News Classic

SHANGHAI, China, Nov. 19, 2024 (GLOBE NEWSWIRE) — GDS Holdings Limited (“GDS Holdings”, “GDS” or the “Company”) GDS HKEX: 9698)), a leading developer and operator of high-performance data centers in China and South East Asia, today announced its unaudited financial results for the third quarter ended September 30, 2024.

Third Quarter 2024 Financial Highlights

• Net revenue increased by 17.7% year-over-year (“Y-o-Y”) to RMB2,965.7 million (US$422.6 million) in the third quarter of 2024 (3Q2023: RMB2,519.0 million).
• Net loss was RMB231.1 million (US$32.9 million) in the third quarter of 2024 (3Q2023: net loss of RMB420.8 million).
• Adjusted EBITDA (non-GAAP) increased by 15.0% Y-o-Y to RMB1,295.7 million (US$184.6 million) in the third quarter of 2024 (3Q2023: RMB1,126.3 million). See “Non-GAAP Disclosure” and “Reconciliations of GAAP and non-GAAP results” elsewhere in this earnings release.
• Adjusted EBITDA margin (non-GAAP) was 43.7% in the third quarter of 2024 (3Q2023: 44.7%).

Third Quarter 2024 Operating Highlights

• Total area committed and pre-committed increased by 20.2% Y-o-Y to 785,692 sqm as of September 30, 2024 (September 30, 2023: 653,732 sqm).
• Area in service increased by 16.8% Y-o-Y to 647,468 sqm as of September 30, 2024 (September 30, 2023: 554,210 sqm).
• Commitment rate for area in service was 92.7% as of September 30, 2024 (September 30, 2023: 91.9%).
• Area under construction was 234,741 sqm as of September 30, 2024 (September 30, 2023: 189,585 sqm).
• Pre-commitment rate for area under construction was 79.2% as of September 30, 2024 (September 30, 2023: 76.1%).
• Area utilized increased by 20.9% Y-o-Y to 481,819 sqm as of September 30, 2024 (September 30, 2023: 398,674 sqm).
• Utilization rate for area in service was 74.4% as of September 30, 2024 (September 30, 2023: 71.9%).

“In the third quarter of 2024, we delivered solid performance across key strategic fronts,” said Mr. William Huang, Chairman and CEO of GDS. “In China, the accelerated move-in trend continued, as we executed our strategy of delivering the backlog while being selective on new orders. Internationally, our recent equity raise is a major step forward, and positions us well to capture the tremendous opportunities for growth in the international markets.”

“In the third quarter of 2024, we grew revenue by 18% and adjusted EBITDA by 15% year-over-year,” said Mr. Dan Newman, Chief Financial Officer. “The US$1 billion equity raise for GDSI will support our ambitious international expansion plans, further affirming the underlying value GDSI brings to our shareholders.”

Third Quarter 2024 Financial Results

Net revenue in the third quarter of 2024 was RMB2,965.7 million (US$422.6 million), a 17.7% increase over the same period last year of RMB2,519.0 million. The Y-o-Y increase was mainly due to continued ramp-up of our data centers and business growth.

• Net revenue for China¹ was RMB2,619.6 million (US$373.3 million), a 6.1% increase over the same period last year of RMB2,470.1 million.
• Net revenue for International² was RMB363.2 million (US$51.8 million), a 636.3% increase over the same period last year of RMB49.3 million.

Cost of revenue in the third quarter of 2024 was RMB2,308.8 million (US$329.0 million), a 11.5% increase over the same period last year of RMB2,071.6 million. The Y-o-Y increase was in line with the continued growth of our business.

Gross profit was RMB656.9 million (US$93.6 million) in the third quarter of 2024, a 46.8% increase over the same period last year of RMB447.4 million.

Gross profit margin was 22.2% in the third quarter of 2024, compared with 17.8% in the same period last year. The Y-o-Y increase was mainly due to the ramp-up of our international business.

Adjusted Gross Profit (“Adjusted GP”) (non-GAAP) is defined as gross profit excluding depreciation and amortization, operating lease cost relating to prepaid land use rights, accretion expenses for asset retirement costs and share-based compensation expenses allocated to cost of revenue. Adjusted GP was RMB1,502.3 million (US$214.1 million) in the third quarter of 2024, a 20.4% increase over the same period last year of RMB1,247.3 million. See “Non-GAAP Disclosure” and “Reconciliations of GAAP and non-GAAP results” elsewhere in this earnings release.

Adjusted GP margin (non-GAAP) was 50.7% in the third quarter of 2024, compared with 49.5% in the same period last year. The Y-o-Y increase was mainly due to the ramp-up of our international business.

Selling and marketing expenses, excluding share-based compensation expenses of RMB7.3 million (US$1.0 million), were RMB27.7 million (US$3.9 million) in the third quarter of 2024, a 5.4% increase over the same period last year of RMB26.3 million (excluding share-based compensation of RMB12.6 million). The Y-o-Y increase was mainly due to fast expansion of our international business.

General and administrative expenses, excluding share-based compensation expenses of RMB31.0 million (US$4.4 million), depreciation and amortization expenses of RMB98.6 million (US$14.0 million) and operating lease cost relating to prepaid land use rights of RMB16.1 million (US$2.3 million), were RMB147.4 million (US$21.0 million) in the third quarter of 2024, a 32.4% increase over the same period last year of RMB111.3 million (excluding share-based compensation expenses of RMB53.3 million, depreciation and amortization expenses of RMB135.9 million and operating lease cost relating to prepaid land use rights of RMB16.8 million). The Y-o-Y increase was mainly due to fast expansion of our international business.

