VRT Earnings Call

Lucas PennerGood morning. My name is Lucas Penner and I will be your conference operator today. At this time, I would like to welcome everyone to Vertiv's Second Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Please note that this call is being recorded. I would now like to turn the program over to your host for today's conference call, Lynne Maxeiner, Vice President, Investor Relations.

Lynne MaxeinerGreat, thank you, Lucas. Good morning and welcome to Vertiv's second quarter 2026 earnings conference call. Joining me today are Vertiv's Executive Chairman Dave Cote, Chief Executive Officer Gio Albertazzi, and Chief Financial Officer Craig Chamberlin. We have 1 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 1 question. And if you have a follow-up question, please please rejoin the queue. Before we begin, I'd 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 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, and you can learn more about these risks in our annual and quarterly reports and other filings made with the SEC.

Lynne MaxeinerAny 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 will 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.vertiv.com. With that, I'll turn the call over to Executive Chairman Dave Cote.

Dave CoteI am incredibly pleased by our second quarter performance and outlook for the rest of the year and beyond. We have a great position in a good industry and continue to execute very well. Gio and his team stay at the forefront of technology with organic investments and acquisitions. The industry outlook is incredibly good because the digital age has decades to go. Our outlook is incredibly good and deservedly so, as we provide the picks and shovels for the digital age. The seed planting Gio and his team have been doing continues to pay off and will do so even more in the future as the benefits from our technology investments unfold over time. And with all that goodness, we still have opportunity to further improve. As Gio likes to say, we are still far from our full potential. The future is so bright, we have to wear shades. I love it. With that, I now turn it over to Gio.

Giordano AlbertazziWell, thank you, Dave, and welcome everyone. Let us go to slide 3. A strong quarter. EPS margin, profit, and cash convincingly strong. Continuing on a trajectory of strong sales growth, even with some timing elements. Pleased with what we see in July and full confidence in H2 execution and backlog. As a result, we have raised our full-year outlook. Net sales were up 24% versus Q2 '25, driven by continued strength in the Americas, which grew 29%, and APAC also up 29%. Importantly, EMEA returned to positive net sales growth with a 2% year-on-year increase. On an organic basis, net sales grew 18%, with additional 5% from acquisitions and 1% from favorable currency. Adjusted operating margin came in at 22.6%, exceeding our guidance and growing 410 basis points year on year. The strong margin performance translated into adjusted operating profit of $738 million, up 51% from a year ago. Adjusted diluted EPS were $1.52 or 60%, up from second quarter '25, driven primarily by high volume and continued operational productivity.

Giordano AlbertazziAdjusted free cash flow came in at $925 million, a very strong 234% year-on-year growth driven by higher operating profit and working capital efficiency. Free cash flow conversion exceeded 150% in the quarter. We are raising our full-year guidance across all key metrics. Net sales raised to $14 billion, a $250 million increase from previous guidance, up 37% year on year. Adjusted diluted EPS now at $6.70, A 60% increase from $4.20. AOP now expected almost 60% up year on year, and adjusted free cash flow expected at $2.5 billion. And we achieved a net cash position at the end of Q2. Let's now move to Slide 4. And let's start with the market environment on the left. Our global pipeline momentum remains very strong, and we expect another year of robust orders growth. Demand signals are clear and broad-based. Regionally, uh, let's start with the Americas, where market continues to be strong. Pipeline is actually accelerating, corroborating the long-term growth trajectory of our business.

Giordano AlbertazziEMEA's momentum is further strengthening. This reinforces our confidence in the acceleration for the second half of the year. APAC showed broad-based strength, pipeline expansion, and favorable market conditions. This supports continued growth across the region. Pricing continues to be favorable. We expect positive price-cost in '26, including the current impact of tariffs and countermeasures. Now, to the right side of this slide. Q2 revenue showed strong growth year-on-year, quarter-to-quarter. We are executing on further acceleration in Q3 and Q4 on strong backlog. Additional capacity is online globally. Examples are Johor in Malaysia, 5 large plant expansions in the Americas, chiller capacity increases in EMEA, and many more. During Investor Day, you saw that this expansion is rapid and broad-based, at speed, but always in a very disciplined fashion. We are delivering data center infrastructure solution at an increasing scale and level of complexity, That's exactly where we want to be.

Giordano AlbertazziWe experienced some minor timing shifts in Q2 revenue, primarily driven by multi-phase project execution and temporary supply chain dynamics. But the demand is there and the trajectory is strong. Keep in mind there are increasingly large projects underway. Think Smartron and think even bigger with One Core. These come with significant interdependencies a lot of coordination, a lot of rapid learning. I like the pace of our progress, and we get stronger every day. On capital expenditures, we now expect to be at the high end of our range, 4% of '26 sales, as we further expand global capabilities and capacity going into '27. We continue to invest for the long term in a disciplined manner in future power architecture, advanced thermal systems, services, and converged infrastructure. These are the building blocks that enable the next generation AI data centers and factories, and we intend to continue to lead the industry.

Giordano AlbertazziLet's now go to slide 5.

