Conference Transcript - VRT 2026-02-17

John Thornton, Analyst — Citi

My name is John Thornton. I'm City's industrial specialist and it's my pleasure to be joined with the team here from Verdo. We have both the CFO Craig Chamberlain and the chief of chief product and technology officer Scott Ormel. I got a bunch of questions here we will open up to the floor a couple times to let people jump in where they feel you know best but I'll get it started and you know maybe in about 10 minutes or so we'll we'll open it up as well. So, Scott, maybe we'll start with you. As Veritas Chiefs Technology Officer, I think we have to start with how do you stay ahead on technology in such a fast-paced, changing technology world, world-serving data center customers. You've talked about your one-stop shop in the past in terms of your ability to offer thermal and power management, as well as global service offerings that allows you to offer an infrastructure solution that starts with design and ends with service so could you update us on the one-stop shop ability and how is this man manifesting itself in the market today and then where are you pressing NPI most to stay ahead of competitors rich question and thanks for the opportunity from a vertive perspective we've always prided ourselves on being very close to the customers and the technology partners that are really driving the industry obviously we've been very vocal about

Scott Armul, CTO

our closeness and our partnership with NVIDIA but also data center customers, hyperscalers, wholesale builders on kind of what the needs are and where things need to go and working on joint development, joint architecture discussions, kind of debating around the needs for densification, where does the portfolio need to go, what are the right architectures within the data center space for us to really unlock and enable kind of the performance and the optimization of today's and tomorrow's GPUs and next generation chips. So that customer closeness and that customer intimacy and kind of organizing ourselves to be able to have technology folks outbound and working within the space and within the industry I think has been very powerful for us. I think a lot about from a Vertiv perspective we focused a lot on an evolution from kind of point products and point solutions to one of system level thinking and a solutions orientation both in how we think about the interoperability of our products and technologies as well as how we think about delivering them. So our infrastructure business unit, infrastructure solutions business unit is really oriented around deploying white space solutions, thinking through turnkey data center solutions like our Vertiv One Core product. That gives us an interesting lens of seeing how all of the pieces need to fit together in the portfolio which is helpful for us to then take the customer context take the customer data points and then we're also kind of a designer and builder of a turnkey data center solution it informs what the point products really need to look like it better informs and outlines kind of what the interconnects and what the sizing of the blocks and the stripes for a data center to work optimally really need to look like and then ultimately it points to where the physics challenges are going to be where do we run out of capacity in a bus bar where Where are the connector problems, where is the physical limit of a single phase direct to chip type of a deployment in a next gen GPU architecture and then how do we work backwards and more proactively on our own investments and our own technology cycles to make sure that we're looking kind of then customer in and technology out for where we need to take our portfolio and where we need to evolve and fill in some of the white space in order to make sure that our complete portfolio kind of stays a complete portfolio as architecture continues to to evolve um you know we don't want to uh front run the investor day um but obviously there's a lot of questions on whether veritas opportunity is increasing in high density compute versus the 2.75 to 3 3.5 million megawatt uh combined opportunity you updated us at your last

John Thornton, Analyst — Citi

investor day um you know especially in light of 4q's orders so maybe the best way to ask the the question um could be you know go over what has changed versus your expectations uh from november of 24. it would seem like high density compute has moved faster to proliferate and given increasing complexity system complexity of systems redundancy and power and thermal is even more of a requirement than first thought um and then veritive hasn't sat still either padding adding perdrite and great lakes for example um so when you're getting orders is is it at least safe to say that you tend to be at the high end of that prior range or you know maybe is it even higher I think the more color maybe some more color what you're seeing