Research and development costs were RMB8.6 million (US$1.2 million) in the third quarter of 2024, compared with RMB10.5 million in the same period last year.

Net interest expenses for the third quarter of 2024 were RMB535.0 million (US$76.2 million), a 6.3% increase over the same period last year of RMB503.2 million. The Y-o-Y increase was mainly due to a higher level of total borrowings.

Foreign currency exchange loss for the third quarter of 2024 was RMB32.5 million (US$4.6 million), compared with a gain of RMB0.9 million in the same period last year.

Others, net for the third quarter of 2024 was RMB6.1 million (US$0.9 million), compared with RMB21.7 million in the same period last year.

Income tax benefits for the third quarter of 2024 were RMB10.0 million (US$1.4 million), compared with income tax expenses of RMB20.9 million in the same period last year.

Net loss in the third quarter of 2024 was RMB231.1 million (US$32.9 million), compared with a net loss of RMB420.8 million in the same period last year.

Adjusted EBITDA (non-GAAP) is defined as net loss excluding net interest expenses, income tax expenses (benefits), depreciation and amortization, operating lease cost relating to prepaid land use rights, accretion expenses for asset retirement costs, share-based compensation expenses, gain from purchase price adjustment and impairment losses of long-lived assets. Adjusted EBITDA was RMB1,295.7 million (US$184.6 million) in the third quarter of 2024, a 15.0% increase over the same period last year of RMB1,126.3 million.

• Adjusted EBITDA for China was RMB1,204.9 million (US$171.7 million), a 3.6% increase over the same period last year of RMB1,163.1 million.
• Adjusted EBITDA for International was RMB97.0 million (US$13.8 million), compared with negative RMB36.5 million in the same period last year.

Adjusted EBITDA margin (non-GAAP) was 43.7% in the third quarter of 2024, compared with 44.7% in the same period last year. The Y-o-Y decrease was mainly due to higher level of corporate expenses for International business.

Basic and diluted loss per ordinary share in the third quarter of 2024 was RMB0.14 (US$0.02), compared with RMB0.30 in the same period last year.

Basic and diluted loss per American Depositary Share (“ADS”) in the third quarter of 2024 was RMB1.12 (US$0.16), compared with RMB2.37 in the same period last year.

Liquidity:

As of September 30, 2024, cash was RMB9,408.5 million (US$1,340.7 million).

• Cash for GDSH was RMB7,757.9 million (US$1,105.5 million).
• Cash for GDSI was RMB1,650.6 million (US$235.2 million).

Total short-term debt was RMB6,638.0 million (US$945.9 million), comprised of short-term borrowings and the current portion of long-term borrowings of RMB6,034.3 million (US$859.9 million), the current portion of convertible bonds payable of RMB561 thousand (US$80 thousand) and the current portion of finance lease and other financing obligations of RMB603.1 million (US$85.9 million). Total long-term debt was RMB42,648.0 million (US$6,077.3 million), comprised of long-term borrowings (excluding current portion) of RMB26,573.3 million (US$3,786.7 million), the non-current portion of convertible bonds payable of RMB8,356.5 million (US$1,190.8 million) and the non-current portion of finance lease and other financing obligations of RMB7,718.2 million (US$1,099.8 million).

• Total gross debt for GDSH, comprised of short-term and long-term borrowings, convertible bonds payable and finance lease and other financing obligations, was RMB43,361.6 million (US$6,179.0 million).
• Total gross debt for GDSI, comprised of short-term and long-term borrowings, was RMB5,924.4 million (US$844.2 million).

During the third quarter of 2024, the Company obtained new debt financing and refinancing facilities of RMB380.0 million (US$54.2 million), all for GDSH.

Third Quarter 2024 Operating Results

China

Sales

Total area committed and pre-committed at the end of the third quarter of 2024 was 626,783 sqm, compared with 609,140 sqm at the end of the third quarter of 2023 and 614,094 sqm at the end of the second quarter of 2024, an increase of 2.9% Y-o-Y and 2.1% quarter-over-quarter (“Q-o-Q”), respectively. In the third quarter of 2024, gross additional total area committed was 20,913 sqm, mainly contributed by data centers in Beijing and Langfang. Net additional total area committed was 12,689 sqm.

Data Center Resources

Area in service at the end of the third quarter of 2024 was 595,606 sqm, compared with 540,606 sqm at the end of the third quarter of 2023 and 580,165 sqm at the end of the second quarter of 2024, an increase of 10.2% Y-o-Y and 2.7% Q-o-Q. In the third quarter of 2024, net additional area in service for China was 15,441 sqm, mainly from data centers in Shanghai and Langfang.

Area under construction at the end of the third quarter of 2024 was 120,422 sqm, compared with 150,116 sqm at the end of the third quarter of 2023 and 117,861 sqm at the end of the second quarter of 2024, a decrease of 19.8% Y-o-Y and an increase of 2.2% Q-o-Q, respectively. During the third quarter of 2024, we initiated the construction of additional phases in existing data centers in Langfang, namely LF14 Phase 2, LF16 Phase 4 and LF18 Phase 2 & 3, with a total net floor area of 17,436 sqm and a pre-commitment rate of 85.1% across these new phases.

