Good morning. My name is Warren, and I will be your conference operator today. At this time, I would like to Welcome Everyone to Vertiv's Q3 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Please note that this call is being recorded. I would now like to turn the program over to your host for today's conference call, Lynne Maxeiner, Vice President of Investor Relations.
Great. Good morning, and welcome to Vertiv's Q3 2026 earnings conference call. 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 statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We undertake no obligation to update these statements as a result of new information or future events. Please refer to the cautionary language included in today's earnings release and the risks disclosed in our annual and quarterly reports and other filings made with the SEC. Additionally, non-GAAP measures referenced today are defined and reconciled in our earnings press release and in the investor slide deck found on our website at investors.vertiv.com.
Finally, during the Q&A portion of the call, please be mindful of others in the queue and limit yourself to one question. With that, I'll turn the call over to Executive Chairman, Dave Cote.
Well, to paraphrase Mark Twain, the rumors of our demise have been greatly exaggerated. I'm really pleased with the Q3 and our year-to-date performance. This performance is testament to how customers look at Vertiv, our thought leader, with leading technology and reliability, undeniable ability to scale, and superior service performance and capabilities. This is reflected, among other things, in our strong Q3 organic orders on top of very strong first-half organic orders, as Gio will mention. Q3 organic orders are not only strong but also very balanced across customer types. Orders are strong no matter how you look at them, with or without Neocloud. Our customers clearly believe in us. By the way, to be clear, we're not planning to share orders data going forward.
This order strength and financial performance notwithstanding, Gio will be the first to say that we are relentlessly focused on further improving our customer and financial performance across the board. We can still be a lot better. Gio is never satisfied. What you're seeing in these results isn't something that happened overnight. This is the payoff from years of seed planting, years of investing in technology, capacity, service, and all capabilities because we believe this opportunity was going to be big. Turns out it's even bigger than most people imagined, and we believe it's going to stay big for a long time. We are just at the beginning of the digital age, and we anticipate it has decades left to run. The foundation for it is data storage and processing, which means data centers. No data centers, no digital age, and Vertiv supplies the picks and shovels.
We are at the forefront of the technology change in those picks and shovels and intend to stay there. As you know, I've always believed it's important to have a great position in a good industry, preferably with technology differentiation, and then develop a high-performance culture, so you then perform well for customers and investors. Vertiv is doing that. I'm pleased with how rapidly the high-performance culture is developing at Vertiv. The more technology changes, the better it is for us. It's exciting stuff. Like that famous book says, we're accomplishing two seemingly conflicting things at the same time. We're delivering very strong results today while investing aggressively for tomorrow. That's generally hard to do. Most companies choose one or the other. Gio and his team are doing both, and I believe the gap between us and everyone else just keeps getting wider.
The fact is, we're still early. We ain't done yet. Not even close. As you've heard me say in the past, buy now while supplies last. So let me hand it over to Gio to take you through it all. Gio?
Well, thank you very much, Dave, and let us go to slide 3. A very strong quarter indeed. Net sales up 61% versus Q3 2025, with broad-based trends across all regions. Americas up 75%, APAC up 50%, and EMEA back to convincing growth at 23%. Organic net sales grew approximately 55%, with an additional 6% from acquisitions. Disciplined execution drove adjusted operating margin to 25.2%, up to 190 basis points year-on-year, exceeding our guidance. Adjusted operating profit was over $1 billion, up 83% year-on-year. Adjusted diluted EPS of $2.21 were up 78%, primarily driven by higher volume and continued operational productivity. Adjusted free cash flow was up 50% year-on-year at $652 million. Our net cash position continued with a negative leverage of 0.2x at quarter end. The balance sheet remains very strong. We are raising our full-year guidance across all key metrics.
Net sales expected at $14.65 billion, $650 million up on July guidance, and approximately 38% organic growth. Adjusted diluted EPS now expected at $7.15 up 70% from 2025. Adjusted operating profit guidance raised to more than $3.5 billion, up 68% year-on-year. Full-year adjusted operating margin expected to be 24%, approximately 360 basis points higher than 2025. Adjusted free cash flow guidance raised to $2.7 billion. With that, let's move to slide 4, and let's start with the market environment. Our pipeline remains very strong globally. Demand signals are clear and broad-based across technologies, customer types, and regions. We expect another year of robust orders growth. You know we do not disclose orders and we'll continue not to, but it is worth sharing that our Q3 orders were more than 100% up year-on-year organically.
This is to give a sense of what this strength practically translates into. Also important to share that our customer mix, call it all hyper, enterprise, neocloud, et cetera, very much represents the market mix. Let's now talk regionally. Americas pipeline sequential quarter-to-quarter growth is the fastest we have seen all year, translating into very strong organic Q3 orders. Yes, power availability, permitting, general sentiment, and construction site skilled labor availability are pacing items, but not slowing down growth. We've been talking about the EMEA spring uncoiling. In Q3, the pipeline in EMEA has approximately doubled year-on-year, and organic orders grew even more. Momentum is now in the market, and we see these dynamics carrying well into 2027 and beyond. When it comes to APAC, it's a broad-based strength, particularly in Australia and India. Organic orders were up substantially in the quarter in APAC.
