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Thursday 10 August 2023

Vertiv Reports Strong Second Quarter Results and Raises Full Year 2023 Outlook


Vertiv Holdings Co., a global provider of critical digital infrastructure and continuity solutions, has reported financial results for its second quarter ended June 30, 2023. Vertiv reported second-quarter net sales of $1,734 million, an increase of $335 million, or 24%, compared with last year’s second quarter and a 25% organic net sales increase, which excludes the impact of foreign currency. 

Foreign currency negatively impacted second quarter sales by approximately $18 million as compared to second quarter last year. Orders declined 3% (excluding foreign exchange), which was better than anticipated, signifying end-market strength which helped offset continuing impacts from order normalisation and lead time improvements. The book-to-bill ratio was 1.0x for second quarter 2023, with orders showing resiliency despite higher shipment volumes driven by operational efficiency and more favorable supply chain dynamics.

Second quarter operating profit of $206 million increased $180 million and adjusted operating profit of $251 million increased $169 million from the prior year second quarter. These increases were primarily driven by benefits from pricing and volume partially offset by material, freight and labor inflation and capacity and R&D growth investments. Second quarter 2023 adjusted operating profit was above the prior guidance range primarily due to additional price-cost favourability and higher volume from continued operational execution and supply chain improvements.

“These strong results reflect our relentless focus on operational execution, the strength of the ongoing rebound in the Americas and our continued progress in building a high-performance culture of excellence,” said Giordano Albertazzi, Vertiv’s Chief Executive Officer. “The strength of our first half performance led us to raise our full-year financial guidance for 2023. A key focus for us this year has been cash flow, and I am particularly encouraged by the trajectory of this critical metric. While far from our full potential, we are seeing the tangible results of our operational improvement initiatives.”

Albertazzi also added: “I am further encouraged by the growth acceleration potential, which has just begun in our industry, represented by data center infrastructure necessary to meet the rapidly growing demand for compute capacity driven by AI. Vertiv is very well-positioned to benefit from this trend given our extensive data center infrastructure portfolio, technology depth, global scale, market leadership and long-standing relationships across the eco-system. We are fully embracing a future data center environment with incremental opportunities directly related to AI while maintaining our relentless focus and commitment to growth, operational execution, and delivering exceptional service and being the partner of choice for our customers.”

Dave Cote, Vertiv’s Executive Chairman, added: “Momentum clearly accelerated in the second quarter as Vertiv continues to strengthen performance and make meaningful progress in improving profitability and – importantly – adjusted free cash flow. Based upon the foundation established in the first six months and our uniquely strong market position to benefit from extremely positive long-term trends, we are very optimistic about the remainder of 2023 and Vertiv’s ability to create long-term value for shareholders.”

Adjusted Free Cash Flow and Liquidity

Net cash generated by operating activities in the second quarter was $254 million, an increase of $459 million from the prior-year quarter, and adjusted free cash flow was $227 million, an increase of $460 million from the prior-year quarter. Second quarter adjusted free cash flow performance was driven by higher adjusted operating profit and improvement in working capital management, demonstrating that our strategies and actions to improve operational performance are gaining traction. Borrowings under our existing ABL credit facility were zero at the end of June 2023 and liquidity strengthened to $825 million. Net leverage at the end of the second quarter was 3.1x and based on current financial guidance, we anticipate net leverage will decrease to approximately 2.3x by the end of 2023.

Full Year and Third Quarter 2023 Guidance

We continue to see signs of accelerating market conditions for the second half of 2023 as sales pipeline activity remains healthy. We believe AI will be a long-term secular tailwind for the industry and increase the size of the addressable market. We will provide additional details on our assumptions and views at our investor conference in November 2023. As communicated previously, we believe there will be more uniformity in quarterly sales in 2023 compared to historic patterns, given high backlog levels and continued improvement in supply chain dynamics. Financial guidance has been increased across all financial metrics, supported by a strong first half 2023 performance. Our adjusted operating margin range for the full year has been increased to 14.0% (at the midpoint), representing an anticipated 630 basis point improvement compared to 2022. Adjusted free cash flow guidance for 2023 has been increased by $200 million (at the midpoint), and is now expected to be $525 million to $575 million, an anticipated $810 million improvement (at the midpoint) versus 2022.

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