So, the fact is, what's small in the past, in general, for the industry, is that the current generations can very well be air-cooled. So the majority of deployments of a GPU were air-cooled using the infrastructure existing. That's true across the industry. I'm not talking about Vertiv here. When it comes to the investment in CPU capacity, I refer back to our February earnings call. Well, that was pretty well explained. And we are progressing in that capacity growth.
Speaker Change: And mainly in enterprise and enterprise type type of show was a very very very crowded so.
Speaker Change: Leave it to that.
Speaker Change: When it comes to switch gear and <unk> bug.
Speaker Change: We're very happy and again.
Speaker Change: That is testament to the importance of the acquisition to make sure that we really have the entire portfolio.
And the entire apollo's powertrains for medium voltage.
Speaker Change: Switch gear, all the way to <unk>.
Speaker Change: Distribution and insight rack.
Speaker Change: P dos.
Speaker Change: Okay I'll leave it there just one question.
Speaker Change: Thanks.
Speaker Change: Got it.
Speaker Change: Our next question comes from Nicole <unk> of Deutsche Bank Nicole. Please go ahead.
Giordano Albertazzi: When it comes to margins, certainly in new technology, what we indicated way back then is the margin profile that we see is consistent with our thermal business, certainly consistent with the long-term trajectory to 20 plus percent that we shared with you as our long-term objective.
Nicole: Yes, thanks, good morning, guys.
Nicole: Good morning.
Nicole: I guess, maybe just when you guys based on what you've received from an order perspective related to AI. So far has that been mostly focused on upgrades of existing data centers or would you say, it's kind of a balance between that and actual new AI data center construction.
Nicole: We feel a bit of two but is still predominantly a new data center for the time being.
Jordan: Fantastic. Thank you so much.
Nigel Coe: Our next question comes from Nigel Coe of Wolfe Research. Nigel, please go ahead.
Yeah.
Nicole: Okay got it that's clear and then I guess.
Nicole: With respect to.
Giordano Albertazzi: Thanks, good morning everyone. Hey guys, there are quite a few investor questions out there on the backlog aging, you know, how much of the backlog is set for 2025 and beyond, so maybe some color on that would be helpful. My question was really more about maybe some color on the on-prem. Gio, you mentioned that obviously, a lot of the focus right now is on the AI, GPUs, and the hyperscales.
Nicole: The outlook for order growth I know you guys had in the slides that you are expecting like sequentially down Q on Q. It makes sense I guess, what gives you conviction that there was a pull forward.
Nicole: I mean, obviously like every time, we look at data Center Capex continues to revise higher why do you think it was a pull forward into Q2 was that a direct customer comment and any other color on like quantifying the level of order growth you guys are expecting in <unk> I know im trying to pin you down, but there's obviously a lot of investor sensitivity to like expectations.
Giordano Albertazzi: But what we're seeing on the on-prem side. And then, finally, the other thing that caught my attention was the capacity increase on Switchgear. So I'm just wondering what that doubling in capacity sort of underwrites in terms of your outlook for ENI over the next couple of years.
Nicole: Into the next quarter. Thank you.
Absolutely.
Speaker Change: Uh huh.
Speaker Change: Yes.
Speaker Change: The commercial side of things, it's not an exact science, let's put it this way we tried to make the.
Giordano Albertazzi: Three in one. Thank you. Thank you, Nigel. So, when it comes to the backlog agent, we will not, you know, go too much into details, but the indication we have is that we have an element of a stretch, a little bit of all the requests, on the request for delivery dates and lead times that makes our coverage longer. So, I leave it to that. When it comes to switchgear and busways, and busbars, we're very happy.
Speaker Change: Science statistically relevant using pipelines and stats on the pipeline. So what we call an order that lands in Q2.
Speaker Change: It's probably very grounded, but there are things that are not necessarily in our control couture any other moment of time, so what we do is.
Speaker Change: Be very diligent in the way, we manage pipelines and very diligent in the way, we analyze pipelines discipline, sometimes that characterize pipeline last quarter Q4, and I was vocal about that was that an acceleration.
The time it takes to in order to.
Speaker Change: Particularly as you start to become an order and we see statistically the same is true here not happy about the we are happy about the our pipeline side.
Speaker Change: From there to make an exact statement of what the future will look like is difficult, but that's our comments about.
Giordano Albertazzi: And again, that is testament to the importance of the acquisition, to make sure that we really have the entire portfolio and the entire power train, from medium voltage switchgear all the way to distribution and inside the rack.
Speaker Change: Pull ins if you will.
Speaker Change: Statistically based on things happening more rapidly than.
Speaker Change: Historically, they've had if it makes sense.
Speaker Change: Yeah, Thanks, I'll pass it on.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Our next question comes from Noah Kaye of Oppenheimer. Please.
Noah Kaye: Please go ahead.
Good morning, Thank you I would like to just maybe revisit marks question around the relationship between.
Giordano Albertazzi: Okay, I'll leave it there. Just one question. Thanks.
Jordan: Thank you. My next question comes from Nicole DeBlase of Deutsche Bank. Nicole, please go ahead.
Noah Kaye: The longer.
Noah Kaye: Lead time on the orders.
Noah Kaye: <unk> margins. The company has done so much work over the last year plus to improve management processes around pricing and sourcing so as we see this backlog continuing to grow.
Nicole DeBlase: Yeah, thanks. Good morning, guys. Anyone need help? I guess maybe just when you guys... Based on what you've received from an order perspective related to AI so far, has that been mostly focused on upgrades of existing data centers, or would you say it's kind of a balance between that and actual new AI data center construction?
Noah Kaye: How are you protecting margins and backlog do we indeed have higher visibility to the margin profile.
