Q4 2024 Vertiv Holdings Co Earnings Call
Good morning, My name is not yeah, and it'll be a conference operator today.
Speaker Change: At this time I would like to welcome everyone to buy tapes fourth quarter and full year 'twenty 'twenty four earnings conference call.
All lines have been placed on mute to prevent any background noise.
Speaker Change: Please note that this call is being recorded.
Speaker Change: Now I'd like to turn the program over to a high School today's conference co living like sign up Vice President of Investor Relations.
Speaker Change: Great. Thanks, Good morning, and welcome to Virtus fourth quarter and full year 2024 earnings Conference call. Joining me today are verdicts executive Chairman, Dave Cody Chief Executive Officer, She all the Topsy and Chief Financial Officer, Dave Powers, We have one hour for the call today during the Q&A poor.
Speaker Change: Of the call please be mindful of others in the queue and limit yourself to one question and if you've ever follow up question. Please rejoin the queue.
Speaker Change: 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 averted. These forward looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. We refer you to the cautionary language included.
Speaker Change: 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.
Speaker Change: 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 I've heard of Dot com with that I'll turn the call over to executive Chairman Dave Cody.
Dave Cody: We executed a fourth quarter event quite convincing way.
Dave Cody: Our sales guidance significantly in C&I growth translate very nicely into EPS and cash flow.
Dave Cody: Unfortunately, the continuous transformation underway at Virtu.
Dave Cody: They've been a very nice track record of consistently delivering outperformance.
Dave Cody: Two or three months have been actually quite surprised to see the overreactions too.
Dave Cody: Any kind of news in our stock.
Dave Cody: It was.
Dave Cody: Star Gate.
Dave Cody: The deep sea.
Crush downward, which makes no sense.
Dave Cody: Even that the news.
Dave Cody: Fly lower cost of compute meaning more data more data centers, meaning more burden.
Dave Cody: Actually good not negative.
Dave Cody: And today seeing the reaction to these from analyst reports.
Dave Cody: Reacting to orders.
Dave Cody: Again orders are quite strong.
Dave Cody: Take a look at.
Dave Cody: Orders historically, they're always lumpy there just the way it is it just a lumpy quarter to quarter.
Dave Cody: And it seems to be masking the really good news, we had in the fourth quarter regarding America's orders.
Dave Cody: Especially as you look at HIFU, and Colo, which is a focus for everyone.
Dave Cody: Extraordinarily strong.
Dave Cody: And that all seems to be getting mass.
Speaker Change: There's nothing I can do nothing Judah when this team can do about what it means to those kind of Overreactions. We can vantage is continued outperformance of the company.
Dave Cody: When it comes to sales earnings and cash flow.
Dave Cody: We delivered another great year in 'twenty for that set a firm foundation for outperformance in 2025 and beyond.
Dave Cody: I continue to believe that the best is still ahead.
Dave Cody: We have a just an absolutely terrific position.
Dave Cody: Very good industry.
Dave Cody: Could it go on for a long time, given the digital age is a long way to go and there's nothing that replaces data centers at this point or anything even on the horizon that says you can replace it. So I expect our continued outperformance to well continue for a long time.
Dave Cody: Our confidence is born not just from being a great end markets, but some of the benefits we're seeing from our seed planting in R&D customer relationships and Capex I'm more convinced sitting here today, you know I should add.
Speaker Change: They have good management team I'm quite impressed with Joe and his team.
Speaker Change: More convinced sitting here today that <unk> is well positioned to keep winning now.
Speaker Change: In winning later.
Speaker Change: Combination for our shareholders, so with that I'll turn it over to Jill.
Jill: Well. Thank you very much Dave. Thank you, so and with that we tend to slide three and as I said this was another great quarter.
Speaker Change: Clearly a strong close to another year of very strong performance altogether adjusted earnings per share were two $9 a means of 77% increase versus prior year is a direct reflection of the substantial increase in profitability.
Speaker Change: Q4 organic sales growth of 27% will stay with the sales growth of over 20% in both Americas and APAC and it was 30% in EMEA. Our trailing 12 months orders remained strong at 30% about 30% we are particularly encouraged.
Speaker Change: By the Americas trailing 12 months as Dave said, which are up over 50% and more to come on they have seen in the next few slides.
Speaker Change: The strong flow through to profit from our large beetle sale was visible with adjusted operating profit of $504 million and adjusted operating margin of 21, 5%, which expanded 380 basis points compared to the prior year.
Speaker Change: Adjusted free cash flow generation was $362 million in Q4 and over $1 1 billion for the full year.
Speaker Change: Our net leverage reduced to one X as we finished the year, we enter 2025 with a very strong balance sheet, which gives us a lot of optionality relative to capital deployment.
Speaker Change: In 2024, we deployed $600 million of share repurchase.
Speaker Change: And then announced an increase in our dividend to 50%.
Speaker Change: We increased our R&D by 50 million doubling down on the technology and new projects that continue to separate voting from competition.
Speaker Change: We anticipate our adjusted EPS for 2025 to be between three five and $3 $6 consistent with the guidance. We provided in November we have increased our estimate 2025 sales at approximately $9 $2 billion.
Speaker Change: The midpoint this is about $75 million higher than our implied sales guidance in November.
Speaker Change: Despite projected FX headwinds.
Speaker Change: And the Q4.
Speaker Change: Over over delivered.
Speaker Change: We enter 2025 stronger than we have ever been let's go now to slide four.
