Vertiv(VRT)2024-10-23 18:04Financial Data and Key Metrics - Q3 organic sales increased by 19% YoY, with double-digit growth in all three regions [11] - Adjusted operating profit reached 336 million in Q3, with 1.485 billion, and adjusted free cash flow at 125 million from previous guidance [12][28][30] Business Line Performance - Power management represents 32% of the business, thermal management 30%, IT systems 10%, infrastructure solutions 5%, and services 23% [15] - Liquid cooling growth exceeds market growth, with the company rapidly gaining market share [17] - The company has a complete range of liquid and high-density solutions, including in-rack CDUs, manifolds, and immersion cooling [18] Market Performance - EMEA led with 25% organic sales growth, driven by strong demand from colocation and hyperscale customers [26] - Americas saw 21% organic sales growth, with broad strength across multiple market verticals and product lines [25] - APAC sales increased 10% organically, with China growing double-digits, though the company remains cautious about Q4 growth in China due to macroeconomic challenges [26] Strategic Direction and Industry Competition - The company is focused on AI and liquid cooling, with AI driving demand for data centers and liquid cooling becoming increasingly important [6][7] - Vertiv's portfolio is the broadest in the industry, covering thermal systems, power management, IT solutions, modular solutions, and services [8] - The company is working closely with key technology providers like NVIDIA to co-develop solutions for AI factories [9][20] Management Commentary on Operating Environment and Future Outlook - Management is optimistic about the long-term growth trajectory, driven by AI and data center demand [6][9] - The company expects growth in 2025 to accelerate relative to 2024, supported by strong orders and operational performance [10][12] - Inflation is expected to continue, and the company has incorporated this into its commercial excellence programs [14] Other Important Information - The company has expanded capacity, including a new modular solutions facility in the Americas, which started production and shipments in Q3 [14] - The Vertiv Operating System (VOS) continues to deliver incremental capacity, productivity gains, and reduced lead times [14] - The company plans to share revised long-term margin ambitions at the November 18th Investor Event [23] Q&A Session Summary Question: How does order timing work for hyperscalers building multi-location campuses? - Orders are typically placed for buildings currently being deployed, with good visibility on the entire program but exact PO timing varying by hyperscaler [34] Question: What drove the outperformance in Q3 orders? - The company exceeded Q3 order expectations, with strong trailing 12-month order growth indicating a healthy long-term trajectory [37] Question: How does Vertiv compete with ODMs in liquid cooling? - ODMs are seen as a go-to-market opportunity rather than competition, with Vertiv providing technology and service support to ODMs [38] Question: Will Vertiv continue to disclose trailing 12-month order numbers? - Yes, the company will continue to use trailing 12-month orders as the primary metric due to the lumpiness of orders [42] Question: How is the backlog expected to trend in 2025? - The company is optimistic about 2025 growth, supported by a strong backlog and pipeline, though specific details will be shared at the November Investor Event [42][43] Question: What is driving the confidence in incremental margins? - Confidence is driven by operational leverage, commercial execution, and a favorable price-cost environment [54] Question: How is the shift to liquid cooling affecting services revenue? - The services business is growing, with increasing demand for liquid cooling-related services, including installation, commissioning, and predictive maintenance [70] Question: Will thermal management growth outpace power management? - Liquid cooling is expected to grow rapidly, but power management will also benefit from data center densification, with the entire portfolio expected to see positive growth [72]