BusinessWire

  Vertiv Delivers Strong Second Quarter Operating Performance

  • Net income increased $45 million and adjusted EBITDA was relatively flat compared with last year’s second quarter despite $128 million lower net sales. Adjusted EBITDA margin increased 150 basis points.
  • Record backlog of $1.8 billion at end of June and second quarter orders up 2%, and up 5% organically
  • Strong June month-end liquidity of $530 million and second quarter operating cash flow of $73 million
  • Third quarter guidance: 4-6% organic sales and 7-14% adjusted EBITDA growth from last year’s third quarter

COLUMBUS, Ohio--(BUSINESS WIRE)--Vertiv Holdings Co (NYSE: VRT), a global provider of critical digital infrastructure and continuity solutions, reported second quarter 2020 net sales of $1,006 million, a decline of $128 million or 11.3% – 8.8% organically – from last year’s second quarter. This sales decline was primarily driven by negative COVID-19 impacts and the year-over-year timing of larger projects in the Americas and EMEA. Net sales were relatively flat in APAC, but up 4% organically – indicative of that region’s continued transition from negative effects of the epidemic. Second quarter net income of $26 million increased $45 million from last year primarily driven by $49 million lower interest expense and a $37 million reduction in selling, general and administrative expenses, partially offset by $20 million lower gross profit driven by lower net sales, a $12 million impairment charge for capitalized software and an $8 million increase in foreign currency losses. Lower selling, general and administrative expenses were primarily due to a $30 million benefit from COVID-19 fixed cost actions initiated at the beginning of the second quarter. Adjusted EBITDA of $145 million declined only $2 million from last year despite a $128 million reduction in net sales as adjusted EBITDA margin of 14.4% increased 150 basis points from last year’s second quarter primarily driven by COVID-19 fixed cost actions and the continued benefit from purchasing and pricing initiatives. Orders in the second quarter were up over 2% – up 5% organically – from the second quarter of 2019, and backlog was a record high $1.8 billion at the end of June. Backlog continues to build, driven by strong orders from colocation, hyperscale and telecommunication providers which typically have larger projects with longer lead times for deployment.


“I’m pleased with the positive operational strides we made during the second quarter as we continue to navigate the on-going and unpredictable global COVID-19 pandemic. Our second quarter results, in part, reflect the benefits of the early actions we took to mitigate the impact of the pandemic,” said Rob Johnson, Vertiv Chief Executive Officer. “In the quarter, we continued to see high demand on data centers and telecommunication networks – driven by applications such as video and on-line education, business models shifting online, increasing digital healthcare needs and the exponential growth in the use of digital entertainment. We are well positioned to be the partner-of-choice for those data centers who need a broad range of products and ongoing services to maintain their operations under increased demand.

“Orders are up over 7% year-to-date – up 10% organically – and industry fundamentals remain strong. In addition, the record backlog we reported at the end of June continues to demonstrate we are serving markets with a strong secular growth trajectory even in these unprecedented times. In addition, the growth in our adjusted EBITDA margin, despite lower sales from the comparable period, showcases the positive impact of our margin initiatives to drive efficiencies through all levels of our business,” continued Johnson. “Looking ahead to the second half of the year – to the extent possible given the uncertain nature of today’s operating environment with COVID-19 – our focus will remain on holding fixed costs constant heading into next year while continuing to execute growth initiatives and margin improvement programs.”

Dave Cote, Vertiv Executive Chairman and author of “Winning Now, Winning Later,” said, “The operational controls that Rob and the Vertiv Team have put in place are already starting to produce positive results. By controlling what we can control and being disciplined in our approach with cash while investing for the future, we will continue to effectively manage costs and drive margin expansion. The team has made great strides in a short time, and while there is always more to do, I am pleased with the operational execution. Vertiv is well-positioned to take advantage of the ample opportunities on the horizon for this industry.”

Liquidity and Free Cash Flow

Liquidity at the end of the second quarter was strong at $530 million, including $365 million of unrestricted cash and $165 million availability on our $455 million asset-based lending (ABL) facility. Operating cash flow in the second quarter was $73 million, and free cash flow of $62 million increased $128 million from last year’s second quarter primarily driven by a $59 million reduction in cash interest and a $31 million reduction in cash used for trade working capital. Although some of the second quarter benefit from trade working capital was based upon the timing of cash receipts expected in the third quarter, we continue to expect free cash flow for the full year, including significant free cash flow in the second half of the year – consistent with historical trends.

