Good morning. My name is Nick. I will be your conference operator today. At this time, I'd like to welcome everyone to Vertiv's Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. Now I'd like to turn the program over to your host for today's conference call, Lynne Maxeiner, Vice President of Investor Relations.

Great. Thank you, Nick. Good morning, and welcome to Vertiv's Fourth Quarter 2020 Earnings Conference Call. Joining me today are Vertiv's Executive Chairman, David Cote; Chief Executive Officer, Rob Johnson; Chief Financial Officer, David Fallon; and Chief Strategy and Development Officer, Gary Niederpruem. Before we begin, I 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 you to the cautionary language included in today's earnings release, and you can learn more about these risks in our registration statement or proxy statement and other filings 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 will also present both GAAP and non-GAAP financial measures. Our GAAP results and GAAP to non-GAAP reconciliations can be found in our earnings press release and in the investor slide deck found on our website at investor.vertiv.com. With that, I'll turn the call over to Executive Chairman, David Cote.

Thanks, Lynne. As I reflect on the past year in Vertiv, I'm even more encouraged that everything we discussed in the road show has been proved to be even more true today. Vertiv has a great position in a good industry and we can differentiate with technology. Sales growth and margin rate expansion opportunity abounds, and we have a team that's making it happen. That opportunity shone brightly in 2020. We were able to hold sales flat and significantly increase orders in a terribly difficult year. We were able to increase our margin rate on flat sales, which is always difficult. And at the same time, we ramped up investment in R&D, other growth drivers, and process initiatives like the Vertiv Operating System, Vertiv Product Development, functional transformation and customer view, the Vertiv User Experience. The same is true for 2021. As Vertiv guides to sales growth, margin rate expansion and the reinvestment that drives both in 2022 and beyond. Cash and overall liquidity improved markedly and net leverage is down a lot more than anticipated, especially in a COVID year. My confidence has increased, not decreased over the past year. No matter where I look in Vertiv, we're making great progress. As Timbuk 3 said in their 1986 song, "The future is so bright, we got to wear shades." I felt that way a year ago, and I feel that way even more so today. With that, I'll turn the call over to Rob.

Thank you, Dave, and I truly appreciate your partnership and the good advice you continue to provide to me and my executive leadership team. I also want to thank the Vertiv employees for their efforts in Q4 and throughout last year. They pulled together and demonstrated how our collective efforts can accomplish amazing feats during a very challenging time. They've adopted to a can-do attitude, used creativity, ingenuity and outside-the-box thinking in order to serve our customers during this pandemic. I commend my team, my Board and our many partners for delivering the results I will share with you today. Moving to Slide 3. Overall, the demand side of our business was very promising as Q4 sales were up over 11% compared to Q4 of 2019, driven largely by significant growth in the European and Asia Pacific regions. Orders for the quarter were up 9% when compared to the fourth quarter of last year. And I'm pleased to remind you that the orders for Q3 were already up 15% as compared to Q3 of the previous year. Our backlog remains at an all-time high and is up $450 million from the end of 2019. We will talk more specifically about the demand side of the business over the next few slides. From a profitability standpoint, our adjusted EBITDA was $187 million, which was up over 25% from last year's Q4. This resulted in adjusted EBITDA margin expansion of 160 basis points, driven higher by sales, higher contribution margin and lower fixed costs on a percentage basis. Additionally, our free cash flow at the end of Q4 improved over the same time period last year by $86 million to $175 million because of higher earnings and lower transformation spending. Turning to the full year results of 2020. We delivered $39 million…