Commitment rate for area in service was 92.1% at the end of the third quarter of 2024, compared with 91.7% at the end of the third quarter of 2023 and 92.3% at the end of the second quarter of 2024. Pre-commitment rate for area under construction was 65.1% at the end of the third quarter of 2024, compared with 75.4% at the end of the third quarter of 2023 and 66.9% at the end of the second quarter of 2024.

Move-In

Area utilized at the end of the third quarter of 2024 was 438,654 sqm, compared with 393,225 sqm at the end of the third quarter of 2023 and 419,976 sqm at the end of the second quarter of 2024, an increase of 11.6% Y-o-Y and 4.4% Q-o-Q. In the third quarter of 2024, gross additional area utilized was 25,942 sqm, mainly contributed by data centers in Shanghai, Changshu, and Langfang. Net additional area utilized was 18,678 sqm.

Utilization rate for area in service was 73.6% at the end of the third quarter of 2024, compared with 72.7% at the end of the third quarter of 2023 and 72.4% at the end of the second quarter of 2024.

International

Sales

Total area committed and pre-committed at the end of the third quarter of 2024 was 158,910 sqm, compared with 44,593 sqm at the end of the third quarter of 2023 and 142,898 sqm at the end of the second quarter of 2024, an increase of 256.4% Y-o-Y and 11.2% Q-o-Q. In the third quarter of 2024, net additional total area committed was 16,011 sqm, mainly contributed from our NTP site in Johor, Malaysia, and NDP site in Batam, Indonesia.

Data Center Resources

Area in service at the end of the third quarter of 2024 was 51,862 sqm, compared with 13,605 sqm at the end of the third quarter of 2023 and 50,798 sqm at the end of the second quarter of 2024, an increase of 281.2% Y-o-Y and 2.1% Q-o-Q. In the third quarter of 2024, net additional area in service was 1,064 sqm, mainly from HK1 Phase 1 data center.

Area under construction at the end of the third quarter of 2024 was 114,319 sqm, compared with 39,469 sqm at the end of the third quarter of 2023 and 108,411 sqm at the end of the second quarter of 2024, an increase of 189.6% Y-o-Y and 5.4% Q-o-Q. During the third quarter of 2024, we initiated the construction of two new data centers on our NDP site in Batam, Indonesia, namely NDP2 and NDP3, with a total net floor area of 7,417 sqm, and both are 100% pre-committed.

Commitment rate for area in service was 99.3% at the end of the third quarter of 2024, compared with 100% at the end of the third quarter of 2023 and 95.2% at the end of the second quarter of 2024. Pre-commitment rate for area under construction was 93.9% at the end of the third quarter of 2024, compared with 78.5% at the end of the third quarter of 2023 and 87.2% at the end of the second quarter of 2024.

Move-In

Area utilized at the end of the third quarter of 2024 was 43,165 sqm, compared with 5,449 sqm at the end of the third quarter of 2023 and 42,698 sqm at the end of the second quarter of 2024, an increase of 692.1% Y-o-Y and 1.1% Q-o-Q. In the third quarter of 2024, net additional area utilized was 467 sqm, mainly contributed by NTP5 and HK1 data centers.

Utilization rate for area in service was 83.2% at the end of the third quarter of 2024, compared with 40.1% at the end of the third quarter of 2023 and 84.1% at the end of the second quarter of 2024.

Recent Development

On Oct. 29, 2024, the Company announced that its international affiliate, DigitalLand Holdings Limited (“GDS International” or “GDSI”), which acts as the holding company for GDSH’s data center assets and operations outside of mainland China, has entered into definitive agreements for certain institutional private equity investors to subscribe for US$1.0 billion of Series B convertible preferred shares (the “Series B”) newly issued by GDSI.

Post closing and on an as-converted basis, GDSH will own approximately 37.6% of the equity interest of GDSI in the form of ordinary shares. The value of GDSH’s equity interest in GDSI implied by the Series B subscription price is approximately US$1.3 billion, equivalent to approximately US$6.75 per American Depositary Share of GDSH. Post closing, GDSH will no longer consolidate GDSI for accounting purposes and GDSH will no longer have the right to appoint a majority of directors to the Board of GDSI.

Business Outlook

The Company confirms that the previously provided guidance of total revenues for the year of 2024 of RMB11,340 – RMB11,760 million, Adjusted EBITDA of RMB4,950 – RMB5,150 million remain unchanged.

The Company revised the previously provided capex guidance of RMB6,500 million, which includes RMB2,500 million for China and RMB4,000 million for International, to RMB 11,000 million, which includes RMB3,000 million for China as required to support move-in, and RMB8,000 million for International, reflecting an acceleration of business expansion.

This forecast reflects the Company’s preliminary view on the current business situation and market conditions, which are subject to change.

Conference Call

Management will hold a conference call at 8:00 a.m. U.S. Eastern Time on November 19, 2024 (9:00 p.m. Beijing Time on November 19, 2024) to discuss financial results and answer questions from investors and analysts.

Participants should complete online registration using the link provided below at least 15 minutes before the scheduled start time. Upon registration, participants will receive the conference call access information, including dial-in numbers, a personal PIN and an e-mail with detailed instructions to join the conference call.

Participant Online Registration:
https://register.vevent.com/register/BI2347220aa72a4610bafc061a7977f70a

A live and archived webcast of the conference call will be available on the Company’s investor relations website at investors.gds-services.com.