Giordano AlbertazziI am sure many of you will recall our CTO Scott Armell's power architecture presentation at our Investor Day in May. I want to reiterate and build on what we shared there. Multiple power architectures will coexist in the future. Vertiv supports each one of them through a complete orchestrated powertrain. On the left side of the slide, you see the different architectures. Our AC foundation with, as an example, Vertiv Trinity and Energy Core battery storage system and the rest of the Vertiv powertrain, of course. This architecture is broadly deployed, growing, and will continue to be used by many categories of customers. The next architecture, serving even higher density, has a medium voltage AC source that feeds low voltage AC to deliver 800 volt DC at rack and pod level. Here you see new Vertiv technologies like medium voltage bus UPS and Vertiv 800 volt DC sidecars. This is under customer validation in '26 with deployment planned in '27.

Giordano AlbertazziThen the 800 volt DC architecture at data hall level. Kia Vertiv solutions will include MV DC UPS and solid-state transformer to cover the multiple ways to address the end-to-end powertrain. We are active in development with planned '27 customer validation supporting '28 deployment. As stated, rather than transitioning to a single architecture, the market is expected to leverage both AC and DC solutions as power requirements continue to evolve for years to come. Now the right side of the slide, this is an example of deploying multiple power architectures as sites evolve and expand. I'm thrilled to highlight our collaboration with NVIDIA and Vision Bay AI, Foxconn's business unit focused on AI supercomputing, at their site in Kaohsiung, Taiwan. For the initial phase of this site, Vision Bay AI awarded the power, thermal, and services business to Vertiv for what is Taiwan's first AI data center featuring NVIDIA GB300.

Giordano AlbertazziOn top of this, we are collaborating for the world's first AI data center adopting 800VDC, volt DC architectures at the rack and pod level featuring NVIDIA Vera Rubin. This is an example of early customer validation of our roadmap and supports the broad power architecture evolution. This is real, this is happening. In a nutshell, as a number of viable power architectures expand and AC and DC coexist to deliver on the 800-volt DC, Vertiv's content opportunity per megawatt expands, and we are leading this transition. Let us now go to page 6, and let's continue on the topic of technology. I want to spend a moment talking about Vertiv's data center cooling architectures and our unique fluid management services. When the two are coupled, combined, ensure our customers to use nearly zero water.

Giordano AlbertazziAs they scale, many customers have been and are adopting closed-loop cooling architectures as they optimize power and water use. A closed-loop cooling architecture is just that— closed or sealed with water recirculation— recirculating. Typically, It does not require additional water after the fill at startup. Vertiv's end-to-end thermal chain technologies for both the primary and secondary cooling loops— examples are Vertiv Trim Cooler, Vertiv CoolChip CDUs, uh, to name a few— fully enable this approach. This architecture enables a data center to run on no water consumption. Now let's take the focus on water use a step further. Let's also address the initial system fill, and this is where Purge Rite® Near Zero comes into the equation. As part of our unique fluid management technology and services, our Purge Rite® Near Zero utilizes a closed-loop recirculation system to capture, treat, and reuse water during startup.

Giordano AlbertazziThis reduces the water normally used in the process by up to 90% during the startup of a data center. For our customers, this means a faster and more cost-effective deployment and commissioning of liquid cooling system and chilled water circuits. This means significantly less waste and less disruption on site. More broadly, this expands Vertiv's differentiation thermal management services, and we're managing fluid performance from start throughout decades of operational life. PurgeRite Near Zero is scaling through our existing serving network, a capability we believe no one else can replicate at our scale. And with that, over to you, Craig.

Craig ChamberlinThanks, Gio. Turn to slide 7. Let's walk through our second quarter financial results in more detail. On adjusted diluted EPS, we delivered $1.52. That's up 57 cents or 60% versus prior year and 12 cents above guidance. The year-over-year improvement was driven by 58 cents from higher adjusted— after-tax adjusted operating profit, which was driven primarily from higher sales volume and increased profitability. Looking at net sales, we delivered $3.274 billion in the quarter, That's up $636 million or 24% versus prior year. Organic sales growth was 18% with 5% additional growth contribution from acquisitions and an additional 1% growth contribution from favorable foreign exchange. By regions, Americas grew 21% organically, APAC grew 26% organically, and EMEA was down 2% organically. Moving to adjusted operating profit, we delivered $738 million. That's up $249 million or 51% versus prior year and $28 million above the midpoint of our guidance.

Craig ChamberlinAdjusted operating margin of 22.6% expanded 410 basis points year over year and came in 140 basis points above guidance. The margin expansion was driven by strong operational execution, continued productivity gains, and favorable price-cost execution, partially offset by tariff impacts. We're also continuing investing in capacity and engineering R&D to support future business growth. To round out the quarter, adjusted free cash flow, and then it was outstanding, with the quarter ending at $925 million, up $648 million or 234% from prior year. The improvement was driven by higher adjusted operating profit, strong working capital performance, including project milestone collections, which is inclusive of initial advanced payments. And lower cash interest. These items were partially offset by higher cash taxes and higher spending on CapEx investments. At our quarter end, our net leverage is at -0.1 times, providing even more flexibility.

Craig ChamberlinJust a quick note on our deferred revenue, you'll see an increase in the quarter, and that's driven by project advance payments and ongoing milestone collections. We are very happy with our execution on project milestone development And what you're seeing in deferred revenue is a combination of payments at project initiation, order placement, and ongoing project milestone execution.

