Earnings call transcript: Vertiv Holdings Co Q2 2025 beats EPS forecast, stock rises

Vertiv Holdings Co (NASDAQ:VRT) reported a stronger-than-expected performance for the second quarter of 2025, with earnings per share (EPS) of $0.95, surpassing the forecasted $0.83 by 14.46%. The company’s revenue also exceeded expectations, coming in at 2.64 billion dollars against a forecast of 2.35 billion dollars. Following these results, Vertiv’s stock price rose by 3.36% in pre-market trading, reflecting investor optimism. According to InvestingPro data, seven analysts have recently revised their earnings estimates upward for the upcoming period, suggesting continued confidence in the company’s growth trajectory.

Key Takeaways

• Vertiv’s Q2 EPS of $0.95 exceeded forecasts by 14.46%.
• Revenue reached 2.64 billion dollars, beating expectations.
• Pre-market stock price increased by 3.36% to $147.50.
• Full-year 2025 net sales guidance raised to 10 billion dollars.
• Strong growth in the Americas and APAC regions.

Company Performance

Vertiv Holdings Co showcased robust performance in Q2 2025, with a significant year-over-year EPS growth of 42%. The company experienced substantial organic sales growth of 34%, driven by a 43% increase in the Americas and 37% in the APAC region. This performance highlights Vertiv’s strong market position and ability to capitalize on growing demand in key sectors.

Financial Highlights

• Revenue: 2.64 billion dollars, up from the forecasted 2.35 billion dollars.
• Earnings per share: $0.95, a 42% increase year-over-year.
• Adjusted Operating Profit: 489 million dollars, up 28% year-over-year.
• Adjusted Operating Margin: 18.5%.

Earnings vs. Forecast

Vertiv’s actual EPS of $0.95 surpassed the forecasted $0.83, resulting in a 14.46% surprise. The company’s revenue also exceeded expectations by 12.34%, reflecting strong operational execution and market demand. This marks a continuation of Vertiv’s trend of outperforming market expectations, further solidifying its financial stability.

Market Reaction

Following the earnings announcement, Vertiv’s stock price increased by 3.36% in pre-market trading, reaching $147.50. This positive movement reflects investor confidence in the company’s ability to deliver strong financial results and future growth. The stock’s performance is notable within its 52-week range, with a high of $155.84 and a low of $53.60. InvestingPro analysis indicates the stock is currently trading above its Fair Value, with a remarkable 96% return over the past year and an impressive beta of 1.75, indicating higher volatility than the broader market. For deeper insights into Vertiv’s valuation and 18 additional ProTips, consider exploring the comprehensive Pro Research Report available on InvestingPro.

Outlook & Guidance

Vertiv has raised its full-year 2025 net sales guidance to 10 billion dollars and adjusted EPS guidance to $3.80, indicating a 33% year-over-year increase. The company expects continued organic growth of 24% for the year, with a focus on expanding its market share in hyperscale and colocation markets. Despite anticipated flat growth in the EMEA region for 2025, Vertiv sees potential for growth in 2026. The company’s financial health appears robust, with InvestingPro data showing a strong current ratio of 1.72 and moderate debt levels, supporting its ambitious growth plans. The company has maintained a solid 13% revenue CAGR over the past five years, demonstrating consistent expansion.

Executive Commentary

Dave Cote, Executive Chairman, stated, "The digital revolution has a long way to go, and data centers remain fundamental to all of us." CEO Gio Albertatsi emphasized, "We are enabling the end-to-end infrastructure for AI factories," highlighting the company’s strategic focus on AI-driven growth.

Risks and Challenges

• Tariff-related supply chain transitions could impact operational efficiency.
• Temporary operational inefficiencies due to rapid growth may pose short-term challenges.
• Flat growth in EMEA for 2025 could limit regional expansion.
• Market volatility and macroeconomic pressures may affect future performance.

Q&A

During the earnings call, analysts inquired about Vertiv’s strategies for mitigating tariff impacts and addressing operational inefficiencies. The company highlighted its efforts in technology evolution and service contract management, aiming to enhance its competitive position in the data center infrastructure market.

Full transcript - Vertiv Holdings Co (VRT) Q2 2025:

Breeka, Conference Operator: Good morning. My name is Breeka, and I will be your conference operator today. At this time, I would like to welcome everyone to the Veritiv’s Second Quarter twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Please note that the call is being recorded.

I would now like to turn the program over to your host today, Leen Maxina, to begin. Please go ahead.

Leen Maxina, Moderator/Host, Vertiv: Great. Thank you, Brico. Good morning, and welcome to Virta’s Second Quarter twenty twenty five Earnings Conference Call. Joining me today are Virta’s Executive Chairman, Dave Cote Chief Executive Officer, Gio Albertatsi and Chief Financial Officer, David Fallon. We have one hour for the call today.

During the Q and A portion of the call, please be mindful of others in the queue and limit yourself to one question. And if you have a follow-up question, please rejoin the queue. Before we begin, I would like to point out that during the course of this call, we will make forward looking statements regarding future events, including the future financial and operating performance of Vertiv. These forward looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. We refer you to the cautionary language included in today’s earnings release.

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 also present both GAAP and non GAAP financial measures. Our GAAP results and GAAP to non GAAP reconciliations can be found in our earnings press release and in the investor slide deck found on our website at investors.murdev.com.

With that, I’ll turn the call over to Executive Chairman, Dave Cote.