Non-GAAP Disclosure

Our management and board of directors use Adjusted EBITDA, Adjusted EBITDA margin, Adjusted GP and Adjusted GP margin, which are non-GAAP financial measures, to evaluate our operating performance, establish budgets and develop operational goals for managing our business. We believe that the exclusion of the income and expenses eliminated in calculating Adjusted EBITDA and Adjusted GP can provide useful and supplemental measures of our core operating performance. In particular, we believe that the use of Adjusted EBITDA as a supplemental performance measure captures the trend in our operating performance by excluding from our operating results the impact of our capital structure (primarily interest expense), asset base charges (primarily depreciation and amortization, operating lease cost relating to prepaid land use rights, accretion expenses for asset retirement costs and impairment losses of long-lived assets), other non-cash expenses (primarily share-based compensation expenses), and other income and expenses which we believe are not reflective of our operating performance, whereas the use of adjusted gross profit as a supplemental performance measure captures the trend in gross profit performance of our data centers in service by excluding from our gross profit the impact of asset base charges (primarily depreciation and amortization, operating lease cost relating to prepaid land use rights and accretion expenses for asset retirement costs) and other non-cash expenses (primarily share-based compensation expenses) included in cost of revenue.

We note that depreciation and amortization is a fixed cost which commences as soon as each data center enters service. However, it usually takes several years for new data centers to reach high levels of utilization and profitability. The Company incurs significant depreciation and amortization costs for its early stage data center assets. Accordingly, gross profit, which is a measure of profitability after taking into account depreciation and amortization, does not accurately reflect the Company’s core operating performance.

We also present these non-GAAP measures because we believe these non-GAAP measures are frequently used by securities analysts, investors and other interested parties as measures of the financial performance of companies in our industry.

These non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. These non-GAAP financial measures have limitations as analytical tools, and when assessing our operating performance, cash flows or our liquidity, investors should not consider them in isolation, or as a substitute for gross profit, net income (loss), cash flows provided by (used in) operating activities or other consolidated statements of operations and cash flow data prepared in accordance with U.S. GAAP. There are a number of limitations related to the use of these non-GAAP financial measures instead of their nearest GAAP equivalent. First, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted GP, and Adjusted GP margin are not substitutes for gross profit, net income (loss), cash flows provided by (used in) operating activities or other consolidated statements of operation and cash flow data prepared in accordance with U.S. GAAP. Second, other companies may calculate these non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of these non-GAAP financial measures as tools for comparison. Finally, these non-GAAP financial measures do not reflect the impact of net interest expenses, incomes tax benefits (expenses), depreciation and amortization, operating lease cost relating to prepaid land use rights, accretion expenses for asset retirement costs, share-based compensation expenses, gain from purchase price adjustment and impairment losses of long-lived assets, each of which have been and may continue to be incurred in our business.

We mitigate these limitations by reconciling the non-GAAP financial measure to the most comparable U.S. GAAP performance measure, all of which should be considered when evaluating our performance. We do not provide forward-looking guidance for certain financial data, such as depreciation, amortization, accretion, share-based compensation and net income (loss); the impact of such data and related adjustments can be significant. As a result, we are not able to provide a reconciliation of forward-looking U.S. GAAP to forward-looking non-GAAP financial measures without unreasonable effort. Such forward-looking non-GAAP financial measures include the forecast for Adjusted EBITDA in the section captioned “Business Outlook” set forth in this press release.

For more information on these non-GAAP financial measures, please see the table captioned “Reconciliations of GAAP and non-GAAP results” set forth at the end of this press release.

Exchange Rate

This announcement contains translations of certain RMB amounts into U.S. dollars (“USD”) at specified rates solely for the convenience of the reader. Unless otherwise stated, all translations from RMB to USD were made at the rate of RMB7.0176 to US$1.00, the noon buying rate in effect on September 30, 2024 in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or USD amounts referred could be converted into USD or RMB, as the case may be, at any particular rate or at all.

Statement Regarding Preliminary Unaudited Financial Information

The unaudited financial information set out in this earnings release is preliminary and subject to potential adjustments. Adjustments to the consolidated financial statements may be identified when audit work has been performed for the Company’s year-end audit, which could result in significant differences from this preliminary unaudited financial information.

