10-QPeriod: Q3 FY2022

Vertiv Holdings Co Quarterly Report for Q3 Ended Sep 30, 2022

Filed October 31, 2022For Securities:VRT

Summary

Vertiv Holdings Co. reported its third-quarter 2022 financial results, showing a notable increase in net sales driven by strong performance in the Americas segment and contributions from the E&I Engineering acquisition. Despite revenue growth of 20.5% year-over-year to $1,481.1 million, the company experienced a significant decrease in net income, falling by 62.3% to $21.2 million. This decline was largely attributed to increased costs of sales, up 24.2%, driven by commodity and logistic expenses, supply chain constraints, and higher volumes, which led to a compressed gross profit margin. Additionally, higher interest expenses and changes in the fair value of warrant liabilities impacted profitability. The company highlighted ongoing supply chain constraints and cost increases as persistent challenges, though it is implementing pricing strategies to mitigate these effects. Vertiv also noted an inventory build to support future demand and a significant expansion in its backlog. The company is managing its liquidity through its ABL Revolving Credit Facility and expects sufficient cash to fund operations and growth. A CEO transition was also announced, with Rob Johnson retiring at year-end and Giordano Albertazzi taking over as CEO on January 1, 2023.

Financial Highlights

50 data points
Beta

Revenue

$1.48B

29.0% Gross Margin

Net Income

$21.20M

1.4% Net Margin

EPS (Diluted)

$0.06

Total Assets

$6.83B

Cash & Equivalents

$258.00M

Free Cash Flow

-$19.10M

Financial Statements
Beta
Revenue$1.48B
Cost of Revenue$1.05B
Gross Profit$429.30M
SG&A Expenses$295.20M
Operating Income$80.00M
Interest Expense$38.80M
Net Income$21.20M
EPS (Basic)$0.06
EPS (Diluted)$0.06
Shares Outstanding (Basic)377.02M
Shares Outstanding (Diluted)377.44M

Key Highlights

  • 1Net sales increased by 20.5% to $1,481.1 million in Q3 2022 compared to Q3 2021, driven by organic growth and the E&I acquisition.
  • 2Net income decreased significantly by 62.3% to $21.2 million in Q3 2022, compared to $56.2 million in Q3 2021.
  • 3Gross profit margin declined to 29.0% from 31.1% due to higher cost of sales, impacted by commodity prices, logistics, and supply chain issues.
  • 4Operating profit remained relatively stable at $80.0 million, a slight decrease from $81.8 million in the prior year's quarter.
  • 5Interest expense increased by 73.2% to $38.8 million, reflecting higher debt levels and rising interest rates.
  • 6The company reported a net cash usage from operating activities of $333.5 million for the nine months ended September 30, 2022, a substantial decrease from cash generation in the prior year period.
  • 7Vertiv announced a CEO transition, with Rob Johnson retiring and Giordano Albertazzi set to become CEO effective January 1, 2023.

Frequently Asked Questions

The decrease in net income was primarily due to a substantial increase in the cost of sales (up 24.2%), which outpaced revenue growth. This compressed the gross profit margin from 31.1% to 29.0%. Factors contributing to higher costs include rising commodity and logistic costs, ongoing supply chain constraints, and increased production volumes. Additionally, higher interest expenses and unfavorable changes in the fair value of warrant liabilities also negatively impacted net income.

Vertiv is facing significant challenges related to supply chain constraints and increasing costs for materials, freight, and labor. To address these issues, the company is implementing pricing actions, including reflecting anticipated cost increases in its prices, and taking steps to improve its ability to forecast inflationary headwinds. They have also increased inventory levels to support demand and manage backlog.

Vertiv believes its current cash and cash equivalents, combined with its ABL Revolving Credit Facility and long-term debt arrangements, provide adequate liquidity for the next 12 months. The company had $258.0 million in cash and cash equivalents at September 30, 2022. They also recently amended their ABL Revolving Credit Facility, increasing the commitment to $570.0 million and converting the interest rate benchmark from LIBOR to SOFR, EURIBOR, or SONIA. However, the company is experiencing a net cash usage from operating activities, which warrants monitoring.

The acquisition of E&I Engineering contributed significantly to the revenue increase, with $115.2 million in sales for the third quarter of 2022 and $316.9 million for the first nine months. However, it also contributed to higher costs of sales ($84.1 million in Q3) and increased amortization of intangibles ($22.6 million in Q3), impacting profitability.