VRT
Earnings call · Dec 2024 (Q4 FY24)

Vertiv Holdings Q4 FY24 earnings call VRT

Feb 12, 2025 Source

Executive summary

Vertiv Q4 FY24 — Strong Outperformance in Sales, Profit, and Cash Flow

Vertiv delivered strong Q4 FY24 results, significantly exceeding sales guidance and driving substantial profit and cash flow growth, primarily fueled by robust demand in Americas hyperscale and colocation markets. While EMEA orders saw some project timing shifts, the company maintains a confident outlook for 2025, supported by a strong backlog and strategic investments in technology and capacity. Management noted market overreactions to news, emphasizing the underlying strength of data center demand and Vertiv's position.

Highlights

5

  • Adjusted EPS of $0.99, a 77% increase versus prior year.

  • Q4 organic sales growth of 27%, exceeding guidance by over $200 million.

  • Adjusted operating margin expanded 380 basis points to 21.5%.

  • Adjusted free cash flow generation was $362 million in Q4, totaling over $1.1 billion for the full year.

  • Net leverage reduced to 1x by year-end, providing strong capital deployment optionality.

Concerns

3

  • Weakness in EMEA Q4 orders due to project activity timing shifts to 2025.

  • Broad economic uncertainty persists in the China market despite Q4 growth.

  • Uncertainty regarding the scope and breadth of potential tariff impacts.

Guidance & targets

CategoryTargetConfidence
Adjusted EPS
$3.55
high materiality
High
Sales
$9.2 billion
high materiality
High
Organic Sales Growth
16%
high materiality
High
Americas Organic Sales Growth
low 20s
medium materiality
High
APAC Organic Sales Growth
low teens
medium materiality
Medium
EMEA Organic Sales Growth
high single-digit
medium materiality
Medium
Adjusted Operating Profit
$1.935 billion
high materiality
High
Adjusted Free Cash Flow
$1.3 billion
high materiality
High
Capital Expenditures
$275 million
medium materiality
High
Adjusted EPS
$0.60
medium materiality
High
Organic Sales Growth
19%
medium materiality
High
Americas Organic Sales Growth
low 20s
low materiality
High
APAC Organic Sales Growth
mid 20s
low materiality
High
EMEA Organic Sales Growth
low teens
low materiality
High
Adjusted Operating Profit
$325 million
medium materiality
High
Adjusted Operating Margin
16.9%
medium materiality
High
Adjusted Free Cash Flow
slightly higher than Q1 2024
low materiality
Medium
Dividend Increase
double that amount
medium materiality
High
Adjusted Operating Margin
25%
high materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Americas
Strong growth across colocation and hyperscale markets, driven by commercial execution and operational leverage.
Adjusted operating margin expansion: 420 bps
—25% organic—25.6%
APAC
Strength throughout the region, including China, India, and rest of Asia. Benefits from operational leverage and regional mix.
China growth: upper teensAdjusted operating margin increase: 260 bps
—27% organic——
EMEA
Driven by strong demand from colocation and hyperscale customers across several product lines, notably switchgear. Benefits from operational leverage and productivity.
Adjusted operating margin increase: 370 bps
—33% organic——

Operational metrics

Adjusted EPS
$0.99 77% increase YoY
Q4 FY24

Direct reflection of substantial increase in profitability.

Adjusted Operating Profit
$504 million 53% higher YoY
Q4 FY24

Driven by higher volume and continued improvement in commercial execution, including price/cost.

Adjusted Operating Margin
21.5% up 380 bps YoY
Q4 FY24

Provides a very strong foundation for 2025.

Net Leverage
1x
FY24 end

Reduced to 1x, providing optionality for capital deployment.

Share Repurchase
$600 million
2024

Deployed in 2024.

ER&D Investment Increase
$50 million
2024

Doubling down on technology and new products.

Trade Working Capital as % of Sales
13.1% down from 18.5% at end of 2023
FY24 end

Good progress in 2024, but still opportunity for improvement.

Adjusted EPS
$2.85 61% increase YoY
FY24

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

Adjusted Operating Profit
nearly $0.5 billion
FY24

Increase YoY.

Adjusted Operating Margin
19.4% up 410 bps YoY
FY24

Driven by improved variable contribution margin and lower fixed costs as a percentage of sales.

Free Cash Flow Conversion
103% after converting 114% last year
FY24

Another step upwards in cash flow generation.

OpEx Investment
$160 million
FY25

Combined investment, partially offsetting higher adjusted operating profit.

Foreign Exchange Headwind
$30 million
Q1 FY25

Offsetting Q1 organic growth.

Foreign Exchange Headwind
$125 million incremental
FY25

Estimated incremental headwind for the full year.

Share Repurchase Authorization
$2.4 billion remaining
current

Remaining under Board authorization.

Dividend
$0.15 50% increase
annually

Announced in November.

Price/Cost Spread
positive
2025

Expected to be positive for 2025 due to commercial execution and technology leadership.

Industry KPIs

MetricValueDetails
Orders bookings growth30% %
Backlog by segment end marketup 30% %
Data center exposure pipelineextraordinarily strong
Incremental flow through margin21.5% %

Orderbook & backlog

Trailing 12-month orders 30% Q4 FY24

Remained strong.

