Good morning, my name is Lauren, and I will be your conference operator today. At this time, I would like to welcome everyone to Vertiv's Second Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Please note that this call is being recorded. I would now like to turn the program over to your host for today's conference call, Lynn Maxeiner, Vice President of Investor Relations. Great. Thank you, Lauren. Good morning, welcome to Vertiv's Second Quarter 2023 Earnings Conference Call. Joining me today are Vertiv's Executive Chairman, Dave Cote, Chief Executive Officer, Giordano Albertazzi, Chief Financial Officer, David Fallon. Before we begin, I would like to point out that during the course of this call, we will make forward-looking statements regarding future events, including the future financial and operating performance of Vertiv. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We refer you to the cautionary language included in today's earnings release, you can learn more about these risks in our annual and quarterly reports and other filings made with 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 and non-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. Well, these last few quarters have been a lot more enjoyable to report. We had another strong quarter of performance at Vertiv, which positions us very well to achieve our significantly increased 2023 outlook. Adjusted free cash flow, adjusted operating profit, sales, and margins all performed very well, and operational execution continues to improve. We've raised our full-year guidance because of our strong first half performance. We also have the very pleasant effect of a strengthening balance sheet. The data center end market continues to look very healthy, and there is an incremental tailwind from AI coming. That tailwind should provide additional opportunities over many years for Vertiv because our technology will matter. A great market position, a great industry where we can differentiate with technology. These attributes are what attracted me to Vertiv over four years ago, and they are truer today than ever. We're obviously pleased with the results, but there is so much more to come. There's a lot of upside, not just in the market and our technology, but also just continuing to fix legacy process issues and building a high-performance culture, which didn't exist. Gio and his team are off to a great start, and there is a lot of work left to be done. It is also supports more consistent execution over the long term. With that, I'll turn the call over to Gio. Well, thank you very much, Dave. We saw the positive momentum continuing into Second Quarter across all key financial metrics. Second Quarter sales were up 25% organically, led again by a 48% increase in Americas. We continued to see supply chain improvements and increased resiliency. We saw healthy market demand, which supported the shipment of substantial volume in the Americas region. Orders, excluding effects, were down just 3% from last year's Second Quarter, better than anticipated, and book-to-bill remained at 1. Despite ongoing order normalization, as well as difficult comparison, the market remains healthy. We have also seen an encouraging AI-related activity, and I'll elaborate on this when we cover Slide 6. Our adjusted operating profit was $251 million, and we saw benefits from our increased volume as well as price/cost. Our adjusted operating profit margin improved 860 basis points to 14.5% as we continued to strengthen operational execution. I am particularly pleased to report the strong adjusted free cash flow of $227 million in second quarter. We also continue to see the leverage profile of the business improve at 3.1 times at the end of Q2, as the balance sheet continues to strengthen. These are early successes and still much more opportunity ahead. We are raising fairly significantly our full-year guidance and are now expecting sales for the full year to be up 20% organically, AOP at $950 million at the midpoint, and adjusted free cash flow of $550 million at the midpoint. We are executing our plan to deliver the full year, 1 quarter at a time, and our transformation continues. We are making meaningful steps forward in our operational execution. We are demonstrating clear traction, and there is tremendous value creation ahead. We're not relenting our focus on operational execution. That is what we intend to continue to demonstrate each and every quarter. Let's now turn to page 4. A few changes on the market environment slide. First, we moved cloud hyperscale to green in EMEA. Globally, we have seen an acceleration in the cloud hyperscale and colocation market segment-... in the last 90 days, substantiated by the large amount of incremental capacity that is being planned, as well as by the amount of leasing capacity that was signed in the, in this past quarter, gigawatts of new capacity. Our pipelines have clearly strengthened. It is hard to delineate what is AI and what is not, but we know the industry is certainly getting ready for AI, and we have orders in our books and opportunities in our pipeline that are unequivocally for AI infrastructure. Conversations with cloud and colo players are now around making sure there is available capacity to support a healthy outlook, and we are in discussions with several large and relevant customers on what this commercial arrangement can look like. Very encouraging. As we move to telecom, this area has further weakened in the last 90 days, with some further curbing of spend