As mentioned, our trailing 12 month order growth is 30%.
Speaker Change: Americas tie TTM organic orders were up 50% in total we though of course, particularly strong quarter in Hyperscale orders. This suggests a strong market as well as very strong vertical presence in the market Southeast Asia, and Australia, New Zealand and India trailing 12 months.
Speaker Change: Orders were up significantly as well we saw weakness in EMEA in Q4, as some project activity had a.
Speaker Change: A shift in timing to 2025, we are quite pleased with what we're seeing and winning in the market and if it supports our revenue projections for 2025 as does our strong backlog, which is up 30% year on year, Despite FX headwinds.
Speaker Change: <unk>.
Speaker Change: This is a backlog to sales ratio of 78% well above the 69% we had a year ago relative to 'twenty four actual sales.
Speaker Change: We believe our strong backlog and new projects.
Speaker Change: Pipeline sets up very well for many years as Dave noted in his remark.
Speaker Change: We have urged consensus simply also from the largest hyperscale is the likely computed LLM efficiencies should drive more AI adoption.
Speaker Change: Most of these hyperscale is have confirmed significant increases in their capex spend to support this.
Speaker Change: This means large investments in data center builds that need our treatment and services.
Speaker Change: That sounds like very good news indeed for votive, let's now.
Speaker Change: Go to <unk>.
Speaker Change: Slide four we hired in the slide four sorry, we go to the right side of slide four.
Speaker Change: <unk> chain resilience continues to strengthen we have matured as an organization in this area. We have been successfully working to drive geographic balance and we continue doing so we have multiple sources of supply to deal with geographical uncertainty, we believe price cost will be positive for 2020.
Speaker Change: Five white questions remained relative to potential tariff impacts, we have been adding regional sourcing and manufacturing options to complement our existing global supply chain.
Speaker Change: Situation with tariffs remains very fluid so it would be premature to discuss it in detail at the same time. It is worth mentioning we have of course built scenarios Zen playbooks aimed at strategically mitigated some of the tariff impacts to be clear, although there is much uncertainty regarding the scope and.
Speaker Change: Breadth of tariffs, we believe we are well prepared and take strategic actions to take strategic actions to help mitigate risks.
Speaker Change: For example in 2020 full we expanded and strengthened our supply base and manufacturing footprint in the United States as part of <unk>.
Speaker Change: Overall capacity strategy to grow with the customer demand, we see in the U S. Vertical operating system is truly becoming part of the culture that is translating into tangible productivity gains is also liberating capacity needed to support the strong demand trajectory in combination with our ongoing <unk>.
Speaker Change: Print expansion.
Speaker Change: Let's now move to slide five.
Speaker Change: I want to highlight the importance and the strength of our power portfolio.
Speaker Change: Much of the recent focus has been on thermal technology.
Speaker Change: Which of course, we love there is an equally exciting story around powerful virtue.
Speaker Change: Complex technology changes are happening in the data center and to speed. The industry has not seen before AI is going to drive the need for much more power and much more complexity around the distribution of that power in the data center.
You have heard say the system matters, while the system matters more than ever before it is important to understand how the entire system functions together and to design the infrastructure the way that maximizes efficiency and reliability.
Speaker Change: And now more than ever in a way that is future proof wildly increasing densification and challenges of enabling AI AI data centers we.
Speaker Change: We see more and more opportunities to further integrate power conversion distribution in thermal management in ways that can simplify the critical mechanical and electrical infrastructure.
Let's now move to slide six.
Speaker Change: First let's be clear.
Speaker Change: We are a market leader in power management and have the complete powertrain. This includes all the power gear listed on the left side of this slide.
Speaker Change: Power management represents approximately one third of our total business and we have been in these markets for decades at global scale, when we engage with our customers on their system designs are full view of the power system enables us to help them properly scope the solution and right side.
Speaker Change: Each element of the infrastructure, we offer it in a holistic view of the total infrastructure and have access to and engagement with customers regarding their full facility design and challenges.
Speaker Change: Our visibility into the future of the loads and our Lithia R&D allow us to partner with our customers to make their infrastructure very importantly, future proof.
Speaker Change: Our differentiators full power, which applied broadly across our portfolio also includes global and leading services scale and well established customer relationships. We can package different elements of the critical infrastructure together.
Speaker Change: For the customer system design in the pre engineer and validated way within vertical manufacturing facilities before being deployed to the customer's site via modules or skids.
This offers tremendous value and flexibility to our customers, we see high demand for these solutions and we are well positioned to capture that drove we now turn to slide seven technology.
Technology is at the core of what we do and we have unique capabilities in the market for example vertical expertise.
Speaker Change: Capabilities in both AC power and DC power conversion and power distribution enabled us to work with customers to evaluate different system design approaches to best meet their needs our technology and portfolio are clear differentiators in the market, we are helping to define the roadmaps of the future.
Speaker Change: On the right side of the slide are some example of recent innovations. Many many of you got to see some of the innovative technologies at SC 24, very flexible solutions to give customers the ability to adapt.
Speaker Change: To their infrastructure and interest adapting fast charged to the changing conditions within the data center, helping them to future proof their infrastructure.
Speaker Change: As we sit at the table with the largest customers and technology partners in the World. We have the honor and important responsibility to help them navigate increasingly technical complex infrastructure requirement and then we scale vertically Ken to technical and scale evolution.
Speaker Change: With our customers at levels most cannot.
Speaker Change: Let's go to slide eight.
