Q2 2024 Vertiv Holdings Co Earnings Call
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Brika: Good morning, my name is Brika, and I will be your conference operator. At this time, I would like to welcome everyone to the Vertiv second quarter 2024 earnings conference. All lines have been placed on mute to prevent any background noise.
Operator: Good morning, my name is Breaker, and I will be your conference operator today.
Brika: Good morning, my name is Brika and I will be your conference operator today.
Operator: At this time, I would like to welcome everyone to Vertiv's second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. Please note that this call is being recorded.
Unknown Speaker: Please note that this call is being recorded. I would now like to turn the program over to your host for today's conference call, Lynne Maxeiner, Vice President of Investor Relations. Great, thank you, Brita.
Lynne Maxeiner: I would now like to turn the program over to your host for today's conference call, Lynne Maxeiner, Vice President of Investor Relations.
Unknown Executive: Great, thank you, Lisa.
Lynne M. Maxeiner: Good morning, and welcome to Vertiv's second quarter 2024 earnings conference call. Joining me today are Vertiv's Executive Chairman Dave Cote, Chief Executive Officer Giordano Albertazzi, and Chief Financial Officer David Fallon. Before we begin, I would 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.
Speaker Change: Great. Thank you good morning, and welcome to verdict second quarter 2024 earnings Conference call. Joining me today are verdicts executive Chairman, Dave Cody Chief Executive Officer to your daughter, Albert Halsey and Chief Financial Officer, David Fallon before we begin I would like to point out that during the course of this call we will make forward.
Lynne Maxeiner: Good morning, and welcome to Vertiv's second quarter 2024 earnings conference call. Joining me today are Vertiv's Executive Chairman, Dave Cote, Chief Executive Officer, Giordano Albertazzi, and Chief Financial Officer, David Fallon. Before we begin, I would 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. It 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 FTC.
Lynne M. 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.
Speaker Change: Looking statements regarding future events, including the future financial and operating performance of <unk>. 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.
Speaker Change: For 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.
Lynne Maxeiner: 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.
Lynne Maxeiner: During this call, we will also present both GAF and non-GAAP funding financial measures. Our GAF results and GAF-to-non-GAP recommendations can be found in our earnings press release, and in the investor side that is found on our website at investors.vertiv.com.
David M. Cote: During this call. We will also present, both GAAP and non-GAAP financial measures, our GAAP results and GAAP to non-GAAP reconciliations can be found in our earnings press release and in the Investor Slide deck found on our website at investors not murder Dot com with that I'll turn the call over to executive Chairman David Cody.
Lynne M. 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. Good morning, everyone.
Dave Cote: With that, I'll turn the call over to Executive Chairman, Dave Cote.
Dave Cote: I'm on it, everyone. Well, I am quite pleased with our continuing trend of very strong financial performance. As I think about what attracted me to Vertiv, it was a great position in a good industry. Unfortunately, it turned into a great position in a great industry. It was a lot of work to do to get the business moving in a direction to consistently drive value and increase returns to share owners. I have to say, Geo and his team have done an excellent job starting to unlock this potential. Initial science of progress and evidence in the financial metrics, strong orders and sales, and substantially increased profit and cash growth.
David M. Cote: Well, I am quite pleased with our continuing trend of very strong financial performance. As I think about what attracted me to Vertiv, it was a great position in a good industry. Unfortunately, it has turned into a great position in a great industry.
David M. Cote: Good morning, everyone.
Speaker Change: Well I am quite pleased with our continuing trend of very strong financial performance.
David M. Cote: So think about.
Speaker Change: What attracted me to <unk>.
David M. Cote: <unk> position in a good industry.
David M. Cote: Unfortunately, it turned into a great position in a great industry.
David M. Cote: There's a lot of work to do to get the business moving in the right direction, consistently drive value, and increase returns to shareholders. But I have to say Gio and his team have done an excellent job starting to unlock this potential. Initial signs of progress are evident in the financial metrics, strong audits and sales, and substantially increased profit and cash. A better operating company delivers better results. It's an interesting time, both in our industry and the world at large. Significant change is underway for both.
There's a lot of work to do to get the business moving in a direction to consistently drive value and increase returns to shareholders.
David M. Cote: I have to say, Joe and his team have done an excellent job starting to unlock this potential.
Speaker Change: Initial signs of progress are evidenced in the financial metrics strong orders and sales and substantially increased profit and cash flow are better.
Dave Cote: A better operating company delivers better results.
Speaker Change: A better operating company delivers better results.
Dave Cote: It's an interesting time both in our industry and the world at large. Significant changes underway for both. The industry is rapidly expanding and evolving, and Vertiv is well positioned to strengthen its market leadership with increasing R&D and capacity expansions to further distinguish our unique position as an industry leader. We're gaining market share in a rapidly growing industry as a result of our new products and significantly improved operations. At the same time, we're strengthening the resilience of our organization.
Speaker Change: It's an interesting time, both in our industry in the world at large significant changes underway for both the industry is rapidly expanding and evolving and <unk> is well positioned to strengthen its market leadership.
David M. Cote: The industry is rapidly expanding and evolving, and Vertiv is well-positioned to strengthen its market leadership with increasing R&D and capacity expansions to further distinguish our unique position as an industry leader. We're gaining market share in a rapidly growing industry as a result of our new products and significantly improved operations. At the same time, we're strengthening the resilience of our organization. 2024 is shaping up to be a great year and sets a very strong foundation for future years to deliver sustained value creation. So with that, I call over to GEO. Well, thank you. Thank you, Dave.
Speaker Change: Increasing R&D and capacity expansions to further distinguish our unique position as an industry leader.
Speaker Change: We're gaining market share in a rapidly growing industry as a result of our new products and significantly improved operations at the same time, we're strengthening the resilience of our organization.
Dave Cote: 2024 is shaping up to be a great year and such a very strong foundation for future years to deliver sustained value creation.
Jill: 2024 is shaping up to be a great year and so it's a very strong foundation for future years to deliver sustained value creation, so with that I'll turn the call over to Jill.
Giordano Albertazzi: So, with that, I'll turn the call over to Geo.
Giordano Albertazzi: Well, thank you, thank you, Dave, and we go to slide three. We had a very strong first half of 2024. The K2 Organic Sales were up 14%, met by America's with strong growth in India as well. We continue to see very strong gold as growth up 57% year on year and up 10% sequentially from a very high level in Q1. Look to build remains very high as well, with Q2 at 1.4x. More discussion to follow on this point on slide 5. Pipeline velocity has continued to increase, and we are seeing the acceleration in large orders.
Giordano Albertazzi: And we go to slide three. We had a very strong first half of 2024. The Q2 organic sales were up 14%, led by Americas, with strong growth in EMEA as well. We continue to see very strong order growth, up 57% year-on-year and up 10% sequentially from a very high level in Q1. Book to Build remains very high as well, with Q2 at 1.4X. More discussion to follow on this point on slide five. Pipeline velocity has continued to increase, and we are seeing the acceleration in large orders.
Jill: Well. Thank you. Thank you, Dave and when you go to slide three.
Jill: We had a very strong first half of 2024.
Jill: Organic sales were up 14% led by Americas with strong growth in EMEA as well, we continue to see very strong orders growth up 57% year on year and up 10% sequentially from a very high level in Q1.
Jill: Book to Bill remains very high as well with Q2 at one four ex.
Jill: All discussion to follow on this point on slide five.
Jill: Pipeline velocity has continued to increase and we are seeing the acceleration in large orders. The same dynamics. We shared with you in April continuing for large orders customers require a longer delivery dates than in the past, hence a lot of the orders are creating backlog.
Giordano Albertazzi: The same dynamics we shared with you in April are continuing for large orders. Customers require longer delivery dates than in the past. Hence, a lot of the orders are creating backlogs for 25 and beyond. Adjusted operating profit was $382 million, and adjusted operating margins expanded 510 basis points to 19.6%.
Giordano Albertazzi: The same dynamics we shed with you in April are continuing for large orders. Customers have required longer delivery dates than in the past. Hence, a lot of the orders are creating backlog in 25 and beyond. Adjusted operating profit was $382 million, and adjusted operating margins expanded by 110 basis points to 19.6%. As Dave mentioned, better operating companies deliver better results. Our adjusted free cash flow is another good story, generating $333 million in the second quarter. We are converting our profitability to very good cash flow performance. Our net leverage was 1.8x at the end of Q2, so well within our targeted range of 1-2x.
Jill: In 'twenty five and beyond.
Jill: Adjusted operating profit was $382 million and adjusted operating margins expanded 510 basis points to 19, 6%.
Giordano Albertazzi: As Dave mentioned, better operating companies deliver better results. Our adjusted free cash flow is another good story, generating $333 million in the second quarter. We are converting our profitability to very good cash flow performance. Our net leverage was 1.8x at the end of Q2, so well within our targeted range of 1 to 2x. We again raised our full-year guidance across all financial metrics and expect organic growth of 13%, adjusted operating profit of $1.435 billion, with margin expanding to 18.7%, and adjusted free cash flow of $875 million, up $50 million from previous guidance. Let's go to slide four now.
Jill: As David mentioned that your operating companies deliver better results.
Speaker Change: Our adjusted free cash flow is another good story generating $333 million in the second quarter, we are converting our profitability to very good cash flow performance.
David: Our net leverage was one eight X at the end of Q2, so well within our targeted range of one to two acts.
Giordano Albertazzi: We again raised our full year guidance across all financial metrics and expect organic growth of 13%. Adjusted operating profit of $1.435 billion, with margin expanding to 18.7%. And adjusted free cash flow of $875 million, up $50 million from previous guidance.
David: We again raised our full year guidance across all financial metrics and expect organic growth of 13% adjusted operating profit of $1 43, $5 billion with margin expanding to 18, 7% and adjust.
David: Free cash flow of.
David: $875 million up $50 million from previous guidance.
Giordano Albertazzi: Let's go to slide 4 now. You may recognize this slide. We wanted to use it once again to give a directional indication of what we are seeing in the market. By enlarged, the market remains quite healthy, and we see the continued acceleration of infrastructure built out in hyper scale and cooler markets. High density and liquid cooled chips are a reality, and this accelerates the demand for AI infrastructure. We see this happening in the Americas but also starting in India and Asia with some positive market signs for collocation and cloud in China as well. Enterprise remains stable, yet we expect to see AI positively impact enterprise over time, and this is starting in the Americas.
Giordano Albertazzi: You may recognize this slide. We wanted to use it once again to give a directional indication of what we are seeing in the market. By and large, the market remains quite healthy, and we see the continued acceleration of the infrastructure built out in the hyperscale and colo market. High-density and liquid-cooled chips are a reality, and this accelerates the demand for AI infrastructure.
David: Let's go to slide four now.
Speaker Change: You may recognize this slide we want to see.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: What we are seeing in the market.
Speaker Change: By and large the market remains quite healthy.
Speaker Change: And we see the continued acceleration of the infrastructure buildout in Hyperscale and coal markets.
Speaker Change: High density and liquid cooled chips.
Speaker Change: Our reality and this accelerates the demand for AI infrastructure, we see this happening in the Americas, but also start to EMEA and Asia with some positive market signs for Colocation and cloud in China as well.
Giordano Albertazzi: We see this happening in the Americas, but also starting in India and Asia, with some positive market signs for co-location and cloud in China as well. Yet, enterprise remains stable. Yet, we expect to see AI positively impact enterprises over time. And this is starting in America, Telecom remains subdued as CapEx spending has yet to fully rebound. However, commercial and industrial markets are healthy as there is a lot of infrastructure spending happening in America.
Speaker Change: Enterprise remains stable yet.
Speaker Change: We expect to see AI positively impact enterprise over time and this is starting in the Americas Telecom remains of subs subdued as Capex spending has yet to fully rebound commercial and industrial markets are healthy as there is a lot of infrastructure.
Giordano Albertazzi: Telecom remains subdued as capital spending has yet to fully rebound. Commercial and industrial markets are healthy as there is a lot of infrastructure spending happening in America. and APAC regions. So overall, the market environment is encouraging, especially for data centers, which represent 75% of our end market exposure. We have heard feedback from investors about the data center market becoming a more conspicuous place these days from a competitive standpoint. This is true, but we believe we have competitive advantages that are tangible, quite unique, and deemed further reinforced. As data centers become more critical, I believe Vertiv becomes even more distinguished.
Speaker Change: <unk> happening in the Americas, and APAC regions. So overall the market environment is encouraging, especially for data centers, which represent 75% of our end market exposure. We have heard feedback from investors about the data center market, becoming a mall because speakers place these days.
Giordano Albertazzi: So overall, the market environment is encouraging, especially for data centers, which represent 75% of our Unmarked Expo. We have heard feedback from investors about the data center market becoming a more conspicuous place these days, from a competitive standpoint. This is true, but we believe we have competitive advantages that are tangible, quite unique, and further. As data centers become more critical, I believe Vertiv becomes even more distinguished. We are not selling only one point product or only one small part of, say, the thermal chain.
Speaker Change: From a competitive standpoint. This is true, but we believe we have competitive advantages that are tangible quite unique and deemed further reinforced.
Speaker Change: As data centers become more critical I believe vertical becomes even more distinguished.
Giordano Albertazzi: We are not selling only one point product or only one small part of a, say, the thermal chain. We are selling the entire critical infrastructure data center. With power and cool and service data centers, we provide complete solutions. We act as the connective tissue between IT and facilities in a data center. It is a rare position in the industry, born of over 50 years of experience. We don't think this is easily replicated, and our orders are a good representation of our customers' trust in Vertiv. Certainly, there is intense focus on the liquid cooling portion of the market, and understandably so at this moment.
Speaker Change: We are not selling only one point product or only one small part of let's say the.
Speaker Change: Thermal chain, we're selling the entire critical infrastructure full data center with power and cooling and service data centers, we provide complete solutions, We act as the connective tissue between it and facilities in the data center.
Giordano Albertazzi: We're selling the entire critical infrastructure for data centers. We power and cool and service data centers. We provide complete solutions. We act as the connective tissue between IT and facilities in a day. It is a rare position in the industry born of over 50 years of experience.
Speaker Change: It is a rare position in the industry bone of over 50 years of experience. We don't think this is easily replicated in our orders are a good representation of our customers' trust in <unk>.
Giordano Albertazzi: We don't think this is easily replicated, and our orders are a good representation of our customers' trust in Vertiv. Certainly, there is intense focus on the liquid cooling portion of the market, and understandably so at this moment. Our advantages are clear. We have a comprehensive portfolio of liquid cooling technologies, direct to chip, immersion, in-row CDUs, in-rack CDUs, rear door heat exchangers, and we know how to integrate these key technologies into the entire thermal chain.