Dave Cote, Executive Chairman, Vertiv: Good morning, everyone. At the same, pleased with how well we’ve performed midway through 2025. We continue to outperform and deliver strong results. GEO and the team are executing very well, continuing to build a strong track record of financial performance, and our investments in R and D and capacity are paying off today as planned and positioning us well for the future. The transformation at Vertiv continues to accelerate, and I am more excited today than I’ve ever been about what is ahead.

We’re in a digital revolution that’s got a long way to go, and data centers remain fundamental to all of us. Our global scale and technology leadership aren’t easily replicated, and we keep widening that gap. We maintain our proven strategy of driving growth through both organic expansion and strategic acquisitions to extend our market leadership. Our recent Great Lakes acquisition announcement showcases our disciplined approach to deploying capital where we see clear strategic benefits and value creation opportunities. Our M and A pipeline remains robust and we’ll continue to take this same approach, moving decisively when we find opportunities that enhance our technology leadership, engineering capability, global capacity and overall growth profile.

Our ongoing investments in ER and D and capacity expansion ensure we stay ahead of market demand while delivering the innovative solutions our customers expect. This digital age is just getting started. And Vertiv is poised to capitalize on the massive long term opportunity. With that, I’ll turn it over to Gio to walk through the details of our performance and outlook. I’m confident he and the team will continue to execute at a high level and deliver value for our shareholders.

Gio Albertatsi, Chief Executive Officer, Vertiv: Thank you, Dave, and welcome, everyone. Thank you for joining us today. We go to Slide three now. I am quite pleased with what we have delivered in Q2. Our adjusted diluted earnings per share was $0.95 approximately 42%, up from second quarter twenty twenty four, primarily driven by higher adjusted operating profit.

Our organic sales grew a very robust 34% year on year with strong performance in The Americas, up in the mid-40s and APAC, up in the mid-30s. EMEA delivered high single digit growth. For the first time, we surpassed $3,000,000,000 in orders this quarter. Well, not bad at all. This is certainly promising in terms of long term trajectory.

Q2 orders were up approximately 15 from Q2 twenty twenty four and certainly not an easy comp and up 11% sequentially from 1Q twenty twenty five. Our trailing twelve month organic orders growth was 11%. Our Q2 book to bill ratio of 1.2 times is particularly encouraging. We continue to build backlog at very high levels. Momentum in our business is accelerating.

Our Q2 adjusted operating profit was $489,000,000 up 28% year on year, driven by higher sales. Our adjusted operating margin of 18.5% in line with guidance is approximately 110 basis points lower than prior year. This was primarily driven by the net impact of tariffs. Our updated guidance takes into consideration tariffs active on the July 28, reflecting a moderate improvement in the tariff situation compared to our Q1 guidance. The temporary costs of the supply chain and manufacturing transition to tariff optimized footprint are higher than we initially estimated.

We’re also experiencing some temporary costs to deliver a steeper growth than expected and some executional challenges in EMEA. We expect all these factors will significantly moderate during the year, and we believe they will be materially resolved by year end. For Q3 and for the full year, we are raising our investment in ER and D and in growth compared to prior guidance. Our second quarter free cash flow of $277,000,000 though lower on a year on year basis, corroborates a strong cash generation trend with adjusted free cash flow of $542,000,000 in the first half, a robust growth of 24% year on year. This performance was driven by our improved operational execution, resulting in higher adjusting operating profit.

We are raising the full year adjusted free cash flow guidance to $1,400,000,000 Our disciplined financial management is reflected in our strong balance sheet with a net leverage ratio of just 0.6 times at quarter end. We are raising our full year 2025 net sales guidance by $550,000,000 to $10,000,000,000 We expect organic growth to be approximately 24% for the full year. We’re also raising our full year adjusted diluted EPS guidance to $3.8 or 33% higher than prior year. We are taking our adjusted operating profit guidance to just under $2,000,000,000 at the midpoint. So 2025 is shaping up to be a strong year.

With that, we move to Slide four. Our TTM orders organic growth and our sequential orders growth, both at 11%, are testament to Vertiv’s strong momentum in the market, particularly considering very strong orders in second quarter twenty twenty four. Our backlog stands strong at $8,500,000,000 up 21% versus prior year and 7% sequentially from Q1, supporting our increased guidance for the year. Our price is aligned with our expectations. We’re seeing robust pipeline growth across all regions, well balanced across our portfolio.

And remember, these are tangible quoted opportunities. In EMEA, while 2025 full year net sales are expected to be flat compared to 2024, we are seeing sequential growth in the orders pipeline, providing optimism for ’26 and beyond. The regulatory environment is becoming more conducive to AI infrastructure investment reflected in our customer discussions and pipeline. While we are on the topic of orders, let me briefly explain a change in how we’ll communicate orders. As we have consistently said, orders in this industry can be lumpy and this lumpiness can sometimes create unnecessary stock market reactions for Vertiv.

Beginning on our Q4 and full year twenty twenty five earnings call, we will provide projected full year orders rather than quarterly orders and backlog information. We believe this better aligns with how we run our business. We will provide updates on the full year projections quarterly as we progress through the year and as we deem necessary. Let’s now move to the right side of the slide. The tariff situations remains quite dynamic and fluid with the tariff perimeter changing frequently, and this can create inefficiencies in the playbook and execution as we adjust to a changing landscape.

This guidance is based on the tariffs in place on the July 28. We are vigorously executing tariff countermeasures. We believe tariffs will be materially offset exiting 2025. We are deliberately increasing spending in engineering and R and D capacity and go to market to fuel growth. We are fine tuning our supply chain as a supplier accelerate their localization efforts to address the tariff situation.

