Vertiv Holdings Co Q1 FY2026 Earnings Call

Good morning. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to Vertiv's First Quarter 2026 Earnings Conference Call. 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 of Investor Relations.

Great. Thank you, Jenny. Good morning, and welcome to Vertiv's First Quarter 2026 Earnings Conference Call. Joining me today are Vertiv's Executive Chairman, Dave Cote; Chief Executive Officer, Gio Albertazzi; and Chief Financial Officer, Craig Chamberlain. We have 1 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. And 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. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We refer 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'll also present both GAAP and non-GAAP financial measures. Our GAAP results to non-GAAP reconciliations can be found in our earnings press release and in the investor slide deck found on our website at investors.vertiv.com. With that, I'll turn the call over to Executive Chairman, Dave Cote.

I'm very pleased with how we started the year. The momentum we're seeing across the business is strong. It's translating into the kind of performance that gives us confidence to raise our outlook for the full year. What we're seeing in customer conversations is different than six months ago. The urgency has increased. The scale deployment is larger, and the technical complexity is creating opportunities for companies that can solve complex challenges, which is exactly where we excel. We're seeing broad-based strength, and that tells you something about the depth of demand and our ability to capture it. I like what we're seeing in the industry and the continued evolution of Vertiv. We're still in the early stage of the infrastructure build out for AI. Our competitive advantages are compounding. If you can deliver product systems, integrated solutions and services that scale, you become even more important to your customers' technology roadmap. We're also managing the challenge as well. Tariffs, supply chain, complexity, labor constraints — these are real. But they're manageable. And additionally, they raised the bar in ways that favor established players like us. Gio and the team are executing very well in this rapid growth environment, balancing aggressive growth and share gain with operational discipline. We're expecting a strong year ahead and strong years in the future. So with that, let me turn it over to Gio to discuss it further. Gio?

