Vertiv Holdings Co (VRT) Q4 2025 Earnings Report, Transcript and Summary

Good morning. My name is Nadia, and I'll be your conference operator today. At this time, I would like to welcome everyone to Vertiv's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded. I would now like to hand the program over to your host for today's conference call, Lynne Maxeiner, Vice President of Investor Relations.

Right. Thank you, Nadia. Good morning, and welcome to Vertiv's Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining me today are Vertiv's Executive Chairman, Dave Cote; Chief Executive Officer, Gio Albertazzi; and Chief Financial Officer, Craig Chamberlin. We have 1 hour for the call today. [Operator Instructions] 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 you 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 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 investors.vertiv.com. With that, I'll turn the call over to Executive Chairman, Dave Cote.

Well, I am extremely pleased with how we executed in the fourth quarter and for the full year of the 2025. We delivered strong results across key metrics, and we've got tremendous momentum heading into '26 and beyond. What you're seeing is the payoff from years of strategic investments and disciplined execution. Our focus on engineering innovation, capacity expansion and deep customer partnerships is translating directly into results. Gio and his team are doing an outstanding job executing our strategy, and I'm impressed with how they are navigating both opportunities and challenges. The AI-driven infrastructure build-out is accelerating, and data centers are at the center of it all. We're still in the early innings of this secular growth trend. Vertiv's position in this market keeps getting stronger. Our technology leadership and global scale, along with our service and operational capabilities aren't easily replicated, and we keep widening that gap. We've established a strong record. We commit to ambitious goals and we deliver. Now here's what excites me the most. Vertiv isn't choosing between today and tomorrow. We are winning now and winning later, positioning us to create value both now and well into the future. Said more simply, we are not done yet. With that, I'll turn it over to Gio, our leader and architect of this most excellent day.

