Prepared remarks
Good morning. My name is Lucas Penner, and I will be your conference operator today. At this time, I would like to welcome everyone to Vertiv's Second Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Please note that this call is being recorded. I would now like to turn the program over to your host for today's conference call, Lynne Maxeiner, Vice President, Investor Relations.
Great. Thank you, Lucas. Good morning, and welcome to Vertiv's Second Quarter 2026 Earnings Conference Call. Joining me today are Vertiv's Executive Chairman, David Cote; Chief Executive Officer, Giordano Albertazzi; and Chief Financial Officer, Craig Chamberlin. We have one hour for the call today. During the Q&A portion of the call, please be mindful of others in the queue and limit yourself to one question. If you have a follow-up question, please rejoin the queue. Before we begin, I would like to point out that during the course of this call, we will make forward-looking statements regarding future events, including the future financial and operating performance of Vertiv. 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 will turn the call over to Executive Chairman, David Cote.
I am incredibly pleased by our second quarter performance and outlook for the rest of the year and beyond. We have a great position in a good industry and continue to execute very well. Giordano and his team stay at the forefront of technology with organic investments and acquisitions. The industry outlook is incredibly good because the digital age has decades to go. Our outlook is incredibly good and deservedly so, as we provide the picks and shovels for the digital age. The seed planting Giordano and his team have been doing continues to pay off and will do so even more in the future as the benefits from our technology investments unfold over time. And with all that goodness, we still have opportunity to further improve. As Giordano likes to say, we are still far from our full potential. The future is so bright we have to wear shades. I love it. With that, I now turn it over to Giordano Albertazzi.
Well, thank you, David, and welcome, everyone. Let us go to slide 3. A strong quarter: EPS, margin, profit, and cash convincingly strong. Continuing on a trajectory of strong sales growth even with some timing elements. Pleased with what we see in July and full confidence in H2 execution and backlog. As a result, we have raised our full-year outlook. Net sales were up 24% versus Q2 2025, driven by continued strength in the Americas, which grew 29%, and APAC also up 29%. Importantly, EMEA returned to positive net sales growth with a 2% year-on-year increase. On an organic basis, net sales grew 18%, with an additional 5% from acquisitions and 1% from favorable currency. Adjusted operating margin came in at 22.6%, exceeding our guidance and growing 410 basis points year-on-year. The strong margin performance translated into adjusted operating profit of $738 million, up 51% from a year ago. Adjusted diluted EPS were $1.52, or 60% up from second quarter 2025, driven primarily by high volume and continued operational productivity. Adjusted free cash flow came in at $925 million, a very strong 234% year-on-year growth driven by higher operating profit and working capital efficiency. Free cash flow conversion exceeded 150% in the quarter. We are raising our full-year guidance across all key metrics. Net sales raised to $14 billion, a $250 million increase from previous guidance, up 37% year-on-year. Adjusted diluted EPS now at $6.70, a 60% increase from 2025. Adjusted operating profit now expected almost 60% up year-on-year. And adjusted free cash flow expected at $2.5 billion and we achieved a net cash position at the end of Q2. Let's now move to slide 4 and start with the market environment. On the left, our global pipeline momentum remains very strong, and we expect another year of robust orders growth. Demand signals are clear and broad-based. Regionally, let's start with the Americas where the market continues to be strong. Pipeline is actually accelerating, corroborating the long-term growth trajectory of our business. EMEA's momentum is further strengthening. This reinforces our confidence in the acceleration for the second half of the year. APAC showed broad-based strength, pipeline expansion, and favorable market conditions. This supports continued growth across the region. Pricing continues to be favorable. We expect positive price/cost in 2026, including the current impact of tariffs and countermeasures. Now to the right side of this slide: Q2 revenue showed strong growth year-on-year and quarter-to-quarter. We are executing on further acceleration in Q3 and Q4 on strong backlog. Additional capacity is online globally. Examples are Johor in Malaysia, five large plant expansions in the Americas, chiller capacity increases in EMEA, and more. During Investor Day, you saw that this expansion is rapid and broad-based — at speed but always in a very disciplined fashion. We are delivering data center infrastructure solutions at an increasing scale and level of complexity; that is exactly where we want to be. We experienced some minor