Craig ChamberlinFlipping to slide 8, let's look at segment performance. In Americas, net sales were $2.071 billion, up 29%, with organic growth of 21%. Organic sales growth remained strong in the quarter. As Gio mentioned earlier, some minor timing shifts in 2Q revenue These shifts were reflected in the Americas revenue numbers and were primarily driven by multi-phase project execution and temporary supply chain congestion. However, we expect the associated timing delay to resolve in the second half of 2026. Adjusted operating profit was $571 million, driving 360 basis points in adjusted operating margin percentage. The margin expansion was delivered by ongoing commercial excellence and strong operational execution. Moving to APAC, the region had strong results with net sales at $720 million, up 29% with organic growth of 26%. We continue to see strong in-market demand and the commercial execution across the team gives us confidence going forward.

Craig ChamberlinAdjusted operating margin percentage grew 270 basis points in the quarter due to strong operating leverage realized in the region. In EMEA, net sales were $484 million, up 2% with organic sales down 2%. We continue to see a strengthening market, which supports our position for the region to return to organic sales growth in the second half of 2026. EMEA also saw strong growth in adjusted operating margin percent, up 380 basis points year on year. The team continues to drive improved operational execution, which came through in this strong margin performance.

Craig ChamberlinTurning to slide 9, let's walk through our third quarter 2026 guidance. For 3Q, we're projecting adjusted diluted EPS of $1.80 at the midpoint. That represents 45% growth versus prior year. That year-over-year improvement is driven by continued volume growth and ongoing margin expansion. On net sales, we expect $3.75 billion at the midpoint. That's up $1.074 billion or 40% versus prior year. Organic sales growth is expected to be up approximately 35% with an additional 5% from acquisitions. By region, we expect Americas organic growth in the high 30s, APAC in the high 30s, and EMEA in the mid-teens.

Craig ChamberlinAdjusted operating profit is expected to be $918 million at the midpoint. That's up $322 million or 54% versus prior year. Adjusted operating margin is expected to be 24.5% at the midpoint. That's up 220 basis points year over year and is driven by strong organic sales growth, continued operational leverage, and ongoing productivity realization. Now let's turn to Slide 10 for our updated full-year 2026 guidance. We're raising our outlook across all key metrics. Starting with adjusted diluted EPS, we now expect $6.70 at the midpoint. That's up $2.50 or 60% versus 2025. The updated range is now at $6.65 to $6.75. This is an increase of 35 cents at the midpoint versus prior guidance. The year-over-year improvement is driven by continued volume growth and ongoing margin expansion. For net sales, we now expect $14 billion at the midpoint. That's up $3.77 billion or 37% versus 2025. This represents an increase of $250 million versus our prior guidance.

Craig ChamberlinOrganic sales growth is expected to be at 31% with 5% growth from acquisitions and 1% growth from favorable currency. By region, we expect Americas organic growth in the high 30s, APAC in the low 30s, and EMEA is in low single digits. Moving to adjusted operating profit, we now expect $3.325 billion at the midpoint. That's up approximately $1.235 billion or 59% versus 2025. This is an increase of $125 million versus our prior guidance. Adjusted operating margin is expected to be 23.8% at the midpoint, expanding approximately 340 basis points from 2025 and up 50 basis points versus our prior guidance. The margin expansion is driven by continued operational leverage and positive price-cost execution, which is offsetting some tariff headwinds. Finally, adjusted free cash flow is expected to be $2.5 billion at the midpoint. That's up $613 million or 32% versus 2025. The year-over-year improvement is driven by higher adjusted operating profit and lower cash interest, which is partially offset by higher cash taxes and higher investments in capital expenditures.

Craig ChamberlinWe're delivering strong results, raising our outlooks, and executing with discipline. Based on our performance and momentum, we're very confident in our ability to continue driving results throughout the balance of the year. With that, I'll send it back to you, Gio.

Giordano AlbertazziWell, thank you. Thank you, Craig. And let's go to slide 11 to wrap up. Strong Q2 performance. We are delivering. And the team continues to raise the bar on what's possible. We raised our full year '26 guidance across all key metrics. The momentum is strong. It's broad-based and it's accelerating. We continue to invest with discipline, not just for the 45% growth we expect in the second half, but for the years beyond. Capacity, innovation, services. On M&A, we closed the ThermoKey in June, strengthening our heat rejection capabilities. We closed the Strategic Thermal Labs in April. We're adding server-side liquid cooling and cold plate expertise for high-density thermal management. Together, these two acquisitions expand what we offer across the full thermal spectrum, from heat rejection to direct-to-chip cooling. Allow me two additional spotlights. At the Naval Postgraduate School, in partnership with NVIDIA, we delivered a fully engineered package, rack, power, and cooling system into an existing on-prem facility.

Giordano AlbertazziThis includes liquid cooling integration, commissioning, and deployment support. This is a repeatable at-scale reference architecture for NVIDIA GB300, We call this Vertiv Smart IT Solution. The project established an advanced locally operated AI environment for education, research, engineering, modeling, and simulation. This also shows how an existing facility can rapidly be transformed to support next-generation accelerated computing, easy for enterprise and sovereign customers to adopt. In EMEA, Germany, Our collaboration with Data4 is a great example of the momentum we're seeing in that region. Vertiv delivers complete powertrain, including switchgear, UPS, and battery systems, et cetera, and thermal chain, like chilled water units, free cooling chillers, and our industry-leading services. It all will enable Data4's new Frankfurt site. This is exactly the kind of optimized end-to-end system deployments where Vertiv excels.

