Q1 2025 Vertiv Holdings Co Earnings Call
Nadia: Good morning, my name is Nadia and I'll be your conference operator today. At this time I would like to welcome everyone to Vertiv's first quarter, 2025 earnings conference call. All lines have been placed on mute to prevent any background noise.
Please note, this call is being recorded. I would now like to turn the program over to your host for today, Scott Finns Michael, then Maxeiner, Vice President of Investrelations.
Lynn Maxeiner: Great, thank you Nadia. Good morning and welcome to Vertiv's first quarter 2025 earnings conference call. Joining me today are Vertiv's Executive Chairman, Dave Cote, Chief Executive Officer, Giordano Albertazzi, and Chief Financial Officer David Fallon.
Lynn Maxeiner: We have one hour for the call today during the Q&A portion of the call. Please be mindful of others in the queue and limit yourself to one question. If you have a follow-up question, please rejoin the queue.
Lynn Maxeiner: Before we begin, I'd like to point out that during the course of this call, we will make four of looking statements regarding future events, including the future financial and operating performance of Vertiv
Lynn Maxeiner: These forward-looking statements are subject to material risk and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.
Lynn 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 quarterly reports and other filings made with the SEC.
Lynn Maxeiner: Any foreign-looking statements that we make today are based on assumptions that we believe to be reasonable as of this state. We undertake no obligation to update these statements as a result of new information in our future events.
Lynn Maxeiner: During this call, we also present both gap and non-GAAP financial measures. Our gap results and gap to non-GAAP recommendations 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.
Dave Cote: Come on in, you have to say I'm pleased with how we kicked off 2025.
Growth and great execution are a powerful combination. [inaudible]
Dave Cote: You heard me talk many times about the importance of seed planting.
Dave Cote: We have consistently planted seeds at Vertiv and that seed planting is paying off.
Dave Cote: As we have said before, the digital revolution is happening, and it still has a long way to go
Data Centers remain fundamental to all of it.
Dave Cote: A.I. adoption is spreading globally, data center, the man remains robust and vertive is positioned extremely well to capitalize on these opportunities.
Dave Cote: Our portfolio, technology leadership and global scale are not easily replicated.
Dave Cote: Vertis Management Team has an intense focus on speed and strong execution and that is amplifying our competitive advantages in this fast growing market.
Dave Cote: Additionally, it's the only thing we do, so it gets a lot of attention. There's been a lot of turmoil lately about tariffs, which of course remains a fluid situation.
Dave Cote: The reality is given our market position and operational flexibility, we believe we're well-positioned to handle the tariff situation.
Dave Cote: We have a sound playbook developed over several years to manage through this situation. We had manufacturing capabilities across multiple regions and our supply chain team has proven they can navigate these challenges.
Dave Cote: I'm confident in our ability to handle what comes our way. All that being said, we do have to wait and see what actually transpires. We're still early in our vertive transformation.
Dave Cote: There's so much more value to unlock here and we've got the right team and strategy to do it. We are much better than we were before and there was still a lot of upside left to get.
Dave Cote: We're building a great track record of consistently outperforming, but there's still so much more potential ahead. That's good news for all of us as investors, so with that, I'll turn it over to Geo.
Gio: Well, thank you, thank you, Dave, and let's go to slide three.
Speaker Change: Our Q1 performance demonstrates the strength of our business and the soundness of our strategy. It is a strong quarter and it confirms everything we've been telling you about our market position and execution capabilities.
Speaker Change: Among other things, I am very pleased with the direction of pipelines and orders and with the further backlog expansion we have driven in Q1.
Speaker Change: We have heard a lot of opinions about the market. Let me be clear, our visibility into the data center market gives us every reason to be confident, not just 25 but for the years beyond.
Our industry is continuing to grow, particularly around AI infrastructure.
Speaker Change: And it's moving along the market trajectory that we shared with you at our November 24 investor
Vertiv is uniquely positioned to capitalize on this trajectory.
Speaker Change: In Q1, EPS were up 49% to 64 cents, driven by our increased AOP.
Dr. Bail was convincing 1.4 times in Q1. Andrew Obin was convincing 1.4 times in Q1.
Speaker Change: Our training 12 month organic orders growth is 20%, we're winning in a market that shows a strong demand signals.
Speaker Change: We believe the TTM trend is the right way to look at orders.
Speaker Change: Yes, I want to underline that Q1 orders were up 21% sequentially and a healthy 13% year-over-year against the very challenging contours.
Speaker Change: The strength of these numbers reflects not just market growth, but our ability to expand our market position.
Speaker Change: A strong growth, combines with convincing execution resulted in an adjusted operating profit of $337 million, up 35% from prior year.