Thanks, Rob. Starting with Slide 6. This page summarizes our fourth quarter financial results versus last year. Net sales were up $134 million or 11.4%, 9.5% when adjusted for a $22 million foreign exchange translation tailwind. We continued our strong momentum with orders, which were up 9% in the fourth quarter after increasing 15% in the third quarter. Adjusted EBITDA increased $38 million or 26%, primarily driven by the flow-through from higher sales and slightly offset by a foreign currency transaction loss, translating into 160 basis point improvement in adjusted EBITDA margin. Our sales and profitability performance converted into strong free cash flow of $175 million, $86 million higher than last year's fourth quarter. We will review some of the drivers of this improved free cash flow in a couple of slides. Turning to Slide 7. This slide summarizes our fourth quarter segment results. Net sales in the Americas were up $3 million or 0.6%, as growth in telecom was offset by lower services sales, which continue to be negatively impacted by COVID site access issues. Net sales in APAC increased $70 million or 19%, primarily due to continued strong growth in China across most end markets, including data centers, telecommunication and industrials. Geographic locations outside China in APAC were up slightly as we continue to deal with site access challenges in some of those jurisdictions. Net sales in EMEA were up $60 million or 25%, almost entirely in the critical infrastructure and solutions product segment, driven by several larger colocation projects. From a profitability perspective, adjusted EBITDA margin improved in both the Americas and EMEA, but notably in EMEA, where margin increased over 600 basis points from last year's fourth quarter. This improvement was driven by both higher contribution margin and sales leverage on relatively flat year-over-year fixed costs.…

Thanks, David. Turning to Slide 16. I wanted to provide some color on the key themes and initiatives we shared with you on our earnings calls over the past year. First, our focus is on the top line. We continue to strengthen all of our customer relationships, but especially with providers in the cloud and colocation space. Doing so has led to order increases in 2020. Though large projects with cloud and colocation customers will always ebb and flow, we are gaining greater visibility into the future needs of our customers, which will translate into our ability to meet future demand and win projects down the road. Furthermore, we continue to hone our go-to-market efforts in the IT channel area. We saw the greatest traction occur in the United States and the impact got stronger as the year went on. Secondly, we are piloting the Vertiv Operating System, known as VOS, in 2 of our manufacturing facilities. Already, we are experiencing improved performance and favorable results as we formalize and standardize the way we work. The rollout globally, as we've said, will take time, but I'm pleased with the early results that we're seeing. David talked about margin expansion in his comments, and I'm very pleased with our performance in this area. Our sourcing capabilities have continued to improve. Our pricing initiatives have continued to yield favorable results, and our restructuring actions announced last quarter are now in full flight. The foundation we have established and the trajectory that we are on gives me confidence in our ability to achieve the expansion plans we laid out a year ago. Finally, and maybe my personal favorite, VPD, or Vertiv Product Development, progress. We continue to focus and fund our research and development programs. Even though we couldn't -- or had limited…

[Operator Instructions] First question comes from Jeff Sprague with Vertical Research.

Yes, I think the change in the reporting actually will be positive over time and simplify things. There's a fair amount of confusion here this morning, but from what I can tell, you bridged to something pretty close to where consensus was. So thanks for all the restates. I wanted to talk about the normalization of cash flow a little bit, if we could. And I understand there's some pressure here in 2021, as you lay out in the bridge. We end up with free cash flow in 2021 that's on the low side relative to adjusted EPS or EBITDA or revenues. And I just wondered your view if you give any context on once we work our way through 2021 here, some of these items normalize, how you would kind of frame up the kind of the ongoing free cash flow picture?

Yes. Thanks, Jeff. This is David, and thanks for the feedback. So I would point out 2 things in 2020 cash flow that are somewhat anomalistic. So the first and most significant is the cash required for restructuring. So we had anticipated to have approximately a $60 million cash outlay in 2021 for restructuring programs. Our current estimate is closer to $70 million, and $50 million of that is embedded in the restructuring cash payments bridge item on Slide 14. And then we have another a $10 million to $20 million included in adjusted operating profit for 2021 projects. So that's about 20 -- or about a $70 million cash outflow. We'll always have some outflow for restructuring from a cash basis, but that's probably high by a good $50 million. The other item I'd point out is CapEx. I think historically, we've kind of provided go-forward direction of CapEx in the $75 million range, we're guiding to $95 million next year. And a lot of good projects are included in that $95 million, but it also includes some projects that were pushed from 2020. So if I were doing a model, I probably wouldn't include $95 million going forward, but I would include more than $75 million. My guess is that we will settle in right around $85 million. All the other items, including cash interest, if anything, that should decline going forward. Cash taxes probably will increase. Working capital is one item that we still have a lot of work to do, and we see some opportunity going forward. But other than restructuring and CapEx, I would say 2021 is somewhat normalized.

