Vertiv Holdings Co Q3 FY2024 earnings call

• Q3 was a strong quarter with organic sales up 19%, orders growing 37% on a trailing 12-month basis, and adjusted operating profit at $417 million beating guidance.
• Adjusted operating margin reached 20.1%, the first time surpassing 20%, indicating potential ahead.
• Liquid cooling is a key growth area with Vertiv rapidly gaining market share, having a complete portfolio of liquid and high density solutions, future readiness, a complete thermal chain, ability to customize at scale, strong service strength, and long-standing customer relationships.
• Partnership with NVIDIA on co-development of power and cooling reference designs for NVIDIA GB200 NVL72 platform was highlighted as enabling future-ready data centers.
• The Vertiv Operating System continues to drive productivity gains, reduced lead times, and capacity expansion.

Vertiv's sales are well balanced across five business groups: power management (32%), thermal management (30%), IT systems (10%), infrastructure solutions (5%), and services (23%). Organic net sales were up 19% in Q3, with double-digit growth across all three regions. EMEA led at 25%, demonstrating global data center demand. Adjusted operating profit was $417 million, beating guidance, with an adjusted operating margin of 20.1% which is a significant milestone, surpassing 20% for the first time.

• Raised full-year guidance for organic growth to 14%, adjusted operating profit to $1.485 billion, and adjusted free cash flow to $1 billion.
• Fourth quarter sales expected to be up 13% organically, with adjusted operating profit at $437 million midpoint and margin of 20.4%.
• 2025 growth expected to be higher than 2024, with expected expansion of adjusted operating margins and strong free cash flow generation.

• Forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from forward-looking statements.
• Competition in the market, including in liquid cooling, is a risk, but Vertiv's technology base, broad portfolio, global scale, deep industry expertise, global service, and strong customer relationships are differentiators.
• Inflation and project mix could impact margins and financial performance if not managed properly.

Q: As hyperscalers are starting to build out multilocation campuses, how does the order timing work out?

A: Vertiv gets good visibility on entire programs, but POs are placed specific to individual hyperscalers or large colos, with POs for buildings being deployed at that time.

Q: On orders outperformance and ODMs in liquid cooling, how does Vertiv fit in?

A: ODMs play a role in go-to-market, and Vertiv sees them as a synergistic part of the market, relying on Vertiv's technology, service, and liquid cooling know-how.

Q: Clarification on order guidance and backlog trend for 2025?

A: Moving to trailing 12-month order reporting, and 2025 revenue acceleration is premature to elaborate on fully, but market is favorable with strong pipelines.

Q: Competition and TAM per megawatt in liquid cooling?

A: Win rates are consistent with market share ambitions, and TAM per megawatt is trending towards the $0.5 million increase indicated previously.

Q: Thermal solutions integration and superiority to best-of-breed?

A: Vertiv sells the entire portfolio to customers, and integrated solutions deliver efficiency and energy savings, with large customers appreciating the entire solution approach.

Q: Cash generation and M&A opportunities?

A: Vertiv is interested in M&A as part of its strategy, and will discuss capital allocation in detail at the upcoming investor event.

Q: Order pipeline entering 4Q and lead times impact on pricing?

A: Order pipeline entering 4Q is higher than Q3, and elongated lead times do not correlate to less pricing power as Vertiv can deliver on shorter lead times and sees lead time elongation as beneficial for supply chain readiness.

Q: Orders growth between products and services, and services impact from liquid cooling?

A: Orders for services are growing, and liquid cooling drives increased demand for Vertiv's services, including installation, commissioning, and life cycle services with digital enablement.

Q: Thermal management growth vs power side?

A: Liquid cooling within thermal management is a high-growth area, but power management also benefits from densification, and prefabrication is becoming more important in data centers.