Speaker Change: Certainly there is intense focus on the liquid cooling portion of the market and understandably. So at this moment.
Giordano Albertazzi: Our advantages are clear. We have a comprehensive portfolio of liquid cooling technologies, direct chip immersion in roadside use, in raxid use, rear door heat exchangers, and we know how to integrate these key technologies into the entire thermal chain solution. This differentiates data. We continue to see data to chip as our customers' prevailing technology of choice, and we have a complete portfolio of technology solutions ready for deployment. So, rounding this is a global service organization with almost 4,000 field service engineers. We talk in minutes and hours to get to a customer side. It is very important to our customers to have local service support.
Speaker Change: Our advantages are clear we have a comprehensive portfolio of liquid cooling technologies directed ship immersion in row Cpus in rack Cpus via door heat exchanges, and we know how to integrate these key technologies into the anti thermal change solution.
Giordano Albertazzi: This differentiates. We continue to see direct-to-chip as our customers' prevailing technology of choice, and we have a complete portfolio of technology solutions ready for deployment. Surrounding this is a global service organization with almost 4,000 field service engineers. We talk in minutes and hours to get to a customer's side.
Speaker Change: This differentiates.
Speaker Change: We continue to see data to chip as our customers' prevailing technology of choice and we have a complete portfolio of technology solutions ready for deployment.
Speaker Change: Surrounding this is a global services organization with almost 4000 field service engineers, we talk in maintenance and <unk> to get to a customer side. It is very important to our customers to have local service support.
Giordano Albertazzi: It is very important to our customers to have local service, so we see market participants emerging with point products in liquid cooling, a small part of the overall thermal solution for a data center, but they have a far different profile than Vertiv. And I would say we aspire to be an even bigger player in liquid cooling. And we have very good reasons to believe our ambition is indeed.
Giordano Albertazzi: So, we see markets, the disciplines, and mergings with emerging with point products in liquid cooling, a small part of the overall thermal solution for a data center, but they have a far different profile than Vertiv. And, I would say, we're inspired to be an even bigger player in liquid cooling, and we have a very good reason to believe our ambition is indeed reasonable.
Speaker Change: We see market participants emergence.
The emerging with point products and liquid cooling a small part of the overall thermal solution for data center, but they have a different profile than vertically and I would say, we aspire to be an even bigger player in liquid cooling and we have very good reasons to believe our ambition is indeed reasonably.
Speaker Change: Paul.
Giordano Albertazzi: So, let's move to slide 5 now. Another quarter of extremely strong order growth. Pipelines velocity increased, and we continue to see AI scaling, especially in the Americas. The strength of orders is across our portfolio. Power management and thermal management orders grew at very similar rates in Q2, and both convincingly strong. There is a strong correlation between power and cooling, and we would expect that balance of sales in our portfolio to continue over time.
Giordano Albertazzi: So let's move to slide five now, another quarter of extremely strong order growth, pipeline velocity increased, and we continue to see AI scaling, especially in the Americas. The strength of orders is across our portfolio. Power management and thermal management orders grew at very similar rates in Q2, and both were convincingly strong.
Speaker Change: So let's move to slide five now.
Speaker Change: Another quarter of extremely strong order growth.
Speaker Change: Pipelines velocity increased and we continue to see AI scaling, especially in the Americas the strength of orders is across our portfolio.
Speaker Change: <unk> management and thermal management orders grew at very similar rates in Q2, and both convincingly strong there is a strong correlation between power and cooling and we would expect that balance of sales in our portfolio to continue over time this quarter we have into.
Giordano Albertazzi: There is a strong correlation between power and cooling, and we would expect that balance of sales in our portfolio to continue over time. This quarter, we introduced a trailing 12-month orders metric. As we have previously highlighted, there can be a natural variation to the timing of large orders in any given quarter. The Training 12-Month is a good metric to assess order activity, smoothing some of the quarter-to-quarter push and... We also know we have increasingly tough comparisons ahead.
Giordano Albertazzi: This quarter, we have introduced the Crayling 12-month-older's metronome. Patrick, as we have previously highlighted, there can be a natural variation to the timing of large orders in any quarter. Training for a month is a good metric to assess older activity, smoothing some of the quarter-to-quarter push and pulls. We also know we have increasingly tough comparisons ahead, and we believe we still see no double-digit orders growth in the third quarter on a year-on-year basis, but we expect a sequential decline in orders from an extremely high second quarter. This is where the training for month order metric can be helpful as we expect to stay in the third is a range indicating a very healthy and strong order trend supportive of our financial guidance.
Speaker Change: <unk> trailing 12 month orders metric.
Speaker Change: As we have previously highlighted there can be a natural variation to the timing of large orders in any quarter.
Speaker Change: Trailing 12 months is a good metric to assess odour activity smoothing some of the quarter to quarter push and pools.
Speaker Change: We also know we have increasingly tough comparisons ahead, and we believe we still see low double digit orders growth in the third quarter on a year on year basis, but we expect a sequential decline.
Giordano Albertazzi: And we believe we still see low double digit order growth in the third quarter on a year-on-year basis, but we expect a sequential decline in orders from an extremely high level. This is where the training 12 month order metric can be helpful as we expect to stay in the 30s range, indicating a very healthy and strong order trend supportive of our financial As mentioned, customer request dates have elongated for large projects in the hyper and color space in We view this as the industry wanting to manage this growth and technology transition in an orderly manner.
Speaker Change: In orders from an extremely high second quarter.
Speaker Change: This is where the trailing 12 month order metric can be helpful. As we expect to stay in the.
Speaker Change: Turkey is a range, indicating a very healthy and strong order trends supportive of our financial guidance.
Giordano Albertazzi: As mentioned, customer requests dates elongated for large projects in the hyper and color space in general, as the scale of deployments continues to increase. We view this as the industry wanting to manage this growth and technology transition in an orderly manner. As a consequence, a lot of the orders are for future years, and we feel good about how 2025 is shaping. Pipeline orders backlog: all three are positive in the same direction, and we like what we are seeing.
Giordano Albertazzi: As a consequence, a lot of the orders are for future years, and we feel good about how 2025 is shaping up, the pipeline, orders, and backlog, all three are positive in the same direction. And we like what we are. Let's now look at the right side of slide five.
Speaker Change: As mentioned customer request dates elongated for large projects in the hybrid Colo space in general as the scale of deployments continue to increase we view this as the industry wanting to manage this growth in technology transition in an orderly manner as a consequence a lot of the.
Orders for <unk>, and we feel good about how 2025 is shaping.
Speaker Change: Pipeline orders backlog all three positives in the same direction and we like what we're seeing.
Giordano Albertazzi: Let's now look at the right side of slide five. We continue to focus on with villains to navigate an increasingly complicated geopolitical environment; multi-sourcing strategies, risk identification, and mitigation plans are key to building supply chain resilience. We believe it is here to stay, as mentioned a few times. We price with this in mind and have a good process and governance in place to stay price cost positive. We continue to expand capacity, including having more modular and thermal management capacity in the Americas. Besides the expansion plans, we're really shared with you across the other technologies. The ramp up of liquid cooling production capacity globally continues, and it is quite encouraging.
Let's now look at the right side of slide five.
Giordano Albertazzi: We continue to focus on resilience to navigate an increasingly complicated geopolitical environment; multi-sourcing strategies, risk identification, and mitigation plans are key to building a supply chain with inflation. We believe inflation is here to stay, as mentioned a few times; we price with this in mind, and have a good process and governance in place to stay price cost positive. We continue to expand capacity, including adding more modular and thermal management capacity in the Americas, apart from the expansion plans we already shared with you across the other technologies. The ramp-up of liquid cooling production capacity globally continues, and it is quite encouraging.
Speaker Change: We continue to focus on resilience to navigate an increasingly complicated geopolitical environment multi sourcing strategies risk identification and mitigation plans are key to building supply chain resilience.
Speaker Change: We believe it is here to stay as mentioned a few times, we price with this in mind and have a good process and governance in place to stay price cost positive, we continue to expand capacity, including adding more modular and thermal management capacity in the Americas. Besides the.
Speaker Change: Expansion plans, we already shared with you across the other technologies the ramp up of liquid cooling production capacity globally continues and it is quite encouraging. This technology is in three of our plans today and we are on track to finishing 2024 with.
Giordano Albertazzi: This technology is in three of our plans today, and we are on track to finishing 2024 with 45 X capacity increase compared to baseline at the end of 2023. So we are investing at the same time as we are investing at the same time, vertical operating system continues to be a key driver to liberate footprint capacity to accommodate our growth trajectory. In the market growth faster, we will not constraint ourselves and we are diligent as we look at different demands scenarios. We believe our capital expenditure forecast of between 175 million and 200 million dollars will cover the scenarios needed to meet the demand trajectory.
Giordano Albertazzi: This technology is in three of our plans today, and we are on track to finishing 2024 with a 45x capacity increase compared to baseline at the end of 2020. So we are investing at the same time. As we are investing at the same time, the Vertiv operating system continues to be a key driver to liberate footprint capacity to accommodate our growth trajectory. If the market grows faster, we will not constrain ourselves, and we are diligent as we look at different demand scenarios. We believe our capital expenditure forecast of between $175 million and $200 million will cover the scenarios needed to meet the demand trajectory. Now go to slide six.
Speaker Change: 45 X capacity increase compared to baseline at the end of 2023. So we are investing at the same time.
Speaker Change: As we are investing at the same time vertical operating system continues to be a key driver to liberate footprint capacity to accommodate our growth trajectory.
Speaker Change: If the market goes faster, we will not constrain ourselves and we are diligent as we look at different demand scenarios, we believe our capital expenditure forecast of between $175 million and $200 million will cover the scenarios needed to meet the demand trajectory.
Speaker Change: Terry.
Giordano Albertazzi: Let's now go to slide six. You have heard of mention service as a differentiator and one not easily ready. and David Cote. Service is one of our superpowers. It demonstrates we have been in the data center industry for decades. Service represents 23% of our total sales last year. And additionally, the service business has the financial characteristics you would expect, including a strong margin profile that has been expanding. We like this part of the business a lot, and it is uniquely strong for Vertiv. Service opportunity is proportional to the critical nature of the application. In an AI, high-density world, criticality is increasing, and we believe service matters even more.
Speaker Change: Let's now go to slide six.
Giordano Albertazzi: You have heard of service as a differentiator and one not easily replicated. Service is one of our superpowers. It shows we have been in the data center industry for decades. Service represents 23 percent of our total sales last year. And additionally, the service business has the financial characteristics you would expect, including a strong margin profile that has been expanding. We like this part of the business a lot, and it is uniquely strong for Vertiv.
Speaker Change: You have heard us mentioned service as.
Terry: A differentiator and one not easily replicated.
Service is one of our Super pilots.
Terry: Demonstrates we have been in the data center industry for decades service represents 23% of our total sales last year and additional Additionally service business has the financial characteristics, you would expect including a strong margin profile that has been expanding with.
Terry: Like this part of the business and loss and it is uniquely strong for Virtu.
Giordano Albertazzi: Service opportunity is proportional to the critical nature of the application. In an AI-driven high-density world, criticality is increasing, and we believe service matters even more. The stakes are significantly higher. The value of each rack can be in the millions of dollars. The thermal management and power management systems are becoming more complex, and the nature of the load is more unforgiving.
Terry: Service opportunity is proportional to the critical nature of the application.
Speaker Change: And then Adi high density World Criticality is increasing and we believe service matters even more.
Giordano Albertazzi: The stakes are significantly higher; the value of each rack can be in the millions of dollars. The thermal management and power management systems are becoming more complex, and the nature of the load more unforgiving. Telemetry, predictive services, and an ability to have experts on sites in minutes or hours is essential. We are training our global service engineers proactively to be a partner of choice to help our customers navigate this complexity.
Speaker Change: The stakes are significantly higher the value of each rack can be in the millions of dollars with thermal management and power management systems are becoming more complex and the nature of the load more unforgiving telemetry predictive services and an ability to have expert.
Giordano Albertazzi: Telemetry, predictive services, and the ability to have experts on sites in minutes or hours are essential. We are training our global service engineers proactively to be a partner of choice to help our customers navigate these. In fact, I'm absolutely thrilled to share an exciting use case where Compass data centers has chosen Vertiv to provide full-time, site-based embedded Vertiv crews to do service management and predictive maintenance on some Compass data centers. The scale of data center deployment is becoming much larger. The value of dedicated service personnel on-site full-time is becoming absolutely clear. We thank COMPAS for their trust in Verti. So that's over to you then.
Speaker Change: On sites in maintenance or others is essentially.
Speaker Change: We are training our global service engineers proactively to get partners to be a partner of choice to help our customers navigate this complexity.
Giordano Albertazzi: In fact, I am absolutely thrilled to share an exciting use case where Compass Data Centers have chosen Vertiv to provide full-time site-based embedded Vertiv troops to do service management and predictive maintenance on some Compass Data Centers sites. The scale of data center deployment is becoming much larger; the value of the dedicated service personnel on site full-time is becoming absolutely compelling. We thank Compass for their trust in Vertiv.
Speaker Change: In fact <unk>.
Speaker Change: Absolutely thrilled to share an exciting use case, where compass datacenters have chosen relative to provide full time site based embedded relative truths to do service management and predictive maintenance on some complex data center sites.
Speaker Change: The scale of data center deployment is becoming much larger.
Speaker Change: The value of dedicated service personnel onside full time is becoming absolutely compelling.
Speaker Change: We think compass for their trust in <unk>.
Unknown Executive: That's over to you then.
Speaker Change: I oversee that.
Unknown Executive: Great.
David J. Fallon: Great, thanks. Thanks, Gio. And good morning, everyone. Turning to slide seven.
Unknown Executive: Thanks, Jim.
Speaker Change: Great. Thanks, Thanks, Joe and good morning, everyone.
Unknown Executive: Good morning, everyone.
David Fallon: Turning to slide seven. This slide summarizes our second quarter financial results. Our organic net sales increased approximately 14%, slightly above the high end of our guidance, primarily driven by, once again, strong performance in the Americas where organic sales were up 17% from prior year. Adjusted operating profit of $382 million was $131 million higher than last year, driven by the higher volume and improved variable contribution margin, which benefited from both year-over-year price cost and significant productivity gains. This improved productivity, which has been catalyzed by the continued implementation of VOS principles in our plants and within our functions, and notably procurement, was the primary driver for the $57 million B versus the midpoint of guidance and also a primary driver for the 510 basis point increase in adjusted operating margin to 19.6%.