Speaker Change: We announced a small acquisition in December BSC, which has high efficiency high capacity centrifugal chiller technology and heat reuse technology. This technology is increasingly used to support high density compute applications. The approach is is.
Speaker Change: Like the one we took with Terra.
A little over a year ago. These are technology based acquisition early on the technology maturity curve that reinforce our organic progress and can scale globally. We are very excited too.
Speaker Change: This technology to our portfolio when we look at the right side of this slide we have a strong balance sheet, we have ample liquidity and net leverage is at one X our capital deployment priorities remain consistent with what we described in November.
Speaker Change: We would focus growth investments.
Speaker Change: Organic.
Speaker Change: Inorganic.
Speaker Change: We also have.
Speaker Change: Optionality with our share repurchase program, which has.
Speaker Change: Two 4 billion remaining under the board authorization.
Speaker Change: We have optionality with our dividend, we announced a 50% increase too.
Speaker Change: Zero $15 annually back in November and we expect to double that amount over the five year planning period.
Speaker Change: Mated to achieving and maintaining investment grade ratings and continue to make process progress with that over to you David.
Speaker Change: Perfect.
David: Thanks, Joe turning to slide nine.
David: This slide summarizes our fourth quarter financial results.
David: Adjusted EPS of <unk>, 99, which was 77% higher than last year's fourth quarter and this was primarily driven by higher adjusted operating profit.
David: But also.
David: Continuing on the balance sheet.
David: Theme.
David: Favorably influenced by lower interest expense as strong free cash flow and an improved balance sheet allowed us to execute two term loan re pricings in the past 12 months.
David: Our our organic net sales increased approximately 27% driven by double digit growth across all three regions with EMEA, leading the way at 33%.
David: Fourth quarter sales were more than $200 million higher than the midpoint of guidance with upside across all three regions.
As we entered the fourth quarter, we certainly had the backlog and the capacity to over deliver on our expectations.
David: But we also had a significant number of new product launches, which sometimes introduces timing risk.
David: And sometimes customers request, a deferral of year end shipments from December into January.
David: However, our customers generally want it product as soon as available and our plants executed exceptionally well to mitigate new product launch risk and as a result, we significantly over delivered the top line.
David: Across all three regions approximately $200 million higher than what we guided.
David: Adjusted operating profit of $504 million was 53% higher than last year and this was driven by higher volume and continued improvement in commercial execution, including price cost.
David: Adjusted operating margin of 21, 5% up 380 basis regarding 80 basis points from the fourth quarter of 2023, and 110 basis points higher than guidance certainly provides a very strong foundation for 2025.
David: We generated $362 million of adjusted free cash flow in the quarter.
David: Wondered $35 million higher than guidance driven by higher adjusted operating profit and continued improvement.
David: With trade working capital, which includes accounts receivable inventory accounts payable and deferred revenue.
David: Trade working capital as a percentage of percentage of annualized fourth quarter sales declined to 13, 1% at year end down from 18, 5% at the end of 2023.
David: So good progress with working capital in 2024, but as always never satisfied and Theres still a ton of opportunity going forward.
David: Next turning to slide 10, this slide summarizes our fourth quarter segment results.
David: As mentioned, we saw robust topline growth across all three regions.
Each one up more than 25% from last year's fourth quarter.
Americas had another strong quarter organic sales up 25%.
David: With growth continuing in a convincing way across co location in Hyperscale markets.
David: Adjusted operating margin in the Americas expanded 420 basis points to 25, 6% drill.
David: Driven by commercial execution and operational leverage.
David: Moving to the right on the slide APAC sales increased 27% organically.
David: With strength throughout the region, including China, which grew in the upper teens from last year's fourth quarter.
David: While we are certainly pleased to see this growth in China. We are not confident it is an inflection point.
David: We still see broad economic uncertainty as we enter 2025, but we continue to monitor signs of market growth in green shoots so I guess I can invoke the <unk>.
David: Obligatory CFO statement related to China, we are cautiously optimistic.
David: Top line growth in India, and rest of Asia continued to be strong as AI start penetration in those regions.
David: And we believe based upon our strong AI value proposition.
David: We'll continue to expand market share across both India and the rest of Asia.
David: Apacs adjusted operating margin increased 260 basis points from <unk>.
David: Last year's fourth quarter with benefits from operational leverage and regional mix.
David: Finally to.
David: To the far right EMEA organic sales increased 33%.
David: Which was driven by strong demand from co location in hyperscale customers across.
David: Several product lines, but notably switch gear adjusted operating margin for EMEA increased 300.
David: 70 basis points with benefits from operational leverage and productivity.
David: EMEA once again prevailed in the margin rates with the Americas this quarter and for the full year.
David: But we expect the 2025 rates to become increasingly competitive and we look forward to continue.
David: Improvement in both regions.
David: Next turning to slide 11.
David: This provides a summary of full year 'twenty for results.
David: It was another strong year across the board.
David: And at this time last year I mentioned, how it is always a good thing on this slide when the orange bars are significantly higher than the gray bars, and we are pleased to see this once again for 2024 versus 2023.
And unless we switch colors, we expect this to be the case going forward, including in 2025, which we will review in just a few moments.
David: 2024, adjusted EPS of $2 85.
David: Represents a 61% increase from prior year, primarily driven by higher adjusted operating profit, but also favorably influence.
David: Lower interest expense as I mentioned, a few slides back.
David: Organic sales were up 18% with strong performance across all three regions all double digits higher demonstrating that we are well positioned and winning in our end markets across the globe.