China is showing encouraging green shoots. Commercial execution continues to be favorable, and we expect positive price cost in 2026, including the current impact of tariffs and countermeasures. Now to the right of the slide, and let's talk about operations and supply chain. The sequential and year-on-year revenue growth you saw in the quarter reflects the combination of ongoing capacity expansion, improving utilization, Vertiv operating system adoption, and overall disciplined backlog execution. It also reflects increasingly mature execution for complex converged infrastructure projects. We are making significant capacity investments globally to be well-positioned to serve our customers and execute on a robust backlog. In the Americas, we announced several new or expanded facilities for infrastructure solutions, power management, thermal management, and rack systems. In EMEA, we are expanding our Slovakia campus for power and thermal management and infrastructure solutions, scaling up our power facilities in Ireland.
We are also on track to doubling chiller production capacity by year-end. In Asia Pacific, our new Johor, Malaysia factory is now operational, strengthening our ability to serve customers across Southeast Asia and Australia. These capacity additions are already contributing to our Q3 and Q4 growth. It's not just our own capacity. We keep on proactively securing and expanding long-term capacity agreements with key suppliers to ensure they scale in lockstep with our growth. Let me also welcome Mike Resha, our new EVP of Manufacturing and Logistics. Mike brings very strong operational experience and capabilities and very strong lean expertise. Anders remains with us in a senior advisory capacity focused on a successful handover and on special projects. Let us now go to slide 5. Time to first token matters a lot to our customers.
It indicates how quickly an investment in AI data center and compute becomes revenue-generating. I want to highlight the work we're doing with NVIDIA, the DSX ecosystem, and Polar Data Centers to significantly reduce time to first token, accelerating every phase of the cycle. The design phase, for example. Pre-engineered reference designs are configured and validated in a digital twin. This reduces the design time by a factor of 10. The deployment phase. Factory build and modularly deployed infrastructure significantly removes complexity from site. It happens in parallel with site preparation. This cuts deployment time by up to half. The result is up to 30% more cumulative AI token output in the first 12 months from project kickoff. Same installed capacity, just productive much sooner for our customers.
Polar Data Centers is already applying this at the first 41 MW phase of its Herøya campus in Norway, and it is scalable to 100 MW. With that, over to you, Craig.
Thanks, Gio. Let's move to slide 6 and talk through our Q3 financial results in more detail. Our adjusted diluted EPS was $2.21, up $0.97 or 78% versus prior year, and $0.41 above the midpoint of our guidance. The year-over-year improvement was driven by higher after-tax adjusted operating profit, primarily from increased revenue and operating profit rate expansion. On the top line, net sales were approximately $4.3 billion. That is up approximately $1.6 billion or 61% versus prior year. Organic sales growth was approximately 55% with an additional 6% from acquisitions. By region, Americas grew 66% organically, APAC grew 48% organically, and EMEA grew 19% organically. All regions were above the 3Q revenue guidance. Moving to adjusted operating profit, we delivered approximately $1.1 billion. That is up $491 million or 83% versus prior year, and $169 million above the midpoint of our guidance.
Adjusted operating margins of 25.2% expanded 290 basis points year-over-year and came in 70 basis points above guidance. The margin expansion was driven by strong sales volume increase, operating leverage, and continued productivity. The business teams continue to show the ability to scale operations while expanding margins. As we have mentioned in prior calls, we are continuing to invest in capacity and engineering R&D to support future business growth.
To round out the quarter, adjusted free cash flow was $652 million, up $216 million or 50% from prior year. The improvement was driven by higher adjusted operating profit, partially offset by working capital usage and higher net CapEx. Net leverage at quarter end was negative at 0.2x , providing significant strategic flexibility. Flipping to slide 7, let's look at segment performance by region. Americas delivered an outstanding quarter. Net sales were approximately $3 billion, up 75%, with organic growth of 66%.
Organic sales growth remained robust in the quarter. Adjusted operating margin came in at 29.4%, driven by strong operational leverage. Moving to APAC, the region had strong results with net sales of $779 million, up 50%, with organic growth of 48%. Full-year outlook remains positive, driven by strong in-market demand and continued commercial execution. Adjusted operating margin of 17% expanded 380 basis points year-over-year, primarily attributed to operating leverage. In EMEA, net sales were $545 million, up 23%, with organic growth of 19%. The market continues to strengthen with accelerating pipeline conversion, positioning the region well for continued organic sales growth. Adjusted operating margin of 28% expanded 920 basis points year-over-year, driven by improved operational leverage and commercial execution. It was a very strong performance across all three regions in Q3. Turning to slide 8, let's walk through our Q4 2026 guidance.