Third Quarter 2020 Guidance

As an essential business in nearly every global jurisdiction where we operate, we believe we are well positioned for future growth as we continue to optimize costs, drive growth and margin expansion, create efficiencies throughout the business and take advantage of strong underlying industry fundamentals. In addition, our strong backlog positions us well for the second half of 2020 and beyond. However, there is still a lack of long-term visibility into certain markets, and the unpredictable and dynamic nature of the COVID-19 pandemic makes it difficult to anticipate – with a high degree of certainty – future financial results beyond the next few months. Based upon what we know today, we provide third quarter only financial guidance, as follows:

 

Third Quarter 2020 Guidance

Net sales

$1,090 million to $1,115 million

Organic net sales growth

4.0% to 6.0%

Adjusted EBITDA

$145 million to $155 million

Adjusted EBITDA margin

13.3% to 13.9%

Adjusted EPS

$0.25 to $0.28

This guidance represents strong top-line organic growth from last year’s third quarter, and adjusted EBITDA margin expands approximately 90 basis points at the midpoint primarily driven by fixed cost leverage as we anticipate relatively flat fixed costs with contribution margin remaining relatively consistent with the third quarter of 2019. Accordingly, third quarter adjusted EBITDA is projected to increase 10% at the midpoint year-over-year. Compared with the second quarter of 2020, third quarter fixed costs are projected to increase approximately $35 million primarily due to lower benefit from COVID-19 cost actions – approximately $20 million lower – and an incremental ramp-up of R&D and growth initiative spending. Once again, this guidance is based upon information we know today and could be significantly influenced by any changes to our market or supply chain dynamics pursuant to COVID-19.

2021 Outlook

While the dynamic nature of COVID-19 makes visibility challenged in some regards, we expect sales growth to continue in the cloud, colocation and telecom market segments. Additionally, as we strive to maintain fixed costs constant in 2021, we anticipate announcing restructuring activities during the third quarter which could drive a $50 – $70 million reduction in fixed costs plus additional variable cost benefit. We estimate cash costs of $50 – $70 million including capital to realize these benefits, and we will evaluate these cash costs for a likely restructuring reserve to be recorded in the third quarter. A combination of top-line growth with margin expansion plans will set-up the company nicely for 2021.

Second Quarter 2020 Earnings Conference Call

Vertiv’s management team will discuss the results during a conference call on Wednesday, August 5th starting at 11:00 a.m. Eastern Time. This call will contain forward-looking statements and other material information regarding the Company’s financial and operating results. A webcast of the live conference call will be available for interested parties to listen to by going to the Investor Relations section of Vertiv’s website at investors.vertiv.com. A replay of the conference call will be available for 30 days following the webcast.

About Vertiv Holdings Co

Vertiv (NYSE: VRT) brings together hardware, software, analytics and ongoing services to ensure its customers’ vital applications run continuously, perform optimally and grow with their business needs. As Architects of Continuity™, Vertiv solves the most important challenges facing today’s data centers, communication networks and commercial and industrial facilities with a portfolio of power, cooling and IT infrastructure solutions and services that extends from the cloud to the edge of the network. Headquartered in Columbus, Ohio, Vertiv employs approximately 20,000 people and does business in more than 130 countries. For more information, and for the latest news and content from Vertiv, visit Vertiv.com.

Non-GAAP Financial Measures

Financial statements included in this press release have been prepared in accordance with GAAP. Vertiv has included certain non-GAAP financial measures in this press release, as further described below, that may not be directly comparable to other similarly titled measures used by other companies and therefore may not be comparable among companies. For purposes of Regulation G and Section 10(e) of Regulation S-K, a non-GAAP financial measure is a numerical measure of a company’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statements of operations, balance sheets, or statement of cash flows of the company; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from most directly comparable measure so calculated and presented. Pursuant to the requirements of Regulation G, Vertiv has provided reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures.

Information reconciling certain forward looking GAAP measures to non-GAAP measures related to 2020 guidance, including organic sales growth, adjusted EBITDA, adjusted EPS and adjusted EBITDA margin, is not available without unreasonable effort due to high variability, complexity and uncertainty with respect to forecasting and quantifying certain amounts that are necessary for such reconciliations, including, for net income and diluted EPS, the allocation and impacts of restructuring activities currently planned for Q3 2020, as discussed under “2021 Outlook” above. For the same reasons, we are unable to compute the probable significance of the unavailable information, which could have a potentially unpredictable, and potentially significant, impact on our future GAAP financial results.