David: Adjusted operating profit increased by nearly a half a billion dollars with adjusted operating margin of 19, 4% up 410 basis points from 23, driven by both improved variable contribution margin and lower fixed costs as a percentage of sales.
David: Our 2020 for margin performance, including exiting the year at 21, 5% provides confidence for our full year 2025 margin.
David: Guidance of 21% as well as our long term target of 25% by 2029.
David: Last year.
David: We experienced a step function in our adjusted free cash flow and we took another step upwards in 2024.
David: We generated over $1 1 billion and adjusted free cash flow.
David: This past year, which translates into a conversion of 103% after converting 114% last year.
David: Our net leverage at the end of 2024 was approximately one times.
David: So we continue to execute well building a track record of financial strength and consistency which provides.
David: Significant flexibility with capital deployment as Joe mentioned.
David: While also developing a balance sheet to achieve investment grade ratings.
David: Before moving off this slide looking one last time at the numbers on the slide it's hard not to be pleased with our results EPS up 61%.
David: Sales up 18% up 47% and cash flow up 46%.
David: It is a testament to our strategy and execution.
David: Hopefully it instills confidence that we honor our financial commitments.
David: But once again pleased but never satisfied 2024 is now behind US in fact, we are already planning for 2026.
David: But we still need to execute this year and we summarize our outlook for 2025 in the next two slides.
David: Moving to page 12, this slide summarizes our first quarter guidance.
And for avoidance of doubt this first quarter and full year guidance does not contemplate any recent proposed changes in policies by the current.
David: U S administration.
David: Including the potential impact from tariffs.
David: With the exception of incremental direct tariffs on China imports.
David: Have a relatively immaterial impact on our financials.
David: We are expecting adjusted EPS of <unk> 60 up for the first quarter up 40% from last year, and Thats, primarily driven by higher adjusted operating profit.
David: First quarter organic sales are expected to be up 19% with Americas up in the low twenties, APAC mid twenties, and EMEA low teens with this organic growth offset by an approximately.
David: $30 million foreign exchange headwind.
David: We anticipate first quarter adjusted operating profit of $325 million and adjusted operating margin of.
David: 16, 9% up 170 basis points from last year's first quarter.
David: And although we do not provide explicit guidance, we expect first quarter adjusted free cash flow to be slightly higher than the first quarter of 2024.
David: Next turning to slide 13, our full year 2025 guidance.
David: All metrics are relatively consistent with the preliminary outlook, we provided at our November investor event, Reconfirming, our confidence in the market backdrop, and our ability to execute our.
David: Our adjusted EPS is expected to be $3 55 at the midpoint, 25% higher than 2024 with this increase primarily driven by higher adjusted operating profit and lower interest expense.
David: Partially offset by higher share count from the warrant exercise in the fourth quarter.
David: 2025 sales are projected to be approximately $9 $2 billion at the midpoint.
David: Approximately $75 million higher than the implied sales guidance in November and this increase is despite an estimated incremental $125 million foreign exchange headwind.
David: So on an absolute dollar basis organic sales are up approximately $200 million from our November outlook.
David: Of course, our full year organic growth is lower on a percentage basis from what we presented a few months ago, 16% at the midpoint versus 17%, but this this is primarily due to the significant $200 million topline beat in the fourth quarter.
David: Maybe from another perspective, if we compare our current 2025 sales guidance to the two 8 billion. We expect it for 2024 in November.
David: <unk> sales in 2025 actually claims to 19%.
David: On an apples to apples basis once again on a dollar basis, our outlook for organic sales is approximately $200 million higher today than in November and this is reflective of our growing confidence in the market and our ability to continue to drive value for our customers.
David: On a regional basis, we expect the Americas to continue strong growth in the low twenties low teens growth in APAC is primarily driven by India and the rest of Asia.
David: And after strong topline growth in 2024 of 21%, including 33% in the fourth quarter, we expect high single digit growth in EMEA based upon more challenging comparables, but we continue to monitor catalysts for higher growth in that region as AI.
David: Within that market and.
David: We have better visibility as we progress through the year.
David: Adjusted operating profit expected to be up 25% to $1 $93 5 billion consistent with the midpoint of our 2025 outlook we provided in November.
David: And once again similar to sales, we are covering an incremental foreign exchange headwind.
David: In adjusted operating profit driven by a stronger U S dollar.
David: Higher year over year adjusted operating profit is primarily driven by volume commercial execution and productivity par.
David: Partially offset by higher Opex investment and growth capacity, any R&D, which we expect to be approximately $160 million combined in 2025.
We are projecting adjusted free cash flow of $1 3 billion at the midpoint.
David: Including $275 million in Capex or 3%.
David: Of sales demonstrating our continued commitment to invest in a growing market.
David: Once again.
David: We expect another year, where the orange bars are nicely above the gray bars.
David: And Thats projected strong performance in 2025.
David: Further solidify a strong foundation for continued topline and bottom line growth in 2026 and beyond.
David: With that said I'd.
Jeff: Turn it back over to Jeff well. Thank you. Thanks, David essentially are strong numbers.
David: Altogether.
David: And.
David: We go to slide 14.
David: I believe we are in an excellent position to achieve our five year framework across all financial metrics. So I'm quite comfortable reiterating the five year financial framework, we presented in November.
David: The market remains robust we have good visibility to the future.
David: We have a close collaboration with our customers and technology partners, we have a relentless focus on execution as we sit here today.
