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    Vertiv Holdings (VRT)

    VRT Q2 2025: Backlog $8.5B up 21%, Q4 margin rebound of 200bps

    Reported on Jul 30, 2025 (Before Market Open)
    Pre-Earnings Price$142.70Last close (Jul 29, 2025)
    Post-Earnings Price$147.07Open (Jul 30, 2025)
    Price Change
    $4.37(+3.06%)
    • Robust Order & Backlog Strength: Management highlighted that the backlog remains strong at $8.5B, up 21% year-over-year, along with a clear and diversified orders pipeline that supports market share gains.
    • Margin Recovery & Operational Leverage: Executives addressed resolution of execution inefficiencies and tariff‐related challenges with expectations that Q4 margins will exceed 23%, supported by significant operational leverage from higher sales volumes.
    • Innovative Technology & Service Leadership: The team emphasized their industry‐leading technology, including advancements in liquid cooling and modular prefabrication, and strategic collaborations that position them at the forefront of data center solutions for AI and hyperscale customers.
    • Tariff and Supply Chain Pressures: The call highlighted ongoing tariff headwinds and a challenging supply chain transition—including premium freight and overtime costs—that are injecting operational inefficiencies and could continue to compress margins.
    • Execution and Efficiency Risks: Management discussed operational execution challenges, including retooling and labor inefficiencies during ramp-up. These issues raise concerns about their ability to fully capitalize on strong sales growth without additional margin pressure.
    • Technology and Investment Uncertainties: The push into evolving technologies like liquid cooling and modular, prefabricated solutions necessitates further capital investment. This aggressive investment approach might not deliver the expected margin improvements if market or execution challenges persist.
    MetricYoY ChangeReason

    Total Revenue

    +7%

    **The 7% growth in total revenue reflects a moderation in overall sales improvement, driven by higher sales volumes and favorable pricing actions that build on earlier periods’ robust performance across products and services. **

    Cloud Services Segment

    +10%

    **The 10% increase is largely due to rising demand in hyperscale and colocation markets—key proxies for cloud-related services—as well as the accelerated investments in AI-driven data center infrastructure, echoing trends seen in previous quarters. **

    Geographic Results: Americas

    +5%

    **A 5% YoY improvement in the Americas is driven by steady demand in colocation and hyperscale markets, with better unit sales and operational productivity that build on the strong performance observed in earlier reporting periods. **

    Digital Transformation Services

    +12%

    **The 12% increase in Digital Transformation Services revenue suggests enhanced adoption of digital solutions and innovative AI-powered infrastructure, reflecting continued momentum from prior initiatives that focused on digitalization and operational efficiencies. **

    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    Sales/Net Sales

    FY 2025

    Increased by $250M; organic growth 18% at midpoint

    Raised to $10,000,000,000; increase of $550M

    raised

    Adjusted Operating Profit

    FY 2025

    $1.935 billion at midpoint

    Just under $2,000,000,000

    raised

    Adjusted Operating Margin

    FY 2025

    20.5% at midpoint

    Approximately 20% at midpoint

    lowered

    Adjusted Diluted EPS

    FY 2025

    $3.55 at midpoint

    $3.80

    raised

    Sales Growth

    Q2 2025

    15% sequentially and 21% year-over-year

    no current guidance

    no current guidance

    Adjusted Operating Margin

    Q2 2025

    18.5%

    no current guidance

    no current guidance

    Adjusted Diluted EPS

    Q3 2025

    no prior guidance

    $0.97

    no prior guidance

    Net Sales Growth

    Q3 2025

    no prior guidance

    Organic growth expected at 22%

    no prior guidance

    Adjusted Operating Margin (quarterly)

    Q3 2025

    no prior guidance

    20%

    no prior guidance

    1. Margin Outlook
      Q: Explain Q3/Q4 margin expectations?
      A: Management expects a 10bps decline in Q3 followed by a strong rebound of over 200bps in Q4 mainly from operational leverage and resolving short‐term inefficiencies, ensuring margins align with long‑term targets.

    2. Free Cash Flow & M&A
      Q: How will free cash flow be used?
      A: They plan to allocate about $200 million of free cash flow for the Great Lakes acquisition while keeping a robust pipeline for future M&A if the right opportunities arise.

    3. Order Backlog
      Q: What’s the nature of your order book?
      A: The backlog remains stable with a slightly elongated pipeline that reflects a diverse mix spanning hyperscale, colocation, and enterprise, supporting solid growth prospects.

    4. Operational Inefficiencies
      Q: What is causing current inefficiencies?
      A: The challenges stem from a combination of tariff-related reconfigurations and the operational strains of a 34% growth rate, which management is addressing to normalize operations soon.

    5. Thermal Service Contracts
      Q: Will liquid cooling boost services?
      A: Yes, the increasing complexity of liquid cooling systems is expected to drive strong growth in thermal service contracts as they become integral to long-term system maintenance.

    6. Win Rates Stability
      Q: Has AI infrastructure win rate changed?
      A: Win rates for AI infrastructure remain stable, reflecting consistent competitive performance and strong, customer-focused system engineering.

    7. Product Evolution
      Q: How will products adapt to higher rack density?
      A: The portfolio is evolving to support higher voltage and 1–2MW per rack demands, leveraging longstanding DC power expertise and strategic collaborations.

    8. Market Growth
      Q: Are growth rates higher than expected?
      A: While growth in the hyperscale and colocation segments remains robust, management sees current momentum as supportive of their upper‑range guidance without a dramatic upward revision.

    9. Modular Trend
      Q: What about modular, prefabricated solutions?
      A: The shift towards modular and prefab setups is integrated into their strategy, enhancing efficiency by packaging their technology while reducing construction risks.

    Research analysts covering Vertiv Holdings.