For Q4, we're projecting adjusted diluted EPS of $2.25 at the midpoint. That represents 65% growth versus prior year. The year-over-year improvement is driven by higher after-tax adjusted operating profit, primarily from increased revenue and operating profit rate expansion. On net sales, we expect approximately $4.4 billion at the midpoint. That's up approximately $1.5 billion or 53% versus prior year. Organic sales growth is expected to be approximately 50% with an additional 3% from acquisitions. We expect continued strong organic growth across all regions, with Americas in the mid-50s, APAC in the mid-50s, and EMEA in the low 20s. Adjusted operating profit is expected to be approximately $1.1 billion at the midpoint. That's up approximately $470 million or 70% versus prior year. Adjusted operating margin rate is expected to be 25.8% at the midpoint.
That's up 260 basis points year-over-year, and that's driven by strong organic sales growth and operating leverage, which is offsetting some small mix impact. As you can see, we expect another strong quarter reflecting the ongoing excellent operational performance of our business teams. Now on to slide 9. Let's talk about updated full-year 2026 guidance. We're raising our guidance across all key metrics. Starting with the adjusted diluted EPS, we now expect $7.15 at the midpoint. That's up approximately $2.95 or 70% versus 2025, and an increase of $0.45 versus our prior guidance. The year-over-year improvement is driven by higher after-tax adjusted operating profit, primarily from increased revenue and operating profit rate expansion. For net sales, we now expect $14.65 billion at the midpoint. That's up approximately $4.4 billion or 43% versus 2025, and an increase of $650 million versus our prior guidance.
Organic sales growth is expected to be approximately 38% with an additional 4% from acquisitions and 1% from favorable currency. By region, we expect America's organic growth in the high 40s, APAC in the mid-30s, and EMEA in the low to mid-single digits. Moving to adjusted operating profit, we now expect approximately $3.5 billion at the midpoint. That's up approximately $1.4 billion or 68% versus 2025, and an increase of $190 million versus our prior guidance. Adjusted operating margin is expected to be 24% at the midpoint. That's approximately 360 basis points of expansion from 2025 and 20 basis points above our prior guidance. The margin expansion is driven by strong organic sales growth, continued operating leverage, and ongoing productivity realization. Finally, adjusted free cash flow is expected to be $2.7 billion at the midpoint. That's up $813 million or 43% versus 2025.
The year-over-year improvement is driven by higher adjusted operating profit and cash interest favorability, partially offset by higher net CapEx as we continue to invest in capacity expansion and operating capability. We are delivering strong results, raising our outlook, and executing with discipline. With that, I will hand it back to you, Gio.
Well, thank you, Craig. Let us go to slide 10 for some initial thoughts on 2027. Data center demand is accelerating despite pacing items like power availability, permitting some data centers sentiment headwinds, shortage of skilled labor for site activity. Many of these pacing items are not headwinds for us. They play directly to Vertiv's strengths as we help the industry solve them. With a robust backlog and strong pipeline visibility, we expect continued significant above-market organic sales growth in 2027. We will continue investing in engineering and R&D for the next generation technology, expanding capacity, and scaling our supply chain and services to widen our competitive lead and stay ahead of our customers' evolving needs and timelines. Growing at this pace is a lot of work and not always orderly, but we are clearly demonstrating the operational strength to deliver on this challenge.
Despite an ongoing inflationary environment, we expect continued margin expansion powered by productivity, strong commercial execution, operational rigor, and increasingly deep Vertiv operating system adoption. We expect to continue generating significant adjusted free cash flow, enabling strategic reinvestment in engineering and R&D, while expanding capacity and pursuing targeted acquisitions that drive shareholder value. The demand environment remains strong heading into 2027, and we believe we are well-positioned to capture it and gain market share. We expect strong growth across all financial metrics. Let us go to slide 11 and wrap-up. A strong Q3 performance who exceeded guidance, the team continues to raise the bar. We raised our 2026 guidance across all key metrics and feel good about how we will end the year and the momentum we carry into 2027.
We closed the acquisition of UtilityInnovation Group, adding microgrid solution, advanced power controls, and behind-the-meter power design capabilities. We also closed the acquisition of King Environmental Services, expanding our fluid management and load testing services in Europe. I also want to provide further evidence of the strength of our execution through a couple of examples. First, our long-tenured partnership with EdgeConneX and the design, engineering, and construction management firm BCEI. They continue to expand globally with Vertiv as their preferred end-to-end powertrain, thermal chain, and services partner. Vertiv's innovation, quality, scale, and reliability are enabling the deployment of gigawatt scale facilities across multiple locations. We are proud of the trust this customer has in Vertiv to deliver at scale. Next, our collaboration with SGC Energy and KT Cloud on the Gunsan AI Data Center project in South Korea, designed to enable scalable, high-density AI data centers.