Giordano AlbertazziTo conclude, I'm more confident in our trajectory today than I've ever been. We're executing, we're investing ahead of the curve, and increasingly our customers are asking us to help them architect their most complex infrastructures. That's the role we've earned, and it's the role we intend to further strengthen. With that, let's go to the Q&A.

Lucas PennerWe will now begin the— we will now begin the question and answer session. In order to ask a question, press star, then the number 1 on your telephone keypad. In the interest of time, please limit yourself to one question, and if you have a follow-up question, please rejoin the queue. We'll pause for just a moment to compile the Q&A.

Lucas PennerThe first question comes from the line of Scott Davis from Melius Research. Scott, please go ahead.

Lucas PennerA reminder to unmute locally.

Scott DavisOh yes, thanks for the reminder, operator. I haven't figured out my phone yet. Anyway, sorry guys, and good morning. Still good morning. Look, I just want to address a little bit of the issue that may be hurting your stock a little bit today with the timing shifts in 2Q revenues, the supply chain congestion comment. What— can you give us a little bit more detail on that and more explicitly, is this something— I mean, complexity is something that I would imagine is going to just do nothing but increase over the next 5 years and perhaps forever. Is this potentially going to be an ongoing issue, not just a one-off? And if so, how do you mitigate or kind of manage through it so that it really doesn't disrupt quarters the way that perhaps it can?

Giordano AlbertazziWell, thanks, Scott, for the question. And you're right, complexity is increasing. Some of the projects are not only bigger but multidimensional, and there can be a lot of supply chain interdependencies. And this supply chain is not necessarily an external supply chain. It can be very often an internal, within Vertiv supply chain. Now, clearly, like everything and like we've done so far, there is a learning curve. I'm pleased with the speed at which we are progressing in this learning curve. And this learning curve is a learning curve of the execution on this complexity. So I'm pretty confident about our direction of travel. And again, these are the first very large projects with this level of complexity. And we are more and more equipped for this, not just from a technology standpoint, but from a logistics and operations in general. When it comes to the second part of your question, so what could be the— is there an ongoing impact on the future?

Giordano AlbertazziWell, certainly, as I said, there is a learning curve that we are progressing on at speed. But there is also the fact that we are prudent anyway in our second half guidance. This is true in general also for the future. So if you think about our H2 guidance, we're not assuming all stars align. So we have wiggle room for, you know, this progress on the learning curve not to be perfect, though, of course, speed and perfection is our goal.

Scott DavisOkay. Fair point. And then just a quick one. Is there a price where you would start buying back stock a little bit more aggressively? Just given the pullback we're seeing in the entire complex right now?

Craig ChamberlinI mean, I think we always look at it opportunistically, Scott, and that's the thing that we've talked about even at Investor Day. Again, you know, given today, it is a good time to look at it, but I think it's always something that we evaluate and take a, you know, what do we consider our capital deployment? And it's one of the areas we look at.

Scott DavisSo. Fair enough. I wish you all the best, guys. Good luck and I'll pass it on.

Lucas PennerThe next question comes from the line of Jeff Sprague with Vertical Research. Jeff, please go ahead.

Jeff SpragueHey, thanks. Good morning. Hey, Gio, just on the comment that the pipeline is actually accelerating, I assume that's sort of all hyperscale, but Could you give a little bit more context on sort of the nature of the acceleration? Is it scope to Vertiv? Is it kind of additional customers? Is it existing customers looking to do more quickly?

Giordano AlbertazziAnd it seems to support the comment you're making about robust orders for the year, but just love a little bit more color there if you could. And let's start from the end, Jeff. Let's start from the end. Yes, of course, this is supporting Certainly supporting our comments about the— about orders. When I talk about pipeline, I always like to talk about magnitude of pipeline, if you will, and speed of pipeline. When I talk about speed of pipeline, we talk about acceleration. It means that the sales cycle within the pipeline can be faster or slower. So we noticed an acceleration, so becoming faster sales cycle. But at the same time, just to be extremely clear, the strength is also in sheer size of the pipeline in terms of quarter-to-quarter, year-on-year, year-on-year growth. And this is broad-based, it's pretty much across, across the world, but also it's broad-based across the various customer categories.

Giordano AlbertazziSo certainly Certainly, you know, the whole range—hyperscalers, it is true for enterprise, it's certainly true for colo, NeoCloud, so pretty, pretty broad-based.

Craig ChamberlinAnd just to add on to that, Jeff, I would also just say again, as hyperscalers and colos—hyperscalers are sometimes deploying through colos, so to look at it that way, you might get a little bit of a mix there. So just to ensure, going back to what Gio said, we're seeing it again across regions, across products, and that's the way we really look at it. But that's the way we would view our pipelines and see it accelerating in all those spaces.

Jeff SpragueAnd just a quick one if I could. Do you have a solid-state transformer solution at scale at this point? Where do you stand on that product evolution?

