Vertiv Holdings Co

Operator: Good morning. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to Vertiv's First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the program over to your host for today's conference call, Lynne Maxeiner, Vice President of Investor Relations. Lynne Maxeiner: Great. Thank you, [ Jeanie ]. Good morning, and welcome to Vertiv's First Quarter 2026 Earnings Conference Call. Joining me today are Vertiv's Executive Chairman, Dave Cote; Chief Executive Officer, Gio Albertazzi; and Chief Financial Officer, Craig Chamberlain. We have 1 hour for the call today. During the Q&A portion of the call, please be mindful of others in the queue and limit yourself to one question. And if you have a follow-up question, please rejoin the queue. Before we begin, I would like to point out that during the course of this call, we will make forward-looking statements regarding future events, including the future financial and operating performance of Vertiv. These forward-looking statements are subject to material risks and uncertainties, that could cause actual results to differ materially from those in the forward-looking statements. We refer to the cautionary language included in today's earnings release, and you can learn more about these risks in our annual and quarterly reports, and other filings made with the SEC. Any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events. During this call, we'll also present both GAAP and non-GAAP financial measures. Our GAAP results to non-GAAP reconciliations can be found in our earnings press release and in the investor slide deck found on our website at investors.vertiv.com. With that, I'll turn the call over to Executive Chairman, Dave Cote. David Cote: I'm very pleased with how we started the year. The momentum we're seeing across the business is strong. It's translating into the kind of performance that gives us confidence to [indiscernible] our outlook for the full year. What we're seeing in customer conversations is different than 6 months ago. The urgency has increased. The scale deployment is larger, and the technical complexity is creating opportunities for companies that can solve [indiscernible], which is exactly where we excel. We're seeing broad-based strength, and that tells you something about the depth of demand and our ability to capture it. I like what we're seeing in the industry and the continued evolution of Vertiv. We're still in the early stage of the infrastructure build out for AI. Our competitive advantages are compounding. If you can deliver product systems, integrated solutions and services that scale, you become even more important to your customers' technology road map. We're also managing the challenge as well. Tariffs, supply chain, complexity, labor constraints. These are real. But they're manageable. And additionally, they raised the bar in ways that favors established players like us. Gio and the team are executing very well in this rapid growth environment, balancing aggressive growth and share gain with operational discipline. We're expecting a strong year ahead and strong years in the future. So with that, let me turn it over to Gio to discuss it further. Gio? Giordano Albertazzi: Thank you very much, Dave. Let us go to Slide 3. Well, I'm quite pleased with how we started 2026. Q1 was very strong with organic sales up 23% year-on-year. We reported growth of 30% when we include M&A and FX. From a regional perspective, America was the primary engine with 44% organic growth. APAC was up 12% organically, while EMEA was down 29% organically. In the few slides, you will hear us elaborate on some of the [ encouraging ] dynamics we are seeing in EMEA. Adjusted operating margin came in at 20.8%, up 430 basis points year-on-year, and 180 basis points above our guidance. Margin performance and strong top line growth drove adjusted operating profit of $551 million, up 64% year-on-year. Adjusted diluted EPS of [ $1.17 ] were up 83% versus Q1, '25 and exceeded our guidance by $0.19. Adjusted free cash flow of $653 million was up $147 million versus the prior year, driven by higher operating profit and continued working capital improvement. We are raising our full year guidance, and we now expect adjusted diluted EPS of $6.35, up 51% from 2025. This is supported by raising our adjusted operating profit guidance to $3.2 billion, up 53% from 2025. Adjusted operating margin is now expected to be 23.3% to 190 basis points higher than 2025. And let's go to Slide 4. Let me start with the market environment. Our pipeline momentum continues to be strong. Our pipeline generation is robust and we're still expecting another year of strong orders performance in 2026. We anticipate orders to be up year-over-year, which reflects the sustained demand environment we are seeing across our markets. Americas continues to show remarkable strength. The market momentum is broad-based and robust. Our pipeline in the region continues to expand as we convert opportunities. In EMEA, the spring continues to uncoil. We're seeing improving market sentiment throughout the quarter with momentum building. I know we do not disclose orders but we are very pleased with EMEA's Q1 bookings. We feel good about EMEA returning to year-over-year sales growth in the second half, which you see embedded in our guidance. When it comes to APAC, we see positive market dynamics across the region. Rest of Asia and India are showing convincingly strong pipelines and dynamics with robust momentum building. China is also showing encouraging pipeline movement, and this positions us well as we move through the year. On pricing, we continue to see favorable dynamics. We expect positive price costs in '26, including the impact of tariffs and tariff countermeasures. From a manufacturing and supply chain perspective, we're expanding while continuing to strengthen our resilience. Our regionalized footprint and multi-sourcing strategies are maintaining stability despite evolving dynamic trade dynamics and tensions in the Middle East. We are accelerating our strategic capacity investments to meet the demand we are seeing. We're expanding our global manufacturing service