Good morning, my name is Bricka and I will be your conference operator for today. At this time, I would like to welcome everyone to the Vertiv's fourth quarter and full year 2023 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 programme over to your host for today's conference call,

Lynn Maxina, Vice President of Investor Relations. Great, thank you, Brica, and good morning and welcome to AVERTIVE's fourth quarter and full year 2023 earnings conference call. Joining me today are AVERTIVE's Executive Chairman Dave Cody, Chief Executive Officer Giordano Albertazzi, and Chief Financial Officer David Fallon. Before we begin, I'd 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 averted. These forward-looking statements are subject to material risk 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. You can learn more about these risks in our annual and quarterly reports and other filings made with 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 our 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.verdiv.com. With that, I'll turn the call over to Executive Chairman Dave Cody. Well, 2023 was a great year

for Verdiv and our share owners. We created tremendous value. Our stock price increased $250, 52% in 2023, putting us well ahead of the number one performer in all of the S&P 500, and it's up very well again so far this year. We announced the capital allocation strategy at our November Investor Conference is very flexible, and we believe it's structured well to provide additional benefits to share owners and is a great reflection of the cash-generating capability of a company. A very nice and exceptionally promising change from where we work. We finished the year strong, quite strong in fact, and we fully expect this to set us up well to continue to provide good returns for our share owners in 2024 and beyond. So Gio and team were off to a very good start, but we still have work to do. You'll hear Gio talk about his focus areas for 2024, and what we plan to accomplish this year to deliver another good year for our investors. It's getting the important things, customer relationships, technology, VOS, organization, resiliency, working capital, and capital deployment. We demonstrated our potential in 2023, but we still have a long way to run, and that's all upside. So with that, I'll turn the call over

Gio. Well, thanks, Dave. Thanks a lot. As Dave mentioned, our stock was up 252% last year. As Dave said, if we were in the S&P 500, we would have been the top performing stock. We believe we meet the criteria and we believe Vertiv is a good candidate for S&P 500 inclusion. Let's go to slide 3. We finished the year strong. Operational execution continues to improve. Q4 sales were up 12% organically. Growth continues to be led by the Americas. Orders grew 23% year-on-year and 18% sequentially, good across all regions. Additionally, Book to Build was very strong at 1.3x, a demonstration of market strength that gives us confidence in what we believe will be a strong demand environment for 24 and beyond. Adjusted operating profit of $330 million, an adjusted operating margin of 17.7%, clearly a step function improvement, and a demonstration of our sharpened operational execution. Our adjusted free cash flow was $305 million for a full year at $778 million, resulting in more than a billion dollars improvement year on year. Our net leverage at the end of the year was 1.9x, so within our target range of 1 to 2x. And we were upgraded by both Moody's and S&P in December. In December, we announced the acquisition of Cool Terra that further strengthens our technology leadership in high-density and liquid cooling. More to come on that in a few slides. I'm pleased with a strong foundation. As we enter 2024, coupled with strong market demand, we feel good about our trajectory for the year and beyond. And let's move to slide four. we take a look at the market environments here and it's pretty consistent with what we have been seeing for a while cloud hyperscale continues to lead the growth with tangible signs of ai deployment and very strong build plans we continue to see encouraging signs in enterprise with customers are starting to develop ai plans for their business be it either on-prem or cloud either way it's good for verted a telecom not not a lot news here CapEx is tight and mainly focused on retrofit from a regional standpoint APAC remains soft that's continued continues to be a story of China and the rest of Asia the China market continues to be weak but we saw some small positive signs in terms of orders we don't think the market is getting weaker but recovery is slow paced if at all in the rest of asia including india we see significant investments happening across the market cloud collocation are certainly leading the pack but enterprise customers are also investing we moved commercial and industrial to green in apac really driven by india investment in infrastructure are accelerating the india market is quite exciting and we are well positioned overall our pipeline formation is good and particularly strong in the colo hyperscale segment let's go to the next slide slide five i am pleased with the order strength we saw in q4 23% year and year and 18% sequentially. We enter 24 influenced by a strong 2H23 booking driven by large projects reflecting also demand from AI. We continue to post record backlog, which was up about half a billion dollars from the end of Q3, good visibility for 24 and beyond. We expect Q1-24 orders to continue to be strong, up in the high teams on a year-on-year basis in the first quarter across the portfolio. We anticipate they will be down sequentially from Q4, but this is just a normal business pattern. We are working in close collaboration with our customers and suppliers to make sure we have the capacity in place to support the likely strong demand environment for the foreseeable future. We inaugurated a new thermal management plant in India. We have significant capacity expansion underway for switchgear and bus bars across the thermal portfolio, including, of course, liquid cooling. As I mentioned at Investor Day, on a weekly basis, we look at evolving demand scenarios in a disciplined, rigorous, and focused way to make timely investment decisions. The backlog for AI orders continues to grow robustly. The acceleration of the overall order book related to AI, and it's never an exact science, as I explained, matches the expected growth rate for the application, i.e. a growth uplift of 3% to 4% to the overall market, as we mentioned in November. I continue to caution, what is and what is not AI is fungible to a certain extent. What matters is that we believe that traction is consistent with the market uplift from AI, or perhaps a bit ahead, given our strong position in thermal, and thermal is a clear differentiator. Continuing on the right side of slide five, we believe that supply chains have largely returned to normal, but I'd say normal in a post-pandemic world. We are focused on making sure that resiliency is constantly increasing across the supply chain to weather what a quite complicated world can throw at us. So a lot of focus here. Looking at material inflation, we expect materials pricing to be relatively stable year on year, but we are very mindful that things can change

