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DATE

  • Wednesday, July 30, 2025, at 11 a.m. EDT

CALL PARTICIPANTS

  • Executive Chairman — Dave Cote
  • Chief Executive Officer — Giordano Albertazzi
  • Chief Financial Officer — David Fallon
  • Vice President, Investor Relations — Lynne Maxeiner

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TAKEAWAYS

  • Adjusted Diluted EPS: $0.95 adjusted diluted earnings per share for Q2 2025, up 42% year over year on an adjusted (non-GAAP) basis, attributable to higher adjusted operating profit and lower net interest.
  • Organic Sales Growth: 34%, driven by Americas up 43% in Q2 2025, APAC organic sales up 37%, and EMEA organic sales grew 7%.
  • Q2 Orders: Exceeded $3 billion in orders for the first time in Q2 2025; up 15% from Q2 2024 and 11% sequentially from Q1 2025, with a book-to-bill ratio of 1.2x.
  • Adjusted Operating Profit: Adjusted operating profit was $489 million for Q2 2025, 28% higher year on year (non-GAAP), exceeding prior guidance by $54 million in the second quarter.
  • Adjusted Operating Margin: 18.5% adjusted operating margin for Q2 2025, down 110 basis points from the prior year, cited as primarily driven by tariffs.
  • Adjusted Free Cash Flow: adjusted free cash flow of $277 million in the second quarter; adjusted free cash flow of $542 million in the first half of 2025
  • Backlog: $8.5 billion backlog as of Q2 2025, up 21% versus the prior year and 7% sequentially from Q1 2025, described as "very high" and supporting increased guidance.
  • Raised 2025 Guidance: adjusted diluted EPS guidance raised to $3.8, or 33% higher than the prior year; adjusted operating profit guidance to just under $2 billion; and adjusted free cash flow guidance to $1.4 billion (conversion rate 95%) for full year 2025.
  • TTM Organic Orders Growth: 11%, regarded as significant given last year’s strong comp.
  • Q3 Outlook: Organic revenue growth is expected at 22%, led by mid-30s percentage growth in Americas, low 20s in APAC.
  • Operational/Executional Challenges: Temporary supply chain and manufacturing transition costs, including increased tariff-related expenses and EMEA inefficiencies, are expected to materially resolve by year-end.
  • Fourth Quarter Margin Target: Adjusted operating margin expected to exceed 23% in Q4 2025, in line with the 25% long-term adjusted operating margin target by 2029.
  • Great Lakes Acquisition: Announced, with expected closing this quarter, adding custom rack and cabinet solutions aimed at expanding portfolio in AI infrastructure white space.
  • Strategic Collaborations: Advanced integration with CoolWeave and Dell to launch/deploy NVIDIA’s GB 300 and VL 7, and partnership with Oclo for nuclear power architectures in data centers.
  • Capital Structure: Net leverage ratio at 0.6x as of Q2 2025, cited as strong financial positioning.
  • Orders Disclosure Change: Shift to annual projected orders rather than quarterly detail to better align with business management.

SUMMARY

Vertiv Holdings (VRT 2.40%) reported 34% organic sales growth in Q2 2025 and delivered record quarterly orders exceeding $3 billion, resulting in a raised full-year 2025 outlook across all key financial metrics. Management highlighted accelerating business momentum, evidenced by a 21% increase in backlog and 11% trailing twelve-month organic orders growth, both as of Q2 2025. The company attributed a 110 basis point reduction in adjusted operating margin chiefly to tariff impacts but confirmed plans to resolve related inefficiencies by year-end. Strategic initiatives included a pending acquisition of Great Lakes and advanced collaborations on AI and power infrastructure, described as positioning Vertiv for sector leadership. The new approach to orders guidance will transition to full-year projections, replacing quarterly detail starting next earnings call.

  • CEO Albertazzi described investment increases in R&D, capacity, and go-to-market to support accelerated growth, stating, "We are aligning execution to this speedier growth rate."
  • Albertazzi described the regulatory environment for AI infrastructure as “more conducive” in EMEA, citing enhanced project pipelines and government support.
  • CFO Fallon explained that the Q4 2025 adjusted operating margin expansion is driven by operational leverage from higher expected sales and the resolution of prior quarter inefficiencies.
  • The call emphasized that recent supply chain and tariff-related costs are temporary and “will be materially resolved by year-end,” supporting both margin recovery and guidance confidence.
  • Albertazzi clarified that customer backlog duration is stable, with "some of our customers would like to have stuff earlier," which management views as a sector health indicator.
  • Management indicated service contracts for thermal and liquid cooling will benefit from increased system complexity, with Albertazzi stating, "We believe that liquid cooling is helpful and will be certainly favorable in terms of our thermal services, thermal contract growth."
  • Management expects M&A to remain a central element in capital allocation, described as, “an important part that we address with the key focus” and backed by an “active pipeline.”
  • The call confirmed that modular and prefabrication solutions are accelerating and are integral to value delivery.

