Good morning. My name is Betsy, and I will be your conference operator today. At this time, I would like to welcome everyone to Vertiv's second quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. Please note, this event is being recorded. I'll now turn the program over to your host for today's conference, Lynne Maxeiner, Vice President of Investor Relations. Great. Thank you, Betsy. Good morning and welcome to Vertiv's second quarter 2021 earnings conference call. Joining me today are Vertiv's Executive Chairman, Dave Cote, Chief Executive Officer, Rob Johnson, Chief Financial Officer, David Fallon, and Chief Strategy and Development Officer, Gary Niederpruem. Before we begin, I point out that during the course of the call, we will make forward-looking statements regarding future events, including the future financial and operating performance of Vertiv. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We refer you to the cautionary language included in today's earnings release, and you can learn more about these risks in our registration statement, our proxy statement, and other filings with the SEC. Any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events. During this call, we will also present both GAAP financial measures. Our GAAP results and GAAP to non-GAAP reconciliations can be found in our earnings press release and in the investor slide deck found on our website at investors.vertiv.com. With that, I'll turn the call over to Executive Chairman, Dave Cote. Morning, everyone. I know I've said this many times, but I truly believe it, so I guess I'm going to continue to say it. Vertiv is a great company and is in a really good industry. No company, no industry is ever perfect, of course, but from what I've seen over the last 18 months, I am very pleased with the company, the management team, and the industry. Vertiv continues to make all of the right investments in product development, in the Vertiv user experience, in the Vertiv Operating System, and many more arenas, which are all areas that'll pay off more in the future than they even have to date. Truly is personifying the winning now, winning later mantra that you all know is so important to me. That focus on today and tomorrow at the same time is especially true as Rob and his team focus on taking care of customers. It's an age-old concept, but it sure has been proven to be true, that if you do a great job at taking care of customers, that is one of the best long-term strategies you can have. It is costing us something to do, as you can see from the numbers with those spot buys that Rob and his team have had to do, but all of us are absolutely convinced it's the right thing to do. Taking care of customers today and tomorrow every way you can is clearly a winning strategy. With that, I'll turn the call over to Rob. Thanks, Dave, and thanks for your guidance that you provide both to me and to my executive team in supporting Vertiv in all the ways that you do. We are better and a stronger company having you as our Executive Chairman. To all of you on today's call, thank you for being here, and I'm eager to share with you our performance for the 2021 second quarter, our outlook on the market, and information about a few of our growth initiatives that we're driving at Vertiv. There are five key messages I want to convey today, and David Fallon, our CFO, will take you into a deeper dive of the financials in just a few minutes. First of all, demand for Vertiv products and services is strong. During our last earnings call, we reported first quarter sales that were up more than 22% and orders that were up 21% compared to the first quarter of last year. I am pleased to report that the sales and orders are up again in Q2. Sales were up 25% and orders were up over 24%. Having sales and orders growth in excess of 20% in the back-to-back quarters demonstrates our customer-first approach, and that it is paying off. Our Q2 backlog rose to $2.3 billion, the highest it's ever been. Second, profitability is up. This quarter, our adjusted operating profit was $134 million, which is up $31 million or 30% from last year's second quarter. This resulted in adjusted operating margin expansion of 40 basis points. Third, year-to-date free cash flow is greater today than it was this time last year. Free cash flow for Q2 was $41 million, and year-to-date, $84 million. From a year-to-date perspective, this represents an improvement of over $225 million versus the first half of 2020. Fourth, we are dealing with supply chain issues and inflation issues. We encountered supply chain challenges in Q2 and experienced commodity and freight inflation. As Dave mentioned, we made spot buys so that we could meet the delivery commitments to serve our customers, and we've implemented strategies to recapture cost. Pricing always lags cost by a quarter or two, and that's exactly what we're seeing now. I have a slide coming up with more details on this. Final, the key message, we're raising our 2021 guidance by $100 million in sales and $5 million in adjusted operating profit. This action demonstrates the confidence we have in our end markets and also reflects the priority we're placing on customer pursuit and capture. In addition, we are balancing the timing of incremental pricing coming into the P&L. Four, we've been using this slide each quarter to illustrate what we are seeing in each of our world regions and each of our end markets. As we've said before, a red button indicates sluggish performance. A green button indicates strong performance, and a yellow button indicates somewhere in between. For the second quarter in a row, there are no reds. Let's take each market. Cloud and hyperscale, and our colocation markets remain strong. The demand for digital applications continue to fuel the industry and is driving strong and a growing need for Vertiv products and services. In our enterprise small and medium business market, we continue to see signs of progress as it works to recover from the pandemic. We are experiencing an increase in pipeline and orders. If the current pace of activity continues in this upward trajectory, we will be able to upgrade a few of the markets that are yellow to green on our next call. The communication networks stayed constant in all regions. 