Our supply chain resilience is helping us well. As growth accelerates, our capacity expansion strategy continues to be two pronged: strategic manufacturing and service investment ahead of anticipated growth, capacity liberation through vertical operating system productivity improvement. Let’s now go to Slide five. Grayspace and white space no longer are separate spaces. Grayspace is the traditional critical infrastructure that powers and cools the data center.

The white space is where the IT equipment, the IT stack lives the racks, service, the compute infrastructure. With increasing rack density, the physical integration and interoperability between these spaces has become absolutely evident and critical. Think about it, with hundreds of kilowatts per rack, the mechanical, electrical infrastructure and the IT stack are so intimately connected, sharing the same space that they need to be thought of as one system. This is where Vertiv’s trends really come into play. You have heard me describe Vertiv as the connective tissue between the gray and the white space, between facilities and IT.

Our traditional expertise in gray space is seamlessly becoming white space infrastructure expertise. White space deployment is becoming more complex, more time consuming, more multidisciplinary. This is a unique opportunity for advanced prefabrication to dramatically reduce fit out complexity, reducing deployment time by an order of magnitude. This is smart run, a step change in how we think about white space deployment. Allow me another angle.

The IT equipment has traditionally had frequent refresh cycles. As density increases over time, this may drive regular refresh cycles of the white space mechanical and electrical infrastructure. Let’s now switch to the right side of Slide five. Let’s stay on this slide. We have announced a new acquisition, as you know, Great Lakes, which is expected to close this quarter.

We anticipate that this transaction will bring us extensive portfolio of high end rack solutions and innovation capabilities that are essential in today’s increasingly demanding AI infrastructure wide space. Great Lakes portfolio includes custom racks, integrated cabinets, heavy duty racks and cabinets and enhanced cable management solutions. Great Lakes’ high end infrastructure solution technology, capacity and engineering expertise complement very well the rest of Vertiv’s capabilities in the gray and white

David Fallon, Chief Financial Officer, Vertiv: space. With manufacturing and assembly facilities in The U. S. And Europe, we anticipate Great Lakes will enhance our ability to serve customers with speed and scale. We are enabling the end to end infrastructure for AI factories.

We’re gaining a growing presence in the white space. Our understanding of the entire system from power to cooling to IT infrastructure position us uniquely to solve the complex challenges that our customers face. And with that, I’ll turn it over to David. David, over to you. Perfect.

Thanks, Gio. Turning to Slide six. Let me walk you through our second quarter results. And starting on the left, another strong quarter for earnings growth with adjusted EPS of $0.95 which is up 42% from last year, and that’s primarily driven by higher adjusted operating profit and lower net interest. Once again, we delivered strong organic sales growth of 34%, almost $300,000,000 above prior guidance.

And compared to last year, Americas was up 43%, APAC up 37% and EMEA, still influenced by a lag in AI infrastructure build, was up 7%. And as Gio stated, pipelines across all three regions continued to grow nicely, including EMEA. Our adjusted operating profit of $489,000,000 was up 28% from last year and $54,000,000 higher than guidance. Our adjusted operating margin of 18.5% was down 110 basis points from last year, but in line with guidance with the year over year decline primarily driven by tariffs as expected. Now based upon operational leverage from the much higher volume, it would be reasonable to expect adjusted operating margin to be higher than the 18.5 actual end guide.

However, as Gio mentioned, we experienced higher than anticipated operational efficiencies and execution challenges in the quarter in support of significantly higher volumes in addition to higher than anticipated supply chain and manufacturing transition costs to mitigate tariffs. We expect some of these factors to continue in the third quarter, but be materially resolved by the end of the year and as we enter 2026. As implied in our full year guidance, we expect fourth quarter adjusted operating margin to be more than 23%, keeping us on track with our targeted 25% full year adjusted operating margin by 2029. And finally, on this page, adjusted free cash flow was down $60,000,000 from last year’s second quarter, primarily due to favorable trade working capital timing last year. But year to date, adjusted free cash flow is up 24%.

And as you will see in a few slides, we are raising our full year guidance by $100,000,000 to $1,400,000,000 In short, you can likely check the box on free cash flow. Now moving to Slide seven, looking at our segment results. Americas had another strong quarter with organic sales up 43%, and that was driven by continued strength in colocation and hyperscale markets. And despite tariff headwinds, adjusted operating margin remained strong at 24%. APAC’s 37% organic sales increase was driven by strong growth across the region.

Margin expanded to 10.6%, primarily driven by operational leverage and a discrete expense in last year’s second quarter. EMEA’s top line grew 7% organically in the second quarter, lagging the other regions as we expected. We anticipate EMEA sales will be down organically in the 2025 and relatively flat for the full year. But as a reminder, EMEA was our fastest growing region in 2024, and we expect growth to reaccelerate based upon the healthy pipeline. Lower margin in EMEA is primarily driven by two things.

First, we did have some operational execution challenges in the second quarter that we expect to address in the coming quarters. Second, we made a deliberate decision to invest in fixed costs in the region ahead of expected growth while expanding regional capacity pursuant to supply chain shifts to The U. S. In response to tariffs. While this investment and these supply chain actions contribute to excess capacity and costs in the near term, they should be absorbed when volumes reaccelerate in EMEA.

As mentioned, pipeline remains healthy, and we anticipate the strong pipeline to convert to top line as soon as 2026. Next, moving to Slide eight. We guide third quarter adjusted EPS of $0.97 28% higher than last year. This improvement is primarily driven by an expected 22% increase in adjusted operating profit. On the top line, we expect another strong quarter of organic growth at 22%, with Americas in the mid-30s, APAC in the low 20s and EMEA down upper single digits, in part driven by a challenging comp in last year’s third quarter.