INDUSTRY GLOSSARY

  • Grayspace: Data center infrastructure dedicated to power and cooling management, distinct from IT equipment areas.
  • Whitespace: The data center area housing IT equipment, such as servers and network hardware, increasingly integrated with grayspace elements.
  • Colocation: Services providing shared data center space and infrastructure for multiple customers' IT equipment.
  • Hyperscalers: Large cloud service providers or businesses with extensive, scalable data center operations, such as Amazon Web Services, Microsoft Azure, and Google Cloud.
  • CoolWeave: A partner firm mentioned in strategic collaborations with Vertiv for advanced AI infrastructure solutions.
  • Oclo: A collaborator with Vertiv focused on integrating advanced nuclear power generation technologies into data center environments.

Full Conference Call Transcript

Lynne Maxeiner: Great. Thank you, Breeka. Good morning, and welcome to Vertiv Holdings Co Second Quarter 2025 Earnings Conference Call. Joining me today are Vertiv Holdings Co's Executive Chairman, Dave Cote, Chief Executive Officer, Giordano Albertazzi, and Chief Financial Officer, David Fallon. 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. 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 Holdings Co.

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. 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 the 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: Good morning, everyone. I have to say I'm pleased with how well we've performed midway through 2025. We continue to outperform and deliver strong results. Giordano Albertazzi and the team are executing very well, and our investments in R&D and capacity are paying off today as planned, and positioning us well for the future. The transformation at Vertiv Holdings Co continues to accelerate. 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 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&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 R&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 Holdings Co is poised to capitalize on the massive long-term opportunity. With that, I'll turn it over to Giordano Albertazzi 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.

Giordano Albertazzi: 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 the second quarter of 2024, 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-forties, and APAC up in the mid-thirties. EMEA delivered high single-digit growth. For the first time, we surpassed $3 billion in orders this quarter, which is certainly promising in terms of long-term trajectory.

Q2 orders were up approximately 15% from Q2 2024 and certainly not an easy comp, and up 11% sequentially from Q1 2025. 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 million, 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 the prior year. This was primarily driven by the net impact of tariffs.

Our updated guidance takes into consideration tariffs active on 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 a 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 R&D and in growth compared to prior guidance.

Our second quarter free cash flow of $277 million, though lower on a year-on-year basis, corroborates a strong cash generation trend with adjusted free cash flow of $542 million in the first half, a robust growth of 24% year on year. This performance was driven by our improved operational execution resulting in higher adjusted operating profit. We are raising the full-year adjusted free cash flow guidance to $1.4 billion. Our disciplined financial management is reflecting 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 million to $10 billion. 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 the prior year. We have taken our adjusted operating profit guidance to just under $2 billion 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 Holdings Co's strong momentum in the market, particularly considering very strong orders in the second quarter of 2024. Our backlog stands strong at $8.5 billion, up 21% versus the 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 quota 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 2026 and beyond. The regulatory environment is 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 Holdings Co.

Beginning on our Q4 and full-year 2025 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 remain quite dynamic and fluid, with a tariff perimeter changing frequently, and this can create inefficiencies in the playbook execution as we adjust to a changing landscape. This guidance is based on the tariffs in place on 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&D, capacity, and go-to-market to fuel growth. We are fine-tuning our supply chain as suppliers accelerate their localization effort to address the tariff situation. Our supply chain resilience is helping us well. As growth accelerates, 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. Direct service, the compute infrastructure. With increasing rack density, the physical integration and interoperability between the 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 Holdings Co's trends really come into play. You have heard me describe Vertiv Holdings Co as the connective tissue between the gray and the white space. Between facilities and IT. Our traditional expertise in gray space is just seamlessly becoming white space infrastructure expertise. Whitespace 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.