About GDS Holdings Limited

GDS Holdings Limited GDS HKEX: 9698)) is a leading developer and operator of high-performance data centers in mainland China and, through an equity investment in its international affiliate, in Hong Kong and South East Asia. The Company’s facilities are strategically located in primary economic hubs where demand for high-performance data center services is concentrated. The Company also builds, operates and transfers data centers at other locations selected by its customers in order to fulfill their broader requirements. The Company’s data centers have large net floor area, high power capacity, density and efficiency, and multiple redundancies across all critical systems. GDS is carrier and cloud-neutral, which enables its customers to access the major telecommunications networks, as well as the largest PRC and global public clouds, which are hosted in many of its facilities. The Company offers co-location and a suite of value-added services, including managed hybrid cloud services through direct private connection to leading public clouds, managed network services, and, where required, the resale of public cloud services. The Company has a 23-year track record of service delivery, successfully fulfilling the requirements of some of the largest and most demanding customers for outsourced data center services in China. The Company’s customer base consists predominantly of hyperscale cloud service providers, large internet companies, financial institutions, telecommunications carriers, IT service providers, and large domestic private sector and multinational corporations.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “aim,” “anticipate,” “believe,” “continue,” “estimate,” “expect,” “future,” “guidance,” “intend,” “is/are likely to,” “may,” “ongoing,” “plan,” “potential,” “target,” “will,” and similar statements. Among other things, statements that are not historical facts, including statements about GDS Holdings’ beliefs and expectations regarding the growth of its businesses and its revenue for the full fiscal year, the business outlook and quotations from management in this announcement, as well as GDS Holdings’ strategic and operational plans, are or contain forward-looking statements. GDS Holdings may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the “SEC”) on Forms 20-F and 6-K, in its current, interim and annual reports to shareholders, in announcements, circulars or other publications made on the website of the Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”), in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause GDS Holdings’ actual results or financial performance to differ materially from those contained in any forward-looking statement, including but not limited to the following: GDS Holdings’ goals and strategies; GDS Holdings’ future business development, financial condition and results of operations; the expected growth of the market for high-performance data centers, data center solutions and related services in China and South East Asia; GDS Holdings’ expectations regarding demand for and market acceptance of its high-performance data centers, data center solutions and related services; GDS Holdings’ expectations regarding building, strengthening and maintaining its relationships with new and existing customers; the continued adoption of cloud computing and cloud service providers in China and South East Asia; risks and uncertainties associated with increased investments in GDS Holdings’ business and new data center initiatives; risks and uncertainties associated with strategic acquisitions and investments; GDS Holdings’ ability to maintain or grow its revenue or business; fluctuations in GDS Holdings’ operating results; changes in laws, regulations and regulatory environment that affect GDS Holdings’ business operations; competition in GDS Holdings’ industry in China and South East Asia; security breaches; power outages; and fluctuations in general economic and business conditions in China, South East Asia and globally, and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks, uncertainties or factors is included in GDS Holdings’ filings with the SEC, including its annual report on Form 20-F, and with the Hong Kong Stock Exchange. All information provided in this press release is as of the date of this press release and are based on assumptions that GDS Holdings believes to be reasonable as of such date, and GDS Holdings does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

For investor and media inquiries, please contact:

GDS Holdings Limited
Laura Chen
Phone: +86 (21) 2029-2203
Email: ir@gds-services.com

Piacente Financial Communications
Ross Warner
Phone: +86 (10) 6508-0677
Email: GDS@tpg-ir.com

Brandi Piacente
Phone: +1 (212) 481-2050
Email: GDS@tpg-ir.com

GDS Holdings Limited

________________

1. For the purpose of this earnings release, “China” or “GDSH” refers to GDS’s assets and operations in Mainland China, including third party data centers in Hong Kong and Macau. The reported segment financial numbers include the inter-company charges.
2. For the purpose of this earnings release, “International” or “GDSI” refers to GDS’s assets and operations outside Mainland China, excluding third party data centers in Hong Kong and Macau. The reported segment financial numbers include the inter-company charges.

Note: Gross debt comprised of short-term and long-term borrowings, convertible bonds payable and finance lease and other financing obligations. For GDSI, for December 31, 2023, gross debt also includes the amounts due to GDSH.

• Delivered fiscal 2024 Net Sales and Adjusted EBITDA in line with our outlook, and Adjusted EPS above our originally guided range.⁽¹⁾
• Gross margin for the full year was 38.3% and on an adjusted basis 40.9%, up 190 basis points to prior year largely driven by the benefits of Project Momentum initiatives.⁽¹⁾
• Operating cash flow was $429.6 million and Free cash flow was 11.7% of Net Sales for the fiscal year.⁽¹⁾
• Reduced net leverage to 4.9 times in fiscal 2024 driven by $200 million of debt pay down and Adjusted EBITDA growth.⁽¹⁾
• Delivered earnings per share of $0.52 and Adjusted Earnings per share of $3.32 for the fiscal year, an increase of 7% on an adjusted basis.⁽¹⁾
• Company expects fiscal 2025 organic revenue growth of 1% to 2% and Adjusted EBITDA and Adjusted earnings per share in the ranges of $625 to $645 million and $3.45 to $3.65, respectively.⁽¹⁾

ST. LOUIS, Nov. 19, 2024 /PRNewswire/ — Energizer Holdings, Inc. ENR today announced results for the fourth fiscal quarter and full fiscal year, which ended September 30, 2024. 

“We finished fiscal 2024 with solid performances across both Battery and Auto Care, driving adjusted earnings growth above our initial expectations,” said Mark LaVigne, President and Chief Executive Officer. 

“Our results are further proof that our strategies are working.  We generated organic growth in the back half of the year, strengthened our gross margins and delivered strong free cash flow, which enabled significant investment behind our long term growth objectives.” 

“We enter fiscal 2025 having significantly advanced the Company’s strategic foundation and financial position.  I am confident we are well positioned to deliver our financial algorithm, anchored by consistent, ratable growth and continued improvement in our operating margins.”

(1) See Press Release attachments and supplemental schedules for additional information, including the GAAP to Non-GAAP reconciliations.

Top-Line Performance

Net sales were $805.7 million for the fourth fiscal quarter compared to $811.1 million in the prior year period and $2,887.0 million for the fiscal year compared to $2,959.7 million for the prior fiscal year.

For the fiscal quarter, organic net sales were consistent with prior year due to the following items: ⁽¹⁾

• Volume increases in the Battery & Lights segment driven by improved category trends and new distribution globally which resulted in 1.3% organic growth; and
• Volume increases in the Auto Care segment resulted in organic growth of 0.5% from distribution gains and early holiday sales, partially offset by timing of refrigerant sales that benefited the third quarter.
• These volume increases were offset by pricing declines of 1.8% driven by planned strategic pricing and promotional investments in the period.

