Vertiv Holdings Co 10-Q for FY2022 Q1
Vertiv Holdings Co (VRT)
10-Q
2022-05-02
For: 2022-03-31
View Original
Added on
April 02, 2026
About this 10-Q
Vertiv Holdings Co filed this 10-Q on May 2, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.16B
- up 5.3% from $1.1B a year earlier
- Net income
- $8.5M
- down 73.2% from net income of $31.7M a year earlier
- Diluted EPS
- -$0.23
- compared with $0.09 a year earlier
| UNITED STATES | ||||||||||||||
| SECURITIES AND EXCHANGE COMMISSION | ||||||||||||||
| Washington, D. C. 20549 | ||||||||||||||
FORM | ||||||||||||||
For the Quarterly period ended | ||||||||||||||
| or | ||||||||||||||
| For the transition period from __to__ | ||||||||||||||
Commission File No. | ||||||||||||||
| (Exact name of registrant as specified in its charter) | ||||||||||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S Employer Identification No.) | |||||||||||||
| (Address of principal executive offices including zip code) | ||||||||||||||
| (Registrant's telephone number, including area code) | ||||||||||||||
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||||||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| ☒ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of April 29, 2022, there were 376,686,144 shares of our Class A common stock, par value $0.0001, issued and outstanding.
| TABLE OF CONTENTS | |||||||||||||||||
| Page | |||||||||||||||||
1
Part I. Financial Information
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
VERTIV HOLDINGS CO
(Dollars in millions except for per share data)
| Three months ended March 31, 2022 | Three months ended March 31, 2021 | ||||||||||||||||||||||
| Net sales | |||||||||||||||||||||||
| Net sales - products | $ | $ | |||||||||||||||||||||
| Net sales - services | |||||||||||||||||||||||
| Net sales | |||||||||||||||||||||||
| Costs and expenses | |||||||||||||||||||||||
| Cost of sales - products | |||||||||||||||||||||||
| Cost of sales - services | |||||||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Amortization of intangibles | |||||||||||||||||||||||
| Restructuring costs | |||||||||||||||||||||||
| Foreign currency (gain) loss, net | ( | ( | |||||||||||||||||||||
| Other operating expense (income) | ( | ||||||||||||||||||||||
| Operating profit (loss) | ( | ||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
| Loss on extinguishment of debt | |||||||||||||||||||||||
| Change in fair value of warrant liabilities | ( | ||||||||||||||||||||||
| Income (loss) before income taxes | |||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Net income (loss) | $ | $ | |||||||||||||||||||||
| Earnings (loss) per share: | |||||||||||||||||||||||
| Basic | $ | $ | |||||||||||||||||||||
| Diluted | $ | ( | $ | ||||||||||||||||||||
| Weighted-average shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
VERTIV HOLDINGS CO
(Dollars in millions)
| Three months ended March 31, 2022 | Three months ended March 31, 2021 | ||||||||||||||||||||||
| Net income (loss) | $ | $ | |||||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency translation | ( | ( | |||||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||
| Tax receivable agreement | |||||||||||||||||||||||
| Pension | ( | ||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||||||||
| Comprehensive income (loss) | $ | $ | |||||||||||||||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
3
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
VERTIV HOLDINGS CO
(Dollars in millions)
| March 31, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, less allowances of $ | |||||||||||
| Inventories | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Other assets: | |||||||||||
| Goodwill | |||||||||||
| Other intangible assets, net | |||||||||||
| Deferred income taxes | |||||||||||
| Other | |||||||||||
| Total other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Accrued expenses and other liabilities | |||||||||||
| Income taxes | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, net | |||||||||||
| Deferred income taxes | |||||||||||
| Warrant liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Equity | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive (loss) income | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
4
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
VERTIV HOLDINGS CO
(Dollars in millions)
| Three months ended March 31, 2022 | Three months ended March 31, 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | $ | |||||||||
| Adjustments to reconcile net income (loss) to net cash used for operating activities: | |||||||||||
| Depreciation | |||||||||||
| Amortization | |||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Amortization of debt discount and issuance costs | |||||||||||
| Loss on extinguishment of debt | |||||||||||
| Change in fair value of warrant liabilities | ( | ||||||||||