footprint while unlocking latent capacity with VOS driven productivity gains. Our cost management remains disciplined. We expect these investments to position us very well for the current and future demand environment. We manage commodities and components proactively. This, combined with our multisource model and supplier diversification provides a critical buffer in what remains an inflationary environment. Through various countermeasures, we are actively working to mitigate tariff exposures, including recent changes under Section 122 and 232. In this very dynamic environment, growth-wise, geopolitically, et cetera, we stay focused on supply chain resilience, growth, capacity expansion and navigating the tariff environment. A lot going on. But we are focused on execution. And let's go now to Slide 5. We continue to see very robust growth in demand for data centers. And as a result, we are focusing investments on capacity expansion, supply chain and engineering capabilities. We are committed to continue to grow capacity, supporting our customer demand, and we continue to deliver above market growth. Our CapEx in Q1, sustainably higher than in the same quarter last year is a testament to that commitment. We are making significant investments in capacity expansion across both manufacturing and services. On the manufacturing side, we're expanding capacity organically across multiple sites globally and particularly across the Americas, on which you see some details here. These investments are strategic and positions us to meet the accelerating demand. We do this for growth but also to bolster our overall operational resiliency. This capacity expansion is broad-based, power management, thermal management, infrastructure solutions and IT systems across all technologies. We're doing the same with our services capability. Specifically, we are scaling our people and service capacity vigorously and [ convincingly ], across all service technologies and regions. In particular, the acquisition of [indiscernible] significantly strengthens our fluid management and liquid cooling capabilities, enhancing our system-level services offering. This is one of the most technically demanding and financially consequential aspects of modern data center operations. With respect to our supply chain, we have prioritized multi-sourcing strategies to mitigate supplier risk. Strategic acquisitions are further strengthening our supply chain capabilities. And finally, we continue to prioritize investment in our engineering capabilities in multiple directions. Clearly, one is engineering labs, central to development of our technology portfolio. Customer witness test capabilities are another important area of investment. The complexity of data center technologies requires extensive test capacity at the beginning of a delivery. Growing customer test capacity with volume is a growth enabler. We will have an opportunity to continue to elaborate on what capacity expansion means during our upcoming Investor Day. And with that, it's over to you, Craig. Craig Chamberlin: Thanks [indiscernible] Let's start with the first quarter results on Slide 6. As you can see, we had an excellent start to the year. Adjusted diluted EPS was $1.17, up 83% year-over-year and $0.19 above our prior guidance. On the top line, net sales were $2.65 billion, up 30% versus prior year, with organic net sales up 23%, with acquisitions contributing 4% and favorable FX adding 3%. This organic growth was driven by Americas, up 44% and APAC up 12%, partially offset by EMEA down 29% organically. Adjusted operating profit of $551 million increased 64% versus the prior year and came in $56 million higher than our guidance. Our adjusted operating margin of 20.8% expanded by 430 basis points versus last year, showing a great operating performance from the team. The main drivers were strong operational leverage on higher volumes, productivity gains and favorable price cost execution, which was partially offset by ongoing tariff headwinds. On the cash side, we delivered $653 million of adjusted free cash flow. That's up 147% from the prior year first quarter. This was supported by higher operating profit and working capital efficiency, partially offset by higher cash tax and increased net CapEx, as we continue investing in capacity and ER&D to support business growth. We exited the quarter with net leverage of 0.2x, providing us with significant strategic flexibility. Flipping to Slide 7. Let's look at segment performances by region. Americas delivered another outstanding quarter. Net sales were $1.81 billion, up 53%, with 44% organic growth. reflecting strong broad-based momentum across nearly all product lines. Adjusted operating profit was $490 million, with margins benefiting from operational leverage, disciplined execution and partial intensity. Looking at APAC, net sales were $514 million, up 15%, 12% organically. Organic growth came in below quarterly guidance, primarily due to timing. Adjusted operating profit of $67 million was up approximately 48% year-on-year, mainly driven by volume leverage and operating discipline. Turning to EMEA. Net sales were $321 million, down 29% organically. We believe this is a temporary reflection of softer orders that we saw in Q2 and Q3 of 2025. However, we are seeing opportunity generation accelerating, reflecting improved customer demand and supporting a return to sales growth in the back half of 2026. We saw a step down in margins here year-over-year due to operating deleverage. However, our conviction has gotten stronger for a second half recovery in EMEA, which you see embedded in our EMEA full year guidance. On Slide 8, let's discuss our second quarter guidance. We're projecting adjusted diluted EPS at the midpoint of $1.40, which is 47% higher than our second quarter 2025. Net sales at the midpoint are $3.35 billion, which reflects 27% net sales growth versus prior year. Adjusted operating profit at the midpoint of $710 million represents 45% growth versus second quarter 2025. This strong profit growth is supported by robust organic sales growth and continued operating leverage. Adjusted operating margins at the midpoint