VRT - Earnings call transcript Q4 2020

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Operator

Good morning. My name is Nick and I will be your conference operator today. At this time, I’d like to welcome everyone to Vertiv’s Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded.

Now I would like to turn the program over to your host for today’s conference call, Lynne Maxeiner, Vice President of Investor Relations.

Lynne Maxeiner

Great. Nick. you, Thank welcome call. and fourth XXXX quarter Good to conference earnings morning Vertiv’s

Joining David and Executive Officer, Vertiv’s me are today Chairman, Development Gary Chief Officer, and Rob Financial Cote; David Strategy Fallon; Chief Officer, Niederpruem. Johnson; Executive Chief

learn that that that we that and point call, make Vertiv. today’s are update cause with are other included or of from these forward-looking operating could risks statements about assumptions regarding performance begin, statements course filings these including events, new subject will registration we the risks based statements out future a We you of SEC. we forward-looking to on be of of during to to statement and to to earnings this results can no Before in the forward-looking information differ forward-looking Any make date. language and in release future cautionary undertake result the and those today events. I’d statements more as this statements. we future reasonable uncertainties refer in statement material you actual We believe our financial the or These as materially proxy the obligation

both call, financial this GAAP will During also measures. we present non-GAAP and

turn Our our our on website GAAP can earnings call reconciliations the results in to slide and that, over David deck found Cote. at will GAAP be press I in found the to Executive non-GAAP With investor release Chairman, and investor.vertiv.com.

David Cote

Lynne. Thanks,

and been team be and the overall more We lot has XXXX able position And and a able increase I we differentiate good in encouraged our has it difficult in R&D, past and Operating at the decreased everything improved to a reinvestment flat same time, other we Vertiv reflect rate a margin both to As discussed System, as view, to year. a technology. beyond. am drivers rate brightly XXXX. with down growth COVID in guides in shone past I Vertiv ramped even in hold has even look making roadshow are sales, making and a That abounds Vertiv investment initiatives a were drives functional which margin expansion year. transformation customer to and on Sales I terribly like significantly up and especially more great Product today. the in orders Vertiv more difficult. growth with progress. than We that’s is the same great have in liquidity we Experience. industry Vertiv, My always anticipated, margin rate in expansion User where process the No year Cash can were matter true on for over the happen. true flat that Development, opportunity we markedly XXXX sales and opportunity leverage we confidence year. Vertiv, the sales is net and growth increase not and increased, is The that Vertiv proved

Rob. that, bright, said that feel ago is As even X and a way to we so future way over Timbuk XXXX more in that year I wear the the song, today. felt to I will so shades. their With turn call got I

Rob Johnson

partners to throughout the my QX year. ingenuity can-do customers and and used serve the in Dave for during will pandemic. team, share commend have results their Vertiv today. adopted creativity, They and delivering time. my appreciate to attitude, efforts to you and a Thank challenging the you and also want and our I very executive in leadership you, this good our truly many employees our me efforts with pulled together order collective last team. my a demonstrated during provide feats They thinking advice amazing I I continue outside-the-box and thank for accomplish I how your to to partnership Board can

Slide of quarter business already the to that compared am QX QX last QX quarter and the compared over sales very Asia year. as as up were our side for remind was And the Moving for driven XX% X% when in to were by you up fourth overall, of promising demand Pacific European regions. up of to X, largely to growth the were XX% XXXX, orders I significant to compared year. the of the QX previous Orders pleased

$XXX from all-time high is XXXX. of an end and million at remains the backlog up Our

on $XXX over talk side the adjusted driven from will basis. XX% From few was QX. fixed a over in This up our resulted slides. margin lower costs points, EBITDA basis year’s higher about profitability by million, more last the demand percentage EBITDA expansion which We adjusted business and specifically of a margin higher of was next contribution standpoint, XXX the sales,

lower end flow improved of spending. time period to the $XX year of the because free earnings our at QX higher Additionally, cash and transformation million last over million by same $XXX

adjusted full prior results EBITDA margin to to as basis versus more This we with compared X%. the year. EBITDA XXXX, year adjusted XXXX, to XXX of sales down equates in Turning million the delivered improvement point approximately $XX in

EBITDA improved $XXX higher adjusted $XXX flow and million, cash cash last million to interest. over driven year primarily lower by free Our

invest above-market balance top XXXX, strategic areas and stronger at research all and line development and to sales continuing anticipate like sheet, growth, we increase in profitability, significantly even in marketing. while Looking an

operating EBITDA to that know profit. to I measure from Finally, let wanted have transitioned the we to you of adjusted profitability adjusted

in few David analysts moving will all path there communications aid possible. the committed our keeping a as as transition, we’ve simple to as his order section nothing our While In to information. on is reconciles continuing that financials further well. parts with more this than and transition, to included Exhibit XX.X this this the speak pertinent this our associated during X-K with are

we in in regarding demand. this over colocation used updated here illustrate continue we every see been look the slide colocation region, market, have reflect to right Its In the Switching it as six it’s in benefiting it segment better In today. our slightly rows. by to strong past is cloud to was and subtle, telecom such business the than we July, contrast, are mixed. that indicated and environment side education, gaming is in applications, see as we to and red see of that by buttons top levels quarters in today X, Slide to our how indicated things by direction. change telemedicine, October. to October cloud two benefits the are market few green things, the online in The be yellow well. We video Emerging three. It’s as challenged Turning seeing was digital and what commented trending and continues customers, it activity to positive last and medium demand than slightly this and was COVID, small we be the of to the little more row in quarter us change continuing buttons spending last quarter. in as but from the enterprise

uptick to several out the in larger U.S. for to of XG an our Several continue seeing XG are are roll deployment more rollout parts we carriers quarters. continuing and of U.S. we However, of and Asia. expect