Turning to slide seven this slide summarizes our second quarter financial results.
David J. Fallon: This slide summarizes our second quarter financial results. Our organic net sales increased approximately 14%, slightly above the high end of our guidance, primarily driven by, once again, strong performance in the Americas, where organic sales were up 17% from the prior year. Adjusted operating profit of $382 million was $131 million higher than last year, driven by higher volume and improved variable contribution margin, which benefited from both year-over-year price costs and significant productivity gains.
Speaker Change: Our organic net sales increased approximately 14% slightly above the high end of our guidance, primarily driven by once again strong performance in the Americas, where organic sales were up 17% from prior year.
Speaker Change: Adjusted operating profit of $382 million was $131 million higher than last year, driven by the higher volume and improved variable contribution margin, which benefit from both year over year price cost and significant productivity gains.
David J. Fallon: This improved productivity, which has been catalyzed by the continued implementation of VOS principles in our plants and within our functions, and notably procurement, was the primary driver for the $57 million beat versus the midpoint of guidance, and also a primary driver for the 510 basis point increase in adjusted operating margin to 19.6%, just 40 basis points short of our long-term target. We are seeing the benefits of an intense focus on operational execution across all parts of the business. And the exciting thing is that there's still a lot more to do. So, please stay tuned.
Speaker Change: This improved productivity, which has been catalyzed by the continued implementation of Pos.
Speaker Change: POS principles in our plants and within our functions and notably procurement was the primary driver for the $57 million beat versus the midpoint of guidance and also a primary driver for the 510 basis point increase in adjusted operating margin to 19, 6%.
David Fallon: Just 40 basis points short of our long-term target. We are seeing the benefits of an intense focus on operational execution across all parts of the business. And the exciting thing is that there's still a lot more to do.
Speaker Change: Just 40 basis points short of our long term target.
Speaker Change: We're seeing the benefits of an inch.
Speaker Change: Intense focus on operational execution across all parts of the business.
Speaker Change: And the exciting thing is that there's still a lot more to do so please stay tuned.
David Fallon: So, please stay tuned. Moving to the right, our second quarter adjusted due to DPS was 67 cents, 21 cents higher than last year, primarily driven by higher adjusted operating profit. We generated $333 million of adjusted free cash flow in the quarter, over a hundred million dollars better than last year. Our profitability and improved working capital, which declined to 17.1% of annualized second quarter sales.
David J. Fallon: Moving to the right, our second quarter adjusted diluted EPS was $0.67, $0.21 higher than last year, primarily driven by higher adjusted operating profit. We generated $333 million of adjusted free cash flow in the quarter, over $100 million better than last year, primarily due to higher profitability and improved working capital, which declined to 17.1% of annualized second quarter sales. Some of this trade working capital improvement was due to favorable timing, including advanced payments, which effectively shifted cash into the second quarter from the third and fourth quarters.
Speaker Change: Moving to the right our second quarter adjusted diluted EPS was <unk> 67, 21 higher than last year, primarily driven by higher adjusted operating profit.
Speaker Change: We generated $333 million of adjusted free cash flow in the quarter over $100 million better than last year, primarily due to higher profitability and improved working capital which declined to.
Speaker Change: To 17, 1% of annualized second quarter sales.
David Fallon: Some of this trade working capital improvement was due to favorable timing, including with advance payments, which effectively shifted cash into the second quarter from the third and fourth quarters. Nonetheless, good progress with cash flow and working capital, but just like margins, still a lot more to do. Finally, on this page, net leverage was 1.8 times at the end of the quarter within our stated leverage target range of one to two times, and liquidity strengthened to 1.2 billion dollars. Our balance sheet is strong and should remain strong based upon our expectations for free cash flow as we focus on flexibility to evaluate capital deployment opportunities.
Speaker Change: Some of this trade working capital improvement was due to favorable timing, including with advance payments.
Speaker Change: Which effectively shifted cash into the second quarter from the third and fourth quarters. Nonetheless, good progress with cash flow and working capital but.
David J. Fallon: Nonetheless, good progress with cash flow and working capital, but just like margins, there is still a lot more to do. Finally, on this page, net leverage was 1.8 times at the end of the quarter within our stated leverage target range of one to two times, and liquidity strengthened to $1.2 billion. Our balance sheet is strong and should remain strong based upon our expectations for free cash flow as we focus on flexibility to evaluate capital deployment opportunities. Turning to page 8.
Speaker Change: Just like margin still a lot more to do.
Speaker Change: Finally on this page net leverage was one eight times at the end of the quarter within our stated leverage target range of one to two times.
Speaker Change: Liquidity strengthened to $1 2 billion.
Speaker Change: Our balance sheet is strong and should remain strong based upon our expectations for free cash flow as we focus on flexibility to evaluate capital deployment opportunities.
David Fallon: Turning to page 8, this slide summarizes our second quarter segment results. As mentioned, we saw strong top-line growth in the Americas of 17% from last year, primarily from continued momentum in the hyper scale and co-location markets. More impressively, this growth was on top of a challenging comparison to second quarter 2023, where sales were up 48% from 2022. Adjusted operating margin in the Americas expanded 540 basis points to 25.4%, with the increase driven by favorable price cost and significant productivity. APAC sales increased 6% organically, with China slightly down, but more than offset by strong mid-team growth in India and the rest of Asia.
Speaker Change: Turning to page eight.
David J. Fallon: This slide summarizes our second quarter segment results. As mentioned, we saw strong top line growth in the Americas of 17% from last year, primarily from continued momentum in the hyperscale and co-location markets. More impressively, this growth was on top of a challenging comparison to second quarter 2023, where sales were up 48% from 2022. Adjusted operating margin in the Americas expanded by 540 basis points to 25.4%, with the increase driven by favorable price costs and significant productivity.
Speaker Change: This slide summarizes our second quarter segment results.
Speaker Change: As mentioned, we saw strong topline growth in the Americas up 17% from last year.
Speaker Change: Primarily from continued momentum in the Hyperscale and Colocation markets more impressively. This growth was on top of a challenging comparison in the second quarter 2023, where sales were up 48% from 2022.
Speaker Change: Adjusted operating margin in the Americas expanded 540 basis points to 25, 4% with the increase driven by favorable price cost and significant productivity.
David J. Fallon: APAC sales increased 6% organically, with China slightly down, but more than offset by strong mid team growth in India and the rest of Asia. We still characterize China as stable. But based upon visibility into an improving sales pipeline, we are optimistic that China will commence year-over-year growth in the second half. APAC's adjusted operating margin decreased 180 basis points from last year, in part due to a discrete $6 million expense in this year's second quarter.
Speaker Change: APAC sales increased 6% organically with China slightly down, but more than offset by strong mid teen growth in India and the rest of Asia.
David Fallon: We still characterize China as stable, but based upon visibility into an improving sales pipeline, we are optimistic that China will commence year-over-year growth in the second half. APAC adjusted operating margin decreased 180 basis points from last year, in part due to a discrete $6 million expense in this year's second quarter. However, on a year-to-date basis, APAC operating margins are still 100 basis points higher than last year, despite this one-time expense, and we expect operating margins to increase in the back half of the year, correlated with the expected increase in second half volume. AMIA Organic Sales increased 14% in the second quarter, in part driven by strong modular solutions growth.
Speaker Change: We still characterize China as stable, but based upon visibility into an improving sales pipeline. We are optimistic that China will commence year over year growth in the second half.
Speaker Change: APAC adjusted operating margin decreased 180 basis points from last year.
Speaker Change: In part due to a discrete $6 million of expense in this year's second quarter.
David J. Fallon: However, on a year-to-date basis, APAC operating margins are still 100 basis points higher than last year, despite this one-time expense, and we expect operating margins to increase in the back half of the year, correlated with the expected increase in second half volume. AMIA organic sales increased 14% in the second quarter, in part driven by strong modular solutions growth. We are certainly encouraged by the momentum in this part of the business as customers increasingly use modular solutions to accelerate the expansion of data center capacity.
Speaker Change: However, on a year to date basis APAC operating margins are still 100 basis points higher higher than last year. Despite this one time expense and we expect operating margins to increase in the back half of the year correlated with the expected increase in second half volume.
Speaker Change: EMEA organic sales increased 14% in the second quarter in part driven by strong modular solutions growth.
David Fallon: We are certainly encouraged with the momentum in this part of the business as customers increasingly use modular solutions to accelerate the expansion of data center capacity. AMIA adjusted operating margin increased 480 basis points to 25.9%, as AMIA and Americas continue to compete for highest regional adjusted operating margins. AMIA won the quarter, but the Americas is a head year-to-date, and we'll see how the rest of the year plays out.
Speaker Change: We are certainly encouraged with the momentum in this part of the business as customers increasingly we use modular solutions to accelerate expansion of data center capacity.
David J. Fallon: AMIA's Adjusted Operating Margin increased 480 basis points to 25.9%. As EMEA and Americas continue to compete for the highest regional adjusted operating margins, so EMEA won the quarter, but Americas is ahead year to date, and we'll see how the rest of the year plays out. Moving to slide nine.
Speaker Change: EMEA adjusted operating margin increased 480 basis points to 25, 9%.
Speaker Change: EMEA and Americas continue to compete for highest regional adjusted operating margin. So EMEA one quarter, but the Americas is ahead year to date and we'll see how the rest of the year plays out.
David Fallon: Now, moving to slide nine. This slide summarizes our third quarter guidance. We are expecting a third quarter that looks largely consistent with second quarter, including organic sales growth of approximately 14% offset by a $20 million foreign exchange headwind.
Speaker Change: Moving to slide nine.
David J. Fallon: This slide summarizes our third quarter guidance. We are expecting a third quarter that looks largely consistent with the second quarter, including organic sales growth of approximately 14% offset by a $20 million foreign exchange headwind. The regional sales growth profile is slightly different, with all three regions expected to grow in the low teens, which implies sequential acceleration in APAC, and notably China, as I referenced on the previous slide. We expect third quarter adjusted operating profit of $385 million at the midpoint and adjusted operating margin of 19.6%, up 260 basis points from last year's third quarter, with expected benefits from operational leverage, price costs, and continued productivity.
Speaker Change: This slide summarizes our third quarter guidance, we are expecting a third quarter that looks largely consistent with second quarter, including organic sales growth of approximately 14% offset by a $20 million foreign exchange headwind.
David Fallon: The regional sales growth profile is slightly different, with all three regions expected to grow in the low teens, which implies sequential acceleration in APAC and notably China. And, as I referenced on the previous slide, we expect third quarter adjusted operating profit of $385 million at the midpoint and adjusted operating margin of 19.6%, up 260 basis points from last year's third quarter, with expected benefits from operational leverage, price cost, and continued productivity gains.
Speaker Change: The regional sales growth profile is slightly different with all three regions expect it to grow in the low teens.
Speaker Change: Implies sequential acceleration in APAC, and notably China as I referenced on the previous slide.
Speaker Change: We expect third quarter adjusted operating profit of $385 million at the midpoint and adjusted operating margin of 19, 6% up 260 basis points from last year's third quarter with expected benefits from operational leverage price costs and continued productivity gains.
David Fallon: Next, turning to slide ten, our full-year guidance. After a strong first half, we are increasing the midpoint of our sales guidance by $50 million, including $75 million organically, partially offset by $25 million of incremental foreign exchange headwinds. Higher organic growth is primarily in the Americas in APAC. We are also increasing the midpoint of our adjusted operating profit guide by $85 million to $1.435 billion due in part to higher volume, but also based upon higher expected variable contribution margin in the second half driven by continued productivity both in procurement and manufacturing. As a result, we are increasing our adjusted operating margin guidance to 18.7% at the midpoint, 100 basis points higher than previous guidance and 200 basis points higher than initial full year expectations from our November Investor Conference.
David J. Fallon: Next, turning to slide 10, our full-year guidance. After a strong first half, we are increasing the midpoint of our sales guidance by $50 million, including $75 million organically, partially offset by $25 million of incremental foreign exchange headwinds. Higher organic growth is primarily in the Americas and APEC.
Speaker Change: Next turning to slide 10, our full year guidance. After a strong first half we are increasing the midpoint of our sales guidance by $50 million, including $75 million organically, partially offset by $25 million of incremental foreign exchange headwinds.
Speaker Change: <unk>.
Speaker Change: Higher organic growth is primarily in the Americas and APAC.
David J. Fallon: We are also increasing the midpoint of our Adjusted Operating Profit Guide by $85 million to $1.435 billion, due in part to higher volume, but also based upon higher expected variable contribution margin in the second half, driven by continued productivity, both in procurement and manufacturing. As a result, we are increasing our adjusted operating margin guidance to 18.7% at the midpoint, 100 basis points higher than previous guidance and 200 basis points higher than initial full year expectations from our November investor conference.
Speaker Change: We are also increasing the midpoint of our adjusted operating profit guide by $85 million to $1 $43 5 billion.
Speaker Change: Due in part to higher volume, but also based upon higher expected variable.
Speaker Change: Contribution margin in the second half driven by continued productivity both in procurement and manufacturing.
Speaker Change: As a result, we are increasing our adjusted operating margin guidance to 18, 7% at the midpoint 100 basis points higher than previous guidance and 200 basis points higher than initial full year expectations.
Speaker Change: From our November Investor Conference.
David Fallon: Some analysts will likely inquire why year-over-year incrementals are not projected to stay above 60% for the second half as they were in the first half and ensure year-over-year variable contribution margin comparisons are more challenging in the back half of the year as our productivity initiatives accelerated in the last two quarters in 2023. In addition, we anticipate a ramp up of fixed costs in this year's back half as we continue to prioritize investment in capacity and technology. The 18.7% full year adjusted operating margin guidance propels us closer to our long-term target of 20% plus. Certainly, this long-term target is within range, and we expect to exit the fourth quarter near that level, which sets the good foundation for 2025.
David J. Fallon: Now, some analysts will likely inquire why year over year incrementals are not projected to stay above 60% for the second half, as they were in the first half. And, in short, year over year variable contribution margin comparisons are more challenging in the back half of the year as our productivity initiatives accelerate in the last two quarters of 2023. In addition, we anticipate a ramp-up of fixed costs in this year's back half as we continue to prioritize investment in capacity and technology.
Speaker Change: Some analysts will likely.