of 21.2% is up 270 basis points, supported by strong organic sales growth [indiscernible] cost leverage. Additionally, we expect to materially offset unfavorable margin impact from tariffs. This guide reflects our confidence in the strength of our market position and our ability to execute on the significant opportunities ahead of us. Now on to Slide 9. Let's talk about our full year 2026 guidance. We continue to expect another strong year of strong performance across all key metrics. We are raising adjusted diluted EPS guidance by $0.33 to a midpoint of $6.35, which represents 51% growth versus prior year. For net sales, we're updating our guide to $13.75 billion at the midpoint, reflecting 34% net sales growth versus prior year. By region, we expect organic growth rates of high 30s in Americas, mid-20s in APAC, and flat in EMEA. The updated adjusted operating profit is now at a midpoint of $3.2 billion, representing 53% growth versus prior year, and $160 million higher than our prior guidance. This strong profit growth is driven by a combination of robust organic sales growth and continued operational leverage. Finally, on margins, we're guiding to 23.3% adjusted operating margin at the midpoint, an expansion of 290 basis points from 2025, and 80 basis points [ tied ] in our prior guidance. This expansion is supported by 30% organic sales growth and continued operational leverage. We expect to be price/cost positive for the year, inclusive of tariff impact and the countermeasures. With fixed cost leverage, [indiscernible] in growth, ER&D and capacity. For adjusted free cash flow, we're maintaining our guidance $2.2 billion at the midpoint, up 17% versus prior year, primarily due to higher operating profit, partially offset by higher cash tax and net CapEx investments. With that, I'll hand it back to you, Gio. Giordano Albertazzi: Well, thank you, Craig, and let us go to Slide 10. And before I wrap up, I once again want to invite all of you to tune in to our 2026 investor conference that will be held on the 19th and 20th of May in Greenville, South Carolina. This will be an excellent opportunity to gain first-hand insight into Vertiv's visions and strategy from our leadership team. On the first day, the agenda includes a comprehensive market update, a detailed financial overview, and our updated multiyear outlook and Q&A sessions, of course, with the leadership team. The following day, we will have a technology session where you'll hear about how we continue to innovate and drive the industry. This will be followed by a tour of our Pelzer Infrastructure Solutions facility for those who will be joining us in person. It's going to be a great opportunity to see what we're building and where we are headed. And now let's go to Slide 11. Our first quarter results were strong testaments to Vertiv's execution capabilities and the momentum continuing to build in our markets. The demand environment is robust and we are very well positioned to carry that forward. We have received -- we have recently announced two strategic acquisitions that are expected to strengthen our competitive position. [ Thermal Key ], which is anticipated to close in a few months, we'll expand our thermal management portfolio with great heat exchange know-how and a leading range of dry coolers, a capability for the globe, starting in EMEA. Heat rejection is becoming more complex for AI data centers and a portfolio comprising chillers, dry coolers, trim coolers, offers great flexibility and efficiency opportunities for our customers. [ B, market ] structures, which brings custom engineers structural fabrication capabilities that accelerate our ability to deliver manufactured and converged infrastructure solutions at scale. Both are expected to provide capacity and capabilities to better serve our customers while expanding our technology base. We have raised our 2026 guidance, reflecting our confidence in the trajectory of the business and opportunities ahead. EMEA is absolutely part of the AI story. And we're seeing that play out with customer projects like [ Ecodata Center ] in Sweden designed to support the most demanding AI workloads with NVIDIA's latest generation [indiscernible]. [ Vertiv 1 ] core was selected to deliver the full data center solution here, encompassing power, thermal IT white space and services. We are excited about our collaboration with [ C Power Energy ]. Together, we are enabling U.S. data centers to turn their on-site energy assets into grid resources, accelerating speed to power, improving resilience and reducing cost for data centers and their communities. This is the kind of end-to-end thinking that sets Vertiv apart. Our long-standing customer relationships, combined with our partnerships create a significant competitive advantage that is very difficult to replicate. We continue to move further and the market is recognizing it. Achieving investment-grade credit ratings and inclusion in the S&P 500 are meaningful milestones. They reflect the strength of this business, the execution prowess of this team, and the confidence the market has placed in our trajectory. I do not take that lightly. Neither does the rest of the Vertiv team, we hold ourselves to a high standard and will continue to raise the bar. We had a strong quarter. We expect to build on it and we will. And with that, we can begin the Q&A. Operator: [Operator Instructions] And your first question comes from the line of Scott Davis with Melius Research. Scott Davis: Can you talk about the prefab market, like how important this market is? Or is there any way to think about a TAM? You seem to have a lot of content in prefab. I'm just trying to get a sense of how the customers view the importance of that content? Giordano Albertazzi: Thank you for the question, Scott. Multiple dimensions to this. One is we know that speed, or time to token is absolutely essential in the market. Clearly, prefabrication alleviate challenges on site -- the construction site is always a complex system to manage. There is a scarcity of talent trade resources we see, and we certainly are stimulating, if you will, an increasing adoption of prefabrication. But