Speaker Change: We delivered another strong quarter of adjusted free cash flow at $265 million.
up 162% year-on-year.
Speaker Change: Our balance sheet continues to strengthen, which is especially important during times of uncertainty.
Now, let's look at that.
Foulier I Had
Speaker Change: We are very pleased to raise our sales growth guidance to 18 percent.
Speaker Change: As we know well, the tariff situation is quite dynamic and fluid. We wanted to have a credible reference point so we have based our guidance on the tariff rates in place as of April 22nd.
$3.55 and expanded the range.
Speaker Change: We have held our AOP guidance center point unchanged also within the broader range.
Speaker Change: The broader guidance range reflects the uncertainty that the tariff situation creates.
Speaker Change: However, we believe in our business fundamentals and in our ability to execute. We have built resilience into our operations precisely for situations like this.
Speaker Change: Certainly, there are things we don't know yet and rather than speculate, we'll continue to focus on what we can control and we will adapt as the situation becomes clearer.
Speaker Change: We have started the year strong and based on the demands signals from customers and anti-cology partners, we believe that 2025 will be another strong year.
With that, let's move to slide four.
Speaker Change: We continue to see a strong and market environment that expands well beyond 2025.
Speaker Change: This is clearly secular trend. The trajectory of pipeline and orders indicates...
Strength in demand. And...
Efforts, our TGM orders remain very convincing. [inaudible]
Tatline,
Speaker Change: Patelans continue to grow sequentially across all regions, demonstrating we are still in the early phases of this investment cycle.
Speaker Change: In the Americas, we are seeing strong performance with TTM organic orders up more than 30% and particularly strong pipelines.
Speaker Change: APEC in general continues to show all the strength and pipeline growth. Imiya still lags the other regions. The dynamics we discussed in February continue. Imiya pipelines, though, are robust and growing.
Speaker Change: Our backlog expanded further and spends the strong at $7.9 billion up $1.6 billion a year over a year. This corroborates our growth story and the five-year model that we share at the November 24 investor event.
Speaker Change: Let's look at the right side of the slide. Our supply chains continue to demonstrate strong momentum and resilience across multiple dimensions.
Speaker Change: Blightyear Resilience has been central to our gender for more than two years now.
Speaker Change: We have been driving geographical, geographical and geopolitical diversity, multi-sourcing and standardization.
All with a very rigorous and data driven resilience drumbeat.
Speaker Change: As I said, we have built our supply chain and manufacturing resilience around geopolitical themes in the last couple of years.
Speaker Change: The current Earth map adds a new dimension to it, but our resilience and the muscle we have created are strong and position as well to manage the current situation.
Of course, we'll stay agile and adapt as the conditions evolve.
Speaker Change: We continue to focus on the Vertiv Operating System. VOS is driving manufacturing productivity, efficiency, and is liberating capacity.
Speaker Change: We maintain a relentless focus on operational excellence across the organization.
Sputu, Slice, Five . . .
Speaker Change: Over the years, we have strengthened our pricing muscles and capabilities, and a set where continuously optimizing our global supply. Let me take a moment to provide some clarity around our tariff mitigation strategy.
Let's look at how we supply our American business.
Speaker Change: In the US, we have strong local capacity and we continue expanding it.
Speaker Change: We have capacity in Mexico. Most of our Mexico capacity and production is already US MCA qualified and we're driving towards 100% qualification goal.
Speaker Change: Single Digit Spotion of our demand is so strong China and we are deploying or have already deployed lower tariff or no tariff alternatives.
Speaker Change: A small portion of the U.S. demand comes from other regions, predominantly from Imiya, and of course that is being optimized.
Speaker Change: The agility and efficacy we have developed over the last couple of years is helping, but we're not standing still.
We have a comprehensive set of actions underway.
Speaker Change: We are working towards the US Senate, CA, qualification for the remaining portion of our Mexico-based supply chain.
Speaker Change: We are actively rebalancing our global supply chain towards low or no tariff regions and we're strategically relocating production while leveraging our US manufacturing foot.
Speaker Change: The commercial aspects of tariff mitigation are important. We have already taken some price actions in the market and will take more as necessary.
Speaker Change: Discussions with our customers about existing orders, pricing actions were needed are also part of the
Speaker Change: We believe the impact of this mitigating actions will compound as the year progresses.
Speaker Change: Although the tariff environment remains fluid, our goal is to significantly mitigate the effect of tariff as we enter 2026.
Speaker Change: But do not get me wrong. This is complicated and there is a very large number of moving parts.
Speaker Change: We have established a detailed tariff playbook that allows us to monitor and respond to evolving trade dynamics.
and with that, and with that over to David.
All right, thanks, Geo. Turning to slide six.
