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    VRT
    Earnings call· Mar 2025(Q1 FY25)

    Vertiv Holdings Co VRT

    Apr 23, 2025 Source

    Executive summary

    Vertiv Q1 FY25 — Strong Orders and Raised Sales Guidance Despite Tariff Headwinds

    Vertiv delivered a strong Q1 FY25, marked by robust organic sales growth and significant order intake, leading to an expanded backlog. The company raised its full-year sales guidance, demonstrating confidence in market demand, particularly from data centers and AI infrastructure. While navigating a fluid tariff environment with a comprehensive mitigation strategy, Vertiv maintains its profitability targets and strong free cash flow generation, reinforcing its market position and operational resilience.

    Highlights

    5

    • Adjusted diluted EPS up 49% to $0.64, exceeding guidance by $0.04.

    • Organic net sales up 25% year-over-year, overdriving sales guidance by over $100 million.

    • Book-to-bill ratio of 1.4x in Q1, with trailing 12-month organic orders growth at 20%.

    • Adjusted operating profit up 35% to $337 million, with margin expansion of 130 basis points.

    • Adjusted free cash flow of $265 million, up 162% year-on-year, driving over 100% conversion.

    Concerns

    3

    • Full-year adjusted operating margin guidance reduced to 20.5% at midpoint, 50 basis points lower than prior guidance, primarily due to estimated net impact of tariffs.

    • Q2 adjusted operating margin expected to be 18.5%, 110 basis points lower than last year, due to accelerated tariff costs with limited time for mitigation.

    • EMEA growth lagged other regions due to slower AI infrastructure build, though pipelines are robust.

    Guidance & targets

    12
    CategoryTargetConfidence
    Full-year sales growth
    18%
    high materiality
    High
    Full-year adjusted operating profit
    $1.935 billion
    high materiality
    High
    Full-year adjusted operating margin
    20.5%
    high materiality
    High
    Full-year adjusted diluted EPS
    $3.55
    high materiality
    High
    Q2 sales growth
    21%
    medium materiality
    High
    Q2 adjusted operating margin
    18.5%
    medium materiality
    High
    Q2 adjusted operating profit growth
    14%
    medium materiality
    High
    Q2 adjusted diluted EPS growth
    21%
    medium materiality
    High
    Full-year book-to-bill ratio
    greater than 1x
    medium materiality
    High
    Tariff neutrality
    significantly mitigate
    high materiality
    High
    Tariff neutrality
    tariff neutral
    high materiality
    Medium
    Free cash flow
    roughly consistent
    medium materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Americas
    Strong top line growth, with operational leverage as the primary driver for margin expansion, alongside incremental cost of tariffs. TTM organic orders up more than 30% with particularly strong pipelines. Expected to grow more than 20% year-over-year in Q2.
    Adjusted operating margin expansion: 160 bps
    		—strong growth—increased
    APAC
    Continued strong top line growth, including China reaccelerating. Operational leverage was the primary driver for margin expansion. Expected to grow more than 20% year-over-year in Q2.
    		—strong growth—increased
    EMEA
    Growth lagged the other two regions, primarily due to slower AI infrastructure build. Operational leverage was the primary driver for margin expansion. Pipelines are robust and growing, but the company remains prudent with growth expectations.
    		—lagged—increased

    Operational metrics

    13
    Adjusted diluted EPS
    $0.64up 49% YoY
    Q1 FY25

    $0.04 better than guidance.

    Adjusted operating profit
    $337 millionup 35% YoY
    Q1 FY25

    Primarily driven by higher volume.

    Adjusted operating profit increase
    $88 millionup 35% YoY
    Q1 FY25

    Primarily driven by higher volume.

    Adjusted operating margin expansion
    130YoY
    Q1 FY25

    Primarily due to operational leverage.

    Free cash flow conversion
    over 100
    Q1 FY25

    Driven by strong collections.

    Net leverage
    0.8
    Q1 FY25

    Company believes this qualifies them for an investment-grade credit rating.

    Credit rating
    BBB-
    Q1 FY25

    Investment-grade rating launched by Fitch, providing additional flexibility.

    Q2 adjusted operating margin tariff impact
    110lower YoY
    Q2 FY25

    Expected due to accelerated tariff costs with limited time to mitigate.

    Full-year organic sales increase
    $150 million
    FY25

    Driven by Q1 beat and higher Q2 expectations.

    Full-year sales increase from FX
    $100 million
    FY25

    Favorable foreign exchange contribution to sales guidance increase.

    Full-year adjusted operating margin reduction
    50lower than prior guidance
    FY25

    Primarily driven by the estimated net impact of tariffs.

    Adjusted operating profit (upside scenario)
    $2.015 billion
    FY25

    Illustrates a potential upside scenario for full-year adjusted operating profit.

    Q2 sales sequential growth
    15sequential
    Q2 FY25

    Expected continued top line momentum.

    Industry KPIs

    5
    MetricValueDetails
    Book to bill ratio1.4x
    Orders bookings growth25%%
    Backlog by segment end market$7.9 billionUSD
    Data center exposure pipeline15-17%%
    Incremental flow through margin130bps

    Orderbook & backlog

    5
    Total backlog$7.9 billionQ1 FY25

    up $1.6 billion YoY

    Corroborates growth story and 5-year model.

    Book-to-bill ratio1.4xQ1 FY25

    Reflects strong demand signals and ability to expand market position.