rapidly. And with that, over to you, David. Thanks, Gio. Turning to page six, this slide summarizes our fourth quarter financial results. We finished the year quite strong. Our organic net sales increased 12 percent, 5 percent from volume, 7 percent from price, and America continues used to be the growth engine, which America's was up 22% in the quarter. Our sales performance was within guidance range, but slightly below midpoint, which was mainly attributable to a weaker China and some project delays in EMEA. Adjusted operating profit was $330 million, up $120 million from last year's fourth quarter. And that was mainly driven by favorable price cost than the higher volume. We beat the midpoint of our implied fourth quarter adjusted operating profit guidance based upon good commercial execution and material inflation below our modeled assumptions. Our adjusted operating margin was 17.7% in the quarter, a 500 basis point improvement compared to last year. And that certainly was driven by our continued relentless focus on operational execution, and that clearly showed in the results. As we move to the right, our four-quarter gap diluted EPS includes a $115 million non-recurring tax benefit related to the release of a valuation allowance, and we have removed that from adjusted diluted EPS. And we provide additional detail on that valuation allowance release on page 28 in the appendix. But otherwise, the year-over-year increase in adjusted diluted EPS was driven by higher adjusted operating profit. To the far right, another very strong quarter for adjusted free cash flow as we generated $305 million in the quarter, more than doubling last year. Certainly Certainly higher profitability contributed to this result, but working capital is also an important part of the story with plenty of opportunity for continued improvement. As Gio mentioned, that leverage declined to 1.9 times within our target long-term leverage range of one to two times and down from 5.6 times at the end of 2022. This leverage level supports the capital deployment framework provided at our investor conference and gives us significant flexibility and optionality to deploy excess cash. Turning to page 7, this slide summarizes our fourth quarter segment results. The Americas region, as I mentioned, continues to fuel the growth engine with organic net sales up 22% in the quarter. The improvement in adjusted operating margin in the Americas continues, up 640 basis points from last year to 26.9%, with the increase primarily driven by favorable price cost and fixed cost leverage. APAC sales increased 3% organically, but continues to be weighed down by China, where sales were relatively flat year over year, but below expectations included in our quarterly guidance. APAC adjusted operating margin declined 220 points with unfavorable mix and the timing of fixed cost contributory factors. EMEA grew one percent organically in the fourth quarter which was lower than anticipated primarily due to delays on several larger projects. However we did see an 18 percent sequential sales increase from the third quarter which is which is encouraging and And EMEA experienced strong year-over-year fourth-quarter orders growth, both which provide confidence for us to project low double-digit organic growth in EMEA for full year 2024. EMEA delivered strong adjusted operating margin of 28.3% in the fourth quarter, an increase of 750 basis points from last year's fourth quarter, although they did benefit from a $6 million non-recurring gain from an asset sale in the quarter. And as Anad Sanghi, our America's president, has emphatically reminded us, without that gain, the adjusted operating margin for the Americas and EMEA would have been approximately the same as those two regions continue to push each other for highest regional adjusted operating margin. Next, turning to page eight, a summary of full year 2023 i can safely say it was a very strong year it's always a good thing when the orange bars on this slide are significantly higher than the gray bars and that is the case for all financial metrics for this past year 2023 produced a step function change in financial performance from 2022 that is not often seen in a 12-month period this significant improvement as a result of a relentless focus on operational execution, which very clearly reads directly through to our financial results. Our full year organic sales up 21% reflects a great position in a strong end market. Adjusted operating margin of 15.3%, an improvement of 760 basis points from last year certainly provides a strong foundation to surpass our midterm adjusted operating margin target of 16%, which we expect to do in 2024 with about 110 basis points to spare at the midpoint. We did well in converting the improved profitability to cash with an over $1 billion improvement year over year. And let me repeat that, and over $1 billion improvement in adjusted free cash flow year over year, with this improvement driven by the higher profitability and improved working capital management while continuing to invest in CapEx to support growth. Adjusted free cash flow of $778 million drove an adjusted free cash flow conversion of 114%, with this improved conversion benefiting from a significant increase in deferred revenue, primarily from advanced customer payments, which increased $280 million, or 80% in the year, while sales were up 21%, which we estimate contributed about 30 percentage points to that conversion. While we expect continued growth in deferred revenue, there are many market dynamics at play, and we should not expect similar growth in 2024, which is one of the primary reasons we are guiding to adjusted free cash flow conversion in the low to mid 90s for full year 2024. We have much work to do and there's plenty of opportunity for continued improvement, but 2023 certainly demonstrates our potential and helps build credibility and confidence that we can execute upon our long-term strategy and deliver are the financial targets we introduced at our investor conference. Pivoting to 2024 and moving to slide nine, this is a look at our first quarter guidance. We are expecting first quarter sales to be up approximately 5% organically with America's up high single digits, APAC up mid single digits and EMEA relatively flat, adjusted operating profit between 200 and 220 million, and adjusted operating margin of 13.1 percent, up 160 basis points from last year's first quarter, and that is driven by price-cost tailwinds and productivity programs partially offset by continued growth investments. As you likely have noted in our slide deck, we have not provided the detailed split between price and cost slash inflation for 2024. As we emphasize at our investor conference, our ambition is to cover all inflation, including labor inflation, with price. And being price cost positive is an important lever for us to attain our long-term adjusted operating margin target of 20 percent plus. As you will see on the next slide, we fully expect to be price cost positive in 2024, and we expect that to be the case each year going forward. We will continue to price our products commensurate with the increasing value we provide our customers. However, for commercial and competitive reasons, we are not disclosing the specific quantified pricing figure going forward. The rest assured that commercial excellence actions are a core tenant to our continued profit improvement program, and we believe we are well positioned in a favorable market to continue to execute upon our long-term plans. Next, turning to slide 10, our full-year guidance. Higher across all metrics from the view presented at our November investor conference. Organic net sales growth is expected to be 9 to 11 percent, up from the 8 to 10 percent we shared in November. We are increasing the midpoint for adjusted operating profit from 1.25 billion to 1.3 billion, with adjusted operating margin at 17.1 percent, well above the previously established mid-term target of 16 percent. And as a reminder, our long-term margin target is 20% plus, and we believe we will take all the necessary next steps in 24 on our path toward that target. Our projected 2024 adjusted diluted EPS of $2.23 at the midpoint is approximately 25% higher than 2023, primarily driven by higher adjusted operating profit and partially offset by taxes in a higher share count as a higher share price drives more accounting dilution for employee stock options. We have included some estimates for share repurchases and share price in our estimated 24 diluted share count, but we are not prepared at this point to share specifics for either, but we believe the 393 million shares estimate for full year diluted share count is a reasonable and balanced guidance, but certainly subject to change based upon several variables. Moving to the right on this slide, we are projecting adjusted free cash flow between 800 and $850 million, representing 94% adjusted free cash flow conversion at the midpoint. As mentioned, this is lower than 2023 conversion, primarily due to assumptions with deferred revenue and higher investment in CapEx. And finally, as we introduce at our investor conference, there will be a couple of external reporting changes in 2024 to align with how we run the business. We've summarized these changes on slide 31 in the appendix, and we have provided and a historical recasting for these changes going back to 2020 in Exhibit 99.2 of our earnings release. And with that said, I turn it back over to Gio.

