Vertiv Holdings Co — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless stated otherwise. Vertiv supplies critical digital infrastructure products and lifecycle services to data centers, communications networks, and commercial and industrial markets.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $1,521.1 million | $1,156.4 million |
| Gross profit / margin | $495.5 million / 32.6% | $303.6 million / 26.3% |
| Operating profit (loss) | $130.3 million | ($45.2) million |
| Net income | $50.3 million | $8.5 million |
| Diluted EPS | $0.12 | ($0.23) |
| Net cash from operating activities | $42.0 million | ($132.2) million |
Sales increased 31.5%, driven mainly by higher volume and $105.0 million of price realization, partly offset by $42.7 million of foreign-exchange impact. Product sales were $1,186.5 million and service sales were $334.6 million. Gross margin rose 6.3 percentage points; management attributed improvement primarily to volume and pricing. SG&A was $308.7 million, or 20.3% of sales, compared with $292.2 million, or 25.3%. Interest expense increased to $46.8 million from $29.3 million, reflecting higher Term Loan and ABL costs, partly offset by interest-rate-swap settlements.
The prior-year diluted EPS was affected by the accounting adjustment for warrant fair-value gains: the $94.9 million gain was excluded in the diluted EPS calculation, producing a diluted loss despite reported net income. Q1 2023 included a $4.2 million warrant fair-value gain.
Segments and material changes
- Americas: Sales of $862.3 million, up 61.1%; operating profit rose to $190.6 million from $57.9 million. Higher volume and pricing drove growth and margin expansion.
- Asia Pacific: Sales of $313.0 million, down 5.9%; operating profit was $39.1 million versus $41.5 million. Foreign exchange was a major sales headwind; stronger India sales partly offset it.
- Europe, Middle East & Africa: Sales of $345.8 million, up 19.9%; operating profit increased to $64.9 million from $33.2 million. Price realization and volume contributed, despite adverse currency effects.
Restructuring costs increased to $13.1 million from $0.8 million. The company recorded $45.2 million of intangible amortization, down from $57.7 million.
Cash, debt, and liquidity
- Cash and cash equivalents were $276.1 million at March 31, 2023, compared with $260.6 million at year-end; cash, cash equivalents, and restricted cash totaled $280.8 million.
- Operating activities generated $42.0 million, versus cash used of $132.2 million a year earlier. Working capital used $86.9 million, including increased receivables and inventory, partly offset by higher deferred revenue.
- Investing activities used $17.4 million. Capital expenditures were $27.8 million and capitalized software investment was $2.0 million. Financing activities used $18.8 million.
- Long-term debt, net of current portion, was $3,156.0 million; debt principal included a $2,134.3 million Term Loan, $850.0 million of 2028 Senior Secured Notes, and $225.0 million drawn on the ABL facility. ABL availability was $325.2 million, subject to borrowing-base limits and customary conditions.
- The Term Loan rate was 7.42% at quarter-end; the Notes carry a 4.125% rate. Interest-rate swaps covered $1.0 billion of floating-rate debt. Management said cash and ABL availability should provide adequate liquidity for the next 12 months.
Outlook, risks, and contingencies
No specific revenue or earnings guidance is provided in the filing. Management expected approximately $150 million of 2023 capital expenditures, including capitalized software, and approximately $60 million of lease payments. It anticipated continued pricing realization and some materials inflation during 2023, while spot buys, premium freight, and logistical constraints had eased from 2022. Customer orders were normalizing as lead times improved; the company expected that trend to continue and planned to optimize inventory.
Key risks include persistent inflation or supply-chain disruption, demand and order normalization, backlog conversion, foreign-exchange exposure, higher interest rates and substantial indebtedness, competition for talent, and the possibility that restructuring savings or pricing actions do not deliver expected results. Management noted that further rate increases could raise interest expense, partly mitigated by swaps. COVID-19 and macroeconomic uncertainty were also discussed.
A putative securities class action alleges misleading statements concerning inflation, supply-chain pressures, and pricing. Vertiv says it believes it has meritorious defenses but cannot predict the outcome or potential cost. The filing also describes previously settled arbitration with SVO Building One; the settlement remained accrued. Management stated other known contingencies were not believed material, while acknowledging litigation outcomes are inherently uncertain.
Important facts for investors to verify
- Whether sales growth, pricing, and segment margin gains are sustained as customer orders normalize and inflation persists.
- Whether working-capital investment—particularly receivables and inventory—converts into cash and inventory optimization proceeds as expected.
- Debt-service capacity and exposure to variable rates, including the planned transition of swaps and the Term Loan from LIBOR to SOFR.
- Potential financial and reputational effects of the securities class action and any developments in other legal matters.
- Whether management’s 2023 capital-spending and liquidity expectations remain appropriate; the filing provides no specific full-year revenue or earnings forecast.