by the major telco carriers. We anticipate the telecom market remaining quiet for the balance of 2023. Not particularly worrisome. These patterns are not atypical for this market. We have left the APAC market yellow across the segments. The China market, specifically, experienced a slower-than-expected start to the year, not just for us, but for most companies. In our current view, we are not anticipating much recovery in China market in 2023, but there are some encouraging signs as we did see orders turn positive in Q2, and pipelines are healthy. No changes in view on enterprise, SMB, or commercial and industrial. Overall, I'm more encouraged today than 90 days ago, given clear demand signals from the cloud hyperscale colocation markets that support our view for second half 2023 and shape our thinking around 2024. Let's move to slide five. Orders performed better than anticipated, although down 3%. They are coming together stronger than expected, and they were 13% sequentially up from Q1. A book-to-bill ratio of 1 preserved a healthy backlog. We anticipate orders flat, more or less, in Q3 and turning positive in Q4. I know everyone is interested in what AI orders looks, looked like in the quarter, and candidly, that would be almost impossible to answer with precision. We have seen AI-related orders, I would say, in the tens of millions of dollars. Our customers are focused on AI retrofit IT infrastructure, and we see evidence of this in our pipelines. Many of our products today can be used for either regular density or high-density applications, and we won't be able to report out a discrete AI number. For example, most AI GPU today are still being air-cooled, are perfectly served by the traditional Vertiv product portfolio. Over time, a part of these loads will transition to liquid, and here, too, we are uniquely positioned. Liquid to remove heat from the server and the rack. Removal of the heat doesn't stop outside the rack. You need to remove the heat from the data hall, and we have a portfolio of solutions to do just that. As I said, we are seeing clear demand acceleration signals from the market. We are having conversations with very relevant market players around securing capacity, and not just over the next few quarters, but well into 2024 and beyond. Let us transition to supply chain. We see improving the environment. There are two parts to this story. First, supply chain continues to incrementally improve. No doubt, lead times are gradually reducing, and there is more certainty in supply. The second part is the self-help part. We have been vocal about our multi-sourcing programs. One of the most important architects of this ongoing supply chain resilience program, Paul Ryan, is now our leader of global procurement. He is not new to me or Vertiv. He has been with us over a decade and has more than 25 years of experience, and a strong track record operational execution, combined with very clear strategic vision. Supply chain resilience is key, considering the demand waves that may be ahead. Let's now talk capacity. We have been investing in capacity for a few years in a balanced approach across the globe. The focus is on utilizing and coordinating capacity globally. We have recently announced a new role in the organization, Executive Vice President, Manufacturing, Logistics, and Operational Excellence, with Anders Carbery leading the effort. Over the last five years, Anders led Vertiv's operations in Asia, then EMEA, and finally, Americas. In the Americas operations over the past year specifically, we have seen significant improvements. He's the right person to take the organization to the next level on process and operations improvement, as well as company-wide deployment of all Vertiv Operating System. Our ability to navigate strong periods of growth in a complex environment continues to improve. Let's talk about inflation. While inflation is trending a bit more favorably than anticipated, a couple of dynamics influence the second half of 2023. First, metal prices were at lower levels in Q3 and Q4 of the last year. As we lap that comparison, we're experiencing year-on-year inflation a bit higher, a bit higher in the second half. We also anticipate when the Chinese economy accelerates, that increased demand could cause additional inflationary pressure on commodities. We have seen a favorable tailwind from price/cost with good processes in place that better prepare us for volatility related to our input costs. Let's go to Slide 6. We believe AI will increase our overall TAM. AI is a reinforcement of demand trend. AI workloads are incremental new applications. They aren't, in general, replacing other applications in our digital economy. We expect growth in both high-density and general compute. This benefits all Vertiv technologies. We believe liquid cooling is not a displacement risk, and in fact, is additive to growth for Vertiv. Before liquid cooling, we would take the hit from it outside the rack to outside the data center building. With liquid cooling, it's additive. We reach out into the rack and get one step closer to the heat generation point while still controlling all parts of the heat rejection. The infrastructure transition to AI high-density environment will be complicated and likely involve hybrid approaches to technology deployment. It is very likely a data center will need both liquid and air cooling orchestrated tightly together to optimize the data center environment. We do very well with that approach, with the widest portfolio of thermal