Giordano AlbertazziJust like one of the slides was describing the solid state is currently a matter of product development for us. It's in product development phase.

Jeff SpragueThank you.

Giordano AlbertazziYeah, thanks.

Lucas PennerYour next question comes from Amit Daryanani with Evercore. Amit, please go ahead.

Amit DaryananiYep. Good afternoon, everyone. Thanks for taking my question. I guess, Gio, if you just go back to the supply chain issues and delays, can you just talk about how much revenues were actually pushed out due to these challenges you had in the quarter? I think you missed the Street numbers by $100 million, but I'm actually wondering if the supply issues were perhaps much larger than that from a dollar perspective. And maybe just on the same lines, can you just talk about, was it a Vertiv-specific issue or something at the customer side that led to this impact? And then how do you see this flowing back into the model into the back half? Thank you.

Giordano AlbertazziSo good afternoon. First of all, is it customer or is it Vertiv? You know, on the customer side, pretty much we see the same dynamics that we have seen historically. So no big differences. When it comes to the Vertiv side and the exact amounts, well, we will not be too specific, but the majority or what we're seeing is really coming from those dynamics that I've described during— while I was going through my opening remarks, but also the conversation with Scott. That is pretty much the dynamics that we see. Is it on the supply chain? You know, the supply chain is always a matter of working.

Giordano AlbertazziThe sequence of things is nothing different than what we have experienced historically.

Giordano AlbertazziAnd we are pleased with how we are strengthening our— the resilience of our business in general.

Craig ChamberlinAnd I mean, I would just add that just to clarify, you know, we're talking about the large project deployments and the learning curve around that, which has compounding effects from both the external supply chain and our own internal supply chain. So there are some, I'd say, gray areas in there when, you know, we typically can recover from a late part and in our smaller supply chains, when it becomes a larger supply chain, it becomes more confounding. So again, not to define that specifically, but that's the areas where we're seeing it the most is in those large project deployments. And we're learning and understanding what that takes to go forward and how to iron those out. And then also, again, as we talked about, thinking of not always that being perfect in the second half as we look into guidance.

Lucas PennerThe next question comes from the line of Deane Dray with RBC Capital Markets. Deane, please go ahead.

Deane DrayThank you. Good morning, everyone. I'll keep it to one question. Really good performance on free cash flow conversion this quarter. But for Craig, I'd be interested in hearing, was there any contribution from customer deposits on orders? I know that's something you all have been looking at, and Dave Cote knows from his air and defense days that that's pretty standard to require deposits on larger orders. So any contribution there?

Craig ChamberlinYeah, yeah, yeah, Deane. And again, I want to congratulate you. I know you're retiring in September, so congratulations. A great career, fantastic career. But To your question, yeah, if you look at the face of the balance sheet and you— I mean, the face of the balance sheet, you'll see that our deferred revenue did go up. And our deferred revenue is a read-through in terms of those advanced deposits on orders, but it's also ongoing deposits as we go through the milestones of delivering those larger projects. So it's a combination of both. But that is driving the working capital and the great cash performance when you look at it across the entire balance sheet. So definitely an indicator of strong commercial performance on both sides.

Deane DrayGreat. Thank you for those kind words, and I appreciate all the support from the team and wish you all continued success. Thanks.

Craig ChamberlinThank you.

Lucas PennerThe next question comes from Nigel Coe with Wolfe Research. Nigel, please go ahead.

Nigel CoeThanks. Good morning, everyone. Just want to pick up on that topic. I think this is the first time maybe I'm wrong, but the first time I've heard progress collections, you know, kind of staged payments. Maybe just touch on that. I know your assortment is changing, you know, with OneCore and SmartRun. So just maybe just talk about that. What kind of percentage of revenues are we talking about now that actually has progress collections? And then just— it's not a second question, by the way. It's more of a kind of an add-on to the first one. The balance sheet numbers moved quite a lot this quarter. I mean, the ThermoKey acquisition seemed quite small, but did it come with quite a big balance sheet? Thanks.

Craig ChamberlinNo, ThermoKey didn't come with a large balance sheet, so I'll answer that one first, and then we can go a little bit— I'll double-click on it as we go further into your question, Nigel. But in terms of the actual progress collections, yeah, there is a portion that we get up front, and there's a portion as we deliver milestones, and a lot of that is related to delivering products to the end project, and so that's how you would start phasing it in, and sometimes you get those a couple, you know, like a month before you deliver projects, sometimes you get those at the end of design, so they are all phased in different ways. So we would get a portion upfront, we'd get a portion at the delivery milestones that we set forth, always in our view staying ahead of the curve in terms of a cash position in that project. Some of it's going to be related to deliveries where you would see revenue incurred.

Craig ChamberlinSome of it might be delivered on terms of a design point, which would be a secondary milestone before revenue occurs. And again, they're all a little different in how we look through them. All the goal being staying ahead of the cash curve and being cash positive on that. On the other faces of the balance sheet, you mentioned, you know, lots of movement. We do have a significant ramp in the second half, so you would see some inventory come on, and as that inventory comes on, you'll see AP come on as well. And we did have a good quarter in terms of sales, so that's where our AR is going up as well. So all of this is a reflection of the volume you're seeing. ThermoKey had little impact to that.