Thank you very much, Dave. Let us go to Slide 3. Well, I'm quite pleased with how we started 2026. Q1 was very strong with organic sales up 23% year-on-year. We reported growth of 30% when we include M&A and FX. From a regional perspective, Americas was the primary engine with 44% organic growth. APAC was up 12% organically, while EMEA was down 29% organically. In a few slides, you will hear us elaborate on some of the encouraging dynamics we are seeing in EMEA. Adjusted operating margin came in at 20.8%, up 430 basis points year-on-year, and 180 basis points above our guidance. Margin performance and strong top line growth drove adjusted operating profit of $551 million, up 64% year-on-year. Adjusted diluted EPS of $1.17 were up 83% versus Q1 2025 and exceeded our guidance by $0.19. Adjusted free cash flow of $653 million was up $147 million versus the prior year, driven by higher operating profit and continued working capital improvement. We are raising our full year guidance, and we now expect adjusted diluted EPS of $6.35, up 51% from 2025. This is supported by raising our adjusted operating profit guidance to $3.2 billion, up 53% from 2025. Adjusted operating margin is now expected to be 23.3%, 190 basis points higher than 2025. Let’s go to Slide 4. Let me start with the market environment. Our pipeline momentum continues to be strong. Our pipeline generation is robust and we're still expecting another year of strong orders performance in 2026. We anticipate orders to be up year-over-year, which reflects the sustained demand environment we are seeing across our markets. Americas continues to show remarkable strength. The market momentum is broad-based and robust. Our pipeline in the region continues to expand as we convert opportunities. In EMEA, the spring continues to uncoil. We're seeing improving market sentiment throughout the quarter with momentum building. I know we do not disclose orders but we are very pleased with EMEA's Q1 bookings. We feel good about EMEA returning to year-over-year sales growth in the second half, which you see embedded in our guidance. When it comes to APAC, we see positive market dynamics across the region. Rest of Asia and India are showing convincingly strong pipelines and dynamics with robust momentum building. China is also showing encouraging pipeline movement, and this positions us well as we move through the year. On pricing, we continue to see favorable dynamics. We expect positive price/cost in 2026, including the impact of tariffs and tariff countermeasures. From a manufacturing and supply chain perspective, we're expanding while continuing to strengthen our resilience. Our regionalized footprint and multi-sourcing strategies are maintaining stability despite evolving trade dynamics and tensions in the Middle East. We are accelerating our strategic capacity investments to meet the demand we are seeing. We're expanding our global manufacturing and service footprint while unlocking latent capacity with Vertiv Operating System driven productivity gains. Our cost management remains disciplined. We expect these investments to position us very well for the current and future demand environment. We manage commodities and components proactively. This, combined with our multi-source model and supplier diversification, provides a critical buffer in what remains an inflationary environment. Through various countermeasures, we are actively working to mitigate tariff exposures, including recent changes under Section 122 and 232. In this very dynamic environment — growth-wise, geopolitically, et cetera — we stay focused on supply chain resilience, growth, capacity expansion and navigating the tariff environment. A lot going on, but we are focused on execution. Let's go now to Slide 5. We continue to see very robust growth in demand for data centers. As a result, we are focusing investments on capacity expansion, supply chain and engineering capabilities. We are committed to continue to grow capacity, supporting our customer demand, and we continue to deliver above market growth. Our CapEx in Q1 was sustainably higher than in the same quarter last year and is a testament to that commitment. We are making significant investments in capacity expansion across both manufacturing and services. On the manufacturing side, we're expanding capacity organically across multiple sites globally and particularly across the Americas, on which you see some details here. These investments are strategic and position us to meet the accelerating demand. We do this for growth but also to bolster our overall operational resiliency. This capacity expansion is broad-based across power management, thermal management, infrastructure solutions and IT systems across all technologies. We're doing the same with our services capability. Specifically, we are scaling our people and service capacity vigorously and convincingly, across all service technologies and regions. In particular, the acquisition of a fluid management company significantly strengthens our fluid management and liquid cooling capabilities, enhancing our system-level services offering. This is one of the most technically demanding and financially consequential aspects of modern data center operations. With respect to our supply chain, we have prioritized multi-sourcing strategies to mitigate supplier risk. Strategic acquisitions are further strengthening our supply chain capabilities. And finally, we continue to prioritize investment in our engineering capabilities in multiple directions. Clearly, one is engineering labs, central to development of our technology portfolio. Customer witness test capabilities are another important area of investment. The complexity of data center technologies requires extensive test capacity at the beginning of a delivery. Growing customer test capacity with volume is a growth enabler. We will have an opportunity to continue to elaborate on what capacity expansion means during our upcoming Investor Day. With that, it's over to you, Craig.