The project is utilizing our converged infrastructure to accelerate time to first token and deliver at scale. Global reach, technical depth, quality and reliability, scale, and industrial-leading services define Vertiv's value proposition. With that, I think it is time to go to the Q&A part.
We will now begin the question and answer session. In order to ask a question, press star, then the number one on your telephone keypad. In the interest of time, please limit yourself to one question. If you have a follow-up question, please rejoin the queue. We will pause for just a moment to compile the Q&A roster. The first question comes from Amit Daryanani with Evercore.
Yep. Good morning, good afternoon, everyone. Gio, extremely impressive set of numbers for September quarter. You are seeing 100%+ order growth right now, which I think is well in excess of the underlying gigawatts of capacity addition the AI ecosystem would do going forward. This would almost imply that Vertiv is actually picking up market share at this point, which I think is very different from the investor concerns throughout the quarter around product quality and potential share loss. Perhaps, if you think about the strength in September, the 100%+ order growth, can you just talk about how much of this was catch-up versus underlying demand getting better. To the extent you can focus in on your share within these AI deployments and how that is evolving, that would be really helpful. Thank you.
Well, thank you, Amit. As you are saying, we strongly believe that this growth is above the market growth. If you go back to the market model that we shared with you in May, and we believe that is pretty intact in terms of outlook of the market, that is squarely there. If we continue to talk about orders and our orders trajectory, I am going to specifically talk about Q3 here, but as you heard, we are pretty positive about orders more broadly speaking. It is, I think, a way to demonstrate that the industry believes in Vertiv and that our technology, our execution, our strength of our customer relationships, and our ability to deliver are certainly serving our customers very well. Is it a catch-up? We are not talking about catch-up here. We are talking about orders. Orders are a reflection of strength in the market.
Your next question comes from the line of Scott Davis with Melius Research.
Hey, guys. Good morning, everybody, and congrats on the very strong snapback in numbers here. Gio, I want to just follow on a little bit on Amit's question there. As it relates to some of the chatter out there of supply chain issues and such, and also product quality issues. There has been chatter of compressors that have been burning out and heat levels in UPS machines or UPS systems that are overheating. Could you give us a little bit of color? One could characterize as kind of normal product development challenges, and one could characterize it as a door opening for competitors. So how do you guys think about it, and should we have confidence given the numbers you just provided that these issues are all seemingly overblown, and we should just look onward? I will pass it on after that. Thank you.
Well, thank you, Scott. Well, again, best answer is our performance. Certainly, we operate at high levels of growth and in a very vibrant environment when it comes to new products being launched. Many of these new products are new to the industry, if you will. So this growth and this new product situation is always creating acceleration across the portfolio. But when we look at the quality data, we are optimistic about what we see. We feel good about the trajectory. We feel good about the direction. When it comes to new products, it is true that if the new product mix is higher, then there is a kind of a higher, let us say, statistically distributed curve in the initial phase of new product.
So there might be a mix there, but when we look at the way the infant phase of a new product quality evolves, how it evolves, we see constant improvements. We feel good about that. It is a complicated industry. It is a complicated set of products, and that is true across the entire industry. It is not just a Vertiv thing. I feel pretty good at where we are. We are not perfect. Absolutely, we are not perfect, but we believe that we continue to reinforce and focus on quality and reliability as one of the competitive advantages for us.
Thank you.
Your next question comes from the line of Steve Tusa with Wells Fargo.
Hi, good morning.
Morning.
Morning.
Can we just get an update on the supply chain issues from the Q2, how those played out, and whether you are actually kind of capturing that revenue into this year? Then just CapEx, maybe a preview of CapEx for 2027?
Yeah. I'd say, thanks, Steve. On a kind of a recap of the 2Q, some of that revenue, the delayed revenue, did filter into the Q3 number. I think we capped it somewhere around $100 million-$150 million. I think that was some of the recovery we felt in the Q3. In terms of our feeling of where we sit right now, again, we're continuing to build up those resiliencies in those factories and ensuring that they can deliver the project-level outcomes that we expect to. We said before that it was going to be an ongoing thing that we're continuing to improve at. We saw some definite improvements in the Q3, so that was what you felt come through, and we saw some recovery of that in the revenue basis.
But we're going to continue to work on making sure that we can deliver at a steady pace and an ongoing pace around those project-level outcomes. I think for us, it's a continued effort there. We did put the capacity in place, as you saw. A little bit of that capacity does drive some of the margin things that we've talked about, but definitely put the capacity in place. Your question, we won't highlight 2027 now from an outlook on what our percentage of CapEx would be. Again, we've given a guide for that in the long-term guidance, and we'd update any of that as we count through Q4.
