Vertiv Holdings Co (VRT) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals strong financial performance with raised guidance, significant organic growth, and increased margins. The Q&A highlights proactive capacity expansion and optimism about market trends, particularly in AI adoption. Despite some regional challenges, the overall sentiment is positive, buoyed by strategic investments and collaboration with industry leaders. The absence of unusual large projects and the company's ability to scale with advanced technology further support a positive outlook. The positive sentiment is reinforced by the adjusted operating profit and EPS growth, suggesting a likely stock price increase.
Key Financial Performance
Fourth Quarter Orders Organically up 252% year-over-year and up 117% sequentially. This growth was driven by strong performance across all regions and markets.
Trailing 12-Month Organic Orders Growth 81% year-over-year. This would be even higher if recent acquisitions were included.
Book-to-Bill Ratio 2.9x. This indicates strong order intake relative to billings.
Backlog $15 billion, more than double last year's backlog. This growth reflects strong order intake and customer confidence.
Q4 Organic Net Sales Up 19% year-over-year, primarily driven by remarkable strength in the Americas, which grew 46% organically. APAC was down 9% and EMEA down 14%.
Q4 Adjusted Operating Margin 23.2%, up 170 basis points from Q4 2024. This improvement was driven by operational leverage, productivity gains, and favorable price/cost execution.
Q4 Adjusted Operating Profit $668 million, up 33% from the prior year. This was driven by strong operational performance, particularly in the Americas.
Q4 Adjusted Diluted EPS $1.36, up 37% from Q4 2024. This was driven by strong operational performance and volume growth in the Americas.
Full Year Adjusted Free Cash Flow Approximately $1.9 billion, with an adjusted free cash flow conversion of 115%. This was driven by higher operating profit and working capital efficiency.
Americas Sales Growth (2025) Up 46% organically in Q4 and 41% for the full year. This growth was broad-based across products and customer segments.
APAC Sales Growth (2025) Down 9% organically in Q4 and up 18% for the full year. The decline in Q4 was primarily due to macroeconomic conditions in China, while the rest of Asia remained strong.
EMEA Sales Growth (2025) Down 14% organically in Q4 and down 2% for the full year. The decline was due to market softness, though signs of recovery were noted in Q4 orders.
Full Year Adjusted Operating Margin 20.4%, up 100 basis points from the prior year. This was driven by productivity and positive price/cost execution.
Full Year Adjusted Operating Profit $2.1 billion, up 35% from the prior year. This was driven by strong operational performance and margin expansion.
Full Year Adjusted Diluted EPS $4.20, up 47% from the prior year. This was driven by strong profit growth and operational performance.
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Operating Highlights
OneCore: An end-to-end full data center solution that simplifies and accelerates the customer journey, reducing time to token. It can scale gigawatts in 12.5 megawatts built in blocks.
SmartRun: A converged and prefabricated white space infrastructure solution that accelerates data hall fit-out and readiness. It is flexible, scalable, and can be stand-alone or part of OneCore.
Americas: Continues to be the primary engine of growth with sales growth in the high 30% range projected for 2026. Strong pipeline and broad-based strength across products and customer segments.
EMEA: Market sentiment has improved with strong Q4 orders. Sales growth is expected to return in the second half of 2026.
APAC: Despite muted growth in China, strong growth is seen in India and the rest of Asia. Mid-20% growth is projected for 2026.
Operational Margin: Q4 adjusted operating margin was 23.2%, up 170 bps from Q4 2024. Full-year 2026 margin is projected at 22.5%, reflecting a 210 bps expansion.
Free Cash Flow: Adjusted free cash flow for 2025 was $1.9 billion, with a 115% conversion rate. For 2026, $2.2 billion is projected, reflecting 17% growth.
PurgeRite Acquisition: Strengthens fluid management capabilities for AI data centers, optimizing cooling and reducing downtime risks. Expected to scale globally through Vertiv's service network.
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Risk or Challenges
Market Volatility: The company has decided to stop reporting actual orders, orders forecast, or backlog with quarterly earnings due to the lumpy nature of orders and the unnecessary volatility it generates. This could lead to reduced transparency for investors and analysts.
Regional Performance Disparities: APAC sales were down 9% and EMEA sales were down 14% in Q4 2025. EMEA is expected to remain flat or decline in mid-single digits in 2026, and APAC's growth is hindered by muted performance in China.
Macroeconomic Conditions in China: China's muted growth is expected to persist in 2026, negatively impacting the APAC region's overall performance.
Material Inflation Pressure: The company is mitigating material inflation pressure through pricing mechanisms and supplier cooperation, but this remains a challenge.
Tariff Impact: The company expects to offset unfavorable margin impacts from tariffs by the end of Q1 2026, but tariffs remain a risk to margins.
Supply Chain Scaling: The company is working closely with suppliers to ensure they scale with Vertiv's growth trajectory, but this dependency on suppliers poses a risk if they fail to meet expectations.
EMEA Market Recovery: EMEA's market recovery is expected only in the second half of 2026, which could delay growth in this region.
Order Lumpiness: The lumpy nature of orders creates volatility and makes it difficult to predict future performance, which could impact investor confidence.