Great. And just one other one for me, and I'll pass it on. On the enterprise related activity and, I guess, the small signs of some additional life that you commented on. Can you provide any additional color on your visibility there? Can you see a pipeline developing in kind of bid and proposal activity? Just wondering if you could put a little bit of kind of firmer point on that for us, how you expect the year to play out.

Sure. This is Rob. Yes. What I'd say is, we always talk to the fact that we take a look at our pipeline growth, that's always the leading indicator. And even that is pre-activity on quoting, as you mentioned, which is exactly that. We've seen pipeline expand, exiting out of 2020. So that gives us comfort that the enterprise will begin to recover. Activity is intense in the design area with both electrical and mechanical contractors. So again, that gives me a reason to believe that we will see that recovery. It's just a matter of if and when -- not if, but when people do kind of get out of this COVID [ fog ] and start spending again. But the activity looks good and gives me confidence. And then that's globally, it's not -- and we've seen probably a quicker recovery on the enterprise in, let's say, Asia, and Europe is spotty. And then Americas has probably been the lowest. But overall, the pipeline looks good, and the activity is -- we're very active there.

Your next question comes from Nicole DeBlase of Deutsche Bank.

Maybe we can start with the outlook. Thinking about normalizing towards contribution margins beyond 2022, there's obviously still quite a bit of noise here in '21. So when you think about sustainable levels of restructuring in this business, are you guys going to be factoring in like $20 million or so a year on an ongoing basis? And I guess, similarly, is R&D kind of getting to the point where you're reaching your medium-term run rate? Or do you think that there still needs to be a step-up in R&D beyond 2021?

Yes. Thanks, Nicole. This is Dave. I'll certainly address the restructuring question, and I'll ask Rob to address R&D. Our plan at this point, especially as it relates to the Vertiv Operating System is related to continuous improvement, whether you can equate that to continues restructuring, I think that's probably semantical. But we will continue to invest dollars going forward to take dollars out of the business. So I wouldn't want to specifically commit to a dollar amount per year. I think we mentioned for 2021, we're investing an additional $20 million on top of the 2020 restructuring program. That's probably a good starting point. But if there are projects out there with returns, we potentially could invest more than that. If there's a -- there aren't projects in any particular year, could be a little bit lower. But I think that $20 million probably is a good starting point. And as it relates to R&D, I'll pass it on to Rob.

Yes. And Nicole, as part of our stated strategy, and we talked about it on the road show, we plan to take R&D up to 6%. Innovation is our vector of differentiation and will allow us to get that margin expansion, and there's a lot of call adjacencies and other the areas that we can participate in. So what we expect, while you've seen a fairly large ramp to catch up to that 6%, we expect 6% of revenue going forward to be in the R&D space so that we can be that innovative leader and look at other adjacencies as well. We expect that, that will produce long-term results over time. R&D does take a little while. Some of our products in the channel space will see benefits within the year. Some of the larger projects we see within 12 to 18 months. But we're very excited about the opportunities that we have more R&D projects, I would say, than we have funding. Our collaboration efforts have proven to be successful with the colo and hyperscale allowing us to design in and drive a better margin profile.

Nicole, this is Dave, just kind of maybe putting the 2 points together. At the end of the day, we're sticking with our strategy to grow sales and hold fixed costs constant. And that creates a lot of room for both margin expansion and reinvestment. So we still plan on doing both, not just in '21, but long into the future.

Got it. And then just for the follow-up, what have you guys embedded for pricing for 2021? And I guess further to that, is the expectation that you can offset recent raw material inflation with pricing? Or is there any sort of price/cost headwind embedded in the guidance?

Yes. Nicole, it's Gary Niederpruem. So I would say, if you reflect back on pricing for 2019, we had a pretty good year. I think we've told everybody we were about $20 million still positive. In 2020, we were somewhere in that $15 million to $20 million range. And our expectation is that for '21, we will have positive price as well. Certainly some headwinds coming from commodity and inflationary aspects all around the globe. But we feel pretty good about where we sit right now to continue passing price along. Whether it's going to be in the same range of what we're able to do in '19 or '20, not quite sure just yet, but we'll certainly be on the plus side of that equation from where we sit today.

The next question comes from Scott Davis of Melius Research.