timing shifts in Q2 revenue, primarily driven by multi-phase project execution and temporary supply chain dynamics. But the demand is there and the trajectory is strong. Keep in mind there are increasingly large projects underway. Think Smartron and think even bigger with OneCore. These come with significant interdependencies, a lot of coordination, and a lot of rapid learning. I like the pace of our progress, and we get stronger every day. On capital expenditures, we now expect to be at the high end of our range: 4% of 2026 sales as we further expand global capabilities and capacity going into 2027. We continue to invest for the long term, in a disciplined manner, in future power architecture, advanced thermal systems, services, converged infrastructure. These are the building blocks that enable the next-generation AI data centers and factories, and we intend to continue to lead the industry. Let's now go to slide 5. I am sure many of you will recall our CTO Scott Armlul's power architecture presentation at our Investor Day in May. I want to reiterate and build on what we shared there. Multiple partner architectures will coexist in the future. Vertiv supports each one of them through a complete orchestrated powertrain. On the left side of the slide, you see the different architectures. Our AC foundation, with, as an example, Vertiv Trinergy and EnergyCore battery storage system and the rest of the Vertiv powertrain, of course. This architecture is broadly deployed, growing, and will continue to be used by many categories of customers. The next architecture serving even higher density has a medium-voltage AC source that feeds low-voltage AC to deliver 800V DC at rack and port level. Here you see new Vertiv technologies like medium-voltage pass UPS, and Vertiv 800-volt DC sidecars. This is under customer validation in 2026 with deployment planned in 2027. Then the 800V DC architecture at data hall level. Here, Vertiv solutions will include MV DC UPS and solid-state transformer to cover the multiple ways to address the end-to-end powertrain. We are active in the development with planned 2027 customer validation supporting 2028 deployment. As stated, rather than transitioning to a single architecture, the market is expected to leverage both AC and DC solutions as power requirements continue to evolve for years to come. Now the right side of the slide: this is an example of deploying multiple power architectures at sites. Sites evolve and expand. I am thrilled to highlight our collaboration with NVIDIA and VisionBay AI, Foxconn's business unit focused on AI supercomputing, at their site in Kaohsiung, Taiwan. For the initial phase of this site, VisionBay AI awarded the power, thermal, and services business to Vertiv for what is Taiwan's first AI data center featuring NVIDIA GB300. On top of this, we are collaborating for the world's first AI data center adopting 800V DC architectures at the rack and pod level featuring NVIDIA 'Vera Rubin'. This is an example of early customer validation of our roadmap and supports the broad power architecture evolution. This is real. This has happened. In a nutshell, as a number of viable power architectures expand and AC and DC coexist to deliver on 800V DC, Vertiv's content opportunity per megawatt expands, and we are leading this transition. Let us now go to page 6 and continue on the topic of technology. I want to spend a moment talking about Vertiv's data center cooling architectures and our unique fluid management services. When the two are coupled and combined, we ensure our customers use nearly zero water. As they scale, many customers have been and are adopting closed-loop cooling architectures as they optimize power and water use. A closed-loop cooling architecture is just that: closed or sealed, with water recirculating. Typically, it does not require additional water after the fill at start-up. Vertiv's end-to-end thermal chain technologies for both the primary and secondary cooling loops — examples are Vertiv Liebert TruCooler, Vertiv Liebert CoolChip CDUs, to name a few — fully enable this approach. This architecture enables a data center to run on no water consumption. Now let's take the focus on water use a step further and also address the initial system fill. And this is where PurgeRite Near-Zero comes into the equation. As part of our unique fluid management technology and services, PurgeRite Near-Zero utilizes a closed-loop recirculation system to capture, treat, and reuse water during start-up. This reduces the water normally used in the process by up to 90% during the start-up of a data center. For our customers, this means a faster and more cost-effective deployment and commissioning of liquid cooling systems and chilled water circuits. This means significantly less waste and less disruption on-site. More broadly, this expands Vertiv differentiation in thermal management services, and we are managing fluid performance from the start and throughout decades of operational life. PurgeRite Near-Zero is scaling through our existing service network — a capability we believe no one else can replicate at our scale. And with that, over to you, Craig Chamberlin.