Nigel CoeGreat, thank you.

Lucas PennerThe next question comes from Andrew Kaplowitz with Citigroup. Andrew, please go ahead.

Andrew KaplowitzGood morning, everyone.

Giordano AlbertazziGood, good day to you, Andrew. Andrew, good morning.

Andrew KaplowitzSo, Gio, you updated us again regarding the evolution toward 800VDC potentially in the start to impact Vertiv 2027, and, and I know you commented on an SST in product development to Jeff, but when you step back, how confident are you that Vertiv content per megawatt could go up as 800VDC technology is adopted as I think you reiterated today. And would you surmise that Vertiv's 800 VDC offering could be toward the higher end of that 3.25 million to 3.75 million per megawatt range you gave us at the Analyst Day?

Giordano AlbertazziYeah, we're pretty convinced about that. And we're also, when we look at all the elements of the powertrain in the various architectures and when we think what happens inside the white space in the gray space, we see value there for Vertiv and an expansion of revenue per TAM per megawatt. So not differently from our conversations or what we shared at Investor Day, it's 2 months ago. We continue to go through that math and the math is corroborated by, of course, all the progress that we're doing on the product development, but also on the activity that we are conducting with customers. So we should and we would need to go elements per elements in that chain. But again, think about the entire powertrain, all the elements. Vis-à-vis what we have today and see that with that density, with that complexity, our content is impacted favorably.

Andrew KaplowitzThank you, Gio.

Lucas PennerThe next question comes from Andrew Obin with Bank of America. Andrew, please go ahead.

Andrew ObinYes, good morning.

Giordano AlbertazziGood morning, Andrew.

Andrew ObinJust maybe another question on this deferred revenue. So, you know, we've been getting lots of questions on this topic. It's a large number, but I guess what folks are trying to figure out, and I know sort of some people have been asking a similar question, has the structure of your deferred revenue sort of changed materially from what it was? Like, I'm not asking— I know that it fluctuates quarter to quarter. I totally get that. But, you know, has the structure of what goes into deferred revenue change materially over the— still, if we look at deferred revenue over the past several quarters, it's apples to apples.

Craig ChamberlinIt's apples to apples, Andrew. Now, what you might be feeling a little bit differently is, as we talked about back in fourth quarter, we had a large order influx on the Enphase Solution business where I would say a lot of these milestones are set up in the project-based world as opposed to the point, you know, product-based world. So the project-based world might have more milestones before delivery of revenue. So you would get one in, one in the input of order and then one along the way as a design, then one potentially as you start to deliver products. So you have different levels of milestone on those projects versus the point product. And we know that the project basis that we've talked about a lot, those larger ones, one core SMART runs, we had a large order intake in the fourth quarter of last year that we spoke to. And again, that would be some of the stuff that you might be seeing in the deferred revenue as it comes through.

Craig ChamberlinThroughout the year. And then again, it is tied to our regular down payments as well. But no structural change in the way that we would recognize deferred revenue.

Andrew ObinThank you.

Lucas PennerThe next question comes from Chris Snyder with Morgan Stanley. Chris, go ahead.

Chris SnyderThank you. I wanted to follow up on the conversation around the production disruption and some of the supply chain impact. I guess, you know, you guys are obviously obviously guiding to a pretty significant organic ramp here into the back half relative to what we saw in the first half. So I guess, you know, anything that you could provide around confidence that you're seeing in these— in these— is this disruption getting better? Like, I would imagine that as the quarter went on, the monthlies got better. I think you said July was off to a start that presumably supports this ramp. So I guess, has it gotten better? Any just kind of color on that monthly cadence? It was more confidence in the back half. Thank you.

Giordano AlbertazziThank you. Thank you, Chris. I wouldn't use the word disruption. I think we have to— I want to be clear about— we talk about complexity and interdependencies. As I said, very, very often in these large projects, you will see multiple, multiple vertical factories feeding other factories besides, of course, external suppliers feeding those factories as well. So it's really a complexity. So there is an operational aspect to your question that is, you know, we are getting stronger and stronger in the operational execution of that complexity. So the complexity doesn't go away, but our ability to handle that complexity is certainly accelerating very, very strong. And that's, hence, my questions— sorry, hence my my comments. But again, I wouldn't, I wouldn't talk in terms of disruption.

Craig ChamberlinI think on your second point of why do we feel comfortable about the second half, as Gio said, you know, it's a learning curve when you have these large projects and you do have congestion in your supply chain, which again, some of that stuff's normal on point products, which is easier to iron out as you have a learning project the larger project, some of it takes a little bit more time to get smoothed out and understand. We're seeing good signs of being able to ratchet up that learning curve, and as we think about the second half, we've also assumed some of that congestion continues as we normally would, but on these projects it might be a little bit further of congestion than we would have assumed than normal.

Giordano AlbertazziSo all in all, we believe that we have— we're prudent in our second half and very, very well supported by backlog.

Giordano AlbertazziThank you.

Lucas PennerThe next question comes from Nicole DeBlase with Deutsche Bank. Nicole, please go ahead.