Speaker Change: This page summarizes our first quarter financial results. All metrics are significantly improved from last year's first quarter, including adjusted deluded EPS at 64 cents.
Speaker Change: The increase in EPS was primarily driven by higher adjusted operating profit but also positively influenced by lower interest expense in part due to the term loan repricing last year.
Speaker Change: Moving to the right, organic net sales were up 25% from last year's first quarter.
driven by strong growth in the Americas and APAC.
Speaker Change: We overdrove sales guidance by over $100 million, facilitated by available capacity and strong operational execution.
Speaker Change: Adjusted operating profit was up $88 million or 35% from last year, and that was primarily driven by the higher volume.
Speaker Change: and the 130 basis point expansion in adjusted operating margin was primarily due to operational leverage.
Speaker Change: Another strong quarter for adjusted free cash flow as we generated $265 million, $164 million higher than last year, and that drove a free cash flow conversion of over 100%.
Speaker Change: We experienced strong collections at the end of the quarter with a good portion of that accelerated a few weeks from Q2 which does create a potential headwind.
Speaker Change: for next quarter. We expect free cash flow for the first half of 2025 to be roughly consistent with the first half of 2024.
Speaker Change: And finally, on this slide, in the bottom right hand corner, our net leverage currently stands at 0.8 times.
Speaker Change: As we mentioned previously, we believe our strong balance sheet, debt profile and cast generation qualify us for an investment grade credit rating right now.
Speaker Change: and we are pleased to announce that Fitch agrees with us as they recently launch ratings on verted debt at investment grade, triple B minus.
Speaker Change: This provides additional flexibility with our capital structure, improves our borrowing capabilities and frankly, it is a testament to how far we have come with our cash generation profile.
Speaker Change: We always manage our capital structure and the best interests of shareholders and this investment grade rating amplifies our ability to do exactly that.
Speaker Change: Next turning to page seven. This slide summarizes our quarterly segment performance.
Speaker Change: As mentioned, continue strong top-line growth in both America's and A-PAC, including China, while Amia's growth lagged the other two regions primarily due to slower AI infrastructure build as we discussed
Speaker Change: Nonetheless, we remain optimistic about the future growth in Amia as orders pipeline continues to expand at an encouraging pace.
Speaker Change: Adjusted operating margin increased from last year's first quarter across all three regions, with operational leverage the primary driver, and the 160 basis point expansion in the Americas was despite the incremental cost of tariffs.
Moving to page 8.
This slide.
Summarizes our second quarter guidance.
Speaker Change: 15% sequential quarterly growth, and 21% growth from last year's second quarter, with both the Americas and APAC once again growing more than 20% year over year, and we continue to be prudent with growth expectations in Amia.
Speaker Change: Tariff Costs will certainly accelerate in the second quarter from the first quarter, and with limited time to mitigate with either supply chain or commercial countermeasures, our adjusted operating margin will be negatively influenced.
Speaker Change: If tariff rates in effect today remain in effect for the entire second quarter.
Speaker Change: We expect adjusted operating margin to be 18.5% about 110 basis points lower than last year's second quarter. However,
Speaker Change: excluding the estimated net tariff impact adjusted operating margin would show good expansion.
Speaker Change: which implies that tariffs more than explain the year over year reduction and underlying margin expansion drivers, including operational leverage, productivity and commercial execution remains strong, and we believe we continue to be on track for our long term margin targets.
Speaker Change: And finally, despite the negative impact from tariffs, our second quarter adjusted operating profit is still growing 14 percent, and our adjusted polluted EPS is still growing in an impressive 21 percent from last year, strong growth even in a world without tariffs.
Next, Moving to page 9.
This slide updates our full year 2025 financial guidance.
Speaker Change: In summary, compared to prior guidance, we are increasing top line projections and including estimated net tariff costs.
Speaker Change: First, we're increasing full-year sales guidance by $250 million, including approximately $150 million organically and approximately $100 million from favorable foreign exchange.
Speaker Change: The $150 million increase in organic sales is driven by both the first quarter B and higher expectations in the second quarter versus what was implied in our prior guidance.
Speaker Change: Regionally, we are increasing full-year expectations for both the Americas and APEC while lowering projections for AMEA.
Speaker Change: Full-year organic sales growth is now expected to be 18% at the midpoint, two percentage points higher than our prior guidance.
Speaker Change: Yesterday, remain in effect for the remainder of the year. Of course, adjusted operating profit will be favorably influenced by the higher sales volume. In addition, we have higher expectations for productivity.
Speaker Change: But we also include provision for the potential negative net impact of tariffs for their remainder of the year, including the cost of tariffs themselves.
Offset by Plan Supply Chain and Commercial Countermeasures. [inaudible]
Speaker Change: We are reducing our full year guidance for adjusted operating margin to 20.5% at the midpoint, approximately 50 basis points lower than prior guidance.