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Guidance & Outlook
Adjusted diluted EPS for 2026: Projected to be $6.02, representing 43% growth at the midpoint.
Net sales guidance for 2026: Projected to be $13.5 billion at the midpoint, representing 28% organic growth.
Regional sales growth expectations for 2026: Americas expected to grow in the high 30% range, APAC in the mid-20% range, and EMEA flat to down mid-single digits with recovery expected in the second half of 2026.
Adjusted operating profit for 2026: Projected to be $3.04 billion with a margin of 22.5%, translating to 210 basis points of expansion.
Adjusted free cash flow for 2026: Expected to be $2.2 billion, representing 17% growth.
First quarter 2026 guidance: Adjusted diluted EPS projected at $0.98 (53% growth), net sales at $2.6 billion (22% organic growth), and adjusted operating profit at $495 million (47% growth).
Pricing and inflation management for 2026: Pricing expected to exceed inflation, continuing the trend from 2025.
Capital expenditures for 2026: Expected to increase to 3%-4% of sales, up from the historical 2%-3%.
Market trends and demand: Strong demand expected across all regions and product technologies, with a robust pipeline and $15 billion backlog extending into the 12-18 month window.
EMEA market recovery: Sales growth expected to return in the second half of 2026.
APAC market trends: China's growth expected to remain muted, but strong growth anticipated in India and the rest of Asia.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What is the dollar value framework for orders per megawatt?
A:The framework remains at $3 million to $3.5 million per megawatt. Management noted that as technology evolves, the complexity and trajectory could positively impact the TAM per megawatt, but it is premature to make changes to the framework.
Q:What is the correlation between CapEx and sales growth?
A:CapEx as a percentage of sales is expected to move from 2%-3% to 3%-4%, correlating with growth trajectory. Capacity expansion is done gradually in meaningful steps rather than large jumps.
Q:Were there any unusual large projects or incentives for orders in Q4?
A:No, there were no unusual large projects or incentives. The large orders reflect market demand and the company's ability to scale with advanced technology. Orders are becoming larger but are not considered anomalies.
Q:What are the key operational steps to convert backlog into revenue and EPS?
A:Key steps include accelerating capacity expansion through CapEx and productivity improvements, obtaining more output from existing footprints, and working actively with the supply chain. The company has been diligent in making capacity available gradually but rapidly.
Q:What is the outlook for Europe and Asia markets?
A:In Europe, there is an acceleration of investments and realization of infrastructure needs, with specific regions like the Nordics performing well. In Asia, the market demand is currently weak, but this is attributed to general market conditions rather than competitive dynamics. The company remains optimistic about its position in both regions.
Q:How much visibility does Vertiv have into future data center workflows?
A:Vertiv has strong relationships with data center industry leaders and other ecosystem players, allowing them to look 2-3 years ahead in R&D and engineering processes. They work closely with customers to architect technology solutions tailored to their strategies.
Q:What is the aging and duration of the backlog?
A:Customer-requested lead times for large orders typically range from 12 to 18 months. The strong order intake in the second half of the year has pushed some deliveries into 2027, while 2026 is well-covered.
Q:What is the status and outlook for Vertiv's service organization?
A:The service organization is rapidly approaching 5,000 field personnel, with capacity growth aligned with delivery capacity. The company is also focusing on digitalization and technology advancements in services.
Q:What is the expected trend for backlog in 2026?
A:Management expects orders to be up in 2026, leading to a directional increase in backlog.
Q:What is the company's view on cooling product mix and market share?
A:The evolution of cooling technology is favorable for content per megawatt. Hybrid cooling and thermal chain infrastructure are becoming more common, and Vertiv's Trim Cooler product is optimized for high-temperature operations. CDUs are expected to remain a long-term element of the thermal chain.
Q:What are the company's core incrementals and investment plans?
A:Core incrementals are guided at the lower end of the 30%-35% range due to higher growth investments. Management remains confident in the long-term trajectory.
Q:What is the utilization of existing production capacity and lead times?
A:Capacity utilization includes a 20%-25% wiggle room for growth. Lead times have slightly expanded for some product lines but remain aligned with customer and market expectations.
Q:What is the status of the pipeline and criteria for backlog inclusion?
A:The pipeline is growing quarter-to-quarter despite strong order intake. Backlog includes legally binding purchase orders, often with advanced payments.
Q:Review of Unclear Management Responses
A:Management avoided providing specific guidance on future orders and backlog growth in 2026, stating it would be premature to guide orders in detail. Additionally, they did not provide precise details on the impact of specific large orders on deferred revenue inflows or the exact mix of orders contributing to working capital improvements.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
APAC offset
CFO
China
EMEA margin
Full Conference
Instructions
Nadia
OneCore
PurgeRite
Sales
Slide
SmartRun
capability customer
confidence market
customer segment
decline
disclosure
discussion
expansion leverage
flow capital
fluid
hand
improvement sale
leverage price
life
margin expansion
midpoint sale
momentum
network
offset EMEA
order intake
payment
point margin
price cost
product customer
rate
service capability
simplicity
space infrastructure
strength Americas
supplier
tax
trend
vision
volatility
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