Step change is now 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 an extensive portfolio of high-end RAC solutions and innovation capabilities that are essential in today's increasingly demanding AI infrastructure white 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 Holdings Co's working capabilities in the gray and white space. With manufacturing and assembly facilities in the US 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 infrastructure positions us uniquely to solve the complex challenges that our customers face. With that, I'll turn it over to David Fallon.

David, over to you.

David Fallon: Perfect. Thanks, Giordano. 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 million above prior guidance. And compared to last year, Americas was up 43%, APAC up 37%, EMEA still influenced by a lag in AI infrastructure build, was up 7%. And as Giordano stated, pipelines across all three regions continue to grow nicely, including EMEA.

Our adjusted operating profit of $489 million was up 28% from last year, and $54 million 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 Giordano 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 $6 million 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 million to $1.4 billion.

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 hyper 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 back half of 2025, and relatively flat for the full year. But as a reminder, EMEA was our fastest-growing region in 2024, 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 US 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, the pipeline remains healthy, and we anticipate the strong pipeline to convert to the 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 twenties, 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 price cost. Implied is a 150 basis point sequential improvement from the second quarter, primarily driven by progress in resolving some of the operational 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 million to $10 billion, with $110 million 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 billion, up 28% from last year. And as Giordano 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 price cost 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 $1.4 billion, up $100 million 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 tucked the 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 Giordano Albertazzi.

Giordano Albertazzi: Well, thank you, David. Thanks a lot. We go to Slide 10. Here we go. 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 2025. While this has required accelerated investment in engineering and R&D capacity, and go-to-market. We are aligning execution to this speedier growth rate. We're vigorously addressing the temporary margin challenges. It 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 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 developments that demonstrate our technology leadership and innovation in the market. Let's start with our collaboration with the CoolWeave, which showcases Vertiv Holdings Co's position at the forefront of AI infrastructure. With CoolWeave and Dell, we were the first to launch and deploy NVIDIA's GB 300 and VL 7. This follows our head start with GB 200 NVL 72 reference design. 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, 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 Holdings Co is actively shaping the future of the data center infrastructure. Working with 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 effort-rated 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&A session and over to you, Breeka.

Operator: Thank you, Giordano. We will now begin the question and answer session. And 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. We will pause for a moment to compile the Q&A.

Steve Tusa (JPMorgan): Hey, guys. How's it going?

Giordano Albertazzi: Good. Doing very well, Steve. How are you doing?

Steve Tusa: So, just on the margin side, I think you're going to be exiting the year at like a mid-30s incremental margin, which I think is relatively something that we would target, I think, 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 26% as a more normal year on margins given your kind of easy comps in that exit rate?

Giordano Albertazzi: Certainly, the direction and speed coming out of 2025 is encouraging in terms of the long-term trajectory. You know, we always speak on the script thinking in terms of continuing to believe that our objectives in terms of long-term margins are correct, so I would think that, you know, probably not too far from what we think the future could look like.

Steve Tusa: Great. Thank you.

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

Amit Daryanani: 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 the duration of your orders right now? Or maybe just talk about the range of what that order book or backlog looks like, that would be really helpful. And then secondarily, can you just touch on the diversity of this backlog? You mentioned CoolWeave, I think, at the end of your comments. Actually, the Neo Cloud seems to be ramping up in a much bigger way.

So love to just understand, you know, how do you think of the duration of this backlog and then also customer diversity that's perhaps starting to happen over here.

Giordano Albertazzi: I mean, I would take this as one question. Let me put it this way. So two aspects of your one question. One is the duration, and what is the mix in terms of timeframes of our backlog and pipeline. Backlog is pretty much similar to what we have seen historically. There is no kind of 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 for us to deliver, if you will. When we can deliver an edge, we can deliver as we have demonstrated in the second quarter.

We have increasingly a customer base that is ready to receive. That's a good sign for the industry as a whole. 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, does it say? It's the 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 changes 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, we think about the part of the market that grows the fastest, certainly thinking about what we call the core hyperscale. And you know that is quite a large container for us. That includes certainly hyperscale, traditional colocation, sovereign, and definitely new cloud. So it's well balanced in that respect.

Operator: We now have Jeff Sprague with Vertical Research Partners. Please go ahead.

Jeff Sprague: 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, Giordano, could you just maybe address a little scare through the market a couple of weeks ago on, you know, AWS 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.

Giordano Albertazzi: 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 the same body behaviors. No two hyperscalers have the same design philosophy. But, certainly, with every single hyperscale, you need to have a very strong relationship. And you have to be involved in the 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, 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 have 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.