Scott Armul, CTO

there I can start generally speaking like we're at the higher end of that range the more share of wallet we have and when we're delivering turnkey solutions like I just talked about whether it's a smart run within the white space or a one core type of a solution we tend to be at the higher end of the range just in terms of share of wallet and total content I think you rightfully pointed out areas of the portfolio where we're continuing to expand and obviously from a year and a half or two years ago liquid cooling was in some of our orders now liquid cooling is kind of part and parcel to most of our reference designs and most of our customer engagement when it relates to to AI deployments and AI data centers and then you you pair that all together with kind of the increasing scope of some of the the acquisitions in the portfolio expansion that we have done whether it was waylay kind of on the controls and the service perspective, whether it's purge rate on kind of looking at secondary fluid network and a higher degree of commissioning services or even Great Lakes within a RAC environment, improving out maybe the position of that portfolio helps to kind of expand the share of wallet and I think is informing a lot of maybe deeper and greater content as we deploy orders for some of these larger sites. Craig, I'd...

Craig Chamberlain, CFO

And I think we'll probably dive a little bit deeper into it at the investor day, but Scott brings up a good point, and it ties back a lot to his original question, is the system-level architecture discussion that we see going on, and not even going on, but starting to manifest itself in orders, naturally gives you the opportunity to get more share wallet, and we like that. We like complexity, we like when customers come to us with problems, we like to develop solutions for them, and that all starts with that system-level thought. And when we talk about point-level products, that's where you start. You start at being able to do one point-level product, but then we like to stack on top of that. So when a customer comes in and they're like, we need a power solution, well, we want to be able to sell them the whole powertrain. And when you introduce that whole powertrain, you introduce a higher ability to get into the share wallet. So while it still moves around and on average it's in that neighborhood, as we get more orders coming to us and they go through the pipeline and we're able to make them more of a system-level order, we will see that push to the right. And that's something we like and we believe it's a competitive advantage for us.

John Thornton, Analyst — Citi

You mentioned orders. That actually works well for the next question. Obviously, Verit have just moved away from reporting quarterly orders. And we understand you don't want to talk too much about quarterly orders expectations. But I think the issues that Q4 orders were just so much higher than we've seen in the past and the questions we have been getting from investors is why didn't we see this coming? I know Gio said Verit's orders should grow again in 26. which I think means more than $18 billion, which was approximately your 25 orders. But could you give us a little bit more perspective on how Veritave thinks about the market, given your pipeline, as said, was much more than filled despite Q4 orders? Do you see the order cycle still continuing to grow for several years to come? And is it fair to say we could see more quarters like Q4 or even bigger than Q4 going forward?

Craig Chamberlain, CFO

I'll break that up into a couple sections, and then I'll pass it over to Scott for some more context. But one, we really enjoyed the outcome in the fourth quarter. Of course, we did. Everybody saw it, and it was a manifestation of what we saw during the year of opportunities building. And it was these system-level opportunities that we were shepherding along. While in the background, you also saw other opportunities come in. So while the pipeline did execute and executed well in the fourth quarter, you all saw it kind of refill it back in in the spaces in which we executed those orders so when I take a look and I take a step back and I say all right where do I see this going in the future I'm not going to comment on you know 25 or 26 or 26 or 27 and 26 yeah we see that there's opportunity to continue to grow order book and that's from the pipelines that we see in the triangulation of what we hear out in the space of people spending capex we know that capex is coming online we see it in pipelines and opportunities and we believe that will be executed without within 2026 if that happens and obviously we would see an order book that was was very strong the size of the eight billion dollar quarter a lot of that's phasing i mean some of that came within december and it could have easily fell over to january do i think every quarter from here on out eight billion dollars probably not i mean i know i'd love to be able to say that but no it's not going to be there's always going to be shifts and movements and that's why getting away from the quarterly order reporting and forecasting where it's going is important to us because it is a very dynamic situation out there and you kind of got to be at least somewhat fungible to moving around a little bit. I mean last year in EMEA the second and third quarter were very low on orders but the pipeline was strong and so you heard Geo say a lot of times it's a coiling spring it's a coiling spring it's a coiling spring well we can see that because we saw the pipeline everybody else just saw the orders being down but then in December that spring became a little uncoiled by the execution of the orders were very well we're very strong in the fourth quarter in EMEA and that influences when we talk about next year's revenue growth the second half of next year's revenue growth is really driven by what we saw in the fourth quarter but we also saw another robust pipeline so thinking of it that way what we see in front of us and the opportunities I would say we