Enquire why year over year Incrementals are not projected to stay above 60% for the second half as they were in the first half and in short year over year variable contribution margin comparisons are more challenging in the back half of the year as our productivity initiatives accelerated in the last two quarters.
Speaker Change: In 2023.
Speaker Change: In addition, we anticipate a ramp up of fixed cost in this year's back half as we continue to prioritize investment in capacity and technology.
David J. Fallon: The 18.7% full-year adjusted operating margin guidance propels us closer to our long-term target of 20% plus. Certainly, this long-term target is within range, and we expect to exit the fourth quarter near that level, which sets a good foundation for 2025. Our projected 2024 adjusted diluted EPS of $2.50 at the midpoint is more than 40% higher than 2023, primarily driven by higher adjusted operating profit, like last quarter. We do provide additional information on income taxes and the share account in the appendix.
Speaker Change: The 18, 7% full year adjusted operating margin guidance propels us closer to our long term target of 20% plus.
Speaker Change: Certainly this long term target is within range and we expect to exit the fourth quarter near that level, which sets a good foundation for 2025.
David Fallon: Our projected 2024 adjusted diluted EPS of $2.50 at the midpoint is more than 40% higher than 2023, primarily driven by higher adjusted operating profit.
Speaker Change: Our projected 2024, adjusted diluted EPS of $2 50 at the midpoint.
Speaker Change: As more than 40% higher than 2023, primarily driven by higher adjusted operating profit like last quarter. We do provide additional information on income taxes and share count in the appendix.
David Fallon: Like last quarter, we do provide additional information on income taxes and share account in the appendix. Finally, for me on this slide, we increased the adjusted free cash flow guidance by $50 million to $875 million, primarily driven by higher adjusted operating profit and partially offset by higher income taxes and additional investment in trade working capital. Our full year adjusted free cash flow guidance implies approximately $440 million of cash generation in the second half, which we expect to be relatively uniform in the third and fourth quarters.
David J. Fallon: Finally, for me on this slide, we increased adjusted free cash flow guidance by $50 million to $875 million, primarily driven by higher adjusted operating profit and partially offset by higher income taxes and additional investment in trade working capital. Our full year adjusted free cash flow guidance implies approximately $440 million of cash generation in the second half, which we expect to be relatively uniform in the third and fourth quarters. And with that said, I turn it back over to Gio.
Speaker Change: Finally for me on this slide we increased our adjusted free cash flow guidance by $50 million to $875 million, primarily driven by higher adjusted operating profit.
Speaker Change: And partially offset by higher income taxes and additional investment in trade.
Speaker Change: Trade working capital our full year adjusted free cash flow guidance implies approximately $440 million of cash generation in the second half, which we expect to be relatively uniform in the third and fourth quarters.
Giordano Albertazzi: And with that said, I turn it back over to you. Well, thank you. Thank you very much, David, and a quick summary here as we go to slide 11. So I'm very pleased with our strong source of performance. The execution of strength of Vertiv continues to improve, and we see that translating into our financial performance, including sales growth, profitability, and free cash flow. It gives us confidence to raise guidance again for 2024 and continues to strengthen our view on the next year. The market is evolving and becoming more critical, and that plays into Vertiv's strengths very well.
Speaker Change: That said I turn it back over to Jeff well. Thank you. Thank you very much David and a quick summary here and as we go to slide 11.
Giordano Albertazzi: Well, thank you. Thank you very much, David. And a quick summary here as we go to slide 11. So, um, I'm very pleased with our strong tourist software performance. The executional strength of Vertiv continues to improve, and we see that translating into our financial performance, including sales growth, profitability, and free cash. It gives us confidence to raise guidance again for 2024 and continues to strengthen our view on the next. The market is evolving and becoming more critical, and that plays into Vertiv's strengths very well.
Speaker Change: So.
Jeff: I'm very pleased with our strong first half performance.
Jeff: Execution of the strength of <unk> continues to improve and we see that translating into financial performance, including sales growth profitability and free cash flow.
Speaker Change: It gives us confidence to raise guidance again for 2024 and continues to strengthen of you on the next year the market is evolving and becoming more critical and that plays into <unk> strength, very well technology global scale portfolio breadth and depth serve.
Giordano Albertazzi: Technology, global scale, portfolio breadth and depth services, these attributes matter to our customers when we stay humble and focus. Every day, we work hard to enforce our competitive advantage. I said that on the last call that we fully intend to keep winning. We are in a good place now. We can always do better. There is absolutely no room for complacency. We are making substantial progress, but our full potential is much bigger and keeps growing. And the entire Vertiv team is very excited about it.
Giordano Albertazzi: Technology, global scale, portfolio breadth, and death services, these attributes matter to our customers. When we stay humble and focused, every day we work hard to improve our competitive advantages. I said that on the last call, we fully turn to keep winning. We are in a good place now. We can always do better. There is absolutely no room for complacency. We are making substantial progress, but our full potential is much bigger and keeps growing, and the entire 15 is very excited about this.
<unk> these attributes matter to our customers.
Speaker Change: When we stay humble and focused.
Speaker Change: Everyday we work hard to improve our competitive advantages.
Speaker Change: I've said that.
Speaker Change: On the last call, we fully intend to keep winning we are in a good place now we can always do better there is absolutely no roomful complacency.
Speaker Change: We are making substantial progress, but our full potential is much bigger and keeps growing.
Speaker Change: And the <unk> team is very excited about this important point on this slide.
Giordano Albertazzi: An important point on this slide, we plan to have an investor event on November 18th in conjunction with Super Compute 24. So more details on this will follow, but I want to make sure that this is on your calendars and radars. With that, Brekha, over to you for the Q&A. Thank you very much.
Giordano Albertazzi: At important point on this slide, we plan to have an investor event on November 18 in conjunction with a super compute 24. So more details on this will follow, but I want to make sure that this is on your calendars and raiders' creeds.
Speaker Change: We plan to have an investor event on November 18th in conjunction with the supercomputer 20 full so more details on this.
This will follow but wanted to make sure that this is all new to lenders and radar screens with with that.
breaker: With that, BRICA, over to you, and for the Q&A. Thank you very much.
Speaker Change: Breakout over to you.
Speaker Change: For the for the Q&A. Thank you very much.
breaker: Thank you, Gio.
Brika: Thank you, Gio. We will now begin the question and answer session. In order to ask a question, please press star and then the number one on your telephone.
Thank you we will now begin the question and answer session.
breaker: We will now begin the question and answer session. In order to ask a question, please press the star from the number one on your telephone keypad. As a reminder, please limit yourself to one question. We pause for a moment to compile the Q&A.
Brika: As a reminder, please limit yourself to one question. We'll pause for a moment to compile the Q&A. We have the first question on the phone lines from Amit Daryanani with Evercore ISI. You may proceed. Thanks a lot.
Speaker Change: In order to ask a question. Please press Star then the number one on your telephone keypad.
Speaker Change: As a reminder, please limit yourself to one question.
We'll pause for a moment to compile the Q&A.
Amit Daryanani: We have the first question on the phone lines from Amit Derriani with Evercore ISI. You may proceed, Amit. Thanks a lot, and good morning, everyone. I'll stick to the one question room.
Speaker Change: We have the first question on the phone lines from.
Speaker Change: <unk> <unk> with Evercore ISI you May proceed.
Giordano Albertazzi: And good morning, everyone. I'll speak to the one question room. I'm wondering, Gio, if you could just help us frame the order trajectory expected in the September quarter, you know, really help us understand maybe what's driving the deceleration in September to being 10 to 15% versus the high 50, 60% we saw in the first half. And then, you know, crucially, just how do you see these orders converting to revenues over time for the company? It would be really helpful to frame that as well. Thank you. Thank you, Amit. And a very good day to you.
Speaker Change: Thanks, a lot and good morning, everyone.
Speaker Change: Obviously to the one question rule.
Giordano Albertazzi: I'm wondering, Gio, if we could just help us frame the order trajectory expected in the September quarter. Really help us understand, maybe what's driving the deceleration in September to being 10% to 15% versus the high 50%, 60% we saw in the first tab. Crucially, just how do you see these orders converting to revenues over time for the company would be really helpful to frame that as well. Thank you. Thank you, Amit. And very good day to you. I think I've stated in the script where happy with the pipelines that we see. And those pipelines, of course, are reflecting a positive trajectory for the market, and our overall view of the market continues to be positive.
Speaker Change: I'm wondering if you could just help us frame the order trajectory expected in September quarter.
Speaker Change: It really helps us understand maybe what's driving the deceleration in September to being 10% to 15% versus the high 50%, 60%. We saw on the flows Tom.
Speaker Change: Crucially just how do you see these orders converting to revenues over time for the company would be really helpful to frame that as well. Thank you.
Giordano Albertazzi: I think, as stated in the script, we are happy with the pipelines that we see. And those pipelines, of course, are reflecting a positive trajectory for the market, and our overall view of the market continues to be. If you go back to April, we certainly had a more prudent view of the Q2 orders, but there are a lot of big orders and individual POs in this market. And sometimes it's just a question; it can be a question of timing, whether they happen in one quarter or another.
Speaker Change: Thank you Amit.
Speaker Change: Very good day, good day to you.
Speaker Change: I think I stated in the script, we are happy with the with the pipeline that we see and.
Speaker Change: And those five planes of Koos <unk>.
Speaker Change: Reflecting a positive trajectory for the markets and our overall view of the market continues to be to be positive. If you go back to.
Giordano Albertazzi: If you go back to April, we had certainly a more prudent view of Q2 orders, but there are a lot of big orders. And individual POs in this market. And sometimes it's just a question; it can be a question of timing when whether they happen in one quarter or another quarter. So overall, our view of the market continues to be very positive, very, very positive. We're very happy about the trajectory of orders so far, but we are also aware of the fact that the timing can be... ...in the... here, order timing.
Speaker Change: April.
Speaker Change: We had <unk>.
Speaker Change: You're more pre.
Speaker Change: Prudent view of all the Q2 orders but.
Speaker Change: There are a lot of big orders.
Speaker Change: Individual.
Speaker Change: In this market and some times. It's just a question can be a question of timing when when whether they happen in one quarter or another or another quarter. So overall, our our view of the market.
Giordano Albertazzi: So overall, our view of the market continues to be very positive, very, very positive. We're very happy about the trajectory of orders so far. But we are also aware of the fact that the timing can be ineligible.
Speaker Change: To be very positive a very very positive we're very happy about the trajectory of orders so far but we're also aware of that.
Speaker Change: The timing can be.
Speaker Change: Element here order timing.
Giordano Albertazzi: That's why we want to make sure that we do not just talk about orders in one quarter, but we talk a little bit about a broader metric like the trailing 12-month that we have introduced now. When it comes to the second half, the second part of your question about order timing and translation in revenue, it's pretty much what we said last time already. For the upper part of the market, meaning that the larger part of the market, larger orders for the cloud and co-location, we are thinking now in terms of 12-18 months on average.
Giordano Albertazzi: That's why we want to make sure that we do not just talk about orders in one quarter, but we talk a little bit kind of a broader, broader metric, like the 12 months that we have introduced now. When it comes to the second part of your question about order timing and translation in revenue, it's pretty much what we said last time already. For the upper part of the market, meaning that larger part of the market, larger doors for the cloud and collocation, we are thinking now in terms of 12, 18 months on average. The visual orders can have different dynamics, but on average we think about an elongation that we already described last time around.
Speaker Change: That's why we want to make sure that we do not just talk about orders in one quarter, but we talk a little bit to kind of a broader broader.
Broader metric like the trailing 12 months that we have introduced produce now when it comes to the second half of the second part of your question about Oda Oda timing and translation in revenue, it's pretty much what we what we what we said last time.
Speaker Change: Already for the upper part of the marketing team, meaning that larger part of the market larger doses for the.
Speaker Change: How they in co location, we are thinking now in terms of 12 to 18 months on average.
Giordano Albertazzi: Individual orders can have different dynamics, but on average, we think about an elongation that we already described last time around. Hence, considering Q2 and Q3, the majority of that will fit in future years. 25, and beyond.
Speaker Change: Individual orders can have different dynamics, but on average we think about an elongation that we already described last time around and enhanced considering Q2 and Q3. The majority of that will sit in the future years, So 2025 and beyond but again nothing nothing.
Giordano Albertazzi: Hence, considering Q2 and Q3, the majority of that will sit in the future years, so it's going to change five and beyond. But again, nothing, nothing particularly strange or different than what we've said before already.
Giordano Albertazzi: But again, nothing particularly strange or different than what we've served before. Thank you. We now have Steve Tusa with J.P. Morgan. Hi, good morning.
Speaker Change: Particularly strange or different than than what we've said before already.
Speaker Change: Okay.
Unknown Executive: Thank you.
Speaker Change: Thank you.
Steve Tuzza: We now have Steve Tuzza with JP Morgan. You may proceed. Hi, good morning. Hi, Steve. You mentioned the 30 to 35 percent trailing 12 months.
Speaker Change: We now have Steve Tusa with Jpmorgan.
Speaker Change: You May proceed.
Charles Stephen Tusa: Hi, good morning.
Giordano Albertazzi: All right, Steve. You mentioned the 30 to 35 percent trailing 12 months. Is that a good trend to think about here, you know, going forward, given how positive you are? And any comments on, you know, how the pipeline is trending year over year? And then just lastly, as a follow-up to that on orders, how do you book, like, campuses or like a phased order where, you know, you may be working on three buildings or something or three data centers on a certain campus, and you may be contracted to do all of that. At what point do you actually book that order? Is it booked all at once or as these things as the shovel goes into the ground?
Charles Stephen Tusa: Alright.
Speaker Change: You mentioned, the 30% to 35%.
Speaker Change: Trailing 12 months is that a good trend to think about here.
Giordano Albertazzi: Is that a good trend to think about here, going forward, given how positive you are, and any comments on how the pipeline is trending year over year? And then just lastly, as a follow-up to that on orders, how do you book like campuses or like a phased order where you may be working on three buildings or something, or three data centers in a certain campus, and you may be contracted to do all of that? At what point do you actually book that order? Is it booked all at once, or as the shovel goes into the ground?
No.
Speaker Change: Going forward given how positive you are in any comments on how the pipeline is trending.
Speaker Change: Year over year, and then just lastly, as a follow up to that on orders.
Speaker Change: How do you book like.
Speaker Change: Campuses or like a phased order, where you may be working on three buildings or something or three data centers in a certain campus and maybe contracted to do all of that at what point do you actually book that order or is it booked all at once or as these things as the shovel goes into the ground.