can over place and few a positive be most applications we are changes movement different. few quarterly Europe. seeing commercial tracks was business GDP, past in and our are There months. Finally, taking but notable often industrial the industrial a light commercial sometimes timing The the in

business. more data given more the certainly center for daily mix market consequently, and processed, those strong and Vertiv. The digital day takes, significant and our every to become as use customers a important and, picture but digital some of of our continue a living opportunity can So puts transmitted. the they overall, applications for opportunity demand people a stored is so This increasing significant creating result for applications be to

reiterate, XXXX, by to and our Moving evidenced and our to XXXX was strong backlog. of which led world orders rates is strength saw as the order demand growth markets. by Slide between of colocation overall the Each and regions cloud X,

not channel our channel rack revenue the XXXX. levels, to moving the quarter is markets mentioned are The by and still having momentum are in As chart, integrated in they the in I solutions direction. right pre-COVID every prior increased IT IT evidenced back enterprise but

we priority COVID. measures continue that is of operating confident The report placed the we has in on and manufacturing to about are While maintain level vigilance COVID, backlog in of our we higher around position state us high caused to the million $XXX amid to I safety than the have and normally. market pleased we normal approximately a beyond. continue am our relatively side, disruptions a to for taken facilities to Switching now XXXX, entering and the was our operate it allowed are by most XXXX supply have

Sometimes those are daily. disruptions

the we have appetite components I how through we’ve for Fallon our us the Although to manufacture broader financials. serious mitigate of market that, will consequences. strong we of to walk use to products, our any seen it chains in turn a supply With David I’m some proud over globally and to logistics diversified the David?

David Fallon

for X, Slide tailwind. XX.X%, page when summarizes exchange our million sales million a with quarter versus results Starting or financial $XXX adjusted last Net this Rob. Thanks, X.X% up translation were fourth year. $XX foreign

and by $XX slightly our with primarily strong the momentum million in adjusted the continued X% XXX margin. transaction XX% in increased EBITDA third up loss, fourth quarter. EBITDA were offset by increasing from XX%, We a higher currency after improvement translating the flow-through point in basis which driven into sales quarter orders, Adjusted foreign or

converted $XX than Our strong flow sales of $XXX and quarter. higher million profitability performance free cash million, last fourth year’s into

of a of free review improved the slides. drivers of this in cash will some We flow couple

launch including deal EMEA jurisdictions. sales as product of growth up $XX XX%, segment due sales telecom to data which in APAC in basis with services From but Higher driven relatively site was slide XX%, projects. fourth improved were offset year’s year-over-year infrastructure due a on by the a or each outside China to primarily in margin summarizes has the and markets, China improvement leverage higher the strong sales as perspective, up be most points Geographic continue almost impacted the margin we flat XXXX, EBITDA Operating where constant. projects. margin slightly adjusted and of margin and in some mix EMEA, to by Turning benefits access of centers, million up operational fixed Americas Americas increased negatively while continued in past leverage adjusted continue transformational or sequentially the negative costs. procurement were by spending, X, slight fixed in $XX critical reflecting X.X%, was sales locations despite APAC segment, improved increased fourth over margin growth from notably to were million EMEA or in of both line $X the million sales, colocation to in of improvement EBITDA quarter challenges continued this larger profitability EMEA, course, lower holding end telecommunication COVID the in access and Net quarter. in solutions issues. from across Net impact larger industrials. This by both primarily quarter our contribution site Vertiv the Slide those was several and top cost Net growing and entirely results. in System driven last contribution XXX benefits

of $XXX quarter than higher of million The Next, free cash our $XXX flow transformational lower this result payments December quarter of cash chart with free XX/XX. we strong the redemption over lower free warrants of conjunction at interest $XXX the the by of collections approximately the received end spending. versus And the million, potential cash from quarter. billion, from the this we has $XX the business. received beginning redemption to approximately our of of by a cash primarily million, pay This EBITDA, fourth timing with of indicative public up $XXX at flow cash in Slide to $XXX higher the is flow ABL from And close to additional million to quarters, three $X.X completely. to of the XXXX free quarter X, primarily the January. cash cash pursuant in allowed million the currently last the warrant increase end the liquidity million generation prior stands last of assisted turning us down After year-end, million to first the cash early cash in in bridges and of year, first increased was liquidity million our generated $XXX $XXX January flow expectations, of internal of cash we use driven at adjusted

by XXXX were were sales offset results. Next, in full adjusted fixed more improved initiatives procurement lower the costs actions down were as points X.X% half, cost-saving this two margin COVID to comps rebound half sales as drove challenges summarizes the the in more the EBITDA looking driven year-over-year million, basis and up to million XXXX, COVID sales, instructed which bifurcate improvement, in resilient million or turning the COVID second Americas, APAC from and our from continued the X, by or half Net of Page challenges higher and adjusted was part were challenging in XXX sales but in than demonstrating access our X%, site it margin significantly in down pricing launched impacted increased EMEA sales aided year the by EBITDA than slide also first $XX other XX% $XX financial quarter. part year When in the full and industry. and at is of second contribution Sales Despite lower by XXXX, more $XX down full year XX% but result first growth our in the regions. in comparison.