Great. Thank you.
Your next question comes from Joe O'Dea with Vertical Research.
Hi. Good morning. Thanks for taking my question. Can you just talk about the mix dynamics in Americas and some of the margin spread there, even if not quantified? Just trying to think through the opportunities moving forward as you sort of gain some efficiencies on new products, and thinking about what that could mean for margin expansion as you see a narrowing spread between some of these buckets.
Yeah. I would say you're exactly right. Some of the margin you're seeing in Americas, again, the incrementals are a little bit lower in the second half than they were the first half because of some favorable comps. You also see there, Joe, in the second half that Americas had a large ramp in capacity, which would drive some inefficiency there. Then on the point of the mix, the mix would be that the product side of that had more output than normal in terms of services. You got a little bit of a mix factor there. As that balances back out, you might have a little bit of a pickup on a mix there.
As we got better in terms of bringing our capacity online and getting through that learning curve, you'd have some potential there as well to continue to work through your margins. I would say as we think about growing this business and the level we're growing it and bringing on capacity, we're always being prudent about how we do that and creating capability. We'll continue to do that, and I think the 30%-35% that we put out there is the right way to think about it. 30% always being when we're kind of in the ramp mode and trying to make sure we stay there, and the high end of that being 35%.
Thank you.
Your next question comes from the line of Andrew Obin with Bank of America.
Yes, good morning.
Good morning.
Just maybe, can we talk about your service organization? It seems like a big differentiator in the market. Can you share some KPIs and particularly getting quite a few questions about any difference in attachment rates on electrical and thermal, and how should we think about the opportunity there going forward? Thank you.
Well, thank you for your question. Of course, services is a very important differentiator for us. We've been vocal and we continue to believe, and we have proof of the fact that it is making a difference. It's making a difference especially when the industry is complex and when there are a lot of new technology being deployed, particularly in these times. We will not go into details of attach rates, but let's talk directionally. We're pleased by the direction in which our attach rates are evolving. That's a metric that we obsessively and very granularly measure, regionally, product line, everything. I would say that they're not necessarily a dramatic difference between the electrical and mechanical part. It's more specific maybe to some product lines within the larger groups of technologies. But again, you heard us talk about converged infrastructure.
We talked about system level, all things that create even further opportunities for attachment on a broader install base. So pleased with where we're going.
Thank you.
Your next question comes from the line of Andy Kaplowitz with Citigroup.
Good morning, everyone.
[crosstalk] Andy.
Gio, maybe you could further characterize the order pipeline for us. I think you suggest it continues to grow, but does it continue to maybe widen out by geography as you go into 2027? Obviously, the biggest opportunity seems to continue to be in the U.S., but how big of an opportunity is Europe these days, or interestingly India, as you go into 2027 and beyond?
I go back to what I was saying in terms of pipeline and strength, the broad base of strength. Of course, we start from the Americas for us, which of course the central gravity of the Americas for us and for the market is the U.S. That is intrinsically and absolutely unequivocally the largest market in the world. I was very explicit about the fact that we are very pleased about pipeline growth in the Americas. Very pleased in terms of an absolute acceleration of pipeline in the Americas in the Q3. But the situation is certainly very convincing also outside. I think it's very widespread geographically, though of course some markets the starting point is smaller, sometimes very much smaller than the Americas. But that's okay. It's relative growth that matters. We were talking about the strength in EMEA and the acceleration in EMEA.
I've already come specifically to India, as you were asking, an extremely convincing landscape. An extremely convincing landscape in terms of the combination of the pipeline and our strength in the market. Please don't think that it's only the Americas, but please b e convinced with us that the Americas is an absolutely strong market for us.
Appreciate it, Gio.
Your next question comes from Mark Delaney with Goldman Sachs.
Yes. Good morning. Congratulations on the strong results, and I appreciate you taking the question. Gio, I was hoping you could give us a bit more of an update on the 800 V momentum. I know a number of different products that Vertiv is bringing to market with respect to 800 V. Can you share a bit more around how that customer momentum is progressing, and how impactful 800 V products may be for revenue in 2027?
Well, thank you for the question. Certainly, a very important one. We were pretty explicit about our roadmap and what we see in the markets in July. We dedicated one page of our earnings deck to the evolution of power infrastructure, including the 800 V DC. Remember, we talked about the three model configurations. It's probably more complex than that, but from the current infrastructure to the 800 V DC, to the rack and the row, all the way to an end-to-end 800 V DC. I'd say the situation continues to be consistent with that. We are pleased with the direction of travel as Vertiv.
The demand in the market is evolving in the same direction that we described pretty much three months ago with, let's say, initial 800 V to the rack with medium voltage AC or low voltage AC with BESS as an intermediate, if you will, configuration when going to the full 800 V DC, being in the validation part as we speak and starting to be revenue generating during 2027, and 2027 being the customer validation phase of the full native 800 V DC, and then the deployment into the market in 2028. So pretty much the same picture we saw back then. Pretty pleased about our trajectory and very consistent with what we shared in May and in July again.