I didn't hear anything and didn't expect to hear anything on M&A in your prepared remarks, but it's worth asking the question. You're delevering pretty quickly. Is there an opportunity to start to play offense perhaps on bolt-ons and perhaps even stuff that's a little bit larger than what you've historically looked at?

Sure. Scott, thanks for the question. Our stated strategy and what we've talked about when we were out raising the pipe was we do have a robust list of potential targets that could be nice bolt-ons for adjacencies or completing a global product line. We'll continue to look at those. And if it makes sense, it hasn't been our first priority. Our first priority was to pay down debt and look at acquisitions as something as opportunistic as they come. And like Dave Cote has always said, they don't always present themselves when we want them to, but we continue to look and follow and track those companies that we might be interested in. But again, it isn't our first priority to go out and buy something. We do like the optionality that we have today, with the strengthening of our liquidity, to be able to look at various things, but we just have to take those as they come.

Okay. Fair enough. And then just to be clear on the capital spending side, is it -- when you think about your spending, and I imagine there's a mix here of things you're spending on, but is it more weighted towards new capacity or kind of tuning up upgrading IT spend, et cetera, on existing capacity?

Yes. This is David. So I would say it's probably split in 3 different buckets, and certainly not equally split, but we are continuing investment in IT. And that's something that we'll be launching an ERP system in the Americas in 2021, and that takes continued capital. Operational, it's probably a little bit over 1/3 of the overall spending. Some of that is -- continues to be maintenance spending, but also related to some of the restructuring that we announced last year. And that CapEx will be more skewed towards the back half of '21, and we'll see benefits from that in 2022. And the last bucket is related to the Vertiv Product Development, our R&D initiatives. And that's something -- could be in the range of $20 million, $25 million that we would anticipate to continue going forward. So overall, as I mentioned to Jeff, the $95 million for this year probably is a little bit elevated. But this spending, most of it is investment-related, meaning there is a return as opposed to just continuing maintenance CapEx.

The next question comes from Nigel Coe of Wolfe Research.

So just curious on the switch from EBITDA to EBITA, effectively. Does that map to a way you're changing internally in the way that you're measuring and compensating execs internally or is it just like a change in presentation for us folks? And I do think that some investors are struggling to compare like-for-like. So just on that regard, it looks like it was about $70 million of expenses that would have been added back in FY '20, stock-based comp, transformation costs and restructuring, those are 3 buckets that I can see. Can you just confirm that, [ even a ballpark ], that would be helpful?

Yes, this is David. So Nigel, what I can say is that the way we report to the Street is going to be exactly the way we scorecard ourselves internally. So we had used adjusted EBITDA for internal basis for measuring and compensating. And we are definitely transitioning that to adjusted operating profit as well. On a go-forward basis, if you were to look at 2021, adjusted operating profit versus what we had included for adjusted EBITDA for '21, so the $660 million versus the $575 million, that difference is simply depreciation. So on a go-forward basis, effectively, what we're doing is holding ourselves accountable. For capital spending and the resulting depreciation going forward. So of course, I think a lot of the confusion comes looking at the historical and some of the historical adjustments. But going forward, the only difference between adjusted EBITDA and adjusted operating profit is going to be that depreciation. And of course, very critical is not having any adjustments going forward. So we're holding ourselves fully accountable for any expense that hits the P&L. And the only adjustment from GAAP is going to be that intangible amortization.

Right. But what I'm saying, the specific part of that question was, if we were in FY '20, just so that investors can compare like-for-like and get an underlying incremental margin, it looks like $70 million of costs are being fully absorbed in your FY '21 plan that would have been added back ordinarily. Is that the right [ direction ]?

I think that is directionally fair. Certainly, if you look at a couple of the items that I mentioned related to Slide 13, we will have $25 million of stock compensation costs in 2021. That is a cost that, in 2020, was treated as a historical add-back. In addition, we have about $25 million of IT-related expense that historically we -- and these are implementation costs related to new projects. That $25 million would have been included as an add-back for 2020. So that's $50 million right off the bat. The $20 million additional that you're referring to, I believe, is restructuring expense. And that is something, if you compare it to the $70 million historical add-back from the third quarter last year, also would have been treated as -- or be subject to be treated as an add-back. So if that's how you're developing the $70 million, I would agree with that math.

