16 annotations
Yes. Thanks for taking the question and congratulations on the good results. I had one on the pricing outlook for 2023.
So, you're now expecting a bit higher pricing than you’d assumed as of last quarter and you're doing it with less volume.
So, have you seen a little bit more on where the pricing is coming from and what's leading to the higher price for 2023? Thanks.
David Fallon
Yes. Thanks, Mark.
So, you're right. We took our full-year pricing guide up from [275 to 300] [ph]. We hit the number in Q1, but there's always a little bit of art as it relates to defining what pricing is. And when we look at our backlog and run the numbers versus last year, they're coming up higher. And we continue to be successful with our new pricing.
I think the incremental [25] [ph] came from a recalculation of the carryover, but the big thing with the pricing is it's not turning the other way.
So, the pricing in the market certainly in the Americas and EMEA, it's sticking, and we're continue to be out there, and we think we're kind of at the right price point, but we'll continue to push it a little bit.
pricing discussion
Transcript
2023 Q1
11 May 23
he advanced payments were super focused on that, but that's a matter of timing.
We have to prove that execution over and over as we get through the year or it will just be accelerating cash we would have seen later in the year into the first quarter.
So, we'll have a better update in three months from now. And at this point, we're still very comfortable with that $300 million to $400 million guide.
advanced payments helped cash flow
Transcript
2023 Q1
11 May 23
You were asking about China. We believe China will reaccelerate in the second half. The best indicator – two indicators. That's what we see in other markets, other industries than China in general is an economy say in and trending towards, but also we see it quite clearly in our pipeline.
china to reaccelerate second hsalf
Transcript
2023 Q1
11 May 23
But as we said, the – especially the hyperscalers and not stopping their investment.
hyperscakers (amazon etc) still spending
Transcript
2023 Q1
11 May 23
We certainly were not alone in managing the challenges of inventory in 2022, but unsurprisingly, we saw a similar pattern with inventory, which grew $180 million in the first half, but just $30 million in the second half. There is still much work to do. But as Dave and Gio both mentioned, optimizing working capital will be a significant focus for 2023 for Gio, for myself and quite frankly, the entire company. We believe we strengthened the P&L in 2022. And now we will work diligently to strengthen the balance sheet.
inventory and working capital
Transcript
2022 Q4
24 Feb 23
Can you talk about maybe some of the levers on cash into '24 and kind of where normalized free cash would land for you guys in the next couple of years? Or not normalized, but where you think you can get to on that number beyond this year?
David Fallon
Yes. This is David.
So if you look at our guide, for '23. And we break down the components, I think, Page 33 in the appendix.
So you can see how it kind of built up the most important, certainly, you got to start with adjusted EBITDA. And that certainly there'd be an expectation for that debt to flow through if that's higher or lower than what we're targeting.
Putting working capital aside, the other three components, as Gio mentioned, there's some probability of variability there, but I wouldn't say significant. Certainly, if we're more profitable, we'll pay more taxes. That's just kind of how it works. But fairly certain that we would -- our CapEx number will come in within a range of what's reasonable with what we guided.
And then, interests were definitely subject to movement in interest rates. But if we have significant upside or slight downside, it more than likely isn't going to be related to those three components. It's going to be the working capital component. And if you look at the $75 million use for full year 2023, we certainly assume success in some of the working capital initiatives that Gio mentioned.
Working capital in and of itself will be a headwind due to the 15% organic growth, right? That's just how it works. But with that said, it's not hundreds of millions of dollars. It's not a $300 million or $400 million headwind, and we're expecting very significant or including in our guidance, very significant working capital initiative benefits.
So that headwind could be $1 million or $200 million, you can do the math. And that's based on what we think sales are going to be in the fourth quarter of 23% versus the fourth quarter of 2022.
So we have some provision in these numbers for success with optimizing working capital, but it could end up being a conservative assumption. There's still a lot of complications.
The supply chain is not back to stable so there's a lot of challenges in front of us, but we're confident with this guidance we have provided. But if you look at the 350 versus, if you will, an adjusted net income for the full year, it's probably 75%, 80%. We would target in the long run, being in the 90%-plus range. It's always hard for an industrial company to get to 100% of free cash flow conversion if the expectation is to grow 10% to 15% a year.