Thanks, Giordano. Turn to slide 7. Let's walk through our second quarter financial results in more detail. On adjusted diluted EPS, we delivered $1.52 — that is up $0.57 or 60% versus prior year — and $0.12 above guidance. The year-over-year improvement was driven by $0.58 from higher after-tax adjusted operating profit, which was driven primarily from higher sales volume and increased profitability. Looking at net sales, we delivered $3.274 billion in the quarter — that is up $636 million or 24% versus prior year. Organic sales growth was 18%, with 5% additional growth contribution from acquisitions and an additional 1% growth contribution from favorable foreign exchange. By regions, Americas grew 21% organically, APAC grew 26% organically, and EMEA was down 2% organically. Moving to adjusted operating profit, we delivered $738 million — that is up $249 million or 51% versus prior year, and $28 million above the midpoint of our guidance. Adjusted operating margin of 22.6% expanded 410 basis points year-over-year and came in 140 basis points above guidance. The margin expansion was driven by strong operational execution, continued productivity gains, and favorable price/cost execution, partially offset by tariff impacts. We are also continuing to invest in capacity and engineering R&D to support future business growth. To round out the quarter, adjusted free cash flow momentum was outstanding, with the quarter ending at $925 million — up $648 million or 234% from prior year. The improvement was driven by higher adjusted operating profit, strong working capital performance, including project milestone collections, inclusive of initial advanced payments, and lower cash interest. These items were partially offset by higher cash taxes and higher spending on CapEx investments. At our quarter end, our net leverage is at negative 0.1x, providing even more flexibility. Just a quick note on our deferred revenue: you will see an increase in the quarter, and that is driven by project advanced payments and ongoing milestone collection. We are very happy with our execution on project milestone development, and what you are seeing in deferred revenue is a combination of payments at project initiation, order placement, and ongoing project milestone execution. Moving to slide 8, let's look at segment performance. In Americas, net sales were $2.071 billion, up 29% with organic growth of 21%. Organic sales growth remained strong in the quarter. As Giordano mentioned earlier, some minor timing shifts in Q2 revenue were reflected in the Americas revenue numbers and were primarily driven by multi-phase project execution and temporary supply chain congestion. However, we expect the associated timing delay to resolve in the second half of 2026. Adjusted operating profit was $571 million, driving 360 basis points in adjusted operating margin percentage. The margin expansion was delivered by ongoing commercial excellence and strong operational execution. Moving to APAC, the region had strong results with net sales of $720 million, up 29% with organic growth of 26%. We continue to see strong end-market demand and the commercial execution across the team gives us confidence going forward. Adjusted operating margin percentage grew 270 basis points in the quarter due to strong operating leverage realized in the region. In EMEA, net sales were $484 million, up 2%, with organic sales down 2%. We continue to see a strengthening market, which supports our position for the region to return to organic sales growth in the second half of 2026. EMEA also saw strong growth in adjusted operating margin percent, up 380 basis points year-on-year. The team continues to drive improved operational execution, which came through in this strong margin performance. Turning to slide 9, let's walk through our third-quarter 2026 guidance. For Q3, we are projecting adjusted diluted EPS of $1.80 at the midpoint — that represents 45% growth versus prior year. That year-over-year improvement is driven by continued volume growth and ongoing margin expansion. On net sales, we expect $3.75 billion at the midpoint — that is up $1.074 billion or 40% versus prior year. Organic sales growth is expected to be up approximately 35% with an additional 5% from acquisitions. By region, we expect Americas organic growth in the high 30s, APAC in the high 30s, and EMEA in the mid- to high teens. Adjusted operating profit is expected to be $918 million at the midpoint — that is up $322 million or 54% versus prior year. Adjusted operating margin is expected to be 24.5% at the midpoint — that is up 220 basis points year-over-year and is driven by strong organic sales growth, continued operational leverage, and ongoing productivity realization. Let's turn to slide 10 for our updated full-year 2026 guidance. We are raising our outlook across all key metrics. Starting with adjusted diluted EPS, we now expect $6.70 at the midpoint — that is up $2.50 or 60% versus 2025. The updated range is $6.65 to $6.75. This is an increase of $0.35 at the midpoint versus prior guidance. The year-over-year improvement