Nicole DeBlaseYeah, thanks and good morning, guys. I'm sorry to beat a dead horse, but I'm going to. I think with respect to the second half ramp, there's still a lot of questions about what specifically is embedded and what isn't. Maybe a way to frame it— I'll try this— like, how much of the second half ramp is based upon this improvement in learning curve and maybe unlocking some of the revenue that was pushed out of 2Q versus just the overall capacity ramp that you guys are doing at the same time, just so that we can try to get more comfortable with the step-up in revenues that are embedded in the second half and how much visibility you have into that. Thank you.

Giordano AlbertazziYeah, thank you, Nicole. When we talk about unlocking revenue, let's be clear that, you know, the revenues that were, let's say, a little bit locked in some elements on the second quarter are being delivered, deployed in the second half. And we feel extremely well about that. When it comes to, you know, some elements of congestion, possible elements of congestion, as Craig mentioned, we are prudent in our guidance, though we believe that there will be— and we see, we are seeing— certainly a strong acceleration and improvement from an operational standpoint. We still remain prudent in our guidance. There is capacity that is being released. And that is a big element, of course, of also the backlog conversion. So look at it as 3 levels: the operational acceleration in the complex projects, the capacity coming available, that is, has been coming available in the second quarter, but first, even more so in the second half, a very strong backlog coverage, and over and above that, wrap it up with anyway a guidance that it's not an all-star-aligned type of guidance.

Lucas PennerThe next question comes from Amit Mehrotra with UBS. Amit, please go ahead.

Amit MehrotraThanks, operator. Um, Gio, I'd just be curious to sort of compare and contrast some of the challenges you're having today to the challenges you had, um, really kind of this time last year. And, and, um, you know, you got back on track pretty quickly, um, from an operational— but, but at that time it wasn't a revenue issue, it was more of a margin issue and an operational issue. And and I know at heart you're an operational guy, so just maybe compare and contrast that. And are there multiple points of— I just want to maybe explain the complexity within the complexity. What I mean by that is, is that are there multiple points of challenges or is there sort of one main challenge that's sort of cascading across the supply chain? That little bit color there would be helpful.

Giordano AlbertazziYeah, thank you, thank you, Amit. And I really I really appreciate you drawing that parallel to exactly a year ago. It was a different nature. That stage was Ireland and some executional challenges on the busbar switchgear that we have amply recouped, as you were saying. But I think this highlights the fact that in a business that is moving at this speed, that is growing at this speed with a number, let's say, of technology— with the technology speed— sorry, the speed of technology evolution that we are experiencing and indeed driving, you know, there is a lot of complexity to manage.

Giordano AlbertazziAnd so in many respects, the parallel is similar. You were talking about While that was a margin, this is a revenue. Anyway, it's operational execution that we're concentrating on right now. So it may be different in the type of product line, if you will. It's not different in terms of the type of focus and the type of, let's say, recipe that we apply. And again, it's a matter of really continuing to mature operationally as the market, the portfolio, the scope of what we do continues to evolve. So I feel very good about that. As a leader here—.

Amit MehrotraBut Gio, are you failing, are you, it's not failing, but are you reducing the on-time delivery of the customer? Because one of the USPs has been— Vertiv has been one of the few companies that can deliver on time in full. Are you, you know, are you disappointing customers with this development that opens up market share opportunities for other companies, or no?

Giordano AlbertazziWell, look, our overall performance is, if anything, improving. So I would say that the answer is not That's something that changes our perception in the market, we believe.

Lucas PennerThe next question comes from Mark Delaney with Goldman Sachs. Mark, please go ahead.

Mark DelaneyYes, thank you for taking my question. One of the key topics at the Investor Day that we haven't discussed yet on the call this morning is around M&A. I think you talked about something in the order of $24 billion that could be deployed. And in light of some of the pullback in financial market valuations, as well as all the opportunities you see on the technology front, including areas like 800-volt, I'm curious if you'd give us your latest thoughts on the M&A opportunity and if the pipeline there is active and that might be something that could be executed upon relatively soon. Thanks.

Craig ChamberlinI mean, I would say our outlook doesn't change in terms of the M&A world. We still look at it in the same way we looked at it back during Investor Day, but it is active. We do see an active market and we are participating in that active market looking at several targets. But again, it has to fit us and it has to be the right, I'd say, value play for us in terms of fit in our portfolio and what we believe we can grow and what we can return to investors in terms of what we're going to pay. Again, I've always talked about we invest in ourselves first, and that's capacity and that's R&D and that's development, and that's the things we're always going to look at. And then we'll look at, you know, the external spots where we believe we can get true value out of an acquisition and an add-on, whether it be regional reach or a product that we believe could get us to the market faster or technology we don't currently have.

Craig ChamberlinSo yes, we are active and we continue to look at it in terms of that framework.

Lucas PennerThe next question comes from Noah Kaye. With Oppenheimer. Noah, please go ahead.

Noah KayeThanks for taking the question. You know, talking about some of these learning curve developments around what seems to be more of a focus on the infrastructure solutions, you know, the components of these as we understand them, the building blocks, they're already part of the Vertiv portfolio largely. But I'm just curious, as you come up this learning curve, is—. To what extent are you increasing your vertical integration across those building blocks and supply chain? Is that a process that you are undertaking now? Is it something that needs to happen on a go-forward basis to maybe mitigate and manage some of those challenges in architecting these solutions?