John Thornton, Analyst — Citi

feel very good about where we sit today and we feel very good about the triangulation of what we're hearing in the market of what people want to be able to go and deploy I don't know Scott do you have any maybe I guess along the lines of the topic there can can you give us a little more color maybe on demand by region I would assume the eight billions and orders in Q4 were still majority US but I think you were trying to get some more perspective maybe Maybe on EMEA, you mentioned the coiled spring.

Craig Chamberlain, CFO

Yeah, yeah, strong Americas, as we've seen, and everyone hears the deployments in Americas and the ongoing outbuild of the data center market there and the appetite for AI. So we feel that that was a very strong quarter for us in fourth quarter, and we see it, the pipeline very strong for 2026. EMEA was a little bit of a proof point for us. Fourth quarter was a jump in orders, felt very good. the pipeline continues to be strong and we think the line of sight there is that it's been a bit of a pent-up demand almost a delay in the reaction to the market that we feel like is snapping back a bit and we expect to see that pipeline convert in 2027 or 2026 and we'll see how that plays out but again fourth quarter was a pretty good proof point there APAC rest of Asia India very strong pipelines very strong execution China's kind of a unique bird we don't we see a pipeline we don't see it executing very well it's a little bit slower than we would have expected you felt that and kind of the fourth quarter in terms of some delay in orders and we're kind of still feeling that one through but every you know I'd say India and rest of Asia we feel very strong about those two those two spaces thank you just talk a little bit more you maybe what you're seeing on the legislating permitting standpoint, as well as what you're hearing from your main customers as they think about the infrastructure build-out.

John Thornton, Analyst — Citi

I guess you kind of addressed some of that as it relates to EMEA, but I don't know if there's anything further legislative-wise that you wanted to touch on.

Scott Armul, CTO

Yeah, I think from a data center perspective, and a lot of global focus on, one, power availability obviously dominates conversations, time to get to interconnect, what are the requirements to actually connect to a grid what are the requirements for take rate and other things but we're also starting to see with some of the emerging requirements and regulations at a grid level from what has happened like with ERCOT in Texas or or some of the data center activity happening in Spain maybe more scrutiny on what larger AI data centers what their impact to the grid and how they behave in terms of grid interoperability is creating some new and renewed focus on power architectures and data center designs, a lot more renewed focus on, especially in the U.S., what does on-site power generation or the concept of bring your own power really look like in the concept of either accelerating a grid interconnect time, enabling a bridge power type of a solution, and how do you pair that together with inherently what are higher density, more dynamic, more synchronous types of loads from AI data centers? it creates maybe a fertile ecosystem for new architectures to be thought through. New product solutions, new portfolio solutions that can help customers solve those types of problems. Introduction of battery energy storage systems, introduction of different types of power control and power algorithms within our portfolio and our product set to help unlock even some of the economic use of the data center power capacity and potentially energy storage capability as a way to not only work around regulations and maybe some of the things that would delay data centers being turned on but become a better grid partner and a better grid citizen so that data centers and utilities whether that's in the us or globally are working more symbiotically and working more in concert a lot of our focus from a portfolio and a development and a capability perspective on what we're trying to build out is almost an enablement of that ecosystem to act as

Craig Chamberlain, CFO

the infrastructure glue and some of the control intelligence to enable customers to think about on-site power generation to think about overcoming some of these regulations in a way that makes it less of a burden and more of a more of a kind of a national asset i think scott brings up a really good point there in terms of when the regulation is something that becomes a solvable solution from a system standpoint we love that it's a complication that we like to be able to design with the customer in terms of an outcome and a solution when you're a point provider and you're providing one piece of equipment you're allowing the you know the infrastructure build out to happen around your part and it's good because you can deliver that part but when you're a reference architecture and you're a reference designer you're now creating this symbiotic relationship that you are developing the solution that is to come to whenever that that uh regulation or that hurdle arises so it's back to this this i'd say strategy and proof point that we put out a lot of if you start to think about the system level architecture you're going to be kind of the design driver and the technology driver and that's where we want to be and that's that's kind of what we believe would be our differentiation when you look at the space.