is driven by continued volume growth and ongoing margin expansion. For net sales, we now expect $14 billion at the midpoint — that is up $3.77 billion or 37% versus 2025. This represents an increase of $250 million versus our prior guidance. Organic sales growth is expected to be 31%, with 5% growth from acquisitions and 1% growth from favorable currency. By region, we expect Americas organic growth in the high thirties, APAC in the low 30s, and EMEA in the low single digits. Moving to adjusted operating profit, we now expect $3.325 billion at the midpoint — that is up approximately $1.235 billion or 59% versus 2025. This is an increase of $125 million versus our prior guidance. Adjusted operating margin is expected to be 23.8% at the midpoint, expanding approximately 340 basis points from 2025 and up 50 basis points versus our prior guidance. The margin expansion is driven by continued operational leverage and positive price/cost execution which is offsetting some tariff headwinds. Finally, adjusted free cash flow is expected to be $2.5 billion at the midpoint — that is up $1.613 billion or 182% versus 2025. The year-over-year improvement is driven by higher adjusted operating profit and lower cash interest, partially offset by higher cash taxes and higher investments in CapEx. Capital expenditures: we are delivering strong results, raising our outlooks, and executing with discipline. Based on our performance and momentum, we are very confident in our ability to continue driving results throughout the balance of the year. With that, I will send it back to you, Giordano Albertazzi.
Well, thank you. Thank you, Craig. Let's go to slide 11. To wrap up: strong Q2 performance. We are delivering and the team continues to raise the bar on what is possible. We raised our full-year 2026 guidance across all key metrics. The momentum is strong, it is broad-based, and it is accelerating. We continue to invest with discipline — not just for the 45% growth we are expecting in the second half, but for the years beyond: capacity, innovation, services. On M&A, we closed the Thermo King acquisition, strengthening our heat-rejection capabilities. We closed the acquisition of Thermal-Lube in April; we are adding server-side liquid cooling and cold plate expertise for high-density thermal management. Together, these two positions expand what we offer across the full thermal spectrum, from heat rejection to direct-to-chip cooling. Allow me two additional spotlights. At the Naval Postgraduate School, in partnership with NVIDIA, we delivered a fully engineered packaged rack, power, and cooling system into an existing on-prem facility. This includes liquid cooling integration, commissioning, and deployment support. This is a repeatable at-scale reference architecture for NVIDIA GB300. We call this Vertiv Smart IT solution. The project established an advanced locally operated AI environment for education, research, engineering, modeling, and simulation. This also shows how an existing facility can rapidly be transformed to support next-generation accelerated computing — easy for enterprise and sovereign customers to adopt. In EMEA, Germany, our collaboration with Dataforce is a great example of the momentum we are seeing in that region. Vertiv delivers a complete powertrain, including switchgear, UPS, and battery systems, and a thermal chain like chilled-water units, free-cooling chillers, and our industry-leading services. It all will enable Dataforce's new Frankfurt site. It is exactly the kind of optimized end-to-end system deployment where Vertiv excels. To conclude, I am more confident in our trajectory today than I have ever been. We are executing, we are investing ahead of the curve, and increasingly our customers are asking us to help them architect their most complex infrastructures. That is the role we have earned, and it is the role we intend to further strengthen. With that, let's go to the Q&A.
Questions and answers
We will now begin the question-and-answer session. In order to ask a question, press star, then the number 1 on your telephone keypad. In the interest of time, please limit yourself to one question. If you have a follow-up question, please rejoin the queue. We will pause for just a moment to compile the Q&A. The first question comes from the line of Scott Davis from Melius Research. Scott, please go ahead. A reminder to unmute locally.
Oh, yes. Thanks for the reminder, operator. I have not figured out my phone yet. Sorry, guys, and good morning. I just want to address a little bit the issue that may be hurting you a little bit today with the timing shifts in Q2 revenues and the supply chain congestion comment. What can you give us a little bit more detail on that? And more explicitly, is this something — complexity is something that I would imagine is going to just do nothing but increase over the next five years and perhaps forever. Is this potentially going to be an ongoing issue, not just a one-off? And if so, how do you mitigate or manage through it so that it really does not disrupt quarters the way that perhaps it can?
