Vertiv Holdings Co (VRT) Earnings

Management highlights

Overall Financial Performance - Q2 2026 net sales totaled $3.274 billion, up 24% year-over-year, with 18% organic growth, 5% from acquisitions, and 1% from favorable currency. Adjusted operating margin hit 22.6%, up 410 basis points year-over-year, exceeding guidance. - Adjusted operating profit was $738 million, up 51% year-over-year; adjusted diluted EPS was $1.52, up 60% year-over-year. Adjusted free cash flow was $925 million, up 234% year-over-year, with free cash flow conversion exceeding 150%. Vertiv ended Q2 with a net cash position. Market Demand and Pipeline - Global pipeline momentum remains very strong, with broad-based demand across regions and customer segments, including hyperscalers, enterprise, colocation, and neocloud. Sales cycle speed is accelerating, and pipeline size is growing quarter-over-quarter. - Pricing environment remains favorable, with management expecting positive price-cost dynamics for full year 2026, offsetting existing tariff impacts. Technology and Product Roadmap - Multiple power architectures (existing AC, 800V DC at rack/pod level, 800V DC at data hall level) will coexist long-term as data center power requirements evolve. Vertiv supports all architectures, with 800V DC rack-level solutions in customer validation in 2026 for 2027 deployment, and full data hall 800V DC solutions planned for 2027 validation and 2028 deployment. Vertiv's content per megawatt increases as architectures evolve. - Vertiv has end-to-end closed-loop cooling technology that enables near-zero water consumption for data centers. Its proprietary PurgeRight Near Zero fluid management service reduces startup water use by up to 90%, a scalable capability management believes no competitor can replicate at Vertiv's scale. - Two recent thermal-focused acquisitions (ThermoKey closed June 2026, strategic thermal labs closed April 2026) have expanded Vertiv's full thermal spectrum capabilities from heat rejection to direct-to-chip cooling for high-density AI deployments. Strategic Customer Collaborations - Awarded power, thermal, and services business for the initial phase of Vision Bay AI (Foxconn's AI supercomputing unit) NVIDIA GB300 AI data center in Kaohsiung, Taiwan, and is collaborating on the world's first 800V DC rack/pod level AI data center featuring NVIDIA VeriRubin, validating Vertiv's technology roadmap. - Delivered a repeatable, scalable reference architecture for NVIDIA GB300 at the Naval Postgraduate School, demonstrating how existing facilities can be rapidly retrofitted to support next-generation AI computing for enterprise and sovereign customers. - Secured a full end-to-end powertrain, thermal, and services contract for DataFour's new Frankfurt, Germany data center, exemplifying Vertiv's strength in complex optimized system deployments. Capacity Investment - New global capacity is online, including the Johor, Malaysia facility, five plant expansions in the Americas, and increased chiller capacity in EMEA. Full year 2026 capital expenditures are expected to hit the high end of prior guidance, at 4% of 2026 net sales, with disciplined long-term investment in next-generation power architecture, advanced thermal systems, services, and converged infrastructure for AI data centers.

Guidance

Third quarter 2026 guidance: - Adjusted diluted EPS is expected to be $1.80 at the midpoint, representing 45% year-over-year growth. - Net sales are expected to be $3.75 billion at the midpoint, up 40% year-over-year, with ~35% organic growth and 5% additional growth from acquisitions. - Adjusted operating profit is expected to be $918 million at the midpoint, up 54% year-over-year, with adjusted operating margin of 24.5% at the midpoint, up 220 basis points year-over-year. Full year 2026 guidance (upward revision across all key metrics): - Adjusted diluted EPS is now expected to be $6.70 at the midpoint (range: $6.65 to $6.75), a $0.35 increase at the midpoint from prior guidance, representing 60% year-over-year growth. - Net sales are now expected to be $14 billion at the midpoint, a $250 million increase from prior guidance, representing 37% year-over-year growth, with 31% organic growth, 5% from acquisitions, and 1% from favorable currency. - Adjusted operating profit is now expected to be $3.325 billion at the midpoint, a $125 million increase from prior guidance, representing 59% year-over-year growth. Adjusted operating margin is expected to be 23.8% at the midpoint, a 50 basis point increase from prior guidance, expanding ~340 basis points year-over-year. - Adjusted free cash flow is expected to be $2.5 billion at the midpoint, up 32% year-over-year. - Guidance includes prudence for potential ongoing execution complexities from large multi-phase projects, and does not assume all operational factors align perfectly.