John Thornton, Analyst — Citi

That's kind of heading where I was going. That was products and the roadmap kind of going forward. So, Scott, let's start talking on the power side first. The upcoming shift to 800 volt architecture has drawn a lot of attention. Invert of the state at the forefront and is planning on releasing its 800 volt portfolio in the second half, 26. Can you walk us through what's fundamentally driving the industry towards that standard and not just the incremental efficiency gains from moving to DC but also whether it's hitting practical physical limits with traditional AC power distribution as rack densities continue to increase.

Scott Armul, CTO

I think that's the name of the game is as densification increases as chip power and and heat levels continue to rise as we move in in video nomenclature from Blackwell into Rubin to Rubin Ultra and beyond we start to hit some practical physical limits of how much copper how much bus bar how much distribution you can put into a single or a double rack space. In a traditional kind of 50 volt at the rack level architecture, you run into limits and space constraints and challenges with heat that by moving to an architecture like 800 volts DC, you solve for a lot of that. You get the inherent improvement in efficiency, you get some improvements in reliability, but you bring with it an architecture change. And from a data center space that is typically grounded in tradition and comfort in certain types of designs and you have your reference architectures, a shift of that magnitude is significant. But we've been pretty vocal in trying to lead the charge and help shepherd a lot of the ecosystem participants that this is something that we can unlock and enable from a safety, from a compliance, from a power delivery and a power architecture perspective to help truly optimize and enable performance at a GPU level, especially when GPUs start to move towards native 800 volt DC and we want to do it in a thoughtful way so we've been working on a portfolio we want to make sure that we enable an end-to-end offering so that this isn't just we're depending on multiple piece parts but we also understand it's not going to be a binary shift from traditional 480 volt AC architecture in the US to all of a sudden all data centers are going to be 800 volt DC period full stop this will be kind of a hybrid evolving flexible type of an architecture in an ecosystem where we fully expect to see data center sites that are built based on a 480 volt AC architecture, we deploy 800 volt DC and more of a contained or sidecar type of a deployment to enable and unlock some flexibility. If we have a GPU that is going to run natively off of 800 volts DC, we can provide that power conversion and that distribution through an 800 volt conversion box. If you have traditional or legacy loads that are in that same data center, you can leverage the traditional 800 volt DC architecture and then down the road you may have a deployment that needs to happen now that we want to be ready for 800 volts DC where we can still leverage kind of in rack 800 volt to 50 volt conversion boxes that potentially then go away longer term all of that to say like I think it's going to be an evolutionary progression but we want to make sure that from a product portfolio perspective in an enablement perspective we're unlocking the ability to power chips at this level because we think in working with some of our partners at a chip level, that is the key to unlocking new thresholds of performance, that unlocks new capability and usefulness of the AI models and the training and the inference that come along with these progressive generations of GPUs, and we want to ensure that we're not kind of, not only are we not the bottleneck, but we are the enabler of being able to switch on those types of deployments and architectures.

John Thornton, Analyst — Citi

And then I guess maybe within the 800 volt architecture, you know, obviously backup power are still needed, but how does the role of UPS change and how is Veritas positioned?