Giordano Albertazzi: Thanks for any color on all that. But thank you for your question. Certainly, we call that 30 to 35 percent trailing 12 is a strong trajectory, and one that can sustain our growth longer, long term. So we totally like that range a lot, and it's a range that reflects a strength in the market.
Giordano Albertazzi: Thanks for any color on all that. But thank you for your question. So certainly, we call a 30-35% trailing 12 a strong trajectory and one that can sustain our growth long term.
Speaker Change: Thanks for any color on all that.
Speaker Change: Well. Thank you for your question so.
Speaker Change: Certainly we call it 30% to 35%.
Speaker Change: Trailing 12.
Speaker Change: Strong strong trajectory.
Giordano Albertazzi: So we totally like that range a lot, and it's a range that reflects strength in the market for Vertiv. To your question about how we book camps, I've been vocal about the fact it's very, very important to be in the first part of a campus or a development as then capacity gets expanded over time, but the way we book is PO by PO. There's no other way. We get a PO, we book a PO, and we call it an order only what is actually fully legally binding.
Speaker Change: And and one that can sustain.
Speaker Change: Growth growth long long term so.
Speaker Change: We totally like like that range and lot and it's a range that reflects strength in the market for <unk>.
Giordano Albertazzi: For our full value. To your true question about how we book campuses, I've been vocal about the fact that it's very, very important to be in the first part of a campus, or a development, as then capacity gets expanded over time. But the way we book is PO by PO. There's no other way. We get a PO, we book a PO, and we call the order only what is what is actually truly legally, legally - I think. So it really, it's really about what customers order actually from us.
Speaker Change: To your question about.
How we book our campuses.
Speaker Change: I've been vocal about the site is very very important to be in the first part of the accomplice or development.
Speaker Change: As that capacity gets expanded over time.
Speaker Change: The way we book is <unk> IPO does no no other no other way, we gather we both apio and <unk>.
Speaker Change: We called an order only what is what is.
Julie: Julie fully legally legally binding.
Giordano Albertazzi: So it really, it's really about what customers order from us. Thank you. We now have Nicole DeBlase with Deutsche Bank.
Speaker Change: So it really is.
Speaker Change: It's really about.
Speaker Change: What customers order.
Speaker Change: Actually from us.
Nicole DeBlase: Thank you. We now have Nicole DeBlase with Deutsche Bank. You may proceed, Nicole. Yeah, thanks. Thank you. Good morning, guys. There you go.
Giordano Albertazzi: You may proceed, Nicole. Yeah, thanks. Thank you. Good morning, guys. So, I want to spend some more time on orders just because this is a big investor concern and what's kind of reflected in the market today. So, I guess the assumption that you get to 10 to 15 percent growth in the third quarter implies a 20 percent step down sequentially. But, what is that founded on?
Speaker Change: Thank you.
Speaker Change: Hi, Nicole <unk> with Deutsche Bank.
Speaker Change: You May proceed yes. Thanks.
Speaker Change: Thank you good morning, guys.
Giordano Albertazzi: Are you guys just kind of making a conservative assumption that, hey, we've had a few quarters of really strong large project orders and that may not continue? And then are you actually seeing large orders in the pipeline start to diminish because you've booked so many large orders? Just trying to get a sense of, you know, how you come up with that 10 to 15 percent growth year on year?
Joe: Hey, Joe.
Giordano Albertazzi: So I want to spend some more time on orders, just because I think this is a big investor concern and what's kind of reflected in the market today. So I guess the assumption that you get to 10 to 15% growth in the third quarter implies like a 20% step down sequentially. Like, what is that founded in? Are you guys just kind of making a conservative assumption that, hey, we've had a few quarters of really strong large project orders, and that may not continue. And then are you actually seeing like large orders and the pipeline start to diminish because you booked so many large orders, just trying to get a sense of, you know, how you come to that 10 to 15% growth year on year.
Speaker Change: So I wanted to spend some more time on orders just because I think this is the big investor concern and what's kind of reflected in the market today. So I guess the the.
Speaker Change: <unk> that you get to 10% to 15% growth in the third quarter implies like a 20% step down sequentially.
Speaker Change: What is that found it and are you guys just kind of making a conservative assumption that hey, we've had a few quarters of really strong large project orders in that May not continue and then are you actually seeing like large orders in the pipeline start to diminish because you've booked so many large orders just trying to get a sense of.
Giordano Albertazzi: And if we could be sitting here, you know, three months from now with another positive rise from an order perspective. Well, thank you for the question, Nicole. Certainly a little bit paradoxical to think that orders are a concern after two quarters of almost 60% year on year. But, but, but I hear you.
Speaker Change: How you come to that 10% to 15% growth year on year, and if we could be sitting here three months from now with another positive surprise from an order perspective. Thank you.
Giordano Albertazzi: And if we could be sitting here, you know, three months from now with another prize from an order perspective. Thank you.
Giordano Albertazzi: Well, thank you for the question because certainly a little bit paradoxical to think that the concern is orders are concerned after after two quarters of almost 60% year on year. But, but, but I hear you. As the pipeline continues to be strong. And again, the pipeline reflects, pipeline reflects the dynamics of the market and the testament to a very strong visibility that we have in the market commercially. And I'll just the way the way we understand the market. But, but again, the message is it's not different than a message that we gave, if you will, a quarter ago; it's just that it's that message with more good news on top of that. The good news is strength on the second quarter actual orders.
Speaker Change: Well second question Nicole is certainly a little bit paradoxical to think that the concern as orders are concerned after after two quarters of almost 60%.
Speaker Change: Year on year, but but but I hear you.
Giordano Albertazzi: As I said, the pipeline continues to be, and again, the pipeline reflects the dynamics of the market and is a testament to the very strong visibility that we have in the market commercially and not just the way we understand the market. But, again, the message is not different than the message that we gave, if you will, a quarter ago. It's just that it's that message with more good news on top of that.
Speaker Change: As I said the pipeline continues to be to be strong.
Speaker Change: And again the pipeline reflects pipeline reflects the dynamics of the markets and Testament to a very strong visibility that we have in the market commercially I know just the way the way we understand the market.
Speaker Change: But again.
Speaker Change: The message is not different than the message that we gave if you will a quarter ago. It's just that it's is that message.
Speaker Change: With the with more good news on top of that is the good news is the strength in the second quarter actual orders so.
Giordano Albertazzi: The good news is strength and second quarter actual orders. So I continue to be very, very optimistic about the way the market is evolving and our position in the market. We like the trajectory of our pipelines, and we like also the way pipelines are shaping up in the rest of the world. Of course, we know that it's very, very strong in the Americas.
Giordano Albertazzi: So, I continue to be very, very optimistic about the way the market is evolving in our, in our position in the market. We like the trajectory of our, of our pipelines. And, and we like also the way the pipelines are shaping, shaping up in the, in the rest of the world. Of course, we know that's very, very strong in the Americas. So, AI dynamics are playing in a favorable, in a favorable manner. And that's that again. Sometimes receiving an order, the kind of first day of the quarter or last day of the quarter can, can swing things around.
Speaker Change: I continue to be very very optimistic about the way the bulk of these evolving an hour and our positioning in the market, we like the trajectory of <unk>.
Speaker Change: Pipelines and <unk> so the way he pipelines are the <unk>.
Speaker Change: <unk> is shaping up in the in the rest of the World of course, we know that is very very strong in the in the Americas.
Giordano Albertazzi: So AEI dynamics are playing out in a favorable manner. That said, again, sometimes receiving an order the kind of first day of the quarter or last day of the quarter can swing things around. So again, let's not be too obsessed about the individual quarters. It is important, you know, and we're very proud about what we printed in the second quarter. And let's make sure that we keep an eye on that on the trajectory, on the long-term trajectory, and the long-term trajectory is very strong. We now have Mark Delaney with Goldman Sachs on the line.
Speaker Change: So AI dynamics are playing.
Speaker Change: If favorable in a favorable manner that said again.
Speaker Change: <unk>.
Speaker Change: Sometimes.
Speaker Change: Receiving an order kind of first day of the quarter or last day of the quarter, Ken can swing things around so again, let's not be too obsessed about the individual quarter.
Giordano Albertazzi: So, again, let's not be too obsessed about the individual quarter. It is important. You know, we're very proud about what we printed in, in second quarter. And, and let's make sure that we keep an eye on the trajectory on the long term trajectory, and the long term trajectory is also.
Speaker Change: It is important we have a very.
Speaker Change: Proud about the what we printed in.
Speaker Change: In second quarter, and and that's to make sure that we keep an eye on that on the trajectory on the long term trajectory in the long term trajectory is very strong.
Unknown Executive: Thank you.
Speaker Change: Thank you.
Unknown Executive: We now have more generally with golden saxophone. Yes, good morning. Thanks so much for taking my question, which is on pricing. Vertiv have been expecting a bit more than 60 million of net price cost to positivity for this year. Can you see these qualitatively and how the pricing environment has evolved? And are you seeing net pricing become any more competitive and new programs that come up for bid given increased competition in certain parts of the industry? And if so, is that potentially limiting the degree of price cost positivity over the longer term? Thank you.
Speaker Change: We now have Mark Kennedy with Goldman Sachs on the line.
Giordano Albertazzi: Yes, good morning. Thanks so much for taking my question, which is on pricing. Vertiv was expecting a bit more than $60 million of net price cost positivity for this year. Can you speak at least qualitatively on how the pricing environment has evolved? And are you seeing net pricing become any more competitive in new programs that come up for bid given increased competition in certain parts of the industry? And if so, is that potentially limiting the degree of price cost positivity over the longer term? Absolutely.
Speaker Change: Yes.
Mark Trevor Delaney: Thanks, very much for taking my question, which is on pricing have been expecting a bit more than 60 million of net price cost positivity for this year can you speak at least qualitatively on how the pricing environment has evolved and are you seeing that pricing become any more competitive and new programs that come up for bid given increased competition in certain parts of the industry and.
Mark Trevor Delaney: If so is that potentially limiting the degree of price cost positivity over the longer term. Thank you.
Giordano Albertazzi: You know, absolutely. We continue to operate in a market that is favorable from a demand and supply balance standpoint. We have very strong competitive advantages in the market. So we feel good about what we're doing. We feel very good about the pricing muscles and pricing strength that we have built over the last two to three years. So things continue to be encouraging in that respect. Of course, we operate in an environment that is mature as a market. Our customers are sophisticated players. So we continue to be adamant about the fact that our price cost equation will continue to be positive in the future.
Giordano Albertazzi: We continue to operate in a market that is favorable from a demand and supply balance standpoint. We have very strong competitive advantages in the market. So we feel good about what we're doing. We feel very good about the pricing muscle and pricing strength that we have built over the last two, three years. So things continue to be encouraging in that respect. But, of course, we operate in an environment that is mature as a market. Our customers are sophisticated players, so we continue to be adamant about the fact that our price/cost equation will continue to be positive in the future.
Speaker Change: Yeah, absolutely we continue to operate in a market that is favorable.
Speaker Change: Demand and supply balance.
<unk> set a standpoint.
Speaker Change: We have.
Speaker Change: Very strong competitive advantages in.
Speaker Change: In demand in the market. So we feel good about what we're doing we feel very good about the <unk>.
Speaker Change: Reising muscles.
Speaker Change: <unk> and <unk>.
Speaker Change: <unk>.
Speaker Change: The pricing strength that we have built.
Speaker Change: Over the last two three years.
So.
Speaker Change: Things continue to be encouraging in that respect.
Speaker Change: Of course, we operate in an environment that is.
Speaker Change: Mature as a market.
Speaker Change: Our customers are sophisticated.
Speaker Change: Players so.
Speaker Change: We continue to be.
Speaker Change: Adamant about the fact that our our price cost equation will continue to be positive in the future.
Giordano Albertazzi: And we feel good about our position in the market and our ability to price the value that we deliver in terms of technology, in terms of service level, in terms of access to capacity to our customers.
Speaker Change: We feel good about the about the our positioning in the market and the our ability to price the value that we're delivering in terms of technology in terms of service level in terms of axis.
Speaker Change: New capacity to our customers.
Unknown Executive: Thank you very much.
Speaker Change: Thank you very much.
Andy Cowboys: Your next question is from Andy Cowboys with Citigroup. Good morning, everyone. Hello. David, you talked about a lot. They would talk a lot more about productivity.
Giordano Albertazzi: And we feel good about our position in the market and our ability to price the value that we deliver in terms of technology, in terms of service level, in terms Unknown Speaker 0, Thank you very much. Your next question is from Andy Kaplowitz, with, Good morning, everyone. Hello. Good morning.
Speaker Change: Your next question is from Andy Kaplowitz with Citigroup.
Andrew Alec Kaplowitz: Good morning, everyone.
Andrew Alec Kaplowitz: Hello, Good morning.
Giordano Albertazzi: David, you talked a lot about productivity. And so maybe Gio or David, you could talk a little bit more about the opportunities you see there. Is there any risk that you could lose any of this productivity improvement as you continue to ramp up in areas such as liquid cooling? And then if there is a lot of room on the productivity side, you know, pricing is still improving, you keep leveraging double-digit revenue, could you end up with a margin way higher than that 20% target you have? I would say it's certainly premature.
Andrew Alec Kaplowitz: David you talked about a lot touch a lot more about productivity and so maybe David you could talk a little bit more about the opportunities you see there is there any risk that you could lose any of those productivity improvements continuing ramp in areas such as liquid cooling and then if there is a lot of room on the productivity side pricing still improving you keep leveraging them.
Giordano Albertazzi: And so maybe, Joe, David, you could talk a little bit more about the opportunities. You see, there is there any risk that you could lose any of those productivity improvements. You continue ramping areas such as liquid cooling. And then, if there is a lot of room on the productivity side, pricing is still improving. You keep leveraging double-digit revenue. Couldn't you end up with a margin way higher than that 20% target you have for 26? I would say this is certainly premature. We know that 20% has always been the 20% plus not necessarily the ceiling. We are very happy about the trajectory.
Speaker Change: Digital revenue could you end up with a margin way higher than that 20% target you have for 2006.
Giordano Albertazzi: We know that 20% has always been the 20% plus, not necessarily silly. We are very happy about the trajectory we're on right now, but quite adamantly, and we've been vocal about that forever and certainly in the introductory comments here, we're far from full potential. But when we look at the way, for example, liquid cooling is ramping up, the way the top line is heading as reflected in the current guidance, et cetera, all elements that play in favor of us being able to be more effective in achieving our efficiency, leveraging volume, et cetera. So I'd say that productivity is a big element in our value equation, not the sole element, of course, but an important
Speaker Change: Yeah.