Well, thank you. Thank you very much, Dave, and welcome, everyone. We go to Slide 3. And I'm certainly quite pleased with how we closed '25, another very strong quarter and a very strong year. Organically, fourth quarter orders were up 252% year-over-year and up 117% sequentially. Very strong, all regions, all markets. Trailing 12-month organic orders growth was 81% and would be even higher if we included our recent acquisitions. Our book-to-bill ratio was 2.9x. Our backlog stands at $15 billion, more than double last year's. Q4 organic net sales were up 19%, primarily driven by remarkable strength in the Americas, which grew 46% organically. APAC was down 9% and EMEA down 14%. Q4 adjusted operating margin was 23.2%, up 170 bps from Q4, '24. Adjusted operating profit was $668 million, and was up 33% from prior year. Our fourth quarter adjusted diluted EPS was $1.36, up 37% from Q4 '24. Adjusted free cash flow for the full year was circa $1.9 billion with an adjusted free cash flow conversion of 115%. For '26, we are projecting adjusted diluted EPS of $6.02 on organic sales growth of 28% with adjusted operating margin of 22.5%. But let me give you some color on what we see regionally and for that, we go to Slide 4. Let's start with the Americas. Americas continues to be the primary engine of our growth. Sales in '25 were strong and broad-based across products and customer segments. The market is accelerating. Even after the large Q4 order intake, our pipeline continues to grow. Our guidance assumes sales growth in the high 30s. Americas led acceleration and that momentum continues. If we go to EMEA, well, we can say that the coiled spring is uncoiling. The market sentiment has significantly improved. Pipeline growth has accelerated. We saw strong orders in Q4, and we expect that to continue in '26. We expect to return to sales growth in the second half of the year. When it comes to APAC, well, that is accelerating. Despite China remaining muted, we saw strong Q4 order growth, and we expect China's soft growth rate to persist in '26. But India and rest of Asia are robustly accelerating, and we are well positioned to capture that growth. Now let's go to Slide 5 where I want to start with customer demand on the left of the slide. And just to say, Vertiv's momentum is quite remarkable. Trailing 12-month organic orders grew 81%. Fourth quarter orders were up more than 250%. Book-to-bill almost 3x as strong performance, and we did see some large orders coming in during the quarter. These large orders reflect our customers' increasing trust in Vertiv's ability to deliver at scale and their confidence in their market. Our $15 billion backlog is more than double last year's and up 57% sequentially, strong. Worth noting, the shape of our backlog is not very different from what we saw a year ago, yet it is more elongated into the 12- to 18-months window. This is very consistent with a very strong Q4 order intake. We're seeing robust pipeline growth across all regions and all product technologies. This is a testament to the health of demand and of our visibility of the market. We have confidence in capturing a significant portion of this pipeline. Orders are getting bigger. Over time, we have been vocal about the lumpy nature of orders. This lumpiness can generate unnecessary volatility. The dynamics of the market also makes orders very difficult to predict. Consistent with what we said during '25, we have been reflecting on our orders disclosure. We believe that currently, the best approach is to no longer report actual orders, orders forecast or backlog with quarterly earnings. It just seems to lead to excessive volatility that is not representative of the sustained performance of the company and is not beneficial to our investors. We will continue to provide our full year historical disclosure regarding sales and backlog in our Form 10-K. We will provide our view of the market in our quarterly earnings call. We feel very good about the strength of our pipelines, our ability to win and our prospects for growth and to lead the industry. We had an extremely strong year in orders and we do believe we will grow further in '26. Pricing continues to be favorable. 2025 pricing exceeded inflation, and we expect the same in '26. Right side of the slide now to talk about how we are managing the current environment and positioning full growth. We are mitigating material inflation pressure through our pricing mechanisms and focus cooperation with our suppliers. On capital, we are stepping up to 3%, 4% of sales in '26, from high historical 2% to 3%. We continue to adopt a very disciplined and forward-looking approach to enabling our growth trajectory. Our suppliers are extensions of our operations, and we are working hand in hand to ensure they're scaling with us. This combination positions us very well to capture the growth ahead while projecting our margins -- while protecting our margins, which you see embedded in our guidance. And let's now go to Slide 6. You know how passionate we are about driving rapid technological evolution. This is where Vertiv's strengths really come into play. Our traditional expertise in great space is seamlessly been augmented by and interwoven with white space infrastructure expertise. With hundreds of kilowatts per rack the mechanical, the electrical infrastructure and the IT stack are so intimately connected that they need to be thought of as one system. Here are two of our converged prefabricated solutions that perfectly aligned to this vision. Let's start with OneCore, an end-to-end full data center solution that dramatically simplifies and accelerates the customer journey, significantly reducing time to token. Vertiv's OneCore can scale gigawatts in 12.5 megawatts built in blocks. OneCore is a complete, converged, entire data center infrastructure. It's engineered and scaled deliver for the industry with speed, simplicity and repeatability. It's engineered and scaled as an industry leader with a complete portfolio. Our collaboration with Hut 8 demonstrate this pattern. Let's now continue with the Vertiv's SmartRun, a converged and prefabricated white space infrastructure solution that massively accelerates data hall fit-out and readiness. Also here, it delivers simplicity and time to token for our customers. SmartRun is flexible and scalable across multiple generations of silicon. It is being deployed across several large customers at scale, and now work with Compass data centers passively shows those capabilities. Vertiv SmartRun can be stand-alone or part of OneCore. We continue to actively define the market with solutions like OneCore and SmartRun. Let's go now to Slide 7. Our service portfolio is a critical competitive advantage and a robust source of recurring revenue. Our life cycle services orders growth was north of 25% year-on-year. I'm very pleased to see that. I'm not satisfied as you may imagine. The increasing complexity and technical challenges that characterize the market are an opportunity to demonstrate our unique service capabilities and to deepen our customer relationships. Our service business is designed to deliver customer value across every phase of the infrastructure journey. The PurgeRite acquisition fits exactly within Vertiv's service paradigm. It significantly strengthens our fluid management capabilities end-to-end, both the primary and the secondary fluid networks. These are very critical systems in chilled water and liquid-cooled AI data centers. Fluid management is one of the most technically demanding and financially consequential aspects of running a modern data center and AI factory. With PurgeRite, Vertiv now offers one of the most comprehensive fluid management capabilities in the industry, from initial design to commissioning, and then throughout decades of operational life of the data center. We optimize flow at startup and maintain balance, ultra cleanliness, fluid performance across the life cycle of the site. Every rack gets exactly the cooling it needs with the highest levels of reliability and resilience as the environment evolves. For customers, this means fewer thermal throttles, higher compute throughput, efficiency improvement and a dramatically reduced downtime risk on hardware worth millions of dollars per rack. We expect PurgeRite specialize the expertise to scale global through our existing services network, creating the differentiated capability that addresses a growing critical customer need. With that, over to you, Craig. But first, I'm very glad to introduce our new CFO, Craig Chamberlin, to the earnings audience. Craig, calling you new sounds quite strange actually. I'm extremely pleased with the speed at which you're getting a strong handle on the business. We work really well together. It feels like we've been working together way more than hardly 3 months or so. So I'm very thrilled. So now truly and truly over to you.