Americas TTM organic orders 50% Q4 FY24

Up in total, with particularly strong colo and hyperscale orders.

Southeast Asia, Australia, New Zealand, India TTM orders up significantly Q4 FY24
Total backlog up 30% Q4 FY24

YoY

Despite FX headwinds.

Backlog-to-sales ratio 78% Q4 FY24

vs 69% a year ago

Relative to '24 actual sales.

Product announcements

ProductTypeDetails
BSE (chiller technology)launch

Deals & partnerships

BSE Acquisition of high-efficiency, high-capacity centrifugal chiller technology and heat reuse technology.

This technology is increasingly used to support high-density compute applications, reinforcing organic progress and enabling global scaling. The acquisition was announced in December.

Risks & headwinds

EMEA Q4 orders weakness Q4 FY24

Some project activity shifted to 2025

Mitigation:Pipelines are strong, and management expects a pickup in 2025 as regulatory and decision-making processes accelerate.

Broad economic uncertainty in China Entering 2025

Not quantified, but noted as a factor despite Q4 growth in upper teens.

Mitigation:Company continues to monitor signs of market growth and green shoots, cautiously optimistic.

Potential tariff impacts Ongoing

Not quantified, described as 'immaterial' for current incremental direct tariffs on China imports.

Mitigation:Company has built scenarios and playbooks to strategically mitigate impacts, including adding regional sourcing and manufacturing options and expanding U.S. footprint.

Timing risk from new product launches Q4 FY24

Not quantified, but noted as a potential risk for overdelivering expectations.

Mitigation:Plants executed exceptionally well to mitigate risk, and customers generally want product as soon as available.

Customer requests for deferral of year-end shipments Q4 FY24

Not quantified, but noted as a potential risk for overdelivering expectations.

Mitigation:Customers generally want product as soon as available, mitigating this risk.

What to watch in Q1 FY25

EMEA Order Recovery

Q1 FY25 and throughout 2025
Current Weak in Q4 FY24 due to project timing shifts
Target Improved orders and pipeline conversion

Why it matters

EMEA is a significant region, and its recovery is crucial for overall growth trajectory and confidence in the FY25 outlook.

We saw weakness in EMEA in Q4 as some project activity had a shift in timing to 2025. We are quite pleased with what we are seeing and winning in the market, and it supports our revenue projection for 2025.

Q&A highlights

Can you provide more color on EMEA weakness and whether orders will improve in 2025? Do you expect TTM order growth to remain strong double digits despite tougher comps?

Gio explained that EMEA weakness in Q4 was due to project timing shifts to 2025, but pipelines are encouraging, and he expects a pickup in 2025. He believes TTM order growth will continue to be strong double digits, fully supporting their 2025 model.

“We believe in a good trailing 12 going forward in 2025 and one that fully supports our model, the model that we have shared with you in November.”

asked by Andrew Kaplowitz · answered by Giordano Albertazzi

2 min read 6 chapters

Detailed narrative

Q4 Outperformance & Market Dynamics

Vertiv significantly exceeded Q4 sales guidance by over $200 million, driven by strong execution across all regions, particularly in Americas hyperscale and colocation markets. Executive Chairman Dave Cote noted market overreactions to news, emphasizing the underlying strength of data center demand and Vertiv's position. The company believes the digital age has a long way to go, with nothing on the horizon to replace data centers, ensuring continued outperformance.

AI Adoption & Power Portfolio Strength

The company highlighted the increasing need for power and complexity in data centers due to AI, positioning its comprehensive power portfolio (representing 1/3 of total business) as a key differentiator. Vertiv's expertise in both AC and DC power conversion and distribution enables it to partner with customers to design future-proof infrastructure that maximizes efficiency and reliability, especially for high-density compute applications.

Supply Chain Resilience & Operational Efficiency

Vertiv continues to strengthen its supply chain resilience, focusing on geographic balance and multiple sourcing options to mitigate uncertainty. The Vertiv Operating System is driving tangible productivity gains and liberating capacity to support strong demand. The company anticipates a positive price/cost environment for 2025 and has built scenarios to strategically mitigate potential tariff impacts, including expanding its U.S. manufacturing footprint.

Capital Deployment & Balance Sheet Strength

With net leverage reduced to 1x and ample liquidity, Vertiv maintains consistent capital deployment priorities focused on growth investments, both organic and inorganic. The company has $2.4 billion remaining in share repurchase authorization and plans to double its annual dividend of $0.15 over the next five years, while also committing to achieving and maintaining investment-grade ratings.

Regional Performance & Outlook

Americas showed strong organic sales growth of 25% in Q4, with APAC up 27% (including China in upper teens). EMEA led with 33% organic sales growth in Q4, despite some project timing shifts impacting orders. For FY25, the company expects continued strong growth in Americas (low 20s), low teens in APAC (driven by India/rest of Asia), and high single-digit growth in EMEA, with catalysts for higher growth being monitored.

Technology & Innovation

Technology is at the core of Vertiv's strategy, with unique capabilities in power management and thermal technology. Recent innovations include flexible solutions for adapting data center infrastructure to changing conditions. The company announced the acquisition of BSE, which brings high-efficiency, high-capacity centrifugal chiller technology and heat reuse technology, reinforcing organic progress in high-density compute applications.

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