5G deployments and trials are continuing, as are the starts and stops of customer deployments. These will provide tailwinds for us over the next few years. In the commercial and industrial market, things remain constant. While this is the smallest slice of our business, the variety of products and services we sell here continues to strengthen. All in all, the end markets we serve have remained steady. Moving on to slide five. I want to provide a little bit of color around demand as we're seeing it and give you a glimpse of growth investments. As mentioned earlier, overall market demand is strong as indicated by our order rates and record backlog. This scenario led us to raise our guidance. Each of our regions saw revenue growth in the second quarter, led by continued strength in the cloud and colocation markets. Our cloud and colocation customers continue to build data centers in an aggressive but balanced fashion, and we continue to partner with them to meet the strong and growing demand. We're seizing every opportunity to capture long-term customer commitments and investing in spot buys, as Dave mentioned, to procure essential product components to take care of the delivery for our customers. Moving to the column on the right into our growth investments, I want to talk about two specific investments. First, our IT channel business, and second, our Vertiv product development initiative. For the channel, our channel has grown and is part of our strategy and our growth strategy for our business. We have spent time and listened to our partners. We've fine-tuned our strategy, we've built a new partner portal, developed augmented reality sales tools, added configurators, increased sales support, and ramped up our digital presence in a quest to make Vertiv easy for our partners to do business with. These efforts are definitely paying dividends. Existing partnerships are being strengthened, new partnerships are being formed, and all partners are promoting Vertiv. By the numbers, we had a 50% increase in the number of resellers that are actively buying our products since this time last year. Customer base is up over 400% from Q2 of last year. A second example of how one of our growth initiatives is performing can be illustrated with this customer success story. Green Mountain is a European colocation provider. Green Mountain recently selected Vertiv as a supplier for, as they call it, our cutting-edge technology. A key executive from Green Mountain has gone on to say, "The sustainability of the product and the suppliers is a key factor when purchasing new equipment. Vertiv technologies are the most efficient I've seen, and this will further improve our overall sustainability." The investments we are making in our Vertiv product development growth initiatives are helping us develop more cutting-edge and energy efficiency technologies for innovation, sustainability, and expanding our list of customers. These are just two examples that demonstrate the progress we are making as we drive focus resources on growth and investment areas. Moving on to slide six. Well, pricing's never easy task, but this market has required it. We are estimating having $65 million of pricing actions for the full year versus 2020. As you can see, though, by the time we get to Q4, we will have pricing that fully offsets inflationary costs. Moving to the second column, inflation is being felt by us in material, freight costs, and spot buys. Approximately $60 million in materials, $15 million in freight, and $35 million in spot buys. We expect the cost impacts to ramp down in 2022, driving net tailwinds. David will provide additional commentary. The third column depicts how we expect our contribution margin to evolve over the next two quarters. The timing of pricing versus inflation causing a dip in Q2. The pricing actions will accelerate in Q3, driving margin recovery. We anticipate full recovery by Q4 as headwinds stabilize and the pricing plan is fully implemented. As mentioned, we're expecting a net tailwind in 2022 for this activity. While we've experienced some short-term cost impacts, pricing is coming and customer investments we are making in are in the short term and will, over the long term, continue to drive shareholder value. With that, I'll turn it over to David for a closer look at our Q2 numbers, and we'll come back at the end with some final comments. David? Great. Thanks, Rob. Turning to page seven, this slide summarizes our second quarter financial results versus last year. Net sales were up $254 million, or 25%, and 20% when adjusted for a $50 million foreign exchange tailwind. We continued our strong momentum with second quarter orders, as Rob mentioned, which were up 24% after increasing over 20% in the first quarter. Adjusted operating profit increased $31 million or 30%, primarily driven by the profit flow-through from higher sales. As discussed, our contribution margin in the second quarter was negatively influenced by material and freight inflation, which impacted our second quarter P&L in advance of much of the favorable pricing expected to materially benefit the second half of the year. The negative impact of net inflation on contribution margin in the second quarter was approximately $25 million, with another $10 million impacting contribution margin driven by other plant inefficiencies driven by the supply chain environment. Fixed costs were up $20 million from last year's second quarter, including $30 million from last year's one-time COVID cost actions and $20 million from incremental growth in ER&D investment, both partially offset by continued fixed cost reduction initiatives and an impairment of capitalized software recognized in last year's second quarter. Our adjusted earnings per share increased $0.15- $0.31, primarily on the strength of higher adjusted operating profit and lower interest and income tax expense. Free cash flow was down $20 million from last year's second quarter. As we discussed in our first quarter conference call, free cash flow in the first quarter was positively impacted by $25 million due to the delay of a cash disbursement at the end of the first quarter as a result of a systems implementation. Of course, this timing also negatively impacted second quarter free cash flow by the same $25 million. Otherwise, free cash flow would have been in line with last year's second quarter. Turning to page eight, this slide summarizes our second quarter segment results. Net sales in the Americas were up $80 million, or 16.5%, driven by strong double-digit growth across all three product segments. Net sales in APAC were up $75 million, or 23%, with growth across most APAC sub-regions, product segments, and market verticals. Net sales in EMEA were up $99 million or an impressive 50%, 41% organic, predominantly in the Critical Infrastructure & Solutions product segment, driven by several larger co-location projects. From a profitability perspective, adjusted operating margin declined in both the Americas and APAC, with both regions negatively impacted by material and freight inflation, with Americas disproportionately impacted due to regional differences in commodity markets and higher electronic spot buys to support a larger channel business. Adjusted operating profit improved in EMEA despite inflation challenges, due to the leverage benefit of lower fixed costs on a significantly higher net sales base. Once again, this demonstrates the margin benefit of maintaining or reducing fixed costs while growing the top line. You may have heard the philosophy of keeping fixed costs constant. This is, once again, a real applicable example of that. Next, turning to slide nine. This chart bridges second quarter free cash flow from last year. The year-over-year benefit from higher adjusted operating profit and lower cash interest payments was more than offset by several unfavorable variances, including $20 million in cash taxes driven by lower estimated payments than last year's second quarter, primarily due to COVID uncertainty. We also had an additional $18 million outflow from inventory as we have proactively invested in inventory to satisfy customer demand in this challenging