Thanks, Lynne. Let's start with the first quarter results on Slide 6. As you can see, we had an excellent start to the year. Adjusted diluted EPS was $1.17, up 83% year-over-year and $0.19 above our prior guidance. On the top line, net sales were $2.65 billion, up 30% versus prior year, with organic net sales up 23%, with acquisitions contributing 4% and favorable FX adding 3%. This organic growth was driven by Americas, up 44% and APAC up 12%, partially offset by EMEA down 29% organically. Adjusted operating profit of $551 million increased 64% versus the prior year and came in $56 million higher than our guidance. Our adjusted operating margin of 20.8% expanded by 430 basis points versus last year, showing a great operating performance from the team. The main drivers were strong operational leverage on higher volumes, productivity gains and favorable price/cost execution, which was partially offset by ongoing tariff headwinds. On the cash side, we delivered $653 million of adjusted free cash flow. That's up 147% from the prior year first quarter. This was supported by higher operating profit and working capital efficiency, partially offset by higher cash tax and increased net CapEx, as we continue investing in capacity and ER&D to support business growth. We exited the quarter with net leverage of 0.2x, providing us with significant strategic flexibility. Flipping to Slide 7. Let's look at segment performances by region. Americas delivered another outstanding quarter. Net sales were $1.81 billion, up 53%, with 44% organic growth, reflecting strong broad-based momentum across nearly all product lines. Adjusted operating profit was $490 million, with margins benefiting from operational leverage, disciplined execution and positive mix. Looking at APAC, net sales were $514 million, up 15%, 12% organically. Organic growth came in below quarterly guidance, primarily due to timing. Adjusted operating profit of $67 million was up approximately 48% year-on-year, mainly driven by volume leverage and operating discipline. Turning to EMEA. Net sales were $321 million, down 29% organically. We believe this is a temporary reflection of softer orders that we saw in Q2 and Q3 of 2025. However, we are seeing opportunity generation accelerating, reflecting improved customer demand and supporting a return to sales growth in the back half of 2026. We saw a step down in margins here year-over-year due to operating deleverage. However, our conviction has gotten stronger for a second half recovery in EMEA, which you see embedded in our EMEA full year guidance. On Slide 8, let's discuss our second quarter guidance. We're projecting adjusted diluted EPS at the midpoint of $1.40, which is 47% higher than our second quarter 2025. Net sales at the midpoint are $3.35 billion, which reflects 27% net sales growth versus prior year. Adjusted operating profit at the midpoint of $710 million represents 45% growth versus second quarter 2025. This strong profit growth is supported by robust organic sales growth and continued operating leverage. Adjusted operating margins at the midpoint of 21.2% is up 270 basis points, supported by strong organic sales growth and cost leverage. Additionally, we expect to materially offset unfavorable margin impact from tariffs. This guide reflects our confidence in the strength of our market position and our ability to execute on the significant opportunities ahead of us. Now on to Slide 9. Let's talk about our full year 2026 guidance. We continue to expect another strong year of strong performance across all key metrics. We are raising adjusted diluted EPS guidance by $0.33 to a midpoint of $6.35, which represents 51% growth versus prior year. For net sales, we're updating our guide to $13.75 billion at the midpoint, reflecting 34% net sales growth versus prior year. By region, we expect organic growth rates of high 30s in Americas, mid-20s in APAC, and flat in EMEA. The updated adjusted operating profit is now at a midpoint of $3.2 billion, representing 53% growth versus prior year, and $160 million higher than our prior guidance. This strong profit growth is driven by a combination of robust organic sales growth and continued operational leverage. Finally, on margins, we're guiding to 23.3% adjusted operating margin at the midpoint, an expansion of 290 basis points from 2025, and 80 basis points higher than our prior guidance. This expansion is supported by 30% organic sales growth and continued operational leverage. We expect to be price/cost positive for the year, inclusive of tariff impact and the countermeasures. With fixed cost leverage, growth, ER&D and capacity investments. For adjusted free cash flow, we're maintaining our guidance of $2.2 billion at the midpoint, up 17% versus prior year, primarily due to higher operating profit, partially offset by higher cash tax and net CapEx investments. With that, I'll hand it back to you, Gio.