| Changes in operating working capital | ( | ( | |||||||||
| Stock based compensation | |||||||||||
| Payment of contingent consideration | ( | ||||||||||
| Changes in tax receivable agreement | |||||||||||
| Other | ( | ||||||||||
| Net cash provided by (used for) operating activities | ( | ||||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Investments in capitalized software | ( | ( | |||||||||
| Net cash used for investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings from ABL revolving credit facility and short-term borrowings | |||||||||||
| Repayments of ABL revolving credit facility and short-term borrowings | ( | ||||||||||
| Repayment of long-term debt | ( | ( | |||||||||
| Proceeds from the exercise of warrants | |||||||||||
| Payment of contingent consideration | ( | ||||||||||
| Exercise of employee stock options | |||||||||||
| Net cash provided by (used for) financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ||||||||||
| Increase (decrease) in cash, cash equivalents and restricted cash | ( | ||||||||||
| Beginning cash, cash equivalents and restricted cash | |||||||||||
| Ending cash, cash equivalents and restricted cash | $ | $ | |||||||||
| Changes in operating working capital | |||||||||||
| Accounts receivable | $ | ( | $ | ||||||||
| Inventories | ( | ( | |||||||||
| Other current assets | ( | ( | |||||||||
| Accounts payable | |||||||||||
| Accrued expenses and other liabilities | ( | ||||||||||
| Income taxes | |||||||||||
| Total changes in operating working capital | $ | ( | $ | ( | |||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
5
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
VERTIV HOLDINGS CO
(Dollars in millions)
| Share Capital | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | ( | |||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Exercise of employee stock options | — | — | — | |||||||||||||||||||||||||||||||||||
| Employee 401K match with Vertiv stock | — | — | — | |||||||||||||||||||||||||||||||||||
Exercise of warrants (1) | — | — | — | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | ||||||||||||||||||||||||||||||||||
Balance at March 31, 2021 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Exercise of employee stock options | — | — | — | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Employee 401K match with Vertiv stock | — | — | — | |||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | ||||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
(1)The exercise of warrants includes $107.5 of cash received during the three months ended March 31, 2021 for the exercise of Public Warrants.
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
6
Vertiv Holdings Co
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except as otherwise specified and per share amounts)
(1) DESCRIPTION OF BUSINESS
(2) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America and the rules and regulations of the Securities and Exchange Commission ("SEC") and include the accounts of the Company and its subsidiaries in which the Company has a controlling interest. These condensed consolidated interim financial statements do not include all of the information and footnotes required for complete financial statements. In management’s opinion, these financial statements reflect all adjustments of a normal, recurring nature necessary for a fair presentation of the results for the interim periods presented.
The presentation of certain prior period amounts have been reclassed to conform with current year presentation. For the three months ended March 31, 2021, $40.3 29.8
The preparation of financial statements in conformity with GAAP in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from the estimates. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates. Results for these interim periods are not necessarily indicative of results to be expected for the full year due to, among other reasons, the continued uncertainty of general economic conditions due to the COVID-19 pandemic that has impacted, and may continue to impact, our sales channels, supply chain, manufacturing operations, workforce, or other key aspects of our operations.
The notes included herein should be read in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K filed with the SEC on March 1, 2022 (the "2021 Form 10-K").
(3) ACQUISITION
On November 1, 2021, the Company, through its wholly-owned subsidiaries Vertiv Holdings Ireland DAC, a private company limited by shares incorporated in Ireland (the "Irish buyer") and Vertiv International Holding Corporation, an Ohio corporation (the “US Buyer” and together with the Irish Buyer, the “Buyers” and each a “Buyer”) acquired (the "Acquisition") the shares of E&I Engineering Ireland Limited, a private company limited by shares incorporated in Ireland, and Powerbar Gulf LLC ("E&I").