Well, thank you. Thanks a lot. Thanks a lot, David. And we go to slide 11. Thank you. You saw this slide at our investor conference. We're the market leader in thermal management for data centers. We have the most complete portfolio of thermal management solutions, including liquid cooling, to lead the industry as a transition to GPU Accelerate. We can do this customizing at scale, and we believe in a very strong position. This slide here shows also our high-density liquid cooling portfolio. In November, the technology was both owned and partnership-based. now it's fully owned we can go to slide 12 the 8th of December we closed the acquisition of cool Terra which has industry-leading liquid cooling technology we have now secured that technology with full ownership we have been close partners of cool Terra for years now take a terrorist premier technology certified and approved by key chip manufacturers, along with established customer relationships. Combine that with Vertiv's reach, and you can scale the technology at a pace that will support our customers' aggressive AI deployment plans. We have already started to manufacture Colterra CDUs in one of the Vertiv plans, and we expect to have capacity quadrupled by the end of q1 we're executing on a plan to scale the production of our liquid cooling solutions more than 40 times by the end of this year we truly want to make sure we have capacity to cover the most aggressive GPU growth scenarios that is what vertive means by scaling technology activating our global manufacturing and supply chain footprint. Let's go now to slide 13. This is where we obsessively focus to deliver another very good year. It starts with the customers. We plan to continue leveraging our far-reaching and deep customer relationships and have the technology, the portfolio, the innovation, and the capacity to meet their demand. We spoke about the capacity expansion underways. We have allocated additional investment to capex to support our customers. Our global scale matters and will continue to differentiate us. Vertible operating system is foundational across the organization, helping us to realize productivity, improvements in general, and giving us speed. We have started to make progress on trade working capital but there is more work to do we are not optimized it continues to have my full attention and we are improving our capital deployment framework provides much flexibility driven by good cash flow generation so a lot to do in 2024 and uh be sure work is fully underway way to continue to execute well on all these focus areas now to slide 14 we started 2024 in the strong positions orders in q1 backlog at the end of the year were very strong orders in q4 backlog at the end of the year were very strong and markets continue to signal strong and increasing demand for the foreseeable future certainly driven by AI we expect to have the capacity to support our customers that is our commitment to them investment in capacity and R&D to support the growth of the business will continue our foundation is stronger today than ever before our focus area will continue to strengthen that foundation and increase the resiliency of the organization to navigate again an increasingly complicated world vos vertive operating system is a cornerstone for that, a robust, resilient operating system deployed globally. I am pleased with the progress, but I see even more opportunity than I did when I stepped into the CEO role, much more. There is work to do, and we look forward to updating you and our progress, and we look forward to our questions now. So over to the operator, and thank you very much.