technology available, deepest domain, domain expertise on how to orchestrate these technologies using our advanced control systems. Over 3,500 field service engineers across the world to support the deployment and maintenance of the infrastructure. We have the scale and the ability to increase capacity, and I hope, and I believe you can sense my excitement. Much more to come on high-density AI at our investor conference in November, but feel very well positioned for this opportunity. With that, over to David. Perfect. Thanks, Gio. Turning to page seven, this slide summarizes our second quarter financial results. As you can see, strong financial performance across the board, starting with our% from last year. 9% of that was from pricing and 16% from volume, with most of that volume benefit in the Americas, highlighting the continued supply chain and operational improvements in that region, which has been a pillar of our turnaround over the last 18 months or so. Adjusted operating profit of a hundred- quarter, and adjusted operating margin of 14.5% improved 860 basis points, of which 610 was from higher variable contribution margin and 250 basis points was from fixed cost leverage. Adjusted operating profit was $61 million higher than our prior guidance, $45 million from higher pricing, $25 million from incremental volume, and $15 million from lower than expected inflation, with these tailwinds partially offset by headwinds from foreign exchange and investment in fixed costs, primarily from restructuring and incentive compensation. Higher than expected pricing was driven by higher volume, favorable regional mix, and some conservatism for potential pricing headwinds that did not materialize. Inflation was not as bad as we expected, as commodity cost, including metals, declined from the end of the first quarter, likely influenced by a slower than expected rebound in the Chinese economy. Next on this slide, and very proudly, we generated $227 million of adjusted free cash flow in the quarter, an impressive $460 million higher than last year's second quarter. While there still is a lot of work to do to optimize working capital, our second quarter is reflective of our focus on cash and indicative of the cash generation potential of this business when we do control working capital, which increased just $5 million in the second quarter, despite a $213 million increase in sales from the first quarter. Now, the second quarter number was aided by some favorable timing tailwinds, and we should not expect free cash flow to be 130% of adjusted net income each quarter, but it shows we have made significant strides towards unlocking the cash generation potential of this business while funding organic growth. Last on this slide, net leverage declined to 3.1x at the end of the quarter and is expected to be approximately 2.3x by year-end, well within our previously communicated target leverage range of 2x-3x. It was only a few months ago that we were being labeled by some and likely discounted from a multiple perspective as highly levered. We argued at the time that it was pursuant to a mechanical calculation and just a matter of timing. Well, I think we were proven correct, as our year-to-date performance has now driven that mechanical calculation towards what we believe to be the practical reality. Turning to page 8, this slide summarizes our second quarter segment results. The Americas region continues to show strong year-over-year performance, with organic net sales growth of 48%, including 35% from volume and 13% from pricing. Adjusted operating margin improved 12.3 percentage points on the strength of price/cost, fixed cost leverage, and notably improved operating results from E&I. APAC top line continues to be influenced by slower than expected recovery in China. Volume was relatively flat, so our, our organic growth was driven by incremental pricing. Adjusted operating margin declined 100 basis points from last year, and that was primarily driven by approximately $6 million of restructuring costs in the quarter. We do anticipate sequential quarterly sales growth in APAC in Q3, but we have reduced our full-year projection from our prior guidance, now expecting a full-year low single-digit growth. EMEA grew organically 9% in the second quarter, almost entirely driven by pricing. We expect third quarter sales in EMEA to be down slightly from the second quarter, with a significant increase in the fourth quarter and full year growth expected to be in the upper single digits. EMEA continues to impress from an adjusted operating margin perspecting, perspective, posting 26.6% for the second quarter, 870 basis points higher than last year, with this increase primarily driven by price/cost and fixed cost leverage. Finally, on this page, corporate costs were $21 million higher than last year, driven by higher restructuring and incentive compensation costs and an incremental $5 million loss on foreign exchange. Based on the current guidance, we anticipate these incremental costs at our corporate entity to flow through for the full year, and we expect second half corporate costs to be consistent with the first half. Next, turning to page 9. This slide summarizes our third quarter guidance. As a reminder, we have anticipated a more stable quarterly sequential sales cadence as we proceed through 2023. For this reason, our third quarter guidance looks largely consistent with our second quarter in absolute terms. We have included provision for sequential increases in both pricing and