That's exactly right. That's helpful. And then a quick one on the $65 million worth of investment spending. Where does that take R&D? I know R&D targets a specific percent of sales, but where does that mark-to-market R&D as a portion of sales in 2021?

Yes. So -- and we'll be filing our 10-K on Monday. Our R&D expense for -- and we'll disclose R&D expense. But our R&D expense for 2020 was $230 million, which was about 5.2% of sales. That $65 million figure on Slide 13, about half of that is R&D and the other half of it is based on growth initiatives. So assuming an additional $30 million spend and the $4,775 million guidance for next year takes R&D as a percentage of sales up to close to 5.5%.

Your next question comes from Amit Daryanani of Evercore.

I guess I have two as well. First off, when I think about the $65 million of incremental expenses in calendar '21 that have been made, can you just talk about how you think about payback on these investments? Do I think about Vertiv inherent growth being better in the calendar '22 out-years? Or do I think about a step-up in conversion margins? How do I think about that payback on these investments over the next few years?

Sure. Amit, it's Rob here. What we've said on these investments is that they -- some -- as I mentioned earlier, some of the projects take a little bit longer than others, but the reason for investing is that we -- so we can outpace the actual market growth. So by investing in these new product categories or new product areas, it will accelerate our growth at 1.5x the market growth rate. And those things happen over a period of time, channel-type products, more IT-based products, 6 to 12 months, we began to see a payback on those. And then the larger projects -- products, typically 12 to 18 months and you begin to see the sales on those. And they could be things like a larger UPS -- UPS is larger, megawatt UPSs or larger cooling or thermal management units. So those things take typically a little bit longer to get out globally, but it will yield over the next several years, our ability to outpace the market growth rate.

Got it. And then just as a follow-up. When I think about your web scale -- hyperscale colo customer base, can you just touch on do you think you are at this point over or under-indexed on a market share basis in that bucket? And what are the steps you can take to drive up your share gains in this market over the next few years?

Sure. So we always -- great question. We always kind of combine colo and hyperscale because, as we've talked about in the past, outside the U.S., the hyperscalers typically work with colo, colocation companies, for their data center builds. And inside the U.S., they typically build themselves. And then there's a mixture of that. I would say there's room for growth in both. If you just look at our overall market share, we have the ability to grow, and we think our collaboration method and model, working closely with our customers to design those products will give us the ability to take additional share. We had some very nice wins in conversion in 2020 of maybe some colocation companies we haven't worked with in the past. So we think there's plenty of room for growth. And as the expansion happens on a global basis, you'll see that the opportunities there. We don't necessarily sell our full entire product set in all of the hyperscalers today. So there's room for improvement there as well, whether it's a larger battery backup system or a larger [ STS ] or more power distribution, there's room for growth there, too. So we're certainly not at a saturation level and have the ability to continue to grow our share there. And that's one of the reasons why we're investing in R&D so heavily.

Your next question comes from Lance Vitanza of Cowen.

First off, the revenue performance and the revenue guidance relative to the industry growth that you've discussed in the past suggests you're taking significant market share. So my question is, where exactly are you seeing these gains? Is this mostly from taking business away from the smaller companies that we necessarily haven't heard of? Or are you also taking share from the Schneiders and the Eatons of the world?

So great question, Lance. This is Rob. What I'd say is it's a combination of both. When we look at the -- some of the share gain that we're seeing, certainly, there's a lot of regional players, smaller regional players that we compete against. And because of our global nature and filling out some product gaps that maybe we had, we're able to take that. But I think as it relates to Eaton and Schneider, we compete with them, and it's different in every region, right, how competitive they are or they aren't. But I would say, in general, we're -- we believe we're growing in both cases and taking some share. I know just looking at some of the channel statistics in the IT channel side of things, well, a lot of people were down. I think our overall decline in 2020 was much less than our competitors in some cases, therefore, showing that we took some share there as well. So it's kind of like being in the channel and in the colocation, hyperscale.