Well, thanks, Scott, for the question and you are right — complexity is increasing. Some of the projects are not only bigger but multidimensional. There can be a lot of supply chain interdependencies, and this supply chain is necessarily an external supply chain. It can very often be an internal, within-Vertiv supply chain. Now clearly, like everything, and like we have done so far, there is a learning curve. I am pleased with the speed at which we are progressing on this learning curve, and this learning curve is a learning curve of the execution on this complexity. So I am pretty confident about our direction of travel. Again, these are the first very large projects with this level of complexity, and we are more and more equipped for this, just from a technology standpoint, but from logistics and operations in general. When it comes to the part of your question about whether there could be an ongoing impact in the future: well, certainly, as I said, there is a learning curve that we are progressing on at speed. But there is also the fact that we are prudent in our second-half guidance. This is true in general also for the future. So, if you think about our H2 guidance, we are not assuming all stars align. We have wiggle room for this progress on the learning curve not to be perfect. Though of course, speed and perfection are our goals.
Okay. Fair point. And then just a quick one: is there a price where you would start buying back stock a little bit more aggressively just given the pullback we are seeing in the entire complex right now?
I think we always look at buybacks opportunistically, Scott, and that is the thing we talked about even at Investor Day. Given today, it is a good time to look at it, but I think it is always something that we evaluate as part of our capital deployment priorities, and it is one of the areas we look at.
Fair enough. Wish you all the best, guys. Good luck, and I will pass it on.
The next question comes from the line of Jeffrey Sprague with Vertical Research. Jeffrey, please go ahead.
Hey, thanks. Good morning. Giordano, on the comment that the pipeline is actually accelerating, I assume that is sort of all hyperscale, but can you give a little bit more context on the nature of the acceleration? Is it scope to burden? Is it additional customers? Is it existing customers looking to do more quickly? It seems to support the comment you are making about robust orders for the year, but I'd love a little bit more color there if you could.
Let's start from the end: yes, this supports our comments about orders. When I talk about pipeline, I always like to talk about the magnitude of the pipeline and the speed of the pipeline. If I talk about the speed of the pipeline, and we talk about acceleration, it means that the sales cycle within the pipeline can be faster or slower. So we noticed an acceleration — it is becoming a faster sales cycle. But at the same time, the strength is also in the sheer size of the pipeline in terms of quarter-to-quarter, year-on-year growth, and this is broad-based. It is pretty much across the world, and it is broad-based across various customer categories. So certainly across hyperscalers, it is true for enterprise, it is certainly true for colo and neo-cloud. So it is pretty broad-based.
And just to add to that, Jeffrey, hyperscalers and colos — hyperscalers sometimes deploy through colos. So you might get a little bit of a mix there. We are seeing it across regions and across products, and that is how we really look at our pipeline — accelerating across those spaces.
And just a quick one: do you have a solid-state transformer solution at scale at this point? Where do you stand on that product's evolution?
Just like one of the slides was describing, the solid-state transformer is currently a matter of project development for us. It is in the project development phase.
Your next question comes from Amit Daryanani with Evercore. Amit, please go ahead.
Yep. Good afternoon, everyone. Thanks for taking my question. Giordano, if you just go back to the supply chain issues and delays, can you just talk about how much revenue actually pushed out due to these challenges you had in the quarter? I think you missed the Street numbers by $100 million, but I'm wondering if the supply issues were perhaps much larger than that from a dollar perspective. And maybe on the same lines, was it a Vertiv-specific issue or something at the customer side that led to this impact? And then how do you see this flowing back into the model for the back half? Thank you.
Good afternoon. First, in terms of customer versus Vertiv: on the customer side, we see the same dynamics that we have seen historically, so no big differences. On the Vertiv side and the exact amount, we will not be too specific, but the majority of what we are seeing is really coming from the dynamics I described in my opening remarks and my earlier answer to Scott. That is pretty much the dynamics we see. Regarding supply chain, it is always a matter of working the sequence of things; it is nothing different than what we have experienced historically. We are pleased with how we are strengthening the resilience of our business in general.
Amit, just to clarify: we are talking about large project deployments and the learning curve around that, which has confounding effects from both the external supply chain and our own internal supply chain. So there are some gray areas when you typically can recover from a late part on point products, but when it becomes a larger supply chain it becomes more confounding. That is the area where we are seeing it: large project deployments. We are learning and understanding what it takes to go forward and how to iron those out. As we said, we are prudent in our second-half guidance.