    Trailing 12-month organic orders growth20%Q1 FY25

    Considered the right way to look at orders, indicating strong demand.

    Q1 orders sequential growth21%Q1 FY25

    Against challenging comps, reflecting market growth and market position expansion.

    Q1 orders year-over-year growth13%Q1 FY25

    Against challenging comps, reflecting market growth and market position expansion.

    Product announcements

    1
    ProductTypeDetails
    AI Factory for iGeniusmilestone

    Deals & partnerships

    1
    iGenius / NVIDIADelivery of a fully prefabricated AI factory for a sovereign AI supercomputer.

    Vertiv provides infrastructure from liquid cooling to heat rejection and grid-to-chip power in a rapidly deployable modular system, leveraging NVIDIA co-developed AI reference designs.

    Risks & headwinds

    3
    Tariff situation uncertaintyQ2 FY25 and full-year FY25

    Q2 adjusted operating margin 110 bps lower YoY; full-year adjusted operating margin 50 bps lower than prior guidance.

    Mitigation: Comprehensive playbook developed, including supply chain rebalancing, relocating production, leveraging U.S. manufacturing, and commercial actions (pricing). Goal to significantly mitigate effects by early 2026.

    Slower AI infrastructure build in EMEAQ1 FY25

    EMEA growth lagged other regions.

    Mitigation: Optimistic about future growth as EMEA pipelines are robust and growing, but remain prudent with growth expectations.

    Q2 Free Cash Flow HeadwindQ2 FY25

    Potential headwind for Q2 FCF.

    Mitigation: Strong collections at the end of Q1 accelerated a good portion of Q2 FCF into Q1. Expects H1 2025 FCF to be roughly consistent with H1 2024.

    What to watch in Q2 FY25

    5

    Tariff Mitigation Progress

    Q2 FY25 and remainder of FY25
    CurrentQ2 adjusted operating margin expected to be 18.5%, 110 bps lower YoY due to tariffs.
    TargetNet tariff impact sequentially declining; progress towards tariff neutrality by year-end 2025.

    Why it matters

    Tariffs are a significant headwind impacting profitability; effective mitigation is crucial for meeting full-year targets.

    Our target is to be tariff neutral as we exit the year, but there should still be some net tariff impact🌐 in the full 4Q with the expectation of -- or the hope to be tariff neutral as we exit 2025.

    Q&A highlights

    5

    How will tariff mitigation efforts phase in through 2025, assuming steady state, and does it include repricing contracts?

    Mitigation efforts, including new contract pricing and existing backlog repricing, will compound through the year. Supply chain reconfiguration also contributes, with a lag. The company aims for tariff neutrality by year-end 2025.

    “Clearly, the -- as I mentioned, as we were going through the slides, the impact of the counter measures really counts as we go through the year and the quarters. Clearly, there are 2 fundamental dimensions to the countermeasures. One is, I'll start from where you started price. And there is, of course, price actions on new contracts, new opportunities, price actions in the market, some we have already implemented, more we likely will continue to implement it to implant. And there is certainly an element of existing backlog repricing where needed, not always needed. And conversations are ongoing in that respect.”

    asked by Scott Davis · answered by Giordano Albertazzi

    2 min read5 chapters

    Detailed Narrative

    01

    Market Demand and AI Trajectory

    Vertiv continues to see a strong end-market environment, particularly around AI infrastructure, consistent with the 5-year model shared at the November 2024 Investor Day. Pipelines are growing sequentially across all regions, indicating the early phases of this investment cycle. The company noted that demand is spread across hyperscalers, colo, new cloud, sovereign AI, and enterprise, allowing them to cover any gaps from rephased projects.

    02

    Supply Chain Resilience and Tariff Mitigation Strategy

    The company has built supply chain and manufacturing resilience around geopolitical themes, including geographical diversity, multi-sourcing, and standardization. A detailed tariff playbook is in place, involving working towards USMCA qualification for Mexico-based supply, actively rebalancing global supply chains towards low or no tariff regions, relocating production, and leveraging U.S. manufacturing. Commercial actions include price adjustments on new contracts and existing backlog where needed, with mitigation effects expected to compound through the year.

    03

    Investment Grade Rating Achieved

    Vertiv announced that Fitch launched ratings on its debt at investment-grade BBB-. This provides additional flexibility with its capital structure and improves borrowing capabilities. The company views this as a testament to its cash generation profile and aims for investment-grade ratings from other agencies, emphasizing the benefits for debt availability and customer perception.

    04

    iGenius Project with NVIDIA

    Vertiv highlighted its project with iGenius, in collaboration with NVIDIA, to deliver a fully prefabricated AI factory. This involves providing comprehensive infrastructure from liquid cooling to heat rejection and grid-to-chip power in a rapidly deployable modular system. The solution leverages NVIDIA co-developed AI reference designs, showcasing Vertiv's ability to deliver complex solutions at scale and its deep technical expertise.

    05

    Liquid Cooling Market Dynamics

    Management indicated that Blackwell shipments serve as a good proxy for liquid cooling demand, with Vertiv's demand preceding chip shipments by 3-6 months. They expressed optimism about the trajectory of this technology, noting that demand is also driven by other proprietary ASIC silicon increasingly requiring liquid cooling. The company is actively shaping the market by enabling customers to plan infrastructure for future GPU generations and increased rack power densities.

    AI-generated summary of the company’s earnings call. Not investment advice.