Your next question comes from Amit Mehrotra with UBS.
Great. Thank you. Good morning. I guess I wanted to ask about maybe just overly tactical first. Usually, you see a pretty nice step-up in revenue Q3 to Q4. The guidance implies sort of more sequentially flat. Obviously, Q3 was much better. Maybe you can just address that. As all this capacity is coming online and the pipeline is great and orders are great, is that jump-off point at Q4 in terms of organic growth sort of the right way to think about growth in 2027? Maybe if you don't want to answer it that precisely, is there any reason why organic growth doesn't accelerate in 2027 in light of capacity and order momentum sort of moving in the right direction?
Thanks, Amit. I'll start with the Q2 to Q3 kind of delay that kind of raised up Q3 a little bit there. We had that delay in Q2 of revenue recognition. Came in in Q3, so brought Q3 up a little bit more than would've historically been there. If you adjust for that, the $100 million, $150 million, you're more in a sequential nature that we've seen in the past from the Q3 to Q4 number, if you look at that per the guide. I think that's a little bit of a normalization there. Again, as Gio and I have said as we walk through these things, there's always some prudence in the way that we look at our guides. Our Q4 guide would be assessing for that as well.
In terms of kind of where does it sit as going into 2027, again, we feel good about where we are right now in exiting the year. We won't comment on 2027 of where it's going to go. Just to point back to the fact of pipelines look good. As Gio mentioned, the order book looks good, and we feel confident about our ability to execute given the Q3 and what we have in front of us here in Q4.
By the way, Amit. [crosstalk] While I've got you, I loved your headline today, too. Well done.
Thank you, sir. Have a good day, guys.
Thank you, Amit.
Your next question comes from Toby Okwara with Morgan Stanley.
Yeah, thank you for the question. I wanted to talk about the inventory dynamic into the quarter. I know there was a pretty sizable ramp-up over 100% year-over-year. Is that kind of just a reset of your normal operating positioning, or is that part of a transitional phase as you start to readjust supply chains to support modular?
No, I think it's a little bit of both. It's definitely the ramp to support the growth that we have and ensuring that we have the right level of resiliency in the factory as well as we talked about last quarter. So you're getting a kind of a feed-through on both of those, Toby, that's causing that ramp in inventory. So it's definitely to support the go-forward growth, but it's also to ensure that we have the right level of resiliency as we get more into this pattern of delivering the projects like a product-level business.
Thank you. If I could follow-up on any commentary on mix of liquid cooling. Have you started to see that take greater share of your order book and revenues, and how should we think about the potential margin impact there?
We will not be specific. We're not being specific, but we've been, in other occasion, vocals about our found, let's say, satisfaction with the direction of travel, if you will, of our liquid cooling business. So not only liquid cooling is taking a much bigger share of the, let's say, first level heat extraction. So the mix is definitely moving towards liquid cooling in the market, but we're also very satisfied about our role in the industry and our win rates and, dare I say, leadership in this part of the business. Doesn't mean that air cooling is going away, as we said several times. Even if it's a smaller portion of, let's say, the total heat extracted from an individual high density rack, there's still a lot of air being extracted.
But I'd say that as this evolves, what I think becomes even more important, prominent, is the system level. So the coordination between the liquid cooling, the air cooling, and the heat rejection. So the total thermal chain system. You were talking about what direction is it mixing us from a margin standpoint. I'd say we're pretty pleased and fully factored in, of course, the numbers that you see and the numbers that we guide for the rest of the year. But we feel good about liquid cooling across the board, including the service attached side.
Thank you.
Your next question comes from Nigel Coe with Wolfe Research.
Thanks. Good morning, everyone.
[crosstalk] Good morning.
Gio, there's obviously a lot of noise around your internal supply chain. Maybe just talk about what measures you took to enable, obviously, the incredible ramp-up in the Q3. Then maybe just touch on your degree of satisfaction right now, on where you are right now, and where you can improve. Then that leads me into my question around the hire of the new EVP manufacturing supply chain. What are you hoping that Mike brings to the organization, and any problems that you're hoping he can solve? Thanks.
When it comes to the dynamics, Craig explained a little bit the dynamics in terms of revenue recognition, Q2, Q3, et cetera. We were very transparent and explicit about the fact that what we're doing in terms of bringing into a factory incredible complexity that you have on site requires building processes, building, maturing a modus operandi that is first to the market. I would say unique still in our industry. We progressed well. I'm pleased with the progress on our learning curve that is a combination of how we execute and how we really architect the entire system, how it works. So pretty pleased about that. Are we done? Not yet, but not in terms of feeling nervous about the future, but feeling fully satisfied about having developed the perfect and having matured across the perfect process.