there is way more to it than that. For us, prefabrication is not just prefabrication. It's convergence of our solution into a system like [ one core ], not only [ one core ], but [ one core ] SmartRun. It's systems that are designed, converged and optimized already from the beginning on a given set of [ Lowe's ] and silicon. But -- and it is also a way to make the whole system more efficient and more dense in many respects. So there are multiple reasons why this is being adopted. And there are multiple reasons why we believe we are ahead of the pack here because we're not just an integrator. We provide technology. You were also asking about the TAM for us. Clearly, that is a concentrator of opportunity for us because the prefabrication is, for us, an old Vertiv technology solution. So that help us to capture more of the TAM. Scott Davis: That's helpful, Gio. Excuse my voice, the allergies are [ killing me since ] the last couple of days. You mentioned capacity adds with productivity and I'm kind of intrigued. What kind of productivity levels can you run when you try -- I mean, you're adding capacity, obviously, quickly, you're trying to get a lot of stuff out the door. What kind of levels of productivity can you actually run at just kind of leave it at that? Giordano Albertazzi: Well, my productivity comment was really kind of the manufacturing systems in a factory vis-a-vis having kind of a piece-by-piece assembly going on, on site, that is the traditional way in which the data center business is run. I wouldn't go down the path of exactly comparing. But when we prefabricate them, certainly, we will have an opportunity to have a direct conversation when we look the floor in Pelzer. But we definitely achieved manufacturing productivity levels when we manufacture the systems. Operator: Your next question comes from the line of Amit Daryanani with Evercore. Amit Daryanani: Perfect. I'll try to stick to Lynne's ask for one question. Maybe it's a multipart though. Gio, the calendar '26 guide that you folks have right now, sort of, implies 30% organic growth for the full year, versus I think we've done like 22%, 23% growth in the first half of the year. Can you just help us understand what are the levers that you're seeing? And maybe you can quantify some of these levers that you're seeing that enabled the step-up in growth in the back half versus the first half? Assume EMEA and maybe more capacity in [ Rubin ] are all parts of the story. But I would love to just understand what do you see that gives you confidence that growth can accelerate organically in H2 versus H1? Giordano Albertazzi: Okay. I will start. Certainly Craig will also complement here. But -- but I'd say that it's really 2 things, if you really think about it at a high level. One is capacity. We are adding capacity, we're constantly adding capacity. But you could see from our CapEx profile, and what we mentioned about Q1, we're very, very focused on adding capacity and a lot of that capacity start to hit us in the second half. But the other thing is if you think about our Q4 orders, there certainly is a good load of backlog in that part of the year. If you think about the customer requests lead times that we've been talking quite extensively. So there's more to it, but I would say those are two important element to the equation. Craig Chamberlin: Yes. And Amit, I'll just -- I'll double-click on that a little bit. You're right in terms of APAC and EMEA. When you think of them in terms of the first half versus the second half, there is an accelerated growth in the second half in both of those regions. And we've talked extensively about that in terms of what we look like from -- and what we expect the coil to the uncoiling of EMEA to happen. And how we're seeing that come through. And that's the way it is in the guide as well. Operator: Your next question comes from the line of Jeff Sprague with Vertical Research Partners. Jeffrey Sprague: I want to come around to service. Obviously, a very clear acceleration in the last several quarters and actually service growth kind of couplings of product growth in the Americas. We've been waiting for this backlog growth to really come through strongly. It looks like it's happening at this point. But could you maybe just address kind of the field organization, the ability for service to grow at this pace. How the margin complexion of service may or may not be changing, and just how to think about that outlook over the balance of the year? Giordano Albertazzi: Yes. There's certainly multiple angles here, Jeff. And again, I'm sure we'll have an opportunity to further elaborate in May. But at a high level, [indiscernible] satisfied with the trajectory of services, and that's true for both the project services and the life cycle services. To your question about what is our structural organization. We're very, very present in the territory, very, very local. But at the same time, we understand that those -- the big projects that are out today are also sometimes concentrated. So we have developed the ability to move people and have teams of people that are dedicated to addressing the big data center deployment when it comes to project services. But we remain and we continue to nurture and strengthen and grow a very good on the territory type of services presence. We mentioned a couple of times that we are investing heavily. I mentioned it in my script, we are growing our services population, and we will have details in May. And of course, here our strength and tradition and experience in training, e-commerce is absolutely essential, combined with increasingly strong tools that are at the tip of the finger of our engineers. So absolutely multi-faceted. What we like when we talk in general about services is the fact that the installed base that is being created is very, very conducive to our life cycle capture and business over time. Craig Chamberlin: Yes. And Jeff, I'll just double click on that a little bit, too. In terms of on a reported basis, yes, products and services are equal. If you look at organic, you're seeing the feeling or you're feeling the impact to [indiscernible] right there as well. So