benefited adjusted this lower on EBITDA. discusses cash spending. lower rather Free adjusted we cash operating improved Beginning which higher the interest Page to this as from as looking metric to adjusted EBITDA we page our this from transition primary profit including XX, transformation Finally, on and forward, $XXX and with financial flow pivot our money than chart. million slide, XXXX payments, is

intangible financial both face included income on only include being face profit amortization defined For historical operating we profit show the we and the the income and adjusted is example prospectively our communication of the all provide profit quality our and using XX, believe of an which measure address analysts of components periods, be also we statement. greatly all eliminate GAAP bottom excluding operating be of simplify will operating eliminating of financial intangible At reporting also, we and of operating and previously EBITDA that than our the adjusted will profit, for slide, will by adjusted reconciliation historical the analysis the And enhance amortization, results, intangible adjustments. as other doubt, next Operating investors. adjusted statement, avoidance of then Slide and with of impact on of operating profit. course, a the We profit adjustments financial earnings on operating adjustment GAAP we going expense. EBITDA forward. profit, disclosed will adjusted with results amortization, not a We as of to to we

adjusted see, Pages and reported on impact you and of historical adjusted can on to Last share adjustments, we net-net, reconciliations also XX the this XX note and restating will per item appendix. operating and remove earnings intangible are be add-backs operating simply As other adjusted amortization. our historically amortization, historical the except the include operating adjusted slide, in also those less expense. of is And profit profit between and profit the depreciation adjustments differences EBITDA onetime intangible we

income period Maxeiner, of in with Investor understanding this as will and easily adjusted the statement Rob aid profit GAAP release again, historical and any with both operating also our with once GAAP to included our for adjusted Exhibit and we moving this or always, include of going be for able specifically profit, revised historical or deductions other including earnings will profit transition and year every items And per Slide for quarterly adjusted calculate XX, transition. transition, the operating in from adjusted be segment also assistance restatements historical we a slide to we Relations, hope facilitating our of Lynne reconciliations XX calculation any used face and available statement. statement, analysts future profit. in reconciliations XX-year It quarters facilitates forward, have to of presentation I to prospective includes which reported intangibles. of including presentation. this as A adjustments. is will the on income Once measure, we our include and the including amortization will income historical components information, historically previously adjusted mentioned, face which operating changes net, periods, illustrates investors reader to the a Next, removing as included this operating to XX.X consistent X-K, transition, which to VP regional full earnings includes EBITDA from share And

Next, turning page financial to guidance Slide summarizes XX, this XXXX. our for current

net as at the XXXX, half prior into year sales XX% organic when midpoint, X% approximately Adjusted up the points items of XXXX expect of operating pro up is from million XX% XX% Slide we at basis. momentum discrete margin forma-ed $XXX the second XX. up at with expected from on and operating midpoint, forma be for points and basis XXX XXX project up continue the midpoint. We pro adjusted from to a basis illustrate on XXXX up We profit XXXX to the

Of analysts, margin adjusted and XXX and basis for to EBITDA, using points of about course, lower margin a improvement long-term profit improvement the goals adjusted investors operating relative margin adjusted the have as of EBITDA substance But are recalibrate goals unchanged. we, margin. operating basis adjusted to on than will internally, course, magnitude XXXX our opposed comparable with

earnings at appendix. $X.XX assumptions of the on disclosure share XXXX of the per midpoint, with Slide included expect We XX adjusted in

will on coming improvement we up million $XXX cash midpoint, on provide XXXX. strong detail this this additional up. Finally, from the slide, million $XXX we expect XX Slide XXXX at currently approximately on of free flow And

depreciation in $XX approximately of transaction XX%. and this project first approximately asset drivers. XXXX far SPAC Next, in from operating procurement profit following including restructuring for operational favorable contribution adjusted Headwinds $XXX expansion stock transaction XXXX, Compared to our a related million expense continuing Tailwinds and we million, $XX $XX in of in from $XX in IT by the net million restructuring adjusted a for include XXXX and of equally But other of profit one-time million restructuring in Slide increase midpoint continued exchange million for implementation included foreign significant stock on XXXX, cost X expense expense in third flow XXXX in in adjustments, of anticipated transformation-related the the Of million XXXX $XX forma expect discussed free on We XXXX million XX. million FX million of we Transitioning particular additional $XXX operating XXXX the bridge historical from impact improvement from almost for $XX million offsetting of the COVID million $XX adjusted program. $XX pro discrete not margin to initiatives XXXX expense. there include by earnings bridge, illustrated a volume, To Components detailed impact and for of entirely the in way $XX items, pro million XXXX. XX the million and XXXX pricing costs specifically in XXXX. that to project impairments about million, Higher XXXX $XX we that as anticipated bar additional $XXX compensation this we from combined profit operating variances repeat. XXXX forma from to split anticipated of growth costs, from left $XX additional an for of that bar. operating sales the expense between initiatives $XX which note, tailwinds higher illustrates we slide bridge on cost growth the normally Slide are for million fixed Slide XXXX bridge actions conference $XX projected $XX quarter of $XXX in offset headwinds investment and each and and reserve a costs. million negative increases related case, the project and XXXX, our benefit add-backs XXXX. include include bridge. $XX This the cost time lower do the million restructuring costs, figure, the offset guidance resulting loss savings in are an by going cash XX%. of don’t restructuring loss from as various the call, fixed are is XX, million $XX explaining million to other million compensation saving program and project and and offset increase quarter of merit few for of included appendix, spend These R&D including quite not global this anticipated the

higher increase to payments XXXX pursuant partially offset These positive expect will lower anticipated operating CapEx restructuring. and by payments. headwinds, XXXX We by in interest operational including XXXX primarily drivers the profit higher projects due driven this adjusted cash will to program, restructuring be be certain and investment delayed

somewhat me, to Slide for restructuring. first finally, push cash. projects guidance to for cash are several projected for likely is from And and in Overall, from our And quarter slightly requirements and increase addition, cash incremental we XXXX will cash the elevated where slide our In taxes summarizes profitability except foreign for free use expected flow lowest traditionally quarter, our restructuring. higher jurisdictions. a normalized, XXXX to the CapEx financial due sales quarter expected profitability be the typically this due spend higher XX, and operational

negatively by exact quarters, into operating to headwinds X today, notably COVID, other easiest though the our diving relative presents year’s organic year’s profit in a were comp of mind, growth quarters. of first is from parts in in the most impact With last still numbers, that is and to expect since first Before quarter year-over-year year. adjusted last XX% reminder, COVID clearly, the challenging significantly quarter we last business of COVID it quarter APAC. as quantify Even sales first the impacted specifically