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

Nigel Coe: Thanks. Good morning. And Giordano, I promise I'll keep this to one. No two-parters within one question, just one question. I think. So let's see. Let's see. Let's see. See. Let's see. You'd be the judge. So can we just talk about win rates? There's obviously a lot of speculation around, you know, the evolution to liquid cooling and lots of new entrants and the likes. So just wondering, you know, 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 hyperscalers 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.

Giordano Albertazzi: So in general, we will not go into 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 false we see 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 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 oh, I want to design it and, yeah, 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 want to do is how do we design around my needs, what you have around my needs. Clearly, you know, most 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 or what they buy is moving with the technology of the industry, the technology evolution of this.

Nigel Coe: Okay. Thank you.

Operator: Thank you. We now have Scott Davis with Melius Research. Please go ahead when you're ready.

Scott Davis: Hey. Good morning, everybody.

Giordano Albertazzi: Good morning.

Scott Davis: I want to drill down if we can into the operational and efficiency and just, Giordano, 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 are there other kind of hiccups that you're having while you're adding capacity as far as getting components, getting tooling and stuff like that? I mean, just a little bit more granularity, I think, on where you're seeing those inefficiencies, I think, would be helpful.

Giordano Albertazzi: Thanks. Yeah. 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 tariffs, 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 to 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 then think in this ongoing anyway, but ongoing and overlapped to a situation in which we're growing 34%, then you have that compounding with exactly what you were saying. So you 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 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 normalized.

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. Then there will certainly be the overtime, the backlog movements, the freight. We talked about some other EMEA specific operational, executional challenges. That are specific to a part of our business that we are addressing, you know, 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.

Scott Davis: Thank you, guys. Appreciate it.

Giordano Albertazzi: Thank you.

Operator: Your next question comes from Andrew Obin with Bank of America.

Andrew Obin: Yes, good morning.

Giordano Albertazzi: Hey. Good morning too. Hey.

Andrew Obin: Yeah. So one of the things that sort of came up last quarter 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, you know, people have sort of thought that this could be an attractive opportunity for Vertiv Holdings Co. Thank you.

Giordano Albertazzi: Yep. Thank you, Andrew. So certainly, let's say if you think about the cooling you go back to what I was saying, through when we're going through 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. I don't know if we got 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 believe will be strong going forward.

Andrew Obin: Thank you.

Giordano Albertazzi: Thank you.

Operator: We now have Michael Elias with TD Cowen on the line.

Michael Elias: Great. Thanks for taking the question. Just curious, as you think about the evolution of what goes into the data center, i.e., you know, 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. Thank you.

Giordano Albertazzi: Well, thanks, Mike. I think this is certainly something that is happening. It's very clearly in our roadmaps. And you're right. Just as we saw the thermal or the cooling infrastructure evolve, and it's not finished. Of course, it continues 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 it on 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 higher voltage DC power, that's something that, of course, 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 as something that is even broader.

As data centers will become more self-sufficient from a power generation standpoint, and we know that is certainly a trend, not the sole trend, but it's certainly a trend. Well, then you'll see back to my Oclo point earlier, you see that the power train power infrastructure will need to be very well orchestrated exactly from power generation all the way to inside the rack, and there will be that really will depend on, again, the type of philosophy and also the type of views of a certain data center. How much flexibility you want to have to different types 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.

Michael Elias: Thank you.

Operator: Thank you. We now have Nicole DeBlase with Deutsche Bank. Please go ahead.

Nicole DeBlase: Yeah. Thanks. Good morning, guys.

Giordano Albertazzi: Good morning.

Nicole DeBlase: 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: Yeah. I think it's two things, Nicole. Number one is the benefit of operational leverage. So there's over $200 million 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.

Nicole DeBlase: Simple is great. Thanks, David.

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

Amrit Matura: Good morning. Good morning, everybody. So just, Giordano, 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, you know, 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 getting past these tougher comps here where I think that it looks like a possibility for TTM orders to reaccelerate. Wondering if you would engage with me in that type of conversation.

Giordano Albertazzi: Another case of, very clear too. Two questions. These guys do s one. So let me address the regular environment and be patient with me. So this is in general true. If we think about the US 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 and 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 mostly said, slowly, but surely started to head in the right direction. And one thing that I haven't mentioned this time is I'm fully convinced about is that of the reasons why Europe is maybe a little lagging. You know? We're talking about a coil spring. Is that so much kind of attention and time and resources are really focused on North America and the US, sometimes they're the same players. And the same players that play both in the US, North America, and Europe.