As of March 31, 2022 in conjunction with the E&I acquisition, there is $2.2 of contingent earnout related to their projected future results recorded in "Accrued expenses and other liabilities" in the Unaudited Condensed Consolidated Balance Sheets. For the three months ended March 31, 2022 the change in fair value of contingent consideration of $1.5 is included within "Other operating expense (income)" on the Unaudited Condensed Consolidated Statements of Earnings(Loss).
7
There were no material changes to the purchase price allocation for the three months ended March 31, 2022. The following is the preliminary purchase price allocation of assets acquired and liabilities assumed related to the Acquisition:
| Preliminary Allocation | ||||||||||||||||||||
| Accounts receivable | $ | |||||||||||||||||||
| Inventories | ||||||||||||||||||||
| Other current assets | ||||||||||||||||||||
| Property, plant and equipment | ||||||||||||||||||||
| Goodwill | ||||||||||||||||||||
| Other intangible assets | ||||||||||||||||||||
| Other assets | ||||||||||||||||||||
| Accounts payable | ||||||||||||||||||||
| Accrued expenses and other liabilities | ||||||||||||||||||||
| Deferred income taxes | ||||||||||||||||||||
| Other long-term liabilities | ||||||||||||||||||||
| Net assets acquired and liabilities assumed | $ | |||||||||||||||||||
Goodwill was calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of net assets recognized for E&I, and represents the future economic benefits, including synergies, and assembled workforce, that are expected to be achieved as a result of the consummation of the Acquisition of E&I. The goodwill arising from the Acquisition is not expected to be deductible for tax purposes. As of March 31, 2022, goodwill of $273.4 and $474.8 has been allocated to the Americas and the Europe, Middle East and Africa segments, respectively.
The following table represents the definite lived intangible assets acquired, the preliminary fair values and respective useful lives:
| Useful Life | Preliminary Fair Value | |||||||||||||
| Customer relationships | $ | |||||||||||||
| Developed technology | ||||||||||||||
| Trademarks | ||||||||||||||
| Backlog | ||||||||||||||
| Total intangible assets | $ | |||||||||||||
The Company used the multi-period excess earnings method to value the customer relationship intangible assets and the relief from royalty method to value the developed technology intangible assets. The significant assumptions used to estimate the fair value of customer relationships included forecasted earnings before interest, taxes, and amortization, customer attrition rates and a discount rate. The significant assumptions used to estimate the fair value of developed technology included the forecasted revenues, royalty rates and a discount rate. These significant assumptions are forward-looking and could be affected by future economic and market conditions. The estimated weighted-average useful lives was 14.2 years for finite lived intangible assets.
For the three months ended March 31, 2022, E&I net sales were $87.5 which are included in "Net sales" and operating losses of $16.8 were included in "Income (loss) before income taxes, net" on the Unaudited Condensed Consolidated Statement of Earnings (Loss).
Pro Forma Financial Information
In accordance with ASC 805 Business Combination, the following unaudited pro forma results of operations for the three months ended March 31, 2021 assumes the E&I acquisition was completed on January 1, 2020. The following pro forma results include adjustments to reflect acquisition related costs, additional interest expense and amortization of debt issuance costs, accounting policies applied to E&I after the business combination, amortization of intangibles associated with the acquisition and the effects of adjustments made to the carrying value of certain assets.
8
| Unaudited proforma information | Three months ended March 31, 2021 | |||||||||||||
| Net sales | $ | |||||||||||||
| Net income (loss) | ||||||||||||||
The unaudited pro forma results contain the following nonrecurring adjustments to give effect to pro forma events that are directly attributable to the transaction, factually supportable, and expected to have a continuing impact on the combined results. Proforma data may not be indicative of the results that would have been obtained had the acquisition occurred at the beginning of the periods presented, nor is it intended to be a projection of future results. Additionally, the pro forma financial information does not reflect the costs which the company has incurred or may incur to integrate the acquired business.