We expect adjusted operating margin of 20%, relatively consistent with 2024 despite tariff headwinds as we continue to leverage higher sales and drive positive pricecost. Implied is 150 basis point sequential improvement from the second quarter, primarily driven by progress in resolving some of inefficiencies and execution challenges. Moving to Slide nine. Let me walk you through our full year financial guidance. We are raising projected adjusted EPS to $3.8 33% higher than last year, primarily driven by higher adjusted operating profit and lower net interest.

We are raising our full year top line guide by 150,000,000 to $10,000,000,000 with $110,000,000 of this increase from favorable foreign exchange. The resultant underlying organic growth of 24% is driven by expected continued growth in The Americas and APAC, while we expect EMEA to be relatively flat. For adjusted operating profit, we are raising our full year guidance to just under $2,000,000,000 up 28% from last year. And as Gio mentioned, this guidance assumes tariffs active on July 28. We expect, all other things being equal, a possible downside scenario from potential August 1 tariffs as currently understood, and things are changing rapidly and somewhat challenging to quantify.

But we believe that would still place our full year adjusted operating profit within our guidance range for adjusted operating profit. Full year adjusted operating margin is projected to be approximately 20% at the midpoint, 60 basis points higher than last year despite tariff headwinds and 50 basis points lower than prior guidance. We continue to drive margin improvement, including positive pricecost and productivity. And implied in our guidance is fourth quarter adjusted operating margin in excess of 23%, once again keeping us on track to attain our long term target by 2029. And finally, on this page, we are increasing our full year adjusted free cash flow guidance to $1,400,000,000 up $100,000,000 from prior guidance, driving full year adjusted free cash flow conversion to 95% as we continue to drive initiatives to optimize trade working capital.

And when you piece it all together, the growth trajectory, the margin progression and the free cash flow performance, these numbers certainly demonstrate the continued strength of our execution and our ability to drive significant growth while expanding margins. We talked to fourth quarter guidance slide in the appendix. And if you look at the exit rates across all financial metrics, we believe we should be very well positioned for a strong start to 2026. And with that said, I turn it back over to Gio.

Gio Albertatsi, Chief Executive Officer, Vertiv: Well, thank you, David. Thanks a lot. We go to Slide 10. So some key thoughts here to wrap up. Growth is certainly ongoing, and it is here to stay.

We have demonstrated the ability to meet our customer needs and to gain market share, delivering a 30% sales growth in the 2025. While this has required accelerated investment in engineering, R and D, capacity and go to market, We are aligning execution to this speedier growth rate. We are vigorously addressing the temporary margin challenges. This has my and my team’s full attention. I’m confident we will see constant improvement.

We have raised 2025 guidance for adjusted diluted EPS, net sales, AOP and adjusted free cash flow. The speed of technologically technological evolution isn’t abating, And the industry is changing quite dramatically. We’re driving this change and helping to shape the future of data center infrastructure. Lastly, let me highlight two particularly exciting development that demonstrate our technology leadership and innovation in the market. Let’s start with our collaboration with Cohuve, which showcases Vertiv’s position at the forefront of AI infrastructure.

With Cohuve and Dell, we’re the first to launch and deploy NVIDIA’s GB300 and VL72. This follows our head start with GB200 and VL72 reference designs. Our infrastructure offering is always at least one GPU generation ahead, which is absolutely critical for our customers. And let me continue with our collaboration with Oclo. With the data center industry keenly focused on accessing increasingly large sources of power and power generation, our collaboration with OCLO is about making access to advanced nuclear power plants easier.

Working on power and thermal reference architectures tailored to Oclo’s great advanced nuclear power plant technology, we will enable this to happen at scale and in ways that significantly enhance the overall data center efficiency. These collaborations demonstrate how Vertiv is actively shaping the future of the data center infrastructure, working with the innovative partners to solve the industry’s most pressing challenges while maintaining our focus on efficiency, reliability and sustainability. I conclude by saying that the industry is effervescent, optimistically intense in driving acceleration. We’re raising our full year guidance and we are confirming our long term margin objective. We are making sure we continue to lead the industry forward through this acceleration for the years to come.

With that, let us start the Q and A session. And over to you,

Breeka, Conference Operator: Gio. If you would like to ask a question, you can do so by pressing star followed by one on your telephone keypad. In the interest of time, please limit yourself to one question. And if you have a follow-up, please rejoin the queue. The first question comes from Steve Tusa with JPMorgan.

Your line is open, Steve.

Steve Tusa, Analyst, JPMorgan: Hey, guys. How’s going?

Gio Albertatsi, Chief Executive Officer, Vertiv: Doing very well, Steve. How are you doing?

Speaker 6: So just on margin side, I think you’re going to be exiting the year at like a 30 mid-30s incremental margin, which I think is relatively something that we would target, I think, over the long term, you guys have talked about. I know you’re continuing to invest every year and there’s always some incremental friction as you’re delivering at this rate, which is pretty dramatic. But is there any reason why we wouldn’t think about 2026 as a more normal year on margins given your kind of easy comps in that exit rate?

Gio Albertatsi, Chief Executive Officer, Vertiv: Certainly, direction of speed coming out of 2025 is encouraging in terms of the long trajectory long term trajectory. We I was book on in the script thinking in terms of continue to believe that our objectives in terms of long term margins are correct. So I would think that probably too far from what we think the future could look like.

Speaker 7: Thank you.