Speaker Change: Okay.
I would tell you. It's certainly premature we know that that 20% has always been in the 20% plus north.
Cindy: Necessarily Cindy.
Cindy: Very happy about the trajectory we're on we're on right now.
Giordano Albertazzi: We're on right now, but quite adamantly, and we've been vocal about that forever and certainly in the introductory comments here, far from full potential. But when we look at the way, for example, liquid cooling is rumping up by the way, a top line is heading as reflected in the current guidance, etc. All elements that play in the figure of us being able to be more effective in achieving our efficiency, leveraging volume, etc. So I would say that productivity is a big element in our value equation, not the sole, of course, but an important one. What we see happening in terms of business trajectory, but also internally the improvements and the gains that we see being realized, are encouraging in that direction.
But ultimately end.
Cindy: Vocal about that forever uncertainty in in.
Cindy: In the introductory comments comments here.
Cindy: From full potential, but when we when we look at the way for example, liquid cooling is is ramping up by the way.
Cindy: Top topline is is heading as reflected in the in the current.
Guidance et cetera are all elements that play in favor of us being able to.
Cindy: To be more effective.
Achieving our our efficiency leveraging volume et cetera, So I'd say that productivity is a big element in our value equation of the soul.
Cindy: But but an important an important one.
Giordano Albertazzi: And what we see happening in terms of business trajectory, but also internally, the improvements and the gains that we see being realized are encouraging in that direction. But again... We are certainly operating the company much better. There is so much more we can do, and that will be our forever mantra, no matter how strong we are. We now have Scott Davis with Malaya.
Cindy: And what we see happening in terms of business trajectory, but also internally.
Cindy: The improvements and the gains that we see being realized.
Cindy: Are encouraging.
Giordano Albertazzi: But again, we are certainly operating the company much better. There is so much more we can do, and that will be our forever mantra, no matter how strong we...
Cindy: In that direction, but again.
Oprah: We are certainly Oprah.
Oprah: Operating the company much better there is so much more we can do and that will be our forever mantra no matter how strong we can be.
Giordano Albertazzi: and Kenby.
Scott Davis: Appreciate it. We now have Scott Davis with Millais Research. Hey, good, good, good morning, everyone. Good morning. You devoted a whole slide. I think the more than you. You devoted a whole slide to service. So obviously, you think there's a lot of potential here.
Speaker Change: Appreciate it.
Speaker Change: We now have Davis with M&A ask Lisa.
Giordano Albertazzi: Hey, good morning. Good morning.
Davis: Hey, good morning, everyone.
Giordano Albertazzi: You dedicated a whole slide. Thank you. Good morning to you.
Davis: Thanks, Good morning, you devoted a whole slide.
Giordano Albertazzi: You devoted all slides to service. So obviously, you think there's a lot of potential here. I guess my question is kind of what the API here is. Is it just can you price around kind of Guaranteed Uptime? Is it just having field service guys on site? You can just price arb that labor? I mean, what kind of value is that?
Davis: Good morning, Joe you devoted all slide to service. So obviously, you think theres a lot of potential here.
Giordano Albertazzi: I guess my question is kind of what is, what is the key API here? Is it, can you price around kind of, you know, guaranteed up time? Is it, is it just having feels, you know, feel service guys on site? You can just price, you know, price arve that labor. I mean, what is kind of the value to you guys?
Davis: I guess my question is kind of what is what is the key API here or is it just can you price around kind of.
Speaker Change: Guaranteed uptime is it.
Speaker Change: Is it just.
Speaker Change: Having field field service guys on site and you can just price price arb that labor I mean, what is kind of the value.
Giordano Albertazzi: to you guys and to the customer, I guess, more explicitly. I know that's kind of a big topic overall, but it wasn't 100% clear to me from the slide. And then also just the potential. You know, if you devote all slides to it, clearly think it can become pretty material, pretty, you know, I would assume by 2025. So anyways, I know there's a lot there. Just answer what you want. I'll pass it on.
To you guys.
Giordano Albertazzi: And to the customer, I guess more explicitly, I know that's a kind of a big topic overall, but it wasn't 100% clear to me off the slide. And then also just the potential. I mean, you know, if you devote all slide to it clearly, you think it can be come pretty material, pretty, you know, I would assume by 2025. So, anyways, I know there's a lot there. Just answer what you want. I'll pass it on. Thanks.
Speaker Change: And to the customer I guess more explicitly.
I know that it's a.
Speaker Change: Kind of a big topic overall, but it wasn't 100% clear to me off the slide.
Speaker Change: And then also just just the potential.
Speaker Change: If you devote all slide to acquire or do you think it can be pretty material pretty I would assume by 2025, So anyway I know theres a lot. There just answer what you want and I'll pass it on thanks.
Giordano Albertazzi: Yeah, I think it's certainly a question that would deserve a multi-faceted conversation. I'll try to go to what are the key metrics here. I think there are two dimensions to that. One is for us. Clearly, recurrent revenues and important aspects having a large install base and being able to attach to that install base. So all things that we measure obsessively and we track and we make sure that we operate very well from a commercial, but also kind of a delivery delivery standpoint. So I call our service business quite mature, quite mature, very mature in that sense.
Giordano Albertazzi: Yeah, I think it's certainly a question that deserves a multi-faceted conversation. I'll try to go to what are the key metrics here. I think there are two dimensions to that. One is for us.
Speaker Change: Yes, I think.
Speaker Change: Certainly.
Speaker Change: A question on that.
Speaker Change: That would deserve.
Speaker Change: Multifaceted compensation I will try to go to what are the.
Speaker Change: The key metrics here I think there are two dimensions to that one is for us.
Giordano Albertazzi: Clearly, recurrent revenues are an important aspect, having a large installed base and being able to attach to that installed base. So, all things that we measure obsessively, and we track, and we make sure that we operate very well from a commercial but also kind of a delivery standpoint. So, I call our service business quite mature, very mature in that sense. And clearly, with the recurrent revenue, with the attached rates, it's quite a valuable set of revenue that delivers for us in terms of productivity.
Speaker Change: Clearly.
Speaker Change: The recurrent revenues and the important aspect, having a large installed base and being able to attach to that installed base.
Speaker Change: All things that we measure obsessively and we track and we and we make sure that we operate very well from a commercial but also kind of a delivery delivery standpoint, so I call a service business.
Speaker Change: Quite mature flagged mature very mature in that sense and clearly with the current revenue with the with the attach rates.
Giordano Albertazzi: And clearly, with the current revenue, with the attached rates, you know, it's quite a valuable, quite valuable set of revenue that delivers for us in terms of productivity, sorry, in terms of margins and profitability. But there is another element of help for us that is service being as if we're in Cheetah. That makes a difference and plays an important role in our market share, product, project, solutions market share, let's say equation and competitive advantages. So it is very, very important in that respect. I, as I mentioned when we were going through the slides, the importance of service is enormous for our customers.
Speaker Change: It's quite valuable quite valuable set of revenue that delivers for us in terms of productivity and I'm, sorry in terms of margins and profitability.
Giordano Albertazzi: Sorry, in terms of margins and profitability. But there is another element of help for us that is service being a differentiator that makes a difference and plays a very important role in our market share. Product, project, solutions, market share, let's say equation and competitive advantage. So it is very, very important in that regard. As I mentioned when we were going through the slides.
There is another element of helpful for us that is serviced.
Speaker Change: Service being a differentiator that makes a difference in pace and you put in.
Speaker Change: No.
Speaker Change: Market share.
Speaker Change: Product.
Speaker Change: Project solutions, our market share.
Speaker Change: Let's say equation.
Speaker Change: And competitive advantages.
Speaker Change: So it is very very important in that respect.
Speaker Change: Aye.
Speaker Change: As I mentioned.
Speaker Change: When we were going through the slides.
Giordano Albertazzi: The importance of service is enormous for our customers, and we're very proud of being able to support the industry in that. The example that I made, very, very, let's say at a high level, obviously, given the trains is a liquid cooling system. So here we have probably a $2 million rack that is kept alive, if you will, by a liquid cooled circuit. And there is an inertia on that, that is, in seconds.
Speaker Change: The important self service is enormous for our customers and we're very proud of.
Giordano Albertazzi: And we're very proud of being able to support the industry with that.
Speaker Change: Being able to to support the industry with us the.
Giordano Albertazzi: The example that I made very, very, let's say at a high level, obviously given the time constraints when we were going through the slide, is a liquid cooling system. So here we have probably a $2 million rack that is kept alive, if you will, by a secondary, so-called liquid-cooled circuit. And there is an inertia on that that is in seconds. So differently from the past, when you would have an entire room helping, if something goes wrong in a thermal system, here you have your CDU and your two or multiple $2 million racks, so you have to be able to see things before they happen, and when you see something, they're able to intervene in seconds.
Speaker Change: The example that I made very very let's say at a high level, obviously, given the time constraints when we were going through the slide is.
Speaker Change: Liquid cooling system.
Speaker Change: We have fully a $2 million of Iraq that is that has kept alive. If you will by Ey.
Speaker Change: Secondly, could so called <unk>.
Speaker Change: Liquid cooled.
Speaker Change: Circuit.
Speaker Change: And there is an inertia on that that is in seconds. So differently from the past when you would have an entire room, helping if something goes wrong in the thermal system here you have <unk>.
Giordano Albertazzi: So differently from the past, when you would have an entire room helping if something goes wrong in a thermal system, here you have your CDU and your two or multiple $2 million racks. So you have to be able to see things before they happen and, when you see something, be able to intervene in seconds.
Speaker Change: Youll see the U S.
Speaker Change: And your two or multiple 2 million dollar racks. So you have to be able to see things before they happen and when you see something be able to intervene in seconds. So the value is really the utilization and the resilience of our.
Giordano Albertazzi: So the value is really the utilization and the resilience of our customers, and it is enormous. There is an element as well as another element enabling deployment, and especially as technologies become more complex, as they are, everything that is project commissioning, etc.
Giordano Albertazzi: So the value is really the utilization and the resilience of our customers. Strasstructure. And it is enormously important.
Speaker Change: <unk> infrastructure.
Speaker Change: It is enormously important there is an element as well is another element is enabling deployment and especially as technology to become more complex as they are.
Giordano Albertazzi: There is an element as well, is another element is enabling a deployment and especially as technologies become more complex as they are, everything that is project commissioning, etc., is of the other need to use the English impact tool importance.
Speaker Change: Everything that is projects commissioning et cetera is of an increasingly impactful importance.
Michael Elias: Thank you. Your next question comes from Michael Elias with TD Cowan; you may proceed. Great, thanks for taking the question. When I look at the underlying data center market, I see that supply and demand are meaningfully imbalanced. And when I take a look at spot data center market pricing, I see it's up about 20% year over the last few years. Then when I drill that down into the unlevered yields that data center operators are generating, I mean they're seeing yield expansion to the tune of 100 to 150 basis points a year over year, which says to me that their returns are expanding faster than their cost to build and their cost of capital.
Speaker Change: Thank you.
Giordano Albertazzi: is of need and impactful importance. Your next question comes from Michael Alliance. Great, thanks for taking the question. When I look at the underlying data center market, I see that supply and demand are meaningfully imbalanced. And when I take a look at spot data center market pricing, I see it's up about 20% year over year over the last few years. Then when I drill that down into the unlevered yields that data center operators are generating, I mean, they're seeing yield expansion to the tune of 100 to 150 basis points year over year, which says to me that their returns are expanding faster than their cost to build and their cost of capital.
Michael <unk>: Your next question comes from Michael <unk> with TD Cowen You May proceed.
Michael <unk>: Great. Thanks for taking the question.
Michael <unk>: When I look at the underlying data center market I see that supply and demand are meaningfully imbalanced and when I take a look at spot and data center market pricing.
Up about 20% year over year over the last few years than what I draw that down into the unlevered yields of that data center operators are generating they are seeing yield.
Michael <unk>: And to the tune of 100 to 150 basis points year over year, which says to me that their returns are expanding faster than the cost to build and their cost of capital. So when we think through the price cost dynamic reverted. My question for you is should price grow linearly with the increase in underlying theme to us on a spot market pricing.
Giordano Albertazzi: So when we think through the price cost dynamic for Vertiv, my question for you is, should price grow linearly with the increase in underlying data center spot market pricing, given that that kind of price increase to the end customer would actually have no impact on their underlying returns. So want to get a better sense of how to think about the relationship between data center price strength and your ability to price to the data center operators. Thank you.
Giordano Albertazzi: So when we think through the price-cost dynamic for Vertiv, my question for you is, should the price grow linearly with the increase in the underlying data center spot market price, given that that kind of price increase to the end customer would actually have no impact on their underlying returns?
Given that that kind of a price increase to the end customer would actually have no impact on underlying returns. So just wanted to get a better sense of how to think about the relationship between data center price strength in your ability to price to the data center operator. Thank you.
Giordano Albertazzi: So if you want to get a better sense of how to think about the relationship between data center price strength and your ability to price to the data center operators, thanks. Well, I think it's really specific by customer and technology. Different technologies may have a different profile of, let's say, supply and demand balance. It's hard to define a general rule here.
Michael <unk>: Yes.
Giordano Albertazzi: Well, I think it's really specific customer by customer and technology by technology. Different technology may have a different profile of supply and demand balance. So it's hard to define a general rule here. Certainly what we what we see is is a prize is in a market environment where vendors and especially a player like vertiv with with strong value proposition can can translate that into value to our customers and translate that into into into price. Now, we'll of course go through all the aspects of your question and further reflect on that, but I'd say that we continue to operate in an environment that is favorable, but with players that are certainly very savvy, especially large colos and hyperscalers in their, let's say, buying.
Speaker Change: Well I think it's a it's really a specific customer by customer and technology by technology, a different technology may have a different profile of.
Speaker Change: Let's say <unk>.
Speaker Change #100: <unk> and demand balances so it's hard to it's hard to define general.
Giordano Albertazzi: Certainly, what we see is a market environment where, you know, vendors and, especially, a player like Vertiv with a strong value proposition can translate that into value for our customers and translate that into enterprise. Now, we'll of course go through all the aspects of your question and further reflect on that, but I'd say that we continue to operate in an environment that is favorable, but with players that are certainly very savvy, especially large colos and hyperscalers in their, let's say, buy-in dynamics. Your next question comes from Jeff, with Surgical Research. Hey, good day, everyone.
Speaker Change #101: Rule here certainly what we what we see is is it the price is in a market environment, where.