Great. Okay. And then my other question is actually with respect to Slide 13. I wanted to focus on this 26% projected increase in adjusted operating profit. I mean that's the metric that we're going to be looking at going forward. So I think that's where we want to focus. And I guess the question is, what should we think the potential there is for that kind of growth to be sustained beyond 2021? And I'm not asking for guidance, but I'd love to get your thoughts there. And if nothing else, perhaps we could talk about the $40 million of COVID savings that are sort of being restored in 2021. Well, clearly, that, I would think, that's not going to be recurring in '22 and beyond. On the other hand, it does sound like the growth in the R&D investments are going to continue to increase for the next several years. But that being said, I mean, how should we be thinking about kind of that 26% growth? Is that their anomaly or just indicative of what the earnings potential is for this business?

Yes, this is David. I'll take a shot and then ask Rob to comment as well. So one thing that I do want to reaffirm for everybody on the call and all investors and analysts is that we are still fully committed to the margin improvement goals that we have talked to historically. So just because we're switching to adjusted operating profit from adjusted EBITDA, it doesn't change the intermediate and long-term goals that we have for margin expansion. Now we will have to recalibrate. So I think we historically have talked about getting to 17% adjusted EBITDA. And I think an equivalent number for adjusted operating profit is somewhere between 15% and 16%, but we're committed to using 16% for that intermediate goal, and there's no reason we can't get to 20% in the long run. So I think we've used that as kind of the long-term hurdle. That has not changed with this transition to adjusted operating profit. And so I think that very much works into your question about the future expectations for adjusted operating profit growth. Certainly, we see the growth in adjusted operating profit being enhanced and growing with the top line. So as long as we continue to grow that top line in -- above market while expanding margins, there's no reason, mathematically, that we can't continue similar growth going forward.

Your next question comes from Andrew Obin, Bank of America.

David Ridley-Lane on for Andrew Obin. I wanted to ask about what your guidance assumes around the services revenue, given that you're still having site access issues here in, I guess, January, February?

I'll take a first stab at that and then, David, finish that off. But we will continue to deal as COVID is an issue with site access and -- but we expect that year-over-year, we've got in the plan that we will be growing our services revenue as part of our overall growth strategy. Again, could be to overall COVID, we can't predict what that looks like, but we've been able to navigate pretty well around that. There's just various areas and hotspots that we'll have to deal with from time to time. But we do expect to have and built into our plan is growth in the services for 2021.

Got it. And then as a follow-up. Maybe could you talk a little bit more about what you're seeing in the enterprise space? What are the areas that you're seeing the improved demand and what's still weak?

Yes. I would say it's going to be by industry vertical, right? We're still seeing, of course, travel and entertainment being one that hasn't recovered. I'm not sure when that will recover. Certainly, other verticals like retail, big-box stores, we've seen the spending began there as people continue to compete for that kind of e-tail local distribution. Certainly on the financial vertical, we see spending beginning to pick up there in the financial space. And then the other areas of positive signs is around education and government spending would be the other ones that we would see from there. So while some sectors are down. In general, those are kind of the areas that we're seeing some bright spots in today.

Your next question comes from Mark Delaney, Goldman Sachs.

Yes. First, just hoping to dig into the demand environment a little bit more. The company reported very strong backlog growth of at least 32%, and that's now at a high level. As you're thinking about the backlog into 2021, do you think you're going to be able to sustain backlogs at this type of a high level or perhaps even grow it? Or would you think you're potentially going to work the backlog down a little bit this year?

Mark, I'll start and then I'll let David come in. We're seeing and continue to see strong demand both in Q3 and Q4. If you listen to both hyperscale and colocation, their business is going quite well, and that's a big driver in driving our backlog on projects. I think our global expansion, what we're seeing in China in the telecom side of things. Certainly, India now has come on the radar map to -- for hyperscale and colocation. So I guess what I'd say is we expect upper single-digit growth in the order rates and expect to continue to see that to happen.

That's helpful. And my follow-up question was on the channel opportunity. And Rob, you mentioned a few times throughout the call about some strength that you're seeing in that market begin to materialize. Is that more a function of the macroeconomic environment and some of those types of customers coming back? Or would you attribute it as well to some of the company-specific efforts that Vertiv has underway to better penetrate those channel customers?