inflation in the third quarter, and sequential headwinds from foreign exchange, including $15 million on sales and $5 million on adjusted operating profit. Moving to slide 10, our full year guidance. We are raising our projected top line by $285 million, primarily driven by higher expected sales in the Americas, partially offset by lower expected sales in APAC, with EMEA consistent with prior guidance. We are raising our 2023 adjusted operating profit guidance by $150 million, $60 million from the second quarter beat and $90 million in the second half. This increase translates into 170 basis point increase in our expected adjusted operating margin to 14%. While we have not explicitly provided fourth quarter guidance, math suggests we exit the year at 15%, edging closer to our intermediate term target of 16%, which should provide good momentum transitioning into 2024. Finally, on this page, we are increasing our full year adjusted free cash flow guidance by $200 million at the midpoint to $550 million. This is an $810 million improvement over last year and demonstrates momentum not only with our drive for profitability, but also with our management of working capital. Before I hand it back over to Gio, let me front run some potential questions on our adjusted free cash flow guidance, which implies approximately $300 million of free cash flow in the second half, which is $150 million lower than our second quarter number multiplied by 2. The primary driver of this variance is timing. Timing for both CapEx and cash taxes, which are normally back half loaded, and this year is no exception. These two items explain approximately $130 million of the $150 variance. The remainder is driven by higher use of cash from trade working capital as we prepare for strong anticipated demand in 2024, and that being partially offset by higher projected EBITDA and lower cash interest. With that said, I turn it back over to Gio. Well, thanks. Thanks a lot. As Dave said earlier, great quarter, but still a lot to do. In February, in our February call, I went through the focus areas for 2023, creating a high-performance culture where ownership is clear and we hold ourselves accountable for the results. Constant focus on things that matter. Executing. Relentless focus on execution. At the halfway mark of 2023, we have made progress. Innovation and technology continue to be a key differentiator for Vertiv, and with our ongoing investment in this area, I'm very encouraged by our roadmaps for R&D and technology development. I believe you will see this momentum building and differentiation further distinguish Vertiv as the partner of choice in critical infrastructure. I continue to travel around the globe, visiting customers, Vertiv locations, and key industry players. I'm more excited today than I have been in the last 25 years with this great organization. I can feel the energy, the momentum building in our business, in our industry. It is tangible. This traction is not easy to translate in words, but you are starting to see the transformation taking hold, deepening, and becoming Vertiv's DNA. The takeaways: strong first half, supported by continuing improvement in operational execution. A healthy market, momentum continuing, in fact, increasing with AI tailwinds. We are raising our guidance across all financial metrics, and especially pleased to be raising our adjusted operating profit guidance to $950 million at the midpoint. This indicates a healthy second half and a great foundation for 2024. An important reminder, Vertiv's Investors Conference on November 29th at the New York Stock Exchange. I truly hope you can join us and make sure you mark that in your calendars. With that, over to the operator. Thank you. We will now begin the question and answer session. In order to ask a question, please press star, then the number 1 on your telephone keypad. In the interest of time, please limit yourself to 1 question, and if you have a follow-up, please rejoin the queue. We'll pause for a moment to compile the Q&A. Our first question comes from Nigel Coe from Wolfe Research. Nigel, please go ahead. Thanks. Good morning, everyone. November 29th is in the calendar. No, no, no problem with that. Great. Obviously, a lot to, a lot to go through. One thing you mentioned, Gio, was the AI GPU retrofit opportunity. You know, we don't often think of retrofit activity in a data center. Maybe just run through sort of what you're seeing today and, and sort of how impactful do you think this could be for Vertiv, and maybe just talk about how important your service organization can be if we do start seeing material retrofits. Yeah, two aspects to this, Nigel. Thank you for the question. There is certainly a kind of non-retrofit, new market, new data center, and it's a place, this one, where our service organization becomes absolutely critical in our ability to partner with customers everywhere in the world. Not all the players in, specifically, the liquid part of the thermals spectrum, have this ability to reach out everywhere as we are. We have demonstrated that, and our numbers prove that, as I was saying, 3,500 service engineers globally. The other is, you know, we see it today, and we talk with our customers today, and they say, "Not only do we have to think about liquid cooling, but the thing that we have to think about is a, is a hybrid environment, probably an initial build that has more traditional server cooling." There needs to be an ability to retrofit over time because the sites will hybridize. You