profit approximately from on Adjusted and up items XXX expected projected is increase million a $X.XX transaction expected the of million be earnings quarter, earnings year’s points. midpoint, at SPAC of including debt X This discrete the margin increase first share, basis quarter. Our last to operating includes per to $XX from extinguishment midpoint in $XX share the operating to is loss costs. at million adjusted per $XXX increase, $X.XX adjusted is benefit quarterly and the first $X.XX year-over-year

expense – $X.XX repeat addition, be per year-over-year and Rob. than EPS benefit due quarter does adjusted In XXXX, $XX I year’s driving this expected in sorry, of first in interest is quarter share interest am million last expense additional lower year’s first to an the that A three SPAC it I year. not that as over to said, last to remaining of significantly benefit. the quarters timing back debt refinancing transaction over the With the turn

Rob Johnson

Thanks, David.

XX, color Turning over past provide initiatives wanted I key you themes with to earnings Slide our to shared some we year. on and the the on calls

First, our focus is on line. the top

continue continue the so all as customers channel down relationships, Doing projects cloud will colocation led our ebb with into road. IT in demand We colocation Furthermore, efforts we in on. with to increases order and cloud greatest our United occur future Though we went the in and our We hone but customer the got will traction to and win future flow, meet States always strengthen are XXXX. customers, stronger ability and to the impact area. which space. to the into in needs gaining and greater visibility year translate the providers the large of especially of go-to-market has our projects the saw

expansion and the standardize The in System, facilities. globally, improved we as experiencing favorable work. X way we piloting the Vertiv formalize known VOS, of are Already, results Secondly, manufacturing results with we Operating we we’re said, performance as our rollout early are and performance but seeing. am that will talked am area. with pleased as this about his take comments I in time, the in we our David and I pleased margin very have

to have capabilities sourcing continued Our improve.

quarter and the full to plans foundation restructuring trajectory are in that favorable the have our Our actions our ago. and have flight. The pricing yield to we we in expansion established initiatives confidence out laid ability gives announced a me results, on now are achieve last year continued we

couldn’t the to or maybe bring of conducted Vertiv Development sessions development imposed more we Experience, VPD, partners personal favorite, us though User because our programs. – and continue my COVID, and research Even or and become had and for XXXX we fund to term. limited Vertiv travel us we still strategic to focus our closer Finally progress, VUE, help Product customers stronger the in long

And and increase no seen pace of product We have service XXXX, year-over-year. difference. in will the new introductions be there

targeted be addition in have do these to to planning results, industry. to on seed ensure future a some we real-time areas the continue cutting-edge to our In in few we started also

to XX, a growing very what last XX in have a and accomplished We we great company over Slide commitments. the our turning the demonstrated Now, am of I We proud on we delivered team are Vertiv months. industry.

dedication line activities, short-term support of in on our open call. today’s many both and the executed our on I call for of us who which the you. We of will employees for turn being To now investors, care strategic thank take year your the us and serve have operator, many all the the implemented over key you and all past our today, effort Thank to with initiatives, the questions. To have over to the well strategic customers. will the for up – will tireless which many implemented on in long-term. and call thank you

Operator

Sprague comes question Research. First from Instructions] [Operator Jeff with Vertical

Jeff Sprague

what will I Hey, to close Thank amount yes, you in fair morning, reporting think There over from is you. to Good the I everyone. pretty consensus morning, but here be and simplify was. of something tell, change confusion the a can this where actually time things. positive bridged

the your We normalize, of frame restates. of work we the free items bit or So, if through on up cash side there low And kind relative to in cash give if of And normalization on with little cash the I understand the these layout any pressure XXXX you some wanted we how you bridge. the to here, would context of our up ongoing that’s flow end adjusted for EBITDA once view EPS flow a kind some the way picture? wondered revenues. all is just in could. XXXX I thanks XXXX free or talk flow about here in I as you

David Fallon

David and thanks for is This Yes. Thanks, feedback. Jeff. the

flow So things I in anomalistic. are somewhat cash out point XXXX two would that

and required significant So most the restructuring. the is cash for first

we have programs. million for XXXX a anticipated had in restructuring $XX So to approximately cash outlay

million, Our in is And $XX is for projects. bridge XXXX million million a Slide in the that current to $XX closer and another included estimate $XX to then million of have item XX. we operating adjusted $XX profit embedded cash on restructuring payments

$XX that’s XX – outflow. So a about about or cash million

We outflow will from have a million. high for a that’s cash probably always basis, by $XX good some restructuring but

CapEx. other item out I’d The is point

kind million year. guiding we’ve we’re of million, historically, that XXXX. And projects that were lot $XX some from included range, also includes think of to I it a the $XX go-forward good provided projects CapEx in pushed $XX in million direction but of are next

going probably CapEx, do should item some say increase. other I going if were a including items, $XX still right but My somewhat Working decline I see million Cash than around probably other cash that wouldn’t million. of guess that restructuring taxes we $XX work lot So in I I going opportunity capital would normalized. will would the and forward, settle $XX to doing interest, will include is include if forward, than is have that anything, we model, but forward. is million. more and one we a XXXX All

Jeff Sprague

it for on. Thanks and And other just me one Great. pass will I for one that.

pipeline little expect of on firmer additional there? could of On the of I signs kind Can enterprise commented you if related proposal us for out? on and a you see life some of guess point you just on. bid bit the kind in that Can you you and activity, a color visibility small put activity that wondering provide your play to year how the any developing additional

Rob Johnson

talk that’s is to indicator. leading is we growth, the Sure. look say I pre-activity as exactly what And that Yes, is Hi, always we a is fact always at pipeline even our the Rob. mentioned, take on would that. that quoting, which this you

have of out XXXX. We pipeline seen expand exiting

to Activity So, in the contractors. design mechanical gives enterprise with the will comfort electrical intense that us is that and begin area both recover.