Thank you. We will now begin the question and answer session. In order to ask a question, press star and the number one on your telephone keypad. In the time of interest, please limit yourself to one question. And if you have a follow-up, please rejoin the queue. We'll pause for a moment to compile the Q&A. We have the first question from Andrew Obin of Bank of America. Andrew, your line is open.

I guess good morning good morning just a question on we've gotten a lot of questions this morning on the pace of savings that you guys are forecasting for next year is just on a net basis it's just material slowdown versus 2023 and also you know the big question we got you know what kind of pricing and I know you're not going to talk about for competitive reasons But you have disclosed pricing for 2023. So, you know, if we sort of plug in any sort of reasonable pricing for 24, right, on a net basis, the 60 million looks fairly conservative, particularly given what you achieved even in the fourth quarter, if you could address that.

Well, thank you, Andrew, I'll start, and David, if you want to chip in. I mean, we've been pretty vocal about the strength of our pricing muscle built over the last 12-plus months, and something that continues just simply, just by the same token, I've been vocal about the fact that while we continue to believe that we operate in a price-favorable environment, but the marginal price gains will diminish for obvious reasons and a different inflationary environment we're in. But we operate, the biggest part of our business operates in a favor from a demand-supply balance environment. So we continue to count on price. Now, the pace of that price will, again, price gain diminish, but we're confident we'll continue to be positive. And I don't know if you want to add something, David.