Well, thank you, Craig, and let us go to Slide 10. And before I wrap up, I once again want to invite all of you to tune in to our 2026 investor conference that will be held on the 19th and 20th of May in Greenville, South Carolina. This will be an excellent opportunity to gain first-hand insight into Vertiv's vision and strategy from our leadership team. On the first day, the agenda includes a comprehensive market update, a detailed financial overview, and our updated multiyear outlook and Q&A sessions, of course, with the leadership team. The following day, we will have a technology session where you'll hear about how we continue to innovate and drive the industry. This will be followed by a tour of our Pelzer Infrastructure Solutions facility for those who will be joining us in person. It's going to be a great opportunity to see what we're building and where we are headed. And now let's go to Slide 11. Our first quarter results were strong testaments to Vertiv's execution capabilities and the momentum continuing to build in our markets. The demand environment is robust and we are very well positioned to carry that forward. We have recently announced two strategic acquisitions that are expected to strengthen our competitive position. A thermal management business, Thermal Key, which is anticipated to close in a few months, will expand our thermal management portfolio with deep heat exchange know-how and a leading range of dry coolers, a capability for the globe, starting in EMEA. Heat rejection is becoming more complex for AI data centers and a portfolio comprising chillers, dry coolers and trim coolers offers great flexibility and efficiency opportunities for our customers. A custom structural fabrication acquisition brings engineered structural fabrication capabilities that accelerate our ability to deliver manufactured and converged infrastructure solutions at scale. Both are expected to provide capacity and capabilities to better serve our customers while expanding our technology base. We have raised our 2026 guidance, reflecting our confidence in the trajectory of the business and opportunities ahead. EMEA is absolutely part of the AI story. And we're seeing that play out with customer projects like EcoData Center in Sweden designed to support the most demanding AI workloads with NVIDIA's latest generation GPUs. Vertiv OneCore was selected to deliver the full data center solution here, encompassing power, thermal, IT white space and services. We are excited about our collaboration with C Power Energy. Together, we are enabling U.S. data centers to turn their on-site energy assets into grid resources, accelerating speed to power, improving resilience and reducing cost for data centers and their communities. This is the kind of end-to-end thinking that sets Vertiv apart. Our long-standing customer relationships, combined with our partnerships create a significant competitive advantage that is very difficult to replicate. We continue to move further and the market is recognizing it. Achieving investment-grade credit ratings and inclusion in the S&P 500 are meaningful milestones. They reflect the strength of this business, the execution prowess of this team, and the confidence the market has placed in our trajectory. I do not take that lightly. Neither does the rest of the Vertiv team — we hold ourselves to a high standard and will continue to raise the bar. We had a strong quarter. We expect to build on it and we will. And with that, we can begin the Q&A.

And your first question comes from the line of Scott Davis with Melius Research.

Can you talk about the prefab market, like how important this market is? Or is there any way to think about a TAM? You seem to have a lot of content in prefab. I'm just trying to get a sense of how the customers view the importance of that content?

Thank you for the question, Scott. Multiple dimensions to this. One is we know that speed, or time to market, is absolutely essential in the market. Clearly, prefabrication alleviates challenges on site — the construction site is always a complex system to manage. There is a scarcity of skilled trades resources we see, and we certainly are stimulating, if you will, an increasing adoption of prefabrication. But there is way more to it than that. For us, prefabrication is not just prefabrication. It's convergence of our solution into a system like OneCore, not only OneCore, but OneCore SmartRun. It's systems that are designed, converged and optimized already from the beginning on a given set of loads and silicon. It is also a way to make the whole system more efficient and more dense in many respects. So there are multiple reasons why this is being adopted. And there are multiple reasons why we believe we are ahead of the pack here because we're not just an integrator. We provide technology. You were also asking about the TAM for us. Clearly, that is a concentrator of opportunity for us because prefabrication is, for us, an established Vertiv technology solution. So that helps us to capture more of the TAM.

That's helpful, Gio. Excuse my voice, the allergies have been bothering me the last couple of days. You mentioned capacity adds with productivity and I'm kind of intrigued. What kind of productivity levels can you run when you try — I mean, you're adding capacity, obviously, quickly, you're trying to get a lot of stuff out the door. What kind of levels of productivity can you actually run at, just kind of leave it at that?

Well, my productivity comment was really about the manufacturing systems in a factory vis-a-vis having piece-by-piece assembly going on on site, which is the traditional way in which the data center business is run. I wouldn't go down the path of exactly comparing figures here. But when we prefabricate, certainly, we will have an opportunity to have a direct conversation when we look at the floor in Pelzer. But we definitely achieve manufacturing productivity levels when we manufacture the systems.

Your next question comes from the line of Amit Daryanani with Evercore.

Perfect. I'll try to stick to Lynne's ask for one question. Maybe it's a multipart though. Gio, the calendar 2026 guide that you folks have right now sort of implies 30% organic growth for the full year, versus I think we've done like 22%, 23% growth in the first half of the year. Can you just help us understand what are the levers that you're seeing? And maybe you can quantify some of these levers that you're seeing that enabled the step-up in growth in the back half versus the first half? Assume EMEA and maybe more capacity in production are all parts of the story. But I would love to just understand what do you see that gives you confidence that growth can accelerate organically in H2 versus H1?