supply chain environment. Despite the unfavorable quarterly year-over-year comparison, year-to-date free cash flow is still $225 million higher than the same period last year. Last on this slide, we ended the second quarter with a record high liquidity of $1.1 billion and a record low net debt leverage ratio of 2.2x. Next, turning to slide 10. This slide summarizes our third quarter financial guidance. We expect first half top line momentum to continue into the third quarter, with net sales up 10% at the midpoint, including double-digit growth in EMEA and upper single-digit growth in Americas and APAC. We expect the growth momentum to continue across all three regions. This sales guidance assumes $25 million year-over-year benefit from pricing, and that's probably a little bit more proportionately directed at the Americas versus the other two regions. We guide towards adjusted operating profit of $160 million at the midpoint, up $92 million from last year. As a reminder, we recognized an $80 million combined charge in last year's third quarter for restructuring and an asset impairment. This adjusted operating profit guidance assumes that the third quarter benefit from pricing does not quite offset the negative impact from inflation. We do anticipate a full offset pricing versus inflation in the fourth quarter. Adjusted EPS is expected to increase approximately $0.23 at the midpoint, primarily driven by the $80 million restructuring and asset impairment charge in last year's third quarter, as the EPS benefits from incremental volume are offset by headwinds from net price inflation and last year's COVID actions, which were still $10 million in the third quarter of 2020. Turning to slide 11, we summarize our revised full year 2021 financial guidance, including net sales of $5 billion, up 14% from 2020, $100 million higher than our prior guidance. We are increasing our adjusted operating profit guidance to $600 million, up $5 million from prior guidance. We will provide some detail this dollar increase on the next slide. We are taking down our full year estimate for adjusted operating margin by approximately 10 basis points at the midpoint. There are several moving pieces to our updated operating profit guidance, which certainly impact operating margin. Some of these are favorable, some are unfavorable, as illustrated on the next slide. In the macro, the reduction is driven by the additional net inflation and related costs, offset by fixed cost actions we have initiated, including controlling discretionary spending. For the avoidance of any doubt, we are reaffirming our adjusted operating margin targets of 16% in the intermediate term and 20% in the long term. We believe the net inflation headwind has been an unfortunate 2021 dynamic due to constrained supply chains coming out of COVID, and we believe the pricing actions we are implementing today will generate a nice tailwind for 2022, and we are certainly incurring costs today to satisfy customer needs currently. I'm referring to the spot buys and expedited freight that we consider a long-term investment in our customer relationships, which can be referenced as winning later. Even though it is hypothetical, at least on paper, without the $45 million net inflation headwinds, we could be discussing adjusted operating profit in the $645 million range for 2020, as growth remains robust, with net sales now expected to be $225 million at the midpoint, higher than our beginning of the year estimates. Full-year adjusted EPS is expected to be $1.15, $0.04 higher than our prior full-year guidance, driven by the $5 million increase in adjusted operating profit, about $0.01, and $11 million lower full-year tax expense, contributing about $0.03, and that was primarily the result of a discrete tax benefit that we recognized in the second quarter. Finally, we're maintaining our full-year projected free cash flow guidance of $300 million, which is up almost $140 million from full year 2020. We discussed internally whether we should increase our full-year free cash flow guidance, but we are holding flat due to uncertainty in the supply chain. We generally realize a really nice cash inflow in the fourth quarter from the reduction of inventory, but we want to wait another quarter to see how that plays out for this year. With that said, we do like the upper end of the range of our $290 million-$310 million free cash flow full-year guidance. Turning to slide 12. This chart bridges our full-year adjusted operating profit from prior guidance, a $5 million increase. On the prior slide, we noted a $100 million net sales increase. The components of this increase include $40 million of pricing, mostly in the second half, $15 million of foreign exchange translation, almost entirely in the second quarter, and $45 million of volume, with $35 million of that in the second quarter and $10 million in the second half. The $40 million of pricing is depicted in the first green bar. The second green bar reflects the benefits of various fixed cost reduction actions we implemented in the second quarter, including controlling discretionary spending, and this should benefit the remainder of 2021. The third green bar reflects the expected flow-through from the $40 million-$45 million incremental organic volume. The two largest red bars on this page reflect our updated views on the impact of supply chain challenges in 2021. This represents combined about $65 million of higher cost compared to our previous guidance. With an incremental $20 million realized in the second quarter, and $45 million added to the second half. Finally, on this slide, the last red bar on the right reflects expected headwinds from our prior guidance related to timing delays in productivity, both in purchasing and in the plants as a result of the current supply chain environment. With that said, I turn it back over to Rob. Rob? Thanks, David. Turning to slide 13, which is our last slide, to recap the key messages for the quarter. As I close, I want you to know how proud I am of the Vertiv team and what we're doing together as a one Vertiv company. We've accomplished a great first half of the year. The results we've shared today reflect the hard work and commitment of the 20,000 employees. Some in the factories, some in the field, and some in offices, and some still working remotely in over 130 countries around the world. As I look at the remaining months of 2021, and as we continue to invest strategically, I'm confident that we'll see above-market top-line growth, an increase in profitability, and a strengthening balance sheet. When I look down the road at 2022 and beyond, my confidence is bolstered by the conversations I've had personally with partners and key customers about the demand, pricing, and pipeline. To all employees, I'm grateful for the part you've played in the past three months and have allowed me to provide today's earnings report. Thank you for your dedication and your tireless effort to take care of our customers. To our investors, thank you for being on the call today and for your trust and support in Vertiv. It is truly my pleasure to be leading Vertiv. I will now turn the call over to the operator, who will open up the line for questions. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone, if you are using a speaker phone, please pick up your handset before pressing the keys. If there's any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time we will pause momentarily to assemble our roster. The first question comes from Nigel Coe with Wolfe Research. Please go ahead. Oh, thanks. Good morning. Thanks for the question. Surprise, price. A question on price. $65 million. How do we interpret that? Are these actions already made to the customers? Obviously, there's an assumption about how much sticks and how much is given away in, I don't know, concessions or et cetera. Is this $65 million sort of what's being actioned and what we hope to get, or is this a conservative view on sort of how much of this price sticks? Maybe just talk about the Americas versus APAC and EMEA. Okay. Hi, Nigel. Thanks for your question. This is Rob. I'll start off and then let Gary and David weigh in. Pricing actions were actually underway at the beginning of Q2 as we began to see this inflationary environment. As you know, we feed a lot off of our backlog, and some of those things in our backlog we can look at price, we can look at freight. For the most part, as we've indicated on the call, you'll see that really kind of come to life in Q3 and Q4. We know orders that we got in Q2 that will ship in Q3, Q4, Q1, we know we got price on those. That's why we feel confident that we will get the price, and we are getting the price. That's that first thing. The second thing we've done, which has been talked about widely with industrials, is the ability to get price in the channel and distribution. That's a much faster lever from that perspective. For us as a company compared to other industrials, we're a smaller player in that, but that's an area that we're growing fast. We have taken pricing actions, in some cases three times within that space, that we've seen stick, and we've seen our order growth rates, as you can see in our channels, beginning to grow at a pace that we've talked about in the past. We expect to continue to take share in that space while we continue to raise price and drive that. Any other comments, Gary or David? Hey, Nigel. Gary, I think Rob hit the nail on the head. The only two other parts I'd add to your question are, we do think most of the pricing that we're going to get right now is sticky. It's not going to be 100%, but the majority of that pricing should be sticky as we head into 2022. As Rob mentioned in his opening comments, that should provide some tailwind for us throughout that next year. Secondly, regional breakdown, I think the other part of your question was. There's a good chunk of this pricing, the majority of it, that sits in America. We're taking actions in all three regions. Just to your regional mix question, there certainly is a majority of the pricing that's going to happen in the Americas as well. That's great. Thanks for the color there. A quick one on your comments on 2022. Obviously, we're a little bit early to start talking about 2022, but the tailwind that you alluded to, is it really more a case of the spot purchasers and the export of freight going away as we get our $35 million tailwind, or do you see other benefits next year? I think we see that as well as we see continued the pricing that we're getting now for stuff that's going to be rolling out in 2022. My comments earlier, Nigel, as well, is fairly bullish on 2022 just based on pipeline, based on what we're seeing. I spend a lot of time with our customers understanding, and we get a question asked very frequently, is this typically a build and fill, build and fill? What we're all seeing right now is a continued build and build responsibly. The fill rates are quite high, so it gives us great confidence that we would expect to have a really good 2022. Okay. The next question comes from Jeff Sprague with Vertical Research. Please go ahead. Hey, thank you. Good morning, everyone. Just to pick up a little bit more on price. Fully understand kind of the carryover impact you'd be expecting based on how you think you'll exit the year. Just wonder what the behavior is, though, if we get some deflation. Has it been your experience that you can hold pricing in a modest deflationary period of time? I would assume if price comes down, it lags, so you probably get some benefit from there. Just wonder about kind of the overall stickiness, and as we reach kind of a new higher level on pricing. Yeah. Good question, Jeff. It's Gary again. Yeah, I would say that just like you're right on the way up on the inflationary, it takes a couple quarters, and if there's a deflationary environment, it would certainly take a couple quarters to lag on the way down. With that said, most of the actions we have implemented, we do believe are going to be pretty sticky. There's a couple of one-time type things or things that probably aren't going to carry into 2022. For the most part, the actions we are taking are really around list prices and multipliers and discounts, and those things in our environment tend to stick around more often than not. The other reason we feel pretty good about that is just going back to what we were able to do in 2019 and 2020 with pricing, both in the $20 million-ish range. That should be sort of the lowest watermark as we think about anything in a normalized state. Overall, feel pretty good about where we sit for pricing as we go into 2022. Just on the fixed cost effort, the $30 million or so you're showing us here in the bridge. Would this represent, I guess maybe for lack of a better phrase, kind of an acceleration of what you were doing on this journey to get to 16%? Is there some temporary actions here that have to go away? Maybe you could just give us a little bit more context on the self-help levers that you're using, A, to try to combat inflation, and B, on, I guess, a higher margin rate. I think it's a combination of the two, Jeff Some is related to an acceleration of some of the cost actions that we planned at the beginning of the year. It's hard to call them temporary because they're related to assumptions with COVID opening up. In our beginning of the year guidance, we anticipated that the world was going to open up in 2Q with travel and other discretionary costs that's probably getting pushed out to the third or fourth quarter. We're certainly going to benefit from lower discretionary costs there. We've been able to accelerate some of the other fixed cost reductions. It's hard to quantify how much of that $30 million is going to carry over. If I were to pick the proportion, it's probably 50/50. There's probably 50% temporary, and there's probably 50% that is an acceleration of permanent things that we had in the hopper anyhow. Great. Thanks. I'll pass it to Tom. The next question comes from Andrew Obin with Bank of America. Please go ahead. Hi. Good morning. This is David Ridley-Lane laying on for Andrew Obin. What's the size of shipments you couldn't make in the second quarter due to the supply chain issues? Said differently, what portion of that sequential growth you had in your backlog is due to supply chain issues? Yeah. I think very clearly the costs are much easier to