Speaker Change: Of course, primarily driven by the estimated net impact of terrorists offset by favorable operating leverage on higher expected sales.
Speaker Change: This all translates into us maintaining our adjusted diluted EPS at $3.55 at the midpoint, which is consistent with prior guidance and 25% higher than prior year despite the impact of tariffs.
Speaker Change: Once again, good growth for most years, but particularly impressive considering the uncertain and fluid environment. As Geo mentioned, there's still plenty of uncertainty and a ton of work to do, but we believe we are a very well positioned to respond to the challenges.
Speaker Change: which is a good segue to the next slide, slide 10.
Speaker Change: which, due to the dynamic nature of the tariff environment, the slide depicts are just an operating profit under very scenarios.
Speaker Change: Of course, we anchor to our base guidance from the prior page, which is highlighted in blue here on page 10.
Speaker Change: with the high end and low end of the adjusted operating profit guidance primarily driven by the upper and lower ends of the sales guidance on the previous slide. Once again, this guide assumes that the terrorists in place yesterday remain in effect for the remainder of the year.
Speaker Change: We also illustrate a few other scenarios to our base guidance, including an upside scenario of $2.015 billion at the top of the slide, and this is primarily driven by sales opportunities above the high end of our sales guidance.
Speaker Change: which is consistent with our continued favorable view of the market and growing orders pipeline.
Speaker Change: We also include two potential downsides scenarios on this slide, one where we include provision for potential risk related to supply chain and commercial countermeasures.
Speaker Change: And another below that, where we estimate the potential negative impact is April 2nd, reciprocal tariff rates that were subject to a 90-day pause are indeed reinstated.
Speaker Change: Clearly, uncertainty remains and there continues to be a lot of moving elements, but we believe these scenarios provide directional guardrails for possible outcomes.
Gio: So with that said, I turn it back over to Jill. Well, thank you. Thank you, David. And stay for a moment still on page 10.
Gio: It's not like that we believe the guy that you all see in bold
Gio: Here is the place to anchor, too. And I'm very, very encouraged by the speed of execution and the rigor of execution that team Vertiv is displaying and handling the changing conditions.
Gio: Let's go to slide 11 now. Andrew Kapl, and then I'll add a couple of very important comments.
Gio: A few points really stand out from our first quarter. We exceeded our guidance for Q1, sales and profitability. The strong momentum we built throughout 23 and 24 continues.
Gio: Our older performance was particularly encouraging and so our Dr. Beard ratio at 1.4 times.
Gio: Strong Organic Sales Growth and margin expansion are expected to continue in Q2, 25 went throughout the year.
Gio: We're raising our fully organic sales growth expectation to 18%. That is supported by the strong backlog and the pipelines we see across our business.
Gio: Our profitability and our profitability we continue to expand operating margin expansion despite the potential tariff headwinds.
Gio: We have developed playbots to address various scenarios. We remain focused on operational and commercial execution.
Gio: The market remains robust, particularly in the data center space and we are well positioned to capture this growth opportunity while delivering on our commitments to expand margin and generate strong cash flow.
Gio: Now, let me share some exciting news about our projects with the IGNUS. Here, Envidia and Vertiv are delivering a fully-presubricated AI factory.
Gio: This is a very important suffering AI supercomputer and we provide everything infrastructure from liquid cooling to heat rejection, grit to chip power in a very rapidly deployable, modular infrastructure.
All Leveraging Our NVIDIA Co-developed AI Reference Design.
Gio: What makes this truly special is how it brings together all our co-versive strengths.
Gio: Our ability to deliver complex solutions at scale, our deep technical expertise and our commitment to innovation.
Gio: We're not just providing infrastructure, we are enabling Igenus to deploy advanced AI models in a highly regulated industry.
Gio: I invited you to take a closer look at our IGNIS project solution in the quite cool video linked from both yesterday's press release and indeed on this deck.
Gio: This video really showcases the scope of our solution and the unique end-to-end capabilities of Vertiv.
Gio: We talk about partnership and partnership is crucial and working together and closely with the media. We are advancing AI factory design through digital twins and simulation.
All connected directly to vertiv solutions.
Gio: We are delivering the technology that enables the future generations of AI.
Gio: We are helping our customers to stay one or more GPU generations ahead. We enable customers to plan infrastructure before silicon lands with deployment ready design, ready for increased rack power density. [inaudible]
Gio: We're not just participating in the market evolution, we are actively shaping it.
Gio: So, we remain humble about the work I had. We are laser focused on delivering on our commitment.
Gio: We remain confident in the long-term vision we shared with you last November .
