VRT
Earnings call · Jun 2025 (Q2 FY25)

Vertiv Holdings Q2 FY25 earnings call VRT

Jul 30, 2025 Source

Executive summary

Vertiv Q2 FY25 — Strong Organic Growth and Record Orders Amidst Tariff Headwinds

Vertiv delivered robust Q2 FY25 results, driven by strong organic sales and record orders, particularly in the Americas and APAC. The company is actively managing tariff impacts and operational inefficiencies, which temporarily affected margins. Strategic investments in R&D and capacity, alongside the Great Lakes acquisition, position Vertiv to capitalize on accelerating AI infrastructure demand and expand its white space presence.

Highlights

5

  • Adjusted diluted EPS increased 42% year-on-year to $0.95.

  • Organic sales grew a robust 34% year-on-year.

  • Orders surpassed $3 billion for the first time, up 15% from Q2 FY24 and 11% sequentially from Q1 FY25.

  • The book-to-bill ratio was a strong 1.2x.

  • Backlog stands at $8.5 billion, up 21% versus prior year and 7% sequentially.

Concerns

4

  • Adjusted operating margin of 18.5% was 110 basis points lower than prior year, primarily due to the net impact of tariffs.

  • Higher-than-anticipated operational inefficiencies and execution challenges were experienced in Q2, particularly in EMEA.

  • Temporary costs associated with supply chain and manufacturing transition to a tariff-optimized footprint were higher than initially estimated.

  • EMEA's organic sales growth of 7% lagged other regions and is expected to be down organically in the back half of FY25.

Guidance & targets

CategoryTargetConfidence
Full-year 2025 Net Sales
$10 billion
high materiality
High
Full-year 2025 Organic Growth
approximately 24%
high materiality
High
Full-year 2025 Adjusted Diluted EPS
$3.80
high materiality
High
Full-year 2025 Adjusted Operating Profit
just under $2 billion at the midpoint
high materiality
High
Full-year 2025 Adjusted Free Cash Flow
$1.4 billion
high materiality
High
Full-year 2025 Adjusted Free Cash Flow Conversion
95%
medium materiality
High
Full-year 2025 Adjusted Operating Margin
approximately 20% at the midpoint
high materiality
High
Q3 FY25 Adjusted EPS
$0.97
medium materiality
High
Q3 FY25 Organic Growth
22%
medium materiality
High
Q3 FY25 Adjusted Operating Margin
20%
medium materiality
High
Q4 FY25 Adjusted Operating Margin
more than 23%
medium materiality
High
Full-year Adjusted Operating Margin
25%
high materiality
High
Full-year Orders Disclosure
provide projected full year orders rather than quarterly orders and backlog information
low materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Americas
Strong organic sales growth driven by continued strength in colocation and hyperscale markets. Adjusted operating margin remained strong despite tariff headwinds.
—43%—24%
APAC
Organic sales increase driven by strong growth across the region. Margin expanded primarily due to operational leverage and a discrete expense in last year's second quarter.
—37%—10.6%
EMEA
Organic sales grew 7%, lagging other regions. Lower margin primarily due to operational execution challenges and a deliberate decision to invest in fixed costs ahead of expected growth, while expanding regional capacity pursuant to supply chain shifts. Expected to be down organically in H2 FY25 and relatively flat for the full year, but growth expected to reaccelerate in 2026.
—7%—Lower margin

Operational metrics

Adjusted Diluted EPS
$0.95 up 42% YoY
Q2 FY25

Primarily driven by higher adjusted operating profit and lower net interest.

Organic Sales Growth
34% YoY
Q2 FY25

Strong performance in Americas (mid-40s) and APAC (mid-30s), EMEA (high single-digit growth).

Adjusted Operating Profit
$489 million up 28% YoY
Q2 FY25

Driven by higher sales, $54 million higher than guidance.

Adjusted Operating Margin
18.5% down 110 bps YoY
Q2 FY25

In line with guidance, primarily driven by the net impact of tariffs, higher-than-anticipated operational inefficiencies, and execution challenges.