No, just for avoidance of doubt, that $60 million certainly is a price cost or price inflation number. And when we look at price costs, we include labor inflation in that number, which we have disclosed previously. That's in the $100 million range, and we certainly expect both material and freight to contribute some inflation next year. So you've got to take that into consideration when you're looking at that price-cost dynamic, including looking at price.

Gotcha. And just a follow-up question. On North America, you are getting North America revenue up high single digits in the first quarter, but 22% growth in the fourth quarter, quarters up 23% in the fourth quarter, 23%. Is there any specific dynamic taking place in the first quarter why you think North America is only going to be up high single digits given the strength of the fourth quarter?

Well, we continue to believe that. We believe and we have a strong business North America pipeline. It's very, very encouraging. I just want to remind that the Q1 last year in North America, in America particularly, was particularly strong. You remember we were coming out of 2022. where we had a lot of, let me say, pent-up backlog. So that's also a reason. But we feel very good about our business in America.

Okay, guys. Thanks a lot. Congratulations. Thanks, Ian.

We now have Lance Vitanza of TT Cowan.

Hi. Thanks, guys, for taking the questions, and congrats on the performance. It looks like Book to Build not only improved in the fourth quarter, but accelerated. So I'm thinking about the Organic Sales Growth Guide for 2024, which is certainly terrific in an absolute sense, is obviously a lot lower than what you achieved in 2023. So I'm wondering, to what extent does the guidance for 2024 reflect potential bottlenecks, both from the standpoint of perhaps your customer's ability to source permitting and utility power on the one hand, and then also, of course, your own supply chain with respect to fans and IGBTs and breakers and so forth.

Thank you, Lance. So as you notice, of course, we are very happy about our book-to-bill and our backlog. We have dynamics in the sense that certainly our second half orders, 23, were strong and good. And that reflects in the way, you know, the shape of our backlog in general. We do not see a supply chain bottleneck our end. I mean, it's never infinite, but the constraining factor, if you will, if we can call it so, is the fact that simply these large projects and large projects we're talking have relatively long requested lead times from our customers. So it's a natural cycle. We were vocal in the past and we continue to be vocal that a whole industry needs to confront itself with power availability permitting, etc. But I would say that in the 12, 18 months is really the natural pace of build-outs and sites, etc. So we pretty much deliver on what our customers request right now.

thank you okay we now have Nigel Coe of Wolf Research your line is open thanks good morning

everyone I'll keep this to one question so if I'm doing the math right it looks like 2.4 billion dollars of orders in the quarter up from 1.9 in the third quarter I'm guessing you're going to say America's hyperscale etc but maybe just give us some context on what drove that sequential acceleration but more importantly can you maybe talk about the fund log of the funnel the fun log where you want to call it of opportunities you see coming up in the next quarter or two and then David just just just maybe just address this very specifically he said the third revenues will continue to grow in in 24 does that indicate that backlog continues to expand from here I'll start

Nigel to answer your three questions in one so clearly clearly we like the acceleration we like the acceleration in in orders and and the you remember we were vocal about the strength of pipeline both at earnings call in October and in November at investor day that continues to be true what what what we have positively noticed is an increased velocity in the pipeline. So we believe that's a characteristic trait of the pipeline that will stay with us. So that is true. The funnel continues to grow, and that's true pretty much globally, certainly for the Americas, EMEA and in many parts of Asia so we're positive we're positive about that so we see opportunity out there do you want to comment on on the the other part of

the other question yeah yeah so as it relates to deferred revenue and I may oversimplify this but deferred revenue can grow for two reasons one is as you mentioned backlog grows the other is just improved execution and further penetrating customers with those advanced payments and frankly we would hope for both but we feel pretty good that he continued growth and in in those

customer advanced payments okay I think thanks your next question comes from I'm Rick Daryani of Evercore.