The next question comes from the line of Deane Dray with RBC Capital Markets. Deane, please go ahead.
Thank you. Good morning, everyone. I'll keep it to one question. Really good performance on free cash flow conversion this quarter. Craig, I would be interested in hearing: was there any contribution from customer deposits on orders? I know that is something you all have been looking at. And David Cote knows from his aerospace and defense days that it is pretty standard to require deposits on larger orders. So any contribution there?
Yeah, Deane. And again, I want to congratulate you; I know you are retiring in September. Great career. To your question: if you look at the face of the balance sheet, our deferred revenue did go up. Our deferred revenue is a read-through in terms of those advanced deposits on orders, but it is also ongoing deposits as we go through the milestones of delivering those larger projects. So it is a combination of both. That is driving the working capital and the great cash performance when you look at it across the entire balance sheet. Definitely an indicator of strong commercial performance on both sides.
Great. Thank you for those kind words, and I appreciate all the support from the team and wish you all continued success. Thanks.
The next question comes from Nigel Coe with Wolfe Research. Nigel, please go ahead.
Thanks. Good morning, everyone. Just want to pick up on that topic — I think this is the first time, maybe I'm wrong, but the first time I've heard progress collections, i.e., staged payments. Maybe just touch on that. I know your assortment is changing with OneCore and Smartron. What kind of percentage of revenues are we talking about now that actually have progress collections? And the balance sheet numbers moved quite a lot this quarter. Thermo King seemed quite small — did it come with a large balance sheet? Thanks.
Thermo King did not come with a large balance sheet, so little impact there. In terms of the actual progress collections, there is a portion that we get upfront and a portion as we deliver milestones. A lot of that is related to delivering products to the end project, and so that is how you start phasing it in. Sometimes you get payments a month before you deliver projects, sometimes at the end of design. They are all phased in different ways. So we would get a portion upfront and a portion at delivery milestones that we set forth. Always, in our view, staying ahead of the cash curve in that project. Some of it will be related to deliveries where you would see revenue incurred; some might be tied to design milestones before revenue occurs. They are all a little different, with the goal being staying ahead of the cash curve and being cash positive on that. On the other phases of the balance sheet, you mentioned lots of movement: we do have a significant ramp in the second half, so you would see some inventory come on, and as that comes on you will see AP come on as well. We did have a good quarter in terms of sales, so you see AR increasing as well. All of this is a reflection of the volume you are seeing. Thermo King had little impact to that.
The next question comes from Andrew Kaplowitz with Citigroup. Andrew, please go ahead.
Morning, everyone. Gio, you updated us on the evolution toward 800V DC potentially starting to impact Vertiv in 2027. When you step back, how confident are you that Vertiv's content per megawatt could go up as 800V DC technologies are adopted? Would you surmise that Vertiv's 800V DC offering could be toward the higher end of that $3.25 million to $3.75 million per megawatt range you gave us at Analyst Day?
We are pretty convinced about that. When we look at all the elements of the powertrain in the various architectures, and when we think about what happens inside the white space and the gray space, we see value for Vertiv and an expansion of revenue per TAM per megawatt. It is not different from our conversations or what we shared at Investor Day two months ago. We continue to go through that math, and that math is corroborated by the progress we are doing on product development and our customer activity. We would need to go element by element in that chain, but think about the entire powertrain and all the elements vis-à-vis what we have today, and you will see that with that density and complexity our content is impacted favorably.
The next question comes from Andrew Obin with Bank of America. Andrew, please go ahead.
Yes. Good morning. Just maybe another question on the deferred revenue. We have been getting lots of questions on this topic. It is a large number, and folks are trying to figure out: has the structure of your deferred revenue changed materially from what it was like? I know it fluctuates quarter-to-quarter, but has the structure of what goes into deferred revenue changed materially, or is it still apples-to-apples over the past several quarters?