Noah Kaye: Okay.
Noah Kaye: We have multiple times have indicated.
Giordano Albertazzi: We feel a bit of a lag between the two, but it is still predominantly a new data center for the timing.
Noah Kaye: And been vocal about.
Noah Kaye: Our strengthened and continuously strengthening.
Noah Kaye: <unk> muscles.
Noah Kaye: And that also includes.
Giordano Albertazzi: Okay, I got it. That's clear.
Noah Kaye: <unk> bin.
Factoring in dynamics on the on the material cost side of the equation and factoring in our targets of price cost.
Noah Kaye: Positivity, if you will but also in in terms of better contractual that's a contractual tons that allow us to react to something that is.
For full.
Forecasted well that's also.
It's a it's a commercial relation commercial relationship, but we are.
Giordano Albertazzi: And then I guess, with respect to the outlook for order growth, I know you guys said in the slide that you're expecting, like, sequentially down Q on Q makes sense. But, what gives you conviction that there was a pull forward? Like, I mean, obviously, every time we look at data center cutbacks, it continues to revise higher. Why do you think it was a pull forward into 2Q? Was that a direct customer comment?
Giordano Albertazzi: And any other color on, like, quantifying the level of order growth you guys are expecting in 2Q? I know I'm trying to pin you down, but there's obviously a lot of investor sensitivity to, like, expectations into the next quarter.
Noah Kaye: And a much stronger place than that.
Noah Kaye: And then we run we are happy with the trajectory on which we we are in the actions on the.
Noah Kaye: And the mechanisms that we have implemented in the way, we price and approved products.
Noah Kaye: Okay.
Speaker Change: Thank you June interrelated housekeeping item.
Speaker Change: The guide.
Speaker Change: Last quarter was for $60 million positive price cost for the year.
Speaker Change: Is it fair to say that is still the assumption.
Speaker Change: Any changes to that is it also possible to say what it was for <unk>.
Speaker Change: Yeah.
Speaker Change: Hi.
Speaker Change: Our expectation for full year has not changed significantly from what we shared.
Speaker Change: In the first quarter if anything.
Speaker Change: Trending.
Speaker Change: Bit more favorable but not significantly.
Speaker Change: And that's going to be different.
Speaker Change: Okay.
Alright, perfect. Thank you both.
Speaker Change: Thanks Bill.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Joe <unk> for any closing remarks.
Joe: Well. Thank you. Thank you everyone for your questions multiple questions.
Joe: But first and foremost I'd like to thank the vertical team around the world.
Joe: On innovation customer service and execution is certainly something that is it is very possible and strong.
Giordano Albertazzi: Thank you. Absolutely. I mean,
Speaker Change: Thank you for the progress.
Giordano Albertazzi: Absolutely. I mean, the commercial side of things is not an exact science. Let's put it this way. We try to make the science as statistically relevant as possible using pipelines and stats on the pipeline. So what we call an order that lands in Q2, probably very grounded, but there are things that are not necessarily in our control or any other moment of time. So what we do is be very diligent in the way we manage pipelines and very diligent in the way we analyze pipelines.
Speaker Change: Thanks for joining us today.
Speaker Change: And we really appreciate everybody's support and have a very good day.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [music].
Speaker Change: Yeah.
Yeah.
Giordano Albertazzi: Something that characterized Pipeline last quarter, in Q4, and I was vocal about that, was an acceleration. So the time it takes for an order to be placed, to an opportunity, sorry, to become an order. And we see, statistically, the same is true here. Now, we're happy about our pipeline side, but from there, to make an exact statement of what the future will look like is difficult, but our comments about pull-ins, if you will, are statistically based on things happening more rapidly than historically they've had, if you'll.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Giordano Albertazzi: Yeah, thanks to you. I'll pass it on.
Jordan: Our next question comes from Noah Kay of Oppenheimer. Noah, please go ahead.
Noah Duke Kaye: Good morning. Thank you.
Giordano Albertazzi: I would like to revisit Mark's question around the relationship between the longer lead time on orders and margins. The company has done so much work over the last year plus to improve management processes around pricing and sourcing. So as we see this backlog continuing to grow, how are you protecting margins and the backlog? Do we indeed have higher visibility into the margin profile?
Giordano Albertazzi: We multiple times have indicated and been vocal about our strengthened and continuously strengthening pricing muscles muscle and that also includes being factoring in dynamics on the on the material cost of side of the equation that factoring in our target of price cost positivity if you will but also in in terms of better contractual better contractual terms that allow us to react to something that is is unforecasted well that's also it's a it's a commercial relation per commercial relationship but we we are you know in a much stronger place than than we were and we're happy with the trajectory We are and the actions and the mechanisms that we have implemented in the way we price an approved project.
Giordano Albertazzi: Our expectation for the full year has not changed significantly from what we shared in the first quarter. If anything, trending, you know, a little bit more favorable, but not significantly, not significantly different.
Giordano Albertazzi: Thank you, Gio. In a related housekeeping item, you know, the guide last quarter was for $60 million in positive price costs for the year. Is it fair to say that's still the assumption? Any changes to that? Is it also possible to say what it was for one gift?
Giordano Albertazzi: This concludes our question and answer session. I'd like to turn the conference back over to Giordano Albertazzi for any closing remarks.
Giordano Albertazzi: Well, thank you. Thank you, everyone, for your questions, many questions. But first and foremost, I'd like to thank the Vertiv team around the world. You know, the focus on innovation, customer service, and execution is certainly something that is very palpable and strong.
Giordano Albertazzi: So thank you for the progress. Thanks for joining us today. And we really appreciate everybody's support. Have a very good day.
Jordan: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.