know, be enable that, and then being there with our customers to execute on that retrofit is, again, fundamental. That retrofit is not just the, the, the, the rack itself or the row, but is the ability to interconnect and balance it with the rest of the existing thermal thermal system. Think about the stock of data center that exists in the industry today. It's really hard to believe that that part will not be hybrid in and of itself. That's what we hear. That's what we hear today. Today, we hear people saying, "Hey, we are already today sometimes having AI enabling high-density racks, and we air cool them." That sounds easier said than done. You have to balance, of course, the cooling in the data hall. At the same time, that very same retrofit can be a liquid retrofit eventually. Again, the same problem exists. Even more complicated, if you will, than with an infrastructure that was thought for a future retrofit. Hope I answered. Could be very long, I will avoid. Yeah, yeah, a lot there. I mean, it sounds like it could be quite a mature opportunity. It is a maturity. Follow on to the pricing- We don't have exactly a figure on that. Okay. No, no, we'll, we'll come back to that. On the pricing, I think it's 9% in the quarter, I think 7% in the third quarter. Maybe David, what's, what's in your fourth quarter for pricing? What would be a reasonable outlook for pricing in 2024? I'm assuming we're gonna be down to a more sort of normal range, but I'm just curious if you're still continuing to push price, you know, real time? Yeah, from a quarterly cadence perspective, pricing 9% first quarter, 9% second quarter, 7% in the third quarter, and 5% in the fourth. Full year, $420 million, it's up about $120 million from our prior guidance, and it's probably too early at this point to comment on 2024 pricing. We should have a nice tailwind heading into next year. Great. Thank you very much. Thank you. Our next question comes from Andy Peplow from Citigroup. Andy, please go ahead. Hey, good morning, everyone. Good morning. Gio, Gio, you said it's difficult to discern AI versus not AI in your markets, as you said, your pipeline of opportunities seems to have increased in the last 90 days, you, you turned EMEA cloud hyperscale green. Is there a way to quantify how much bigger your pipeline is that is feeding into that expectation of flat bookings in Q3 and up modestly in Q4? Then just stepping back, would you say AI contribution and orders is coming earlier than you expected in 2023? Well, the, the, the acceleration of pipeline that I referred to in my, in, in my, when we were going through the slide, is specific to industry, sorry, to region and, and customer, really. It, it, it varies, but acceleration it is. How big? It, it, it is again part of a wave of demand. As I, as I explained, this is additional demand, and it is additional demand that will probably drive also the more traditional type of loads and compute further, further up. Specifically, the comment about EMEA is that we, we start to see this effect hit EMEA as well. Anyway, we wanted to send a message that we see acceleration on core cloud across the board because because of AI. How big exactly? Again, it's premature to say. The market is moving. I would say it's hard to distinguish what is AI and what is not, but we know that some technologies are specifically for high density, are specifically for GPU. That is a little bit earlier to track. But we know that there are a lot of traditional technologies, a lot of traditional technologies that are there to enable AI as well. That's true for the power part of our portfolio and for the thermal part of our portfolio. I'll stick to the one question. Thanks, guys. Thanks. Thanks, Andy. Thank you. Our next question comes from Amit Daryanani from Evercore. Amit, please go ahead. Yep, thanks for taking my question, and congrats on a nice sprint. Gio, I was hoping you would just talk a little bit more about, you know, when it comes to cooling AI clusters, you know, liquid cooling clearly becomes a more important thing, especially in higher densities. You know, there seems to be multiple ways that you can use liquid cooling. Direct to chip is something you folks do, but I think there's immersion and other forms of it. From your perspective, do you think Vertiv's strategy would be to have a broader liquid cooling solution across different formats, or would you want to focus more on Direct to chip? Then as it relates to these AI clusters, can you just touch on what do you think the economics look like versus the corporate average? So I, I, I want to reiterate a message that I had when I was going through the slides, is that when we talk about liquid cooling here, we really talk about how we extract heat from the heat generation point, i.e., the, i.e., the chip to outside the server, outside the rack, and into, you know, into the data hall in a way or another. This is, this is the novelty, this is the new part. As I was saying, actually, there are three ways to make that extraction. A. Continue to do it through air, and we have seen air cooled racks going all the way to north of 40, north of 40 kW per rack density. But clearly, at a certain stage, as one of our slides was explaining, at a certain stage, liquid kicks in. Liquid kicks in in form of immersion or direct to chip. We have both in our portfolio, and also we're partnering with people that handle both. But the fact is, we think we believe that the main, the main technology going forward when it comes to liquid is