Vertiv Holdings Co. (NYSE: VRT) reported Q2 EPS of $0.24, $0.13 better than the analyst estimate of $0.11. Revenue for the quarter came in at $1.01 billion versus the consensus estimate of $953.44 million.

“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.”

GUIDANCE:

Vertiv Holdings Co. sees Q3 2020 EPS of $0.25-$0.28, versus the consensus of $0.24. Vertiv Holdings Co. sees Q3 2020 revenue of $1.09-1.115 billion, versus the consensus of $1.05 billion.

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

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.

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