Gio: We have started the year strong and we believe that 2025 is shaping to be another strong year. With that, Nadia, let us begin our Q&A session, thank you.
Speaker Change: Well, it's cool to now begin the question and answer session in order to ask a question, please press start at the number one on your telephone keypad. In the interest of time, please introduce yourself to one question. And if you have a follow up question, please rejoin the queue, who posted us a moment to compile the Q&A. [inaudible]
Scott Davis: Our five question goes to Scott Davis of Melius Research. Scott, please go ahead
Hey, good morning, guys.
Thank you, Scott.
Congrats on navigating through this mess on Skate so far.
Speaker Change: This is going to be a hard question to answer perhaps but you know when you think about I think your guide for incremental margins because of these tariffs is like I don't call it 13% or so for 2Q. How do you how do you see the mitigation efforts you know from slide five? How do you see that?
Speaker Change: Facing in through 25, assuming there's no change, obviously there could be a change in DC tomorrow, but assuming steady state, how do you see that improving that mitigation kind of your sequential improvements there and and it is some of that mitigation perhaps. .
Speaker Change: Some repricing of contracts or making sure that new contracts are sized or priced are a higher price or have surcharges, just trying to get a sense of that and they'll pass it on. Thanks.
Speaker Change: Thanks, Scott. Yes, clearly, as I mentioned, as we were going through the slides, the impact of the countermeasures.
Speaker Change: really compounds as we go through the year and the quarters.
Clearly, there are two phenomena of dimensions to the countermeasures.
Speaker Change: One is, I'll start from where you started the prize, and there is, of course, the prize actions on new contracts, new...
Speaker Change: New Opportunities, Price Actions in the Market, some we have already implemented, more we likely will continue to implement it, to implement. And there is certainly an element of existing the backlog of reprising, where need it, not always need it.
And, you know, conversations are ongoing in that regard.
Speaker Change: There is a very important element to the terrorist mitigation aspect that's to do with the supply chain. And you know, as soon as this was evident and we started to understand which direction terrorists were going.
and that better of course there is a lag.
our supply chain to match at best.
Speaker Change: the tariff situation and the benefits that come from that. So, clearly this lag is such that the impact will be greater as we progress through these.
here. So...
Speaker Change: David, is there anything you want to add here? [inaudible]
David Fallon: and just big picture. We do anticipate that dollar impact of terrorists.
David Fallon: to sequentially the net impact that terrorists sequentially define as we go through the year and the margin impact even more so as we'll gain the leverage on the higher sales and the back half of the year versus the first half. Thank you.
Speaker Change: Okay, I'll pass it on. Thank you. Good luck. Thank you, if I could just yeah, if I could just add pursuing your comment in the transcript, though, you're intent by year end in terms of tariff neutrality.
Yes, confirmed, atul
Speaker Change: Thank you the next question. Go to Amit Daryani of Evercore. Amit, please go ahead Thank you.
Amit Daryani: Thanks a lot and congrats on a nice print. I guess the question is really around, you folks have had really impressive performance on orders, both sequentially and your rear bases, given some very different compared you had.
Speaker Change: Can you just talk about what's driving this trend and really the durability of growth you're seeing over here, because it does stand out in contrast to all the noise that was out there in terms of, you know, hyperscalus potentially canceling leases and stuff. So I'd love to understand, you know, what's driving this trend if you saw any pull in and how do you think of the durability here? Thank you.
Let me start with the durability.
As I mentioned, our pipelines are growing.
and an audience sequentially growing quarter, quarter on, on quarter. So, um,
Speaker Change: Another aspect of the pipeline that is interesting, all the only pipelines are...
Growing in what we call the next 12 months.
Speaker Change: orders, so that that are a scheduled tool to land in an next 12 months, but also beyond. So there is also in an elongation that gives us more visibility in the future.
Speaker Change: So, that is a positive and is a positive that talks to durability.
Speaker Change: At the same time, there is a certain... The reason why we talk in terms of training 12 months is because we talked about lumpiness in order. We've been talking about that for now, a good year.
And that's still the case.
Speaker Change: of a quarter, and that changes your short-term profile. One thing that is interesting is that when we look at our pipeline velocity, that's pretty stable.
Speaker Change: So, I mean that, you know, nothing very significant in terms of stuff being pulled in. Let's look at it as sometimes the lampiness works in the direction, sometimes it works in another direction. What matters?
Speaker Change: What matters is the long-term trajectory. And again, as I said, long-term trajectory for me confirms our five-year model that we shared with you in November and then again in February .
and defective to them.
Speaker Change: Thank you the next question goes to Steve Tusa of JP Morgan. Steve, please go ahead.
David Cote, David Cote, David Cote,
Hey guys, good morning. How are you? [inaudible]
Hey, Sid, very well.