That is something that will continue to evolve, and that is something that will continue to create a competitive advantage for us. I think we are ahead in the industry, and still work to do, but pleased with the direction we're going. Your question about Mike, as an opportunity to welcome again, Mike, and a big thank you for everything that Anders have done. But we continue to expand. We continue to take the operational execution to the next level. So there's nothing specific that I would say, "Oh, that's the one thing that will be addressed." This is a very convincing and broad-reaching evolution towards operational excellence, towards a fully mature Vertiv operating system, and that's the direction Mike will continue to drive towards, and he is extremely qualified for that.
Your next question comes from the line of Nicole DeBlase with Deutsche Bank.
Yeah, thank you. Good morning, guys.
Good morning, Nicole.
Gio, you highlighted a number of times some of the pacing factors, power availability, permitting, moratoriums, et cetera. Just curious, if you look from a higher level of how the cadence of your shipments is coming together and when customers are asking for shipments, are you seeing any evidence of data center construction projects pushing to the right because of these pacing items?
What we see in terms of movements at project level is nothing out of the ordinary from what we have seen in the industry over the years. It's a construction activity, so sometimes there are slippages. There are complexities on site. Some of the complexity, of course, we are addressing, changing the name of the game with our converged infrastructure, but we do not see those dynamics translating into the meaningful or, let's say, material out of the ordinary shifts. Clearly, customers and the customers we work with are pretty savvy, and I know that when they start a project, they start procuring material and technology for that project when they know that the project can be taken to completion.
Thank you.
Your next question comes from the line of Luke Junk with Baird.
Morning. Thanks for taking the question. Gio, maybe a little bigger picture question. I think you had previously said you were planning portfolio launches for 800 V in the second half of this year. Can you just comment on where that stands from an industrialization standpoint right now? Then secondarily, maybe if there's any color you could share on the scope of that opportunity in terms of your relationship with chip makers versus hyperscalers and maybe where you're most engaged right now, or even what's animating what might be going into backlog. Thank you.
As I was saying, we are pleased with the progress right now. When it comes to the way we think about product launches today, we cannot think in terms of product launches separate from having the right capacity, dedicated production line, dedicated supply chains with that. That is an increase. Sorry. It is part of a new product, a new technology launch. Certainly 800 V DC in its various guises, as I explained earlier when answering to a previous question, be it 800 V DC to the rack or the pod or it be in the entire 800 V DC, is no exception to that. If anything, it is certainly, let us say, a pinnacle of where we have to match supply chain footprint, capacity, and technology all at the same time, and that is what we are doing. So the industrialization is an intrinsic part of the product launch.
When it comes to who are we working with on the customer and customer validation standpoint, it is really a combination of customers, be them hyperscalers and partners on the silicon side. But I will not be much more specific than that.
Understood. Thank you.
Your next question comes from the line of Ananda Baruah with Loop Capital.
Yeah. Thanks, guys. Thanks for taking the question. Really appreciate it. Gio, would just love to get your thoughts on this DSX pod that NVIDIA announced last week, which is intended to, as you well know, because you're partners, speed up time to stand up, and they also have this broader, as you're aware, DSX AI Factory platform. If that gains any real momentum, does that help you guys faster to revenue, or is it more like the data center takes a set amount of time to set up, and it's more time to first token for them, but not necessarily an impact to you? Just wondering if it can increase your velocity of orders to revenue. Thanks.
Well, clearly very much involved in everything DSX, be it the DSX pod or the broader DSX AI Factory data center design, very involved, and that's public information, as we know. As you correctly say, the fundamental driver is time to token, and the value, as I mentioned in one of the early slides, the value can be billions of dollars for our customers. Clearly there is an acceleration, a very strong appetite for acceleration across the entire industry.
We were explicit, and we've been very explicit about our converged infrastructure, modular converged infrastructure, where you have reference designs that then gets configured more and more, as I mentioned, using simulation and digital twin to compress not only the deployment time but also the design time, so that we do not design snowflakes, but we go about deploying things that have already been engineered and are just tailored on a specific data center. So what we're doing with the converged infrastructure, OneCore SmartRun, and what we are doing together with NVIDIA on the DSX, be it the pod or the broader, is exactly going in the same direction. So we share that ambition. We share that vision. I was talking about us accelerating the learning curve of being operationally excellent in everything executional.
Those are complex, let's say, delivery processes that are exactly going into the direction of creating a competitive advantage. Acceleration? Well, certainly. We believe that this goes in the direction of us expanding market share, and certainly works very well as a very strong technology pull-through vehicle for us.
That's really great context. I really appreciate it. Thanks a lot.
Your next question comes from Varun Govindaraju with Bernstein.