Thank, Gio. And just to start, I'd like to say I'm very excited to be here as Vertiv's new CFO. In my 2-plus decades in the industrial industry, I worked with many great companies. However, what's happening here at Vertiv really stands out to me. The strength of our market position, the quality of our technology and the caliber of this team makes me very excited about where we're headed. What Vertiv has built the competitive advantage, customer relationships and operational capabilities as a result of disciplined execution and strategic vision. I'm honored to join at this inflection point, and I look forward to working with all of you as we continue to drive shareholder value. Now let's walk through our financial results. Turning to Slide 8. We can walk through our strong fourth quarter performance. Starting with adjusted diluted EPS of $1.36, up 37% year-over-year, and $0.10 above our prior guidance, the primary driver is strong operational performance, particularly in Americas where we saw exceptional volume growth. Organic net sales were up 19%, with strong momentum continuing in Americas, up 46%, offset by APAC, down 9% and EMEA down 14%. Our adjusted operating profit of $668 million was up 33% versus the prior quarter, and $29 million higher than prior guidance. Adjusted operating margin of 23.2% grew by 170 basis points versus last year. This margin expansion was driven by strong operational leverage on higher volumes, productivity gains and favorable price/cost execution. As well, we saw our incremental margins year-over-year continue on a positive trend as they came in at 31% for the quarter. To wrap up the fourth quarter discussion, let's hit on cash. We delivered $910 million of adjusted free cash flow, up 151% from prior year fourth quarter driven by higher operating profit and working capital efficiency, which was partially offset by an increase in higher cash tax. The larger orders in the quarter came with corresponding larger advanced payments, which benefited our Q4 cash flow. We exited the quarter with net leverage of 0.5x, giving a significant strategic flexibility. Moving on to Slide 9. Let's take a look at segment performance, which further highlights some of the dynamics Gio mentioned earlier in the pitch. In Americas, the team delivered another strong performance. Sales were up 50% with 46% organic growth. This growth was driven by broad-based strength across products and customer segments, strong end market demand, combined with our ability to deliver. Adjusted operating profit was $568 million, up 77%, and margin expanded by 450 basis points. The results were the outcome of strong operational leverage, positive price cost and continued productivity. Moving to the right, APAC sales were down 10%, 9% organically, primarily due to macroeconomic conditions in China. However, the rest of Asia remains strong. Adjusted operating profit of $49 million resulted in adjusted operating margin of 9.9%, which was down 270 basis points versus prior year, pressured primarily by volume deleverage. In EMEA, sales were down 8%, 14% organically due to continued softness in the market. However, as Gio highlighted, we are seeing signs of recovery from strong fourth quarter orders performance. We continue to expect EMEA to return to sales growth in the second half of 2026. Fourth quarter adjusted operating profit of $111 million with adjusted operating margin of 22.1%. This is a decline from prior year's 26.6%, which was expected given the 14% organic sales decline. The margin pressure reflects lower operating leverage, and we expect this margin trend to continue into 1Q. Flipping to Slide 10. Here, we're highlighting our full year 2025 results in which the team delivered another outstanding performance. We saw improvements across all key financial metrics. Adjusted diluted EPS of $4.20 was up 47% and exceeded guidance by $0.10. Net sales of $10.2 billion delivered 26% organic growth and exceeded guidance by $30 million. We saw a strong growth in Americas, up 41% and APAC up 18%, with a partial offset of EMEA being down 2%. Adjusted operating profit of $2.1 billion was up 35% and $30 million above guidance. Operating margin expanded 100 basis points to 20.4%. The full year margin expansion was driven primarily by productivity and positive price cost. To close out the margin discussion, I'd like to highlight that we are delivering margin expansion while investing in growth and managing inflationary headwinds. Adjusted free cash flow was another strong performance. We generated approximately $1.9 billion in adjusted free cash flow, up 66%, mainly driven by higher operating profit and positive working capital, including increased advanced payments from the significant order delivery in the quarter. Our cash performance gives us flexibility to invest in growth, pursue strategic M&A and return capital to shareholders. These results demonstrate both our excellent execution and industry leadership. Now let's turn to Page 11 and go through our full year 2026 guidance. We believe this outlook underscores our confidence in the market growth and our ability to continue to drive excellent performance. We're projecting adjusted diluted EPS of $6.02, representing 43% growth at the midpoint. This improvement continues to show strong profit growth from prior year. As we move to net sales guidance, we're projecting $13.5 billion at the midpoint, which represents 28% organic growth, with projected sales growth to be driven by continued strength in Americas at high 30% growth, with APAC at mid-20% growth, and EMEA flat to down mid-single digits. On EMEA, as we mentioned earlier in the presentation, we expect a reacceleration in the market in the second half of 2026. Moving on, we expect adjusted operating profit of $3.04 billion and 22.5% margin at the midpoint, which translates to 210 basis points of expansion. This margin expansion is expected to largely driven by continued operating leverage and positive price cost, while we also expect to continue to invest in capacity and technology advancement. Finally, for the year, adjusted free cash flow is expected to be $2.2 billion, representing 17% growth reflecting anticipated strong profit growth and working capital improvements, offset by higher tax and increased CapEx to support growth. As you can see from the metrics on the page, we are confident in our ability to deliver another strong year in 2026. Flipping to Slide 12, we can round out with a look at 1Q 2026. For 1Q 2026, we're projecting adjusted diluted EPS of $0.98, which represents 53% growth at the midpoint. For net sales, we expect to deliver $2.6 billion, or 22% organic growth at the midpoint. This guide anticipates growth in Americas of high 30s percent, and growth in APAC of low 20% with anticipated offset of EMEA being down in the mid-20% range. We expect adjusted operating profit of $495 million, up 47% at the midpoint and margin rate of 19% translates to 250 basis points of expansion at the midpoint. Just as a note on tariffs, we expect on an exit rate basis, to have materially offset unfavorable margin impact from tariffs as of the first quarter of this year. As you can see from the metrics, we're expecting to deliver a strong start in 2026. With that, I'll send it back to you, Gio.