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

Amrit Matura: What about the trailing twelve-month? That's the second question. That's the second question. And as we said, we would I would be guiding orders, and that's not what we do.

Amrit Matura: Alright. Thank you. Was the second and it was the second question. Be patient with that.

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

Chris Snyder: 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 recurring expansion in Q4 and that kind of helps drive that operating lift? Or is that still a little bit further out? Thank you.

Giordano Albertazzi: Couple of things I've been and they please 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 are tariff elements. And certainly, you know, growth inefficiency in the operational aspects that we think, discussed. Yeah. Those are really the main elements. And it comes to margin and the backlog margin, because we do not go into those levels of details. But certainly, we factor the margin in our backlog when we talk about when we give guidance in general. I know if you want to add anything to it.

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

Chris Snyder: Yep.

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

Andy Kaplowitz: Good morning, everyone.

Giordano Albertazzi: Hey, Andy. Good morning, Andy.

Andy Kaplowitz: Gio, I think in the past, you said that the market inverted or trending toward the high end of your 15% to 17% growth CAGR, hyperscale and colocation. Revenue growth through 29% and your 12% to 14% growth for Vertiv Holdings Co. 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? Would you say the order ramp has been more what been expecting, maybe just slightly faster?

Giordano Albertazzi: I think it might be early to think in terms of let's say, or a contraction or a change in our let's say, market growth expectations, I think it would be premature. Certainly, that we gave, the 15% to 17% would probably be thinking about the upper end. As usual, we continue to look at the market evaluate the market, and now it would be premature. Certainly, we're saying in this market where we are taking market share and, yes, we are 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.

You know, we think that from a trailing 12, the momentum is the right one and it's momentum that certainly implies a market share gain.

Andy Kaplowitz: Well, I tried. Thanks, Gio.

Giordano Albertazzi: Thanks.

Operator: Thank you. We have a question from Mark Donnelly with Goldman Sachs. Please go ahead.

Mark Donnelly: Yes. Thank you very much for taking my question. Cash flow for this year and plan to use about $200 million for the Great Lakes acquisition. Can you speak to your priorities for the rest of the free cash flow? And if you expect M&A to become a more regular part of your capital allocation framework from here?

Giordano Albertazzi: Thanks. Well, thank you, Mark. Certainly, M&A is an important element in our capital allocation strategy and certainly in our value broadly speaking, value creation model. 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 the key focus. We have a strong process and 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 this 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.

Mark Donnelly: Thank you.

Giordano Albertazzi: Thanks.

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

Noah Kaye: Oh, thanks. So, Giordano, you talked at DCB earlier this week about the trend towards modular and prefab solutions 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.

Giordano Albertazzi: 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. Our customers. Also, as I said several times, this is the construction industry. And if you have to come to build very, very, very complex systems, like data centers, on-site at speed, then there certainly are challenges, shortages, manpower, skilled labor shortages, surely, things can be done better in a prefabrication setup and not. 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. Now it is really integral. It's almost like a wrapping around in our technologies. And one that can create a lot of value for our customers. So this can be multiple things. If you take our smart run, our smart run that I was talking about earlier, you will have power racks, power distribution. You will have a secondary fluid network. You can include that in that everything liquid cooling.

Busways, controls, you name it. So it's really a way to package increasing the value that we deliver to our customers.

Noah Kaye: That's very helpful. Thank you.

Giordano Albertazzi: Thank you.

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

Giordano Albertazzi: Well, thanks a lot, and thank you for all the questions and the time today. Certainly, it's worth reiterating how exciting I am and we are about the future of Vertiv Holdings Co. We have demonstrated and are demonstrating our ability to deliver strong growth and profit. Even in the face of a complex operating environment. Certainly, I'm pleased we have progress. And, but, you know, never, never satisfied. The market opportunity ahead of us is significant, certainly driven by the accelerating digital transformation and the insatiable, dare I say, demand for data center infrastructure. We believe Vertiv Holdings Co is uniquely positioned to capitalize on this opportunity without complete deep customer relationships and strong execution capability.

So overall, I want you to know that I and the Vertiv Holdings Co team remain laser-focused on delivering for our customers and investors. The future has never been brighter. I'm excited to continue this journey with all of you. So thank you, and have a great rest of the day.

Operator: Thank you. This concludes today's conference call. Thank you all for attending today's presentation and you may now disconnect.