Vertiv(VRT) - 2024 Q1 - Quarterly Report

Part I - Financial Information Financial Statements (Unaudited) Vertiv's Q1 2024 net sales and operating profit grew, but a warrant liability loss led to a net loss, and cash decreased due to share repurchases Condensed Consolidated Statements of Earnings (Loss) Q1 2024 net sales and operating profit increased, but a significant loss on warrant liabilities resulted in a net loss for the period Q1 2024 vs Q1 2023 Statement of Earnings Highlights | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net sales ($ millions) | $1,639.1 | $1,521.1 | | Operating profit ($ millions) | $202.6 | $130.3 | | Change in fair value of warrant liabilities ($ millions) | $176.6 (Loss) | ($4.2) (Gain) | | Net income (loss) ($ millions) | ($5.9) | $50.3 | | Diluted EPS ($) | ($0.02) | $0.12 | Condensed Consolidated Statements of Comprehensive Income (Loss) The company reported a comprehensive loss in Q1 2024, driven by a net loss and negative foreign currency translation impacts Q1 2024 vs Q1 2023 Comprehensive Income (Loss) | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net income (loss) ($ millions) | ($5.9) | $50.3 | | Other comprehensive income (loss) ($ millions) | ($34.3) | $27.3 | | Comprehensive income (loss) ($ millions) | ($40.2) | $77.6 | Condensed Consolidated Balance Sheets Total assets and equity decreased as of March 31, 2024, primarily due to a significant reduction in cash from share repurchases Balance Sheet Highlights (Mar 31, 2024 vs Dec 31, 2023) | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents ($ millions) | $275.8 | $780.4 | | Total current assets ($ millions) | $3,631.8 | $4,001.5 | | Total assets ($ millions) | $7,591.4 | $7,998.5 | | Long-term debt, net ($ millions) | $2,916.1 | $2,919.1 | | Total liabilities ($ millions) | $6,198.0 | $5,983.6 | | Total equity ($ millions) | $1,393.4 | $2,014.9 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities improved significantly in Q1 2024, but substantial share repurchases led to an overall decrease in cash Q1 2024 vs Q1 2023 Cash Flow Summary | Cash Flow Activity | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net cash from operating activities ($ millions) | $137.5 | $42.0 | | Net cash used for investing activities ($ millions) | ($36.5) | ($17.4) | | Net cash used for financing activities ($ millions) | ($603.1) | ($18.8) | | Increase (decrease) in cash ($ millions) | ($508.1) | $7.6 | - The primary use of cash in financing activities was a $599.9 million repurchase of common stock during Q1 2024[19] Condensed Consolidated Statements of Changes in Shareholders' Equity (Deficit) Total equity decreased in Q1 2024 due to common stock repurchases, a net loss, dividend payments, and other comprehensive losses - Key changes in shareholders' equity for Q1 2024 include a net loss of $5.9 million, a $9.3 million dividend payment, and a $605.9 million common stock repurchase[21] Notes to Condensed Consolidated Financial Statements (Unaudited) Notes detail revenue by segment, reduced restructuring costs, warrant liability impacts, and ongoing legal and regulatory inquiries Revenue by Segment (Q1 2024 vs Q1 2023) | Segment | Q1 2024 Net Sales ($ millions) | Q1 2023 Net Sales ($ millions) | | :--- | :--- | :--- | | Americas | $925.0 | $862.3 | | Asia Pacific | $332.3 | $313.0 | | Europe, Middle East, & Africa | $381.8 | $345.8 | | Total | $1,639.1 | $1,521.1 | - Restructuring costs decreased dramatically to $0.3 million in Q1 2024 from $13.1 million in Q1 2023[37] - The company recognized a loss of $176.6 million in Q1 2024 due to the mark-to-market adjustment on outstanding private warrants, driven by the increase in the company's stock price[52] - In November 2023, the company received a subpoena from the SEC and a document request from the U.S. Attorney's Office for the Southern District of New York related to allegations in a class action lawsuit[75] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2024 sales growth to higher volumes and improved margins, despite a net loss from warrant liabilities, while investing in capacity and liquid cooling - The company is investing in capacity expansion to meet anticipated customer demand, driven in part by the increased adoption of AI and high-performance computing[86] - In December 2023, Vertiv acquired CoolTera Ltd. to strengthen its liquid cooling technology portfolio, targeting AI and other high-density compute requirements[86] Q1 2024 vs Q1 2023 Key Financial Results | Metric | Q1 2024 ($ millions) | Q1 2023 ($ millions) | % Change | | :--- | :--- | :--- | :--- | | Net sales | $1,639.1 | $1,521.1 | 7.8% | | Gross profit | $566.4 | $495.5 | 14.3% | | Operating profit | $202.6 | $130.3 | 55.5% | | Net income (loss) | ($5.9) | $50.3 | (111.7)% | Results of Operations Q1 2024 net sales and gross profit margin improved, but a significant non-cash loss on warrant liabilities led to a net loss - Gross profit margin increased from 32.6% to 34.6% year-over-year, primarily due to higher sales volumes and pricing actions exceeding inflationary costs[90] - The change in fair value of warrant liabilities resulted in a loss of $176.6 million in Q1 2024, compared to a gain of $4.2 million in Q1 2023, significantly impacting the bottom line[93] - Net interest expense decreased by $7.8 million (16.7%) due to lower borrowings on the ABL facility and favorable settlements on interest rate swaps[94] Business Segments All three business segments reported strong Q1 2024 sales growth and improved operating margins, driven by higher volumes and pricing Americas Segment Performance (Q1 2024 vs Q1 2023) | Metric | Q1 2024 ($ millions) | Q1 2023 ($ millions) | | :--- | :--- | :--- | | Net sales | $925.0 | $862.3 | | Operating profit | $187.8 | $145.8 | | Margin | 20.3% | 16.9% | Asia Pacific Segment Performance (Q1 2024 vs Q1 2023) | Metric | Q1 2024 ($ millions) | Q1 2023 ($ millions) | | :--- | :--- | :--- | | Net sales | $332.3 | $313.0 | | Operating profit | $30.4 | $16.6 | | Margin | 9.1% | 5.3% | Europe, Middle East & Africa Segment Performance (Q1 2024 vs Q1 2023) | Metric | Q1 2024 ($ millions) | Q1 2023 ($ millions) | | :--- | :--- | :--- | | Net sales | $381.8 | $345.8 | | Operating profit | $70.3 | $46.1 | | Margin | 18.4% | 13.3% | Capital Resources and Liquidity The company's liquidity is deemed adequate, with improved operating cash flow, but overall cash decreased due to significant share repurchases - The company expects full-year 2024 capital expenditures (including capitalized software) to be between $175 million and $200 million[106] - As of March 31, 2024, the company had $275.8 million in cash and cash equivalents and $584.2 million of availability under its ABL Revolving Credit Facility[109] Q1 2024 vs Q1 2023 Cash Flow Summary | Cash Flow Activity | 2024 ($ millions) | 2023 ($ millions) | | :--- | :--- | :--- | | Net cash from operating activities | $137.5 | $42.0 | | Net cash used for investing activities | ($36.5) | ($17.4) | | Net cash used for financing activities | ($603.1) | ($18.8) | Quantitative and Qualitative Disclosures About Market Risk There were no material changes in the company's market risk disclosures from its 2023 annual report - There were no material changes in market risk disclosures from the company's 2023 Annual Report on Form 10-K[116] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls - The CEO and CFO concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective[118] - No changes occurred during the quarter ended March 31, 2024, that materially affected or are likely to materially affect the company's internal control over financial reporting[119] Part II - Other Information Legal Proceedings Vertiv faces ongoing securities class action and derivative lawsuits, with related SEC and DOJ inquiries, and resolved a customs tax audit - A securities class action lawsuit (In re Vertiv Holdings Co Securities Litigation, 22-cv-3572) is pending, alleging false and misleading statements regarding inflation and supply chain pressures[121] - The company received a subpoena from the SEC and a parallel request from the U.S. Attorney's Office for the Southern District of New York in November 2023 related to the class action allegations[124] - A Mexican subsidiary paid approximately $10.1 million to resolve a customs tax audit in Q1 2024, and the company plans to seek reimbursement[125] Risk Factors The company reports no material changes to its risk factors since its 2023 annual report filing - There have been no material changes to the company's risk factors since its 2023 Form 10-K filing[128] Unregistered Sales of Equity Securities and Use of Proceeds The company had no unregistered sales of equity securities but repurchased over 9 million shares under its $3.0 billion program in Q1 2024 - On November 29, 2023, the Board approved a stock repurchase program authorizing up to $3.0 billion in share repurchases through December 31, 2027[131] Issuer Purchases of Equity Securities (Q1 2024) | Period | Total Shares Purchased | Average Price Paid per Share ($) | Approx. Dollar Value Remaining ($ millions) | | :--- | :--- | :--- | :--- | | Jan 1-31, 2024 | — | $— | $3,000.0 | | Feb 1-29, 2024 | 8,512,587 | $66.06 | $2,437.6 | | Mar 1-31, 2024 | 563,857 | $66.51 | $2,400.1 | Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[133] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[134] Other Information No director or officer adopted or terminated Rule 10b5-1 trading arrangements during Q1 2024 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the fiscal quarter[135] Exhibits This section lists exhibits filed with the Form 10-Q, including certifications and financial data - Lists exhibits filed with the report, including certifications and XBRL data[137]