I just wanted to get to be sure that you kind of understood that. [ Pelzer ] is a big impact for us, but so we like that. Jeffrey Sprague: Yes, I did see that. I wonder, though, if you could also just, maybe, a little bit more color on how to think about margins. I guess the nature of my question is right, labor-related services. We don't think about operating leverage, right? It's man hours or people hours, but there's kind of other more sophisticated services that come into play. So just how should we think about operating leverage in that business as it grows? Craig Chamberlin: No. I mean I think you would probably -- you point to the fact of what we're seeing from our own overall incremental margins when you think about that. So overall incremental margins were always in the neighborhood of 30% to 35%. I would say that would kind of be similar in terms of the way that we would expect services to pull through as well. Operator: Your next question comes from the line of Andrew Obin with Bank of America. Andrew Obin: Just maybe we can talk about the evolution of behind the meter has become a lot more prominent over the past 4, 6 months. What technology avenues does it open to Vertiv? And I'm sort of thinking controls, best controls, sort of UPS transition as part of direct current architecture. But also maybe different chiller technology things like absorption chillers. I'm sure you've thought about the road map over the next 2, 3 years, and I know you'll talk about at the Analyst Day, but seems to be evolving fairly rapidly, how are you positioned? Giordano Albertazzi: Well, I think you've guided pretty much right, Andrew. In terms of -- certainly bring your own power is something that is here to stay, and we see it very, very clearly. We talked about partnerships today. Remember the partnership we have with [ Caterpillar ], with Oklo. So in various shapes and forms, bring your own power is a very important part of the data center equation, especially in the U.S. certainly, we play a role in everything micro-grids [indiscernible] storage systems interfacing and making sure that the entire powertrain be it direct or alternate are consistent and designed for a bring your own power solution. But -- as we -- multiple times -- and we keep saying the data center needs to be looked at as one system. So you're right when you say, hey, this is the implications might have implications also on the thermal side of things, so exactly absorption is one of -- one of the things. Then naturally, people and we think about. So we will have more details in May. But rest assured that we see bring your own power being an integral part of how we design and think a data center. So it is an opportunity for us ultimately because it makes the system more complex and with more -- possibly with more content for us. Operator: Your next question comes from the line of Nicole DeBlase with Deutsche Bank. Nicole DeBlase: Can we just double click a little bit on what you're seeing in EMEA. It seems like from the commentary at the beginning of the call that you're gaining conviction in the second half ramp. So could you just talk a little bit more about what you're seeing and hearing from customers there that's driving that higher confidence? Giordano Albertazzi: Well, we see -- well, you're right, exactly as I said, we're very pleased with our Q4 orders. We are very pleased with the Q1 orders and pleased by the -- what we see in the pipeline. So we see the market moving. We see a pipeline acceleration increasing. That is really a signal and to proof of a service [indiscernible] market and a demand that is there, which was natural. That's why we were talking about a coiled spring because there is a shortage of data center capacity, significant shortage of data center capacity, and even more profound shortage of AI-capable data centers in EMEA and in Europe, in particular. So hence, the dynamics that you see. And of course, we are very well positioned in Europe because of historically our strong presence but also because a lot of the players are players here and are players in Europe. So there is a very encouraging opportunity there. Operator: Your next question comes from the line of Patrick Baumann with JPMorgan. Patrick Baumann: Just had a quick one on margins. Just wanted to see if you could give some color on the sequential expectations. So from first quarter reported to the second quarter guidance, looks like the incremental margin is kind of in the low [ 20s ]. And I'm just wondering if you could unpack the moving parts on that, whether it's capacity investments, or tariffs or whatever. Just any color you can give on that. Craig Chamberlin: Yes. And Patrick, I would say, again, when we look at it sequentially or year-over-year, year-over-year, it's in the low 30s, which is what we are expecting in terms of our guide. Quarter-over-quarter, there is a little bit of a headwind as we bring on capacity. This is probably one of our bigger ramps in terms of capacity in the second quarter. So there would be a little bit of a, I'd say, a change in that when you look at it for the first quarter to second quarter. But if you look across the full year, we're still guiding to that between that 30% to 35% for the overall sequential margin. So I'd say it's a bit of a bump from 1Q to 2Q in terms of when we're bringing on capacity and working through all the different various actions that we have to do, offsetting all the tariffs and working through that, the [ 232s ] have now changed. So there's a little bit of a dip there, but I'd say, overall, still feel very strong about the year being in the 30% to 35% range that we've given. Patrick Baumann: Just a quick follow-up on that. The tariffs, I think you said to materially offset it, you thought that would be at the end of first quarter. Is that kind of slipped out to second quarter now because of the changes? Or are you kind of already there at the end of the first quarter? Craig Chamberlin: I'd say we're already there at the end of the first quarter. As 232s have changed, we're continuing to do, I'd say, actions and countermeasures around those. And if you look at it for the