See “Reconciliation of GAAP and Non-GAAP Financial Measures” on page 8 of this press release below for Vertiv’s reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures.

Cautionary Note Concerning Forward-Looking Statements

This press release, and other statements that Vertiv may make, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, with respect to Vertiv’s future financial or business performance, strategies or expectations, and as such are not historical facts. This includes, without limitation, statements regarding the financial position, capital structure, indebtedness, business strategy and plans and objectives of Vertiv management for future operations. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Vertiv cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this press release, words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “strive,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

The forward-looking statements contained or incorporated by reference in this press release are based on current expectations and beliefs concerning future developments and their potential effects on Vertiv. There can be no assurance that future developments affecting Vertiv will be those that Vertiv has anticipated. Vertiv undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond Vertiv’s control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Vertiv has previously disclosed risk factors in its Securities and Exchange Commission (“SEC”) reports. These risk factors and those identified elsewhere in this press release, among others, could cause actual results to differ materially from historical performance and include, but are not limited to: the future financial performance of Vertiv; the outcome of any legal proceedings that may be instituted against Vertiv or any of its directors or officers; factors relating to the business, operations and financial performance of Vertiv and its subsidiaries, including: global economic weakness and uncertainty; risks relating to the continued growth of Vertiv’s customers’ markets; failure to meet or anticipate technology changes; the unpredictability of Vertiv’s future operational results; disruption of Vertiv’s customers’ orders or Vertiv’s customers’ markets; less favorable contractual terms with large customers; risks associated with governmental contracts; failure to mitigate risks associated with long-term fixed price contracts; risks associated with information technology disruption or security; risks associated with the implementation and enhancement of information systems; failure to properly manage Vertiv’s supply chain or difficulties with third-party manufacturers; competition in the infrastructure technologies industry; failure to realize the expected benefit from any rationalization and improvement efforts; disruption of, or changes in, Vertiv’s independent sales representatives, distributors and original equipment manufacturers; failure to obtain performance and other guarantees from financial institutions; failure to realize sales expected from Vertiv’s backlog of orders and contracts; changes to tax law; ongoing tax audits; risks associated with future legislation and regulation of Vertiv’s customers’ markets both in the United States and abroad; costs or liabilities associated with product liability; Vertiv’s ability to attract, train and retain key members of its leadership team and other qualified personnel; the adequacy of Vertiv’s insurance coverage; a failure to benefit from future acquisitions; failure to realize the value of goodwill and intangible assets; the global scope of the Vertiv’s operations; risks associated with Vertiv’s sales and operations in emerging markets; exposure to fluctuations in foreign currency exchange rates; Vertiv’s ability to comply with various laws and regulations and the costs associated with legal compliance; adverse outcomes to any legal claims and proceedings filed by or against us; Vertiv’s ability to protect or enforce its proprietary rights on which its business depends; third party intellectual property infringement claims; liabilities associated with environmental, health and safety matters, including risks associated with the COVID-19 pandemic; risks associated with Vertiv’s limited history of operating as an independent company; potential net losses in future periods; and other risks and uncertainties indicated in Vertiv’s SEC reports or documents filed or to be filed with the SEC by Vertiv. 

Vertiv Holdings Co

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (Unaudited)

(Dollars in millions except for per share data)

 

 

Three months ended June 30, 2020

 

Three months ended June 30, 2019

 

Six months ended June 30, 2020

 

Six months ended June 30, 2019

Net sales:

 

 

 

 

 

 

 

Net sales - products

$

750.2

 

 

$

865.3

 

 

$

1,397.4

 

 

$

1,678.6

 

Net sales - services

255.5

 

 

268.8

 

 

505.6

 

 

510.3

 

Net sales

1,005.7

 

 

1,134.1

 

 

1,903.0

 

 

2,188.9

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of sales - products

515.3

 

 

613.6

 

 

978.5

 

 

1,179.9

 

Cost of sales - services

144.0

 

 

153.3

 

 

291.1

 

 

294.7

 

Cost of sales

659.3

 