For the fiscal year, organic net sales decreased 2.2% due to the following items: ⁽¹⁾

• The Battery & Lights segment experienced volume declines of approximately 0.7% primarily due to the timing of holiday orders compared to the prior year, which benefited the fourth quarter of 2023, partially offset by distribution gains and improved category trends; and
• Pricing declines of 2.2%, primarily within the Battery & Lights segment, driven by planned strategic pricing and promotional investments in the period.
• Offsetting these declines was increased Auto Care segment volumes of 0.7% largely driven by distribution gains in the period.

Gross Margin

Gross margin percentage on a reported basis for the fourth fiscal quarter was 38.1%, versus 37.9% in the prior year quarter. Excluding the current and prior year restructuring costs and the current year network transition costs and integration costs, Adjusted Gross margin was 42.2%, up 220 basis points from the prior year quarter and 70 basis points from the third fiscal quarter of 2024.⁽¹⁾

Gross margin percentage on a reported basis for fiscal 2024 was 38.3%, versus 38.0% in the prior year. Excluding the current and prior year restructuring costs and the current year network transition costs and integration costs, Adjusted Gross margin was 40.9% for the fiscal year, up 190 basis points from prior year.⁽¹⁾

Adjusted Gross margin improvement in the fourth fiscal quarter was driven by both Project Momentum initiatives, which delivered savings of approximately $18 million, as well as lower input costs, including improved commodity and material pricing. These benefits were partially offset by the planned strategic pricing and promotional investments noted above.

Adjusted Gross margin improvement in fiscal 2024 was driven by both Project Momentum initiatives, which delivered savings of approximately $59 million, as well as lower input costs, including improved commodities pricing and lower ocean freight. These benefits were partially offset by the planned strategic pricing and promotional investments noted above.

Selling, General and Administrative Expense (SG&A)

SG&A for the fourth fiscal quarter was 15.3% of net sales, or $123.0 million, as compared to 14.2% of net sales, or $115.5 million, in the prior year when excluding restructuring and related costs, acquisition and integration costs and a litigation matter. The year-over-year increase was primarily driven by an increase in labor and benefit costs, higher travel expense, increased depreciation expense related to our digital transformation initiatives and increased legal fees. This increase was partially offset by savings from Project Momentum of approximately $7 million.⁽¹⁾  

SG&A for fiscal 2024 was $473.1 million, or 16.4% of net sales, as compared to $459.4 million, or 15.5% of net sales, in the prior year when excluding restructuring and related costs, acquisition and integration costs, and a litigation matter. The year-over-year increase was primarily driven by an increase in labor and benefit costs, higher travel expense, increased depreciation expense related to our digital transformation initiatives and increased legal, factoring and environmental fees. This increase was partially offset by Project Momentum savings of approximately $29 million in the period.⁽¹⁾  

Advertising and Promotion Expense (A&P)

A&P was 4.6% of net sales for the fourth fiscal quarter and 5.0% of net sales for fiscal 2024. A&P spending in the prior year was 4.1% for the fourth fiscal quarter of 2023 and 4.8% for fiscal 2023. For the quarter, this was an increase of 50 basis points, or $4.5 million and for fiscal 2024 this was an increase of 20 basis points or $1.4 million.

The increase in net earnings in the fourth fiscal quarter was driven by the prior year settlement charge on the US pension plan annuity buy out of $50.2 million of previously unamortized actuarial losses. The decrease in net earnings in the fiscal year was driven by the current year non-cash pre-tax impairment charge of $110.6 million compared to no impairments in fiscal 2023 as well as the Argentina devaluation recorded in the current fiscal year, partially offset by the prior year US pension plan annuity buy out.

For the fourth fiscal quarter, the increase in Adjusted earnings per share and Adjusted EBITDA reflects an increase in Gross margin due to Project Momentum savings, partially offset by higher SG&A and A&P spending as well as unfavorable currency in the current year. Adjusted earnings per share further benefited from lower interest expense as the Company’s overall debt balance has decreased, partially offset by increased tax expense.

For the full year, Adjusted net earnings per share and Adjusted EBITDA reflects the Gross margin improvement as well as decreased R&D spend. This was partially offset by higher A&P and SG&A spend and the unfavorable currency movement in the full year. Adjusted earnings per share further benefited from lower interest expense as the Company’s overall debt balance has decreased and lower amortization expense, partially offset by increased tax expense.

For the quarter, currency had an unfavorable pre-tax impact of $3.7 million, or $0.04 per share, and for fiscal 2024, currency had an unfavorable pre-tax impact of $2.5 million, or $0.03 per share.

Capital Allocation

• Operating cash flow for the quarter was $168.9 million and for fiscal 2024 was $429.6 million. Fiscal year 2024 free cash flow was $339.0 million, or 11.7% of Net Sales.
• The Company completed two acquisitions in fiscal 2024 including the acquisition of battery manufacturing equipment, raw materials and a leased facility in Belgium for $11.6 million in the first fiscal quarter and an Auto Care appearance and fragrance manufacturer and distributor based in Southern Brazil for $10.6 million during the third fiscal quarter.
• The Company paid down an additional $50 million of debt in the fourth quarter and $200 million in fiscal 2024. In fiscal 2024, Net debt decreased by $138.5 million and Net debt to Adjusted EBITDA was 4.9 times as of September 30, 2024, down from 5.2 times as of September 30, 2023.
• The Company paid dividends in the quarter of $21.6 million, or $0.30 per common share. Dividend payments for the year were $87.4 million, or $1.20 per common share.
• The Board has approved a new share repurchase program for up to 7.5 million shares. This replaced the prior authorization that was outstanding.