year, we feel confident that we'll continue to materially offset those. Operator: Your next question comes from the line of Andrew Kaplowitz Citi. Andrew Kaplowitz: Obviously, you've talked about the Americas continue to be strong, but maybe you could talk about how much of the business is still being driven by hyperscalers in colo versus enterprise. I assume it's still heavily weighted towards the forum. But enterprise markets seem to be picking up a bit given AI needs and usage. When could that impact Vertiv? Is it something you see accelerating in 2027 or not, sort of yet? Giordano Albertazzi: Clearly, we continue to see hyperscale colo, new cloud being the biggest driver of certainly is true in the Americas, but globally pretty much. Certainly, there is -- there is an element of enterprise here. A lot of enterprise will continue to happen through cloud. So not always easy to separate. But we see enterprise started to adopt AI when that will be visible in terms of growth above the levels that we shared with you in the past, that's something that we will certainly elaborate in May, but it's probably a little bit still far away as independent. There is a lot happening at colo level, if that helps. Operator: Your next question comes from the line of Chris Snyder with Morgan Stanley. Christopher Snyder: I wanted to ask about the transition to 800-volt architecture. There's a lot of moving parts, but just wondering what does this mean for Vertiv content? And when does the company expect to start shipping to these 800-volt design facilities. And just specifically interested in liquid cooling and wondering if there could be some TAM expansion with applications beyond just cooling the chips as they're [indiscernible] a higher level of heat presumably running through the facility? Giordano Albertazzi: Chris, thank you for your question. Clearly, we've seen early as a transition -- a wholesale transition to 800 volt. Clearly, 800 volts going to be an important portion of the total market as we go into 2027 and beyond. We are on our on time with our programs. We were talking about second half this year launches of portfolio. We are pleased with where we are in terms of the customer feedback with the prototypes and validation activities that we have ongoing. Shipping will be a little bit further away, but I think it's a little bit premature to elaborate too much where we see it as a 2027, I think this one. When it comes to liquid cooling the influence of 800 volt. I would say that there will be a correlation, [indiscernible] necessarily simply because 800 volt DC is applied for very high density compute. That very high-density compute will see not just liquid cooling for the chip, but for a much bigger array of electronics across the entire IT stack. And of course, that has then influenced the entire powertrain, thermal chain. So we see that as an opportunity for us. We're very excited very excited about -- very pleased with where we are with the 800-volt DC programs, and we're getting ready for it. Operator: Your next question comes from the line of Amit Mehrotra with UBS Financial. Amit Mehrotra: I just wanted to ask a question about the pipeline. I think what was so interesting last quarter is, obviously, you had a big, big order number, but I believe the pipeline also grew double digits sequentially. Maybe you can just talk about the pipeline as it kind of evolved in the first quarter, momentum and quoting activity funnel. Anything you can give within the confines of not talking about orders? Giordano Albertazzi: Yes. Well, thanks for -- thank you for the question. Clearly, we were very vocal about the strength of the pipeline before. And we are as vocal about the strength of the pipeline in -- at the end of Q1. And with that, the pipeline duration, that to us is exactly what you defined as the activity volume of commercial volume of commercial activity. And this growth and this dynamism is broad-based. It's broad-based across our technology range and it's broad-based across our regions. So very pleased and very encouraged, and hence our comment about our overall year orders. Amit Mehrotra: Anything to call out in duration? I know you said most of it is within 12 months, maybe some leading it to 18 months. Any change in complexion on the orders as you come into the first quarter or second quarter in terms of duration or not? Giordano Albertazzi: You're talking pipeline or you're talking orders, just to be clear? Amit Mehrotra: Talking about orders. I'm talking about what's in the backlog right now, the growth? Giordano Albertazzi: What's in the backlog? Could you think about a backlog shape that is, if anything, a little bit more elongated, but not something dramatic to the point that the shape of the backlog is totally different. So there is no distortion of backlog. If anything, it's a backlog, that is a little bit more elongated. That, of course, gives us visibility, good visibility in 2020 -- in 2027. As we said, a lot of the projects in the industry are large projects where customers asked for, call it, [indiscernible] sorry, 12 to 18 month delivery windows. We have seen some occasions the very requested delivery window shorten a little bit. We, of course -- maybe on that 9 to 12 months window. Our average delivery time of which we're capable are shorter than that. But again, you can't really say different product lines. Different dynamics, different dynamics, supply and demand. But in general, despite the fact that, of course, it's everything very dynamic, pretty too much I go back to what I was saying. A backlog that is not dramatically different, if anything, a little bit more elevated. Operator: Your next question comes from the line of Julian Mitchell with Barclays. Julian Mitchell: Maybe just to switch tack a little bit to the sort of cash flow and balance sheet. I suppose, just trying to understand the free cash flow dollar guide is unchanged, and I can see the sort of bigger working cap outflow dialed in, but I would think you'd get good customer advances from orders and your working cap was a nice tailwind in Q1. So maybe just talk us through sort of the thinking there and the balance