Scott Armul, CTO

Yeah, and I touched on that a little bit as we talked about the evolution of power infrastructure moving more upstream to enable on-site power generation and other things. But generally speaking, maybe I'll tackle that question in two parts. A traditional centralized UPS serves a lot of functions. It's a power conditioner. It's a switch to backup power. or it's autonomous and battery to kind of ride through issues that may happen with power quality. It helps preserve and insulate upstream noise and harmonics and other distortion from being created downstream, and it helps form a very good, high-quality power downstream to the devices itself. GPUs and AI data centers in general, very simplistically, they're dynamic loads that operate in sync, and that creates very interesting challenges for upstream power infrastructure and battery autonomy. Energy storage will start to move closer to the white space, whether that's CBUs or BBUs, battery backup units or capacitor backup units, to help with power smoothing, to help with kind of buffering some of those load volatility and load fluctuations. At the same time, based on everything I just talked about relative to kind of site level grid interaction, we see a lot more of an interest and a desire for energy storage upstream, more at a utility level to prevent or enable low voltage drive through, to prevent sites from islanding or having to disconnect, to have a source where excess grid capacity can be put into a data center without having to disconnect. All of those things kind of move in a barbell fashion, maybe where the role and where the capability and intelligence of a UPS may sit. We're going to see it move closer to the white space, and we're going to see it move closer upstream towards medium voltage in the substation. While the role in terms of managing energy sources and filtering and conditioning power, and maybe most importantly, driving control schemes and control mechanisms that enable power smoothing between the upstream and the downstream in an intelligent fashion to unlock better performance, to turn the data center assets into things that can be used to unlock economic benefit, the role of the UPS I think is more important than ever. It's just potentially moving into different parts of the power chain, both upstream and downstream.

John Thornton, Analyst — Citi

I think I've got one more and then I'll open it up to the audience for any questions. Shifting over to the thermal management side, maybe we can start by addressing some of the discussions post-CES that pointed to Ruben being able to use warmer water instead of needing water chillers.

Scott Armul, CTO

From your viewpoint and discussions with customers what are you seeing is this a material design change or is this more on the lines of next gen chips bring about some efficiency gains but hybrid thermal chain infrastructure remains i love this question the 45 degree sea water question and the world kind of went nuts for uh for jensen's comments at ces from our perspective interestingly enough like that's not necessarily a new comment from nvidia and even the the two prior generations of nvidia chips have been able to and have been kind of encouraged to run at warmer water temperatures up to 45 degrees C from the CDU delivered to the chip. The reason behind that push to higher water temperatures, very simplistically, is the higher water delivered to the chip means you can do more free cooling with dry coolers and heat rejection in a data center environment. If you are eliminating more mechanical cooling, you are inherently freeing up more peak power or more power availability from the site to be redeployed back to GPUs because you don't have to account for it on kind of the thermal management and the heat rejection side. So it's an admirable and advantageous push to kind of try to drive in that direction. That being said, in order to actually reject heat effectively 24-7, 365 in a dry cooler or a mechanical-free type of a heat rejection environment, there aren't that many locales or locations that can enable that and can handle that. When you think of like ASHRAE design conditions and you think about the environment. So typically, like the push for that is to maximize kind of power availability for GPUs. But in practical applications, if you want to run at colder temperatures or if you want to deploy in areas that aren't generally kind of more Arctic and northern climates, the heat rejection still needs to happen and still needs to go somewhere. So if it's a dry cooler, that still fits within Vertiv's portfolio. But maybe more importantly, there are going to be peak times throughout the year. There will be ambient environments where mechanical cooling is still needed in order to keep those operating conditions. Or mechanical cooling will be needed and necessary if you want to run at lower water temperatures. So from our perspective, one of the products we developed and launched last year is the Vertiv trim cooler, where we think it's actually the best of both worlds to tackle exactly this problem. You have effectively a very large dry cooler paired with a smaller mechanical chiller in one package that allows you to run at much higher capacities in a much smaller footprint. You can run in free cooling and you can take all of the benefits of running with that warmer water and then for those limited times throughout the year where you need to trim or you need to run mechanical cooling you can turn it on and you have it available. So you can kind of exercise both sides of that where you're getting the benefit of warmer water without maybe the full commitment, and you're enabling yourself to have a data center design that's more flexible if you want to deploy multiple GPU generations or you want to run at cooler water for a variety of reasons that somebody might want to do that. So I think it further complicates what is already a fairly complicated story on kind of data center heat rejection, and from our perspective, as Craig said, we kind of love the complexity because we envision forward data centers as hybrid environments of chillers and dry coolers and other heat reuse and other technologies that will all be blended together to optimize for what our customers are trying to solve for in the end.