quantify than hypothetical lost sales. With that said, it certainly is greater than zero. The best way to understand it is if you look at the second half of the year, what we have built into our guidance is probably somewhat conservative based on what we're anticipating as continued supply chain constraints. That could amount to anywhere between 200-300 basis points of growth in the back half of the year that we believe could be constrained because of the availability of parts. If you were to dollarize that's in the tens of millions of dollars. It certainly isn't insignificant. I think we've gotten some feedback that there's a belief that our top-line guide in the second half is somewhat conservative, and it could be built-in provision for what we think is a realistic scenario as it relates to being able to obtain parts. Got it. Are you hearing that competitors are having sort of similar issues in terms of on-time delivery and parts availability? Yeah. David, hi. Rob Johnson here. Absolutely. It's not just our equipment, it's across the board, whether it's steel, plastics for the construction of the buildings. It's really hit everybody. I would say in general, we're seeing lead times. For example, on things like generators and stuff that we don't sell, but go moving out, and it's happening pretty much to everybody. We're trying to all get after some of the same parts, whether it's fans or lithium ion or discrete electrical components. Yeah, it's pretty much across the board for everyone. Got it. I know this might be a little tough to answer, but sort of what's the status quo price cost benefit you would receive in 2022 if you just assumed fourth quarter pricing actions hold through that year and material and freight costs hold through the year at sort of fourth quarter levels? I think a fairly rudimentary way to look at this, if you look at slide six, you see the pricing bars on the left and the material freight inflation on the right. Effectively, the white space above each of those quarterly bars would be the upside opportunity from pricing, and the downside potential detriment from material and freight inflation, predominantly the white space in that first quarter chart. Definitely there's a tailwind from pricing. Don't necessarily want to quantify it for all the reasons we discussed. We're not 100% sure that it will all stick. The one thing that is clear from that chart is if what we're seeing in the Q4 for both price and inflation continues into next year, we certainly should see a net tailwind. Part of it because of the overlap of timing, the cost certainly hit us sooner this year than the benefit of pricing. Got it. All right. Thank you very much. Thank you. The next question comes from Scott Davis with Melius Research. Please go ahead. Hey, good morning, guys. Good morning, Scott. At risk of asking a stupid question, can you give us a sense of kind of the spot buys are where you guys are most aggressive? What kind of bill of materials? It's kind of a combination. Certainly electronic components, when we can get those. In the past, it's been things like IGBTs. Certainly lithium ion batteries have driven that. Kind of a combination of areas around really a focus there. Fans, I guess I would say, I'd throw into that category as well. Included in some of the spot buys is, for example, the channel. We know that we don't have the product, we lose the order, it goes to somebody else. We've had to do some expediting and spot buys in there for certain components for our channel products, our single-phase UPSs, our rack mount PDUs, those types of things. Yeah, that makes sense. In that context, when you think about some of the Obviously, your main markets are fairly consolidated, but you do have some peripheral players here and there. I would think some of those guys might be suffering right now and perhaps on lower down on the list of being able to get materials and things like that. Is there an opportunity right now on the M&A side to kind of participate in kind of another level of consolidation for some of the smaller suppliers around the peripheral that may be suffering a bit right now? Does that make sense? Hey, Scott, Gary. I think your logic flow is very just that, logical. I would say that we're being pretty measured still in the M&A philosophy to say we want anything we do to go back to the four key tenets that we've talked about of why we'd want to acquire a company. Are there some people that have reached out to us and said, "This has been a difficult time. Might we want to partner with you?" There's been a few more probably inbound calls. I think from our standpoint, we'll really still stick to the four key strategic tenets of why we want to acquire a company. If one of those companies happens to be struggling, great, certainly an opportunity there, but we're going to stay pretty tried and true to the types of companies we want to buy, not just because they may be struggling in this environment. Makes sense. Okay. Thank you. Good luck with everything. Thanks. Thanks, Scott. Appreciate it. Thanks, Scott. The next question comes from Nicole DeBlase with Deutsche Bank. Please go ahead. Yeah, thanks. Good morning, guys. Good morning, Nicole. Morning. I just wanted to ask for my first one, a follow-up on Nigel's question earlier. Understanding that the majority of the pricing actions are benefiting the Americas, I assume, is that also the case for the inflation predominantly impacting Americas? Maybe as part of the answer to that question, if you want to give any color around what you're thinking for margin trajectory in the 3Q guidance, that would also be helpful. Yeah. Nicole, this is David. The one thing that we certainly have learned through the 2021 environment is that the supply chains are regional. The impact of one region is certainly different than the impact in other regions. We certainly can probably have a conversation on the drivers of that dynamic. At the end of the day, what we're seeing is if you look at both the cost impact of inflation and spot buys and also the response for pricing, about 60% of what we're seeing is in the Americas, and the remainder fairly equally split between the other two regions. Just to understand the disproportionality there, Americas is about 45% of our company, but it's seen 60% of the impact of inflation. Of course, our pricing response there is stronger as well. Okay. Got it. Anything on just margins in the back half or in the third quarter by segment? Or is it just Americas probably looking the worst, and then EMEA and APAC a little bit better on a year-on-year basis? That's certainly the case. The Americas, it depends if you look at it versus prior year or versus prior guidance. The incremental cost that we included in the back half and the year are definitely proportionate to the Americas. If I were modeling, I would certainly model the Americas down. With that said, for avoidance of doubt, the net inflation certainly impacts all three regions. When you get down to the adjusted operating profit line item, the other two regions, notably EMEA, probably is relatively flat, in part because some of the volume increase that we included in the guidance is probably disproportionate to EMEA as