Vendors and especially a player like virtu with the strong.
Speaker Change #101: <unk> value proposition can can translate that into value to our customers and translate that into into enterprise now ill will.
Speaker Change #101: <unk>.
Speaker Change #101: Go through all the aspects.
Speaker Change #101: Your question further reflect on that but but I would say that we continue to operate in an environment that is that it is favorable but with players that.
Speaker Change #101: Certainly very savvy.
Speaker Change #101: Specially large colo and Hyperscale is in there in the let's say buying dynamics.
Giordano Albertazzi: Dynamics.
Speaker Change #101: Yes.
Unknown Executive: Thank you.
Speaker Change #102: Thank you.
Jeff Greg: Your next question comes from Jeff Greg with the School Research Partner. Hey, good day, everyone. We could just maybe put a finer point on share and how you're measuring it. Obviously, there's a lot of concerns about competition before you're hearing on the call, but when we look at your order of growth rate and the like, it doesn't appear to me there's a share issue. But you did mention you believe you're gaining share. So I wonder if you could just tell us how you're measuring that. How fast do you think the market's growing? Are you thinking about the answer to this question in terms of dollars per megawatt or some other metric, and just help us get a little more comfortable with how your business is, you know, is performing relative to the competitive set.
Speaker Change #103: Your next question comes from Jeff Greg Smith, That's cool research partners.
Giordano Albertazzi: I was wondering if we could just maybe put a finer point on share and how you're measuring it. Obviously, there are a lot of concerns about competition. You've heard before you've heard on the call.
Speaker Change #104: Good day everyone.
Speaker Change #105: I was wondering if we could just.
Speaker Change #106: Maybe put a finer point on share and how you're measuring it.
Speaker Change #107: Obviously theres a lot of concerns about competition, it's heard before youre hearing on the call but.
Speaker Change #108: But when we look at your order growth rates and the like.
Giordano Albertazzi: But when we look at your order growth rate, and the like, it doesn't appear to me there's a share issue. But you did mention you believe you're gaining share. So I wonder if you could just tell us how you're measuring that? How fast do you think the market's growing? Are you thinking about the answer to this question in terms of dollars per megawatt or some other metric?
Speaker Change #109: It doesn't appear to me there is a share issue, but you did mention you believe you're gaining share. So I wonder if you could just tell us how you are measuring that how fast do you think the market's growing.
Speaker Change #110: Are you thinking about the answer to this question in terms of dollars per megawatt or some other metric.
Giordano Albertazzi: And just help us get a little more comfortable with how your business is performing relative to the competitive set. Thank you for your question, Jeff, first of all, and certainly our audit trajectory is encouraging from the point of view of the signals that it gives us in terms of market share. There are parts of the market that are relatively new as well; there are parts of the market that are quite new. Unknown Attendee, Giordano Albertazzi, Charles Tusa, Anand Sanghi, Unknown Attendee, Giordano Albertazzi, Unknown Attendee, Thank you. I would now like to hand it back to you.
Speaker Change #110: And.
Speaker Change #111: Just help us get a little more comfortable with how your business is performing relative to the competitive set.
Speaker Change #113: Especially our well thank you for your question.
Giordano Albertazzi: Thank you for your question, first of all, and certainly our audit trajectory is encouraging from the point of view that the point of view of the signals that it gives us in terms of market share. There are parts of the market that are relatively new as well; there are parts of the markets that are quite mature in terms of having access to all the market information.
Speaker Change #112: First of all in.
Speaker Change #114: The Symphony I would've trajectory is is encouraging from from the point of views that the from the point of view of the signals that it gives us in terms of market share, but all parts of the market that.
Speaker Change #114: That are relatively new as well.
Speaker Change #114: To the markets.
Speaker Change #114: Quite a quite mature in terms of our having access to all the market information. So again the answer the answer should be.
Giordano Albertazzi: Again, the answer should be specific to the technology. But in general, if we think about what we gave in November in terms of growth or the cloud collocation in the 14%, 17%, of course our orders are encouraging. The market share is always something that is a little bit measured, exposed, but the trajectory we are on certainly suggests that the outlook is positive in that respect. You were asking as well about dollars per megawatt vision or thoughts right now at this stage, not very different from what we shared with all of you in the past. Again, in 2.5 or 3 non-AI and 335 million megawatt of CAM for Vertiv in the AI space.
Speaker Change #114: Specific to two to the technology.
Speaker Change #114: But in general if we think about what we gave in November in terms of growth of the cloud co location.
Speaker Change #114: In the 14% to 17% of course, our orders are encouraging.
Speaker Change #114: Our market share is always something that is literally measured ex post.
Speaker Change #114: But the trajectory we are on certainly suggests that that.
Speaker Change #115: The the outlook is positive in the in that respect, we're asking as well.
Speaker Change #116: Dollars megawatt.
Yes.
Speaker Change #117: Vision or thoughts right now.
Speaker Change #118: At this stage not very different from from what we shared with with all of you in the past so thinking again, they've made into two five or three.
Speaker Change #118: Non AI and 335.
Speaker Change #119: We didn't.
Speaker Change #119: Megawatts of.
Speaker Change #119: The Tam for buckets in the AI space I'll say that that is.
Giordano Albertazzi: That is for us still a valid order of market.
Speaker Change #119: As for US is still valid.
Order of magnitude.
Speaker Change #119: Yeah.
Speaker Change #119: Okay.
Giordano Albertazzi: Thank you.
Speaker Change #120: Thank you.
Unknown Executive: I would now like to hand it back to your donor, Albert Sasi, for some closing remarks. Hi, yes, Operator. I think we have time for a couple more questions. There's a few more in queue. Go ahead and take those.
Speaker Change #119: I would now like to hand, it back to Joe.
Speaker Change #121: Joe Donna chassis for some closing remarks.
Giordano Albertazzi: Giordano Albertazzi, for some closing remarks. Hi. Yes, operator. I think we have time for a couple more questions. There are a few more in queue. Go ahead and take those.
Speaker Change #119: Okay.
Speaker Change #122: Hi, operator, I think we have time for a couple of more questions. There's a few more to go ahead and take that.
Giordano Albertazzi: Absolutely. I apologize. We now have Nigel Coe with Wolf. Gee, thanks for saving me there. I was drowning.
Unknown Executive: I apologize.
Speaker Change #123: I apologize, we now have Nigel Coe with Wolfe research.
Nigel Coe: We now have Nigel Coe with Wolf Research. Gee, thanks for seeing me there. I was drowning. Thank you so much. Wow, okay.
Speaker Change #122: Thanks.
Speaker Change #122: Drowning.
Speaker Change #122: Oh.
Giordano Albertazzi: Thanks. Always. Wow. Okay. Yeah, so I would like to, I think, take Jeff's kind of line of thought a little bit differently.
Speaker Change #124: Wow Okay.
Speaker Change #122: Yes.
Giordano Albertazzi: I would like to take Jeff's kind of line of thought a bit differently. Obviously, I tend to agree with the view that your front-end capability service network is a big advantage. The other side of the coin is you've got a bunch of Asian server OEMs that are trying to integrate around the server, and they're there with CDUs, etc. Maybe just talk about their abilities to do that. Maybe just a bit more server-biquely. What sort of win rate are you seeing on liquid cooling, right? Now. I'll go back about. Thank you for the question. And Nigel.
Speaker Change #122: I would like to.
Speaker Change #122: Take Jeff's kind of line of thought.
Giordano Albertazzi: You know, obviously, I tend to agree with the view that your front-end capability service network is a big advantage. But the other side of the coin is you've got a bunch of, you know, Asian server OEMs that are trying to integrate around the server, and, you know, they're there with CDUs, etc. Maybe just talk about their ability to do that and maybe just maybe a bit more publicly. What sort of wind rate are you seeing on liquid cooling right now?
Speaker Change #122: Obviously, yes.
Speaker Change #122: I tend to agree with them.
Speaker Change #125: To do that your front end capability service network is a big advantage.
Speaker Change #126: The other side of the coin is you've got a bunch of Asian Oems that are trying to integrate around the third and.
Speaker Change #127: With <unk> et cetera, maybe just talk about their abilities to do that and maybe just maybe a bit more so, particularly what's sort of win rate are you seeing on liquid cooling right now.
Giordano Albertazzi: Thank you for the question, Nigel, and again, as mentioned when we went through the slides, it's not just about having a widget. It's about having the ability, having, first of all, very strong technology, as we do, but then having very strong controls that are an important part of the liquid, especially CDU, direct-to-chip equation. Having the right manufacturing processes, the ability to scale. Clearly, we always evaluate our competitors very, very seriously, but when you think about the system integrators or other players in that space, we should not necessarily look at them as necessarily competitors. Very often, they play a hybrid role, and they can be a route to market as well.
Speaker Change #128: Again, I'll go back and well. Thank you for your question.
And Nigel and.
Giordano Albertazzi: And again, as mentioned, when we're going through with the slides, it's not just about having a widget; it's about having the ability, having, first of all, very strong technology as we do, but then having very strong controls that are an important part of the liquid, especially for you, direct chip equation, having the right manufacturing processes, the ability to scale and services. Clearly, we always evaluate our competitors very, very seriously. But when you think about the system integrators or other players in that space, we shouldn't not necessarily look at them as necessarily competitors. Very often they play in a hybrid role, and they can be a route to market as well.
Speaker Change #127: Again.
Speaker Change #127: As mentioned when we were going through the slides.
Speaker Change #127: It's not just about having a widget.
Speaker Change #127: It's about having the ability having first of all very strong technology.
Speaker Change #127: As we do but then have in.
Speaker Change #127: Very strong controls that are an important part of the <unk>.
Speaker Change #127: Liquid, especially CDU Dara to chip equation, having the the.
Speaker Change #127: Manufacturing processes, the ability to scale and services.
Speaker Change #127: Clearly we.
Speaker Change #127: We always.
Speaker Change #127: Evaluate.
Speaker Change #127: Our competitors very very seriously, but when you when you think about the system integrators.
Speaker Change #127: Other players in that space, we shouldnt necessarily look at them as necessarily competitors.
Speaker Change #127: And they play in hybrid role and they can be a.
Speaker Change #127: Route to market as well so things are a little bit more.
Giordano Albertazzi: So things are a little bit more nuanced than they may appear at first glance. So when it comes to win rates, we'll not go into details of the win rates at this stage, but I think it's important to say that we are very, very happy with the trajectory of space across, of course, the portfolio, but in particular, in the CDU space. Very, very, very, very happy. Yeah, but I will not go into detail about that at this stage. Thank you. As a reminder, if you would like to ask any further questions, please press star followed by one on your telephone. Your next question comes from Noah Kaye with Oppenheimer.
Giordano Albertazzi: So things are a bit more nuanced than they may appear at first glance.
Nuanced than they they may appear at.
Speaker Change #127: First at the first.
Giordano Albertazzi: So when it comes to wind rates, we'll not go with the details of the wind rates at this stage. But I think it's important to say that we are very, very happy with the trajectory of orders and backlog that we have in the liquid cooling space across, across the portfolio, but in particular, in the CDU space. Very, very, very happy. Yeah, but I will not go into it if I'll be there at that at this stage. Thank you.
Speaker Change #127: <unk> guidance so.
Speaker Change #127: When it comes to.
Speaker Change #127: To win rates.
Speaker Change #127: We will not go into details of the of the win rates at this stage, but.
Speaker Change #127: I think it's important to say that we are very very happy with.
Speaker Change #127: With a trajectory of orders and backlog.
Speaker Change #127: That we have in our liquid cooling space across our across the portfolio, but in particular.
Speaker Change #127: In the CD in the CPU space very very very very happy.
Speaker Change #129: Yes, but I will not go into each probably say about that at this stage.
Speaker Change #129: Yeah.
Speaker Change #130: Thank you as a reminder, if you would like to ask any further question. Please press star followed by one on your telephone keypad now.
breaker: As a reminder, if you would like to ask any further questions, please press the star fuller by one on your telephone keypads now.
Noah Kaye: Your next question comes from Noah Kaye with OpenHimmer Farmers. Thank you. So, with enterprise on-prem migration workloads for the cloud, perhaps getting into a little bit more of a new equilibrium here, you mentioned an uptick in the outlook for enterprise in the Americas. To what extent was that contemplated in the sort of three to five percent outlook you gave at the November investor day? Could we potentially be seeing growth starting to pick up versus that rate? And is that something that you're seeing in the pipeline currently?
Speaker Change #130: Your next question comes from Noah Kaye with.
Noah Duke Kaye: Hey, Matt.
Giordano Albertazzi: Thank you. So with enterprise on premises, migration of workloads to the cloud, perhaps getting into a little bit more of a new equilibrium here. You mentioned an uptick in the outlook for enterprises in the Americas. But to what extent was that contemplated in the sort of three to five percent?
Thank you so so with enterprise on from migration of workloads to the cloud, perhaps getting into a little bit more of a new equilibrium here.
Speaker Change #132: You mentioned, an uptick in the outlook for for enterprise in the Americas.
Noah Duke Kaye: To what extent was that contemplated in the sort of 3% to 5% outlaw.
Giordano Albertazzi: Outlook you gave at the November Investor Day, could we potentially be seeing, you know, growth starting to pick up versus that rate? And is that something that you're seeing in the pipeline? Well, thanks for the question. A good point in the sense that when we talked about that three to five percent, we're saying that that may be, if you will, augmented, expanded, expanded by the implications of AI as AI matures and becomes more available, and not just on cloud and core. So I'd say that it's early stage, but we gave a different color for a reason on slide four, I think it was.
Outlook you gave at the November Investor day could we potentially be seeing.
Speaker Change #133: Growth starting to pick up versus that rate.
And is that something that youre seeing in the pipeline currently.
Giordano Albertazzi: Well, thank you for the question. Good point in the sense that when we talked about that three to five percent, we'll say that that may be; she will augment it, expanded by the implications of AI as AI matures and becomes more available. And not just on cloud and color. So I'd say that it's early stage, but we gave a different color for reason on slide four, I think it was. And it is exactly that pipeline starts to indicate that things may be better in the enterprise part of the market than we had in our November model, but it's yet a little bit premature to we think aspects of the model, but we do constantly, but yes, we see positivity in the pipeline and certainly in the direction of a faster growth in enterprise than originally expected.
Speaker Change #134: Well thank you for the question.
Bob.
Bob: Good point in the sense that.
Speaker Change #136: When we talked about that three to five 3% to 5%, we're saying that that may be if you will.
Speaker Change #137: <unk> expanded.