It is apples-to-apples, Andrew. What you might be feeling differently is that back in Q4 we had a large order influx on the infrastructure solutions business where a lot of the milestones are set up in the project-based world versus the point-product world. The project-based world might have more milestones before delivery of revenue, so you might get one at the input of the order, one along the way at design, and one as you start to deliver products. So you have different levels of milestones on those projects versus a point product. We had a large order intake in the fourth quarter of last year that we spoke to, and some of that is what you're seeing in deferred revenue as it comes through throughout the year, in addition to our regular down payments. But there's no structural change in the way we recognize deferred revenue.
The next question comes from Christopher Snyder with Morgan Stanley. Christopher, go ahead.
Thank you. I wanted to follow up on the conversation around production complexity and some supply chain impact. You are guiding to a pretty significant organic ramp into the back half relative to what we saw in the first half. Anything you can provide around confidence that these disruptions are getting better? I would imagine as the quarter went on, monthlies got better. You said July was off to a start supporting the ramp. Has it gotten better? Any color on the monthly cadence to give more confidence in the back half? Thank you.
Thank you. I would not use the word disruption. When we talk about complexity and interdependencies, very often in these large projects you will see multiple Vertiv factories feeding others, and external suppliers feeding those factories, so it is really complexity. There is an operational aspect: we are getting stronger in the operational execution of that complexity. The complexity does not go away, but our ability to handle it is accelerating very strongly, and that enhances my comments. I would not talk in terms of disruption.
I agree. On why we feel comfortable about the second half: it's a learning curve when you have these large projects and congestion in your supply chain. Some of that stuff is normal on point products and easier to iron out; larger projects take more time. We are seeing good signs of being able to ratchet up on that learning curve. As we think about the second half, we have also assumed some of that congestion continues. But on these projects, it might be a bit further than normal. All in all, we believe we are prudent in our second-half guidance and well supported by the platform.
The next question comes from Nicole DeBlase with Deutsche Bank. Nicole, please go ahead.
Yeah. Thanks, and good morning. Sorry to beat a dead horse, but with respect to the second-half ramp, there are still a lot of questions about what specifically is embedded and what is not. Maybe a way to frame it: how much of the second-half ramp is based upon the improvement in the learning curve and unlocking some of the revenue pushed out of Q2 versus just the overall capacity ramp that you guys are doing at the same time? Trying to get more comfortable with the step-up in revenues embedded in the second half and how much visibility you have into that.
When we talk about unlocking revenue, the revenues that were a little locked in Q2 are being delivered and deployed in the second half, and we feel extremely well about that. As for elements of congestion, as Craig mentioned, we are prudent in our guidance, though we believe there will be a strong acceleration and improvement operationally. We remain prudent in our guidance. There is capacity being released, and that is a big element of backlog conversion. Look at it as three levels: the operational acceleration in complex projects, the capacity coming available — which has been coming on in Q2 and even more so in the second half — and strong backlog coverage. Wrap that up with guidance that is not an all-stars-aligned type of guidance.
The next question comes from Amit Mehrotra with UBS. Amit, please go ahead.
Thanks. Giordano, curious to compare and contrast some of the challenges you are having today to the challenges you had around this time last year. You got back on track quickly then and it was more of a margin issue and an operational issue. You are an operational guy — compare and contrast, and are there multiple points of challenge or one main challenge cascading across the supply chain? A little color would be helpful.
Thank you, Amit. The parallel to a year ago is helpful. It was a different nature then — it was Ireland and some executional challenges on the busbar switchgear that we have recouped. This highlights that in a business moving at this speed, growing at this speed with rapid technology evolution, there is a lot of complexity to manage. In many respects the parallel is similar: last year it was a margin issue; this is more revenue-related — but it is operational execution that we are concentrating on. It may be different in the product line but not different in the focus and the recipe we apply. It is a matter of continuing to mature operationally as the market, portfolio, and scope of what we do evolve. I feel very good about that.
Are you reducing on-time delivery to customers? Vertiv's USP has been delivering on time in full. Are you disappointing customers with this development, opening market-share opportunities for others, or no?
Our overall performance is, if anything, improving. So the answer is no; this is not something that changes our perception in the market, we believe.
The next question comes from Mark Delaney with Goldman Sachs. Mark, please go ahead.