I guess.
Speaker Change: What you're sourcing that comes through US factories? Would that be like...
and a couple hundred million bucks. And then, are you...
Speaker Change: You know, gain market share and do you believe you are gaining market share because that's kind of what it seems like with even just the trailing 12-month type numbers seems like you guys are gaining market share. What part of the portfolio do you think is resonating most with customers?
Um, um,
Speaker Change: I had to take notes of all the kind of, how can I say?
Angles of your question here, Sim.
Speaker Change: We will not be specific about the exact number of what is source from where but I think what we shared on page 5.
Speaker Change: explains the fact that the exposure is certainly something that we are managing and addressing.
Speaker Change: when it comes to the supply, reconfiguration and price element of
Speaker Change: of our countermeasure. I would say it's a good combination of the two. And again, both contribute to the impact.
Speaker Change: Mark's growth figures that we shared with all of you and those continue to be very relevant and improving fairly.
Speaker Change: Current and absolutely still represent our best view of the market and relative to our growth rates relative to that are certainly higher.
Speaker Change: What brings to bear this growth? I think it's really the combination of things that we talked about several times.
Speaker Change: We know the space very well. That drives, of course, technology that is...
Suited for the needs of the market in terms of... [inaudible]
Speaker Change: We have a very strong service offering and very, let's say, very high stakes infrastructure and compute requires very, very reliable partner in, and they find, our customers find it in, in, in Vertiv and with scale. I think it is already the element.
Thank you.
Speaker Change: The next question goes to Jeff Sprague of vertical research, Jeff, please go ahead.
Speaker Change: Thank you, good day everyone. And just a quick follow up on some of that last point and I've got a different question. Hugh, I know you don't want to get into the individual kind of pieces of where you're sourcing from where, but perhaps you or David could just tell us what is the total gross?
Speaker Change: Tara Related Pressure, you know, that's in, you know, that you're facing in 20, 25 here. Obviously, you've kind of told us what you think the net effect is, but what is the total gross number you're trying to counteract against?
Speaker Change: Yeah, Jeff is the David. We're not going to disclose to that level of specificity. I can reiterate what Geo mentioned is that we're very focused on reducing the growth impact.
Speaker Change: You know, through two buckets of countermeasures. One being pricing, the other with the supply chain countermeasures, both takes some time but we're absolutely focused on. [inaudible]
Speaker Change: Both of those levers and just to repeat what you have said, the reducing impact is pretty equally split between both of those.
Speaker Change: So my question is really on the balance sheet, you know, your operating results and everything stand out. But the other thing that jumps off the page right is the shape of the balance sheet and a zero and the share repurchase column and the cash flow statement. I guess we could kind of.
Speaker Change: You know, take a couple things away from that. A, perhaps you're singularly focused on achieving investment grade before you do anything else or perhaps
Speaker Change: You know, you see some significant M&A, you know, on the horizon. Otherwise it's kind of hard to understand why you wouldn't have bought back any stock with this sort of really significant dislocation in your shares.
David Cote, David Cote,
Yeah, let me take a real quick, clearly. [inaudible]
These are...
Speaker Change: There is a lot of fluidity in a market in general. There are uncertain times and certainly having a strong balance sheet and cash is very important.
Speaker Change: We have a very active, as I mentioned a few times already, M&A pipeline, but specifically on the repartures.
I consider the, of course, David there. [inaudible]
Speaker Change: 10 times already surveyed with us. Is Bob being opportunistic when it comes to repudence?
Got it, thank you.
Thank you.
Speaker Change: The next question goes to Andrew Obin of Bank for America. Andrew, please go ahead.
I guess I have good morning.
Hyperscaler,
Speaker Change: And just, can we get just some details? You know, what are you seeing on your end? And how are you dealing?
Speaker Change: Did it get pushed out? Or, you know, do multi-tenant? And if I call a guy step-up, does it go to other hyperscalers? Can you just explain to us, you know, how do you manage your production sloths given the dynamic in the market that, you know, I think has been pretty well covered in the press? Thank you. [inaudible]
Speaker Change: Thank you, Andrew. So yeah, we do not talk specifically about any individual customers, customer or players.
Speaker Change: One we see, again, being generic, given the fact that we want to specifically be a specific visual customer, is as you saw from the orders, as you saw from the backlog, we have demands, and as a demand, that is...
No, um...
Speaker Change: suggesting we increase in our year-on-year growth as you saw. So that means that, you know, our
Speaker Change: and increased the maid available, as you saw in, in Q1 sales growth, there is more capacity and we are delivering more to the market. And we really look at the market is, the demand is quite the spread is spread now that it may have been a year ago, a year and a half ago. There are certainly hypers in self-build. There is a collo for hyperscalers, but increasingly not only. There is more capacity and we are delivering more to the market and we are delivering more to the market and we are delivering more to the market.