Good morning. Thanks for getting my question. Gio, I was hoping you would talk about, I think you talked about AI activity broadly is in line, if not slightly better than you had expected, and that's the way you described it. Can you maybe just talk about, and I realize you said it's not easy for you to be precise, but how much of your orders or your backlog you think are AI-driven today? And as you engage with these cloud customers, do you see them sort of preferring more the route of direct-to-chip or full immersion just sort of lucky a flavor what what your customers are looking to build their data and the technology with as they go

forward thank you and a good day to you as I'm saying another couple occasions it's very very hard for us and I think for everyone truly to be exact it's not an exact science has said in where we're going through the slides non-exact science deciding what goes to, or being sure of what goes to AI applications or not. As I said, there are some pro-lines that are univocally destined to high-density GPU AI, like any sort of high-density cooling or liquid cooling, some elements of in-rack power distribution. But at a certain stage, you know, we want to make sure that we don't go to the side of too much details, too much details also from a competitive standpoint. But we are very happy about the trajectory of the backlog and the trajectory of the pipeline. But the vast majority of our portfolio is really fungible, as I said, In a sense that also a lot of what you see built today and designed today is not univocally one or the other. It is data centers that need to be hybrid in their very nature because they will host both traditional, let's say, CPU and GPU with configurations that may and will actually change over time. So the mix of loads in the same data center changes. The challenge here for all in the industry, and that's why we cooperate very, very strongly with hyperscalers and the larger scholars, is how do you design it in a way that you can transition that way? How can you build that intrinsic flexibility there? So that's why it's very difficult for me to answer in a credible way to your question. And I would invite the entire industry to be less bionivocally black and white on this because I don't think you can. Having said that, we're very happy about the trajectory. We're very happy about the trajectory of what is univocally destined to AI, but also the pull-through of what we know, believe, see is AI-driven, medium, long-term in our pipeline. Direct or immersion, direct. That's what we hear in spades. That's the discussions that we have predominantly with all. Does it mean there is no room for immersion? No, but we just see more direct than anything else. But again, the fun part of the, a lot of the, a very interesting part of our job today is that we really figure out and design with the big players across the world what the future looks like. And that is a highly cooperative activity. That was a bit long answer. Sorry about that, but hopefully.

No, very helpful.

Thank you. We now have Scott Davis for Moneus Research.

Hey, good morning, everybody. Congratulations on the next year.

Good morning, Scott. Thank you.

You know, this might be a little hard to answer, but do you guys have a view or a vision, either one, of what percentage of the mixed liquid cooling would be in a couple of years? Is it, you know, I'm trying to just get a sense of size and materiality of it, I think, is the question.

Scott, it's very much, we do not deviate very much from what we were saying at Investor Day, quite honestly. So if I go back to those thought process, we would see, let's say, going to it 15 to 20 percent of the overall, let's say, thermal part over time, over time as that builds up. But again, it's really still a bit early.

Okay. And again, I know you've got a lot of different SKUs, but can you give us a sense of your capacity utilization by region? And maybe the real question I'm trying to get at is how much did lack of capacity kind of slow down your growth in 23 or perhaps impact your growth in even the first couple of quarters here at 24 before your new capacity comes online?

Capacity and capacitization is an ongoing. I would say that the big steps were opening so many times, India and Monterrey. After that, it's more of a gradual expansion, adding lines, adding shifts, improving utilization, improving output, investing more in assembly lines and tools. So in general, we do not see in this moment, we do not see for 2024 capacity or beyond, of course, capacity as a limiting factor, not in any kind of a material fashion. clearly as I mentioned we make capacity decisions almost on a weekly basis because never have we experienced a market that is dynamic to this extent and we'll make sure we have a very robust process to be there and to provide our customer with the right capacity.

That's helpful, Gio. Thank you. I'll pass it on. Good luck this year. Thanks, Scott.

We now have a question from Jeff Sprague of Vertical Research.

Hey, thank you. Good day, everyone. Maybe just coming back to this slide 12, Geo, just help us get our head around what exactly this means.

And, you know, obviously, you're increasing capacity off a very, very low base.

But, you know, if we go back to the investor day, you said you had $100 million of, you know, really direct AI, you know, revenue exposure. And there was another $250 million, which was kind of in that fungible, you know, category that was maybe AI, but you didn't know for sure. I don't think you're telling us here that $100 million is going to $4.5 billion, multiplying it by, you know, $100 by $45, but what are you telling us here?

You know, it's obviously a pretty dramatic chart.

