Vertiv Holdings Co — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparative period is the three months ended March 31, 2023. Vertiv supplies digital infrastructure products and services for data centers, communications networks, and commercial and industrial markets.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change / context |
|---|---|---|---|
| Net sales | $1,639.1 million | $1,521.1 million | Up 7.8% |
| Gross profit / margin | $566.4 million / 34.6% | $495.5 million / 32.6% | Margin up 2.0 percentage points |
| Operating profit / margin | $202.6 million / 12.4% | $130.3 million / 8.6% | Profit up 55.5% |
| Interest expense, net | $39.0 million | $46.8 million | Down $7.8 million |
| Change in warrant fair value | $176.6 million loss | $4.2 million gain | Material non-cash charge in 2024 |
| Net income (loss) | $(5.9) million | $50.3 million | Basic and diluted loss per share: $(0.02), versus earnings per share of $0.13 basic and $0.12 diluted |
| Operating cash flow | $137.5 million | $42.0 million | Includes $99.7 million use of cash from working capital |
| Cash and cash equivalents | $275.8 million | $780.4 million at Dec. 31, 2023 | Cash, cash equivalents and restricted cash totaled $280.5 million at quarter-end |
| Debt | $2,937.3 million carrying value before current portion | $2,940.9 million at Dec. 31, 2023 | Principal: $2,112.8 million term loan and $850.0 million notes; no ABL borrowings |
Business and material changes
- Sales growth was primarily volume-driven, with reported sales also affected by foreign exchange. Product sales were $1,270.3 million and services sales were $368.8 million.
- Gross margin improved as higher volume and pricing actions more than offset inflationary costs. SG&A was $314.0 million, or 19.2% of sales, compared with $308.7 million, or 20.3% of sales.
- All three segments increased sales and operating profit. Americas sales rose 7.3% and segment margin increased to 20.3% from 16.9%; Asia Pacific sales rose 6.2% and margin increased to 9.1% from 5.3%; EMEA sales rose 10.4% and margin increased to 18.4% from 13.3%.
- Operating cash flow increased year over year, but financing activities used $603.1 million, principally reflecting $599.9 million of share repurchases and a $9.3 million dividend. Cash and cash equivalents declined by $504.6 million from year-end.
- The $176.6 million warrant remeasurement loss drove the shift to a quarterly net loss despite stronger operating profit. The 5,266,667 outstanding private warrants were valued at $371.6 million and classified as a current liability at March 31, 2024.
Liquidity, outlook and risks
- The ABL facility was amended in February 2024, extending its maturity to five years from the amendment date, subject to a springing maturity provision, and increasing commitments to $600 million. Availability was $584.2 million at quarter-end, net of letters of credit and subject to borrowing-base limits.
- Management said cash and ABL availability are expected to provide adequate liquidity for the next 12 months. The filing does not provide a revenue or earnings forecast. Expected 2024 capital expenditures, including capitalized software, are $175–$200 million; first-quarter spending was $36.5 million.
- Management cited AI and high-performance computing as potential drivers of data-center demand, and described investments in capacity expansion and liquid-cooling capabilities, including the 2023 acquisition of CoolTera and a new Pune manufacturing facility opened in 2024.
- Risks include demand and backlog conversion, supply-chain execution, inflation and pricing, competition, technology changes, foreign exchange and interest rates, leverage and covenant compliance, and legal and regulatory matters. Management said risk factors were not materially changed from the 2023 Form 10-K.
- Pending matters include securities and derivative litigation and related SEC and U.S. Attorney’s Office inquiries. Certain Securities Act claims were dismissed in January 2024; Exchange Act claims remain pending. Vertiv also paid approximately $10.1 million to resolve a Mexican customs audit and intends to seek reimbursement; the outcome is unknown. Other Mexican customs audits remain unresolved.
- Management reported disclosure controls were effective at March 31, 2024, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How operating trends, order backlog and capacity investments translate into future sales and margins, particularly in AI, hyperscale and colocation markets.
- The extent to which operating cash flow can sustain planned capital spending, debt service, dividends and repurchases; reconcile the quarter’s $599.9 million repurchase cash outflow with the reported 9,076,444 shares repurchased and $2.4 billion authorization remaining.
- The effect of warrant valuation changes on reported earnings, the current liability and potential dilution; the filing excludes anti-dilutive awards and warrants from Q1 diluted EPS.
- Progress and potential costs or outcomes of the securities litigation, government inquiries and remaining Mexican tax audits.
- Debt terms, refinancing and interest-rate exposure, including the ABL’s springing maturity provision and the $1.0 billion of floating-rate debt notionally swapped to fixed rates through March 2027.