Let's not forget that all the new cloud, let me...
The space that is is promising.
Speaker Change: Sovereign, as in our case example, is started to happen and enterprise has done show interest in AI and
and Infrastructure in general. So...
Speaker Change: We pretty much have demands to cover any gaps. But again, I'm not talking specifically for one customer. And then in general, we should go on a prod line by prod line, basically, exactly how that answers.
question should be answered, but...
Too much details on that stage to disclose.
Thank you, I appreciate the answer.
Speaker Change: The next question goes to Nicole DeBlase of Dutch Bank, Nicole, please go ahead to the next question.
Yeah, thanks. Come on, guys.
Good morning. Hey, Nicole.
Speaker Change: Can we just talk a little bit about the ability to go back and reprise the backlog? Let's back in from a contractual perspective with respect to tariffs.
Speaker Change: If you started to have those conversations, you know, have customers been somewhat understanding of what's happening and I guess how much of a risk that part of the equation is since the backlog is, you know, pretty robust. Thank you.
Yeah, the
Speaker Change: The conversations are ongoing, some of the conversations are ongoing, where that need exists.
Clearly, contracts are...
Speaker Change: Supporting, sometimes more, sometimes less, every single counter is a different situation, but what we see is
is that in general there is an understanding.
Speaker Change: that this is a particularly challenging or unique moment. That is also true in the customer, is true in the customer base. So we believe that we have fairly assessed the risk.
Speaker Change: on the, let's say, price countermeasure in our, in our gardens and the range we were given. And again, we're going down that path in a very collaborative, but also in a very focused, focused fashion.
Speaker Change: We stay very positive that what we have modeled and that results into the guide that we're shared with you is will happen and their designs are going that direction.
Thanks, Joe Atasaran.
Speaker Change: The next question goes to Andy Kaplowitz of City Group. Andy, please go ahead.
Good morning, everyone.
Speaker Change: Good morning, Gaili. You obviously had a strong book to build in Q1 of 1.4 times, but you mentioned that Europe in terms of better bookings is still lagging behind. I think at a recent conference you talked about, European environment getting a little more friendly and today you mentioned that your European order pipeline is a little better. So would you expect larger bookings going forward still mostly coming from the US or do you see Europe starting to contribute at some point this year and ultimately does the overall landscape you're seeing still support a book to build over one time.
Lam's moving forward.
Speaker Change: The second part of your question again, sorry Andy, I'm not sure I capture something, something glitch in line or something.
Speaker Change: Oh, it's just about overall will you get bookings more still from the US, or do you think that Europe starts to contribute this year, and can you still support a book to go over one time's
Well, thank you.
Speaker Change: that comment that you're referring to is the kind of a regulatory environment hopefully becoming a little bit more friendly. We were probably right after the Paris meeting convention that Macron had just called so it's almost like people are waking up to a challenging situation and certainly an unfavorable situation.
Speaker Change: So those things are probably slower to move than anyone here would wish.
But again, I am encouraged by the pipelines.
Speaker Change: which speed that will accelerate. Let's remain cautious.
Speaker Change: And that caution you have seen in the comments about Europe's growth that David made.
Speaker Change: Is growth all coming from the US? Well, the Americas certainly is an engine and continues to be an engine for growth and pipelines are very encouraging.
But Asia is definitely, definitely not to be snippet, and-
Speaker Change: And we're glad to see China accelerating. We are certainly very impressed by what we see in Asia and in general. And I would also also India, India quite strong.
Speaker Change: The second part of your question about the book to build greater than one yes we believe that we have a book to build greater than one in the year.
Speaker Change: And again, this is very consistent with our long-term trajectory. That is certainly favored by the backlog building backlog here on here. And we believe this is what will happen also in 2025.
Thank you.
Speaker Change: The next question, go to Nigel Coe of Wolf Research. Nigel, please go ahead.
Oh, thanks. Good morning. Thanks for the question.
I think this might be for David, but... [inaudible]
Speaker Change: Geo, if you think you're taking on a penental question, please weigh in as well. So just based on the Tiki guidance, based on the Tiki guidance and sort of we can sort of back into what you're inferring for the net tariff impact.
Speaker Change: I've then assumed that there's a false spools through into a 3K, but it feels like 4Q, you're more or less mitigating the impact just conceptually, is that the right framework? And then if I just clarify Jeff's comments on the on the credit rating.
Speaker Change: Is the desire to get that rating higher? Are the other circumstances where you've been in for large contracts with some of these large DC customers where the credit rating is really important?