Financial Outlook and Assumptions for Fiscal 2025 ⁽¹⁾

In fiscal 2024, the Company was successful in achieving its priorities of restoring gross margin, generating healthy free cash flow, and reducing debt. As we move into fiscal 2025, the Company expects to continue to execute against those priorities while growing our Adjusted EBITDA and EPS.

For fiscal 2025, we expect organic revenue to be up 1% to 2%.  The increase in revenues as well as implementing the last year of our Project Momentum initiatives are expected to drive an increase in Adjusted EBITDA. For fiscal 2025, Adjusted EBITDA is expected to be in the range of $625 million to $645 million, and Adjusted earnings per share is expected to be in the range of $3.45 to $3.65. For the first quarter, we expect organic revenue to be up 2% to 3% and Adjusted earnings per share to be in the range of $0.60 to $0.65.

Webcast Information

In conjunction with this announcement, the Company will hold an investor conference call beginning at 10:00 a.m. eastern time today. The call will focus on fourth quarter and fiscal 2024 financial results and the financial outlook for fiscal 2025. All interested parties may access a live webcast of this conference call at www.energizerholdings.com, under “Investors” and “Events and Presentations” tabs or by using the following link: https://app.webinar.net/BwdOWXlWNk9

For those unable to participate during the live webcast, a replay will be available on www.energizerholdings.com, under “Investors,” “Events and Presentations,” and “Past Events” tabs.

This document contains both historical and forward-looking statements. Forward-looking statements are not based on historical facts but instead reflect our expectations, estimates or projections concerning future results or events, including, without limitation, the future sales, gross margins, costs, earnings, cash flows, tax rates and performance of the Company. These statements generally can be identified by the use of forward-looking words or phrases such as “believe,” “expect,” “expectation,” “anticipate,” “may,” “could,” “will,” “intend,” “belief,” “estimate,” “plan,” “target,” “predict,” “likely,” “should,” “forecast,” “outlook,” or other similar words or phrases. These statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or projections will be achieved. The forward-looking statements included in this document are only made as of the date of this document and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation:

• Global economic and financial market conditions beyond our control might materially and negatively impact us.
• Competition in our product categories might hinder our ability to execute our business strategy, achieve profitability, or maintain relationships with existing customers.
• Changes in the retail environment and consumer preferences could adversely affect our business, financial condition and results of operations.
• We must successfully manage the demand, supply, and operational challenges brought on by any disease outbreak, including epidemics, pandemics, or similar widespread public health concerns.
• Loss or impairment of the reputation of our Company or our leading brands or failure of our marketing plans could have an adverse effect on our business.
• Loss of any of our principal customers could significantly decrease our sales and profitability.
• Our ability to meet our growth targets depends on successful product, marketing and operations innovation and successful responses to competitive innovation and changing consumer habits.
• We are subject to risks related to our international operations, including currency fluctuations, which could adversely affect our results of operations.
• If we fail to protect our intellectual property rights, competitors may manufacture and market similar products, which could adversely affect our market share and results of operations.
• Changes in production costs, including raw material prices and transportation costs, from inflation or otherwise, have adversely affected, and in the future could erode, our profit margins and negatively impact operating results.
• Our reliance on certain significant suppliers subjects us to numerous risks, including possible interruptions in supply, which could adversely affect our business.
• Our business is vulnerable to the availability of raw materials, our ability to forecast customer demand and our ability to manage production capacity.
• The manufacturing facilities, supply channels or other business operations of the Company and our suppliers may be subject to disruption from events beyond our control.
• The Company’s future results may be affected by its operational execution, including its ability to achieve cost savings as a result of any current or future restructuring events.
• If our goodwill and indefinite-lived intangible assets become impaired, we will be required to record impairment charges, which may be significant.
• A failure of a key information technology system could adversely impact our ability to conduct business.
• We rely significantly on information technology and any inadequacy, interruption, theft or loss of data, malicious attack, integration failure, failure to maintain the security, confidentiality or privacy of sensitive data residing on our systems or other security failure of that technology could harm our ability to effectively operate our business and damage the reputation of our brands.
• We have significant debt obligations that could adversely affect our business and our ability to meet our obligations.
• If we pursue strategic acquisitions, divestitures or joint ventures, we might experience operating difficulties, dilution, and other consequences that may harm our business, financial condition, and operating results, and we may not be able to successfully consummate favorable transactions or successfully integrate acquired businesses.
• Our business involves the potential for product liability claims, labeling claims, commercial claims and other legal claims against us, which could affect our results of operations and financial condition and result in product recalls or withdrawals.
• Our business is subject to increasing government regulations in both the U.S. and abroad that could impose material costs.
• Increased focus by governmental and non-governmental organizations, customers, consumers and shareholders on environmental, social and governance (ESG) issues, including those related to sustainability and climate change, may have an adverse effect on our business, financial condition and results of operations and damage our reputation.
• We are subject to environmental laws and regulations that may expose us to significant liabilities and have a material adverse effect on our results of operations and financial condition.

In addition, other risks and uncertainties not presently known to us or that we consider immaterial could affect the accuracy of any such forward-looking statements. The list of factors above is illustrative, but by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Additional risks and uncertainties include those detailed from time to time in our publicly filed documents, including those described under the heading “Risk Factors” in our Form 10-K filed with the Securities and Exchange Commission on November 14, 2023.