COVID kind and to of thought good So, – gives probably if – in, again, will if, just that pipeline recovery. me again say, believe that that gives not spending out and get and but reason start have It’s spotty matter a the overall, a it’s the is the and is are of very active we globally, on this we looks when but people recovery and me Europe there. confidence. when see a that’s activity not good the Asia of lowest, then been and has enterprise – looks activity the and but we Americas quicker then And seen the probably do let’s

Jeff Sprague

Great. Thank you.

Operator

comes from Your Deutsche Nicole next Bank. of question DeBlase

Nicole DeBlase

Good Yes, guys. morning, thanks.

Rob Johnson

Good morning, Nicole.

Nicole DeBlase

bit of here start beyond obviously in can ‘XX. XXXX, outlook with quite normalizing we margins towards about contribution there noise a Maybe the is still thinking

of guys I So, sustainable And of be in a going basis? do there when medium-term about your guess beyond similarly so on an are is are kind you point year XXXX? restructuring run-rate still you R&D you business, getting to to reaching step or the think think in $XX in this to you be ongoing a that levels where or like needs R&D up million factoring

David Fallon

the to restructuring address address is I will This R&D. Nicole. Dave. question Yes. Rob I’ll ask certainly and Thanks,

point, you continues restructuring, that going I it business. at equate dollars out we to whether to can is especially invest the of Vertiv continue but to related relates the plan dollars to take to think forward that’s Operating Our continuous semantical, probably this System improvement, as will

specifically I commit want So a per wouldn’t to dollar to amount year.

be year, particular any as R&D, in million And bit I projects think to a lower. starting aren’t point. on we little good good XXXX relates invest could we’re the it Rob. program. there is are pass restructuring mentioned $XX will top with $XX point. that starting potentially projects out I there than of it That’s returns, on investing there If to XXXX, additional I a probably But if probably million think But we that. for more a an could

Rob Johnson

areas strategy Yes. us as margin call vector that the Innovation on of is we and can talked our of And stated get that is we part and X%. we our Nicole, will adjacencies in. to plan participate of about it and to take differentiation to and other up R&D expansion lot there a allow roadshow,

that at So, as going what be look X%, we that we that other to up to leader well. have seen to you and R&D fairly of innovative catch the revenue X% space adjacencies can a we expect large while forward be expect, so ramp in

will results expect long-term produce a while. We that over time. little take R&D that, does

space year. will channel the the in products see our within of Some benefits

excited opportunities months. Some of have the about than to But we very R&D we larger XX projects funding. say, would the that we’re we see more projects, within XX have I

with efforts have be Our to margin successful proven collaboration drive hyperscale to profile. us better design the colo allowing and in a and

David Cote

Got Dave. it. Nicole, is this

grow reinvestment. day, fixed of creates of two And the our a the Just both and points the sticking that lot we’re room and maybe strategy putting end hold for to costs with margin At sales kind expansion constant. of together.

plan on So in just but future. the both, not into ‘XX, long still we doing

Nicole DeBlase

for expectation is embedded And guess for can what material I Dave. that, pricing further the price/cost Thanks, that is the XXXX? sort in And headwind offset guys of inflation with the there you it. Got you raw or have recent then embedded for guidance? follow-up, to pricing any just

Gary Niederpruem

morning. It’s Niederpruem. good Nicole, Yes, Gary

good had would say, reflect I a back on if So for year. we you pretty pricing XXXX,

where about we we but that positive. XXXX, $XX feel our yet, coming think from in pretty be commodity And not were just I in along. price we’ve the right were of but range side sit for it’s the sure told all ‘XX, now well. million certainly continue quite do plus today. equation expectation we’ll from somewhere $XX same what good will that or price Whether inflationary around about we that to positive in aspects we on ‘XX everybody the of to to range. and where able passing be going headwinds some we’re million sit still $XX ‘XX, is Certainly, million globe, we we In as have to

Nicole DeBlase

Got it. on. it will Thank you. I pass

Operator

Melius comes The next Davis Research. question of Scott from

Scott Davis

everybody. Hi,

Rob Johnson

Scott. morning, Good

Scott Davis

to M&A anything didn’t asking remarks, didn’t hear the question. in your I anything it’s hear and on worth expect but prepared

quickly. pretty perhaps are stuff looked Is bolt-ons even historically a de-levering start You what there you’ve to and bit little that’s than larger perhaps at? an play offense to opportunity on

Rob Johnson

the for thanks Scott question. Sure.

raising what line. robust pipe those. a do bolt-ons about been out we when have Our it we global for makes our continue hasn’t nice it to product be sense, a that completing or adjacencies at was first look stated could We’ll if And strategy the were talked priority. we’ve and list of targets potential

was buy our have look strengthening interested track that optionality able those at always to, various And go as acquisitions come. at the have but and We as But they pay themselves and be companies to want said, out when with we our they the down priority present do has always of come. to we debt be first we to to we again, today, them liquidity, might things, follow something Cote as and to those in. Our it first isn’t take they but and like like something. look priority look don’t we just as that opportunistic Dave continue to

Scott Davis

existing And mix it think and new enough. be IT capital side, to capacity weighted fair your up about but tuning imagine there capacity? on a spending I when spend, the Okay, spending spending are you clear on more of upgrading things then of kind is just it is on, etcetera, you or here is towards –

David Fallon

David. is This Yes.

launching probably a in different IT. spending. bit takes overall ERP that’s in but it’s say we something in the system little buckets, not continuing in that we’ll And an the and investment of equally be Americas XXXX, continued it’s that split, capital. I and would three probably So split Operational, third over certainly are

to the And will see XXXX. million our announced could And bucket $XX would we initiatives. forward. the million, the towards the And Some last CapEx year. that but be of of – is in that that Product Vertiv we is anticipate $XX to R&D in be last continue that’s related something to the that range of going Development, from be – spending, we’ll back half also related maintenance restructuring skewed continues ‘XX, to benefits more of some and that

I $XX continuing meaning But this little a for is it bit to probably a year is this opposed the mentioned there CapEx. So just to elevated. is of as Jeff, million investment-related, as return most spending, overall, maintenance

Scott Davis

helpful. Good luck guys in super Okay, ‘XX.

