Grade: C — Some Red Flags, Investigate
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2026-02-13, FY ended December 31, 2025) + Yahoo Finance
Auditor: Ernst & Young LLP — Unqualified opinion
CIK: 0001674101
One-line verdict: Vertiv's top line surged 27.7% to $10.2B on data center demand, and operating cash flow of $2.1B comfortably backed $1.3B in net income (CFFO/NI = 1.59). The one structural issue is a balance sheet still carrying $3.9B in goodwill and intangibles — 100% of equity — from the 2020 Emerson Network Power spinoff and subsequent bolt-on acquisitions. That goodwill load is not growing dangerously (D1 fails the 50%-of-equity threshold but Debt/EBITDA is only 1.5x), and the M-Score of -2.44 is comfortably clean. The watch items are cash covering only 57% of debt and a 40% YoY surge in goodwill-plus-intangibles. Vertiv is not a company you eliminate — but you monitor the goodwill load if growth ever stalls.
| Metric | Result |
|---|---|
| Red Flags | **1** (Goodwill+Intangibles = 100% of equity) |
| Watch Items | **2** (Cash-to-debt coverage 57%, G&I surged 40% YoY) |
| Checks Completed | **17/18** (1 N/A: impairment data) |
| Beneish M-Score | **-2.44** (clean; threshold is -2.22) |
| Auditor | Ernst & Young LLP — Unqualified opinion |
The Data Center Boom in Numbers
Per the 10-K's results of operations (dollars in millions):
| Metric | FY2024 | FY2025 | Change |
|---|---|---|---|
| Net Sales | $8,011.8 | $10,229.9 | +27.7% |
| Cost of Sales | $5,077.6 | $6,514.7 | +28.3% |
| Gross Profit | $2,934.2 | $3,715.2 | +26.6% |
| SG&A | $1,374.0 | $1,617.8 | +17.7% |
| Amortization of Intangibles | $184.2 | $200.4 | +8.8% |
| Restructuring Costs | $5.3 | $54.5 | +928.3% |
| Operating Profit | $1,367.4 | $1,829.7 | +33.8% |
| Interest Expense, net | $150.4 | $86.1 | -42.8% |
| Net Income | $495.8 | $1,332.8 | +168.8% |
Revenue growth was "primarily driven by higher sales volumes and the positive impacts from foreign currency of $49.6," per the MD&A. Product sales and service sales both contributed, with demand driven by global data center buildout. Gross margin was effectively flat at 36.3% (-0.3pp), which is notable — Vertiv passed through cost increases without materially expanding margins despite the volume surge. SG&A grew only 17.7% against 27.7% revenue growth, showing operating leverage.
The 928% surge in restructuring costs ($5.3M to $54.5M) is a line item worth noting. The filing does not break this out in detail in the MD&A, but the magnitude suggests facility consolidation or headcount actions coinciding with the growth phase.
FY2024 net income of $495.8M was depressed by a $449.2M non-cash charge for "Change in fair value of warrant liabilities" — private placement warrants from the 2018 SPAC IPO. That charge disappeared in FY2025, accounting for much of the 168.8% net income jump. Backing this out, operating earnings improvement was still strong at 33.8%.
Cash Flow: Strong Conversion
From the consolidated statements of cash flows:
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Net Cash from Operations | $900.5 | $1,319.3 | $2,113.8 |
| Capital Expenditures | $127.9 | $167.0 | $220.0 |
| Free Cash Flow | $772.6 | $1,152.3 | $1,893.8 |
| CFFO/Net Income | N/A | 2.66 | 1.59 |
| FCF/Net Income | N/A | 2.32 | 1.42 |
Per the filing, the $794.5M increase in operating cash was driven by "$1,332.8 of net income from operations" including "$383.0 of net non-cash expense items, consisting of depreciation and amortization of $308.6, deferred taxes of $22.6, non-cash stock compensation of $45.9" and a $339.3M favorable swing in working capital.
The working capital improvement is significant — $339.3M in FY2025 vs. $114.1M in FY2024. This means Vertiv is converting its backlog into cash efficiently despite the rapid revenue growth. Deferred revenue rose from $1,063.3M to $1,814.7M — a $751.4M increase reflecting customer prepayments on data center infrastructure orders. This is a bullish signal for cash flow sustainability.
Balance Sheet: The Goodwill Question
| Item | FY2024 | FY2025 |
|---|---|---|
| Cash & Equivalents | $1,227.6 | $1,728.4 |
| Short-term Investments | — | $99.5 |
| Total Current Assets | $5,101.8 | $6,819.5 |
| Total Assets | $9,132.5 | $12,212.4 |
| Current Portion of LT Debt | $21.0 | $20.9 |
| Total LT Debt (net) | $2,907.2 | $2,892.1 |
| Goodwill + Net Intangibles | ~$2,800 | $3,928.5 |
The filing states: "As of December 31, 2025, we had total goodwill and net intangible assets of $3,928.5 which constituted approximately 32% of our total assets." This fails the D1 check (goodwill+intangibles exceed 50% of equity), but the 32%-of-total-assets figure is more relevant than the equity ratio for a company that was formed via SPAC and acquisitions.
