- Earnings call transcript Q3 2022

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Operator

Good morning. My name is Bailey, and I will be your conference operator today. At this time, I'd like to welcome everyone to Vertiv's Third Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise and please note, this call is being recorded. I would now like to turn the program over to your host for today's conference call, Lynne Maxeiner, Vice President of Investor Relations. ahead. go Please

Lynne Maxeiner

Good XXXX Bailey. welcome Vertiv's to Thank conference morning, call. quarter earnings third you, and

Joining are David Officer, Albertazzi. Rob Operating me Chief and Johnson; Cote; today Officer Chief Vertiv's Executive Financial Americas, Officer, President, Fallon; Chief Dave and Giordano Chairman, Executive

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

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

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

Dave Cote

third improvement February profile this that of performance we support in to of the Our presented year. quarter continues

as by a third quarter, that the we record was escalated helped price performance anticipated, financial in Our level of quarter. realized as

translate story, is all Vertiv, end are improved in and to given secular we for demand to a performance. for continue the market to know question environment. just becoming a the differently, data the things I was companies data especially win strong as seeing doing is true are demand an macroeconomic Demand We going grow. bigger financial Americas, that center

done, but continue in We execute very work to are there is far encouraging from signs. the Americas

is operational will the paying this anticipate Americas. visible focus our we results Our in off, in QX and be

sound a on We CEO performance replacement, Rob will will Johnson consistent and through quarter. and why succession next with will succeed earnings will you the operational feel I to Vertiv's in and last We in President Alberta years on this find past made we earlier he thank as is for competitive significant and month very drive building closely Vertiv's as the our duties he leadership our have planned our till Giordano foundation the CEO over announcement all in Gio year. position Rob happen, to COO brings experience David discussion. we plan. work in again, confident walk believe Similar right detail January for previous CEO named X performance. call, to this it the growth. as another sustained done with X has I, strong and step-up his America's this for addition an

the our the about world XXXX for in asked than quarter squarely represents attention focused XXXX. complicated right XXXX. year, our is XX% setup that of a I final place on the a earlier usual guidance have adjusted visibility are we provided this increase As now. guidance profit We've People is for over operating for know current given

be XXXX, management which perfect, it in should portends to team the a and for visibility year their and While shareholders. isn't for Vertiv ability good for very QX deliver and confident execute our what feels

Rob. the So I'll turn with to that, call over

Rob Johnson

third this net sales the provided number our quarter, on seeing we're orders, with earlier of with in volume FX, in it, XXXX orders Slide We X. certainly Starting messages up Dave. and than up we better the XX%, you, half even which month. ramp is Thank excluding organic the preliminary anticipated some key up were back XX%

within see of to range. strong was profit continue guidance customers. demand long-term We the market Adjusted signals from million $XXX our operating

chain and again are improvement cost million $XX seen has million. tailwind price XX circuit the breakers, throughout even hold, saw categories. this building areas improvement expectations certain the will other have that price the $XXX further into Our the last our fans, we XXXX. of into year. year-over-year realizing and split for strengthen our raised We this on we've quarter, year quarter million days, in improved areas hampering quarter. and This and sequentially full some actions tailwind fourth to taking electronic We like over $XXX been this, plan, pricing price delivered Supply

and been is levels paying is our the to high of for carry inventory this suppliers support right in expected make the and full happens. alternative prior we increasing we categories we although cash year qualifying sure quarter there our are is in and $XXX a for throughout quarter be us million set is working short a work us believe know as That should supply and our trending there off, taking sources so positive. on has record at quarter are is but all-time electronics sales we these and continue inventory flow down flow projection said, projections. fourth record We them to more we have to Orders high, great great have million thing, certain power programs being cash in remained additional quarter our a additional a remain than expect working and Free guidance, an this optimized, Our supply, from volume direction, is that still of mid-XXXX. of are cash And expected significant is Fourth plans we fourth volume to 'XX. Vertiv. but free to it capital least be up, $XXX between to carrying not which expected. benefit think, XXXX support

adjusted a very and XXXX. fourth of very view quarter support guidance fourth at continues quarter the affirming operating million to midpoint, $XXX we good believe are our and position of which well strong a very profit We for the

of market very associated is been exhibiting been the possibility uncertainty, including and more markets the slide in what a in for see of with recession, we A by view. This remains has is macro of still Americas our in changes to other Slide lot a market caution moved of in The given there's technology caution, what Enterprise with but bit we've been to few a regions. Communication has global a XG summarizes seeing but cycle. X. indicating Americas market number Enterprise investment consistent quarters, strong Turning yellow, to region. The positive.

We high All both invest, infrastructure. technology for relatively new off continued their all, those To we market note, to backdrop we been it's make telecom markets do. marks, demand. see as we strong have been well. year. and continue and EMEA While aggressive Asia still through several now, pricing the get and actions carriers what with quarter has the we healthy quarters strong in for our remain ability coming price and views way can in our as network each existing demonstrated

year's in the and about feel that We orders is to third orders to from last customer quarter, XX% prior XX% up Moving with X. up quarter, FX, where were the year. demand good excluding still compared Slide

product we the more prior a of have highlighted comparison declining in year. that We challenging orders QX. year-over-year anticipate to That a is

billion, line. last Fourth to end provides were line orders, third are great FX, which orders same be recall, you up orders. XX% $X.X in relatively the year. quarter with adjusted September backlog period of top quarter think posted another about of the XXXX flat as If we record-breaking expected in our support We at

to with pricing We XXXX. execute our each plan and continue on have delivered quarter pricing our framework in consistent

and be those the on have and realized of plan already million to ship, actions pricing includes $XXX XX% taken XX% fourth already Our quarter but for place. book in backlog

tight situation. use a semiconductors specialized the some is seeing semiconductor markets. clearly use. qualify has you've demonstrating get We is that price team from high-end those. Improving helping categories suppliers not The disruption, external improvement the different new to specifically has our coupled work We conditions, categories chain improving, improve. X some with market, in the of doing in our area are clearly but without on can the market we the Supply seen still nice we been extensive things where been in of

is least mid-'XX. at availability expect specialized in we for us through the categories, improving tightness continue While slightly this markets to the in

anticipate with $X million, year reads as did primary related Even weighted we're back, In QX. good XXXX. us. into our to $XX QX, our Some inflation to news it higher our inflation regional news fan that are estimate is There quarter commodity our before in energy we the zones. fully additional mainly some some and being going and relates markets more supplier. the costs. sales raise production heavily mix quarter shipping We is for to anticipated healthy. And by through to X seeing also remain we million in more $XX one, our in in at fourth factors: summary, the inflation related realized They This have million good to qualified typically two but EMEA, in seeing P&L, parts favorability with on and is lag freight markets. favorability and

networked, has processed strong made, That be Dave economic through there be grow data in centers and continue While is to to data term, be to recession an a data equipment to proof our said, is these will argument as cycles. is. has stored, be has where to

that getting continue our we I work suppliers, we're are proving are and seeing chain improve. We leaders, you're new are and the quarter, expect onboard we to that done seeing we benefit easing, Coupled each pressures, to for to and operationally it do. what mentioned with have performance. paid and financial the earlier, Supply in market we technology as and are

Now I'll us walk the turn David? to over to through financials. David the call

David Fallon

Rob. Thanks, Perfect.

slide to Page This our results. quarter Turning X. summarizes financial third

million, Industrial of the last year's were increased million and from quarter from acquisition E&I XX% partially from The UPS third at Our X% pricing. business net XX% $XXX of sale end volume by $XX sales including XX% from contributed and the last organically, the offset up year.

Compared foreign X/X impacted pound. the profit approximately the to currency exchange with to an Foreign incremental past negatively EMEA headwind August. weakening the summarized we by $XX the was regions we currencies buy both million, adjusted about within functional. both range, operating and euro guidance net with $X headwind in primarily we this other tailwind at equation third page. Of than in promised, in due end, to the of drivers translation assumed at profit This the and flipped British negative we $XX foreign of of but million generated translation and quarter. impacts of that sell includes due note, million where sales million operating as from transactional what the to additional million a to of compared prior the $XX price/cost positive, primary bottom $XXX this generating lower Adjusted year, our exchange the an within

for tax primarily be tailwind $X.XX by quarter, million pursuant the second guidance, sequentially expecting expense, as to to strengthen due to Adjusted year-over-year our $X.XX in continue timing was $XX due the approximately quarter would quarter continue than quarterly We last record with X.X% operating margin which fourth and in of the expense, X.X% to August line to E&I we was expect higher fourth a primarily income quarter, in the the in as offset pricing about acquisition. interest expansion year, debt higher this which high. actions, in from third margin deliver our the commitments. to diluted on quarter we EPS XX% partially Adjusted the to improved

flow cash second improving free significantly in million. $XX positive, the be from of This high quarter. in to quarter. a We sequentially moderated quarter was the use quarter record anticipate Third the third cash free a in an fourth inventory flow fact, use Supply reduction still call, lower of balances happen. which spoke processes, should our believe we XXXX both going in our are internal this on SIOP inventory to as We about forward. and contribute will last opportunity chains

equally of margin adjusted operating XX%, regions and higher slide Monterrey of $XXX growth. third All saw region double-digit our XX.X% between positively segment organically price. Americas were summarizes new in investment turning our quarter Page million Next, improved organic profit results. X. costs, and to but launch offset sales balanced including fixed grew strong from price/cost, the facility. volume Americas The to of by approximately impacted This support

in-year from XX% We from are quarter XX% XXX in the margin significant XXX increased an primarily in in his price traction. basis work to basis cost quarter, introduced the to in and encouraged an volume, certainly Americas margins volume improvements year's Giordano and increased to XX% have XX% do, third opportunity, quarter, first APAC team XX% leverage. from the with still but Still gaining from significant Operating expected the favorable the Organic of improvement operational due fourth points, increase points. are last sales price.

organically, sales this from volume. X/X EMEA on that Finally, slide, from and were price X/X up XX% of

a the most other in our XX% year-over-year Inflation almost As that up in to EMEA related as third the energy these offset fully pervasive third least reminder, regions, not had challenging in quarter. were and headwinds has at been did sales EMEA region especially more price to the last comparison quarter. organic in compared realization year's inflationary recently,

experienced price QX. in small a headwind As a cost result, EMEA

in be operating quarter, to our pricing the well. evaluate cost and this continue We for fairly do do in a price as in response, and we we anticipate anticipate fourth to quarter margin fourth inflation the step-up but positive significant EMEA

X. fourth this million highs million of month. All including reaffirming $XXX provided significant this and between financial projected to Turning earlier by which and We updated quarterly million. would quarter be adjusted be cash operating metrics $XXX $XXX on flow, our is to profit million margins, guidance, Slide to record summarize $XXX slide free

communicated execute, we incremental This significant provide it we which Despite strong opportunity the months, fourth compared important a doability we fourth from in of to this this last slide be cover quarter, this consistently the and have for of a investors improvement, year's captures pricing. solid going forward, but XX the slides. much notably since of year-over-year of fourth year, have quarter, incremental quarter, of provides will to million Of we work still is to more progress course, $XXX understand to the in probably a for the and the couple lot strong as made XXXX. year's bridge beginning should quarter capture third the foundation a very good detail to there done have is

guidance, $XXX X. Page to adjusted month. $XXX reconfirming our profit earlier provided revised summarizes operating Turning slide This of year to this full million financial million

the As lower earlier, by flow million for million year-end cash expected approximately are Rob million year sales with those fourth of of inventory, changed inventory volumes targets and not we at we that $XXX we projected quarter mentioned we previously from by significant more midpoint $XX free anticipate had a messages collections. $XX year, with lower reduction record projected EBITDA and year-end, in strong beginning next from the key We his as from full but simply reassessed reducing million press at will volumes, enter to continued target. $XX have expected cash the expectations actions guidance hit a and

As we in with SIOP, the notably progress good have made Americas. mentioned,

processes XXXX. inventory benefits at seen an we have anticipate from in reduction still We improved some point and

the XXXX. is payments to fourth of Nevertheless, collection driving delay temporal be as XXXX. expected driver the reduced in see high, cash cash free benefits a margin that This translate Another expect significant will is high. free for flow cash. record actions focus an from flow value of year related we Certainly delay free cash we is into into be enhancements, convert full estimate was including and flow $XXX million these that us quarterly advanced large will understanding previous creation more not to in orders. to for absolute cash unless quarter improvement

as favorable fourth the story outside quarter a price. profit significant last back drivers fourth be fourth shared provide of well. of is additional The quarter exchange. of the quarter quarter in from the more expecting of is similar provide backlog. improving in volume fourth are volatile operating We already the with FX, of is is Next, APAC and main with discussed the being by quarter slide should fourth to plan pricing a quarter increase Monterrey in The The increase with in difference time, is our the transparency to EMEA in foreign our straightforward achieve million third a expected supply to quarter, August volume facility, lift This very of normal pronounced moving $XX the chain including quarter, but relatively launch and we last of driven addition seasonality. volume and the macro most dynamics lift XX. to nice an drivers Americas format Page some to Pricing XX% projections. fourth our

we this have slide Now strong of have we which to course, still to hope achieve execute these fourth clear sight results, certainly line performance, we of but this demonstrates. quarter to

XX. Slide to turning Next,

and in externally, accountable our for up slide guidance with February February often visually have how in being bars, said is results discussed that profile. internally depicted sales back blue adjusted the with captures earnings presented ourselves to very This and and we what the profile holding February. We foreign line exchange. we quarterly the

quarter what the depicted fourth Our black results, line. with the actual both expect for we and are

see, we you consistent profiles our for with both the can guidance the our February expected said very at when what with adjusted are As exchange, foreign adjusted consistent operating trajectory with sales of beginning profit, quarter profitability fourth and very year. much

So with Cote. Dave that over now turn I to it said, back Dave?

Dave Cote

improved. and been tripling of profit remarks, for Gio over and background industry stages still high-performing high-performing about hit a right culture sequentially a XX together is into in Americas, record Vertiv him of company. drove to been broad turn operational The knows things bit. increasing. operational creating a the region is represent turnaround the in person working and a ending I'd with the And about financial XX% 'XX. which focus and terrific while and early over period EMEA, has Americas, X-year the improvements serving in in XX% process both really to of a given on the of and the in background capacities adjusted greatly operating a has within He uniquely a shaping a time. margin to He performance in this sales. run a leading can't variety positioned expand on heart lot the I the I story apparent at lead to years, that an operational an veteran. significant track said His has like operator remotely, that is SIOP the organization. Europe unmute been remember few years seeing at He X.X and And of industry to that Vertiv a He's business. a about button. Vertiv right to we're opening but my Gio where and success the he's company

Gio ask incoming work I early So key that the CEO. the initiatives thoughts to on provide you provide of to all a a on better our about his XXXX talk an introduction -- bit to of some introduction underway, Americas, and

So, Gio?

Giordano Albertazzi

actually. I'd Thank Thanks have That everyone of my is things a introduction. it think we considerable is my price, to say passion. accountability, And in It operational transition quite be natural leadership sense respects. appreciate I'd I quite done lot. been kind strengthening Since is and to many value. excellence, plan heart. I'm March, processes, operator can the Americas. communication focused the at some getting add and in the on on the we've I systems an strong urgency. like the full a fostering you, assessment, working share certainly a assure lot, transformation we correct, I ensuring similar want underway, expect I Dave. well it's to

and SIOP experiencing. We're speed. we improved Still the process, the the by I'm towards focus are a on driving early the simplified We Americas but encouraged the high-performance to have culture. regions accountability improvements in sequential have stages, organization

to Let's XX. turn Slide

consistent on, these clear As levers working cash about achieve We working growth. what and profitable areas we price the to capital XXXX, free and focus are margin improvements improvement, flow been objectives. know generation, I think and have cost, with

will have and teams meeting to accountable We that. operational focused

keen some thoughts will of early do rigor. please. urgency XX, Slide We sense so our this with slide on shows and a XXXX. And of

have more than visually, headwinds. tailwinds can you As see, should you

line to how We support top order know XXXX. is price. backlog demand for Our End healthy and get market strong.

be expect improved tight, as to will Additionally, reach. as of fixed will Rob inflationary constant. on there working profitability, not very but capital be also be impact year a objectives trade for say, suppliers. Cash EMEA built right will There remains potential some our will costs example, have now, it we to steps in from are impact us, relates restrict certain an in sorry. has held We much time, from discussion been on it because within well that markets. helped example. uncertainties, also There moderation believe sales, of some in the significant commodity pressure energy electronics the be FX anticipation. don't volatile. very external and good but only should our and We these remain by These taking cost can recession. big view unlocking That But opportunities. end I and hiring overall participate headwinds, a as we navigate impact we categories same we at in here will are have costs, like this --

We are market leaders. and technology

We have global scale.

customers We tremendous the with key our very in and relevant we base, installed are markets. have

company I'm future. sharp love on may lot and I things. something you my indeed. my up on be and business the XXXX execution truly can And of few Vertiv's have profoundly. very for Hey, and mason takes passion as love last believe a Vertiv's over, on And passion, overelaborate you tend heritage very shareholders. year this to excited by I Vertiv in minutes, a a We excellence. means the this indeed, good and a operational focus already picked I have can sometimes We have tell Italian

Vertiv was for So with prove all the an Q&A, item Rob and the X that, Work to before opportunity done But myself. I to he want please for in last wholeheartedly upcoming has me. thank bear and certainly $X years growth took ago. do stand-alone what a lifting into start-up to billion became a heavy Vertiv, a as it X of a a almost we Rob It company. lot transformed years. company

Rob's market thanks our to of are space. customers, relevant across This and partner are leadership. the of We entire choice we the happened very

grateful. are We

you, the the will over call With open So who turn will that, Thank you big very Rob. thank operator, to thank line questions. the now much. Big we for you.

Operator

from first Andy of [Operator question comes the Citigroup. instructions] line The today Kaplowitz from

Andy Kaplowitz

Maybe in Congratulations, been is could you the this you've Gio. us low-hanging color for little that early give into been consume to to the your in Americas, Americas the X tenure think organization able longer And to couple Americas maybe the difficult margin it's Rob. to luck within I more take and/or Gio. a be fruit boost you, change help has in you last going you, change expectations? is the do what to but know what could to more Good quarters. over of versus your original

Giordano Albertazzi

as talk also and on of that governance The broader make X more is probably through through vocal delivering factory the a the a connects done accountability that customer the our region I a happens making has opening a the towards components, reinforcing example, doing ability the operationally. to the point add Andy. most we planning elements here, capacity, have very that did see been to accountability which corporates being that the are that suppliers, done is improvement that to dividends, contributed to I business. consistent There's entire making going, then and objectives. chain about gone not I elaborate and super future, return the has still a really visible ability on would truly enhancement effort believe. can strong this elements we we've But in there started we cultural the way but focus it's sure lot high-performance we've focus, bullet the operations sales is, about the the dramatically. to I things an Certainly, have X by would Dave transformation job that strong sure processes. part the of to said, we crucial office is because capacity I just deliver our reinforced X a inventory Americas, that entire glue culture, on -- to the of And doing Monterrey we think everyone on as And A mention a focused like thing which start in I stays SIOP, always is to running across the muscle And to we times the very of the equation, that of lot and sorry, pricing effort that we about of results. have on of a will end-to-end One critical deliver here. on think no the reasons is supply multisource been orchestration. all need kind in the what complicated. all telling that other

