01—Abstract
Summary
Summary of the 10-K filed February 23, 2024. Cited figures are marked; the original filing is the authoritative source.
Vertiv Holdings Co (NYSE: VRT) closed fiscal 2023 with a sharp earnings and cash flow inflection.
Net sales rose 20.6% to $6,863.2Ma (from $5,691.5M), driven by higher volumes and price realization, with growth concentrated in the Americas (+40.9%). Gross margin expanded roughly 660 basis points to 35.0%, and operating profit more than tripled to $872.2M. Net income reached $460.2M (diluted EPS $1.19), though this was helped by a $157.9M non-cash loss on warrant liabilities being outweighed by a $103.4M valuation allowance release that drove an unusually low 13.8% effective tax rate.
Operating cash flow swung to $900.5Mb from -$152.8M, aided by a $515.9M trade working capital improvement, and the company ended the year with $780.4M cash. The balance sheet strengthened meaningfully. Total debt was roughly $2.97B at year-end, and net debt fell substantially given the cash build.
Backlog reached a record $5,526.7Mc (up 16%), with about $0.8B of the increase attributed to customers ordering ahead of supply-chain lead times. Management guided 2024 capital expenditures to $175M-$200M and launched a $3.0B share repurchase authorization through 2027, along with a quarterly dividend of $0.025 per share. The company also acquired CoolTera Ltd. to strengthen its liquid cooling offering for AI and high-density compute.
Key risks for investors include a securities class action and parallel SEC subpoena and SDNY document request related to past statements on inflation and supply chain pressures, a Mexican customs dispute (about $10.1Md accrued), a heavy reliance on large hyperscale and colocation customers with pricing pressure, and roughly $3.0B of goodwill and intangibles (about 38% of total assets). Management also disclosed that a warrant-related earnings volatility will continue while 5.27M private warrants remain outstanding. Internal controls were assessed as effective, with Ernst & Young issuing an unqualified opinion.
02—Key points
Key Highlights
- Record net sales of $6,863.2M (+20.6% YoY), with Americas sales up 40.9% to $3,844.5M, driven by volume growth and price realization.
- Gross margin expanded to 35.0% from 28.4%, and operating profit rose to $872.2M from $223.4M, reflecting volume leverage and pricing actions.
- Operating cash flow of $900.5M versus -$152.8M in 2022, supported by a $515.9M improvement in trade working capital.
- Record backlog of $5,526.7M (up from $4,754.4M), with about $0.8B of the increase from customers ordering ahead of supply-chain lead times.
- Net income of $460.2M (diluted EPS $1.19) was boosted by a $103.4M valuation allowance release, producing a 13.8% effective tax rate; a $157.9M non-cash warrant fair-value loss partially offset this.
- Board approved a $3.0B share repurchase program through December 2027 and a $0.025 quarterly dividend; no repurchases were made in Q4 2023.
- Securities class action, derivative suit, and an SEC subpoena and SDNY document request relate to prior statements on inflation and supply-chain pressures, adding legal and reputational risk.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2023, Vertiv Holdings kept $0.07.
- Revenue$6.86B100.0%
- Cost of revenue−$4.46B65.0%
- Gross profit$2.40B35.0%
- Operating costs−$1.53B22.3%
- Operating income$872.2M12.7%
- Interest, other & tax−$412.0M6.0%
- Net income$460.2M6.7%
Where FY2023 revenue went
$6.86B- Cost of revenue: $4.46B, 65% of revenue
- SG&A: $1.31B, 19% of revenue
- Net income: $460.2M, 6.7% of revenue
- R&D: $303.5M, 4.4% of revenue
- Interest, other & tax: $412.0M, 6.0% of revenue
Kept 6.7% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 23, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $6.86B$5.69B | +20.6% |
| Cost of Revenue | $4.46B$4.08B | +9.5% |
| Gross Profit | $2.40B$1.62B | +48.5% |
| R&D Expenses | $303.50M$282.00M | +7.6% |
| SG&A Expenses | $1.31B$1.18B | +11.4% |
| Operating Income | $872.20M$223.40M | +290.4% |
| Interest Expense | $180.10M$147.30M | +22.3% |
| Net Income | $460.20M$76.60M | +500.8% |
| EPS (Basic) | $1.21$0.20 | +505.0% |
| EPS (Diluted) | $1.19$-0.04 | +3075.0% |
| Shares Outstanding (Basic) | 380.14M376.73M | +0.9% |
| Shares Outstanding (Diluted) | 386.23M378.22M | +2.1% |
05—Questions
Frequently Asked Questions
What drove Vertiv's margin improvement in 2023?
Gross margin rose to 35.0% from 28.4% primarily because of higher sales volume, pricing actions that more than offset higher commodity and logistics costs, and better leverage of fixed costs. SG&A fell to 19.1% of sales from 20.7%, though commissions and incentive compensation increased in absolute dollars.
How strong is Vertiv's balance sheet and liquidity position?
Cash and equivalents were $780.4M at year-end, up from $260.6M, and the company had $554.0M of available ABL revolver capacity. Total debt was about $2.97B, comprising a $2,118.1M term loan due 2027 and $850M of 4.125% senior secured notes due 2028. Management believes liquidity is adequate for the next 12 months. Subsequent to year-end, the ABL facility was extended to 2029 and upsized to $600M.
What are the main legal and regulatory risks disclosed?
Vertiv faces a federal securities class action (partially dismissed in January 2024; Exchange Act claims remain pending), a related Delaware derivative suit that is stayed, and an SEC subpoena plus a parallel SDNY document request received in November 2023. Separately, a Mexican customs dispute led to about $10.1M in payments accrued at year-end, with $5.2M paid in February 2024. Management says it cannot predict the outcomes.
Why did net income look so different from operating profit?
Operating profit of $872.2M was reduced by $180.1M of net interest expense, $157.9M of non-cash warrant fair-value losses, and $73.5M of income tax expense. The tax expense was low relative to pre-tax income because of a $103.4M net valuation allowance release on U.S. deferred tax assets. Investors should view this release as non-recurring when assessing sustainable earnings power.
06—Continue