David: I am more confident in this outlook than ever before.
David: So next we go to slide 15.
David: The focus areas for 2025 are very consistent with what you heard from US many times and they are core to the value creation model. We are laser focused we have very strong and longstanding relationships across the ecosystem.
David: Of.
David: Data center infrastructure, enabling the success of our customers is central to our success, we do this with speed and scale diversity.
<unk> operating system continues to mature through our entire organization as the way, we do business everyday and becomes a core operating model that we continually optimize and improve to drive best practices and productivity throughout the organization.
David: We intend to stay price cost positive positive every year, including 2025, we are able to do this by an intense focus on commercial execution with technology delivery and customer experience are all accelerated to lead the transformation and acceleration of the entire industry.
David: We made progress in trade working capital, but still a long way from fully optimized speedy central in everything we do including the cash conversion cycle.
David: We have another strong year of growth ahead, and we continue with an intense focus on making sure we accelerate our operational leverage to drive strong financial results. Our cash flow has strengthened significantly and provides great flexibility relative to the capital deployment opt.
David: <unk> discussed earlier, we go now to slide 16. This is a summary of our plans and guidance for 2025.
David: 25 will be a year of robust acceleration in the industry and certainly advantage. We continue to raise the bar as the company to capture the enduring growth that is ahead.
David: There is so much stronger than in the past, we intend to lead the transformation and acceleration of the industry strengthening our enduring competitive advantages.
David: I am counting to hold myself.
David: Continuing to hold myself and my team directly accountable to do just that with that over to the operator and Q&A.
Speaker Change: Thank you and we will now begin the question and answer session in order to ask a question. Please press Star then the number one on your telephone keypad.
Speaker Change: In the interest of time, please limit yourself to one question and if you have a follow up question. Please rejoin the queue. So.
Speaker Change: Just a moment to compile the Q&A.
Speaker Change: Our first question guys, you Andy Kaplowitz of Citigroup.
Speaker Change: Please go ahead.
Andy Kaplowitz: Good morning, everyone nice quarter.
Speaker Change: Thank you good morning, good morning.
Speaker Change: Good morning, Joe you mentioned the timing of orders in EMEA influenced your Q4 results can you give us more color on the European weakness as Dave I think mentioned you're better visibility later in the year in Europe. So do you expect to see improved orders in Europe at some point in 'twenty five and then when you look forward in terms of order trajectory, what they understand the comps do get tougher.
Speaker Change: You don't want to talk about orders too much but obviously people care do you expect your trailing 12 month order growth to still be well into the double digits each quarter, even as comps get more difficult.
Speaker Change: Well, there's a lot of questions packed in packaging one Andy So let me get one.
Speaker Change: No.
Speaker Change: Okay multilayered.
Speaker Change: So.
Speaker Change: Let me start with a with a with EMEA.
Speaker Change: We certainly.
Speaker Change: So I'll move my that was.
Speaker Change: That material enough to to be.
Speaker Change: Singled out and mentioned in share to all of you.
Speaker Change: I am very encouraged by the by the pipelines that we see EMEA, we've been talking about EMEA of several times as an area where the.
Speaker Change: If you will wave of AI happens at a lag relative to specifically North America better I'd say also in many respects to what we'd see in places like Asia as an example.
Speaker Change: By the same token we.
Speaker Change: We know that it's a fairly regulated place. So that is also probably helping.
Speaker Change: Probably.
Speaker Change: Explaining some of these dynamics at the same time I don't want to kind of.
Speaker Change: Not too high I want to highlight the strong performance of EMEA.
Speaker Change: In 'twenty, 'twenty, four and stronger and the strong here so.
Speaker Change: I am positive.
Speaker Change: About the outlook there.
Speaker Change: When it comes through in general our outlook for.
Speaker Change: For orders.
Speaker Change: We will continue to talk in terms of trailing 12.
Speaker Change: We believe in.
Speaker Change: And a good training trial going forward in 2025 and one that.
Speaker Change: Our fully supports our hour.
Speaker Change: The module that we have shared with you in.
Speaker Change: In November so positive there and my positivity really comes from the many news that you've seen in market.
<unk> investment in this specialty.
Speaker Change: Confirm brand strengthened bye bye.
Speaker Change: By the pipelines that we see robust and continue to grow.
Speaker Change: Leave it that thanks.
Speaker Change: Thank you. The next question goes to you Amit <unk> of Evercore ISI. Please go ahead.
Speaker Change: Yes, Thanks for taking my question and congrats on a nice print.
Speaker Change: Jill I am hoping you can just talk about how do you see <unk> opportunity longer term.
Speaker Change: On two fronts one is.
Speaker Change: Starting to see inferencing getting pulled in a little bit more quicker given what we're seeing with deep Sea. For example, what does that mean for warranted and then secondarily I'll take the second part of this maybe if you end up in a scenario where custom silicon gets more deployed in AI clusters versus in media. How do you think that plays up award I know you have a great relationship with Nvidia and you have the roadmap.
Speaker Change: Well, but I'd love to understand how does that change the selecting.
Speaker Change: Manuel a broadcom or someone else any insight on those two fronts would be great. Thank you.
Yeah, absolutely well, thanks a lot.
Speaker Change: And.
Speaker Change: The two aspects here are very very clear so.
Speaker Change: I must say that we are very.
Speaker Change: Let's say agnostic, whether it's insurance or training.