Speaker Change #137: <unk> bye.
Speaker Change #137: The implications of AI is AI matures and becomes more.
Speaker Change #137: At intervals and not just on the cloud and.
Speaker Change #137: And coal or so.
Speaker Change #138: I would say that its early stage.
We gave a different color.
Speaker Change #138: Four.
Giordano Albertazzi: And it is exactly that pipeline that starts to indicate that things may be better in the enterprise part of the market than we had in our November model, but it's yet a little bit premature to say. We think aspects of the model, but it's something that we continue to do constantly. But yes, we see positivity in the pipeline and certainly in the direction of faster growth in enterprise than originally. We now have Steve Tusa with KPMORG.
Speaker Change #138: For the reason on the on slide four I think it was.
Speaker Change #138: And it is exactly that pipeline start to indicate that things may be better in the enterprise.
Speaker Change #139: Part of the market.
Speaker Change #139: And then we had you know in November motive, but it's yet a little bit premature.
Speaker Change #140: Two two.
Speaker Change #140: We think aspects of them of the model, but it's something that we continue we do constantly but.
Speaker Change #140: But yes, we see positivity in the pipeline and uncertainty in the direction of <unk>.
Speaker Change #140: Faster growth in enterprise than a regionally originally expected.
Speaker Change #140: Yeah.
Unknown Executive: Thank you.
Speaker Change #141: Thank you.
Steve Tuzza: We now have Steve Tuzza with KPMorgan. Oh, hey, thanks for taking the follow-up. Just question on cash. Seasonally, you guys usually, you know, kind of flat in the from the second to third and then up nicely in the fourth. I know that there's some timing on down payment involved with, you know, the contract or deferred revenue, however you want to call it. Are you, why you guys not expecting that this year? Is there some timing around that? Yeah, I think there's timing. If you look at our advanced payments and you can look at the deferred revenue line in the balance sheet, that was up 150 million in Q2 and not surprising, you know, based on the quantum of the orders we had in Q2.
Speaker Change #141: Hi, Steve Tusa with Jpmorgan.
Giordano Albertazzi: Oh, hey, thanks for taking the follow up. Just a question on cash. Seasonally, you guys usually, you know, kind of flat from the second to third and then up nicely in the fourth. I know that there's some timing on down payments involved with, you know, the contract or deferred revenue, however you want to call it. Are you, why are you guys not expecting that this year?
Charles Stephen Tusa: Oh, hey, thanks for taking the follow up.
Charles Stephen Tusa: Just a question on cash.
Speaker Change #142: Seasonally you guys, usually kind of flat.
Speaker Change #143: From the second to third and then up nicely in the fourth I know that there is some timing on downpayments involved with.
Speaker Change #144: The contract or deferred revenue, however, you want to call it.
Speaker Change #145: Are you what why you guys not expecting that this year or is there some timing around that.
Giordano Albertazzi: Is there some timing around that? Yeah, I think there's timing. If you look at our advanced payments, and you can look at the deferred revenue line in the balance sheet, that was up 150 million in Q2. And not surprising, you know, based on the quantum of the orders we had in Q2.
Speaker Change #146: I think theres timing, if you look at.
Speaker Change #147: Our advanced payments and you can look at the deferred revenue line in the balance sheet that was up $150 million in Q2 and not surprising based on the.
Speaker Change #147: The.
Speaker Change #147: Quantum of the orders we had in Q2, so effectively that's a prepayment and that would impact the cash flow timing going forward. So.
Giordano Albertazzi: So effectively, that's a prepayment, and that would impact the cash flow timing going forward. So I think I mentioned we would expect about $440 million for the rest of the year, and that should be pretty uniform. But similar to orders, there is an element of timing and lumpiness, especially with some of these advanced payments. But I think we're comfortable with the $220, $220 for $230.
David Fallon: So, effectively, that's a pre-payment, and that would impact the cash flow timing going forward. So, I think I mentioned, you know, we would expect about 440 million for the rest of the year, and that should be pretty uniform. But similar to orders, you know, there is an element of timing and lumpiness, especially with some of these advance payments. But I think we're comfortable with the, you know, 220, 220 for Q3, Q4.
Speaker Change #147: I think I mentioned, we would expect about $440 million for the rest of the year and that should be pretty uniform.
Speaker Change #147: Similar to orders there is an element of timing and lumpiness, especially with some of these.
Speaker Change #147: Advanced payments, but.
Speaker Change #147: I think we're comfortable with the $2 20 to 2000 for Q3 Q4.
Unknown Executive: Thank you.
Giordano Albertazzi: Thank you. Your next question comes from Nigel Coe with Wolf Research. Thanks for the follow-up. I just wanted to talk about the margins in APAC, mainly. It's good to see the Americas and EMEA having this competition. Just wondering when Asia is going to get involved in this competition.
Thank you. Your next question comes from Nigel Coe with Wolfe Research.
Unknown Executive: Your next question comes from Nigel Coe with Wolf Research. Thanks for the follow-up. Just wanted to talk about the margins and APAC mainly. It's good to see, you know, the Americas and the EMEA have in this competition.
Speaker Change #148: Thanks for the follow up I, just wanted to talk about the margins in APAC, mainly it's good to see.
Speaker Change #148: The Americas and EMEA, having this competition.
David Fallon: Just wondering when APAC is going to get involved in this competition. So, you know, as we see the inflection and APAC coming through, what kind of incremental margin should we expect as we go for the next, you know, couple of years? Yeah, I think if you look at APAC, they're probably not going to be an active participant in the regional high, and there's some market differences there, notably with China. But, you know, if you look at a year-to-date basis, even though they were down in Q2 and versus prior year, and some of that driven by the one-time expense.
Speaker Change #149: Just wondering when APAC going to get involved in this competition. So.
Giordano Albertazzi: So, you know, as we see the inflection in AIPAC coming through, what kind of incremental margin should we expect as we go over the next couple of years? Yeah, I think if you look at AIPAC, they're probably not going to be an active participant in the regional high. And there are some market differences there, notably with China.
Speaker Change #150: As we see the inflection in APAC coming through what kind of incremental margin should.
Speaker Change #151: Should we expect as we go over the next couple of years.
Speaker Change #151: Yes.
Speaker Change #151: Yes.
Speaker Change #152: I think if you look at APAC, they're probably not going to be an active participant in the regional high and Theres some market differences there.
Speaker Change #152: Notably with China, but.
Giordano Albertazzi: But, you know, if you look on a year-to-date basis, even though they were down in Q2 versus the prior year, and some of that's driven by the one-time expense, but on a year-to-date basis, they're still 100 basis points higher than they were last year. We think that, you know, the year-over-year variance will expand in the second half. And VOS principles work in APAC just like they do in the Americas and EMEA.
Speaker Change #152: If you look on a year to date basis, even though they were down in Q2 and versus prior year and some of that driven by the one time expense, but on a year to date basis, Theres still 100 basis points higher than they were last year.
David Fallon: But on a year-to-day basis, there's still 100 basis points higher than they were last year. We think that, you know, year-over-year variants will expand in the second half. And VOS principles work in APAC just like they do in the Americas and the EMEA. So, we're doing the same thing in APAC as we are doing in the rest of the world. And even though from a relative basis may be a step below APAC in America, we expect expansion of operating margins in APAC for the rest of the year and also going towards.
Speaker Change #152: We think that.
Speaker Change #152: Year over year.
Speaker Change #153: Variance will expand in the second half.
Speaker Change #154: And boss principles work in APAC, just like they do.
Speaker Change #154: In the Americas and EMEA so.
Giordano Albertazzi: So, we are doing the same things in APAC as we are doing in the rest of the world. Even though, on a relative basis, maybe a step below APAC in America, we expect expansion of operating margins in APAC for the rest of the year and also going forward. Thank you. Our final question comes from Brett Linzey with Mizzou.
Speaker Change #154: We are doing the same things in APAC as we are doing in the rest of the world and even though from a relative basis may be a step below APAC in America.
Speaker Change #154: We expect expansion of operating margins in APAC for the rest of the year and also going forward.
Speaker Change #154: Yeah.
Brett Linzey: Thank you.
Speaker Change #155: Thank you. Our final question comes from Brett Linzey with Mizuho you May proceed.
Giordano Albertazzi: Our final question comes from Brett Linzey with Mizui. You may proceed. Thanks. Good day, everyone. You know it's in the slides managing timing constraints around construction of power availability. I guess as they're way to dimension how much of the current backlog is permitted, resourced, ready to break ground verse. You know, the portion that might be a little bit more data and certain, just trying to get a better sense for the visibility in the next year.
Giordano Albertazzi: Thanks. Good day, everyone. So, you noted in the slides managing timing constraints around construction and power availability. I guess, is there a way to dimension how much of the current backlog is permitted, resourced, and ready to break ground versus the portion that might be a little bit more data uncertain, just trying to get a better sense for the visibility of next year? Well, thank you for your question. When we talk about permitting and power constraints, we are talking about, in general, the industry as a whole.
Brett Logan Linzey: Hi, Thanks, Good day everyone.
Brett Logan Linzey: So you noted in the slides managing timing constraints around construction of power availability I guess is there a way just to dimension how much of the current backlog is permitted resource ready to break ground versus the portion that might be a little bit more data uncertain, just trying to get a better sense for the visibility into next year.
Brett Logan Linzey: Okay.
Giordano Albertazzi: Well, thank you for your question. When we talk about permitting and power constraints, we talk about, in general, the industry as a whole. So it's not something that I'm going to say is applicable to our backlog. We believe that what we have in backlog, we're reflecting our customers' requested delivery date already accounts for all those aspects. Well, there could be a little bit covered just in exactly when a given site is ready, but nothing unusual and nothing different than what has happened in the industry for four years. So if we go back to some of the expectations in the market for growth, very, very strong, very, very strong double-digit growth in industry and infrastructure in general.
Speaker Change #157: Just well thank you for your question when we talk about.
Speaker Change #158: Permitting and power constraints, we talked about in general.
Speaker Change #159: The industry as.
Speaker Change #160: As a whole.
Giordano Albertazzi: So, it's not something that necessarily is applicable to our backlog. We believe that what we have in backlog, reflecting our customers' requested delivery date, already, I don't know, it could be a little bit adjusting exactly when a given site is ready, but nothing unusual and nothing different than what has happened in the industry for years. So if we go back to some of the expectations in the market for a growth, a very, very strong, very, very strong double-digit growth in the industry and infrastructure in general, we said, and we said that already in our November Investor Day, say, hey, guys, there are, how can I say, aspects that are influencing factors that are reducing this exuberance to levels of market growth that, again, going back to what we were saying in the cloud and co-location, is already, let's say, 15%, 16%, 17% CAGR.
Speaker Change #160: So it's not something that is applicable to two our backlog.
Speaker Change #160: We believe that what we have in backlog.
Speaker Change #163: We're reflecting our customers.
Speaker Change #160: Requested.
Speaker Change #160: Delivery dates already accounts for all of those aspects.
Speaker Change #160: It could be a little bit of kind of adjusting and exactly when Linda when a given scientists ready, but nothing unusual and nothing different than what has happened in the industry for four years. So if.
Speaker Change #160: If we go back to some of the expectations in the market for growth.
Speaker Change #161: Very very strong very very strong double digit growth in industry and infrastructure and in general We said and we said that already in our November Investor Day, and say Hey, guys. There are.
Giordano Albertazzi: So we said and we said that already in our November investor day, say, hey guys, there are, I'm going to say aspects that there are influencing factors that are that are reducing this exuberance to levels of market growth that again going back to what we're saying in the cloud and collocation. In the radio, let's say, 15, 16, 17% kega. So growth rates that are very, very respectable in many, many respects. But no, my comment was not that did not have to do with our backlog. Our backlog is based on the requested delivery date that we get on the PO that we see from our customers.
Speaker Change #161: How can I say.
Speaker Change #160: Aspects that are influencing factors.
Speaker Change #160: Reducing this exuberance to levels of market growth that again going back to what we were saying in the cloud and Colocation is already.
Speaker Change #160: Let's say 15 16, 17% CAGR.
Speaker Change #160: Growth rates that are very very very respectable in in many many respects but.
Giordano Albertazzi: So growth rates that are very, very, very respectable in many, many respects. But, no, my comment did not have to do with our backlog. Our backlog is based on the requested delivery date that we get on the PO that we receive from our customers, and it could be a minimal adjustment depending on the needs.
Speaker Change #164: No my comment was.
Speaker Change #162: Did not have.
Speaker Change #162: And to do with our with our backlog our backlog is based on the on the requested.
Speaker Change #162: Delivery dates that we get on the on the Po that we received from from our customers and it could be a meaningful adjustment depending on the on the needs hopefully addressing your question and that comes down.
Unknown Executive: And it could be a minimal adjustment, depending on the needs, hopefully addressing your question and concern. All right.
Giordano Albertazzi: Hopefully, I have addressed your question and concern. Thank you. This does conclude our question and answer session. I would like to turn the conference back over to Giordano Albertazzi for any closing remarks. Well, very good.
Speaker Change #162: Yeah.
Speaker Change #162: Alright.
Unknown Executive: Thank you. This does conclude our question and answer session.
Speaker Change #162: Thank you. This does conclude our question and answer session I would like to turn the conference back over to Keith <unk> for any closing remarks.
Giordano Albertazzi: I would like to turn the conference back over to you down there, Albert. I see for any closing remarks. Well, very good. And thank you very much. The thanks everyone for joining us today. Big thank you for your questions. And I'd first and foremost would like to thank the vertical team for another quarter of strong performance. So we appreciate everyone for support and have a great rest of your day today. Thank you.
Giordano Albertazzi: And thank you, Rinka. Thanks, everyone, for joining us today. A big thank you for your questions. And first and foremost, I'd like to thank the Vertiv team for another quarter of strong performance. So really appreciate everyone's support and and have a great rest of your day today. Thank you. The conference call has now concluded. Thank you for attending the presentation.
Speaker Change #162: Well.
Got you.
Speaker Change #162: And.
Keith: Thank you Brent the thanks, everyone for joining us today, a big Thank you for your questions and first and foremost.
Speaker Change #166: Most of it I'd like to thank the <unk> team for another quarter of strong performance. So really appreciate everyone's support and.
Keith: And have a great rest of your day to day.
Keith: Yeah.
Speaker Change #167: Thank you. The conference has now concluded. Thank you for attending the presentation you may now disconnect.
Operator: The conference who has now concluded, thank you for attending the presentation. You may now. Let's click on the code.
Keith: [music].