10-QPeriod: Q1 FY2022

Vertiv Holdings Co Quarterly Report for Q1 Ended Mar 31, 2022

Filed May 2, 2022For Securities:VRT

Summary

Vertiv Holdings Co. reported its first quarter 2022 results, showing a year-over-year increase in net sales to $1,156.4 million, up 5.3%. This growth was primarily driven by the inclusion of E&I Engineering's sales, partially offset by negative foreign currency impacts and lower sales from a divested business. Despite the top-line growth, the company experienced a significant decline in operating profit, reporting a loss of $45.2 million compared to a profit of $79.8 million in the prior year's quarter. This was largely due to a substantial increase in the cost of sales (up 15.2%), driven by higher commodity and logistics costs, and supply chain constraints, which significantly compressed gross profit margins from 32.6% to 26.3%. Additionally, selling, general, and administrative expenses increased, and amortization of intangibles rose due to the recent E&I acquisition. The company's net income also saw a sharp decrease, falling to $8.5 million from $31.7 million in Q1 2021. This was exacerbated by a significant gain from the change in fair value of warrant liabilities in the prior year ($13.6 million loss in Q1 2022 versus a $94.9 million gain in Q1 2021). The company continues to navigate supply chain challenges and inflationary pressures, which are expected to persist throughout 2022. While the company has implemented pricing actions, these have not fully offset the rising costs in the current quarter.

Financial Statements
Beta

Key Highlights

  • 1Net sales increased by 5.3% to $1,156.4 million, primarily driven by the E&I acquisition, but impacted by foreign currency headwinds.
  • 2Gross profit margin declined significantly to 26.3% from 32.6% year-over-year, due to increased cost of sales from higher commodity, logistics, and supply chain costs.
  • 3Operating profit turned to a loss of $45.2 million, a significant decrease from a profit of $79.8 million in the prior year's quarter, impacted by higher operating expenses and increased amortization.
  • 4Net income decreased to $8.5 million from $31.7 million, impacted by lower operating profit and a less favorable change in warrant liabilities valuation compared to the prior year.
  • 5The company reported $132.2 million in net cash used for operating activities, a substantial decrease from $60.7 million provided in the prior year, largely due to working capital changes and an inventory build.
  • 6The company is actively managing supply chain constraints and inflationary pressures, implementing pricing actions to mitigate these effects, though they continued to pressure margins in Q1 2022.
  • 7The Americas segment showed sales growth (6.7%) but a substantial decrease in operating profit margin, while Asia Pacific sales declined (6.9%) with a corresponding profit margin decrease.

Frequently Asked Questions

The primary driver of the 5.3% net sales increase to $1,156.4 million was the inclusion of sales from the E&I Engineering acquisition. However, this growth was partially offset by unfavorable foreign currency exchange rates and lower sales from a previously divested business.

Profitability was significantly impacted by a substantial increase in the cost of sales, which rose 15.2% year-over-year. This surge was attributed to higher commodity prices, increased logistics costs, and ongoing supply chain constraints. These factors compressed the gross profit margin to 26.3% from 32.6% in the prior year. Additionally, Selling, General, and Administrative (SG&A) expenses increased, and amortization expenses rose due to the E&I acquisition.

Vertiv is actively working to mitigate supply chain constraints and inflationary pressures. This includes taking actions to improve forecasting for cost increases and implementing pricing strategies. The company noted that pricing actions taken in late 2021 and throughout 2022 are expected to help realize price increases, but these have not fully offset the cost pressures experienced in the first quarter.

The company experienced a significant decline in cash flow from operations, reporting a use of $132.2 million in Q1 2022, compared to a generation of $60.7 million in Q1 2021. This was primarily due to an increase in working capital, specifically an inventory build intended to support forecasted sales and meet customer demand, as well as a payment related to a litigation settlement.