Speaker Change: In many respects, we see a lot of the data center design already been thoughts in terms of hybrid application.
Speaker Change: So an acceleration of <unk>.
Speaker Change: AI adoption and acceleration of towards influence that.
Speaker Change: <unk>.
Speaker Change: <unk> suggested by what we saw recently.
Speaker Change: <unk> also taken of course deep seek into into consideration.
Speaker Change: If anything can only be good for the industry and for <unk> as a whole, but even if we go in doubleclick in that and say hey infrastructure sorry infrastructure.
Speaker Change: Inference, maybe more edge more enterprise.
Speaker Change: I've been doing edge enterprise very very well for <unk>.
Speaker Change: No that we have strengthened our hyperscale and large colo presence very convincingly in the last few years, but we have not at all we lost our our more distributed.
Speaker Change: Bayes muscle. So if you will there is a number dexterity that.
Speaker Change: It can be put at full.
Speaker Change: At full.
Speaker Change: At work to our advantage when it comes to custom silicon of course.
Speaker Change: We work a loss and we admire.
Speaker Change: Nvidia is lost and that comes from kind of a general working very well together.
Speaker Change: But again silicone silicon.
Speaker Change: Servers, our servers so.
Speaker Change: Loads loads.
Speaker Change: We like the Densification, we lagged the very high power per rack trajectory that I think it's true across the board.
Speaker Change: As we know we can play very well in a high density high liquid cooling or more.
Speaker Change: Let's say traditionally more air.
Speaker Change: Type of type of infrastructure and environment and the same as <unk>.
Speaker Change: Absolutely true also for the for the power. So I think we are agnostic and when we were any way to thinking about our revenue per per megawatt also also thinking about kind of a good mix of applications.
Speaker Change: Okay.
Speaker Change: Extremely helpful. Thank you.
Speaker Change: Thank you. The next question goes to Steve Tusa of Jpmorgan, Steve. Please go ahead.
Steve Tusa: Hi, how are you.
Speaker Change: Okay.
Speaker Change: Very well doing very well.
Speaker Change: Can you just maybe explain the I know there was a bit of revenue overdrive in the fourth quarter.
Speaker Change: But from a timing perspective, the first quarter seems to be worse than or at least down more than normal seasonality quite substantially.
Speaker Change: How do we look at those revenues from the fourth quarter.
Speaker Change: In context of that.
Speaker Change: And how are you planning the first quarter.
Speaker Change: Season thinking about seasonality.
Speaker Change: Well I think I think the.
Speaker Change: Should we should look at.
Speaker Change: First.
Speaker Change: Quarter in absolute terms.
Speaker Change: If you look at the first quarter in absolute terms, we have a very very strong quarter here in the in our in our guidance now of course.
Speaker Change: Q4 was particularly particularly strong so we should not look at Q1 as.
Speaker Change: As of quarter to quarter really look at it at the first quarter sales as as the acceleration that is that has taken place with a 19% organic growth in the first quarter I feel very very good about what that tells us about our overall trajectory I don't know if you want to add.
Speaker Change: Thanks.
Speaker Change: Just from a numbers perspective actually if you look at our first quarter sales in 'twenty five as a percentage of the full year guide.
Speaker Change: It's actually higher than what we actually saw in 2024.
Speaker Change: I would say.
Speaker Change: Is actually a step up in 'twenty five versus the first quarter.
Speaker Change: Last year, so certainly reflective in the 19%.
Speaker Change: Sales growth versus the 16% full year sales growth and then also a 31% increase in adjusted operating profit.
Speaker Change: Okay, and then just one follow up for me, but.
Speaker Change: There is obviously there is a lot of focus on orders I think.
Speaker Change: For good reason everybody is trying to discern the trend relative to these capex numbers that the pipelines that are obviously pretty eye popping.
Speaker Change: You are now two quarters kind of step down like relative to what we see at your customers in a way they are spending in these pipelines like what what is that disconnect is there some sort of disconnect between you guys and I mean, everybody else talking about like doubling their data center business as I admit.
Speaker Change: Obviously, thats a lower base.
Speaker Change: For some of these guys, but like what is that disconnect between you and your customer spending that seems to have opened up here over the last two quarters.
Speaker Change: I don't think there is disconnect quite quite honestly, if you look at our orders trajectory last year. If you think about a 60% year on year growth in.
Speaker Change: In in the first half of.
Speaker Change: Of the last year, that's a lot of that.
Speaker Change: That's a lot of growth.
When when we when our customers talk about their capex of close they also talk about the.
Speaker Change: Lot of the silicon part of the of that Capex node not only not only data center, so I feel pretty pretty good about.
Speaker Change: Visibility of the market and and while we weren't in the market. So I don't think there is a disconnect.
Speaker Change: Alright, so overtime.
Speaker Change: You can add to that over time, you are connected to that.
Speaker Change: Those dynamics.
Speaker Change: So to ask.
Speaker Change: Part of the question, but no.
Speaker Change: We are very well very well connected with the markets very well aware of what happens very encouraged bye bye.
Speaker Change: Our pipeline.
Speaker Change: We.
Speaker Change: We do not see that disconnection and we do not believe that disconnect exists.
Speaker Change: Okay, great. Thank you.
Speaker Change: Yes.
Speaker Change: Thank you. The next question guys you Andrew.
Speaker Change: Bank of America, Andrew Please go ahead.
Andrew: Good morning, Jeremy.
Speaker Change: Yes.
Speaker Change: Excellent. Thank.