well. That certainly helps from a fixed cost leverage. All other things being equal, it certainly is disproportionate to the Americas. Okay. Got it. That's really helpful. I guess, on mix, obviously price cost is kind of overshadowing other impacts to margins right now, but is there anything on mix that we should be thinking about in the second half as maybe service ramps or other dynamics? No. We have a little bit of a mix dynamic for the full year related to higher growth in the Critical Infrastructure & Solutions segments, and you can see that certainly on a year-to-date basis. We don't think there is anything significantly different that we'll see in the second half that we have not seen in the first half from a mix perspective. Certainly, the growth in that CI&S is expected to be a little bit higher than the two product segments. From a regional perspective, because the sales growth we're seeing is disproportionate to EMEA, and EMEA's contribution margins are fairly close to the Americas, so we're not necessarily seeing a negative regional mix. What we would see from a mix perspective certainly would be from a product perspective. Got it. Thanks, David. I'll pass it on. Yeah. The next question comes from Mark Delaney with Goldman Sachs. Please go ahead. Yes. Thanks very much for taking the questions. To start, I was hoping you could talk more about your expectation on supply chain costs and component availability going forward, and any outlook you may have as to when the cost pressures and supply tightness may begin to alleviate? Related to that, if cost does go up again in the fourth quarter, do you think your outlook that you can offset this cost inflation with pricing, would that still hold to the extent pricing continued to go up in 4Q? Mark, I'll start off, and then David, yeah, any comments there. I would say in general, we think things have leveled out as it relates to the cost. Again, it's always a supply and demand thing, and we'll continue to watch that. If they continue to creep up, then we're going to have to crank prices up and continue to do that. We use that lever. To be fair to our customers, though, we're looking to cover our costs in this environment. As far as the easing of supply, it's going to be a combination of things that are happening. Certainly, chip fabs, we're in touch with some of the largest ones that we use to understand when they get additional capacity come on. At the end of this year, there's some capacity, and then towards the middle of 2022. Once that capacity comes online, we'll feel better about the overall components chip level anyway. We do know that whether it's fans or even lithium-ion, additional capacity is being brought online and gives us a comfort in the future that we'll be able to see some of those constraints ease as well. That being said, our supply chain team has been very proactive in negotiating longer-term supply agreements, making commitments for supply longer than we normally would to be able to assure supply as we get into 2022. That's helpful. Thanks. For my second question, I was hoping to better understand the order growth and some of the components behind that. I believe the company said more than 20% order growth for two quarters in a row now. Maybe you could help break that down a little bit further in terms of how much is coming from growth and demand, how much is perhaps share gain, and then is there potentially a piece of this that is customers placing orders sooner than they normally would given some of the global supply chain challenges? Thank you. Mark, this is Rob again. I'll start, and then Gary will come in over the top. A couple things. That we believe the dynamics are happening here. Our plan's working, and our plan was to gain share in the colo and hyperscale space, and traditionally against probably local companies that you wouldn't be aware of in various parts of the region. We've been executing quite well there and seeing those orders flip in our direction. Part of our growth is just, hey, we're taking some share in the smaller, more regional-based companies that you would recognize. I would say that, again, kind of similar thing in the channel. We've posted up some nice growth channel with our various new innovative products, finding that we're able to take some share there as well, and we get data on that on a monthly basis and how we're doing. We feel good about that. What we will see, I think, and saw a little bit of going forward, is people wanting to get their slotting for 2022 to assure supply. Because everyone's experiencing the lack of supply customer-wise. I think we'll see an acceleration of people putting, just like we have on our supply base, longer term orders in place, fixed and firm, and in order to be able to assure that they can get their product when they need it. I don't know, any other thoughts, Gary Niederpruem? Yeah, no, I think, Mark, Rob nailed it spot on, and we definitely continue to see that. I would say that 20% in the first half growth, there's probably a pretty good chance that the market hasn't grown anywhere near that. I think with the latest updated guide, even for the full year, we're at what, close to 13%-14% organic. I think our best estimates right now is the market is probably growing maybe upper single digits. Still a little fuzzy to tell exactly, but I think clearly there's great momentum. Not only there's good market demand right now, and there's also really good penetration happening by our sales and marketing and product development teams. Mark, one other thing to add there that I'm super excited about, David kind of mentioned it, our investments are paying off in our PDUs. An example of that is one of our large cooling units that doesn't use water. Innovative technology. In this area, we've been displacing other traditional technologies, maybe water-cooled systems in that space. We're seeing the investment in the R&D, the ramp in that, and the products now coming out the door are truly innovative and allow for us to take share from that perspective. We're very excited. A lot more to come there. I know we talked about it on the last call, some of those products, but I continue to be excited both for channel, for our colo, hyperscale, even our enterprise customers and edge customers, the stuff that we've got in the pipeline and the stuff that's already hit the ground that is really aiding us in getting above-market growth rate. Thank you. The next question comes from Steve Tusa with JP Morgan. Please go ahead. Hey, guys. Good morning, or almost good afternoon. Good morning, afternoon, Steve. I'm not sure if you guys have talked about it this way in the past, but what was your book-to-bill in the quarter? Hello? Yep, sorry. I think we're having audio difficulties. Can you hear me okay, Steve? Yeah. Yeah, sorry about that. I think I'm not sure if some of the management are having audio difficulties. I think you're right. Book-to-bill is traditionally not a statistic or a ratio that we speak about externally. I think if you look at just the order growth that we've seen over the past couple of quarters in excess of 20%. We've also posted really strong sales growth in those orders too, but the momentum on orders has