Giordano AlbertazziWell, there is clearly always an analysis of make or buy, vertical integration, and anything we do. Be it at a point product level and at, let's say, large infrastructure solution level. When you talk about vertical integration for infrastructure solutions, for us is really, we are very vertically integrated in the sense that we're putting into our infrastructure solutions products that are Vertiv products. So then clearly we are in, in good control of the supply chain in that respect. And so we feel good in this moment. We do not think there are any major gaps in vertical integration for what we're doing. But that doesn't mean that we will not adjust over time the mix of make-or-buy in whichever dimension that could be, depending on the type of business, depending on where we manufacture. And not all manufacturing locations are the same. Same in terms of access to a nearby, let's say, supplier critical mass.

Giordano AlbertazziSo it's always been that. But we do not perceive in this moment that there are any major gaps. But for example, if you think about an acquisition that we shared with you last quarter, Bimarco, that was a move to vertically integrate on our frame construction for our infrastructure solutions. So that, I think, testament to the dynamic approach that we have when it comes to make or buy.

Noah KayeThank you, Jeff.

Lucas PennerThe next question comes from Ananda Barua with Loop Capital. Ananda, please go ahead.

Ananda BaruaYeah, thanks guys for taking the question. Really appreciate it. I'd love to get your guys' view. This is an 800V, 450V question. For 800V, how broadly throughout the marketplace are you expecting the next couple of years the technology be adopted? And really the genesis for the question is there's that, as you guys may know, there's sort of been speculation last few months that one of the larger AI infrastructure companies could see a pushout that would use 800V as far as in 2029. How, if there were a major customer pushout, how broad is the tech? Are you guys anticipating the tech to be throughout the industry? And then we've heard really good things on 450V potential over the next 24 months. What's the right way to think about the impact that could have? And could that fill in any white space if there were like a meaningful sort of AI infrastructure 800V customer pushout? Thanks. Just any context would be helpful.

Ananda BaruaThanks.

Giordano AlbertazziWell, thanks.

Giordano AlbertazziA multi-dimensional, multi-layer question under here. So I will not comment on rumors in the market. As we shared with investors in May, but also earlier today, we believe that the adoption of 800-volt will be gradual, would be convincing. We are certainly very invested in that part of the portfolio. Whether that happens at the speed that is currently in our roadmaps and that you saw, or something slower than that, you know, we will be flexible. And certainly we are extremely resilient with that because it means that other parts of the architectures that we provide to our customers will certainly be, you know, take the share of the market in terms of architecture. So whichever way, no matter the speed of acceleration, we think that we are in a good place because we have the architectures, we have the technologies, the roadmaps as we shared. But there is a 400-volt DC question, and that 400-volt DC question is, is an important one.

Giordano AlbertazziWe see that some players are thinking in terms both of 800 and 400. The underlying technology is not dramatically different, and quite honestly, we're involved in both.

Ananda BaruaThat's really helpful. Thanks so much, really appreciate it.

Giordano AlbertazziSure.

Lucas PennerThe next question comes from Luke Junk with Baird. Luke, please go ahead.

Luke JunkYeah, thanks for sneaking me in here. Gio, hoping just to get some texture around your ongoing increase in confidence around the EMEA market specifically. And we saw a step up in margins sequentially this quarter. How do you think about the sustainability there, or maybe even the potential for some further improvement in the back half of the year? Thank you.

Giordano AlbertazziYeah, well, thanks for the EMEA question.

Giordano AlbertazziWe are pretty bullish about EMEA, as you saw. Certainly, we believe in a strong second half and back to growth. You see EMEA performing better than we expected anyway in the second quarter. So very, very confident in the second half. I was vocal about the fact that We were very happy with orders in EMEA in the first quarter. I would say that we, we like what we see in the second quarter, and there is a backlog formation that is certainly, certainly convincing. And we see that the improvement translates in top line and bottom line improvement has demonstrated. So the market continues to accelerate, and we certainly have a very a very important position in that market.

Craig ChamberlinAnd Luke, I'll just hit on the fact of we do, as we've talked about through even back as early as last year, we do see a second half increase in growth for EMEA in terms of where we expect their organic growth to go from a revenue perspective. In terms of the— or I say the gain that you saw in margin was a favorable comp too. As Gio had mentioned, the Ireland portion did come through Q2 last year, which which was in EMEA. So there's a little bit of a favorable comp in there, but we do still expect margins to be pretty good.

Luke JunkGot it. Leave it there. Thank you.

Lucas PennerThank you. This concludes our question and answer session. I would like to turn the conference back to Gio Albertazzi for any closing remarks.

Giordano AlbertazziWell, thank you. And thank you very much, everyone. Thank you for the questions, and thank you for your time today. I am very pleased with what we delivered this quarter and how we're positioned for the second half. The team is executing at a high level, scaling capacity, deepening customer partnership, and advancing our technology portfolio, all simultaneously. It's not easy, but it is— but this invigorates us. Pipelines are strong, our operational discipline is sharp, and our customers trust us to deliver at scale. Just to be clear, I am very encouraged by our trajectory. I am pleased but certainly never satisfied. With that, thank you all, and I wish you all a great rest of the day.

Lucas PennerThe conference has now concluded. Thank you for attending today's presentation. You may now disconnect.