Debt maturity schedule is well-laddered per the filing: 2026 $20.9M, 2027 $20.9M, 2028 $870.9M, 2029 $20.9M, 2030 $20.9M. The big maturity wall is 2028 ($850M Senior Secured Notes at 4.125%), which Vertiv can address comfortably given $2.1B annual operating cash flow. Total debt of $2,913M against $2,113.8M operating cash flow = Debt/EBITDA of 1.5x — healthy for an industrial company.
Interest expense dropped 42.8% from $150.4M to $86.1M, reflecting debt paydown and favorable refinancing.
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | ✅ | DSO 111 days, +3 days YoY |
| A2 | AR vs Revenue Growth | ✅ | AR growth 31.6% vs revenue growth 27.7% |
| A3 | Revenue vs CFFO | ✅ | Revenue +27.7%, CFFO +60.2% |
DSO of 111 days is elevated for an industrial company but consistent with Vertiv's long-cycle infrastructure projects. AR grew roughly in line with revenue — no aggressive channel stuffing signal.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory vs COGS | ✅ | Inventory +17.0% vs COGS +28.3% |
| B2 | CapEx vs Revenue | ✅ | CapEx +23.0% vs revenue +27.7% |
| B3 | SG&A Ratio | ✅ | SG&A/Gross Profit = 43.5% |
| B4 | Gross Margin | ✅ | 36.3%, change -0.3pp, stable |
Inventory grew slower than COGS — Vertiv is not building excess inventory despite the demand surge. CapEx of $220M is modest relative to revenue, suggesting the company leverages outsourced manufacturing.
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs Net Income | ✅ | CFFO/NI = 1.59 |
| C2 | Free Cash Flow | ✅ | FCF $1.9B, FCF/NI = 1.42 |
| C3 | Accruals Ratio | ✅ | -6.4%, low accruals |
| C4 | Cash vs Debt | ⚠️ | Cash $1.8B covers 57% of debt $3.2B |
C4 flags because narrow cash ($1.7B) covers only 57% of total debt ($2.9B gross). However, with $2.1B annual operating cash flow and minimal near-term maturities ($20.9M in 2026), this is manageable.
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | ❌ | $3.9B = 100% of equity |
| D2 | Leverage | ✅ | Debt/EBITDA = 1.5x |
| D3 | Soft Asset Growth | ✅ | Other assets -34.8% vs revenue +27.7% |
| D4 | Asset Impairment | — | No write-off data available |
The D1 failure is structural — Vertiv was created through the 2020 SPAC combination of GS Acquisition Holdings and Emerson's Network Power business, which loaded the balance sheet with goodwill. The filing warns: "We assess goodwill and indefinite lived assets for impairment annually, and we conduct an interim evaluation of definite lived and indefinite lived assets whenever events or changes in circumstances may indicate a potential impairment." As long as data center demand sustains current growth rates, impairment risk is low. If demand cycles down, the $3.9B in intangibles becomes a liability.
Acquisition Risk
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer FCF | ✅ | FCF after acquisitions positive |
| E2 | Goodwill Surge | ⚠️ | Goodwill+Intangibles surged 40% YoY |
The 40% G&I surge reflects recent acquisitions including E&I Engineering. Per the filing, Vertiv has grown through acquisitions historically — "Over the next decade, Emerson Network Power expanded through acquisitions of Avansys, Marconi's outside plant and power system; Knurr AG, a leading provider of enclosure systems; and Avocent."
Manipulation Score
| # | Check | Result | Detail |
|---|---|---|---|
| F1 | Beneish M-Score | ✅ | -2.44 (threshold: < -2.22) |
M-Score of -2.44 is comfortably below the -2.22 manipulation threshold. No statistical evidence of earnings manipulation.
Key Risks from the 10-K
Tariffs and trade policy. The filing warns of "risks associated with foreign trade policy, including tariffs and global trade conflict" and notes that past cost increases from "inflationary or tariff-related impacts on component parts and raw materials" were not immediately reflected in pricing. With approximately 34,000 employees globally and manufacturing across Americas, Asia Pacific, and EMEA, Vertiv has significant trade policy exposure.
Backlog execution risk. The filing cautions about "failure to realize sales expected from our backlog of orders and contracts." With the massive deferred revenue build ($1.8B), any demand pullback from hyperscalers could create a revenue cliff.
Customer concentration. Data center demand is concentrated among a handful of hyperscale customers (AWS, Microsoft, Google, Meta). The filing warns of "disruption of or consolidation in our customer's markets or categorical shifts in customer technology spending."
Summary
Grade: C. Vertiv should not be flagged for elimination.
The earnings quality is strong: CFFO/NI of 1.59, FCF of $1.9B, M-Score of -2.44, low leverage at 1.5x Debt/EBITDA. The sole red flag is the $3.9B goodwill load — a legacy of the company's SPAC origins and acquisition-driven growth strategy — which constitutes 100% of equity. This is a structural feature, not an emerging risk. Watch the backlog for signs of demand normalization and the goodwill balance if growth decelerates.
**Disclaimer**: This report is based on Vertiv's FY2025 10-K filed with SEC EDGAR on February 13, 2026. This is NOT investment advice.
Data: SEC EDGAR 10-K + Yahoo Finance
Auditor: Ernst & Young LLP (Unqualified opinion)
Fiscal year ended: December 31, 2025