just been very strong. Book-to-bill isn't something that we've externally provided. Okay. Just on kind of the second half commodity forecast. You're kind of calling it flat year-over-year. I think there are other companies out there that are definitely calling for it to kind of step up in the back half a little bit more. Is there something about how you guys hedge these costs or your assumptions around price movements that would impact that? Maybe you're just having different volume trends than these other guys where you grew better last year. I don't know. What's kind of the underlying assumption for that flat guidance for the second half on the commodities? Yeah. It's based on what we're seeing in each of the regions. As I mentioned, there's definitely regional differences. I would say we feel pretty good with where we're locked in, as it relates, in the forecast that is, as it relates to APAC and EMEA. The price increases from a steel perspective, as an example, certainly were more pronounced in the Americas than the other two regions. I would say if we do have uncertainty, it's related to what we're seeing in the Americas. With that said, I think what we have assumed in our forecast for Q3 and Q4 is actually slightly higher than what we're seeing currently. Even though it's below Q2, it's slightly lower than what we're seeing currently, and we've seen some stabilization in some of our input costs over the last 30- 45 days. At the end of the day, we don't 100% know what's going to happen, but we believe we have enough of a conservatism from a cost perspective built in. The other dynamic to that is related to the spot buys. As we mentioned, that's primarily related to electronic components and we're certainly not unique in having that issue. That's a dynamic that we certainly believe can extend into 2022. What we've included in the back half of the year, is a combination of what we're seeing in market and also managed. We certainly have an election whether to do a spot buy or not to do a spot buy, and we're making that decision based on a profitability algorithm. Meaning we're not going to execute spot buys for every single order, but we certainly will prioritize those decisions based on what we're seeing on the demand side in the short run. Great. All right. Thanks a lot. Thank you. The next question comes from Lance Vitanza with Cowen. Please go ahead. Hi. Thanks, guys. Thanks for squeezing me in. On slide nine with respect to cash taxes and the inventory impact there, the inventory, $18 million in incremental inventory bill over, I guess, what you did in 2Q 2020. When should we expect to see the reversal of that back into cash flow as at some point you begin to work off the inventory build, and will we expect to see, or should we expect to see additional inventory building before we get to that point? Yeah. Thanks for your question. If you look back at our historical cash flow generation from a quarterly perspective, we certainly have a pronounced uptick in the fourth quarter. Part of that is because of the higher volume that we see. We generally build inventory during the year and then bleed it down in the fourth quarter. I would say normally that dynamic happens in the fourth quarter. As I mentioned, the reason we did not take our free cash flow full-year guidance up in the current guidance is a little bit because of the dynamic which you're questioning. It may make strategic sense for us to continue to build inventory, notably with electronic parts, as it relates to adding some insurance heading into next year. All other things being equal, the standard answer is generally we would see that cash flow impact in the fourth quarter. This year, we're going to wait probably till sometime at the end of the third quarter, early fourth quarter, to see if it makes sense to continue that inventory investment. Perfect. On the tax swing, you mentioned that part of it is timing, part of it is just higher adjusted operating profit. Can you sort of help us? Is it sort of 50/50 in terms of those two items? How much would you say is timing? Yeah. From a cash tax perspective, that clearly related to timing last year. Our estimated tax statements in the second quarter of 2020 were probably artificially low based on our actual profits we were seeing on a year-to-date basis and also our expectations for the full year. That's just a timing issue. I'll probably take this opportunity to maybe talk a little bit about the tax impact on the P&L. We did take our full year income tax expense down about $10 million-$11 million for the full year. If you look at our tax expense in Q2, we guide it to closer to 2021, and our expense was actually about $1 million. That's a $20 million P&L benefit that's not necessarily tied to this $20 million cash variance, just for clarity there. Half of the $20 million P&L benefit was related to some legal entity restructuring we did outside the U.S. That's a permanent benefit. The other $10 million was related to ASC 740 accounting. It's purely timing based. A lot of that was unfortunately driven by the accounting we have to do for warrants, which pushed a lot of that $10 million expense into Q3 and probably more significantly in Q4. Probably more than what you're asking for from a tax perspective, but thought there may be a question out there on that. I appreciate it. The last one is 2.2x net leverage that you call out on the slide. I would imagine the gross leverage is closer to 3x, but could you just remind us, where should we think that leverage, whether it's net or gross, where should we think that's going to shape up a year from now, two years from now? What other types of things should we be expecting you to use your cash from this $1 billion of liquidity that you have? Thanks, Lance You're right. On a gross basis, gross leverage is probably 3.3 x. We had about $700 million of cash on our balance sheet. That's what takes you down to the 2.2x. We don't see that $700 million as burning a hole in our pocket. As we kind of mentioned, if you look at our priorities, we'll continue to pay down debt, but we certainly would like to use our balance sheet to look at some strategic acquisitions. When we started this journey about 18 months ago, our net leverage was net 6x-6.5 x. We were 4 x when we SPAC'd, de-SPAC'd, and sitting at 2.2 x feels a lot better. We have always talked about probably a comfortable long-term range is in that 2x-3x. With that said, we would certainly be comfortable getting above 3 x for the right deal. We also would feel comfortable getting below 2 x if that right deal was not available. From a prioritization perspective, we'll continue to pay down debt. We'd certainly look at accretive strategic acquisitions. If we're in a position we have to do something from a dividend perspective or share repurchase perspective, we'll look at that when the time comes. All right. Thanks, guys. Nice job on the quarter. Thanks, guys. Thanks. The next question comes from Andy Kaplowitz with Citigroup. Please go ahead. Good afternoon, guys. It is afternoon. How are you? Good afternoon, Andy. Good afternoon. You've mentioned that your pipeline and orders were continuing to improve in enterprise. You didn't change any of your