Breeka, Conference Operator: Thank you. Your next question comes from Amit Daryanani with Evercore. Your line is open.

Amit Daryanani, Analyst, Evercore: Thanks a lot. Good morning, everyone. I guess, I was hoping, Joe, you

Speaker 9: could spend a little bit

Amit Daryanani, Analyst, Evercore: of time on the strength that we’re seeing in both your backlog and orders right now. And maybe just touch on two fronts. One, are you seeing a shift in duration of your orders right now? Or maybe just talk about the range of what that order book of backlog looks like that would be really helpful. And then secondarily, can you just touch on the diversity of this backlog?

You mentioned CoreView, I think at the end of your comments. Certainly the neo cloud seem to be ramping up in a much bigger way. So I’d love to just understand how do think of the duration of this backlog and then also the customer diversity that’s perhaps starting to happen over here?

Gio Albertatsi, Chief Executive Officer, Vertiv: Amit, I will take this as a one question. Let’s put it this way. So two aspects of your one question. One is the what is the duration and what is the mix in terms of time frames of our backlog and pipeline. Backlog is pretty much similar to what we have seen historically.

There is no kind of either a dramatic elongation or dramatic shrinkage of the backlog. If anything, what we see, and it’s quite reassuring, we like it, is that some of our customers would like to have stuff earlier. And there is an appetite to but for us to deliver, if you will. When we can deliver and we can deliver as we have demonstrated in the second quarter, we have increasing the customer base that is ready to receive. That’s a good sign for the industry as it all.

When it comes to orders, let’s say, top pipeline more than orders because orders and what I say backlog is pretty much like for like, as I say, is the same thing when the order is received. In the pipeline, we have a little bit of an elongation, which is a positive elongation. Don’t think about anything that distorts the shape between, for example, what is six months next six months or next twelve months vis a vis beyond the next twelve months. But there is a little bit more elongated visibility. But again, nothing that dramatically changed the shape.

We have a nicely kind of actionable pipeline that supports our growth ambition. There was an aspect about diversity. I’d say that clearly, if we think about the part of the market that grows the fastest, certainly thinking what we call the core hyperscale. And that is quite a large container for us. That includes certainly hyperscale, traditional colocation, sovereign, and and definitely new cloud.

So it’s a well balanced in that respect. Next question? Yes, ready for the

Breeka, Conference Operator: next. We now have Jeff Sprague with Vertical Research Partners. Please go ahead.

Leen Maxina, Moderator/Host, Vertiv0: Thank you. Good morning, everyone. I’m going to sneak an unrelated two parter in here too, if I can. Just first on tariffs and inflation, just given this kind of remarkable demand pulse you’re seeing, do you have kind of the commercial leverage to fully recover tariffs? We’re just talking about some kind of delay in terms of moving through the order backlog and converting to sales.

And then I’m sorry, Gio, could you just, maybe address a little scare through the market a couple weeks ago on, you know, a AWS, you know, delivering some kind of or developing some kind of liquid cooling application, how you put something like that in context to your business? Thank you.

Gio Albertatsi, Chief Executive Officer, Vertiv: Well, I really have a hard time, Jeff, reconciling these two questions into one. So let me start from the AWS one. So in general, think in terms of hyperscalers having certainly a very strong opinion on how they want their infrastructure to be. Now no two hyperscalers have same behaviors. No two hyperscalers have the same design philosophy.

But certainly, with every single hyperscale, you should have a very strong relationship. And you have to be involved

Leen Maxina, Moderator/Host, Vertiv1: the

Gio Albertatsi, Chief Executive Officer, Vertiv: technology that very often together with them is developed. So I don’t want to over elaborate on the specific case because I’ll let AWS talk about that. But in general, think about us being always connected with hyperscalers. And as I said several times, it’s very important to be in the labs with them, to having our engineers and their engineers working together. And that will bring good things about.

That could be kind of a customization of products that are in our portfolio or us working on the technologies exactly the way they want it. So I don’t think there should be any scare. This is not an anomaly in the way the market works. And we are here to scale with our hyperscale customers. We are here to co engineer with them.

Breeka, Conference Operator: Thank you. We now have a question from Nigel Coe with Wolfe Research.

Leen Maxina, Moderator/Host, Vertiv2: Thanks. Good morning. And Gio, I promise I’ll keep this to one question. No two parters within one question, just one question.

Speaker 9: Think.

Gio Albertatsi, Chief Executive Officer, Vertiv: Let’s see. See.

Leen Maxina, Moderator/Host, Vertiv2: You’d be the judge. So can we just talk about win rates? There’s obviously a lot of speculation around the evolution to liquid cooling and lots of new entrants and the like. So just wondering, in terms of your win rates, especially on the AI infrastructure side of things, how is your win rate comparing to the last two or three years? And here comes the end.

Is there any change in the way that the hyperscales are procuring equipment? And I’m just wondering if the system wide approach is starting to gain traction as opposed to RFPs for specific components of the system.

Gio Albertatsi, Chief Executive Officer, Vertiv: So in general, we will not go in the details of win rates for AI infrastructure, not AI infrastructure. Remember that already probably a year ago, we were saying, hey, I mean being too analytical about what is AI, what is not AI is a full precision. But in general, we see good stability in our win rate. Now we should go product line by product line. We should go BU by BU.

But in general, when we see things in aggregate, we have stability of win rates, which is of course, if you combine win rates and pipeline, it’s certainly a good sign. So and we don’t see a dramatic way or any significant way in which hyperscalers go about procuring their infrastructure component or their solutions and systems. And again, there are some hyperscalers who have been historically very much, I want to design it and yes, consult with you as I design and then you will be part of our, let’s say, supply chain for the specific system. And there are others that sit with you and say, hey. These are my needs.