Well, thank you, Craig. And let's wrap up. And for that, we go to Slide 13. And again, Q4 and full year '25 exceeded guidance across all metrics. Orders backlog, very robust, evidenced by impressive book-to-bill circa 3x. The momentum is certainly very strong. We continue to strengthen our position as an industry thought leader. This is highlighted by our product technology offering, full system approach and our services strength. At this, and all this is strengthened by our acquisitions, of which PurgeRite is a great example. Our 2026 guidance shows a step-up in all key metrics. I've never been more excited about Vertiv's future. We're leading the industry in orders. We are scaling. We are very well positioned to expand our market leadership and drive the industry forward. I'm very much looking forward to see you as many of you as possible at our investor conference in May. And with that, Back to you, Nadia, and let's start the Q&A.

[Operator Instructions] The first question goes to Steve Tusa of JPMorgan.

Yes, you're -- your ERP must have been busy this quarter. Probably requires a bit -- a few more data centers just to handle that. So just on the dollar value of the of the orders. Is there -- you guys have talked about the $3 million to $3.5 million per megawatt. There's obviously a lot of like megawatts coming on and being ordered. But is there any creep in that content to the upside that's bolstering these orders? Or should we still think about that as the right framework for the dollar per megawatt TAM?

I would say that currently, it continues that as a framework. Clearly, we've been vocal and other occasions and certainly is all the more reason true as the technology evolves that the complexity of the technology and the technology trajectory, if anything, is good from a TAM per megawatt standpoint. So they would be premature at this stage. We like what we see. I think that is -- 3 months from now, we'll be together and certainly, this will be an important theme.

And then just quickly following up on the CapEx number. How should we think about -- for every like $100 million of incremental CapEx from what we've seen, whether it's Eaton or some of your other peers, it's a pretty high multiple of sales growth on that CapEx. Like what $100 million can -- what the output of that could mean. Is there some sort of multiple like, I don't know, 15, 20x on that extra $100 million that we can think about as being able to support revenue run rate for the future? Just trying to understand how you can deliver on this and what it will take to execute on this backlog?

I will give it a go and Craig, if you want to, kind of, chip in. But I'd say that -- I think the best way of looking at it is to look at 2% to 3% CapEx as a percent of sales move into 3% to 4%, call it 3.5%. That is you can certainly correlate that to our growth in our trajectory. And yes, going back to how we make it happen, as I mentioned a few minutes ago, it's about being gradual. It's about being ahead. But again, CapEx expansion -- capacity expansion doesn't happen in big steps, at least not the way we do it. We like many steps that are meaningful, but again, I think the correlation between growth and our percent CapEx is an interesting and important element.

The next question goes to Scott Davis of Melius Research.

Welcome, Craig. Congrats on a unbelievable year. Guys, I'm just kind of curious -- I'm just trying to picture these orders coming in 4Q were just massive, and I know that was the crux of Steve's question as well. But is there any -- you talked about lumpiness, but were there any particularly large projects, or anything unusual in the quarter? Is there any incentive perhaps for folks to make an order before the end of the year in '25, or price or otherwise are getting ahead in the Q? I'm just trying to get my arms around these numbers are just absolutely massive.