sheet allied to that, extremely unlevered as a result of that good Q1 cash flow? Any highlights you'd give us on sort of capital deployment from here? Craig Chamberlin: And I'll start off and I can pass it to Gio. But I would say in terms of just looking at the working capital over the course of the year, kind of two points on that. One is, yes, we are investing in terms of the ramp. So you see a little bit of a drag from that from an inventory perspective. And when we look at our order book and forecast out the way that we look at customer down payments, or customer advancements, we are a little bit prudent in the way that we look at that in the way that we forecast that. So both of those come into consideration when we look at the guide, Julian. So again, you're feeling a little bit of that and we're we basically would say the same thing is, one, there's a little bit of a ramp in terms of inventory. And two, just some prudence in the way that we look at our order book and the down payments we expect. On number two, on the capital deployment when you think of the [ 0.2 ] leverage, I think we go back to what we've said all along is there's two spaces where we love to invest in on a regular basis, and that's R&D book and the capacity book. And you can see on the flow-through of our cash statement that we're following with that -- that drumbeat that's what we like to do, and that's where you see continue to invest heavily. The other portions of that are capital deployment in terms of M&A, or stock buyback, or increased dividends. I think the biggest area that we had used cash there and that we always look to have some dry powder would be the M&A space. We've done some this quarter, as you saw. I think we'd continue to keep that open and that optionality available for us. Giordano Albertazzi: Yes. No, absolutely. Maybe [indiscernible] comments on the M&A side, you see us having a very dynamic posture in that respect. When we say -- it said and continue to say that our pipeline is -- M&A pipeline is very active. You have seen us do acquisitions that are also on predominantly technologized. We love technology. And our pipeline is well structured and quite convincing. So we'll continue to be focused on this area of capital deployment. Operator: Your next question comes from the line of Deane Dray with RBC Capital Markets. Deane Dray: I wanted to ask about the standard modular liquid cooling products. Just very interested in the level of customer take on this? And what role will this product line play in the rollout to more of the colos and enterprise customers? Giordano Albertazzi: Can you help me a little bit, Deane, because we have a very robust portfolio. I'd say, probably -- without probably, we believe the most robust. Can you help me exactly when you say standard liquid cooling product? Deane Dray: Yes, these were the ones that were talked about and displayed at the last super compute. So you're seeing -- you've heard in references [ lid cooling ] in a box. And it's just for the customer, the colos and enterprise who may not need such a customized system that Vertiv is now has this line, and as are some of your competitors on more of a standard modular design. Giordano Albertazzi: Yes. Let me elaborate on that. And thank you, Deane, for your question. When it comes to the liquid cooling portfolio, we have certainly an ability to provide very optimized liquid cooling solutions on specific [ second ] types, so absolutely optimized. We have a total ability to customize to customer needs when that is required. So it is both an ability to talk to our customers and say, hey, this is what you really need for this type of silicon, but also it is an opportunity for our customers to have exactly their design, depending on very specific in some cases, requirements. But if we go to super compute, the center stage was our smart run solution, which is the entire white space infrastructure comprising everything, white space data hold, power distribution, liquid cooling. So I would say that the integration and the convergence of that solution across multiple technology areas that normally happens on site with great consumption of time and cost is something that we have changed dramatically with a SmartRun. So SmartRun is extremely successful, and I think we have done our part again to change the way the industry works. Deane Dray: Are you expecting more regulation in liquid cooling. There's been a lot of discussion about that and what would the implications be? Giordano Albertazzi: Not necessarily. I think there is a -- the -- this part of the industry is maturing. So there are some of the let's say, way things are done are maturing and stabilizing a little bit in terms of water temperature, et cetera. But that, too, evolves over time as we know. Operator: Your next question comes from the line of Nigel Coe with Wolfe Research. Nigel Coe: So I want to go back to the strength in free cash flow in 1Q and obviously, you had another very strong quarter of deferred income customer deposit bookings. And I'm just thinking, is this a way to think about backlog growth in the quarter? And I guess my question is, do we typically book the cash from the deposits in the same core as the orders? Or is this a reflection of the strength we saw last quarter? What I'm just waiting to say, is that a way to think about the backlog growth? Craig Chamberlin: I mean I think it depends on the customer, Nigel, in terms of what we get from an advanced payment perspective, or will we get from a downs -- a down payment perspective. And their payment terms in terms of when the actual cash would come in. So again, some of that strength in the first quarter is going to come from payments that were from orders in the fourth quarter. Some of it's going to come from orders that were in the first quarter. And that will continue out through the year. And as I was just mentioning to Julian, as we look at our working capital across the year, we are a little bit prudent in terms of how those payments will come in and when they will actually execute. And how much we would get from a percentage perspective when we look at the order book as well. So