really direct to chip. But again, it is certainly a portfolio approach that we're taking. Got it. Then, I guess, how do you deal with the economics with these clusters versus corporate averages? I imagine it's more complex, it's higher ASPs, but would love to know if you think that's, A, that's fair, and then how does it slot, you know, for operating margins and so on as well? Well, it, it's, it's a bit, a lot of detail and also premature for, for those details. Yeah, I go back to the point I made at the beginning, that we see this as, additive. It is, it is another technology. You know, we did not participate in the, in the heat sink or, extraction of the heat from the server. Now we started to participate also in that, in that part of the equation. A bit premature, but I want to make sure we understand that is something new in additional for us. That absolutely dovetails- Fair enough. in what to it as well. Thank you. Our next question comes from Lance Vitanza from TD Cowen. Lance, please go ahead. Thanks, guys, for taking the question. My question is, with leverage down to around 2 times at the end of the year, you're about a year ahead of where we thought you'd be, and it seems to me that 2 times is low enough, and that free cash flow in 2024 should be directed back to shareholders. Can you discuss your thoughts on that idea? Would you favor, you know, increasing the recurring dividend or a share buyback or perhaps other vehicles? How are you thinking about return of capital? Thanks. Yeah, first, let, let me say it, it's very nice to have this conversation we couldn't have had this a year ago. you know, at, at this point, we're, we're gonna get through this year, and we will share in our investor conference our further thoughts on, on capital allocation. We, we certainly are participating in an industry where there should be plenty of growth, and there's probably plenty of opportunity to continue to reinvest in the business. we, we do recognize that we, we will have to make some strategic decisions with what to do with some excess cash. I, I, I think, as we said previously, we, we do believe there are some accretive strategic acquisitions out there. That is probably something we would look at first, but we'll be able to give a lot more detail in November. Thanks very much. Thank you. Our next question comes from Jeff Sprague from Vertical Research. Jeff, please go ahead. Thank you. Good morning, everyone. Good morning, Jeff. Nice quarter. Good to see. I wanted to pick up on sort of the exit rate there on the margins. David, thanks for doing that math for us. We had done it, but I'm glad you pointed it out. Really, I guess the question is, if we go back to that original algorithm, you know, before kind of the missteps, the 18 and a half months ago, 18 months ago or so, you know, we were thinking about operational improvement, being better on price execution, there's some internal you know, execution and the like. I just wonder if you could update us on all of those levers, really, you know, particularly kind of the internal operational opportunities that you see. I, I would suspect we're in a strong enough demand environment that, you know, you would expect to be able to remain price/cost positive for the foreseeable future. I, I, I wonder if you would agree with that, or, or how are you thinking about kind of the, the price/cost lever inside the margin trajectory from here? I can start with a little bit of the three points we were talking and we're asking about price, cost, and execution. I mean, this, this is something we've been absolutely vocal about in the last three calls, as a matter of fact, this included. Certainly, you know, a lot of price efforts and successful execution, as David explained also our outlook, but, you know, what, what is most important is our price/cost. When we were talking about price, I was vocal about the fact that we have now a muscle that we did not have before, and that has helped a lot to rebalance back to a position, let's say, pre pre-big inflation position. When it comes to, when it comes to the cost side of the equation, we have a lot of focus on, on, on efficiency, be that in, manufacturing execution, be that in, in procurement. You know, there is, there is still potential. There's still potential in general. Execution, in particular, is true across the organization, across the organization. I can point particularly, to the execution that we have started to drive in, the, procurement and manufacturing and ability to ship, that has certainly characterized and accelerated our ability to deliver on a strong backlog we enter 2023 with. We will have time in November to go into more details of exactly what are the, the, the, the axis of this acceleration. I was vocal about our internal promotion of Paul and Anders as a further step in the direction that is testament to the fact that we are not done yet, and that's very good news. I don't know. Yeah, no, it, it is. I wonder if you could, maybe give us some, perspective on, on incremental margins, so trying to kind of pull all that together. We kind of say we're not done in 2023, but we've kind of pulled out of the big hole you know, or something maybe approaching normal, not quite there. As, as we, as we look into 2024 and beyond, what, what would be kind of a reasonable kind of incremental margin construct for us to have in our head? Yeah, I, I, I think the easy answer is, is higher. If you look at where we were last year, we've disclosed this in the past, we were probably in