Well, the answer in terms of something that is unusual, let's say, from the normal course of business in terms of price and whatever else, the answer is no, very, very, very simply. I'd say that certainly is a reflection of the demand that we see in the market. Certainly, as I said, is a reflection of the belief and demonstrated ability to scale, combined with our awesome technology. But the fact is, yes, there were quite a few large orders. Again, quite a few. We shouldn't look at this as something dramatically strange. This is something that has been happening in the market and orders are becoming larger and larger. So this is really orders where customers know that they need our kit, our systems, our solutions and they know where and when. So it's not kind of a -- no big anomalies here, but orders can be lumpy and sometimes they happen all in 1 quarter. More in 1 quarter and the other, et cetera. So the sequencing is something that is lumpy. And that's what we've been saying for quite some time. And that's why the decisions that we have made on orders guidance and actuals. But no, nothing -- nothing unnatural.

I would think it continues to...

Sorry, go ahead, Craig.

It continues to underscore what we've talked about before, which is the system-level thinking, and I think the system-level thinking is starting to play out on a larger scale, Scott, which is making these orders bigger than what they have been in the past.

The next question goes to Amit Daryanani of Evercore.

Congrats on my side as well for some very impressive orders over here. If I look at the order and the backlog number that you folks have, you've clearly set up for some very strong performance. I imagine not just in '26, but even in '27 and beyond. So I'm wondering Gio, if you can just kind of walk through, what are the key operational steps, the key bottlenecks you think you have to solve for to convert this backlog into revenues and EPS over time? Just maybe help us understand like what are you focused on? What needs to go right to convert these orders into sales and EPS in '26 and '27.

Yes. We are -- well, thank you. Thank you, Amit. The -- we're really working, and we have been working. So it's not like something new. We have been working and we continue to work. We're accelerating our capacity expansion. Capacity expansion always happens in 2 ways. One is CapEx, so call it, footprint generally speaking, not only there is also increase of our productivity. But the other is really obtaining more output from the existing -- from the existing footprint. So the 2-pronged approach that we talked about several times is what continues to happen. But as we speak, we are -- factory is being expanded. We have a capital new location coming live, and we're working very, very actively with our supply chain. So it is really diligently, and in a very focused manner, execute on this backlog. I think we're in a good shape. We've been diligent about making capacity available gradually, but rapidly for the last couple of years, and we're accelerating, as our numbers are saying, both on CapEx and on the top line.

And Amit, I think you could look at just the fourth quarter, the acceleration in CapEx is in the financial numbers, and you'll also see that in the guide that the acceleration in CapEx is there as well, which underscores what we're doing. Most of that is in flight, meaning that we're already doing the build-outs, and we understand what we need to do to deliver the capacity for the guide that we put out there for sales.

The next question goes to Jeff Sprague of Vertical Research.

Congrats on the shock and awe numbers here. Maybe we could just hit on Europe and Asia briefly from my standpoint. First, on Europe, things really changed on the ground in terms of the permitting bottlenecks and the like. Obviously, you said the orders are a bit better, but a slow start to the year. And I'm also just curious on China specifically, if you could address that. Clearly, weak economically and industrially, but I wouldn't think China would want to fall behind in the AI race. I just wonder if the weakness there is maybe some indication that Western players are not being invited to play to the same degree as they were historically, just the competitive state of things on the ground in China? I'll leave it there.

Yes. Well, thanks, Jeff. But I'll start with EMEA, start with EMEA in general. I think it's certainly a combination of an acceleration of investment basically. So it's not that somebody will do magic wand and everything kind of permit wise became easy in EMEA. That would be too simplistic. But I think the focus and the realization that a lot more infrastructure is needed is now palpable. And pipelines that have been there for quite a while. Remember I've been vocal about that have been, and are expanding, and the sales cycle of the various elements in the pipelines are accelerating. And then we have areas that are specifically moving well. So you take the Nordics as an example, not solely, but that's an example where that is happening. You've heard me probably talk about a couple of times about the fact that with all that is happening in North America, some of the decision makers were so concentrated in North America, while still are concentrated in North America now, I think the realization that things need to happen beyond North America is there. And that's, I think, or at least what we see happening as a matter of fact. So quite optimistic there. So kind of a effervescence in the market that I haven't seen for quite some time. When it comes to Asia, I wouldn't attribute that to kind of a Western players type of dynamics. The market demand is not very strong in this moment. So clearly, there is -- it's an important AI market with its own characteristics. But again, what we see is more attributable to a general market situation than a particular kind of player, right? I mean we are a Chinese player in China. We are silicon agnostic. So yes. But again, very happy with everything outside of China, but also very, very proud of what we're doing in China as a team, so.

The next question goes to Chris Snyder of Morgan Stanley.

Gio, you talked about the company's deep relationship with the data center industry leaders. So I guess my question is, how much visibility do these relationships afford Vertiv into the future workflow, or architecture of these data centers? Because I have to imagine that you guys need to have the solutions developed before the customers are ready for it. So also interested in how far in advance, does the company start the R&D, or engineering process to bring some of these future solutions to market?