 

766.9

 

 

1,269.6

 

 

1,474.6

 

Selling, general and administrative expenses

226.3

 

 

263.3

 

 

491.2

 

 

549.7

 

Loss on extinguishment of debt

 

 

 

 

174.0

 

 

 

Other deductions, net

49.5

 

 

28.1

 

 

83.8

 

 

67.0

 

Interest expense, net

30.1

 

 

78.7

 

 

99.1

 

 

156.4

 

Income (loss) before income taxes

40.5

 

 

(2.9)

 

 

(214.7)

 

 

(58.8)

 

Income tax expense

14.3

 

 

16.0

 

 

28.0

 

 

34.5

 

Net income (loss)

$

26.2

 

 

$

(18.9)

 

 

$

(242.7)

 

 

$

(93.3)

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

Basic

$

0.08

 

 

$

(0.16)

 

 

$

(0.85)

 

 

$

(0.79)

 

Diluted

$

0.08

 

 

$

(0.16)

 

 

$

(0.85)

 

 

$

(0.79)

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

Basic

328,411,705

 

 

118,261,955

 

 

284,534,285

 

 

118,261,955

 

Diluted

331,136,080

 

 

118,261,955

 

 

284,534,285

 

 

118,261,955

 

 

Vertiv Holdings Co

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In millions)

 

 

June 30, 2020

 

December 31, 2019

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

369.7

 

 

$

223.5

 

Accounts receivable, less allowances of $25.1 and $19.9, respectively

1,185.0

 

 

1,212.2

 

Inventories

467.9

 

 

401.0

 

Other current assets

180.6

 

 

180.7

 

Total current assets

2,203.2

 

 

2,017.4

 

Property, plant and equipment, net

407.1

 

 

428.2

 

Other assets:

 

 

 

Goodwill

600.0

 

 

605.8

 

Other intangible assets, net

1,341.1

 

 

1,441.6

 

Deferred income taxes

8.2

 

 

9.0

 

Other

170.3

 

 

155.4

 

Total other assets

2,119.6

 

 

2,211.8

 

Total assets

$

4,729.9

 

 

$

4,657.4

 

LIABILITIES AND EQUITY

 

 

 

Current liabilities:

 

 

 

Current portion of long-term debt and short-term borrowings

$

42.2

 

 

$

 

Accounts payable

613.4

 

 

636.8

 

Accrued expenses and other liabilities

761.6

 

 

867.7

 

Income taxes

23.3

 

 

15.2

 

Total current liabilities

1,440.5

 

 

1,519.7

 

Long-term debt, net

2,409.0

 

 

3,467.3

 

Deferred income taxes

111.2

 

 

124.7

 

Other long-term liabilities

418.3

 

 

250.5

 

Total liabilities

4,379.0

 

 

5,362.2

 

Equity

 

 

 

Preferred stock, $0.0001 par value, 5,000,000 shares authorized, none issued and outstanding

 

 

 

Common stock, $0.0001 par value, 700,000,000 shares authorized, 328,411,705 and 118,261,955 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

 

 

Additional paid-in capital

1,638.0

 

 

277.7

 

Accumulated deficit

(1,243.3)

 

 

(1,000.6)

 

Accumulated other comprehensive (loss) income

(43.8)

 

 

18.1

 

Total equity (deficit)

350.9

 

 

(704.8)

 

Total liabilities and equity

$

4,729.9

 

 

$

4,657.4

 

 

Vertiv Holdings Co

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)

(In millions)

 

 

Three months ended June 30, 2020

 

Three months ended June 30, 2019

 

Six months ended June 30, 2020

 

Six months ended June 30, 2019

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

26.2

 

 

$

(19.0)

 

 

$

(242.7)

 

 

$

(93.3)

 

Adjustments to reconcile net loss to net cash used for operating activities:

 

 

 

 

 

 

 

Depreciation

14.3

 

 

14.2

 

 

28.5

 

 

28.4

 

Amortization

35.7

 

 

36.8

 

 

72.0

 

 

72.2

 

Deferred income taxes

(2.3)

 

 

(6.9)

 

 

(5.9)

 

 

(10.4)

 

Amortization of debt discount and issuance costs

1.7

 

 

7.2

 

 

7.6

 

 

14.7

 

Loss on extinguishment of debt

 

 

 

 

174.0

 

 

 