With that said, we believe this is a reasonable guide between the $300 million and $400 million, but is definitely room for upside if we're able to execute some of our working capital initiatives quicker than what's assumed in the guidance.
Steve Tusa
Right.
So, the short answer to that is 90%.
You view as being normalized, 90% of that income.
David Fallon
That would be the long-term goal. Yes, 90% of adjusted net income.
Steve Tusa
Can you get there in, do you think 24?
David Fallon
I believe we can. And it -- if you look at our issues, they're all very fixable, right? Inventory increased this year that was probably up $250 million. It was definitely somewhat of a chaotic environment, but we have a game plan for this year. And that also goes for many of the components of working capital.
So AR, we had some complex larger orders that we had a process in 2022 with multiple deliverables, very tactical issues that we can address.
So I feel fairly confident we can get to that 90% number in '24 and go forward. But let us get through 2023 first, and then we'll provide some insight on what we think the timing would be for that number going forward.
FCF guoidance/tusa
Transcript
2022 Q4
24 Feb 23
Although a strong year-over-year comparison, adjusted free cash flow was significantly below our guidance range driven by several factors, including delayed collections in China from the impact of COVID, higher-than-expected inventory as we continue to manage supply chain constraints, while managing a record high volume and also delayed receipt of advanced payments for several large orders, which were pushed into and likely spread throughout 2023.
Although fourth quarter adjusted free cash flow was short of expectations, we continue to make progress in stemming the tide. We burned $380 million of adjusted free cash flow in the first half of the year while we generated $150 million in the second half.
fcf colour
Transcript
2022 Q4
24 Feb 23
We continue to exercise the pricing muscle I referred to already on the 26th of October to price for the value we provide to our customers. Inflation, we still anticipated to be a headwind in 2023, but we expect to have a net favorable price versus overall inflation impact of approximately $100 million, thanks to the actions and executional rigor we are fostering. Supply chain continues to incrementally improve, but still not without its challenges, especially in the power electronics area.
pricig improving
Transcript
2022 Q4
24 Feb 23
We demonstrated good sequential improvement in cash in the fourth quarter, but adjusted free cash flow was below expectations. There are reasons for the shortfall such as delayed collections in China, again, due to COVID and higher inventory due to some continued supply chain constraints. Because adjusted free cash flow is crucial, we're instilling more rigor accountability and discipline in the whole process.
fcf missed
Transcript
2022 Q4
24 Feb 23
We are pleased by our pricing performance. We were on plan as we realized $135 million of price in the fourth quarter, and we delivered $365 million for the full year. We executed on the commitment we made early last year. There may have been some skeptics who discounted our ability to get price.
they gpt 365m of price
Transcript
2022 Q4
23 Feb 23
. He drove significant operational and financial improvements while leading EMEA, tripling the adjusted operating profit in that region to over 18% in a 3-year period ending in '21. And we're seeing the early stages of a turnaround story shaping the Americas, where margin has sequentially been increasing.
ceo mabaged turbaroubd at emea
Transcript
2022 Q3
15 Feb 23
We are clearly demonstrating we can get price in our markets.
pricing power
Transcript
2022 Q3
15 Feb 23
That being said, there are certain categories of power electronics that are still in short supply, and we expect them to remain so throughout at least mid-2023
sc issues extending
Transcript
2022 Q3
15 Feb 23
We delivered again on our price plan, realizing $110 million of price this quarter, and we raised our full year pricing expectations to $365 million. We saw price cost split $35 million year-over-year tailwind for this quarter. This tailwind will further strengthen into the fourth quarter and into 2023.
pricing good , price cost positive
Transcript
2022 Q3
15 Feb 23
know demand is becoming a bigger question for all companies given the macroeconomic environment. Demand win was strong for Vertiv, the data center end market as a true secular demand story, data is just going to continue to grow.
demand strong
Transcript
2022 Q3
15 Feb 23
I and the Vertiv's team are disappointed and embarrassed by our second half, '21 and projected first-half '22 financial performance. We got behind on the inflation recovery curve with insufficient price and stayed there all year. The past few months Rob and his team have implemented price increases that we expect will generate $360 million year-over-year price versus $260 million incremental inflation. Generating $100 million of favorable price costs for the full-year '22, because much of that price is in the backlog it takes.
behind curve on inflsation, raised prices but wont be apparent until h2
Transcript
2021 Q4
15 Feb 23
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