What you wanna what you wanna do is how do we design around my needs, what you have around my needs. Clearly, of people think in terms of suppliers as multisource for resilience. But then again, in that case, from that point of view as well, it is a customer by customer type of decision and philosophy. So in general, nothing dramatically different even as the technology of what they buy is moving with the technology of of the industry,

Dave Cote, Executive Chairman, Vertiv: the technology evolution of this.

Speaker 9: Okay. Thank you.

Breeka, Conference Operator: Thank you. We now have Scott Davis with Melius Research. Please go ahead when you’re ready.

Steve Tusa, Analyst, JPMorgan: Hey, good morning, everybody.

Gio Albertatsi, Chief Executive Officer, Vertiv: Good morning.

Steve Tusa, Analyst, JPMorgan: I wanna wanna drill down if if we can into the operational inefficiencies and and just, Gio, if you can just talk a little bit about root cause. You know, are these the standard things of kind of, you know, premium freight and overtime labor and third shift inefficiencies and stuff like that? Or is or or or are there other kind of hiccups that you’re having while you’re adding capacity as far as getting components, getting, you know, getting tooling and stuff like that? I mean, what just a little bit more granularity, I think, on where you’re seeing those inefficiencies, I think, would be helpful. Thanks.

Gio Albertatsi, Chief Executive Officer, Vertiv: Yes. I think it’s a combination of things, Scott. And we have addressed that during the as we’re going through the slides. But I really like to think about it in three ways. One is there is a tariff transition.

I mean we talked about tariff setting tariffs, etcetera, in a steady state. But when you transition from a certain footprint of supply chain and manufacturing to another one that is more adjusted to the tariff, you have to involve new sources. Sometimes you have to have new certification. You have you move a backlog from one place to another. You have stops and goes that, of course, inject inefficiency.

And some of that, of course, you can fight and you do and we do. Some other is what you have to face. If you don’t think in this ongoing anyway, but ongoing and overlapped to a situation in which we’re growing at 34%, then you have that compounding with exactly what you were saying. So you have to have to enable that growth more over time. You have premium freights, and that is the premium freight for that.

That is the premium freight for the tariff reconfiguration. It’s probably a combination of the two. So clearly, all these two elements both these elements, sorry, both these elements of the tariff transition and the strong acceleration are normalizing and are normalizing as we make more capacity available, as we design the way we operate and align the way we operate to a higher level of growth. So you were talking about retooling. Let’s talk about retooling.

That would probably be more a tariff transition using it to get extending a little bit the definition of that. But then there will certainly be the overtime, the backlog movements, the freights. We talked about some other EMEA specific operational executional challenges that are specific to a part of our business that we are addressing with focus and dare I say with my even my direct involvement on certainly more than a weekly basis. All things that, as I was saying, we believe will be in full control.

Steve Tusa, Analyst, JPMorgan: Thank you, guys. Appreciate it.

Gio Albertatsi, Chief Executive Officer, Vertiv: Thank you.

Breeka, Conference Operator: Thank you. Your next question comes from Andrew Obin with Bank of America.

Dave Cote, Executive Chairman, Vertiv: Yes, good morning.

Gio Albertatsi, Chief Executive Officer, Vertiv: Hey. Good morning too. Hey. Yeah. So one of

Leen Maxina, Moderator/Host, Vertiv3: the things that sort of came up last quarter, you know, during various channel checks is that there are a lot of teething pains on liquid cooling systems in the industry. And I would guess that this sort of bodes well for service contracts. And, any color or commentary on growth rates for thermal service contracts or liquid cooling? Because I think at the Analyst Day last year, people have sort of thought that this could be an attractive growth opportunity for Vertiv. Thank you.

Gio Albertatsi, Chief Executive Officer, Vertiv: Yes. Thank you, Andrew. So certainly, let’s say if you think about the cooling and you go back to what I was saying, when we’re going through the slides, the degree of intimacy interoperability between a cooling system liquid cooling system and a multimillion dollar rack is enormous. And the system is quite complex from a technology standpoint, from a calibration balancing standpoint. So we are fully convinced and we see that indeed being the case that our service strength is really making a difference in the deployment of liquid cooling at scale.

Let’s not forget scale. It’s a big element here, but also during the life cycle of the liquid cooling system. So yes, the answer is just straight, yes. We believe that liquid cooling is helpful and will be certainly favorable in terms of our thermal services, thermal contract growth. It’s an area we truly believe will be strong going forward.

Leen Maxina, Moderator/Host, Vertiv3: Thank you.

Breeka, Conference Operator: Thank you. We now have Michael Elias with TD Cowen on the line.

Leen Maxina, Moderator/Host, Vertiv4: Great. Thanks for taking the question. Just curious, as you think about the evolution of, what goes into the data center, I. Increasingly looking at taking a medium voltage directly to the rack and rack density is getting up to one to two megawatts per rack. How do you think about your current product footprint?

And any ways that you need to evolve your offering in order to keep pace with the evolution inside the data center? Well,

Gio Albertatsi, Chief Executive Officer, Vertiv: thanks, Mike. I think this is certainly something that is happening is very clearly in our road maps. And you’re right. Just as we saw the thermal or the cooling infrastructure evolve and it’s not finished, of course, and continue to evolve. By the same token, the same will happen on the power side of things.