Rob Johnson

Scott. Thanks,

Operator

The next Wolfe question Research. comes from of Nigel Coe

Nigel Coe

morning Good everyone. Thanks.

do internally some So folks? And to a in that I think a in the way does to you’re EBITDA or it you measuring are are for presentation like-for-like. change switch changing is just the effectively, way that on struggling internally compare just execs and EBITA, like curious from us to compensating map investors that

be on looks you those three ballpark, was see. that So comp, and would even it in Thanks. buckets that helpful? Can have confirm would added $XX that, I restructuring, it that about ‘XX, just regard, just FY costs of transformation million been back are stock-based like can a expenses that

David Fallon

is David. Yes, this

internally. is report Street I So the can to way we way that Nigel, we be ourselves going is scorecard the to exactly what say the

‘XX, On million compensating. basis, that had transitioning we And we XXXX, definitely profit the adjusted that and included versus basis million, if So we adjusted simply measuring EBITDA were internal depreciation. well. operating are adjusted a for to for used adjusted EBITDA as $XXX you for versus had at go-forward what is operating for look difference the so to profit $XXX

are holding for basis depreciation is and forward. spending what So capital on go-forward accountable a ourselves the doing we going effectively resulting

the adjustments the having to confusion comes between a operating So course, critical only that course, forward. very going at EBITDA the forward, not adjusted of going think historical any and is adjusted of But adjustments. of depreciation. I lot be of going and difference looking the is historical profit some And

any the accountable for fully expense from is hits adjustment to that And only the ourselves going holding intangible be we’re So P&L. GAAP that amortization.

Nigel Coe

am the investors ‘XX added Is back in part been we can question like-for-like like direction? that absorbed fully would just were $XX I of margin, that the and an right was, your ordinarily. costs plan that Right. FY specific have of if underlying looks that ‘XX, being FY get incremental are But what compare it saying, in million so

David Fallon

items at have we add-back. is a as to a Slide in Certainly, cost that, a is $XX XXXX. if look that the costs of treated compensation related mentioned that fair. historical think directionally was I couple That you XX, million XXXX, I will stock in of

included In to we – addition, That implementation would these an $XX $XX costs expense historically XXXX. for add-back are about related and have have new we as IT-related million million projects. been that of

or $XX the So to the an restructuring $XX year, historical as I if something, is off as million million be been be add-back the The is that third believe, referring treated quarter it you compare to million additional bat. would $XX expense. subject last to, treated that And that’s right add-back. also from have – you’re

with you the if developing math. million, would So that agree I are that’s how $XX

Nigel Coe

in And does take right. spending of investment a where million Thanks, that worth as I targets R&D R&D David. of that That’s That’s know XXXX? a percent then a exactly helpful. where does sales R&D? the on specific mark-to-market one portion but of quick $XX sales,

David Fallon

Yes.

and will our filing Monday. – So we be on XX-K

But it about R&D half expense. X.X% expense the other $XXX R&D and That for of based of for million, XX, R&D and million growth R&D that expense Slide of is on initiatives. $XX sales. half on about we’ll figure was disclose is was our Our which – XXXX

and of So million assuming $X,XXX up an the as percentage additional to $XX for sales next a takes million spend to close X.X%. R&D guidance year

Nigel Coe

David. Thanks, Okay.

David Fallon

Yes.

Operator

Evercore. Your Daryanani of comes next from question Amit

Amit Daryanani

Thanks for question. have I well. as my taking two guess I

that about think you investments? I calendar talk when over about How Vertiv next off, investments years? ‘XX the out-years First margins? on million inherent step-up incremental these expenses growth these about I calendar can do a Do in think just conversion or have better think on payback about the $XX in being I few been about made, think how about I think do of ‘XX that in you the payback

Rob Johnson

– little bit some Sure. some market for is reason – we so they – the Amit, on that the others, projects investing these here. take mentioned it’s that as a earlier, Rob the growth. longer of than What outpace said we’ve but I we investments can is actual

investing product XX larger time, XX units. channel-type products, months to these those larger new new UPS growth growth is a happen see larger, XX of And then product our X rate. the to by be you the And the X.Xx – a those. typically sales began management larger So thermal market or products, And will they megawatt to see period on – and a at or things it categories products, payback like UPS those. more begin or UPSs on IT-based months cooling to things we accelerate projects over could in areas,

the those the years, next bit will to globally, little growth market over things but rate. a out yield several typically our outpace longer get take So it to ability

Amit Daryanani

your can – Got scale customer it. think And a point just on you web When just about are colo base, then follow-up. hyperscale touch at this do you you I as think And drive the steps market or on in can a you basis years? share bucket? next over are the to under-indexed up over gains this what take market that your few in share

Rob Johnson

Sure.