John Thornton, Analyst — Citi

Maybe I'll take a moment here to pause to see if there's any questions from the audience.

Speaker 1

Hey, thanks for the time, Scott, and thanks for making time as well. I just wanted to ask, on the conference call recently, Gio mentioned that the installed base was a big opportunity for service. I just wanted to get your understanding of like with purge right and the other acquisitions that you've done what do you see as the like yearly dollar amount you could access in terms of service per installed megawatt you have is that like on the order of tens of thousands of dollars hundreds of thousands of dollars like how much does it cost to like refill and clean a loop that purge right does depending on the size of data Center you guys have one of the largest service networks in the industry I think it's 4400 technicians like you I'm sure can get a lot of value out of that and how are you looking to monetize that and I'd certainly say and we don't like we

Craig Chamberlain, CFO

don't put a reference point out there how much dollar per megawatt hour we get in the services basis there's a couple different reasons why but we're always trying to I'd say wrap our arms around our install base and grow that services market what we've seen over the last three years is steady growth in the services market and the services output and revenues which we feel is a very strong proof point of us being a provider of choice when it comes to services so the goal is to continue to grow that and grow that through different levels of services one being you know our typical model which is a services model for life cycle where we're at the data center providing running maintenance and and services break model fix and then you have the purge right which is a specialty solution and then it goes on even further beyond that with like next predict where you're involving the the way that you operate the data center and looking at it from more of an optimization standpoint so for us it's continuing to see that services what i'm going to call revenue and recurring revenue grow on a regular basis now If you look at the face of our financials, it's hard to tease that out because the OE side is growing so fast. What I can say with pretty good conviction is we do see a very strong growth in our services market. And what the goal would be and the strategy would be is to continue to outpace where everybody is in the market for that services portfolio. because at some point, as the OE slows down and as the OE becomes more restrictive, you want to be the person that's growing services faster because that's going to be your growth engine. So right now, we're deploying a massive amount of install base, and we want to be the first to market to be able to service that. We feel like we have a pretty good stranglehold on that. Now, again, Purge writes an add-on there, NextPredicts an add-on there, and that's what we want to keep continuing to do. and ultimately the goal would be to see that continue to grow and then it become a larger portion of your reported revenues. But that's not going to happen in this environment we're in today or at least not for the next foreseeable future because the OE is growing so fast.

Speaker 1

Thank you. I just had one quick more question. We've seen that ABB recently invested in DG Matrix. Eton acquired Resilient Power recently as well. I feel like the industry and Delta as well is moving towards this idea that solid state transformers will be essential when we eventually move to 800 volt DC architecture. I know that you guys, as far as I'm aware, currently don't have an offering. I just wanted to understand where you sit on that and what you think you will need to add to the portfolio to have that comprehensive offering. Is it something that you could develop internally?

Scott Armul, CTO

I'll jump on that. Certainly, as I kind of alluded to, maybe some of the capability of the UPS moving upstream, integrating medium voltage and best capability together, I think there's a multitude of different possibilities as far as where the architecture settles and what's the right thing, whether it's an 800 volt output or whether we move to a 1500 volt output. I think there's a lot of things up in the air and a lot of architecture still to be debated. That being said, I think one of the things that we are seeing from a market perspective is there's interest in seeing that move towards kind of power conversion from a solid-state transformer perspective. And I think that the term solid-state transformer often gets maybe misused or there's various different meanings for the same terminology in the marketplace. But I think that can be both an organic pathway using and leveraging our kind of core competence and capability and just general power conversion both at the high voltage and low voltage level as well as kind of we're coming from an 800 volt DC heritage where we're not starting into the DC power space inherently or without some capability that goes back many years obviously leveraging our capability in telecom and leveraging our long standing history in the DC power space it's a business unit and a line of business at Vertiv and Emerson that I used to run at one point. So it's very near and dear to my heart. So seeing how all of these pieces start to triangulate and the fact that we're talking back to DC and the data center is an encouraging development to me. But maybe a long-winded way of saying, to come back and say, certainly we look at technology pieces in the portfolio and what could help us from an external market perspective. But it's absolutely something that we're thinking about and considering in terms of our organic technology development and pathways as well.

