Vertiv Holdings Co — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; comparisons are to the corresponding 2022 periods. Vertiv supplies critical power, thermal-management and related infrastructure products and services to data centers, communications networks, and commercial and industrial customers. Amounts below are in millions of dollars except per-share data.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $1,742.6 | $1,481.1 | $4,997.8 | $4,036.9 |
| Gross profit | $627.6 | $429.3 | $1,717.1 | $1,104.4 |
| Gross margin | 36.0% | 29.0% | 34.4% | 27.4% |
| Operating profit | $250.9 | $80.0 | $587.0 | $61.0 |
| Net income | $94.1 | $21.2 | $227.6 | $50.0 |
| Diluted EPS | $0.24 | $0.06 | $0.59 | $(0.20) |
- Q3 sales rose 17.7%; nine-month sales rose 23.8%. Management attributed growth mainly to higher volumes and pricing. Nine-month volume and price realization contributed approximately $350.0, partly offset by $54.4 of unfavorable foreign-currency effects.
- Margin improvement reflected pricing and volume leverage more than offsetting inflation. SG&A was 18.8% of sales in Q3 versus 19.9%; for nine months it was 19.3% versus 21.7%.
- Q3 operating profit increased 213.6%. Nine-month operating profit increased $526.0, while interest expense rose $35.7 to $137.2.
- Warrant fair-value changes were a $61.6 Q3 loss and a $103.4 nine-month loss, compared with a $124.0 nine-month gain in 2022. These mark-to-market changes are a significant period-comparison factor.
Segments and material changes
- Americas: Q3 sales increased 40.8% to $1,003.2; operating profit rose to $254.0 from $115.2, with margin improving to 25.3% from 16.2%. Nine-month sales rose 49.1% to $2,824.9.
- Asia Pacific: Q3 sales declined 10.9% to $388.6 and operating profit fell to $74.1 from $83.3. The filing cites slower-than-expected recovery in China and currency effects. Nine-month sales declined 6.7%.
- Europe, Middle East & Africa: Q3 sales increased 5.5% to $350.8; operating profit rose to $96.9 from $57.4 and margin increased to 27.6% from 17.3%.
- Product growth was led by critical infrastructure and solutions. Services and spares and integrated rack solutions also increased over the first nine months.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $544.3, versus cash used of $333.5 in 2022. Working capital used $17.8, compared with $448.0 used in the prior-year period.
- Investing cash outflow was $71.1, including $80.1 of capital expenditures and $3.4 of capitalized software investment. Financing cash outflow was $236.7, principally reflecting net ABL repayments.
- At September 30, cash and cash equivalents were $500.0. Debt, including current maturities and net of discounts and issuance costs, was approximately $2,944.9; the term loan carried an 8.19% rate and $850.0 of senior notes were due in 2028. The ABL had no outstanding balance and $545.9 of reported availability, subject to borrowing-base limits and other conditions.
- Management said cash and ABL availability should provide adequate liquidity for the next 12 months. Full-year 2023 capital expenditures, including capitalized software, were expected to be approximately $150.
Outlook, risks and unusual items
- Management expected continued strong market demand, but anticipated some supply-chain challenges and inflationary pressure through Q4 2023. It reported that premium freight and spot buys had decreased, and expected continued pricing realization in the remainder of 2023.
- Management expected supply chains to stabilize further in 2024, with improved supplier delivery and lower lead times and commodity prices. It noted that increased AI activity could support future data-center and telecommunications demand and said it had invested in capacity expansion.
- Customer ordering was normalizing as lead times improved. The filing gives no clear numerical earnings or revenue guidance.
- Interest-rate exposure remains relevant: the term loan and swaps transitioned from LIBOR to SOFR in July 2023. $1,000.0 of floating-rate debt was hedged through swaps, which mature in March 2027; management said swaps mitigate, but do not eliminate, the effect of rising rates.
- Pending matters include a securities class action and a shareholder derivative lawsuit alleging misleading statements about inflation, supply-chain pressures and pricing. The company said it cannot predict outcomes or related costs. A separate SVO arbitration settlement was paid in Q3 2023; the filing does not state the payment amount here.
- Restructuring expense was $23.5 for the first nine months of 2023, versus $0.1 in 2022. The company also identified economic uncertainty, supply-chain and inflation risks, customer-order and backlog risks, foreign exchange, litigation, and leverage as risks to results.
Important facts for investors to verify
- Whether Americas growth and margin gains continue, and whether Asia Pacific weakness—particularly in China—persists.
- How much of improved cash generation reflects sustainable operating performance versus working-capital timing and noncash items.
- Effects of warrant-liability remeasurement, interest rates, taxes and debt service on reported earnings and cash flow.
- Progress against management’s supply-chain, pricing, restructuring and capital-spending expectations, including the stated 2024 trends.
- Developments and potential financial exposure from pending litigation; the filing does not provide a clear estimate of additional loss.