Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Vertiv Holdings Co (VRT, Financial) reported a strong first half of 2024 with Q2 organic sales up 14%, led by significant growth in the Americas and EMEA.
- The company saw a 57% year-on-year increase in orders and a 10% sequential increase from Q1, with a high book-to-bill ratio of 1.4x.
- Adjusted operating profit reached $382 million, with operating margins expanding by 110 basis points to 19.6%.
- Adjusted free cash flow was $333 million in Q2, reflecting strong profitability and cash flow performance.
- Vertiv Holdings Co (VRT) raised its full-year guidance across all financial metrics, expecting organic growth of 13%, adjusted operating profit of $1.435 billion, and adjusted free cash flow of $875 million.
Negative Points
- Despite strong performance, the company anticipates a sequential decline in orders in Q3 from the extremely high levels seen in Q2.
- APAC sales growth was modest at 6%, with China slightly down, impacting overall regional performance.
- The company faces challenges in managing elongated customer request dates for large projects, which could affect future revenue timing.
- Inflation remains a concern, and while the company has processes in place to stay price-cost positive, it continues to be a factor.
- There is increased competition in the data center market, which could impact pricing and market share dynamics.
Q & A Highlights
Q: Can you help us frame the order trajectory expected in the September quarter and explain the deceleration in order growth?
A: Our pipeline remains strong, reflecting a positive market trajectory. The deceleration is partly due to the timing of large orders, which can vary by quarter. We introduced a trailing 12-month orders metric to provide a broader view. For large projects, we are seeing an elongation in delivery timelines, with many orders expected to impact 2025 and beyond. (Giordano Albertazzi, CEO)
Q: How do you book orders for large campuses or phased projects?
A: We book orders on a purchase order (PO) basis, meaning we only count what is legally binding. This approach ensures that we accurately reflect the actual orders received from customers. (David Fallon, CFO)
Q: Can you discuss the pricing environment and its impact on your price-cost equation?
A: We continue to operate in a favorable market with strong competitive advantages. Our pricing strength, built over the last few years, remains robust. We are confident in our ability to maintain a positive price-cost equation, reflecting the value we deliver in terms of technology, service levels, and capacity access. (Giordano Albertazzi, CEO)
Q: What are the opportunities for productivity improvements, and could margins exceed the 20% target?
A: Productivity is a significant element of our value equation. We see encouraging improvements internally and in our business trajectory. While we are on a positive path, we believe there is always room for further improvement. Our long-term target remains 20% plus, but we are focused on continuous operational enhancements. (David Cote, Executive Chairman)
Q: How do you measure market share, and what is your outlook for growth in the data center market?
A: Our order trajectory suggests positive market share gains. We estimate the cloud and colocation market to grow at 14-17%. For AI-specific infrastructure, we see a mix TAM of $2.5-3 million per megawatt. Our strong order growth indicates a favorable market position. (Giordano Albertazzi, CEO)
Q: Can you elaborate on the service business and its impact on your competitive advantage?
A: Service is a key differentiator for us, contributing to recurring revenues and market share gains. Our large installed base and high attach rates are critical metrics. Service enhances our competitive edge by ensuring high uptime and reliability for customers, especially in complex AI and high-density environments. (Giordano Albertazzi, CEO)
Q: What is the impact of timing constraints around construction and power availability on your backlog?
A: Our backlog reflects customer-requested delivery dates, accounting for any permitting and power constraints. While there may be minor adjustments, our backlog is based on firm customer orders and requested timelines. The overall market growth remains strong, supporting our positive outlook. (Giordano Albertazzi, CEO)
Q: How do you see the enterprise market evolving, and is there potential for growth beyond the 3-5% outlook?
A: We see positive signs in the enterprise market, particularly in the Americas. The pipeline indicates potential for faster growth than initially expected, driven by AI adoption and other factors. While it's early to revise our long-term outlook, the current trends are encouraging. (Giordano Albertazzi, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