So what we're saying is that here we will, in the space of the 12 months, our plan is to make sure that we have the necessary demand to cover the needs, the direct-to-chip liquid cooling needs of the industry. and making sure that we do not limit our ability of our customers to grow their direct-to-chip liquid cooling. That means that we, indeed, start from a relatively low base. When we were talking about $100 million at Investa Day, of course, that doesn't mean it's all liquid cooling, by the way. We were talking about a backlog that was spread over months and quarters, so it's not necessarily a peak point realized at the beginning of the year. The fact is we start from low base. We believe that we'll be able to bring the capacity that the industry needs and plus, and that's done activating three vertive plants across all continents, across all continents, and with a rapidity and with a broad reach of our supply chain. So the message is, without going in exactly in the numbers for obvious reasons, but the message is we will have capacity, and we have capacity, and we have the technology. And that's why we see a lot of conversation and a lot of pipeline forming in this moment.

We have the next question from Nicole de Blaine of Deutsche Bank.

Yeah, thanks. Good morning, guys.

Hey, good morning.

Hi. Just maybe on EMEA, you guys alluded to some shipment delays that took place in the fourth quarter, and I guess can you talk a little bit about, maybe quantify that, talk about the impact if you can kind of recoup all of that in the first quarter and talk about the quarterly cadence of growth to get to low double digits for 2024.

The line was very, very noisy. But we believe that we have understood your question. So Q4 for EMEA was predominantly a question of customer readiness and site readiness, so not so much an internal capacity, but it was more the customer side receiving. When it comes to the sequence of quarters going into 2024 for EMEA, it's probably a little bit premature. We certainly will have a challenging comparison in Q1, so you don't understand necessarily this acceleration that we shared with you to happen necessarily in Q1. But as said, we are convinced and we are very happy about the pipeline and we are happy about the example and specifically refer to our order intake in Q1. So we are quite optimistic about it.

We will move on to the next question of Mark Tennelly of Goldman Sachs.

Yes, thanks very much for taking my question. Backlog grew 16% to reach a record high of $5.5 billion. Can you talk about how much of the backlog is supporting sales in 2024 and how much is for 2025? And as you think about the order of backlog strength, does that imply that in the next few years, Virgo's revenue would be at the higher end or maybe even above the 8% to 11% long-term revenue CAGR target provided at the investor day?

Our long-term vision stays what we shared with you at Investor Day and, of course, with a good Q4 under our belt. A backlog 16% up is something that makes us certainly very happy and that is heading in the right direction. When it comes to this year vis-a-vis future years or next year and future years, I would say that we do not see a distribution that is anyway much different than what we saw a year ago in the same condition. So I would say pretty natural, pretty regular split, let's say, this year and next year. Is the backlog good? Is the backlog, let's say, encouraging? Absolutely. You know our long-term view. you have your our 2020 2020 for a plan and yeah thank you thank you we now have

the hill Manuka of city hi this is Sahil Manuka on brandy capital capital it's good morning good morning morning thanks for the question guys it's it's now been roughly three months since the Coulterra transaction, and you mentioned that asset integration and vigorous production acceleration will continue through 2024. To the extent possible, could you please clarify the impact of the Coulterra acquisition has had on the 24 guide since the analyst day was pre-acquisition? More specifically, what is the revenue and cost impact of the Coulterra acquisition on the 24 guy?

We closed Culterra acquisition on the 8th of December. So, yeah, it's not three months yet. But, yeah, I would say that our plan and our Investor Day vision of the future included certainly an important acceleration in liquid cooling and AI. It was already part of our portfolio. The difference is with the acquisition, and one may think that we probably kind of were aware that things would may have evolved that direction on the 29th of November, but that gives us, again, let's say confidence in the ability and the speed to execute on that plan. So nothing revolutionary, nothing dramatically different. Are we in a better position because we have secured something that was likely but not sure? Yeah, absolutely.