I colo, of great about So, hyperscalers always outside combine companies for mixture their U.S., a themselves. is there as build because, we then hyperscale data we – U.S., of would we say colo center in growth builds and the both. that. colocation typically there inside the past the always and the kind with they is question, have talked work And typically room in for

look wins our products the with in design additional we give to take just ability XXXX you in working at companies in colocation some nice conversion method we and with think past. ability very overall worked maybe to of If our market and the We closely us model, some customers share. share, we have will those had collaboration haven’t our the grow, to

don’t growth. We room there necessarily we the of And all opportunities set basis, on entire you’ll the that the our there. full in as for is see So sell expansion a think plenty today. global product happens of hyperscalers

growth there, larger or room distribution, well, is is for system there a as there So improvement STS for battery a larger whether backup there it’s more power room or too.

the at heavily. our of not a and there. that’s to investing saturation ability share the level to in So why continue one reasons grow we’re we’re And certainly R&D have so

Amit Daryanani

Thank very your much time. you Perfect. for

Rob Johnson

you. Thank

Operator

from Vitanza Lance comes of next Your Cowen. question

Lance Vitanza

the Thanks, taking for guys, questions. Hi.

industry revenue performance market share. suggests in revenue relative guidance past you growth are the the that and you’ve the the off, taking discussed First significant to

heard of So where the exactly that is, from of seeing share we world? business you taking these mostly the you question or and necessarily companies Eatons this Is the from smaller from away taking also are the my Schneiders gains? haven’t are

Rob Johnson

are believe product some look had, is things, there of a channel certainly, channel I Lance, at of So, think aren’t. growing know And a them, that. in well, because we’re just But we’re lot nature we region, gain share. some taking you. we compete we right, gaps competitive we’re side general, of a able and it’s is different both as lot it But of seeing, take the in thank they would they some I the we is to out of What regional or statistics relates IT the players, combination smaller to – great Eaton were at every I regional share it’s down. that people global looking Rob. in – against. maybe Schneider, our compete and players When of filling of the I cases how This we’re say that some with say, we and in both. that would and question,

competitors our we I share XXXX as showing think our that decline well. took in was some cases, there in less overall some therefore, than much

it’s So and the in the in kind like colocation, being channel of hyperscale.

Lance Vitanza

is with to okay. metric going that’s be looking Great, increase mean in adjusted Slide And XX. I then I profit. actually going this we’re respect other at my question to the focus projected to forward. operating wanted that on XX%

not guess So I that, not ‘XX Well, what being to million talk to focus. XXXX? the that should would are could for beyond else, growth thoughts of I there I’m and the for in think guidance, that’s COVID of XXXX. be where savings asking clearly, And is nothing your recurring kind potential but we of the perhaps get there. to think And we to I think, And going I’d beyond. question that’s if we that about sort $XX be restored want love in sustained is,

like their does to R&D how XX% hand, growth? it of this that that sound years. other indicative being should Is the the for the anomaly going But to kind just continue business? about said, we is what I next the the several On investments, earnings mean, thinking are of growth that for or be in increase potential

David Fallon

a to David. shot then comment and as is I’ll Rob this Yes, ask take well.

improvement want and still talked to and to everybody for committed is all that that fully thing goals we historically. So we reaffirm have investors I one on the to do that margin the call are analysts

to the EBITDA, adjusted long-term goals switching expansion. we have margin it intermediate from for we’re profit because that operating just doesn’t So adjusted and change

have will recalibrate. we Now to

So goal, I and that think getting using XX% reason about XX% long for is have adjusted we XX%, historically adjusted profit can’t intermediate run. operating an talked get to to equivalent somewhere between committed I the in we’re to for and no number XX% And EBITDA. think there we is but XX%

long-term think used operating kind has with that profit. of this changed So we’ve hurdle. That I the transition to adjusted not as

enhanced works think profit I future into adjusted in very question the growing expectations so line. adjusted And much and that your profit operating Certainly, about the being for with growth. top we the growth operating see

So line mathematically, above forward. to there in is top no we while continue market growth as reason, continue can’t that as similar expanding grow long that margins, – we going

Lance Vitanza

much. sense. very Thanks Makes

Operator

Andrew next Your America. comes from of question Bank Obin,

David Ridley-Lane

site still in, ask services wanted David Ridley-Lane on I issues here given about to for the I your revenue what you January, around Obin. Andrew assumes guidance that are guess, February? having access

Rob Johnson

just expect and of David, finish overall XXXX. the to at stab with to pretty that. we then, and But growing is first as we’ll be There revenue with deal is can’t the and various from plan issue site that an that but got time. growth been and to predict like, access able our take have do to could off. growth be COVID, our will hotspots have we year-over-year, have we as but that areas time in we Yes, will we But navigate a part our built looks we that in will hi. into strategy. that to to I well COVID that what services deal around plan Again, – expect overall continue is services we’ve for

David Ridley-Lane

more maybe space? weak? then a about seeing a Got it. are in talk you what could the what’s And seeing enterprise little that the still are you’re you What and follow-up, improved as demand bit areas the

Rob Johnson

it’s say right. would to vertical, be going industry I by Yes.

distribution. government up areas the spending on are for other when seeing, the and there be in will to other Certainly, other ones then people signs spending to sure see one from recovered. we’ve verticals We the retail, vertical, began continue spending education Certainly, we the space see travel entertainment I’m that of e-tail like and there would of and that that kind hasn’t we being as seen pick that of the financial is local big-box compete financial would beginning not stores, there. positive recover. course, still around

general, spots In So seeing areas while down. some bright today. of some those are sectors the kind are in we’re that

David Ridley-Lane

much. very you Thank Perfect.

Rob Johnson

Thank you.