the low 30s from a variable contribution margin perspective. We're in the upper 30s at this point in time. Let's call it the mid- to upper 30s. If you look at the projected 600+ basis point increase in operating margin this year versus last year, about 400 of that is related to the variable contribution margin, and 200 is related to fixed cost leverage. I definitely don't wanna discount the power of the fixed cost constant methodology and culture. That should continue to provide upward momentum on the operating profit. As we've consistently said, 16% has been our intermediate term goal. You know, we, we, we have high confidence of getting there for sure, but we're not celebrating. Our long-term goal is, is 20% and higher. To get to that level, Jeff, to, to your question, we're gonna have to continue to improve with, with the contribution margin, while also incorporating that, that fixed cost leverage philosophy. Great. Thanks for the insight. Appreciate it. Thank you. Our next question comes from Nicole DeBlase from Deutsche Bank. Nicole, please go ahead. Yeah, thanks. Good morning, guys. Good morning. Can we just start with enterprise demand? I know, you know, you didn't change the bubble in the market outlook, but what, what are you seeing on that front? I know this has been kind of like a watch item year-to-date. Nicole, not much really to, to add to, to what we were saying. We continue to see that demand fairly, fairly stable. The, the technology continues to be evolving for everyone in the, in the industry, and that's not just cool or hyperscale. Again, not, not a lot to elaborate upon here. We see, we see, we see some, some stability in that, in that space. Okay. Thanks, Gio. The EMEA margins, obviously pretty big step up this quarter. How are you guys thinking about the sustainability of that level of margins into the second half of the year? Thank you. I would say that, we have done a very, very good job operationally, and in terms of, positioning ourselves in the market, with our technology and with our total cost of ownership story. You know, we are strongly positioned in EMEA altogether. Thank you. Our next question comes from Steve Tusa from J.P. Morgan. Steve, please go ahead. Hi, congrats on the, the free cash flow. Thank you. Thank you, Steve. Why just a nitpicky one, I have a follow-up. Why, why do you guys have the inflation, the material freight and labor inflation ticking up quarter to quarter from 2Q to 3Q? Is that something to do with the comp from last year or something? There's three components to the inflation story. You have the material inflation, which is about, it's a $110 million headwind for the full year. You have actually a benefit in freight, about $40 million, and labor is about $100 million. The benefit from freight is definitely front-end loaded. Of that 40, probably 30 of it is in the first half, which, you know, provides a actual tailwind as you look at the second half versus the first half. We do see an uptick in labor inflation, partly because of timing of pay raises, but also related to a foreign exchange dynamic in Mexico, where we have some of our labor. I, I, I would say those are probably the two most significant dynamics. It's, it's pretty much just front half, back half dynamics in both freight and then also labor. Can you just help reconcile? It just seems like the other guys, the other peers you compete against, their orders are trending better than you guys on a year-over-year basis. I know there's some difference in portfolio, there's some lumpiness. Do you guys feel like you're being selective or, or you're, you know, kind of holding your own, in these bids, for now? There, there are two elements here. One is, one is the normalization that we've been vocal about in the last two calls and this and this will continue. That's a very normal, very, very healthy situation we're in. We certainly have very strong comparisons, and this is certainly true. We, we see pipelines growing. I am positive about the trajectory, the trajectory we're, we're on. I can't speak for other players. Base period of comparison. There, there is an element, exactly, exactly. Different base. if we- Yeah G o back to the beginning of the year, we were saying, "Hey, we are at a $4.8 billion backlog, and we are likely gonna shrink that, and we're gonna probably consume this backlog." Here we are, halfway through the year. That is, that is not, that has not been the case, so positively, surprised by that. We have a book-to-bill 1, but then if we look at our book-to-bill on the 12 trailing months, then we are at a 1.1. There are multiple ways to look at this, and I recommend we don't just take things at their face value, but we, we double-click on what's really behind. Yeah, great. Then just one last one. On this new technology around cooling and just the proliferation of these AI-related data centers, do you feel like you're going to need to, at some point, go and do invest more, whether it's through acquisitions or through technology, at some stage to kind of bring more in-house, or, you know, it's more steady as she goes, as far as partnerships and developing internally? Is there some sort of acquisition that you feel like you'll end up doing when you get better visibility on, on, you know, what the format is? This technology is still at a very early, at a very early stage. As every technology at an early stage, you know, you, you're looking at, at the, opportunities through multiple lenses. One is, is the organic lenses, and we're certainly