ENERGIZER HOLDINGS, INC.
Supplemental Schedules
Introduction to the Reconciliation of GAAP and Non-GAAP Measures
For the Quarter and Twelve Months ended September 30, 2024

The Company reports its financial results in accordance with accounting principles generally accepted in the U.S. (“GAAP”).  However, management believes that certain non-GAAP financial measures provide users with additional meaningful comparisons to the corresponding historical or future period, and are used for management incentive compensation. These non-GAAP financial measures exclude items that are not reflective of the Company’s on-going operating performance, such as impairment of intangible assets, restructuring and related costs, network transition costs, acquisition and integration costs, a litigation matter, the loss/(gain) on extinguishment of debt, the December 2023 Argentina Economic Reform and the settlement loss on US pension annuity buyout. In addition, these measures help investors to analyze year over year comparability when excluding currency fluctuations as well as other Company initiatives that are not on-going.  We believe these non-GAAP financial measures are an enhancement to assist investors in understanding our business and in performing analysis consistent with financial models developed by research analysts. Investors should consider non-GAAP measures in addition to, not as a substitute for, or superior to, the comparable GAAP measures. In addition, these non-GAAP measures may not be the same as similar measures used by other companies due to possible differences in methods and in the items being adjusted.

We provide the following non-GAAP measures and calculations, as well as the corresponding reconciliation to the closest GAAP measure in the following supplemental schedules:

Segment Profit.  This amount represents the operations of our two reportable segments including allocations for shared support functions. General corporate and other expenses, amortization expense, impairment of intangible assets, interest expense, loss/(gain) on extinguishment of debt, other items, net, restructuring and related costs, network transition costs, a litigation matter, and acquisition and integration costs have all been excluded from segment profit. 

Adjusted Net Earnings and Adjusted Diluted Net Earnings Per Common Share (EPS).  These measures exclude the impact of restructuring and related costs, network transition costs, impairment of intangible assets, costs related to acquisition and integration, a litigation matter, the loss/(gain) on extinguishment of debt, the December 2023 Argentina Economic Reform and the settlement loss on US pension annuity buyout.

Non-GAAP Tax Rate. This is the tax rate when excluding the pre-tax impact of restructuring and related costs, network transition costs, impairment of intangible assets, costs related to acquisition and integration, a litigation matter, the loss/(gain) on extinguishment of debt, the December 2023 Argentina Economic Reform and the settlement loss on US pension annuity buyout, as well as the related tax impact for these items, calculated utilizing the statutory rate for where the impact was incurred.

Organic.  This is the non-GAAP financial measurement of the change in revenue or segment profit that excludes or otherwise adjusts for the change in Argentina operations and impact of currency from the changes in foreign currency exchange rates as defined below:

Change in Argentina Operations. The Company is presenting separately all changes in sales and segment profit from our Argentina affiliate due to the designation of the economy as highly inflationary as of July 1, 2018.

Impact of currency. The Company evaluates the operating performance of our Company on a currency neutral basis. The Impact of Currency is the change in foreign currency exchange rates year-over-year on reported results, which is calculated by comparing the value of current year foreign operations at the current period USD exchange rate versus the value of current year foreign operations at the prior period USD exchange rate. The impact of currency also includes gains/(losses) of currency hedging programs, and it excludes hyper-inflationary markets.

Adjusted Comparisons.  Detail for adjusted gross profit, adjusted gross margin, adjusted SG&A and adjusted SG&A as percent of sales and adjusted Other items, net are also supplemental non-GAAP measure disclosures. These measures exclude the impact of restructuring and related costs, network transition costs, acquisition and integration costs, a litigation matter, the December 2023 Argentina Economic Reform and the settlement loss on US pension annuity buyout.

EBITDA and Adjusted EBITDA. EBITDA is defined as net earnings before income tax provision, interest, the loss/(gain) on extinguishment of debt, and depreciation and amortization. Adjusted EBITDA further excludes the impact of the costs related to restructuring, network transition costs, a litigation matter, the December 2023 Argentina Economic Reform, the settlement loss on US pension annuity buyout, impairment of intangible assets, acquisition and integration costs, and share based payments.

Free Cash Flow. Free Cash Flow is defined as net cash provided by operating activities reduced by capital expenditures, net of the proceeds from asset sales.

Net Debt. Net Debt is defined as total Company debt, less cash and cash equivalents.

Currency-neutral. Currency-neutral excludes the Impact of currency as defined above on key measures. Hyper inflationary markets are excluded from this calculation.

Energizer Holdings, Inc.
Supplemental Schedules – Segment Information and Supplemental Sales Data
For the Quarter and Twelve Months ended September 30, 2024
(In millions, except per share data – Unaudited)

Operations for Energizer are managed via two product segments: Batteries & Lights and Auto Care. Energizer’s operating model includes a combination of standalone and shared business functions between the product segments, varying by country and region of the world. Shared functions include the sales and marketing functions, as well as human resources, IT and finance shared service costs. Energizer applies a fully allocated cost basis, in which shared business functions are allocated between segments. Such allocations are estimates, and may not represent the costs of such services if performed on a standalone basis. Segment sales and profitability, as well as the reconciliation to earnings before income taxes for the quarters and twelve months ended September 30, 2024 and 2023 are presented below:

Supplemental product information is presented below for depreciation and amortization: