Vertiv Q2 2026 Earnings Call Transcript

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Provided by Quartr
July 29, 2026

Key Takeaways

  • Positive Sentiment: Vertiv reported strong second-quarter results, with sales up 24% year over year to $3.274 billion, adjusted operating margin expanding 410 basis points to 22.6%, adjusted EPS rising 60% to $1.52, and free cash flow reaching $925 million.
  • Positive Sentiment: Management raised its full-year 2026 outlook across key metrics, including sales to approximately $14 billion, adjusted EPS to $6.70, adjusted operating profit to $3.325 billion, and adjusted free cash flow to $2.5 billion.
  • Positive Sentiment: Demand remains broad and strong across regions and customer types, with an accelerating pipeline, robust backlog, favorable pricing, and expectations for significant second-half growth; Q3 sales are projected to increase 40% year over year.
  • Neutral Sentiment: Vertiv said minor revenue timing shifts resulted from the increasing complexity of large, multi-phase projects and internal and external supply-chain interdependencies. The company expects the delayed revenue to be recognized in the second half but acknowledged an ongoing learning curve as project complexity rises.
  • Positive Sentiment: The company is investing in capacity and next-generation technologies, including 800-volt DC power architectures, liquid cooling, and acquisitions spanning heat rejection and direct-to-chip cooling; management expects these offerings to increase Vertiv’s content opportunity per megawatt over time.
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Earnings Conference Call
Vertiv Q2 2026
00:00 / 00:00

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Operator

Morning. My name is Lucas Penner, and I will be your conference operator today. At this time, I would like to welcome everyone to Vertiv's second quarter 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. Please note that 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, Investor Relations.

Lynne Maxeiner
Lynne Maxeiner
VP of Investor Relations at Vertiv

Great. Thank you, Lucas. Good morning, and welcome to Vertiv's second quarter 2026 earnings conference call. Joining me today are Vertiv's Executive Chairman, Dave Cote, Chief Executive Officer, Gio Albertazzi, and Chief Financial Officer, Craig Chamberlin. We have one hour for the call today. During the Q&A portion of the call, please be mindful of others in the queue and limit yourself to one question, and if you have a follow-up question, please rejoin the queue. Before we begin, I'd like to point out that during the course of this call, we will make forward-looking statements regarding future events, including the future financial and operating performance of Vertiv. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

Lynne Maxeiner
Lynne Maxeiner
VP of Investor Relations at Vertiv

We refer you to the cautionary language included in today's earnings release, and you can learn more about these risks in our annual and quarterly reports and other filings made with the SEC. Any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events. During this call, we will also present both GAAP and non-GAAP financial measures. Our GAAP results and GAAP to non-GAAP reconciliations can be found in our earnings press release and in the investor slide deck found on our website at investors.vertiv.com. With that, I'll turn the call over to Executive Chairman, Dave Cote.

Dave Cote
Dave Cote
Executive Chairman at Vertiv

I am incredibly pleased by our second quarter performance and outlook for the rest of the year and beyond. We have a great position in a good industry and continue to execute very well. Gio and his team stay at the forefront of technology with organic investments and acquisitions. The industry outlook is incredibly good because the digital age has decades to go. Our outlook is incredibly good, and deservedly so, as we provide the picks and shovels for the digital age. The seed planting Gio and his team have been doing continues to pay off and will do so even more in the future as the benefits from our technology investments unfold over time. And with all that goodness, we still have opportunity to further improve. As Gio likes to say, we are still far from our full potential. The future is so bright we have to wear shades.

Dave Cote
Dave Cote
Executive Chairman at Vertiv

I love it. With that, I now turn it over to Gio.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Well, thank you, Dave, and welcome everyone. Let us go to slide three. A strong quarter, EPS, margin, profit, and cash convincingly strong, continuing on a trajectory of strong sales growth, even with some timing elements. Pleased with what we see in July and full confidence in H2 execution and backlog. As a result, we have raised our full-year outlook. Net sales were up 24% versus Q2 2025, driven by continued strength in the Americas, which grew 29%, and APAC also up 29%. Importantly, EMEA returned to positive net sales growth with a 2% year-on-year increase. On an organic basis, net sales grew 18%, with additional 5% from acquisitions and 1% from favorable currency. Adjusted operating margin came in at 22.6%, exceeding our guidance and growing 410 basis points year-on-year. The strong margin performance translated into adjusted operating profit of $738 million, up 51% from a year ago.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Adjusted diluted EPS were $1.52, or 60% up from second quarter 2025, driven primarily by high volume and continued operational productivity. Adjusted free cash flow came in at $925 million, a very strong 234% year-on-year growth, driven by higher operating profit and working capital efficiency. Free cash flow conversion exceeded 150% in the quarter. We are raising our full-year guidance across all key metrics. Net sales raised to $14 billion, a $250 million increase from previous guidance, up 37% year-on-year. Adjusted diluted EPS now at $6.70, a 60% increase from 2025. AOP now expected almost 60% up year-on-year and adjusted free cash flow expected at $2.5 billion. And we achieved a net cash position at the end of Q2. Let's now move to slide four, and let's start with the market environment on the left.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Our global pipeline momentum remains very strong, and we expect another year of robust orders growth. Demand signals are clear and broad-based. Regionally, let's start with the Americas, where market continues to be strong. Pipeline is actually accelerating, corroborating the long-term growth trajectory of our business. EMEA's momentum is further strengthening. This reinforces our confidence in the acceleration for the second half of the year. APAC showed broad-based strength, pipeline expansion, and favorable market conditions. This supports continued growth across the region. Pricing continues to be favorable. We expect positive price cost in 2026, including the current impact of tariffs and countermeasures. Now, to the right side of this slide. Q2 revenue showed strong growth year-on-year, quarter-to-quarter. We are executing on further acceleration in Q3 and Q4 on strong backlog. Additional capacity is online globally.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Examples are Johor in Malaysia, quite large plants expansions in the Americas, chiller capacity increases in EMEA, and in more. During Investor Day, you saw that this expansion is rapid and broad-based, at speed, but always in a very disciplined fashion. We are delivering data center infrastructure solution at an increasing scale and level of complexity. That's exactly where we want to be. We experienced some minor timing shifts in Q2 revenue, primarily driven by multi-phase project execution and temporary supply chain dynamics, but the demand is there, and the trajectory is strong. Keep in mind there are increasingly large projects underway. Think SmartRun and think even bigger with OneCore. These come with significant interdependencies, a lot of coordination, a lot of rapid learning. I like the pace of our progress, and we get stronger every day.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

On capital expenditures, we now expect to be at the high end of our range, 4% of 2026 sales, as we further expand the global capabilities and capacity going into 2027. We continue to invest for the long term in a disciplined manner in future power architecture, advanced thermal systems, services, and converged infrastructure. These are the building blocks that enable the next-generation AI data centers and factories, and we intend to continue to lead the industry. Let's now go to slide five. I am sure many of you will recall our CTO, Scott Armul's power architecture presentation at our Investor Day in May. I want to reiterate and build on what we shared there. Multiple power architectures will coexist in the future. Vertiv supports each one of them through a complete orchestrated powertrain. On the left side of the slide, you see the different architectures.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Our AC foundation with, as an example, Vertiv Trinergy and EnergyCore battery storage system and the rest of the Vertiv powertrain, of course. This architecture is broadly deployed, growing, and will continue to be used by many categories of customers. The next architecture, serving even higher density, has a medium voltage AC source that feeds low voltage AC to deliver 800-V DC at rack and pod level. Here, you see new Vertiv technologies like medium voltage BESS, UPS, and Vertiv 800-V DC side cars. This is under customer validation in 2026 with deployment plans in 2027. Then, the 800-V DC architecture at data hall level. Here, Vertiv solutions will include MV, DC, UPS, and solid-state transformer to cover the multiple ways to address the end-to-end powertrain. We're active in development with planned 2027 customer validation supporting 2028 deployment.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

As stated, rather than transitioning to a single architecture, the market is expected to leverage both AC and DC solutions as power requirements continue to evolve for years to come. Now, the right side of the slide. This is an example of deploying multiple power architectures as sites evolve and expand. I'm thrilled to highlight our collaboration with NVIDIA and Visionbay.ai, Foxconn's business unit focused on AI supercomputing at their site in Kaohsiung, Taiwan. For the initial phase of this site, Visionbay.ai awarded the power thermal and services business to Vertiv for what is Taiwan's first AI data center featuring NVIDIA GB300. On top of this, we are collaborating for the world's first AI data center adopting 800 VDC architectures at the rack and pod level, featuring NVIDIA Vera Rubin. This is an example of early customer validation of our roadmap and supports the broad power architecture evolution.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

This is real. This is happening. In a nutshell, as a number of viable power architectures expand, and AC and DC coexist to deliver on the 800 VDC, Vertiv's content opportunity per megawatt expands, and we're leading this transition. Let us now go to page six, and let's continue on the topic of technology. I want to spend a moment talking about Vertiv's data center cooling architectures and our unique fluid management services. When the two are combined, we ensure our customers to use nearly zero water. As they scale, many customers have been and are adopting closed loop cooling architectures as they optimize power and water use. A closed loop cooling architecture is just that, closed or sealed with water recirculating. Typically, it does not require additional water after the fill at startup.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Vertiv's end-to-end thermal chain technologies for both the primary and secondary cooling loops, examples are Vertiv Trim Cooler, Vertiv CoolChip CDUs, to name a few, fully enable this approach. This architecture enables a data center to run on no water consumption. Now, let's take the focus on water use a step further. Let's also address the initial system fill, and this is where PurgeRite NearZero comes into the equation. As part of our unique fluid management technology and services, our PurgeRite NearZero utilizes a closed loop recirculation system to capture, treat, and reuse water during startup. This reduces the water normally used in the process by up to 90% during the startup of a data center. For our customers, this means a faster and more cost-effective deployment and commissioning of liquid cooling system and chilled water circuits.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

This means significantly less waste and less disruption on site. More broadly, this expands Vertiv's differentiation thermal management services, and we're managing fluid performance from start throughout decades of operational life. PurgeRite NearZero is scaling through our existing serving network, a capability we believe no one else can replicate at our scale. With that, over to you, Craig.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

Thanks, Gio. Turning to slide seven, let's walk through our second quarter financial results in more detail. On adjusted diluted EPS, we delivered $1.52. That's up $0.57 or 60% versus prior year, and $0.12 above guidance. The year-over-year improvement was driven by $0.58 from after tax adjusted operating profit, which was driven primarily from higher sales volume and increased profitability. Looking at net sales, we delivered $3.274 billion in the quarter. That's up $636 million or 24% versus prior year. Organic sales growth was 18%, with 5% additional growth contribution from acquisitions, an additional 1% growth contribution from favorable foreign exchange. By regions, Americas grew 21% organically, APAC grew 26% organically, and EMEA was down 2% organically. Moving to adjusted operating profit, we delivered $738 million.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

That's up $249 million or 51% versus prior year, and $28 million above the midpoint of our guidance. Adjusted operating margin of 22.6% expanded 410 basis points year-over-year and came in 140 basis points above guidance. The margin expansion was driven by strong operational execution, continued productivity gains, and favorable price cost execution, partially offset by tariff impacts. We're also continuing investing in capacity and engineering R&D to support future business growth. To round out the quarter, adjusted free cash flow minimum was outstanding, with the quarter ending at $925 million, up $648 million or 234% from prior year. The improvement was driven by higher adjusted operating profit, strong working capital performance, including project milestone collection, which is inclusive of initial advanced payments and lower cash interest.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

These items were partially offset by higher cash taxes and higher spending on CapEx investments. At our quarter end, our net leverage is at -0.1x, providing even more flexibility. Just a quick note on our deferred revenue. You'll see an increase in the quarter, and that's driven by project advanced payments and ongoing milestone collections. We are very happy with our execution on project milestone development, and what you're seeing in deferred revenue is a combination of the payment at project initiation, order placement, and ongoing project milestone execution. Moving to slide eight, let's look at segment performance. In Americas, net sales were $2.071 billion, up 29%, with organic growth of 21%. Organic sales growth remained strong in the quarter. As Gio mentioned earlier, some minor timing shifts in 2Q revenue.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

These shifts were reflected in the Americas revenue numbers and were primarily driven by multi-phase project execution and temporary supply chain congestion. However, we expect the associated timing delay to resolve in the second half of 2026. Adjusted operating profit was $571 million, driving 360 basis points in adjusted operating margin percentage. The margin expansion was delivered by ongoing commercial excellence and strong operational execution. Moving to APAC, the region had strong results with net sales at $720 million, up 29%, with organic growth of 26%. We continue to see strong end market demand, and the commercial execution across the team gives us confidence going forward. Adjusted operating margin percentage grew 270 basis points in the quarter due to strong operating leverage realized in the region. In EMEA, net sales were $484 million, up 2%, with organic sales down 2%.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

We continue to see a strengthening market, which supports our position for the region to return to organic sales growth in the second half of 2026. EMEA also saw strong growth in adjusted operating margin percent, up 380 basis points year-on-year. The team continues to drive improved operational execution, which came through in this strong margin performance. Turning to slide nine, let's walk through our third quarter 2026 guidance. For 3Q, we're projecting adjusted diluted EPS of $1.80 at the midpoint. That represents 45% growth versus the prior year. That year-over-year improvement is driven by continued volume growth and ongoing margin expansion. On net sales, we expect $3.75 billion at the midpoint. That's up $1.074 billion, or 40%, versus the prior year. Organic sales growth is expected to be up approximately 35%, with an additional 5% from acquisitions.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

By region, we expect Americas organic growth in the high 30s, APAC in the high 30s, and EMEA in the mid-teens. Adjusted operating profit is expected to be $918 million at the midpoint. That is up $322 million, or 54%, versus the prior year. Adjusted operating margin is expected to be 24.5% at the midpoint. That is up 220 basis points year-over-year and is driven by strong organic sales growth, continued operational leverage, and ongoing productivity realization. Now, let's turn to slide 10 for our updated full-year 2026 guidance. We are raising our outlook across all key metrics. Starting with adjusted diluted EPS, we now expect $6.70 at the midpoint. That is up $2.50 or 60% versus 2025. The updated range is now at $6.65-$6.75. This is an increase of $0.35 at the midpoint versus prior guidance.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

The year-over-year improvement is driven by continued volume growth and ongoing margin expansion. For net sales, we now expect $14 billion at the midpoint. That is up $3.77 billion, or 37%, versus 2025. This represents an increase of $250 million versus our prior guidance. Organic sales growth is expected to be at 31%, with 5% growth from acquisitions and 1% growth from favorable currency. By region, we expect Americas organic growth in the high 30s, APAC in the low 30s, and EMEA is in low single digits. Moving to adjusted operating profit, we now expect $3.325 billion at the midpoint. That is up approximately $1.235 billion or 59% versus 2025. This is an increase of $125 million versus our prior guidance. Adjusted operating margin is expected to be 23.8% at the midpoint, expanding approximately 340 basis points from 2025 and up 50 basis points versus our prior guidance.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

The margin expansion is driven by continued operational leverage and positive price cost execution, which is offsetting some tariff headwinds. Finally, adjusted free cash flow is expected to be $2.5 billion at the midpoint. That is up $613 million or 32% versus 2025. The year-over-year improvement is driven by higher adjusted operating profit and lower cash interest, which is partially offset by higher cash taxes and higher investments in capital expenditures. We are delivering strong results, raising our outlooks, and executing with discipline. Based on our performance and momentum, we are very confident in our ability to continue driving results throughout the balance of the year. With that, I will send it back to you, Gio.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Well, thank you. Thanks, Craig. Let's go to slide 11 to wrap up. Strong Q2 performance. We are delivering, and the team continues to raise the bar on what is possible. We raised our full-year 2026 guidance across all key metrics. The momentum is strong. It is broad-based, and it is accelerating. We continue to invest with discipline. Not just for the 45% growth we expect in the second half, but for the years beyond. Capacity innovation services. On M&A, we closed the ThermoKey acquisition, strengthening our heat rejection capabilities. We closed Strategic Thermal Labs in April. We are adding server-side liquid cooling and cold plate expertise for high-density thermal management. Together, these two acquisitions expand what we offer across the full thermal spectrum, from heat rejection to direct-to-chip liquid cooling. Allow me two additional spotlights.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

At the Naval Postgraduate School in partnership with NVIDIA, we delivered a full engineered package, rack, power, and cooling system into an existing on-prem facility. This includes liquid cooling integration, commissioning, and deployment support. This is a repeatable at-scale reference architecture for NVIDIA GB300. We call this Vertiv SmartIT solution. The project established an advanced locally operated AI environment for education, research, engineering, modeling, and simulation. This also shows how an existing facility can rapidly be transformed to support next-generation accelerated computing, easy for enterprise and sovereign customers to adopt. In EMEA, Germany, our collaboration with DATA4 is a great example of the momentum we're seeing in that region. Vertiv delivers complete powertrain, including switchgear, UPS, and battery systems, et cetera, and thermal chain, like chilled water units, free cooling chillers, and our industry-leading services. It all will enable DATA4's new Frankfurt site.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

This is exactly the kind of optimized end-to-end system deployments where Vertiv excels. To conclude, I'm more confident in our trajectory today than I've ever been. We're executing, we're investing ahead of the curve, and increasingly, our customers are asking us to help them architect their most complex infrastructures. That's the role we've earned, and it's the role we intend to further strengthen. With that, let's go to the Q&A.

Operator

We will now begin the question-and-answer session. In order to ask a question, press star then the number one on your telephone keypad. In the interest of time, please limit yourself to one question, and if you have a follow-up question, please rejoin the queue. We'll pause for just a moment to compile the Q&A. The first question comes from the line of Scott Davis from Melius Research. Scott, please go ahead. A reminder to unmute locally.

Scott Davis
Scott Davis
Analyst at Melius Research

Yes. Thanks for the reminder, operator. I haven't figured out my phone yet. Anyway, sorry, guys, and good morning. Still good morning. Look, I just want to address a little bit of the issue that may be hurting your stock a little bit today with the timing shifts in 2Q revenues, the supply chain congestion comment. Can you give us a little bit more detail on that? And more explicitly, you know, is this something, I mean, complexity is something that I would imagine is going to just do nothing but increase over the next five years and perhaps forever, is this potentially going to be an ongoing issue, not just a one-off? If so, how do you mitigate or manage through it so that it really doesn't disrupt quarters the way that perhaps it can?

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Well, thanks, Scott, for the question. You're right, complexity is increasing. Some of the projects are not only bigger but multidimensional. There can be a lot of supply chain interdependencies, and this supply chain is not necessarily an external supply chain. It can be very often an internal within Vertiv supply chain. Now, clearly, like everything, and like we've done so far, there is a learning curve. I'm pleased with the speed at which we are progressing in this learning curve, and this learning curve is the learning curve of the execution on this complexity. So, I'm pretty confident about our direction of travel. And again, these are the first very large projects with this level of complexity, and we are more and more equipped for this, not just from a technology standpoint, but from a logistics and operations in general.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

When it comes to the second part of your question, so, what could be the ongoing impact on the future? Well, certainly, as I said, there is a learning curve that we are progressing on at speed. But there is also the fact that we are prudent. Anyway, in our second half guidance, this is true in general also for the future. If you think about our H2 guidance, we're not assuming all stars align. We have a wiggle room for this progress on the learning curve not to be perfect. Though, of course, speed and perfection is our goal.

Scott Davis
Scott Davis
Analyst at Melius Research

Okay. Fair point. And then, just a quick one. Is there a price where you would start buying back stock a little bit more aggressively, just given the pullback we're seeing in the entire complex right now?

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

I think we always look at it opportunistically, Scott, and that's the thing that we've talked about even at Investor Day. Again, given today, it is a good time to look at it, but I think that's always something that we evaluate and pick what we consider our capital deployment, and it's one of the areas we look at.

Scott Davis
Scott Davis
Analyst at Melius Research

Fair enough. I wish you all the best, guys. Good luck and I'll talk to you.

Operator

The next question comes from the line of Jeff Sprague with Vertical Research. Jeff, please go ahead.

Jeff Sprague
Jeff Sprague
Analyst at Vertical Research

Hey, thanks. Good morning. Hey, Gio, just on the comment that the pipeline is actually accelerating. I assume that's all hyperscale, but could you give a little bit more context on sort of the nature of the acceleration? Is it scoped to Vertiv? Is it kind of additional customers? Is it existing customers looking to do more quickly? It seems to support the comment you're making about robust orders for the year, but just love a little bit more color there, if you could.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Let's start from the end. Good [Asia. Let's start from the end. Yes, of course, this is certainly supporting our comments about orders. When I talk about pipeline, I always like to talk about magnitude of pipeline, if you will, and speed of pipeline. When I talk about speed of pipeline, when I talk about acceleration, it means that the sales cycle within the pipeline can be faster or slower. We notice an acceleration, so becoming faster sales cycle. But at the same time, just to be extremely clear, the strength is also in sheer size of the pipeline in terms of quarter-to-quarter, year-on-year growth. And this is broad-based. It's pretty much across the world, but also, it's broad-based across the various customer categories. So, certainly, the whole range. Hyperscalers, it is true for enterprise, it's certainly true for colo, new cloud. So, pretty, pretty broad-based.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

Just to add on to that, Jeff, I would also just say, again, as hyperscalers and colos, hyperscalers are sometimes deploying through colos, so to look at it that way, you might get a little bit of a mix there. So, just to ensure, going back to what Gio said, we're seeing it again, across regions, across products, and that's the way we really look at it, but that's the way we would view our pipelines and see it accelerating in all those spaces.

Jeff Sprague
Jeff Sprague
Analyst at Vertical Research

And just a quick one if I could. Do you have a solid state transformer solution at scale at this point? Where do you stand on that product evolution?

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Just like one of the slides was describing, the solid state is currently a matter of product development for us. It's in product development phase.

Jeff Sprague
Jeff Sprague
Analyst at Vertical Research

Thank you.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Yeah, thanks.

Operator

Your next question comes from Amit Daryanani with Evercore. Amit, please go ahead.

Amit Daryanani
Amit Daryanani
Analyst at Evercore

Yep. Good afternoon, everyone. Thanks for taking my question. I guess, Gio, if you just go back to the supply chain issues, and delays, can you just talk about how much revenues are actually pushed out due to these challenges you had in the quarter? I think you missed the street numbers by $100 million, but I'm actually wondering if the supply issues were perhaps much larger than that from a dollar perspective. Then, maybe just on the same lines, can you just talk about, was it a Vertiv specifically too or something at the customer side that led to this impact? How do you see this flowing back into the model into the back half? Thank you.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Good afternoon. First of all, is it customer or is it Vertiv? On the customer side, pretty much we see the same dynamics that we have seen historically, so no big differences. When it comes to the Vertiv side and the exact amounts, well, we will not be too specific, but the majority of what we're seeing is really coming from those dynamics that I've described while I was going through my opening remarks, but also the conversation with Scott. That is pretty much the dynamics that we see. Is it on the supply chain? The supply chain is always a matter of working the sequence of things. It's nothing different than what we have experienced historically. And we're pleased with how we are strengthening the resilience of our business in general.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

Amit, I would just add, just to clarify, we're talking about the large project deployments and the learning curve around that, which has confounding effects from both the external supply chain and our own internal supply chain. So, there are some, I'd say, gray areas in there when we typically can recover from a late part in our smaller supply chains. When it becomes a larger supply chain, it becomes more confounding. So, again, not to define that specifically, but that's the areas where we're seeing it the most is in those large project deployments, and we're learning and understanding what that takes to go forward and how to iron those out. Then also, again, as we talked about thinking of not always that being perfect in the second half as we look into the guidance.

Operator

The next question comes from the line of Deane Dray with RBC Capital Markets. Deane, please go ahead.

Deane Dray
Deane Dray
Analyst at RBC Capital Markets

Thank you. Good morning, everyone. I'll keep it to one question. Really good performance on free cash flow conversion this quarter. But for Craig, I'd be interested in hearing, was there any contribution from customer deposits on orders? I know that's something you all have been looking at, and Dave Cote knows from his aero and defense days that that's pretty standard to require deposits on larger orders. So, any contribution there?

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

Yeah, Deane, again, I want to congratulate you. I know you're retiring in September, so congratulations. A great career. Fantastic career. To your question, yeah, if you look at the face of the balance sheet, you'll see that our deferred revenue did go up. Our deferred revenue is a read-through in terms of those advanced deposits on orders, but it's also ongoing deposits as we go through the milestones of delivering those larger projects. So, it's a combination of both. That is driving the working capital and the great cash performance when you look at it across the entire balance sheet. So, definitely an indicator of strong commercial performance on both sides.

Deane Dray
Deane Dray
Analyst at RBC Capital Markets

Great. Thank you for those kind words, and I appreciate all the support from the team and wish you all continued success. Thanks.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

Thank you.

Operator

The next question comes from Nigel Coe with Wolfe Research. Nigel, please go ahead.

Nigel Coe
Nigel Coe
Analyst at Wolfe Research

Thanks. Good morning, everyone. Just want to pick up on that last topic. I think this is the first time, maybe I'm wrong, but the first time I've heard progress collections, kind of stage payments. Maybe just touch on that. I know your assortment is changing with OneCore and SmartRun. So, maybe just talk about that. What kind of percentage of revenues have you sold by now that actually have progress collections? And then, just, this is not a second question, by the way, so it's more of kind of an add-on to the first one. The balance sheet numbers moved quite a lot this quarter. The ThermoKey acquisition seemed quite small, but did it come with quite a big balance sheet? Thanks.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

The ThermoKey didn't come with a large balance sheet, so I'll answer that one first, and then we can go a little bit, I'll double-click on it as we go further into your question, Nigel. In terms of the actual progress collections, yeah, there is a portion that we get up front, and there's a portion as we deliver milestones. A lot of that is related to delivering products to the end project. That's how you would start phasing it in. Sometimes, you get those a couple, you know, like a month before you deliver projects. Sometimes, you get those at the end of design. So, they are all phased in different ways. We would get a portion up front, or we'd get a portion at the delivery milestones that we set forth.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

Always, in our view, staying ahead of the curve in terms of a cash position in that project. Some of it's going to be related to deliveries where you would see revenue incurred. Some of it might be delivered on terms of a design point, which would be a secondary milestone before revenue occurs. Again, they're all a little different in how we look through them. All of the goal being staying ahead of the cash curve and being cash positive on that. On the other phases of the balance sheet, you mentioned lots of movement. We do have a significant ramp in the second half, so you would see some inventory come on, and as that inventory comes on, you'll see AP come on as well. We did have a good quarter in terms of sales. That's where our AR is going up as well.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

All of this is a reflection of the volume you're seeing. ThermoKey had little impact to that.