Okay. I will start. Certainly Craig will also complement here. But I'd say that it's really two things at a high level. One is capacity. We are adding capacity; we're constantly adding capacity. You can see from our CapEx profile, and what we mentioned about Q1, we're very focused on adding capacity and a lot of that capacity starts to hit us in the second half. But the other thing is our backlog and orders: if you think about our Q4 orders, there certainly is a good load of backlog in that part of the year. Customer requested lead times that we've been talking quite extensively about mean there is more to it, but I would say those are two important elements to the equation.

Yes. And Amit, I'll just double-click on that a little bit. You're right in terms of APAC and EMEA. When you think of them in terms of the first half versus the second half, there is an accelerated growth in the second half in both of those regions. We've talked extensively about the uncoiling of EMEA and how we're seeing that come through. That's how it's reflected in the guide as well.

Your next question comes from the line of Jeff Sprague with Vertical Research Partners.

I want to come around to service. Obviously, a very clear acceleration in the last several quarters and actually service growth kind of coupling with product growth in the Americas. We've been waiting for this backlog growth to really come through strongly. It looks like it's happening at this point. But could you maybe just address kind of the field organization, the ability for service to grow at this pace, how the margin complexion of service may or may not be changing, and just how to think about that outlook over the balance of the year?

Yes. There's certainly multiple angles here, Jeff. And again, I'm sure we'll have an opportunity to further elaborate in May. At a high level, we are satisfied with the trajectory of services, and that's true for both project services and lifecycle services. Regarding our structural organization, we're very present in the territory, very local. At the same time, we understand that the big projects are sometimes concentrated, so we have developed the ability to move people and have teams dedicated to addressing large data center deployments when it comes to project services. But we remain and continue to nurture, strengthen and grow a very good on-the-territory type of services presence. We mentioned a couple of times that we are investing heavily; I mentioned it in my script — we are growing our services population, and we will have details in May. Our strength in training and e-learning is absolutely essential, combined with increasingly strong tools that are at the fingertips of our engineers. Services are multi-faceted. What we like when we talk in general about services is the fact that the installed base that is being created is very conducive to our lifecycle capture and business over time.

Yes. And Jeff, I'll just double-click on that a little bit, too. On a reported basis, products and services are roughly equal in revenue. If you look at organic performance, you're seeing the impact across both product and service lines. Pelzer is a big impact for us in terms of capacity and prefabrication, but we also see strong service dynamics across the board.

Yes, I did see that. I wonder, though, if you could also just give a little more color on how to think about margins. The nature of my question is labor-related services are man hours or people hours, but there are also more sophisticated services that come into play. So just how should we think about operating leverage in that business as it grows?

I think you would probably point to what we're seeing from our own overall incremental margins. Overall incremental margins have been in the neighborhood of 30% to 35%. I would say that would be similar in terms of the way that we would expect services to pull through as well.

Your next question comes from the line of Andrew Obin with Bank of America.

Just maybe we can talk about the evolution of behind-the-meter, which has become a lot more prominent over the past four to six months. What technology avenues does it open to Vertiv? I'm sort of thinking controls, best controls, sort of UPS transition as part of direct current architecture, but also maybe different chiller technology things like absorption chillers. I'm sure you've thought about the roadmap over the next two to three years. I know you'll talk about it at the Investor Day, but it seems to be evolving fairly rapidly. How are you positioned?

Well, I think you've framed it pretty well, Andrew. Bring-your-own-power is something that is here to stay, and we see it very clearly. We talked about partnerships today. Remember the partnership we have with manufacturers like Caterpillar and others. In various shapes and forms, bring-your-own-power is a very important part of the data center equation, especially in the U.S. We play a role in everything from microgrids to storage systems interfacing and making sure that the entire powertrain, be it direct or alternate, is consistent and designed for a bring-your-own-power solution. As we have repeatedly said, the data center needs to be looked at as one system. This has implications on the thermal side as well — absorption chillers is one example. We will have more details in May, but rest assured that we see bring-your-own-power being an integral part of how we design and think about data centers. It is an opportunity for us because it makes the system more complex and potentially adds more content for Vertiv.