Sure. Thank you, Chris. I think a couple of dimensions to that. We've been always vocal about the strength of our relationship with customers, but also the other players in the ecosystem. Super important. Super important because exactly as you were saying, our technology needs to land ahead of -- well ahead of the most advanced silicon. But that to be the case, of course, with the NVIDIA or other silicon, let's say, technology providers, then it's about looking out 2, 3 years, sometimes in terms of -- or beyond at a higher level of, let's say, more R&D, but being 2, 3 years out in the way we work together. So our road map certainly extent. But the role that -- an aspect that I'm very proud of, and it's very important for our and especially for our customer success. So for the -- our and the customers success is the work that we do with many of them really kind of a technology partnership. Looking out 1, 2, sometimes 3 years and say, hey, with all that's happening from a technology standpoint, given your business model, customer, what is really the technology that best suits your strategy? And it's not being told but it's architecting together and giving them an understanding of the possibilities that they have from a technology standpoint. I think we have a uniquely strong role in the industry in this respect. So it's working out quite well.

The next question goes to Nigel Coe of Wolfe Research.

So I guess we're not seeing too much impact yet from [indiscernible] space. That's good news. So I want to go back to the backlog. And...

Got it. Sorry, I couldn't hear you. There was a little bit of a blip in the line. Okay. Go ahead Nigel.

Yes. Sorry, let me go -- can you hear me now?

Yes.

Yes. Great. So I want to go back to the backlog. And I think, Craig, you mentioned more system-level orders. So obviously, you've been highlighting the SmartRun product. Maybe just talk about where you're seeing that success and the sort of the wallet share you're gaining with the data centers? And maybe Gio, could you just maybe touch on the backlog aging? It seems -- the guidance implies roughly 15 months of conversion of the backlog. Typically, you do 9 months. So maybe just talk about are we seeing longer duration orders in that backlog?

Well, so I will start with the aging, so I can address that. We are -- we've been already vocal quite a lot already that our customers requested lead time pretty much ranges from 12 to 18 months, especially when we talk about the bigger orders. It's never exact. It's always range. But I would say that 12 to 18 is a good approximation of where the large orders demand the deliveries to be. And typically, it's not even just on bulk, if it is really a large order. But having said that, if you think about the structure of our order intake this year -- sorry, last year, 2025, with a very, very strong second half, relative anyway to a very strong year altogether, but particularly strong in the second half and particularly strong in the last quarter. Then they see that the 12 to 18 months, let's push things into 2027, while we have -- we are very happy with how 2026 is covered. So again, as I said in my comments earlier, the shape of the backlog is not something different. It's just a consequence of the phasing of the orders when we receive that. So no big differences in the way the market asks and demands, or expect our deliveries. When it comes to the system question, we clearly see an acceleration. When we talk about OneCore or we talk about SmartRun, we talk about systems and solutions that start to be quite broadly adopted. And certainly, that helps the dynamics of our order intake and our backlog. But when we talk system, we don't just talk about integration. Systems for us is having the entire powertrain, the entire thermal chain, certainly, when we deliver prefabricated solution or a converged solution, considering all the pieces that are really designed to work together. But again, if we go back to the previous question, my answer was it's about sitting together with a customer and having an entire portfolio, and having a good -- a very profound understanding of the system level and all data center level technology, and being able to talk systems with our customers.

The next question goes to Andrew Obin of Bank of America.

So the question I have is on services. It seems that the feedback we're getting is that the big differentiator for Vertiv is your ability not only to deliver the product, but actually service it in the field and wrap all the sort of additional value-added stuff around that. Last quarter, you shared with us the increase in service headcount. Would you update us on what the headcount looks like as you're increasing backlog rapidly? And maybe preview where the service organization is going? I'm sure you're going to talk about this at your Analyst Day, but just give us a preview of what's happening there.

Well, thank you, Andrew. One of my favorite subjects. So -- one of many. But this is certainly one of my favorite subjects. So -- and I agree, it's a big differentiation. And as you see, a big differentiator that we continue to fuel. So absolutely not static in our view. Well, we talked about headcount. I think we are approaching it very, very rapidly the 5,000 field people right now and really think in terms of our field capacity following very similar trajectories to the delivery capacity. Now, of course, is a function of the installed base, but the installed base is growing. Our services are growing. Certainly, the commissioning, the startup, a very important event in the life cycle of a data center, and we'll make sure we're there with the capacity locally to serve our customers, but also evolving our technology, not only in the -- to me, a great example of PurgeRite but also all the digitalization that we are injecting into our services business.

I mean, I would add on that I'm just as excited as Gio is on our services portfolio coming from heavy industrial companies that lived and died on services. I think this is a super power that we're going to continue to build out and especially when you're starting to look at what we can do with the installed base that's out there.