Nigel Coe
Nigel Coe
Analyst at Wolfe Research

Great. Thank you.

Operator

The next question comes from Andrew Kaplowitz with Citigroup. Andrew, please go ahead.

Andrew Kaplowitz
Andrew Kaplowitz
Analyst at Citigroup

Good morning, everyone.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Good day to you, Andrew.

Andrew Kaplowitz
Andrew Kaplowitz
Analyst at Citigroup

Good morning. Gio, you updated us again regarding the evolution toward 800 VDC, potentially in the start to impact Vertiv 2027. I know you commented on an SST in product development to Jeff, but when you step back, how confident are you that Vertiv's content per megawatt could go up as 800 VDC technology is adopted, as I think you reiterated today? Would you surmise that Vertiv's 800 VDC offering could be toward the higher end of that $3.25 million-$3.75 million per megawatt range you gave us at the analyst day?

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Yeah, we're pretty convinced about that. Also, when we look at all the elements of the powertrain in the various architectures and when we think what happens inside the white space, in the gray space, we see value there for Vertiv and an expansion of revenue per megawatt. So, not differently from our conversations or what we shared at Investor Day. It's two months ago. We continue to go through that math, and the math is corroborated by, of course, all the progress that we're doing on the product development, but also on the activities that we are conducting with customers. We should, and we would need to go elements per elements in that chain. But again, think about the entire powertrain, all the elements vis-a-vis what we have today and see that with that density, with that complexity, our content is impacted favorably.

Andrew Kaplowitz
Andrew Kaplowitz
Analyst at Citigroup

Thank you, Gio.

Operator

The next question comes from Andrew Obin with Bank of America. Andrew, please go ahead.

Andrew Obin
Andrew Obin
Analyst at Bank of America

Yes, good morning.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

Morning, Andrew.

Andrew Obin
Andrew Obin
Analyst at Bank of America

Just maybe another question on this deferred revenue. We've been getting lots of questions on this topic. It's a large number, but I guess what folks are trying to figure out, and I know some people have been asking a similar question, has the structure of your deferred revenue changed materially from what it was? I'm not asking, I know that it fluctuates quarter-to-quarter. I totally get that. Has the structure of what goes into deferred revenue changed materially? Still, if we look at deferred revenue over the past several quarters, it's apples to apples.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

It's apples to apples, Andrew. Now, what you might be feeling a little bit differently is, as we talked about back in the fourth quarter, we had a large order influx on the [infra] solution business, where, I would say, a lot of these milestones are set up in the project-based world as opposed to the point product-based world. The project-based world might have more milestones before delivery of revenue. So, you would get one at input of order and then one along the way as a design and one potentially as you start to deliver products. You have different levels of milestone on those projects versus a point product. We know that the project basis that we've talked about a lot, those larger ones, OneCore, SmartRuns. We had a large order intake in the fourth quarter of last year that we spoke to.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

Again, that would be some of the stuff that you might be seeing in the deferred revenue as it comes through throughout the year. Then again, it is tied to our regular down payments as well. But no structural change in the way that we would recognize deferred revenue.

Andrew Obin
Andrew Obin
Analyst at Bank of America

Thank you.

Operator

The next question comes from Chris Snyder with Morgan Stanley. Chris, go ahead.

Chris Snyder
Chris Snyder
Analyst at Morgan Stanley

Thank you. I wanted to follow up on the conversation around the production disruption and some of the supply chain impact. I guess you guys are obviously guiding to a pretty significant organic ramp here into the back half relative to what we saw in the first half. I guess anything that you can provide around confidence that you're seeing, is this disruption getting better? Like, I would imagine that as the quarter went on, the monthlies got better. I think you said July was off to a start that presumably supports this ramp. I guess, has it gotten better? Any just kind of color on that monthly theme to give us more confidence in the back half? Thanks.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Thank you. I wouldn't use the word disruption.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

Yeah.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

I think we have to, I want to be clear about, we talk about complexity and interdependencies. As I said, very, very often in these large approaches, you will see multiple Vertiv factories feeding other factories. They have, of course, external suppliers feeding those factories as well. It's really a complexity. There is an operational aspect to your question that is, we are getting stronger in the operational execution of that complexity, but the complexity doesn't go away. But our ability to handle that complexity is certainly accelerating very strong. That's, hence, my questions. Sorry, hence my comments. Again, I wouldn't talk in terms of disruption.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

Agree. I think on your second point of why do we feel comfortable about the second half, as Gio said, it's a learning curve when you have these large projects and you do have congestion in your supply chain, which again, some of that stuff's normal on point products, which is easier to iron out. As you have a learning project for larger project, some of it takes a little bit more time to get smoothed out and understand. We're seeing good signs of it being able to ratchet up that learning curve. As we think about the second half, we've also assumed some of that congestion continues as we normally would, but on these projects, it might be a little bit further of congestion that we would have assumed than normal.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Exactly. So, all in all, we believe that we're prudent in our second half and very, very well-supported the back half.

Chris Snyder
Chris Snyder
Analyst at Morgan Stanley

Thank you.

Operator

The next question comes from Nicole DeBlase with Deutsche Bank. Nicole, please go ahead.