Speaker Change: Thank you.
Speaker Change: So I think David at the beginning of the call sort of noted that Americas orders were.
Speaker Change: Ordinary strong so I guess.
Speaker Change: Maybe could you comment within that was extraordinarily strong.
Speaker Change: In the thermal versus power and distributors I see I think one of your competitors indicated distributor IC.
Speaker Change: And just I guess going back to EMEA.
Speaker Change: Extraordinary strong America orders was flat orders overall sort of implied particular weakness in EMEA and maybe missing a couple of billion dollars data Center project I know that on the third person asking but there seems to be a disconnect between your revenue growth is really your optimism in these numbers.
Speaker Change: Yes.
Speaker Change: Well Andrew Thank you so as a as we've said in many.
Speaker Change: In many points.
Speaker Change: As we were going through our deck with very pleased with with orders in the Americas and with the with the pipeline in the Americas, but the pipelines also EMEA was vocally mentioning at the beginning of this conversation.
Speaker Change: And that's.
Speaker Change: Particularly true if you look at the Colo and cloud part of our orders.
Speaker Change: In the Americas, So the market is growing.
Speaker Change: We have seen that and we are successful in.
Speaker Change: And going after going after that that market.
Speaker Change: When it comes to the mix, we see a pretty balanced mix here of course.
Speaker Change: The distributed it is by the nature of that market grow and much slower as we as we vocally shared with you in November.
Speaker Change: Already and it's no surprise no secret.
Speaker Change: That doesn't mean that.
Speaker Change: White space business for US is is for that.
Speaker Change: In an uncomfortable place so we're pretty pleased about the mix of growth there in orders.
Speaker Change: I cannot.
Speaker Change: Elaborate much more on EMEA, then than it already from what we've seen in EMEA.
The pipeline is there is there.
Speaker Change: The market is slower.
Speaker Change: And.
Speaker Change: We expect a pick up during the course of 2020 during the course of 2025, because thats, what our pipelines tellers.
Speaker Change: Yes.
Speaker Change: Really appreciate it thanks so much.
Speaker Change: Thank you.
Nigel Coe: Thank you. The next question guys, Hey, Nigel Coe of Wolfe Research Nigel. Please go ahead.
Nigel Coe: Thanks, Good morning.
Speaker Change: The cone on EMEA I know I don't want to beat this horse to death or anything but.
Speaker Change: You did take down your outlook from high teens in mid November to high single digits in EMEA. So just wondering are we seeing projects pushing to the right.
Speaker Change: Or are there some regulatory issues. So I don't know power constraints. So just wondering what are you seeing here, but just a bit more information that will be will be helpful. And then just maybe going back to.
Speaker Change: The coming from the chairman around the stock price and things just wondering what have you got baked in for a couple of appointments and at what point do you weigh in with buybacks.
Speaker Change: Okay.
Speaker Change: Just to say so.
Speaker Change: Yes, clearly again EMEA had a had a very strong.
Speaker Change: Very strong.
Speaker Change: Fourth quarter when it comes to revenue and I would like to two to continue to because.
Speaker Change: Because it's very important to point, but but yes.
Speaker Change: If you look at the.
Speaker Change: <unk> and <unk>.
Speaker Change: <unk> dot.
Speaker Change: We were vocal about orders.
Speaker Change: Being pushed into 2025, there is clearly.
Speaker Change: The movement to the right of some of the pipeline and and again, what we see here is.
Speaker Change: Regulatory slower decision, making all of the above all of the above at the same time.
Speaker Change: What we hear in the market, it's not only us but it's also.
Speaker Change: Public information is that.
Speaker Change: That is going to accelerate in 2025, that's what we what we read that what we hear.
Speaker Change: Talking to our customers and this is what we see looking at our pipelines when it comes to capital deployment and buybacks.
We said in November is still valid.
Speaker Change: We we have a.
Speaker Change: <unk>.
Speaker Change: Robust M&A process.
Speaker Change: And pipeline that we continue to be very focused on that.
Speaker Change: The opportunities have the airtime and.
Speaker Change: And again, we will not go and do an acquisition.
Speaker Change: Meaningful acquisitions, just for the sake of it and we want to make sure that we are super true Super true to the value model that we have shared with you when it comes to buybacks we saw us.
Speaker Change: And they're opportunistic.
Speaker Change: As shared last year, and we've been very very clear about the fact that we will continue to be opportunistic in our approach. So so let's see let's see how things unfold.
Speaker Change: The right moment.
Speaker Change: Comes.
Speaker Change: We have the means and we have the authorization from the board.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you. The next question go to Jeff Sprague of vertical research. Please go ahead.
Jeff Sprague: Thank you and good morning, everyone.
Speaker Change: Maybe we could talk about.
Speaker Change: Just the tariff playbook here, a little bit you gave a little bit of color commentary in the opening remarks expanded your U S manufacturing a bit but can you give us a sense of kind of exposures maybe size those for us what percent of your U S. Sales. For example are sourced in the U S or some similar metrics.
Speaker Change: We can kind of.
Speaker Change: Kind of get our arms around the order of magnitude that we're talking about here.
Speaker Change: Well.
Speaker Change: Thanks, Jeff.
Speaker Change: For the question.
Speaker Change: We do not disclose.
Speaker Change: What products.
Speaker Change: Built where that is true for for the Americas, that's true for everywhere.
Speaker Change: Well one thing that we like to mention is that we actually have more plants in the U S. Then that we have in.
