Vertiv(US:VRT)2022-10-26 19:26Financial Data and Key Metrics Changes - The company reported a 21% increase in net sales year-over-year, with organic net sales up 20%, driven by 11% from volume and 9% from pricing [29][30] - Adjusted operating profit was $134 million, within guidance but at the lower end due to a $10 million foreign exchange headwind [30][31] - Adjusted operating margin improved to 9.1% from 5.9% in the previous quarter, with expectations of approximately 14% in Q4 [32] Business Line Data and Key Metrics Changes - The Americas region saw organic sales growth of approximately 25%, with adjusted operating profit of $115 million and a margin of 16.2% [35] - APAC organic sales increased by 17%, with operating margins rising by 150 basis points [37] - EMEA sales grew 14% organically, with inflation impacting price realization, leading to a small price cost headwind in Q3 [38][39] Market Data and Key Metrics Changes - The enterprise market in the Americas showed caution due to macroeconomic uncertainty, while the communication market remained strong due to ongoing investments in 5G technology [19][20] - Overall, the company reported a record backlog of $4.7 billion, supporting expectations for 2023 [23] Company Strategy and Development Direction - The company is focused on operational improvements, margin expansion, and free cash flow generation, with a strong emphasis on accountability and a high-performance culture [56][60] - The CEO succession plan was announced, with Giordano Albertazzi set to take over as CEO in January 2023, emphasizing continuity and operational excellence [10][62] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to execute and deliver strong results in Q4 and 2023, despite macroeconomic uncertainties [11][12] - The company anticipates a significant increase in adjusted operating profit guidance for 2023, projecting a 60% increase over 2022 [11] Other Important Information - Supply chain conditions have improved, although certain categories of power electronics remain in short supply [15][24] - The company raised its inflation estimate for the year by $15 million, primarily due to a regional sales mix weighted towards higher inflation zones [26] Q&A Session Summary Question: Insights on margin improvement in the Americas - Giordano Albertazzi highlighted three focus areas: pricing strategy, accountability, and operational improvements, including the opening of the Monterrey factory [66][68] Question: Market environment and order deferrals - Albertazzi noted that order cancellations are within normal business cycles, and demand remains robust, particularly from hyperscale and colocation customers [72][74] Question: Pricing and backlog impact on 2023 - David Fallon explained that pricing levels exiting Q4 into 2023 are expected to contribute significantly to profitability, estimating an impact of $150 million to $200 million [79] Question: E&I acquisition performance - Fallon expressed excitement about the E&I acquisition, noting that while current profitability is impacted by inflation, the long-term revenue synergies are expected to exceed initial expectations [115][116] Question: Supply chain and production risks - Management acknowledged that while supply chain issues have improved, there are still risks related to component availability, particularly for the Monterrey facility [88][90]