The next question comes from Nicole DeBlase of Deutsche Bank.

Congrats on a great quarter. Just to start with the backlog. I guess, obviously, a really nice stop up in backlog sequentially and year-on-year in the fourth quarter. Gio, when you kind of look out over the next 12 months and with what you see in pipeline, do you expect that we will see another year-on-year increase in backlog in 2026? And then just a small follow-up on CapEx. Are we going to kind of be in this 3% to 4% CapEx to sales zone for the foreseeable future, given how fast the industry is growing?

Well, I wouldn't go all the way to guiding orders, which I would do if I were to answer with many details. But if you go back -- if we go back to what we shared already, if you think about our directional indication that we believe our orders will be up. You probably have done the math about our orders in '25 right now, of our sales. So probably the answer is straightforward. We believe we'll continue to build backlog directionally. So that's certainly the case.

And I think on your question, Nicole -- yes. On the CapEx, I think, again, we always want to look at a normalization around the 2% to 3%. As we add -- as Gio has mentioned before prudently, so we think this year might be a little bit higher than normal, but we would always want to continue to be right around that 2% to 3% on a normalized basis. So I think that would be our answer right now. We wouldn't really put a number out there for '27 yet until we see what the market is going to look like from an orders perspective. But the guide this year is continue to look at that as we go forward.

And again, we really hope to see you at our Investor Day. And certainly, that will be an opportunity to further elaborate on that and the long-term trajectory of the business.

The next question goes to Julian Mitchell of Barclays.

I just wanted to look at the orders and the sort of composition of the backlog maybe from the standpoint of cash? Because I suppose it was interesting that you had a large working capital cash inflow in 2025, whereas I think we've heard from some other companies that the high growth is one reason for a bad cash flow conversion, but for you, it's the opposite, and a lot of that is because of your deferred revenue inflows in the fourth quarter. So related to that, I wanted to understand, is it the type of orders you got in Q4 that generated some disproportionate amount of deferred revenue inflow? And also, when we look at Slide 11, you're guiding for working capital and other to be a small use of cash in '26. But if orders are growing and all the rest of it, is it not more likely we'd see another deferred revenue inflow helping working capital be a source of cash in 2026?

And -- yes, Julian, let me clarify the slide first off, and then we'll get into a little bit more. But the slide says $80 million down year-over-year. And I believe it's down year-over-year, still be a working capital improvement. It should be a working capital -- outcome will be positive. So it would be just less positive than it would be year-over-year.

Got it. And is that -- are these deferred revenue balances, are they swelling because of specific very large orders? Or you think about them being proportionate suggest the aggregate kind of volume of orders that you're getting? Just trying to understand it because traditionally in low and medium voltage electrical equipment, you don't have these large prepayments.

Yes. And I would say it depends on the type of order and the mix of orders. Again, I think that we do always try to push to get some down payments and progress payments in there. But the mix would impact that a little bit, and it could be an influence in what drove up fourth quarter versus third quarter. But I wouldn't say it's marginally different than what we've seen historically.

The next question goes to Mark Delaney of Goldman Sachs.

Congratulations on the strong results and very strong orders. I was hoping to get Vertiv's view on how it's cooling product mix and business opportunity may evolve. And I ask because post CES, there was some discussion that Rubin raised racks, may not need chillers and conversely post super compute last fall. Others are from a competitor about stainless steel chillers maybe displacing CDU. So some moving parts there. And I would love to get your opinion on how Vertiv's see this business opportunity evolving and what this might all mean for your content per megawatt and market share?

Let's are start from the bottom. So I go back to what we're saying. We believe the technology evolution is certainly central to that statement is favorable from a content standpoint, it is no exception. So clearly, there is an opportunity to run some GPUs at a higher temperature than historically done. But this is pretty much what has been true for many of the more recent chips of NVIDIA. [indiscernible] advantage is helpful. Let's all remember that, that doesn't rule out heat rejection. Heat rejection will continue to exist, continue to be there. Let's not forget that there are loads that can be cooled at higher temperatures. There are loads with the same data centers that require lower temperatures. So if anything, whereas the overall efficiency of the system indeed improves, we're thinking more and more about a hybrid cooling and thermal chain infrastructure. Now clearly, the ability to reduce the number of chillers, but not the number -- net number of heat rejection technologies, depends on the specific climate situation, depends on the type of loads. It depends on the resiliency to -- various types of non-GPU, or different GPU loads that the data center is designed for. When we look at this space, we are very, very encouraged by what we see in terms of a product that is now catalog, and that is very, very important for us that what we call Trim Cooler. So a chiller that is really optimized to operate high temperatures, but also with the flexibility for lower temperatures that again, coexist in systems. It's a solution that maximizes free cooling, and it's certainly very, very central to the future of the industry. So all in all, we see that design continues to be mixed. If anything, this complicates the thermal chain and this complexity is something that we like as someone who has got the entire portfolio, we certainly are perfectly positioned to support our customers. And again, going back to what we're saying enable the right choice for our customers. Cooling chips directly in other ways than through CDU in this moment is not something that we see. Simply because it would -- in most of the cases, it will be niche applications probably, but in most of the cases, that would be too dangerous. Blast radius is a little bit too big, et cetera. So we're pretty sure that CDUs in various shapes and forms are long-term elements of the thermal chain.