You heard us you probably heard us or people heard us vocally support NVIDIA’s plan to have a higher, let’s say, voltage type of rack power distribution in general. But this, of course, will have reverberations across the entire power infrastructure. So yes, the portfolio is evolving. What we are really happy about and we nurture very carefully and very intensely is the relationship we have with the key players, be them silicon or hyperscalers, by which we together define what the future will be like one, two, three years out and align our portfolio and our technology. If you think about this kind of a higher voltage DC power, that’s something that, of course, is very leverages very well our decades long DC power technology.

But you can think about this evolution, again, I want to say on the power side, is something that is even broader. As data centers will become more and more self sufficient from a power generation standpoint, and we know that, that is certainly a trend, not the sole trend, but it’s certainly a trend. Well, then you’ll see back to my Ocala point earlier, as you see that the powertrain, the power infrastructure will be will need to be very well orchestrated exactly from power generation all the way to inside the rack. And there will be various architectures that really will depend on, again, the type of philosophy and also the type of use of a certain data center, how much flexibility you want to have two different type of loads. So long story short, the system is becoming more important.

The system is becoming more complex. And this is an exercise that we are, of course, engaging in and we are very excited about.

Dave Cote, Executive Chairman, Vertiv: Thank you.

Breeka, Conference Operator: Thank you. We now have Nicole DeBlase with Deutsche Bank. Please go ahead. Yes, thanks. Good morning, guys.

David Fallon, Chief Financial Officer, Vertiv: Good morning.

Speaker 7: I just had a question on margin. So the guidance implies like a 10 basis points year on year decline in margins in the third quarter and then a pretty big step up to like over 200 basis points of expansion in the fourth quarter. So probably a question for David, but can we kind of walk through some of the puts and takes that give you guys confidence in that step up? Thank you.

David Fallon, Chief Financial Officer, Vertiv: Yes. I think it’s two things, Nicole. Number one is the benefit of operational leverage. So and you can get our exact Q4 numbers in the appendix, but there’s over $200,000,000 increase in sales expected in Q4 versus Q3. So that definitely provides the benefits of operational leverage.

And the other bucket is simply addressing the operational inefficiencies and execution challenges that we’ve seen in Q2 into Q3. Once again, we believe all of these should be resolved in Q4. So it may be oversimplifying things, but I think those are the two buckets that drive the improvement from Q3 to Q4.

Speaker 7: Simple is great. Thanks, David.

Dave Cote, Executive Chairman, Vertiv: Thanks.

Breeka, Conference Operator: Thank you. We now have Amrit Matura with UBS. Your line is open.

Leen Maxina, Moderator/Host, Vertiv4: Thanks, operator. Morning still morning. Good morning, everybody. Just, Gio, at the front of the call, you had talked about the regulatory environment getting better for AI infrastructure, and that was being reflected in your pipeline. Can you just give us a little bit more color on that?

And what specifically is getting better? And also just I know you don’t like commenting on orders for obvious reasons, but you have been quite generous in talking about trailing twelve month orders and the expectations there. We’re we’re getting past these tougher comps here where I think there looks like a possibility for TTM orders to reaccelerate. Wondering if you would engage with me in that type of conversation.

Gio Albertatsi, Chief Executive Officer, Vertiv: Another case of very clear two questions. These guys does as one. So let me address the regulatory environment and be patient with me. So this is in general true. If we think about The U.

S. Environment, of course, we see a lot of attention from the administration for the sector. It’s not just the sector in terms of data center, it’s not itself, but elements that are then conducive very much to data center growth that is all around power power grid and power generation. So that’s what I referred to. But also my comment was a little bit oriented towards EMEA, where we see national governments, the EU, but also places like The UK more aware of the importance and the strategic importance of AI.

So that is slowly, as we said, slowly, but surely starting to head in the right direction. And one thing that I haven’t mentioned this time that I’m fully convinced about is that one of the reasons why Europe is maybe a little lagging. We’re talking about a coiled spring is that so much kind of attention and time and resources are really focused on North America and The U. S. That sometimes are the same players and the same players that play both The U.

S, North America and Europe. This is even more so true than it is, if you will, with Asia, its own dynamics and positive dynamics, I must say. So you will see that a lot of the attention is absorbed by what happens in The U. S. And we believe times will soon be mature for an acceleration in Europe and EMEA.

Leen Maxina, Moderator/Host, Vertiv4: What about the trailing twelve month?

Leen Maxina, Moderator/Host, Vertiv5: That’s the second question.

Gio Albertatsi, Chief Executive Officer, Vertiv: And as we said, we would I would be guiding orders and that’s not what we did. All right. Thank you.

Leen Maxina, Moderator/Host, Vertiv5: And it was the second question.

Gio Albertatsi, Chief Executive Officer, Vertiv: Be patient with it. Thanks.

Breeka, Conference Operator: Thank you. We now have a question from Chris Snyder with Morgan Stanley. Your line is open.

Speaker 9: Thank you. I wanted to ask on gross margin, which has obviously come under some pressure here in the first half after a period of very healthy expansion. Is this only a function of tariffs and some of the inefficiencies discussed earlier? Or are there also headwinds from whether it be mix or new technologies ramping, I. E.

Liquid cooling? And when you guys look at the backlog, is the expectation that gross margin returns to expansion in Q4 and that kind of helps provide that operating lift? Or is that still a little bit further out?

Dave Cote, Executive Chairman, Vertiv: Thank you.

Gio Albertatsi, Chief Executive Officer, Vertiv: Couple of things. Derek, add. We are happy about the new technologies. And I think the new technologies corroborate our value story and certainly our margin story. As we explained, there is there are tariff elements and certainly growth inefficiency in the operational aspects that we, I think, discussed.