Speaker 2

Thank you. Hi. I'm wondering just in terms of your conversations with clients, I'm curious as to where they stand in terms of prioritizing power storage versus backup power generation, which is like more effective, more available, more efficient. How are those conversations going? I'm curious.

Scott Armul, CTO

Generally speaking, we try to stay out of the debate of should you buy gensets or deploy with gensets or batteries or all of those other things but i do think from a regulatory perspective from a i'll call it nimbyism or not in my backyard perspective there's a lot of pressure just on leveraging of gensets in particular you contrast that with now we're talking about on-site power generation and reciprocating engines and natural gas turbines potentially being deployed on site so there's there's kind of a weighing of both sides there but i think deployment of of larger scale energy storage has some inherent advantages like I just talked about beyond just backup and battery autonomy beyond just ability to switch over and kind of ride through issues it unlocks and enables some of the economic use time of use peak shaving other types of things for the data center asset it enables maybe a higher degree of control and coordination and responsiveness that generators can't handle on their own and so I think a lot a lot of the reasons we're seeing energy storage become more of a prominent part of the conversation is because of those multiple variables and those multiple potential uses for battery energy storage systems as opposed to just standby power um maybe spend a moment talking about competition um liquid cooling is exp is expanding to it's expected to continue scaling globally at an extremely fast

John Thornton, Analyst — Citi

paced del oro has talked about the market reaching three billion in revenues in 2025 and surpassing 8 billion in 2030. This has caused a rise of new entrants particularly in APAC where we are still where we still hear some investors concerns that smaller suppliers could drive pricing pressure. Veritas has obviously expanded its liquid cooling footprint quite significantly since the cool tear acquisition and more recently with the improved service capabilities from the purge right acquisition. How do you see Veritas competitive differentiation in liquid cooling as more suppliers enter the market, and could you update us on whether you still are expanding liquid cooling capacity after the 40X expansion that you've had over the last couple of years?

Scott Armul, CTO

Sure. Maybe I'll start with the last part. Yes, kind of still investing and still thinking about capacity for liquid cooling. It's becoming more and more a prominent part of the discussion. From my vantage point, as I think about the competitive landscape, yes, it's attracting a ton of attention. Yes, it's going to continue to attract a ton of new entrants, and I think I think a market that's growing like this and that is already this big, we would fully expect that to be the case. From a differentiation perspective, I'll lean back and point back to more of the system level design and thinking. Integrating a CDU with a piece of infrastructure like Avertive Smart Run, where you're incorporating the secondary fluid network, you're able to add intelligence and a certain aspect of control to manage pressure and valve control and other things, I think helps to differentiate the The CDU is a core part of a bigger offering as opposed to just a device that can move The other part of kind of how we view the competitive landscape is you can buy a CDU from anywhere, but scale matters and experience matters and maybe it seems a little funny talking about experience just given how kind of new and nascent the market still inherently is. But when you're talking about a hundred megawatt site that's going to be liquid cooled, you have to be able to operate at a significant scale. You have to have capability and technical expertise and know-how to be able to, from a services perspective, help flush, fill, turn up, set up, and orient the product itself and the secondary fluid network. You have to be able to troubleshoot, and you have to be able to help customers get comfortable with that scale and that size of infrastructure, where, candidly, like a new entrant to the CDU space or somebody that doesn't have that breadth or that capability or that ability to meet the customer where they are in that scale is going to struggle tremendously. The product has to be good, and it has to perform, and we want to have the best-in-class product, but it very quickly turns to a capacity, an experience, and an expertise discussion with our customers as we start to talk about ramping up liquid cooling. That's where I think we can have a different conversation than some of our competitors.