Thank you. One of the topics at Investor Day we haven't discussed yet is M&A. You talked about something in the order of $24 billion that could be deployed. In light of some of the pullback in financial market valuations and opportunities you see on technology, including 800V, could you give us your latest thoughts on the M&A opportunity and if the pipeline is active and something that could be executed relatively soon?
Our outlook on M&A does not change. We still look at it the same way we did at Investor Day. It is active — we do see an active market and we are participating and looking at several targets. It has to fit us and be the right value play for us in terms of portfolio fit and what we believe we can grow and return to investors. We invest in ourselves first — capacity, R&D, development — and then we look at spots where an acquisition gives true value, whether regional reach, a product to go to market faster, or a technology we do not have. Yes, we are active and continue to look at it in that framework.
The next question comes from Noah Kaye with Oppenheimer. Noah, please go ahead.
Thanks. Talking about learning curve developments and more focus on infrastructure solutions: the building blocks are largely part of the Vertiv portfolio already. As you come up the learning curve, to what extent are you increasing vertical integration across those building blocks and supply chain? Is that a process you are undertaking now, or something that needs to happen to mitigate those challenges in architecting these solutions?
There is always an analysis of make or buy and vertical integration in anything we do, whether at a point-product level or at large infrastructure-solution level. For solutions, we are already very integrated in that we put Vertiv products into our infrastructure solutions, so we have good control of the supply chain in that respect and feel good at the moment. That does not mean we will not adjust the mix of make or buy over time depending on business type and manufacturing locations. For example, the acquisition we shared last quarter, B. Mark, moved us to vertically integrate our frame construction for infrastructure solutions — a testament to our dynamic approach to make-or-buy decisions. At this moment we do not perceive major gaps.
The next question comes from Anand Baruah with Loop Capital. Anand, please go ahead.
Thanks. I would love your view on 800-volt versus 450-volt. For 800-volt, how broadly throughout the marketplace do you expect the technology to be adopted in the next couple of years? There has been speculation that one of the larger AI infrastructure companies could push out 800-volt adoption to 2029. If there were a major customer push-out, how broadly do you anticipate the technology to be adopted? Also we've heard good things on 400-450 volt DC potential over the next 24 months — could that fill any white space if 800-volt adoption is delayed?
I won't comment on rumors. As we shared in May and earlier today, we believe adoption of 800-volt will be gradual and convincing. We are certainly invested in that part of the portfolio. Whether it happens at the speed in our roadmaps or slower, we will be flexible and resilient because other parts of the architectures we provide will take share. Whichever way, we are well positioned with architectures, technologies, and roadmaps. Regarding 400-volt DC, some players are thinking in terms both of 800 and 400. The underlying technology is not dramatically different, and we are involved in both, which is helpful.
The next question comes from Luke Junk with Baird. Luke, please go ahead.
Thanks for sneaking me in here. Giordano, hoping to get some texture around your ongoing increase in confidence around the EMEA market specifically. We saw a step-up in margins sequentially this quarter. How do you think about the sustainability there or potential for further improvement in the back half of the year? Thank you.
Thanks. We are pretty bullish about EMEA as you saw. We believe in a strong second half and a return to growth. EMEA fared better than we expected in Q2, and we are very confident in the second half. We were vocal about strong orders in EMEA in Q1, and we like what we see in Q2. There is a backlog formation that is convincing and translates to top-line and bottom-line improvement. The market continues to accelerate and we have an important position in that market.
Luke, we see a second-half increase in growth for EMEA from a revenue perspective. The gain you saw in margin was partly a favorable comp as the Ireland portion came through in Q2 last year, which was in EMEA, so a bit of a favorable comp. But we still expect margins to be pretty good.
This concludes our question-and-answer session. I would like to turn the conference back to Giordano Albertazzi for any closing remarks.
Well, thank you. Thank you very much, everyone. Thank you for the questions and for your time today. I am very pleased with what we delivered this quarter and how we are positioned for the second half. The team is executing at a high level: scaling capacity, deepening customer partnerships, and advancing our technology portfolio, all simultaneously. It is not easy, but this invigorates us. Pipelines are strong, our operational discipline is sharp, and our customers trust us to deliver at scale. I am very encouraged by our trajectory. I am pleased, but certainly never satisfied. With that, thank you all, and I wish you all a great rest of the day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.