Thank you. And just one more um i see that your uh your views for uh the communication segment uh and market was unchanged and you mentioned that capex remains tight uh could you please provide a bit more color on what you're seeing in the end market in terms of outlook for 24 how are you seeing the still elevated rate environment impact your telecom related customers um any further color

there would be much appreciated. Yeah, the telecom is, let's say, it ups and floods depending on the technology waves. 5G, of course, created acceleration a few years ago and then slowed down. And that's typically the type of cycle that business is. We do not see any imminent cycles. And hence, we continue to believe that that market will be pretty slow. We do not think that will be shrinking. In the future, there will be new technology, new acceleration, certainly an area where very distributed edge could at a certain stage have a positive impact. And we're there with the technology, with the presence, with the go-to market of the capacity but again in in our in our guide and our vision for the future we are very prudent with this space thank you you now have the to the

JP Morgan on the line hey guys how's it going hey all good the just a question on the orders outlook. I mean, do you guys expect to grow orders in 2024? And I think you said you'd grow that deferred balance, but it would be growing just slower than the 80% that you saw this year. And then I have a follow-up. Thank you.

Yes, we believe that orders will grow. We started, of course, mentioning that Q1 will be sequentially up, sorry, it will be year-on-year up, no sequentially, year-on-year up in high teens, as explained during the slideshow, but we believe that overall the year will be up.

And the deferred balance, and I have a follow-up to that.

Yeah, we would generally expect that deferred balance to be, you know, very much correlated with the growth of sales or orders, one being the proxy for the other. So we would expect growth in that account, you know, commensurate with what we see the growth being in both orders and sales.

Got it. And I appreciate you guys, you know, talking about, you know, pricing in a little bit more of a sensitive way. But then you were pretty clear that, like, supply-demand remains relatively favorable. You guys, you know, are offering greater value for the customer. Are you guys planning on getting just roughly any sequential, you know, price increases in orders this year?

We are talking about, you know, an environment going forward where the price cost is up. And we believe in an environment in which, you know, price remains positive, as I explained. that necessarily translates in the same equation being true for orders. Otherwise, that would be a short-lived statement.

But I guess, is there any time this year that you'd expect price declines in orders year over year?

We do not expect that.

Great. Thank you very much.

Thank you.

We have the next question from Nigel Coe, a follow-up, Wolf Research. You may proceed.

oh thanks for the second part of the cherry here um so yeah my question is actually partially addressed by jeff about the you know the 45x increase in capacity um on the cool terror sort of cdu's but i mean any kind of conservative read of your current capabilities would suggest you're planning for a billion dollar plus um kind of revenue line here in in 2025 just wondering if that's completely off base but um just just more broadly your own capacity it seems to me that adding second shifts would be you know a big meaningful increase in your capacity uh um capabilities so just curious what uh what you're seeing and what you're doing along second

shifts uh across your footprint yeah sure uh let me let me say i'm not sure i fully i heard you very well on the first part of the other question but when when it comes to capacity it's never you know it's never uh adding a second shift or not when i say they're adding more shifts in general or adding more capacity, utilization of the asset. So think about our capacity increase as exactly a combination of more, net, net, more square feet, square meters, more utilization, investment going up, and you have seen our CapEx projections go up year on year, And there is a VOS, Vertible Operating System Productivity, certainly plays a big role. And there is an ability to utilize more the capacity that at any given instant we have available. And this is not different from what we shared already in October and indeed at Investor Day. So there is flexibility in that respect and flexibility we are using. But the first part I couldn't capture very well. So real quick, as we add time, can you ask him?

Yeah, look, slide 12, the 45X increase, you know, it seems like a billion dollars a plus of capacity is what you're pointing to here. But just wondering if there's any more to you about.

No, I think we are reading too much into that. Read it like, you know, the industry has a growth rate in direct-to-chip. We want to make sure that we provide capacity over and above that growth rate, so that whatever the industry needs, we'll be able to cover that.

Thank you. This does conclude our question and answer session. I would like to turn the conference back over to Jordanio Albedazi for any closing remarks.

well thank you thank you very much and thank you thanks everyone for uh thanks everyone for uh for your questions and uh looking forward to to more interaction in the next few days i want to thank the vertif team uh globally hard work in 2023 and we have executed well um we as we as we mentioned a few times in the recent past and continues to do we are shifting our culture towards a high performance uh high performance culture it doesn't happen overnight but it's certainly happening advertive gradually a lot a lot more to do but we're heading into the right direction we started to develop the right sense of urgency across the organization and uh and you can see that um as uh as i like to say i'm pleased but absolutely never satisfied good year 2023 looking forward for a stronger year yet in 2024. A lot of potential, very excited. Thanks everyone for joining us and we'll speak soon.

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