Your next question comes from the line of Nicole DeBlase with Deutsche Bank.

Can we just double click a little bit on what you're seeing in EMEA? It seems like from the commentary at the beginning of the call that you're gaining conviction in the second half ramp. So could you just talk a little bit more about what you're seeing and hearing from customers there that's driving that higher confidence?

We see — you're right, exactly as I said — we're very pleased with our Q4 orders, we are very pleased with the Q1 orders and pleased by what we see in the pipeline. So we see the market moving. We see pipeline acceleration increasing. That is really a signal and proof of sustained market demand. That's why we were talking about a coiled spring because there is a shortage of data center capacity, and an even more profound shortage of AI-capable data centers in EMEA and in Europe. So you see the dynamics. And of course, we are very well positioned in Europe because of our historical presence and because many of the players are active there. So there is a very encouraging opportunity there.

Your next question comes from the line of Patrick Baumann with JPMorgan.

Just had a quick one on margins. Just wanted to see if you could give some color on the sequential expectations. So from first quarter reported to the second quarter guidance, it looks like the incremental margin is kind of in the low 20s. I'm just wondering if you could unpack the moving parts on that, whether it's capacity investments, or tariffs or whatever. Any color you can give on that?

Yes. Patrick, when we look at it sequentially or year-over-year, year-over-year it's in the low 30s, which is what we are expecting in terms of our guide. Quarter-over-quarter, there is a little bit of a headwind as we bring on capacity. This is one of our bigger ramps in terms of capacity in the second quarter, so there would be a slight change when you look at Q1 to Q2. But if you look across the full year, we're still guiding to that 30% to 35% incremental margin range we've discussed. So there's a bit of a bump from Q1 to Q2 as we bring on capacity and work through various actions, offsetting tariffs and working through the Section 232 changes. Overall, though, we feel very strong about the year being in that 30% to 35% incremental margin range.

Just a quick follow-up on that. The tariffs, I think you said you'd materially offset it, you thought that would be at the end of first quarter. Has that slipped out to second quarter now because of the changes? Or are you already there at the end of the first quarter?

I'd say we're already there at the end of the first quarter. As the Section 232 situation has changed, we're continuing to take actions and countermeasures around those. If you look at the year, we feel confident that we'll continue to materially offset those tariff impacts.

Your next question comes from the line of Andrew Kaplowitz with Citi.

Obviously, you've talked about the Americas continuing to be strong, but maybe you could talk about how much of the business is still being driven by hyperscalers and colo versus enterprise. I assume it's still heavily weighted towards the former. But enterprise markets seem to be picking up a bit given AI needs and usage. When could that impact Vertiv? Is it something you see accelerating in 2027 or not yet?

Clearly, we continue to see hyperscale and cloud being the biggest driver globally, and that's certainly true in the Americas. There is an element of enterprise activity, but a lot of enterprise will continue to happen through cloud, so it's not always easy to separate. We see enterprise starting to adopt AI; when that becomes visible as a standalone growth driver above the current levels is something we'll elaborate on in May. For now, much of the growth is coming from hyperscale and colo.

Your next question comes from the line of Chris Snyder with Morgan Stanley.

I wanted to ask about the transition to 800-volt architecture. There's a lot of moving parts, but just wondering what does this mean for Vertiv content? When does the company expect to start shipping to these 800-volt design facilities? Specifically interested in liquid cooling and whether there could be some TAM expansion with applications beyond just cooling the chips as they run at a higher power density?

Chris, thank you for your question. We see early signs of a transition to 800-volt architecture. A broader transition to 800 volts will be an important portion of the total market into 2027 and beyond. We are on time with our programs and were talking about second-half launches of the portfolio this year. We're pleased with customer feedback from prototypes and validation activities. Shipping will be a little further away, and it's reasonable to think 2027 will be a key year for broader adoption. Regarding liquid cooling and 800 volts: there is correlation because 800-volt DC is applied for very high-density compute. That very high-density compute will see not just chip-level liquid cooling but a much broader set of liquid cooling applications across the IT stack, which influences the entire power and thermal chain. We see that as an opportunity for us. We're very pleased with where we are with our 800-volt DC programs and are getting ready for it.