investing a lot, but, you know, we, we have partnerships, as, as well. There are multiple opportunities out there. We'll really see and be, you know, with a, with a stronger balance sheet as well, we'll be, we'll be, you know, focusing on understanding exactly what's the best path going forward as the market matures. Great. Thanks a lot. Thank you. Our next question comes from Andrew Obin from Bank of America. Andrew, please go ahead. Hey, guys, good morning. Hey, Anders. Hey, Anders. Hey, how are you? Just a question, what are typical lead times for thermal management products at this point? i.e., if data center owners are planning to buy these GPU chips, what lead times are you quoting for the related thermal products? That really depends on the customer, customer request, of course. In this moment, we have changed a lot from a situation in, from a situation in which we were in 2022, as we explained during the last earnings call, where we were out of the 50-60 weeks lead time to much lower levels, to the 30-40 weeks and down from there further. Really, what requested lead times we get depends on the strategy of the various players. Do not think necessarily, if I, if I may suggest, that it's the exact concatenation of when do I get the chip, the, the, the, or the GPU, and when I need the infrastructure, because the two things go in parallel, and very often the infrastructure comes first. You will see probably some earlier, infrastructure demand than when the bulk of the chips will be available for, for AI. It's customer specific. For what we are concerned, we have, moved, down the path of, shortening our lead times, and now we're able to serve the market, with, much shorter lead times, than we did, 1 year ago, and indeed, 3 months ago. Got you. That's exactly good news. Maybe just to follow up, and I'll echo Steve's comment on cash. Could you give us some update, just more color on internal changes that you're making to improve cash? You know, changes in how you bill, payment terms, down payments, just any color about sort of the nuts and bolts of moving the needle there. Thank you. Yeah, I think your words, nuts and bolts, probably is a, a pretty good description. You know, we are, you know, similar to what we did from an operational perspective, notably in the Americas, is we, we are really getting into the basics and, you know, focusing on day-to-day execution. We have a lot stronger visibility, transparency with where we are with particular payment terms with every customer. We get daily updates as it relates to inventory, and probably most importantly, we have a plan that we are executing against. S o, I would say there's been some early successes, but there still is a ton of opportunity out there. Y- you know, this is what was a focus as we exited last year, probably started i- you know, in, in force mid last year. It, it's also a huge cultural aspect. When we, we talk about drum beat and when we talk about financial metrics, we, we generally start with cash at this point in time. We're, we're encouraged with where we are, but not satisfied. There's still a lot of work to do. Great. Thanks so much. Thank you. Thank you. Our final question comes from Mark Delaney from Goldman Sachs. Mark, please go ahead. Yes, congratulations on the strong results, and thank you very much for taking my question. The company had been expecting backlog to get worked down a bit this year as lead times normalize. Book-to-bill, as you mentioned, has come in at 1.0 approximately for both Q1 and Q2. Given the upside in orders you've seen in the first half of the year, can you share your latest views on how you expect backlog to trend? Do you still think that comes down a bit this year? On a related topic, you know, given the better-than-expected demand, do you think you need to put any more manufacturing capacity in place to support that? Yeah. Well, thanks a lot for the question. When it comes to the backlog, you know, we have a plan for orders that sees our orders in the in Q3 and Q4 sequentially increase. We'll see what the backlog what the backlog does exactly. We still are in an unusually big backlog situation given our historical trends and the historical trends in the industry. We were north of 70% coverage. We believe that anything above 50% is a good place to be, but, yeah, let's see how things unfold in that respect. Certainly, certainly the, the, the, the pipeline strength is something that is encouraging in that respect. Just, you know, operationally, in order to support the backlog, do you need to put any more capacity- Yeah, the capacity. Do you feel like you've got the facilities you need? Well, you know, we, we do have capacity. As I explained, we have invested in capacity in the last 12, 18 months. We are certainly extracting more capacity from what we have. We, we've been vocal many times about our Vertiv Operating System, and that certainly is a big enabler for more capacity out of our current footprint. You know, we are very focused and very keen on building scenarios as to what exactly will happen. We will move early if needed, when we see that there is an imbalance between the potential demand and our available capacity. Understood. Thank you. Thank you. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Giordano Albertazzi for closing remarks. Well, you know, thank, thanks a lot. Again, a good first half, and looking forward to, to our second half, and looking forward to meeting you all in, in November. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.