Andy Kaplowitz

you of And customers, what CapEx yellows the end And the forward? back, Gio. are the markets? elaborate more you stability Communications obviously you then helpful, and moving There guys customers particularly stepping Very from Americas? maybe the on of you just terms can confidence green that any seeing? deferrals cloud core gives give Enterprise in Americas us a more markets are And in you stay orders colocation will the Enterprise could environment your color you into market within now and couple in Have highlighted. seen in

Giordano Albertazzi

cancellation that normal order norm, within say is we Yes. within -- cycle. business what would the or the I absolutely

Rob doing process, is demand to handover players, and robust. part hyperscale that and there continues I the So there, that demand we from multiple also that continue just not are and be also having I what to with all see colo have the have -- see the What is de order relevant evidence, we from and of as conversations intake, minimis. we're and our but large

we signal more just Americas forward. that going of macroeconomic of prudent. an probably the On But of little the It's I more market side, the signal for with about bit a Enterprise a the evidence weakening be was want quite positive but of to bit not the kind in just some it's remain strength caution, environment the signal. might

Andy Kaplowitz

what So Gio seeing, not for Is you're so Enterprise, but moving caution much forward. just fair? prudent it's that

Giordano Albertazzi

That's fair. That's absolutely fair. fair, Andy. That's

Operator

next comes JPMorgan. the today Steve line Tusa from question of The from

Steve Tusa

what stand? at next of color you Congratulations. of perspective, Just backlog reflects is bit and little -- price cost-wise? us commodities price a line where today Can the bridge give much math. prevailing as you what's of -- how looking year kind and that that of What to from snapping in just have kind today

David Fallon

Yes. through that at pricing price Good pricing David, used you look included question, the consistently the through they'll don't at was the end with that that backlog do my progression would so Giordano. -- say had was to I said Steve. in think This we in of because 'XX. But burn David. we Gary they is is backlog to voice. XXXX, to of or when I this and confuse have the

So I think backlog of the In ramp-up in be in sales XX% from the result, only will a you XX% the of fourth sales pricing in first was our our year. can And increase backlog see significant the during XXXX. quarter, as 'XX. in quarter year, at of end this the of of

at pricing think should certainly, $XX at. arguably stability pricing it we in we to as first pricing, the I can as million relates quarter I into in QX. had P&L, with we QX the where we'll quarter it really can that we to of and million level but we've year-over-year a have translates in So want of reached $XXX don't probably profitability do will have that been pricing the fourth level be demonstrate what say

if $XXX than assumes million. with million look pricing that, our $XXX continue we that levels impact QX efforts. because XXXX, exiting at better you to we into do just from it's same pricing would this and We XXXX keep to expect the for So the about wraparound pricing,

to price there will next headwind from for think probably cost certainly would too quantify the be perspective, As just But gross it to but any relates a from expect early we it's inflation year, certainly soon. year, too for will to We we positive what next be inflation. about inflation. be probably think year-over-year impact

Steve Tusa

So then that's of we there. kind I way guess no if that's of the the inflation, -- assume part like

you any a one-timers I mean, are of year? to -- more assuming you just growth? more this there think Like bit volume you gap items? on what there's color are like bridge. bridge maybe that reverse other bit a I the of have or Or a out are

David Fallon

lot number detail kind a in million it to filling $XXX whole And more details, from robust But and it's I 'XX bridge we'll -- too of to there provide out of August, reconfirm a we Yes. in million know to probably February. to 'XX the Probably as put XXXX. too early we to in that. at that soon. add $XXX relates

Operator

of question today comes Research line the next from The Vertical from Jeff Sprague Partners.

Jeff Sprague

then Maybe downs Platinum back to ownership of and kind history some this Emerson obviously, ups seen long and Gio, a through and Gio. with you've turmoil the business. lot the of in and like, at

an going just to you stepping back, on business kind big of have think of you to margin with XX% a do kind And forecast my want of forward? holistically longer-range going being to your I this a but What level forward? answered basis these Andy, partially of annualized picture. response a drive question comfort you do upwards

Giordano Albertazzi

company evolve because Well, I've seen clearly, question. and I we in -- have have company this time, was mentioning, time. areas -- shared, really a let Again, more you The big I all still to in and potential confidence time effective the a operational way. the as over operate what expansion. that potential continued focus say, thank the execution, I me long And around as -- big -- a to would margin a say has for

culture. working have parts high work performance very, in we're as evolution organization. very is towards cultural I've of many worked to our do Again, the saying and capital central We the on

roles. So not will, under you only in different brand, if but a also multiple

execution, advantages, say. me no on focus it's magic to have to focusing and enhancement but again, that that I that cash to started matter profitability. to enabling again, of it's have a we with lot an wands, believe the that let drive on cultural So But silver I on drive lead pretty drive. the And no operational bullet, things organization -- ability is a