Good morning, everyone. Congratulations on the strong quarter, and thank you for the question. I had a quick question on orders/backlog. Do you continue to see customers essentially widening the aperture to which they're willing to put in orders for? Said another way, are they just placing orders further down the timeline? Is that having any impact on the backlog? Because in the past you've said 12-18 months. Is that still the range or has it shifted around a little bit? Thank you.
Well, thank you for the question. It is an important question for us, and it's around what is backlog coverage here. The dynamics of orders in terms of how far out orders are placed has not changed dramatically. I would say not changed a lot quarter to quarter or in the last few quarters. We're talking about that 12, 18 months, and can be very much true right now, and that's certainly one of the aspects that we analyze a lot. Clearly, as you'll very well remember, we are very strict in what we call a backlog. We don't call a capacity agreement backlog. We only call backlog what is squarely a purchase order. No, I would say the shape of the backlog has not changed dramatically, of course. Orders are very strong news, as we were saying, so you can imagine that reflect in our backs.
Understood. Thank you, Gio.
Your next question comes from Andrew Buscaglia with BNP Paribas.
Hey, good morning, everyone.
Good morning.
Hey, Andrew.
Just wondering on, as we look into 2027, anything you'd like to set us up with in terms of margins? I say that because we had some noise in the back half of this year, but it seems like the setup with incremental volume and better mix and capacity going away should set you up for, I think, what should be a really strong starting point. Do we see these kind of exit margins as the starting point for next year?
No, we won't specifically talk about 2027 in terms of where we sit on incrementals. I say historically what we've said, and kind of go forward with what we laid out in the long-term planning is we aim to be at the 30%-35%. A lot of things can influence that, especially when you're going through growth. If you go through growth, you tend to see a little bit lower of that. If you are more of a steady state, you see a little bit of a higher of that based on where your volume is. So I'd say that's still the right framework to look at it through. We wouldn't change our framework at all, but I won't specifically comment on 2027 until we provide guidance for that at the end of next quarter.
Got it. Thank you.
Your next question comes from Noah Kaye with Oppenheimer.
Good morning. Thank you. Just to follow-up there, incremental margins sequentially from Q3 to Q4 are above the historical average. I guess in the absence of any other factors, that would imply you are getting more efficient as you ramp these new offerings. Maybe you can comment on if that's the right read or if there are any kind of timing expense-related benefits in the quarter. The corollary to that is really the EMEA margins, which continue to step up. Are these levels sustainable? Thank you.
Yeah, again, I think you do see a little bit of a pickup on the Q3 to Q4 of incremental margins. I wouldn't say it's significant. You are feeling a little bit of a pickup there from APAC getting, what I'd say their facilities online more. You see that a little bit. Again, you still see some good pull-through on EMEA. Again, I don't think it's materially different from Q3 to Q4, but definitely you're feeling the positive impacts of EMEA and you're feeling the positive impacts of APAC getting more, let's say, their facility running at a more standard basis.
Your next question comes from David Tarantino with KeyBanc Capital Markets.
Hey, thanks. Good morning, guys. Maybe just on capital allocation and UtilityInnovation Group specifically, can you talk about the opportunities about moving up to the grid interconnect part of the market as behind-the-meter power is increasingly leveraged? Then maybe more broadly on capital allocation, even incorporating these deals, the balance sheet's still pristine. How should we think about capital allocation moving forward, and would you consider doing opportunistic buybacks in this kind of choppy market?
I'll start with the capital allocation question first. Again, I don't think our strategy will change there. We have cash on the balance sheet. We like to have the dry powder to be able to do investments in both ourselves and investments in inorganic plays that we believe are scalable, and we believe those are the right levels of returns we'd like. We'll continuously look at things like buybacks and dividends and stuff like that, but in terms of where we see the most value accretive nature is investing in our own capabilities and capacity and/or inorganic plays. On your question on UIG, I think it was a strategic play that allows us to get at the table sooner, allows us to get into the conversation of the architecture sooner.
That was a unique position where we could go up further the value chain and start the conversation of how do you architect all the way back to the data center with Vertiv products. We think it's a great hit for us to be able to do that, and it'll be very synergistic to start the conversation earlier, what architecture's in the data center and what architecture's at the microgrid. I don't know, Gio, if you wanted to add anything.
No, I think you explained it very well, so I'm very pleased about that. I'm looking forward to adding a segment to our powertrain.
Great. Thanks, guys.
Thank you.
There are no further questions at this time. Thank you. 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, Warren. Thank you all for the questions and for your time today. This was a quarter where the organization showed what it is made of. The opportunity in front of us is significant, and it is durable. Our customers are building at scale and complexity that this industry has never seen, and they need partners who can scale technology, execution, quality, reliability, and services. That is where the Vertiv team, that is what the Vertiv team does. I am proud of what we accomplished this quarter. Proud and pleased, but certainly never satisfied. There is more ahead, and we are ready for it. With that, thank you all.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.