Net Leverage Ratio
0.6x
Q2 FY25

At quarter-end.

TTM Orders Organic Growth
11%
TTM

Testament to strong momentum, considering strong orders in Q2 FY24.

Sequential Orders Growth
11% vs 1Q FY25
Q2 FY25

From Q1 FY25 to Q2 FY25.

Investment in ER&D and Growth
increasing compared to prior guidance
Q3 FY25 and FY25

Deliberately increasing spending to fuel growth.

Operational Inefficiencies
— higher than anticipated
Q2 FY25

Experienced in Q2 in support of significantly higher volumes, contributing to margin decline. Expected to continue in Q3 but be materially resolved by year-end.

Supply Chain and Manufacturing Transition Costs
— higher than anticipated
Q2 FY25

Costs to mitigate tariffs, contributing to margin decline. Expected to continue in Q3 but be materially resolved by year-end.

Fixed Cost Investment
—
Q2 FY25

Deliberate decision to invest in fixed costs in the region ahead of expected growth, contributing to excess capacity and cost in the near term.

Currency Translation Impact
$110 million increase
FY25

Favorable foreign exchange contributing to the increase in full-year net sales guidance.

Adjusted Operating Margin
>23%
Q4 FY25

Implied in full year guidance, keeping the company on track for its targeted 25% full year adjusted operating margin by 2029.

Adjusted Operating Margin Target
25%
FY29

Long-term target.

Gross Margin
under some pressure
H1 FY25

Expected to return to expansion in Q4. Primarily impacted by tariffs and operational inefficiencies.

Mix Impact on Full-Year Margin
slightly positive
FY25

Mix will not have a negative impact on full-year margin; if anything, it will be slightly positive.

Industry KPIs

MetricValueDetails
Book to bill ratio1.2x x
Orders bookings growth15% (Q2 YoY), 11% (Q2 sequential), 11% (TTM organic) %
Backlog by segment end market$8.5 billion USD
Data center exposure pipelinerobust pipeline growth

Orderbook & backlog

Orders $3 billion Q2 FY25

up 15% YoY, up 11% sequentially

First time surpassing this level; sequential growth from Q1 FY25.

Backlog $8.5 billion Q2 FY25

up 21% YoY, up 7% sequentially

Supports increased guidance for the year. Backlog duration is similar to historical patterns, with some customers seeking earlier delivery.

Product announcements

ProductTypeDetails
NVIDIA GB300NVL72launch
Advanced Nuclear Power Plant Technologyroadmap
SmartRunlaunch

Deals & partnerships

Great Lakes Acquisition of a company specializing in high-end rack solutions and innovation capabilities.

The acquisition will bring extensive portfolio of custom racks, integrated cabinets, heavy-duty racks, and enhanced cable management solutions. Great Lakes has manufacturing and assembly facilities in the U.S. and Europe.

Risks & headwinds

Tariff Impacts on Operating Margin Q2 FY25, ongoing into H2 FY25

Adjusted operating margin down 110 bps YoY in Q2 FY25. Potential downside from August 1 tariffs.

Mitigation:Vigorously executing tariff countermeasures; fine-tuning supply chain; tariffs expected to be materially offset exiting 2025.

Operational Inefficiencies and Execution Challenges Q2 FY25, continuing into Q3 FY25

Higher than anticipated, contributing to margin pressure.

Mitigation:Expected to moderate significantly during the year and be materially resolved by year-end; aligning execution to speedier growth rate.

Temporary Costs of Supply Chain and Manufacturing Transition Q2 FY25, continuing into Q3 FY25

Higher than initially estimated, contributing to margin pressure.

Mitigation:Expected to moderate significantly during the year and be materially resolved by year-end; fine-tuning supply chain as suppliers accelerate localization.

EMEA Sales Lag and Execution Challenges H2 FY25

Organic sales up 7% in Q2 FY25, lagging other regions. Expected to be down organically in H2 FY25 and relatively flat for FY25. Lower margin in Q2.

Mitigation:Addressing operational execution challenges; made deliberate fixed cost investments in the region ahead of expected growth; healthy pipeline expected to convert to top line as soon as 2026.

