Operator: Our next question comes from Scott Davis of Melius Research.
Scott Davis: So I know this is a little bit of a obvious question perhaps, but a little color would be helpful. And as it relates to your book-to-bill, is the percentage of cooling as a percent of your backlog increasing proportionally with these new chips like the B200, the GB200, these NVIDIA chips that I don’t know much about, but I read about them. It seems that they require a s*** ton of cooling, as you said in your Investor Day, but are you seeing that exact dynamic in your book-to-bill?
Giordano Albertazzi: Yes, without going too much into the details and the direction in industry is going certainly not defined by a single quarter worth of orders mix. We are happy with our — with the trajectory of liquid cooling. But when — and when we look in general to — we look in general at the mix of our bookings, we see it balanced across our portfolio. The cooling, the power, the modular, the service. So a pretty balanced picture.
Think back to what we were saying is that there is an element of TAM expansion on the thermal side, the cooling side, as we said when we were talking about moving between $2.5 million, $3 million per megawatt to $3 million, $3.5 million. So that is probably also something that one may assume underlying. But again, it’s early in, let’s say, just look at 1 quarter. But we are happy about the trajectory of our liquid cooling orders.
Scott Davis: Okay. That’s interesting. And Gio, as a follow-up in your liquid cooling capacity, is there anything particularly complicated about the production processes, the manufacturing? Is this kind of in your wheelhouse? Or is it a little bit of a different animal raising the risk profile of adding capacity?
Giordano Albertazzi: We’ve been manufacturing, engineering, designing thermal management products across the board, whether it’s liquid, whether it’s refrigerant, whether it’s a small or ginormous chillers or whatnot. So certainly, it takes our know-how, but we see a know-how that is consistent with our experience and certainly also benefiting from the experience of the team we onboarded recently. But all in all, we feel confident in the consistency of this technology with what we have learned over the decades.
Scott Davis: Okay. That’s helpful. Best of luck, guys, and congrats on a good start.
Giordano Albertazzi: Thank you. Thank you.
Operator: Our next question comes from Andy Kaplowitz of Citigroup.
Andrew Kaplowitz: Gio, can you talk about what’s going on by region? You mentioned some encouraging low single-digit growth in China. So has it turned the corner there? And then is India becoming big enough now that it matters for your Asia Pac growth moving forward?
Giordano Albertazzi: Well, in general, we clearly closed 2023 with about 55% of revenue in the Americas. So the Americas is and continues to be the biggest region. And if you think about AI accelerated predominantly in the Americas, North America, Americas will continue to be very, very, very strong.
We like what we see in Asia. David was explaining the situation in China. So some encouraging early signs, but early to say. Again, EMEA, it’s — I want to talk in terms of what the AI impact is. We start to see some movements in Asia. India is an important location for us. It’s an important location also in terms of manufacturing capabilities and capacity. So we are pretty optimistic that AI will eventually roll over and activate them and also in Asia. EMEA may be a little bit behind in AI, but that’s something that I already commented upon something like a 9- to 12-month lag. And again, we — 2 months later, that’s what we see in full.
Andrew Kaplowitz: And Gio, just a quick follow-up. I think we know what hyperscalers are doing. In November, you mentioned the split in revenue, I think, was 50-50 with enterprise. Is that now toping more to hyperscalers given their growth? What are the enterprise customers doing?
Giordano Albertazzi: So we — just to caveat that question. When we talk about hyperscalers, we typically combine hyperscalers and colocation. So we do not give separate numbers. So it’s — that’s kind of the big players. A lot of acceleration, as I said last time, is happening in that part of the business. So we — also, in November, when we gave our projection of — or our projection of the market dynamics, we saw that part of the market to accelerate the most. And that’s still what we see. And so very happy with what we indicated back then. Eventually, I’m convinced the AI acceleration and impact will benefit the enterprise part of the market. But when that is happening, it’s still a bit premature to say. And for the time being, we go back to the range that we gave back then, enterprise and distributed IT around 3% to 5% growth.
Operator: Our next question comes from Mark Delaney of Goldman Sachs.
Mark Delaney: I think incremental margins are now tracking to be in the high 30% range for 2024 based on the new annual guidance compared to the mid-30% range that had been assumed previously. Is that type of leverage in the high 30% range something that might be sustained beyond 2024, especially with Vertiv’s bookings and backlog coverage giving it more visibility and likely putting it in a better position to execute on price/costs?
David Fallon: Yes. So this is David. For the full year, our incremental is estimated to be right around 40%. It was 62% in the first quarter. We guided 38% in the second quarter. And that does ramp down as you go through the year primarily driven by some more challenging comparables from a contribution margin year-over-year in the second half. But we’re certainly pleased with those incrementals that we’re guiding to.
And consistent with what we said in the November Investor Day, our long-term target is to get to 20%-plus AOP, and that’s in the time frame of ’26 to ’28. If we get there earlier in that period, in ’26, we estimated mid-30% incrementals, maybe a little bit south of that, if it’s ’27 or ’28. But of course, those incrementals become a little bit more challenging every year that we do increase that contribution margin. But we’re still very optimistic that we’ll be able to hit that long-term range in that time frame.