The next question goes to Andy Kaplowitz of Citigroup.

If I look at core incrementals that you're modeling, I think you've got pretty close to 30% dialed in, is kind of the low end of your long-term range for Q1 and '26, but I would guess the scale of some of these contracts could be your friend, because they should maximize your ability to leverage your sales. So is it possible to generate higher incrementals given potential operating leverage? Or do we need to be a bit more conservative regarding supply chain? And do you just need a higher level of growth investment to fund all of your revenue growth?

Andy, I'll start off by saying you're exactly right. There is a higher level of investment. We are still guiding at that lower end of the 30% to 35% that we've said in the past. I think as we get through the year and the investment that we are putting into place, we can continue to see those go up in our longer-term guidance, and we'll reiterate that in the Investor Day of what we see as that goes forward. But I think you're exactly spot on. Some of the investments that we're doing and the -- I'd say, the ramp-up of those has a little bit of pressure on us as we drive those incremental margins.

Yes, I would say that the long-term trajectory is absolutely unchanged. So we feel good about it.

The next question goes to Michael Elias of TD Cowen.

Congrats on the order quarter. Great to see you guys capturing the market share out there. Gio, a question for you. I'm sure you came out of PTC with a similar sense that demand is rocking and rolling. As we think about going forward, could you just give us an update on the utilization of your existing production capacity? And maybe as part of that, the evolution that you're seeing on the product lead time front for things like switch gear, how they may have evolved over the last 3 months given the demand strength?

Yes. Certainly, demand is there and in very rude health, as one would say, and we're very happy how we capture that. Again, utilization and capacity, clearly, we're pretty satisfied. In general, I always talked about having a wiggle room in the way we load our capacity in our factories. This is still true. So we are using this wiggle room to if needed sometimes to accelerate growth. But again, we like to continue to design our capacity with that wiggle room that is 20% 25%. So the same way of looking at the long-term capacity applies here. And that's how we decide on capacity increments as reflected in our in our CapEx numbers. When it comes to lead times, yes, there has been some expansion a little bit in some product lines. But again, pretty much on customer and end market lead time in general across the majority of our products. So again, quite happy. Quite happy with our evolution in this respect. We like the growth, we like the capacity utilization.

The last question is from Amit Mehrotra of UBS.

Maybe just add and clean up here a little bit. So I wanted to ask about pipeline because obviously, pipeline leads orders. I would imagine if you're more than doubling your orders sequentially from 3Q to 4Q, your pipeline is depleted. It doesn't seem that's the case based on how you talk about the pipeline. So just talk about that. And then the last, just a clarification. Just remind us, what has to happen, what hurdles do you have to pass for an order to make it into your backlog from a deposits or delivery certainty visibility perspective? If you can just remind us on that, that would be great.

Okay. So the pipeline has not depleted. If anything, despite certainly the very strong order intake in the last quarter, we are seeing the pipeline to grow quarter-to-quarter. So again, very satisfied about that. It's not just a market, it's our visibility of the market. So I just want to reiterate it, it has not depleted. When it comes to what makes an opportunity backlog? It is a binding purchase order. Everything backlog at Vertiv is a binding purchase order. Majority of -- very often with advanced payment, but it is the nature of the PO binding, legally binding purchase order.

This concludes our question-and-answer session. I would now like to turn the conference back over to Gio Albertazzi for any closing remarks.

Well, thank you very much. Thank you all for the questions, and thank you for your time today. Of course, I'm very pleased with what we delivered in '25 and very pleased how we're positioned entering '26. Certainly very proud of the job that the entire Vertiv team has done and I'm super grateful for the collaboration with our customers and partners. We're pleased with our progress. You know me by now. We're certainly never satisfied. I am certainly never satisfied. We continue and we will continue to invest ahead of the curve, maintain our technology leadership and execute with speed and precision. I'm more confident today that I absolutely have ever been about Vertiv's trajectory. Very encouraged. And I want to thank you all and wish you all a great rest of your day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.