Capitalized software write-off

12.3

 

 

 

 

12.3

 

 

 

Changes in operating working capital

(34.2)

 

 

(78.0)

 

 

(168.6)

 

 

(89.9)

 

Other

19.3

 

 

(2.2)

 

 

1.1

 

 

(3.3)

 

Net cash provided by (used for) operating activities

73.0

 

 

(47.9)

 

 

(121.7)

 

 

(81.6)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures

(6.5)

 

 

(12.3)

 

 

(13.2)

 

 

(23.0)

 

Investments in capitalized software

(4.4)

 

 

(6.7)

 

 

(6.2)

 

 

(10.6)

 

Proceeds from disposition of property, plant and equipment

 

 

1.2

 

 

 

 

5.0

 

Net cash used for investing activities

(10.9)

 

 

(17.8)

 

 

(19.4)

 

 

(28.6)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Borrowings from ABL revolving credit facility

 

 

138.4

 

 

324.2

 

 

251.8

 

Repayments of ABL revolving credit facility

(6.0)

 

 

(188.3)

 

 

(199.1)

 

 

(361.1)

 

Proceeds from short-term borrowings

20.2

 

 

 

 

20.2

 

 

 

Proceeds from the issuance of 10.00% Notes

 

 

114.2

 

 

 

 

114.2

 

Borrowing on Term Loan, net of discount

 

 

 

 

2,189.0

 

 

 

Repayment on Term Loan

(5.5)

 

 

 

 

(5.5)

 

 

 

Repayment on Prior Term Loan

 

 

 

 

(2,070.0)

 

 

 

Repayment of Prior Notes

 

 

 

 

(1,370.0)

 

 

 

Payment of redemption premiums

 

 

 

 

(75.0)

 

 

 

Payment of debt issuance cost

 

 

 

 

(11.2)

 

 

 

Proceeds from reverse recapitalization, net

5.5

 

 

 

 

1,832.5

 

 

 

Payment to Vertiv Stockholder

 

 

 

 

(341.6)

 

 

 

Net cash provided by financing activities

14.2

 

 

64.3

 

 

293.5

 

 

4.9

 

Effect of exchange rate changes on cash and cash equivalents

0.2

 

 

(1.1)

 

 

(6.2)

 

 

0.3

 

Increase (decrease) in cash, cash equivalents and restricted cash

76.5

 

 

(2.5)

 

 

146.2

 

 

(105.0)

 

Beginning cash, cash equivalents and restricted cash

303.4

 

 

122.8

 

 

233.7

 

 

225.3

 

Ending cash, cash equivalents and restricted cash

$

379.9

 

 

$

120.3

 

 

$

379.9

 

 

$

120.3

 

Changes in operating working capital

 

 

 

 

 

 

 

Accounts receivable

$

(41.0)

 

 

$

(67.8)

 

 

$

27.2

 

 

$

(11.5)

 

Inventories

(22.4)

 

 

37.7

 

 

(66.9)

 

 

34.6

 

Other current assets

(2.6)

 

 

(5.7)

 

 

(1.2)

 

 

(33.9)

 

Accounts payable

22.3

 

 

(41.9)

 

 

(21.1)

 

 

(106.1)

 

Accrued expenses and other liabilities

4.3

 

 

(10.9)

 

 

(116.0)

 

 

7.1

 

Income taxes

5.2

 

 

10.6

 

 

9.4

 

 

19.9

 

Total changes in operating working capital

$

(34.2)

 

 

$

(78.0)

 

 

$

(168.6)

 

 

$

(89.9)

 

Reconciliation of GAAP and non-GAAP Financial Measures

To supplement our consolidated financial statements that have been prepared in accordance with GAAP, we have included certain non-GAAP financial measures in this press release, as further defined below. Management believes these non-GAAP financial measures provide investors with additional meaningful financial information that should be considered when assessing our underlying business performance and trends.


Contacts

Lynne Maxeiner
Vice President, Global Treasury & Investor Relations
Vertiv
T +1 614-841-6776
E: lynne.maxeiner@vertiv.com

For media inquiries:
Sara Steindorf
FleishmanHillard for Vertiv
T +1 314-982-1725
E: sara.steindorf@fleishman.com

Patrick Kane
FleishmanHillard for Vertiv
T +1 314-982-8726
patrick.kane@fleishman.com


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