Vertiv(US:VRT)2021-10-27 18:33Financial Data and Key Metrics Changes - In Q3 2021, sales increased by 6% year-over-year, with orders up 17%, leading to a backlog of $2.4 billion, the highest ever recorded [12][19] - Adjusted operating profit reached $131 million, up $64 million from the previous year, resulting in an adjusted operating margin expansion of 490 basis points [13][25] - Year-to-date free cash flow improved to $128 million, representing an increase of over $140 million compared to the same period in 2020 [13][28] Business Line Data and Key Metrics Changes - The Americas region faced significant supply chain challenges, with net sales up only 1% despite strong market demand, while adjusted operating margin decreased by approximately 400 basis points due to inflation [29] - APAC net sales increased by approximately 4%, but were relatively flat on an organic basis due to last year's government investments in telecom and wind power [30] - EMEA showed strong performance with net sales up 19% year-over-year and adjusted operating margin up nearly 300 basis points, benefiting from a less disrupted supply chain environment [31] Market Data and Key Metrics Changes - Demand in the cloud and hyperscale colocation markets remains strong, with order rates up 17% year-over-year [18] - The enterprise and small to medium business market in the Americas has shown progress, leading to an upgrade from yellow to green in performance indicators [17] - 5G deployments have been robust in the Americas, with Europe beginning to catch up, although some slowdowns were noted in recent quarters [17] Company Strategy and Development Direction - The company is enthusiastic about the E&I acquisition, expecting significant cost and revenue synergies over the coming years [9] - Integration planning for the E&I acquisition has already begun, with a focus on enhancing product offerings and service capabilities [21] - The company aims to navigate current supply chain challenges while continuing to invest in long-term growth initiatives [10][46] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging operating environment, particularly regarding supply chain and inflationary pressures, but expressed confidence in overcoming these issues [7][14] - The company anticipates pricing to become a tailwind in 2022, with expectations of improved profitability driven by the E&I acquisition [46] - Management remains optimistic about strong demand in the market, particularly in cloud and colocation sectors, and expects continued growth in enterprise spending [43][85] Other Important Information - The company confirmed its guidance for the full year, expecting net sales of $5 billion, up 14% from 2020, and adjusted operating profit of $553 million, up 62% [40][41] - The company plans to close the E&I acquisition by November 1, a month earlier than previously communicated [15][21] - A divestiture of the heavy industrial UPS business is expected to close by the end of Q4 [23] Q&A Session Summary Question: Pricing outlook for 2022 - Management acknowledged underestimating inflation and confirmed plans for robust pricing actions to ensure positive pricing in 2022 [60][61] Question: Enterprise market activity - Management noted a rebound in small to medium business and enterprise spending as companies refresh their networks and reconfigure data centers [65][66] Question: Supply chain impacts on orders - Management indicated that while some orders may be delayed, customers are willing to warehouse inventory to avoid losing production slots [74][75] Question: Net price inflation expectations - Management confirmed that Q3 was expected to be the peak for net price inflation imbalance, with expectations for improvement in 2022 [82][83] Question: EMEA margin strength - Management attributed EMEA's strong margins to fixed cost management and less disruption in the supply chain compared to other regions [96]