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    VRT
    Earnings call· Dec 2024(Q4 FY24)

    Vertiv Holdings Co 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

    19
    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

    3
    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

    17
    Adjusted EPS
    $0.9977% increase YoY
    Q4 FY24

    Direct reflection of substantial increase in profitability.

    Adjusted Operating Profit
    $504 million53% 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
    $2.8561% 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 millionincremental
    FY25

    Estimated incremental headwind for the full year.

    Share Repurchase Authorization
    $2.4 billionremaining
    current

    Remaining under Board authorization.

    Dividend
    $0.1550% 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

    4
    MetricValueDetails
    Orders bookings growth30%%
    Backlog by segment end marketup 30%%
    Data center exposure pipelineextraordinarily strong
    Incremental flow through margin21.5%%

    Orderbook & backlog

    5
    Trailing 12-month orders30%Q4 FY24

    Remained strong.

    Americas TTM organic orders50%Q4 FY24

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

    Southeast Asia, Australia, New Zealand, India TTM ordersup significantlyQ4 FY24
    Total backlogup 30%Q4 FY24

    YoY

    Despite FX headwinds.

    Backlog-to-sales ratio78%Q4 FY24

    vs 69% a year ago

    Relative to '24 actual sales.

    Product announcements

    1
    ProductTypeDetails
    BSE (chiller technology)launch

    Deals & partnerships

    1
    BSEAcquisition 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

    5
    EMEA Q4 orders weaknessQ4 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 ChinaEntering 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 impactsOngoing

    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 launchesQ4 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 shipmentsQ4 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

    5

    EMEA Order Recovery

    Q1 FY25 and throughout 2025
    CurrentWeak in Q4 FY24 due to project timing shifts
    TargetImproved 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

    5

    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 read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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 impact🌐s, including expanding its U.S. manufacturing footprint.

    04

    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.

    05

    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.

    06

    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.