it's a combination of all those things. But again, it is a way to look at backlog, but it's not entirely our read through. Operator: Your next question comes from the line of Mark Delaney with Goldman Sachs. Mark Delaney: I want to better understand what the mix shift over time towards solutions like SmartRun and [ One Core ] means for your margins? And if there's a meaningful difference in what investors expect for incremental margins as those become a bigger piece of your overall sales mix? Craig Chamberlin: Yes. I mean I don't think in terms of -- as you mix more towards those, you're going to see a margin dilution from a mix perspective. I would say we'd be able to hold relatively on a product basis, margins kind of in line with what we'd expect historically as you mix towards those product lines. So I don't expect a major mix headwind from that. As we look at it becoming a bigger portion of our sales and our outcomes. I would say, again, there's multiple products in there, and there's multiple mixes that we would go across all the different business units. So I wouldn't say it's a significant headwind that we're looking and we're adjusting for. Operator: Your next question comes from the line of Noah Kaye with Oppenheimer & Co. Noah Kaye: I guess just one related question to that. Because Gio, you talked at the start about the convergence, right, of different disciplines, power, cooling, IT. Historically, we saw a lot of procurement of the different components based off of best point solutions. If that's shifting, can you talk a little bit about how it's shifting the conversations? Who you're having conversations? With who's making the decisions among your customers and how that's impacting your sales cycle? Giordano Albertazzi: Well, certainly, convergence is very important. And as I was saying, it's not just prefabrication, but it's an optimized system. That's why having an optimized system with Vertiv technology is a winner. But we shouldn't think about this as replacing the point-to-point, let's say, the product point type of activity. It is a gradual and partial shift. And it really different players have different degrees of adoption. So if you think about power modules. Those are pretty much becoming a standard in the industry. So you'll see that people will start to buy power modules instead of necessarily going into each and every component inside. It's never black and white, but that's a direction. When it comes to the entire converged system, the entire manufacturing system, SmartRun, well, the interfaces might be slightly different. But again, it's not a totally different breed of players, or people you discussed the engineering, or the transaction. But there is also a [indiscernible] different category of people in the industry that might not have, historically, that type of procurement, or engineering -- or engineering staff and experience. Nor do they need it when someone is capable of providing an already fully optimize pre-engineered converged system and solution. So the market is taking multiple going in multiple direction. Some are partially overlapping. Some are different. So we are very happy about our point products and -- to point product, let's say, type of business. As well as we see integration and convergence becoming a bigger part of the market that we serve. Operator: Your next question comes from the line of Andrew Buscaglia with BNP Paribas. . Andrew Buscaglia: I wanted to touch on -- you made some -- a couple of deals in the quarter, [indiscernible] Any way of framing the size of those or what you paid? And then our deals going forward more like kind of like the smaller bolt-ons, or we see more along the lines of like a purge rate if you were to move forward this year with more acquisitions? Craig Chamberlin: Yes. First off, just to answer the question on side. We didn't disclose any of the size of the businesses. So again, we probably wouldn't refer back to that. I mean, in terms of materiality, we did do some press releases on them, but we didn't give any of the sizes, but if they were materially impactful to us, we would have had [indiscernible] Giordano Albertazzi: Can you repeat the question around [indiscernible] I'm not sure I heard you. Andrew Buscaglia: Just more so, you guys indicated interest in M&A deploying capital towards that this year. Will we see more deals along the lines of like a [indiscernible] right spending-wise or more of these like smaller bolt-on niche kind of acquisition? Giordano Albertazzi: Well, exactly. We -- as you saw us with [indiscernible], when -- it's really about what the value of the asset that we have in front of us. So we have now the reticence in cutting bigger checks when that's needed and what's opportune, let's say, as we have demonstrated. And our balance sheet is certainly very, very strong. And when we see value, we offer value. And value is not just per se, there's value in the context of our long-term strategy and our technology and market growth strategy. So rest assured that we have no -- how can I say, no fixed [indiscernible]. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Gio Albertazzi for any closing remarks. Giordano Albertazzi: Well, thank you, [ Jeannie ]. Thank you very much. And thank you all for your questions and the conversation today. I'm quite pleased with what we have accomplished in the first quarter and how we are positioned as we move through 2026. The entire Vertiv team has executed well, and I'm grateful for the strong partnership we have with our customers, suppliers and partners in general. We are making real progress. But as you've come to know, we have never content with where we are. I am pleased, but I'm certainly never satisfied. We'll continue investing ahead of the market, maintaining our leadership in technology and innovation, and executing with our speed and precision our customers expect from us. I'm confident ever about where Vertiv is headed. The trajectory is strong. The opportunities are significant, and we are well positioned to capture them. Thank you all, and I hope you have a wonderful rest of the day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.