Yes. Great question, Mark. No, I attribute it to kind of the execution and some of the programs and some of the products that we brought out. We've got some unique products in our power distribution, IT power distribution side. We've been pretty aggressive on our lithium-ion offerings and making sure that that's available. So some of the programs that we've targeted are paying off. And we've had, as we mentioned, quarter-to-quarter -- year-over-year still was down. But quarter-to-quarter, we've seen the improvements. So we feel like we're on the right trajectory with both new product intros, the programs that we're offering, we've certainly simplified our partner portals, project registration being that, hopefully, easier button for our customers to come diverted for that. But we're taking that same, and we've kind of globalized that same strategy to Europe, which is a little bit further behind and then driving it into the rest of Asia and China. So as you know, this is a big part of our strategy. This does take time. We've chosen to do it organically. And -- but we believe that our current strategy and trajectory will yield the results ultimately that we're looking for.

[Operator Instructions] Your next question comes from Andy Kaplowitz of Citi.

Can you give us a little more color into the continued strength you're seeing specifically in EMEA? You've been talking about working on some large colocation projects for a while now. Do these projects continue through '21? And I know in the past, you've talked about regional data sovereignty driving growth. So how sustainable are these trends there? And what else is going on in the region that's leading to such good performance in EMEA specifically?

Absolutely, Andy. And great catch on the EMEA side of things. What we see typically with hyperscale and colo is typically rushing to various parts of the world. And so there'll be, well, let's say, maybe not as much spending in the U.S. going on or growth. We have seen that in Europe. And I firmly believe the data sovereignty, people want data centers in their country, governments want that data there. They don't want it filling in data centers in the U.S. nor in China. So I think there's a lot of build-out. If you take -- just look at the number of data centers, number of cellphone users, number of broadband access in Europe versus what you've got in the U.S., I think we have a lot of runway ahead of ourselves as it relates to Europe and the builds that still have to happen there. The Brexit thing has driven lots of data center builds and parts that we didn't think were necessarily going to happen. So we continue to see strength, I think, over the next couple of years in the European side of things. We have taken some share there. We've had some new customers that we haven't traditionally done business with in the past. So the customer acquisition has been good there. But I'll tell you, if you look at globally, I'm pretty excited about, whether it's Europe or Middle East and Africa, South America, again, a lot of chatter and talk in India around colocation, hyperscale finally coming there. They're so underserved. So I think we've got a lot of runway in other parts of the world, plus what's still happening here in the U.S. Not that the U.S. isn't going to grow, it's going to continue to grow. But I think we'll see outside, Europe's leading the way now. But I think you'll begin to see some of the Asia countries, and certainly, India begin to pop up on the radar screen as nice area. So all in all, I look at the next several years as we've got a fairly healthy market in front of us.

Very helpful. And then actually following-up on Asia Pac. Just in terms of margin, you've talked about some margin pressure there coming from product mix, timing of large projects. How should we think about the margin progression going forward? Do large products start to ramp and that will help your margin there? You've talked about supply chain stresses, does that hurt you in Asia Pac? Any more color would be helpful.

Yes. I'll start off there. And then, David, if you want to come in over the top. I would say, in general, we're probably weighted more towards the telecom side of things in parts of Asia Pac. And that tends to be kind of lower than fleet average margin that we see as we continue to drive innovation and invest in innovation specifically in China, we expect to be able to get paid for that innovation as we go forward. So we're certainly focused on getting that closer to the fleet average. But there is a mix difference as it relates to the types of products we're selling there today. So channel is going to be an important part of our success there. And specifically, China, I think, is the driver from a margin perspective as it relates to areas of focus, being more local and driving that local innovation is going to be an important part of what we're doing in 2021 and beyond. David, any other thoughts?

No, I think you hit it pretty well, Rob. And certainly, there is lower margin you get with certain lower -- larger projects, but we have tailwinds from a mix perspective from both the channel and some of the initiatives to grow services. We certainly aren't relying on mix to be a huge margin-enhancement opportunity going forward. I think we're assuming relatively flat, but there is that potential it could actually be a tailwind for us.

There are no further questions at this time. This concludes our question-and-answer session. I'd like to turn the conference back over to Rob Johnson for any closing remarks.

Thank you, operator, and I'm going to close the call by thanking our 20,000 employees around the world for working hard every day to take care of our customers. We appreciate everyone's time today. Please stay safe, and we look forward to speaking with you again soon. Thank you very much for your support.

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