Those are the really the main elements. And when it comes to margin and the backlog margin, because we do not go in those level of details, but certainly, factor the margin in our backlog when we talk about when we give guidance in general. I don’t know if you want to add anything, David.

David Fallon, Chief Financial Officer, Vertiv: Yes. Just on the topic of mix. Mix could be a factor quarter to quarter based on larger projects. But I’ll tell you for the full year, margin will not have a negative I’m sorry, mix will not have a negative impact on our margin. If anything, it will be slightly positive.

Speaker 9: Thank you. Appreciate that.

Gio Albertatsi, Chief Executive Officer, Vertiv: Yes.

Breeka, Conference Operator: Thank you. We now have the next question from Andy Kaplowitz with Citigroup. Please go ahead, Andy.

Leen Maxina, Moderator/Host, Vertiv1: Good morning, everyone.

David Fallon, Chief Financial Officer, Vertiv: Hi, Andy. Good morning.

Leen Maxina, Moderator/Host, Vertiv1: Gio, I think in the past you said that the market and vertices are trending toward the high end of your 15% to 17% growth CAGR for hyperscaler and colocation revenue growth to 29% and your 12% to 14% growth for Vertiv. But given the recent order momentum, are we thinking that growth could be even higher, modestly higher rates, especially given you’re seeing a broadening of AI spend, I think, into sovereigns or enterprise? Or would you say the order ramp has been more what you’ve been expecting, maybe just slightly faster?

Gio Albertatsi, Chief Executive Officer, Vertiv: I think it would be early to think in terms of, let’s say, a or a contraction or a change in our, let’s say, market growth expectations, I think it would be premature. Certainly, we like what we see in terms of market demand. Certainly, going back to the punch we’re making, that range for hyper and colo that we gave the 15%, 17%, we’re probably thinking about the upper end. As usual, we continue to look at the market, to evaluate the market. Now it would be premature.

But certainly, as we’re saying, in this market, are taking market share. And yes, we are happy with the trajectory. But again, we’re not even shocked in terms of that because we’ve been talking about our pipeline getting stronger for quite some time. And again, not commenting on any specific quarter because of the lumpiness that we have several times discussed. We think that from a trailing 12, the momentum is the right one and is momentum that certainly implies market share gain.

Leen Maxina, Moderator/Host, Vertiv1: Well, I tried. Thanks to you.

Gio Albertatsi, Chief Executive Officer, Vertiv: Thanks.

Breeka, Conference Operator: Thank you. We have a question from Mark Dennerle with Goldman Sachs. Please go ahead.

Leen Maxina, Moderator/Host, Vertiv6: Yes. Thank you very much for taking my question. You said you expect to generate about $1,400,000,000 of free flow for this year and plan to use about $200,000,000 for the Great Lakes acquisition. Can you speak to your priorities for the rest of the free cash flow? And if you expect M and A to become a more regular part of your capital allocation framework from here?

Thanks.

Gio Albertatsi, Chief Executive Officer, Vertiv: Well, thank you, Mark. The certainly, and A is an important element in our capital allocation strategy and certainly in our value broad more broadly speaking, value creation model. And we’ve been very vocal about that. We’re happy about what we have recently announced. So it is an important part.

So again, it’s an important part that we address with key focus. We have a strong process and a very active pipeline. What exactly will happen would be obviously super premature to say, but we’re not shy and we’ll not be shy if the right timing and the right thing mature to the point that we can action. So I am certainly pleased with how much stronger our engine in respect is. So I don’t want to predict anything right now, but certainly we have the means, we have the credibility and we have the process in place.

Dave Cote, Executive Chairman, Vertiv: Thanks a lot.

Breeka, Conference Operator: Our final question comes from Noah Kaye with Oppenheimer. Your line is open.

Dave Cote, Executive Chairman, Vertiv: Thanks. Joe, you talked at DCB earlier this week about the trend towards modular and prefab solution as really kind of accelerating. And I would love to understand to what extent your backlog has started to remix in that direction and perhaps whether we can even tie that trend to the demand acceleration you’re seeing?

Gio Albertatsi, Chief Executive Officer, Vertiv: Well, thank you. That is certainly a trend that we see. We know that the industry needs speed and speed in construction is paramount for success for our customers. But also, as I said several times, this is the construction industry. And if you have to build very, very complex systems like data centers on-site at speed, then there certainly are challenges, shortages, manpower, skilled labor shortages.

And surely, things can be done better in a prefabrication setup and more. So yes, we see an acceleration in the modular business. Don’t think the modular business as something else from what we do. For us, modular business is prefabricating a lot of our technology. So we’re not just a regular kind of integrator.

We indeed are absolutely not an integrator. We are prefabricating the technology that we own. And that makes a big difference. So it’s not like, oh, thermal is going down, power is going down, and prefabrication is going up. No.

Is really integral. It’s almost like a wrapping around in our technologies and one that can create a lot of value to our customers. So and this can be multiple things. If you take our SmartRun, our SmartRun that I was talking about earlier, you will have power racks, power distribution. You will have secondary fluid network.

You can include that everything liquid cooling, busways, the controls, you name it. So it’s really a way to package increasing the value that we deliver to our customers.

Dave Cote, Executive Chairman, Vertiv: That’s very helpful. Thank you. Thank you.

Breeka, Conference Operator: Thank you. This concludes our question and answer session. And I would like to turn the call back over to Gio for any closing remarks.

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