Jeff Sprague

up if would QX, question if where feel don't up, XXX% it And availability, be. of have to on deliver to David likely execution backlog to bit how executing guide just versus I opinion? so then able hands you to more need us your But on a be still fully actually short of up kind appropriately supply wrap you here come know But in as real give Monterrey -- said, marks it you maybe were mark about in the little being you guide. perspective can you much as your on question the in about is opposed where ramp Fallon still that's

David Fallon

only region. a David. of Yes, macro it's Jeff, within still perspective, this is but not and a And there's ton from variables, variables

I think demand what not we have is quarters three is or said consistently The backlog a there. over the last two our is that issue. issue

lot of to there is still week day fan the day, up, on we that And components have to things of the electronic has lot a there. have for out though done a talked a a cleared qualifying volatility lot we components, supply risk is week. of notably to based lot suppliers. it's related about We including And supply. Probably these proactively, the And suppliers, with new but even orders. biggest

ago. demand visibility I relates It's we we So XX days I still as and issue say think necessarily as it production better have But fairly about shipment. risk than XX, talked had a there's to would we consistently. not

Giordano Albertazzi

happy specifically are question about the the your on Monterrey, way unfolding. plan we And is

have our team and saying, as it's delivering said components, just team are great around a by But as again, exactly Dave on challenges We was plan. the him. the

Operator

today the next Melius Davis from from Research. The of line comes Scott question

Scott Davis

bill about goods? inherently is suppliers some specking of about talk that material adding like of I guys mean it that you How lose out you when new you suppose, sounds I When new scale, suppliers, your kind with inflationary. think and supplier.

Giordano Albertazzi

same is you I the would When say bargaining counterargument power that supplier, there you time. add that. at add to a

is more than offset. pretty it much see So the we that things X are

Scott Davis

is you Are material to we stickiness good, follow-on just of 'XX? et cetera, that get price and situations Okay. mandated when some the there down, back of increases. give are The where question positive. costs into if price on raw That's go surprising

David Fallon

this Scott, Yes, is yes. David. cases, In some

So we've those. escalation included And but bands there in our master sales clauses agreements. included are -- cost material in of some

or will heading have And risk penny of for significant some to extent, that So dollar XXXX. band. that penny, don't into there but dollar, outside we either they downwards it's not upwards to expand consider for be some a impact, pricing

Operator

comes The from Evercore. next line question the Amit from of Daryanani today

Amit Daryanani

in let's like Is flow extra to have? optimization? looks two free inventory be about do normalization capital much or frame the flow. sort higher think does more that 'XX time And think you into cash you carrying for start elongated So and much way through inventory right understand much working just well. have with a would you're expect 'XX? how how cash free to do capital as to on of you free working cash flow now? I how And all that excess of convert Maybe

David Fallon

start I'll Yes. it.

So some maybe with facts. we'd start

So our inventory was level $XXX at XXXX the million. end about of

We year least at end at of expect, $XXX will million. on our the this be level basis, a around GAAP inventory

foreign inventory, that's $XXX in some exchange that million benefit. So and increase a includes

has as clearly, go-forward in very believe, at increased very clearly need years. you say, inventory business, the a run excess X the So And that past of a basis. to of what each on level we is, we

not for Now industrial higher there but Certainly, issues, volume us, when some chain contributory the than has many factors. are exited XXXX. supply And many companies there. many, significantly only out was is we created it

at been have to we this because point into next we and of XXXX, doing XXXX. lower said, to taken in on do We there but that during is, we've significant improvements, point of supply hard bit point think level But with things it's the we because with an some year. the would at a the reduction thought deliver be premature heading and on little certainly that something volumes based working benefit that this be inventory have chain, an anticipate prudent not some believe overly year, aggressive. we SIOP that to So we're inventory year it it's exit in the down could probably what but quantify at probably we

Amit Daryanani

at I just fair you and of sort that is happening the freight If at world about there's to be in freight is the And want 'XX? right? how explicitly? cost inflation has up. to given trend least look that numbers, follow $XXX if nice headwind, much think you should that could material start If I then December I a guided midpoint us freight And that 'XX material the in million of for it think the it. of versus and Got lower about kind assume to would

David Fallon

Yes.

for our freight think full and number's the inflation I year, So million. $XXX material

spot. favorable of to. what we the opposed I of think freight do some number. XX% you're material I benefits material that's And XX% and And and is on referring rates. as freight. premium the About would freight of are in spot both buys include is inflation the is we we, that XX% contract and what to too, seeing freight say of

would clauses at But should in we which time. favorably adjustment benefit the So those we immediately. of the we over contracts, won't say have XXXX. also us And beginning see certainly benefit

Operator

the line next question today of the comes from Nicole from DeBlase Bank. Deutsche

Nicole DeBlase

a like to ask since a question just lot modeling could stuff. I of I'd -- higher-level you've through the just been

Dave went So margin -- -- Americas was I XQ. -- Pac or was outlook I it think for Rob through think it the expecting Asia organic the how on to what be as see are But through helpful that about went stacks would up how improvement the growth EMEA, and well. guys region, And you like much color in any fourth by also quarter? sorry,

David Fallon

Yes.

in region. think expectations that by in year I include the by adjusted somebody We quarter operating for it. last did full ask out not quarter, spelled would knew we margin about and So presentation, this we

we the So have ready. numbers Yes.

basis QX. That's mid-XXs. be So Americas, expectation price positive leverage, we're to EMEA XXX XX%. targeting we and in benefit and lift in operating this being from point the adjusted about also volume based in the the QX profit EMEA, of cost of on about anticipate is

it, XX%, XX%. So call

QX. and the from we saw anticipate being from significant of we previously that relatively flat we in additional QX year. versus we what would So of very a what inflation we APAC, increase a but in saw increase because QX QX talked about, disclosed what significant And from down still, had in last

Nicole DeBlase

anything the as by just big divergence? there's X well, organic on a And regions growth Okay. if like

David Fallon

Yes.

and price. in and both I XX% regions. be year-over-year Americas, volume organic highest a Vertiv would divergence certainly is you for about saying mid-XXs. realize XX% APAC some in that be step increase to would take could think big by EMEA probably I QX to I growth And say, in the So number. XX%. got driven up say you're would is and total the XX%. probably a There back XX%. is That's across And the

Nicole DeBlase

out you how at orders Okay. far order into guys XXXX? That's filling helpful. times for accepting long lead this you you now? And the Just Are Are up curious booking are just backlog, on like XXXX? a point. on way

Giordano Albertazzi

Yes. on Nicole, -- are of the orders XXXX The Gio. on now our first first majority this particular, and is half the of in XXXX.

is our a XXXX backlog some a half second have -- minor beyond the minor today. of XXXX. -- just just And part We it's

Operator

The Goldman today Delaney from comes from Mark the question Sachs. of next line

Mark Delaney

all and new help. Best on I congrats wishes responsibilities. Gio, the your appreciate Rob,

recession question there on at EBIT outlook. in mild least the you you're XXXX for of If level world, is the guiding to moderate of that a First is is kind parts do think achievable?

David Fallon

what would regardless goal of top be profitability to to line. happened Our maintain the

on impact building we be Our No our don't others. and certainly of backlog for industry based the next different size of correlated is And is data certainly into one's year. than think centers recession-proof, but perfectly data next certainly year. the on heading recession to going use

But recession. million the adjusted take cost line there line. top headwinds maintain $XXX operating to with from necessary to through margins, the of a that variable fixed it. contribution And would feel regardless recession, offset profit So impact are our good even from basis million goal our the we any steps be if outlook we'll about a to roll $XXX pretty that in top

Mark Delaney

contributor contribution is are If this sort be the and over to guys tracking time, from Or latest E&I around longer-term E&I this to is that like correctly, EPS type as originally, and with, compared transaction? some question same when the still at price cost question on full EPS we something supply chain for acquisition? I it fundamentally did the same me broader the My from changed assumption for you The dealing these to follow-up of of up the of of should of slides, has the $X.XX That's time E&I. memory benefits thinking ended you something issues $X.XX serves year. year E&I. that the believe was acquisition.

David Fallon

the strategic to if and based synergies. say the Xx, I And from would Thanks, contributions E&I anticipated. time would probably had of not on are revenue revenue initially what I than equation And about synergies of for part a Mark. acquisition. we perspective, Vertiv today was Yes. the we're our more, expectation were positive at there the value we more say excited

that's unfortunately, in showing Now the not numbers up this year.

with a So bad crudely this the from probably profitability lot year, Vertiv. of great acquisition. my is of perspective what a E&I, that rather A depiction have identical seeing is issues are year seen E&I we with

you think quarter-over-quarter similar. the Inflation XX%, quarter, So you the backlog in And getting at we low what maybe we a it fourth should the slow margin operating it little exit the closer that the teens profit hit XX%. year I low margin year, if the bit increases price. profile if to at just teens year, and price XX%. get started end in this of pretty that's were from look the at And at in story and with is last to QX, really good-sized look a

if asked than with over would excited you very you And we and the time So are absolutely. it profound I more the do were robust, to of do get say would the today had again, still answer acquisition, deal. a at is sometimes we we the all

Giordano Albertazzi

XXX%. XXX% this Yes, year,

ton sense, I it of reason think it's of strategically a now. made makes sense and all the more ton sense

the very very, happy we're decision So made back about than.

Operator

of question the next from line from today Lance The Vitanza Cowen. comes

Lance Vitanza

the fan is supplier, just regarding perspective. like really no new to that's confirm sounds longer it first The

into assembling Or have product new begin you in Is that later XXXX? in products. are And fans you're yet? inside shipped perhaps early volume, the right? that does the with receiving You fans them quarter or in

Giordano Albertazzi

have Gio. this We is --

improving started happened. our taken yes, on supply But has and numbers. the Not side deliver the It We happening. happened. fan have ability is equation other it only that absolutely actions it -- has and we've of is on the the answer greatly are to

Lance Vitanza

is, that out good course, Okay. you some news. of called definitely, which easing, supply chain And then

remain other XXXX. hand, still On the the of the through half first tight semiconductors

what you is that in and tightness forth? margins that do And been hearing is, it question too. then on my for semiconductors? XXXX I putting So think number AOP semiconductors on AOP if so if thoughts sort Or the of putting appreciate you have you the revenue? do could there's that see any the there, -- in pressure in your would pressure that see sense for tightness just weren't

Giordano Albertazzi

Well, let me answer operationally here.

that we as been we supply with And everything, expect dealing when to comes continue. semiconductor. tight of that I've it So market ITBT, have type a to said,

suppliers. we terms as well -- will been taking we So have precautionary new in qualifying measures of and

know, add So David, challenges want in the you our don't we plans. anything. And factor I if to

David Fallon

fourth be to you talking greater I And It impact millions, the of the you No. address very some year in and the the the the We we right? mean, issue. taken of grow. can't see proactive of the see think, quantify benefit tough see not the to And certainly our really situation in to what So actions than continues is. QX. and would QX in quarter. of we've we tens X. during But time backlog, fix that back it we're size go

suffice millions of There's of of multivariable in That's it a to lot hundreds revenue the look very has a been kind equation, lost if year. a but it it's in So the significant. ballpark. at say, -- earlier that's you

Operator

from Our of final line question Bank of today Obin comes Andrew from the America.

Andrew Obin

meeting Gio, you. great Congratulations and

headlines a activist. were there question, about Just an

of what you've or just to Any conversations could sort the had about activist. you us? update kind us color can to If with you provide talk of

David Fallon

Andrew. question, Yes. took It last the

so. And as say would this considerable, or industry new priorities. over So value we the the things thesis. third of been doesn't on And our to we've shareholder, do, a company that welcome a it's But shareholder, the is high-performance operating and Their operational as year a unlock folks we investment a certainly, that strategy necessarily change consistent with elaborate a to to very last our earnings. a don't here thesis, communicated continued want focus excited their great shareholder. management we're developing they the considerable I certainly much. Gio with mentioned all our investment A improvements too actually quarter like in and at on some things large call, or with culture. good The question. There's very very who saying

Our and we aligned. interests other perform And interests continue certainly like any shareholder. be are going to aligned, as with execute forward, our just will

Andrew Obin

question. just a And answer. Terrific follow-up

you about going think keeping the forward, Just cost R&D investment do commitment keeping to constant? increasing and trade-off how your between fixed

Giordano Albertazzi

we And during Well, the And of that in, the an we X every are addressing clearly no least resource. as of years. constant is out. lot innovation are course that's scarce a of trade-off we at kept exception. of allocation running we've business saying day been -- value day a last exercise And see and

really allocation back what efficiency. operational I of at of source us a matter efficiency beginning also can is a at for it is means the for as opportunity of innovation. funding the execution, was priorities of around innovation, lot to assured, towards you And execution efficiency saying our loosely. So go But operational a for look

Operator

conference back to like Johnson would Rob I question-and-answer remarks. turn our to the session. for This over closing concludes any

Rob Johnson

much, time you Thank very today. your thank and everyone, you, for

to know brand. forward. through a work opportunity have The you've customers. going work Equity our I thank to to year, the you this we're as our supporting a the creating I start for earnings take sticking like my few this As loyal cost 'XX us call, you're and thank with for great Platinum that in to I'd and to company. the last but Vertiv, over got CEO turnaround pain employees acknowledge and to working the of great this and thank last all of me look staying and we've is certainly people. through for I And and to. all done to believing us do forward to with going We've want want the opportunity

to to to and support mentoring the the course, Giordano confident forward. want for now all great employees, So of It's and an I the days the ahead, as a going for shareowners I'm the long-term with thank you're and its special and with thanks their And of serving in is want more than I the Vertiv ever Dave now in forward. Vertiv the hands of CEO, stakeholders value to are coaching. the Directors Cote future we thank Board brightest and and honor for create ability go been support as

So the serve again, you opportunity for thank to you.

Operator

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

You disconnect. now may

Vertiv (VRT) 26 Oct 222022 Q3 Earnings call transcript