Speaker Change: In Mexico, but that said again.
Speaker Change: We feel.
Speaker Change: We feel prepared to.
Speaker Change: We feel we have the right playbooks to to deploy to work on minimizing the impact so let's really wait until we know better what really will be out there and.
Speaker Change: So that we can be more accurate I think.
Speaker Change: Right now that would be speculation.
Speaker Change: As of exactly what the impact could be or not be.
Speaker Change: And maybe just a quick follow up for me also just on just thinking about your total available market right to three to $3 5 million per megawatt you've talked about including liquid cooling I just wonder if your capture against that is moving up when you're here.
Speaker Change: People future proofing integrated solutions, marginalization, which should mean youre, bringing stuff more into your factory as opposed to being done by craft labor on site, but all of US would suggest kind of a higher dollar capture for <unk> relative to maybe historical metrics.
Speaker Change: Can you provide any context to that thought.
Well I think if we go back to the history of our let's say range of capture per megawatt we moved up a little bit in November last year relative to the.
Speaker Change: Previous spirit. So we believe that the range that we gave $2 75 to three 5 million.
Speaker Change: <unk> per megawatt is pretty much telling the story now.
Speaker Change: Again, where exactly it moves.
Speaker Change: In this spectrum it depends on many things.
Speaker Change: Maybe.
Speaker Change: Some element regional specific design specific type of vertical type of market and the type of.
Speaker Change: Let's say application so do we see us playing within those.
Speaker Change: This range in this segment that we gave you absolutely.
Speaker Change: But.
Speaker Change: I think it's a narrow enough band for us.
Speaker Change: Two two share with with all of you if that band moves in any direction.
Speaker Change: We'll certainly be sharing that with you.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question, Jason and color displays of Deutsche Bank Nicole. Please go ahead.
Speaker Change: Yeah. Thanks, good morning, guys.
Speaker Change: Just wanted to start on yet another question on order.
Speaker Change: Just a clarification first when you guys talked about flat orders in for Q I presume that's organic it doesn't include the FX headwind and then.
Speaker Change: Just thinking about what youre actually seeing in the pipeline is there any possible way that you could quantify the level of pipeline growth that youre seeing just trying to get a bit of confidence and whether dollar orders can continue to like step up as we move throughout 2025. Thank you.
Speaker Change: Yes, I think the answer to your first part of your question is.
Speaker Change: Yes.
Speaker Change: Organic that is when it comes to pipeline will allow these specific on exactly what the pipeline is what we have seen is.
Speaker Change: Robust pipeline growth quarter on quarter, certainly significant year on year.
Speaker Change: But significant year on year pipeline growth if we compare.
Speaker Change: So, let's say 30 versus December relative to those in terms of December prior year, and and that is that is very encouraging.
Speaker Change: It kind of supports very very well, our our long term our long term plans and strategies. So.
Speaker Change: The good thing is well balanced across across the various regions and another element that we like is that kind of the visibility out. So the horizon has has extended as well now we are very very kind of a.
Speaker Change: Meticulous in the way, we manage our pipelines and very consistent year on year. So what we see is is.
Speaker Change: As encouraging and.
Speaker Change: In the right direction.
Speaker Change: Thank you I'll pass it on.
Speaker Change: Thank you final question goes to Marc Kenneth Goldman Sachs. Mark. Please go ahead.
Speaker Change: Yes. Thank you very much for taking my question you spoke a bit already on the <unk> revenue outlook as a percent of the full year guide, but I'm, hoping you can provide some more details on your expectations for the shape of the year from a top line perspective.
Speaker Change: Specifically at Blackwell supply chain readiness or other supply chain factories are gaining the revenue growth in the first half and then.
Speaker Change: On that topic in particular with supply chain readiness have you seen any changes in the delivery schedules as a result of that thank you.
Speaker Change: Yes, I can address the first part.
Speaker Change: Mark.
Speaker Change: If you look at the shape of the year from a top line perspective, and really from a profitability perspective.
Speaker Change: Just like prior years, we expect sequentially.
Speaker Change: Increases each quarter as we progress through the year.
Speaker Change: From a percentage of the whole.
Speaker Change: Similar to the first quarter, which is comparable maybe a little bit higher than what we saw last year, we would see the cadence as a percentage of total sales.
Speaker Change: Each quarter in 2005 to be similar to what we saw.
Speaker Change: In 2024, and that's also the case as it relates to adjusted operating profit.
Speaker Change: And second part of the question was about <unk>.
Speaker Change: Supply chain and whether its supply chain and supporting the growth and plans.
Speaker Change: Uh huh.
Speaker Change: Wholeheartedly say, yes, we see we see we see a good.
<unk> supply chain, well supporting our plans okay.
Speaker Change: Thank you.
Speaker Change: Thank you. This concludes our question and answer session I would like to turn the conference back.
Speaker Change: Thank you Albert Cathy for any closing remarks.
Speaker Change: Well. Thank you. Thank you very much.
Speaker Change: Thank you for all your questions I'd like to thank the entire vertical team for the passion and dedication in taking care of our customers delivering results and being a thought leader in our industry.
Speaker Change: We plan to build on the momentum of 'twenty 'twenty four and.
Speaker Change: And.
Speaker Change: <unk> delivered another very strong year.
Speaker Change: In 2025, so with that thanks.
Speaker Change: Everyone for joining us today, we truly truly appreciate your support.
Speaker Change: Yeah.
Speaker Change: Thank you. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Sure.