Craig Chamberlain, CFO

I think you asked a question about how it's evolved for us. I think it's evolved for us exactly that way, where CoolTerra was an entrance for us into liquid cooling, and we scaled it, and I think we learned a lot, and we started to become more integrated in how we thought about that as a system level again, and then how would we address that from a design perspective, a services level perspective, and an outcome perspective for our customers. That evolution, point providers still haven't went through, And I think the point providers are people that you're seeing in some of those regional spaces that they do win on price, but you can only win on price for so long. At some point, the proof is going to be back to how are you delivering for your customers. And I think that's where we lean on our competitive advantage there.

John Thornton, Analyst — Citi

I'm going to jump to talk some incrementals. Craig, I think you were pretty clear that 30% incremental margin is the right framework to think about in 26 and maybe 27, as well as partially giving you what to fund growth investments. But the old mantra at Veritiv used to be to maintain fixed costs and then scale the business, which you were obviously doing. You were also suggesting you would remain in the green in terms of price versus cost, especially given potentially easier tariff comparisons as 26 evolves. So why couldn't there be some potential tailwind behind the incremental margins if Veritiv executes well?

Craig Chamberlain, CFO

I think the execution well is something that we point to is we want to be sure that we execute well. The space that we're working our way through, again, price costs looks like it's going to be neutral, maybe positive for us going into next year. We feel really good about fixed cost leverage. But when I come back to fixed cost leverage, one, we're scaling for capacity to be able to be out and win in the commercial market, be able to support the the technology development that we need to be able to be out there in front of which is a little bit more than you know we typically have had in the background we have we are growing in that space but then there's also just the coming on of the brownfield space that we're expanding out in the greenfield that we're putting in in Asia and some other spaces so that inefficiency naturally as you ramp up if you can squeeze that inefficiency down you would see you know typically your margins continue to march up now ours will go up again this year. We ended this year at 28. We're kind of facing 29 to 30 next year, and that's what we feel good in. Now we're starting first quarter at 28. So I think it's just being diligent around what we have to be able to go and deliver. We're very proud of where we've been able to push margins, and we're not going to stop here. You look at our long-term framework, we have a plan to continue to grow that, and I think we'll give more thoughts on that as we come back in our investor day but there is not a intention on our side to stop at any point in time we believe that we're going to continue to execute and continue to drive there this is what we see right now based on 26 being a little bit of a different year from a ramp perspective but it's still margin accretive for us good time for one last one I'm gonna sneak in here that we're asking everybody is what are the top two or three innovations and structural changes affecting your company over the next five years and are there any emerging industry trends that are perhaps being overlooked in the current discourse?

John Thornton, Analyst — Citi

You've covered a lot, you've got 20 seconds.

Scott Armul, CTO

I was going to say we covered a lot of that. For me very personally with Vertib, just the pace of technology change and keeping up with it is probably the thing I'm most focused on when we're on a 12-month GPU development and deployment cycle. Just the rate change of this industry and keeping pace and and how we can articulate kind of keeping infrastructure to GPU generations ahead is the thing that we're trying to maybe change the foundation of our engineering approach our technology approach in the way in which we're engaging customers to ensure that we're unlocking and enabling that but that's kind of what keeps me up at night and what keeps me smiling at work and I just had on that I mentioned it a lot during this conversation and it's probably because my background is in heavy industrial and i lived and died by services but the potential we have in services the install base that we built the technology advantage we have and continuing to stack you know equipment

Craig Chamberlain, CFO

out there that's in surfing in service and use building on that advantage of wrapping your arms around it and it being yours and having the entitlement to service it and having the entitlement for a long-term recurring revenue base is a differentiator for us and we've got to take advantage of that i think that's the space where i'm you know i'm laser focused on making sure we execute on that because that's the future of the company. Scott, Greg, thanks for joining us here in Miami. Thank you, guys.