Nicole DeBlase
Nicole DeBlase
Analyst at Deutsche Bank

Yeah. Thanks, and good morning, guys. I'm sorry to beat a dead horse, but I'm going to. I think, with respect to the second half ramp, there's still a lot of questions about what specifically is embedded and what isn't. Maybe a way to frame it, I'll try this, like, how much of the second half ramp is based upon this improvement in learning curve and maybe unlocking some of the revenue that was pushed out of 2Q versus just the overall capacity ramp that you guys are doing at the same time? Just so that we can try to get more comfortable with the step-up in revenues that are embedded in the second half and how much visibility you have into that. Thank you.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Yeah. Thank you, Nicole. When we talk about unlocking revenue, let's just be clear that the revenues that were, let's say, a little bit locked in some elements on the second quarter are being delivered, deployed in the second half, and we feel extremely well about that. When it comes to some elements of congestion, possible elements of congestion, as Craig mentioned, we are prudent in our guidance, though we believe that there will be, and we see, we are seeing, certainly a strong acceleration and improvement from an operational standpoint, we still remain prudent in our guidance. There is capacity that is being released, and that is a big element, of course, of also the backlog conversion.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

So, look at it as three levels. The operational acceleration in the complex projects, the capacity coming available, that is, has been coming available in the second quarter, but even more so in the second half. A very strong backlog coverage. And over and above that, wrap it up with, anyway, a guidance that is not an all-star aligned type of guidance.

Operator

The next question comes from Amit Mehrotra with UBS. Amit, please go ahead.

Amit Mehrotra
Amit Mehrotra
Analyst at UBS

Thanks, operator. Gio, I'd just be curious to sort of compare and contrast some of the challenges you're having today to the challenges you had really kind of this time last year. You got back on track pretty quickly from an operational, but at that time, it wasn't a revenue issue, it was more of a margin issue and an operational issue. I know, at heart, you're an operational guy, so just maybe compare and contrast that. Are there multiple points of, I just want to maybe explain the complexity within the complexity. What I mean by that is that, are there multiple points of challenges, or is there sort of one main challenge that's sort of cascading across the supply chain? That little bit color there would be helpful.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Yeah. Thank you, Amit. I really appreciate you drawing that parallel to exactly a year ago. It was a different nature. That stage was Ireland and some executional challenges on the buffer switchgear that we have amply recouped, as you were saying. But I think this highlights the fact that in a business that is moving at this speed, that is growing at this speed, with the number, let's say, of technology, with the technology speed, sorry, the speed of technology evolution that we are experiencing and indeed driving, there is a lot of complexity to manage. So, in many respects, the parallel is similar. You were talking about while that was a margin, this is a revenue. Anyway, it's operational execution that we're concentrating on right now. It may be different in the type of product line, if you will.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

It's not different in terms of the type of focus and the type of, let's say, recipe that we apply. Again, it's a matter of really continuing to mature operationally as the markets, the portfolio, the scope of what we do continues to evolve. Still very good, Amit, as I mentioned a year ago.

Amit Mehrotra
Amit Mehrotra
Analyst at UBS

Gio, are you reducing the on-time delivery of the customer? Because one of the USPs has been Vertiv has been one of the few companies that can deliver on time in full. Are you disappointing customers with this development that opens up market share opportunities for other companies, or no?

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Look, our overall performance is, if anything, improving. So, I would say that the answer is, it's not something that changes our perception in the market, we believe.

Operator

The next question comes from Mark Delaney with Goldman Sachs. Mark, please go ahead.

Mark Delaney
Mark Delaney
Analyst at Goldman Sachs

Yes. Thank you for taking my question. One of the key topics at the Investor Day that we haven't discussed yet on the call this morning is around M&A. I think you talked about something in the order of $24 billion that could be deployed, and in light of some of the pullback in financial market valuations, as well as all the opportunities you see on the technology front, including areas like 800 V, I'm curious if you'd give us your latest thoughts on the M&A opportunity, and if the pipeline there is active and that might be something that could be executed upon relatively soon. Thanks.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

I would say our outlook doesn't change in terms of the M&A world. We still look at it in the same way we looked at it back during Investor Day. It is active, and we do see an active market, and we are participating in that active market looking at several targets. But again, it has to fit us, and it has to be the right, I'd say, value play for us in terms of fit in our portfolio and what we believe we can grow and what we can return to investors in terms of what we're going to pay. Again, I've always talked about we invest in ourselves first, and that's capacity, and that's R&D, and that's development, and that's the things we're always going to look at.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

Then, we'll look at the external spots where we believe we can get true value out of an acquisition and an add-on, whether it be regional reach or a product that we believe could get us the market faster or a technology we don't currently have. Yes, we are active, and we continue to look at it in terms of that framework.

Operator

The next question comes from Noah Kaye with Oppenheimer. Noah, please go ahead.

Noah Kaye
Noah Kaye
Analyst at Oppenheimer

Thanks for taking the question. Talking about some of these learning curve developments around what seems to be more of a focus on the infrastructure solution. The components of these, as we understand them, the building blocks, they're already part of the Vertiv portfolio largely. I'm just curious, as you come up this learning curve, to what extent are you increasing your vertical integration across those building blocks and supply chain? Is that a process that you are undertaking now? Is it something that needs to happen on a go-forward basis to mitigate and manage some of those challenges in architecting these solutions?

