Vertiv(US:VRT)2025-10-22 16:02Financial Data and Key Metrics Changes - Adjusted diluted EPS for Q3 reached $1.24, up approximately 63% year-over-year, driven by higher adjusted operating profit [8][14] - Q3 organic sales grew 28%, with the Americas up 43% and APAC up 21%, while EMEA declined 4% [8][14] - Adjusted operating profit was $596 million, up 43% year-on-year, with an adjusted operating margin of 22.3% [9][14] - Adjusted free cash flow of $462 million was up 38%, translating to approximately 95% free cash flow conversion [9][16] - The total backlog now stands at $9.5 billion, up about 30% year-on-year and 12% sequentially [10] Business Line Data and Key Metrics Changes - The Americas segment delivered strong organic growth of 43%, driven by accelerated AI demand across product lines [16] - APAC saw 21% organic growth, supported by AI infrastructure demand [16] - EMEA experienced a 4% decline in organic sales, but expectations for recovery are set for the second half of 2026 [17][21] Market Data and Key Metrics Changes - The overall market growth is accelerating, particularly in the colo cloud segment, which is the fastest-growing area [8] - The company reported a trailing 12-month organic orders growth of about 21%, with Q3 orders up 60% year-over-year [8][9] Company Strategy and Development Direction - The company is focused on maintaining technology leadership through R&D investments and operational excellence [4][6] - A restructuring program is being implemented in EMEA to prepare for future growth, with an expected annualized benefit of approximately $20 million starting in 2026 [17] - The company plans to accelerate investments in supply chain and services capabilities to meet evolving customer needs [22][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a multi-year period of significant growth and value creation, driven by digital transformation and AI demand [6][22] - The company anticipates continued significant organic sales growth in 2026, supported by a substantial backlog and a healthy pipeline [22][24] - Management acknowledged the dynamic nature of tariffs but is optimistic about mitigating their impacts by Q1 2026 [22][23] Other Important Information - The company is committed to maintaining a robust free cash flow, providing strategic flexibility for future investments [23] - The engineering and R&D spending is expected to grow by over 20% in 2026 to stay ahead of industry demands [24] Q&A Session Summary Question: What is driving the order uptake and when will big announcements translate into orders? - Management indicated that strong market conditions, technology evolution, and reliable execution are driving order growth, but the timing of large customer announcements translating into orders can vary [29][31] Question: Can you provide more color on the services opportunity and its margin structure? - Management highlighted that the service business is a unique competitive advantage and is expected to catch up with product growth, generating recurring revenue [37][39] Question: What is the outlook for margins and the impact of tariffs? - Management confirmed that the long-term margin target of 25% by 2029 remains intact, with expectations for incremental margins in the 30%-35% range [46][50] Question: How is the company preparing for growth in EMEA? - Management expressed confidence in a sales acceleration in EMEA and noted that operational inefficiencies are being addressed to improve margins [94][95] Question: What is the competitive environment and how is the company responding to innovations? - Management emphasized the importance of innovation and maintaining a competitive edge through continuous investment in technology [110][111]