Your next question comes from the line of Amit Mehrotra with UBS Financial.

I just wanted to ask a question about the pipeline. Last quarter you had a big order number and I believe the pipeline also grew double digits sequentially. Maybe you can just talk about the pipeline as it evolved in the first quarter, momentum and quoting activity funnel. Anything you can give within the confines of not talking about orders?

Thank you for the question. We were vocal about the strength of the pipeline previously, and we remain vocal about the strength of the pipeline at the end of Q1. Pipeline activity, which represents commercial quoting activity and opportunities, is growing and dynamic. This growth is broad-based across our technology range and across regions. Very pleased and encouraged, and hence our positive commentary about orders for the year.

Anything to call out in duration? I know you said most of it is within 12 months, maybe some leading to 18 months. Any change in complexion on the orders as you come into the first quarter in terms of duration?

When you think about the backlog shape, it is, if anything, a little bit more elongated, but not dramatically different. That gives us good visibility into 2027. Many projects in the industry are large and customers ask for 12 to 18 month delivery windows. On some occasions requested delivery windows have shortened a bit, into nine to 12 months. Our average delivery capabilities are often shorter than that, but product lines and dynamics vary. In general, the backlog is not dramatically different than before; if anything, it's a bit more elevated and a bit more elongated.

Your next question comes from the line of Julian Mitchell with Barclays.

Maybe just to switch tack a little bit to cash flow and the balance sheet. I'm trying to understand the free cash flow dollar guide being unchanged. I can see the bigger working capital outflow dialed in, but I would think you'd get good customer advances from orders and your working capital was a nice tailwind in Q1. Maybe just talk us through the thinking there and the balance sheet allied to that, extremely unlevered as a result of that good Q1 cash flow? Any highlights you'd give us on capital deployment from here?

I'll start and pass to Gio. On working capital over the course of the year, two points. One, we are investing in the ramp, so you see a little bit of a drag from that from an inventory perspective. Two, when we look at our order book and forecast customer advances or down payments, we are a bit prudent in how we forecast that. Both factors are considered in the guide. So you feel some inventory ramp and some prudence on expected down payments. On capital deployment with 0.2x leverage, we continue to prioritize R&D and capacity investments. You can see from the cash flow that we follow that drumbeat. The other uses of cash are M&A, buybacks, or dividends. The biggest area where we like to have dry powder is M&A. We've done some this quarter, and we'd continue to keep that optionality available.

Maybe a few comments on M&A. You see us having a very active posture in that respect. Our M&A pipeline is active. You saw acquisitions that are predominantly technology-focused; we value technology. The pipeline is well structured and convincing. We'll continue to be focused on that area of capital deployment.

Your next question comes from the line of Deane Dray with RBC Capital Markets.

I wanted to ask about the standard modular liquid cooling products. Very interested in the level of customer take on this, and what role will this product line play in the rollout to more of the colos and enterprise customers?

Can you help me a little bit, Deane, because we have a very robust portfolio. When you say 'standard liquid cooling product' do you mean our more modular, pre-engineered liquid cooling solutions?

Yes, the ones that were talked about and displayed at the last Supercomputing conference. You're hearing references to lid cooling in a box. It's for colos and enterprise customers who may not need such a customized system — it seems there are more standard modular designs out there now.

Let me elaborate. For liquid cooling we can provide very optimized solutions for specific silicon types — absolutely optimized and customized when required. We also offer more standardized modular solutions for customers who do not need full customization. At Supercomputing the center stage was our SmartRun solution, which is the entire white-space infrastructure comprising power distribution, liquid cooling and more. The integration and convergence of that solution — which normally happens on site with significant time and cost — is something we've changed dramatically with SmartRun. SmartRun is extremely successful and helps change how the industry works.