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

There is clearly always an analysis of make or buy vertical integration in anything we do, be it at a point product level and at a, let's say, large infrastructure solution level. When you talk about vertical integration for infrastructure solutions, for us, is really we are very vertically integrated in the sense that we're putting into our infrastructure solutions products that are Vertiv products. Clearly, we are in good control of the supply chain in that respect, and so we feel good in this moment. We do not think there are any major gaps in vertical integration for what we're doing, but that doesn't mean that we will not adjust over time the mix of make or buy in whichever dimension that could be, depending on the type of business, depending on where we manufacture.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Not all manufacturing locations are the same in terms of access to a nearby, let's say, supplier critical mass. It's always been there. We do not perceive in this moment that there are any major gaps. For example, if you think about an acquisition that we shared with you last quarter, BMarko Structures, that was a move to vertically integrate on our frame construction for our infrastructure solutions. That has been testament to the dynamic approach that we have when it comes to make a buy.

Noah Kaye
Noah Kaye
Analyst at Oppenheimer

Yep. Thank you, Gio.

Operator

The next question comes from Ananda Baruah with Loop Capital. Ananda, please go ahead.

Ananda Baruah
Ananda Baruah
Analyst at Loop Capital

Yeah. Thanks, guys, for taking the question. Really appreciate it. I'd love to get your guys' view. This is an 800 V, 450 V question. For 800 V, how broadly throughout the marketplace are you expecting the next couple of years, the technology be adopted? Really, the genesis for the question is, as you guys may know, there's sort of been speculation last few months that one of the larger AI infrastructure companies could see a pushout that would use 800 V as far as in 2029. If there were a major customer pushout, how broad is the tech are you guys anticipating the tech to be throughout the industry? Then, we've heard really good things about 450 V potential over the next 24 months. What's the right way to think about the impact that could have?

Ananda Baruah
Ananda Baruah
Analyst at Loop Capital

Could that fill in any white space if there were a meaningful sort of AI infrastructure, 800 V customer push out? Thanks. If any context would be helpful. Thanks.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Thanks. A multidimensional, multilayer question under here. I would not comment on rumors in the market. As we shared with investors in May, but also earlier today, we believe that the adoption of 800 V will be gradual, would be convincing. We are certainly very invested in that part of the portfolio. Whether that happens at the speed that is currently in our roadmaps and that you saw or something slower than that, we will be flexible and certainly we are extremely resilient with that because it means that other parts of the architectures that we provide to our customers will certainly take the share of the market in terms of architecture. Whichever way, no matter the speed of acceleration, we think that we are in a good place because we have the architectures, we have the technologies, the roadmaps as we shared.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

There is a 400-V DC question, and that 400-V DC question is an important one. We see that some players are thinking in terms both of 800 V and 400 V. The underlying technology is not dramatically different, and quite honestly, we're involved in both.

Ananda Baruah
Ananda Baruah
Analyst at Loop Capital

That's really helpful. Thanks so much. Really appreciate it.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Sure.

Operator

The next question comes from Luke Junk with Baird. Luke, please go ahead.

Luke Junk
Luke Junk
Analyst at Baird

Yeah, thanks for sneaking me in here. Gio, hoping just to get some texture around your ongoing increase in confidence around the EMEA market specifically. We saw a step up in margins sequentially this quarter. How do you think about the sustainability there or maybe even the potential for some further improvement in the back half of the year? Thank you.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Yeah. Well, thanks for the EMEA question. We are pretty bullish about EMEA, as you saw. Certainly, we believe in a strong second half and back to growth. You see EMEA performing better than we expected anyway in the second quarter. So, very confident in the second half. I was vocal about the fact that we were very happy with orders in EMEA in the first quarter. I'll say that we like what we see in the second quarter. There is a back of formation that is certainly convincing. We see that the improvement translates in top line, and bottom-line improvement has demonstrated. The market continues to accelerate, and we certainly have a very important position in that market.

Craig Chamberlin
Craig Chamberlin
CFO at Vertiv

Luke, I'll just hit on the fact that we do, and as we've talked about through even back as early as last year, we do see a second half increase in growth for EMEA in terms of where we expect their organic growth to go from a revenue perspective. In terms of the, when I say the gain that you saw in margin, was a favorable comp to, as Gio had mentioned, the Ireland portion did come through 2Q last year, which was in EMEA. There's a little bit of a favorable comp in there, but we do still expect margins to be pretty good.

Luke Junk
Luke Junk
Analyst at Baird

Got it. Leave it there. Thank you.

Operator

Thank you. This concludes our question-and-answer session. I would like to turn the conference back to Gio Albertazzi for any closing remarks.

Gio Albertazzi
Gio Albertazzi
CEO at Vertiv

Thank you. Thank you very much, everyone. Thank you for the questions and thank you for your time today. I am very pleased with what we delivered this quarter and how we're positioned for the second half. The team is executing at a high level, scaling capacity, deepening customer partnership, and advancing our technology portfolio, all simultaneously. It's not easy, but this invigorates us. Pipelines are strong, our operational discipline is sharp, and our customer trust us to deliver at scale. Just to be clear, I am very encouraged by our trajectory. I am pleased, but certainly never satisfied. With that, thank you all, and I wish you all a great rest of the day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Executives
    • Lynne Maxeiner
      Lynne Maxeiner
      VP of Investor Relations
    • Dave Cote
      Dave Cote
      Executive Chairman
    • Gio Albertazzi
      Gio Albertazzi
      CEO
    • Craig Chamberlin
      Craig Chamberlin
      CFO
Analysts
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