Operator

Your Goldman next question comes from Delaney, Sachs. Mark

Mark Delaney

very Yes. questions. Thanks for taking much

that’s demand First, environment now strong to a little backlog into more. level. at hoping the just growth a and dig least of high company very The reported bit at XX%,

As to into to you’re would the grow you about able backlogs going XXXX, you or high a year? type you’re backlog of backlog it this a down little thinking perhaps at sustain do think or to this be the going think bit even potentially work you’re level

Rob Johnson

come and Mark, I’ll start David then let I’ll in.

demand continue see both We’re and QX. in seeing and QX to strong

our is you their colocation, business well, in driving going projects. driver that’s big backlog to quite both If and and listen a hyperscale on

has colocation. of hyperscale China now seeing what global Certainly, the we’re our the for map think – telecom I radar in side India in to come and expansion, things. on

to in single-digit to we and So I’d rates I order upper growth expect to the happen. continue guess is expect what say see that

Mark Delaney

environment the you channel as the company-specific that those materialize. well to channel And Rob, more helpful, of to begin would strength throughout that was opportunity. of that macroeconomic follow-up in of those my to function better types customers penetrate times it That’s underway some of on has attribute Is call Or that about some the the a back? a Vertiv seeing you’re customers? efforts thanks. and few question some you mentioned coming And market

Rob Johnson

products I No, our and some execution available. IT Mark. pretty programs brought We’ve in distribution, of We’ve the and and kind some it the of lithium-ion on aggressive question, side. making our that products distribution offerings Great unique some to that’s power the that been sure we out. got of Yes. power attribute

improvements. seen And So mentioned, we’ve we quarter-to-quarter, quarter-to-quarter was are still targeted of the But – off. we’ve programs down. the some had, we’ve that year-over-year as paying

which feel the being easier programs button on project intros, we new that, But the portals, and is we’re that diverted a same simplified we’ve customers we’re kind for Europe, that come of globalized it taking and registration further behind bit and same, then So like certainly for Asia driving that. to both our of little to rest we’re with hopefully, strategy the we’ve product that right into our trajectory partner offering, China.

time. it our to chosen And does believe current we for. do this We’ve a that big part results organically. as our yield is you – strategy. but ultimately take we’re will So strategy and This looking the know, of trajectory that

Mark Delaney

you. Thank

Operator

from [Operator Instructions] Andy Kaplowitz comes of next Citi. question Your

Andy Kaplowitz

guys. Good afternoon,

Rob Johnson

Andy. Good afternoon,

Andy Kaplowitz

color EMEA? Can ‘XX? about continue us colocation regional know the on You’ve you these projects in data sovereignty some into projects I you’re seeing large more talked give through strength And a working been while specifically talking little now. driving in the continued growth. Do for a past, about you’ve

such on performance So trends in And good how there? to sustainable are is these else what that’s EMEA going in the specifically? region leading

Rob Johnson

typically parts What of rushing and EMEA things. colo world. hyperscale Absolutely, see we is great on side various of with And to the catch typically Andy. the

well, And be, on so let’s as in going growth. or not spending will U.S. the there maybe much say,

We data Europe. the governments I They firmly want people want have in And don’t it sovereignty, that nor data in China. centers their centers in data that believe there. filling data the country, want in seen in U.S.

there I think build-out. a is So lot of

to Europe to has you the users, in have what got going builds of U.S., access you’ve lots versus number If lot relates center parts we data centers, were of happen cell of it at number think driven that happen. broadband as that data have builds there. number runway ourselves of ahead to still think take necessarily we I of look the phone didn’t the and The – thing Brexit and just of Europe a in

see think, I years continue the in side the next couple we strength, over of So of European things. to

We business have that past. new taken with done some in traditionally share there. some haven’t had we We’ve customers the

East it’s They lot India America, acquisition hyperscale there. chatter has I’m coming excited the good and are around talk whether So again, Africa, so colocation, look pretty about, Middle in or at underserved. there. if been globally, and tell But finally you, Europe customer of South a I’ll you

the So U.S. to in grow, we’ll I to that think happening U.S. lot Asia world, But way think the here I But plus leading runway of think India certainly, to nice parts in I still begin the area. now. screen isn’t we’ve see up Not you’ll to going some on Europe’s begin of got a other the of see what’s the as it’s the continue grow. outside, radar countries, and to pop going

market So a all in the look as I years we’ve at in next all, several front fairly of got us. healthy

Andy Kaplowitz

about there? talked mix, think should progression margin that pressure the And margin some just projects. terms Very large actually about of timing products will would you’ve supply Asia-Pac, then does product You’ve in we your helpful. you start How chain there coming margin, large going helpful. more Do on from following-up help stresses that talked hurt be color Asia-Pac? in to about margin and forward? Any ramp of

Rob Johnson

innovation than China, innovation we we specifically be of and then, you more that margin paid to say, general, to kind be David, probably tends top, of get in expect we we in And of that I telecom for as weighted in Asia-Pac. if there. off drive able over average side to towards that lower in continue want in innovation would And to come start see the invest go we’re parts I’ll fleet things as the to Yes. forward.

a fleet difference focused closer to of the is the as average. it relates there to certainly products on getting we’re mix today. So types there selling that But we’re

focus, we’re an part to going from perspective is channel the what think, and important any of as an other thoughts? XXXX to areas And local success and China, So innovation that relates specifically, driver important driving more of our in doing being there. beyond. margin to be of is be going local is it I part a David,

David Fallon

be the certain margin-enhancement there larger on well, going from forward. it the lower a from aren’t – No, perspective I with mix to pretty lower think initiatives both we tailwinds have you hit you We Rob. a opportunity And and certainly channel some certainly, of relying huge grow to get but margin mix is services. projects,

be flat, it think could us. a potential there we’re tailwind that for but assuming is relatively actually I

Andy Kaplowitz

helpful guys. Very Thanks.

Rob Johnson

Thank you.

Operator

this questions question-and-answer are no Rob concludes There over closing This the like any time. I’d to Johnson for back at session. conference to our further turn remarks.

Rob Johnson

am for speaking We our of today. operator our call and we to the you, the look much day take your appreciate stay with going you forward every soon. Please you hard working thanking again Thank I everyone’s for customers. time by world Thank around XX,XXX to and to safe, employees support. close care very

Operator

attending The presentation. conference Thank has you for now concluded. today’s

You may now disconnect.

Vertiv (VRT) 25 Feb 212020 Q4 Earnings call transcript