enterprise bubbles yet, but you did say that you could change them next quarter if the current trends persist. Is it possible to quantify in some way what the recovery is looking like for you exiting Q2 in enterprise? Ultimately, where have you seen the improved orders within enterprise, and what continuing trends are you looking at to turn enterprise from yellow to green? Yeah. Andy, I'll start with that. What I'd say is we began to see kind of in the June timeframe that enterprise began to pick up by evidence of some of the channel movements, right? Typically, refreshes as people go back to the office, and network closets and things like that need to be picked up and refreshed since they've been sitting there for a while. That gives us some excitement about where it's going. We want to see that continue through Q3, and if we do, then you'll see that turn to green, shows that the buying is back. I would say, as we think about some of the hotter verticals right now in the enterprise area, it's certainly healthcare spending, education spending. Some areas still kind of depressed is the travel. We certainly see financial institutions spending. Beginning, that we're post-COVID, but we've got this in-out thing still going on. We had talked about in previous calls that we had seen a lot of quote activity, a lot of engineering activity, and that is now being turned and placed into orders for us in the enterprise space. I'm confident if it continues at the trajectory we saw in June, that we'll be seeing a green there and we'll be upwards in that enterprise space. To be clear, you haven't seen any fall off in that trajectory, with Delta being around here, it's still been pretty good in July? Yeah. I would say without kind of going, yes, we continue to see the trajectory and in the right direction for that enterprise business throughout July. Again, it's early. Lots of places are locking down with masks again. We'll see what happens and what that does. Prior to all that, we're optimistic that we would be going green in Q3. Great. Then it's great that you reiterated your medium-term adjusted operating margin target, that 16%, reaching 20%. I know you mentioned that the net tailwind from pricing in 2022 happens, but does the current operating environment lead you to question at all the timing of the improvement? Then we know one of the main longer-term initiatives for Vertiv is to improve its pricing ability. How would you assess your increased focus on dynamic pricing and how it's been working in the current environment? I'll start off there, and then, David, you can chime in there, and Gary. Obviously, we're getting more and more sophisticated with our ways we get price. We've talked about it in the past where we've instituted some AI and really pricing tools that allow our salespeople to understand when we lose, at what price, and when we win. We're expanding those tools, as we've talked in the past, throughout Europe and then Asia. This will continue to be a muscle that we'll flex and grow and get more and more mature and use more data analytics to drive it. We continue to believe that pricing will be one of those levers that we'll continue to drive for years to come. I feel good about where we're at, and I feel good about the methodologies that we have and the ability to get that, and really stemmed from a couple years ago, when we first started it, and we just continue to drive that. I don't know, David, any thoughts there? 100% agree, Rob. I think what this year, it does not impact our plans to continue to increase adjusted operating margins in that 16% and in the long term, 20% range. If anything, what we have seen this year has actually allowed us to develop some muscle from a pricing perspective. That's always been a part of the equation to improve margins. I think what we've seen this year gives us even more confidence that we can use that as a lever to be on our path to 16% and then 20%. Appreciate it, guys. Thank you very much. Have a good day. The next question comes from Amit Daryanani with Evercore. Please go ahead. Yep. Thanks. I guess I have two questions as well. First off, I just wanted to understand, given the decision to ensure you have supply and product availability versus near-term profit, is that resulting in new customer acquisitions, new wins, or are you really trying to satisfy your existing customers? If it is around new customers, should we think about you structurally beyond 2021 being able to accelerate the share gains as you talked about 1.5 x industry growth historically? Yeah. First of all, thanks, Amit Daryanani, for the question. This is Rob Johnson. I would say absolutely. It's all customers, right? Whether it's new or existing, we prioritize them as the orders come in and take care of them. We've been very fair in our process. Certainly with some of the new products that we've talked about on the thermal management side and even some of the power management stuff and certainly channel, we feel like we have sustainable gain share there happening, and we'll continue to see that momentum. That's part of our whole story is innovation and driving innovation and using that to take market share from a lot of the, what I call more local companies. We've globalized some of these products through our Vertiv product development process, and we see this being very sticky for us going into the next years, and it's again, part of our strategy to grow faster than the market. Got it. I guess, David, when I look at your back half growth guide, you're implying 7% growth, 7.5% growth. Could you maybe contrast that with the first half that's going to grow 24% and your backlog that's up 20%? I get compares are bad, but why the decel in back half when your backlog is so strong? Yeah. I think there's two dynamics that are driving that. Companies often reference challenging comps and at the end of the day, we target growth regardless of what those comps are. We do because of the dynamics of what we saw with COVID in the first half of last year, notably in Q2. Some of those sales were pushed in the back half of the year, and notably, the fourth quarter of last year creates a challenging comp. That's number one. Number two is, as we mentioned, there's probably a little bit of cushion or buffer or conservatism, however you want to describe it, built into what we're seeing as it relates to our expectations of sales that we won't necessarily be able to deliver because of some of the supply chain constraints. I think if you look at from a quarterly perspective, I think it's 8% organic growth in Q3, 4% in Q4. We believe that what we're guiding to certainly is a very doable number, and we hope there's some upside. Perfect. Thank you. Thank you, Amit. This concludes our question-and-answer session. I would like to turn the conference back over to Rob Johnson for any closing remarks. Okay. To all you listening today and for your support, thank you again for the participation, the questions. As you can tell, I'm very excited about the demand for Vertiv products going forward for the rest of this year and well into 2022. Again, appreciate the support, and this concludes the call for today. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.