What to watch in Q3 FY25

EMEA Sales Reacceleration

2026
Current Expected flat for FY25, down organically in H2 FY25
Target Reacceleration in 2026

Why it matters

EMEA is a key region, and its reacceleration is crucial for overall growth, especially given the healthy pipeline and improving regulatory environment for AI infrastructure.

We anticipate EMEA sales will be down organically in the back half of 2025 and relatively flat for the full year. But as a reminder, EMEA was our fastest-growing region in 2024, and we expect growth to reaccelerate based upon the healthy pipeline.

Q&A highlights

Given the strong exit rate for margins in Q4 FY25 and ongoing investments, is it reasonable to expect 2026 to be a more normal year for margins, aligning with long-term targets?

Management indicated that the strong exit rate from 2025 is encouraging for the long-term margin trajectory and that their long-term margin objectives remain correct, suggesting alignment with analyst expectations.

“Certainly, the direction speed coming out of 2025 is encouraging in terms of the long trajectory -- long-term trajectory. I was [indiscernible] thinking in terms of continue to believe that our objectives in terms of long-term margins are correct. So I would think that probably too far from what we think the future could look like, Steve.”

asked by C. Stephen Tusa · answered by Giordano Albertazzi

2 min read 6 chapters

Detailed narrative

AI Infrastructure Leadership and Innovation

Vertiv is actively shaping the future of data center infrastructure, collaborating with CoreWeave and Dell to be the first to launch and deploy NVIDIA's GB300NVL72, maintaining a lead of at least one GPU generation. The company is also partnering with Oklo to enable easier access to advanced nuclear power plants for data centers, developing power and thermal reference architectures to enhance overall data center efficiency at scale. These collaborations highlight Vertiv's technology leadership and commitment to solving complex industry challenges.

Strategic M&A and White Space Expansion

The acquisition of Great Lakes, expected to close this quarter, will bring an extensive portfolio of high-end rack solutions and innovation capabilities, significantly enhancing Vertiv's presence in the white space. This strategic move complements Vertiv's traditional expertise in gray space, enabling the company to offer end-to-end infrastructure for AI factories. With manufacturing and assembly facilities in the U.S. and Europe, Great Lakes is anticipated to improve customer service speed and scale.

Tariff Management and Supply Chain Resilience

The tariff situation remains dynamic and fluid, creating inefficiencies as the company adjusts to changing landscapes. Vertiv is vigorously executing countermeasures and fine-tuning its supply chain, with suppliers accelerating localization efforts. While temporary costs for supply chain and manufacturing transitions are higher than estimated, the company expects tariffs to be materially offset exiting 2025, demonstrating strong supply chain resilience.

Capacity Expansion and Operational Productivity

Vertiv's capacity expansion strategy is two-pronged: strategic manufacturing and service investment ahead of anticipated growth, and capacity liberation through Vertiv Operating System productivity improvements. This approach ensures the company stays ahead of market demand and supports accelerated growth. Investments in ER&D and go-to-market strategies are also being increased to fuel future growth.

Regulatory Environment and EMEA Outlook

The regulatory environment, particularly in EMEA, is becoming more conducive to AI infrastructure investment, which is reflected in growing customer discussions and pipelines. While EMEA sales are expected to be flat organically for the full year 2025 and down organically in the second half, the healthy pipeline provides optimism for reacceleration in 2026 and beyond. The company made deliberate fixed cost investments in EMEA ahead of expected growth, contributing to near-term costs.

Evolution of Data Center Infrastructure

Vertiv sees the physical integration and interoperability between the 'gray space' (critical infrastructure) and 'white space' (IT equipment) as increasingly critical due to rising rack densities. The company is leveraging its expertise to seamlessly transition into white space infrastructure, with advanced prefabrication solutions like SmartRun dramatically reducing deployment time. The portfolio is evolving to support higher voltage DC power and more self-sufficient data centers, aligning with NVIDIA's plans and leveraging Vertiv's decades-long DC power technology.

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