Segment performance

1. Americas: Net sales of $2.071 billion, up 29% year-over-year with 21% organic growth. Adjusted operating profit was $571 million, with adjusted operating margin expanding 360 basis points year-over-year driven by commercial excellence and strong operational execution. Minor Q2 timing shifts from multi-phase project execution and temporary supply chain congestion are expected to resolve in H2 2026. This segment contributed 63.25% of total Q2 net sales. 2. APAC: Net sales of $720 million, up 29% year-over-year with 26% organic growth. Adjusted operating margin grew 270 basis points year-over-year due to strong operating leverage. Broad-based in-market demand and strong commercial execution support future growth. This segment contributed 22.0% of total Q2 net sales. 3. EMEA: Net sales of $484 million, up 2% year-over-year with organic sales down 2% year-over-year. Adjusted operating margin grew 380 basis points year-over-year driven by improved operational execution. Management expects the region to return to organic sales growth in H2 2026. This segment contributed 14.75% of total Q2 net sales.

Risks & headwinds

- Increasing project size and complexity for large-scale AI data center infrastructure creates more supply chain interdependencies (both internal and external) that can lead to temporary timing shifts in revenue recognition, requiring ongoing operational learning to manage effectively. - Tariff impacts create headwinds that must be offset by price-cost improvements and operational efficiency gains. - The speed of 800V DC technology adoption across the industry may differ from current roadmap projections, though Vertiv's support for multiple coexisting power architectures mitigates this risk. - High growth rates and rapid capacity expansion create ongoing operational execution challenges that require continuous process improvement.

Analyst Q&A

• Q: With increasing project complexity driving Q2 revenue timing shifts, could this become an ongoing issue, and how does Vertiv mitigate it? /

  A: Management confirms project complexity will continue to increase as projects grow larger and more multidimensional, and notes Vertiv is progressing rapidly along the learning curve for executing complex large-scale projects. The company is already becoming more equipped to handle this complexity from technology, logistics, and operational standpoints. Guidance for H2 already includes prudence for potential continued learning curve frictions, rather than assuming perfect execution.

• Q: What is driving the acceleration in Vertiv's sales pipeline, and where is Vertiv positioned on solid state transformer development? /

  A: Pipeline acceleration reflects both faster sales cycle speed and growing overall pipeline size, with strength broad-based across all regions and all customer segments (hyperscalers, enterprise, colocation, neocloud). Solid state transformers are still in active product development, and are not yet ready for scaled deployment.

• Q: How much revenue was pushed out of Q2 due to timing issues, and was this a Vertiv or customer-side issue? /

  A: Management declines to give an exact specific dollar amount, but notes the timing shifts stem from the learning curve for very large multi-phase projects, with confounding impacts from both external and internal Vertiv supply chain interdependencies. The issues are not materially different from historical supply chain dynamics, and the company is actively strengthening its operational resilience. All delayed Q2 revenue is expected to be recognized in H2 2026, and guidance accounts for potential ongoing frictions.

• Q: Has the structure of Vertiv's deferred revenue changed materially amid growth in large project business? /

  A: There is no structural change to how Vertiv recognizes deferred revenue. The increase in deferred revenue reflects the shift toward larger project-based business (versus point product sales), which has more pre-revenue milestone payments including initial order down payments and intermediate design phase payments, which matches the framework the company previously disclosed. This increase is a reflection of strong order intake and project progress, not a change in accounting or business structure.

• Q: What is the latest update on Vertiv's M&A pipeline and strategy following the Investor Day announcement of potential deployment capacity? /

  A: The M&A pipeline remains active, and the company's strategy is unchanged from Investor Day: Vertiv prioritizes organic investment in capacity, R&D, and product development first, and only pursues acquisitions that are a strong strategic fit, add unique technology, product, or regional reach, and deliver strong value for investors. The company is currently evaluating multiple targets aligned with this framework.