Are you expecting more regulation in liquid cooling? There's been a lot of discussion about that and what would the implications be?

Not necessarily. This part of the industry is maturing, so some of the ways things are done are stabilizing a bit in terms of water temperatures and standards. That will continue to evolve over time as the market matures.

Your next question comes from the line of Nigel Coe with Wolfe Research.

I want to go back to the strength in free cash flow in Q1 and the very strong quarter of deferred customer deposit bookings. Is this a way to think about backlog growth in the quarter? Do we typically book the cash from the deposits in the same quarter as the orders? Or is this more a reflection of the strength we saw last quarter? Is this a way to think about backlog growth?

It depends on the customer in terms of advanced payments or down payments and their payment terms. Some of the strength in Q1 comes from payments related to Q4 orders, and some from Q1 orders. That will continue through the year. As I mentioned earlier, when we look at working capital we are a bit prudent in how we forecast those payments and when they will execute. So it's a combination of those things — it's a way to look at backlog, but not a full one-to-one read-through.

Your next question comes from the line of Mark Delaney with Goldman Sachs.

I want to better understand what the mix shift over time towards solutions like SmartRun and OneCore means for your margins. Is there a meaningful difference in what investors should expect for incremental margins as those become a bigger piece of your overall sales mix?

I don't think as you mix more towards these integrated solutions you'll see a margin dilution from a mix perspective. We expect to hold relatively consistent product-level margins in line with historical expectations. There are multiple product types and mixes within those solutions across different business units, so I don't expect a significant mix headwind that we're adjusting for.

Your next question comes from the line of Noah Kaye with Oppenheimer & Co.

Because Gio talked at the start about convergence of different disciplines — power, cooling, IT — historically procurement has been for best-of-breed point solutions. If that's shifting, can you talk about how it's shifting the conversations? Who you're having conversations with, who's making the decisions among your customers and how that's impacting your sales cycle?

Convergence is important and it's about providing an optimized system. But this is not a wholesale replacement of point solutions. It's a gradual and partial shift with different players adopting at different rates. For example, power modules are becoming a standard in the industry, and you will see customers buying more modularized power rather than individual components. The entire converged system, like SmartRun, changes some of the interface and procurement dynamics, and some customers that historically lacked deep engineering teams will find value in a fully optimized pre-engineered converged system. The market is moving in multiple directions; some overlap, some are distinct. We are pleased with our point products and we see integration and convergence becoming a bigger part of the market we serve.

Your next question comes from the line of Andrew Buscaglia with BNP Paribas.

You made a couple of deals in the quarter. Any way of framing the size of those or what you paid? And are deals going forward more likely to be smaller bolt-ons, or might we see larger strategic acquisitions this year?

We didn't disclose the size of those businesses or the purchase prices. We did issue press releases but did not disclose material financial details. In terms of M&A posture, we have the flexibility and a strong balance sheet. We'll pursue transactions that we believe deliver strategic value. That can include smaller bolt-ons and, when appropriate, larger checks to acquire assets that fit our long-term strategy.

When it comes to M&A, it's really about the value of the asset in front of us. We have the discipline and the capability to write bigger checks when it's opportune. Our balance sheet is very strong. We look for value not just on a financial basis but also on strategic alignment with our long-term technology and market growth plans. We have no fixed restrictions on deal size — we'll act where value exists.

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

Well, thank you, Jenny. Thank you very much. And thank you all for your questions and the conversation today. I'm quite pleased with what we have accomplished in the first quarter and how we are positioned as we move through 2026. The entire Vertiv team has executed well, and I'm grateful for the strong partnership we have with our customers, suppliers and partners in general. We are making real progress. But as you've come to know, we are never content with where we are. I am pleased, but I'm certainly never satisfied. We'll continue investing ahead of the market, maintaining our leadership in technology and innovation, and executing with the speed and precision our customers expect from us. I'm very confident about where Vertiv is headed. The trajectory is strong. The opportunities are significant, and we are well positioned to capture them. Thank you all, and I hope you have a wonderful rest of the day.

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