Speaker Change: Yeah, I'll start with the tariff impact. I appreciate the question Nigel. Unquestionably, the highest net tariff impact from a dollar perspective will be in Q2 and that will mitigate as we go through the year.
Speaker Change: So, and that's primarily related to the timing of implementing the countermeasures, both pricing on book and ship and backlog and then also as it relates to changes with the supply chain.
Speaker Change: Tariff Neutral as we exit the year, but there should still be some net tariff impact in the full 4Q.
Speaker Change: with the expectation or the hope to be tariff neutral as we exit 2025.
as it relates to the credit rating.
Speaker Change: Fitz was a good start, I think we're one step below. [inaudible]
Speaker Change: Investment Grade at S&P, a couple notches at moodies. You know.
There are definitive benefits in being a...
Speaker Change: You know, investment grade and that's related to the availability of the debt and you mentioned another benefit Nigel and that's
Speaker Change: Related to Credit in the eyes of customers, although I don't lay a wake at night based on our balance sheet and where we are today, that that's a significant issue with customers.
Speaker Change: But it never hurts. So we'll take it one step at a time and at the end of the day we'll always do what's in the best interest for investors as it relates to our balance sheet and use a capital. [inaudible]
Speaker Change: Yeah, and Nigel, let me comment specifically on our rating and the impact or influence on
Nigel Coe: Contracting with a larger, larger customer. I would say that, especially last couple of years, the financial strength of a Vertiv is well, well recognized. And that has already...
Nigel Coe: It's not a necessary condition today and we're recognized as a very strong player in the industry, also from a financial stability standpoint.
Great. Thank you.
Speaker Change: The next question goes to Chris Slider or Morgan Stanley . Chris, please go ahead.
Thank you. Appreciate the question. Thank you.
Chris Snyder: You know, maybe just a high level on here. What do you guys think is the best way for all of us to track liquid cooling demand in the market. You know, is it blackwell shipments? And if that is, you know, what we should be looking at, you know, my understanding is you guys do would lead the chip shipments by some period of time, but just any color on you know that that relationship. Thank you. Thank you.
Well certainly Blackwell is a good...
Blackwell Shipments is a good proxy.
But as you were saying, we...
Chris Snyder: to proceed that deployment. Or anyway, the demand for liquid cooling proceeds that the deployment especially when it's liquid cooling that is not in rack with a cool and distribution units that are not in rack.
Chris Snyder: in which Kaye is pretty much the CDU demand and the Blackwell demand coincide. But it's not just Blackwell's shipment.
Chris Snyder: Before that happens is when we see our demand turn into deliveries.
Chris Snyder: Yeah, but we are pretty happy about the trajectory of this technology and this project line, I'm actually very happy. The way it's unfolding right now.
Yeah, definitely really appreciate all that color. Thank you
So I'll take one more.
Howie Yonk
Speaker Change: Thank you. The next question goes to Noah Kaye of Openheimer and Coinc. Noah, please go ahead.
Speaker Change: Thank you all, and hopefully we can put a wrap on this topic, but Geo, you've been quite clear from your opening comments that you see overall pipeline and demand trends are consistent with your investor day trajectory. Thank you all for your time, and we'll see you in the next video.
Speaker Change: In the past, the company's talked about the market environment by segment, and maybe that addresses some of the questions people are raising here about hyperscalers behavior. Are you seeing any signs of overall cloud and holo-demand, scaling back or slowing down?
Speaker Change: If so, is there any replacement strength coming from other segments to speak of to keep the overall trajectory on track?
Now I would say that. [inaudible]
Speaker Change: Dean, 17% expected growth rate over the five-year period with a colloe cloud, and that's pretty much what we see as off now. We put it to, again, re-tarade the message that there are other dimensions to the demand.
Speaker Change: that are maybe not strictly Call of Cloud that are starting to move. So, again, I don't want to, it's very much aligned with what we shared with you in November and things aren't holding.
Very good. Thank you.
Thank you.
Speaker Change: Thank you. That's all the questions that we have time for today. This one sees our question answer session. I would like to turn the conference back over to you. Do Albertazzi for any closing remarks?
Giordano Albertazzi: Well, thank you, and thank you everyone for listening and for the questions. It's just that I'd like to add a couple of things and first and foremost our commitment to customer success.
Giordano Albertazzi: to operational excellence, and of course, Cheryl DeValue, creation has never been stronger. And it's also for me an opportunity to thank the more than 30,000 hardworking, committed, focused, vertivians.
Giordano Albertazzi: I am absolutely proud of what we all are doing and achieving. So with that, thank you to everyone for your continued trust in Vertiv and have a great day.
Giordano Albertazzi: Thank you, this conference has now concluded. Thank you for attending today's presentation. You may now disconnect.