(4) REVENUE
The Company recognizes revenue from the sale of manufactured products and services when control of promised goods or services are transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
Disaggregation of Revenues
The following table disaggregates our revenue by business segment, product and service offering and timing of transfer of control:
| Three Months Ended March 31, 2022 | |||||||||||||||||||||||
| Americas | Asia Pacific | Europe, Middle East, & Africa | Total | ||||||||||||||||||||
| Sales by Product and Service Offering: | |||||||||||||||||||||||
| Critical infrastructure & solutions | $ | $ | $ | $ | |||||||||||||||||||
| Services & spares | |||||||||||||||||||||||
| Integrated rack solutions | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Timing of revenue recognition: | |||||||||||||||||||||||
| Products and services transferred at a point in time | $ | $ | $ | $ | |||||||||||||||||||
| Products and services transferred over time | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Three Months Ended March 31, 2021 | |||||||||||||||||||||||
| Americas | Asia Pacific | Europe, Middle East, & Africa | Total | ||||||||||||||||||||
| Sales by Product and Service Offering: | |||||||||||||||||||||||
| Critical infrastructure & solutions | $ | $ | $ | $ | |||||||||||||||||||
| Services & spares | |||||||||||||||||||||||
| Integrated rack solutions | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Timing of revenue recognition: | |||||||||||||||||||||||
| Products and services transferred at a point in time | $ | $ | $ | $ | |||||||||||||||||||
| Products and services transferred over time | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
9
The opening and closing balances of our current and long-term contract assets and current and long-term deferred revenue were as follows:
Balances at March 31, 2022 | Balances at December 31, 2021 | ||||||||||
Deferred revenue - current (1) | $ | $ | |||||||||
Deferred revenue - noncurrent (2) | |||||||||||
Other contract liabilities - current (1) | |||||||||||
(1) Current deferred revenue and contract liabilities are included within accrued expenses and other liabilities.
(2) Noncurrent deferred revenue is recorded within other long-term liabilities.
(5) RESTRUCTURING COSTS
Restructuring costs include expenses associated with the Company's efforts to continually improve operational efficiency and reposition its assets to remain competitive on a worldwide basis. Plant closing and other costs include costs of moving fixed assets, employee training, relocation, and facility costs.
Restructuring costs by business segment were as follows:
| Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | ||||||||||||||||||||||
| Americas | $ | $ | |||||||||||||||||||||
| Asia Pacific | |||||||||||||||||||||||
| Europe, Middle East & Africa | |||||||||||||||||||||||
| Corporate | ( | ||||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||
The change in the liability for the restructuring of operations during the three months ended March 31, 2022 were as follows:
| December 31, 2021 | Expense | Paid/Utilized | March 31, 2022 | ||||||||||||||||||||
| Severance and benefits | $ | $ | $ | ( | $ | ||||||||||||||||||
| Plant closing and other | ( | ||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ||||||||||||||||||
The change in the liability for the restructuring of operations during the three months ended March 31, 2021 were as follows:
| December 31, 2020 | Expense | Paid/Utilized | March 31, 2021 | ||||||||||||||||||||
| Severance and benefits | $ | $ | $ | ( | $ | ||||||||||||||||||
| Plant closing and other | ( | ||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ||||||||||||||||||
(6) DEBT
Long-term debt, net, consisted of the following as of March 31, 2022 and December 31, 2021:
| March 31, 2022 | December 31, 2021 | ||||||||||
Term Loan due 2027 at | $ | $ | |||||||||
Senior Secured Notes due 2028 at | |||||||||||
| Unamortized discount and issuance costs | ( | ( | |||||||||
| Less: Current Portion | ( | ( | |||||||||
| Total long-term debt, net of current portion | $ | $ | |||||||||
10
ABL Revolving Credit Facility
At March 31, 2022, Vertiv Group Corporation (a wholly-owned subsidiary of the Company), as the "Borrower," and certain subsidiaries of the Borrower as co-borrowers (the "Co-Borrowers") had $432.2 of availability under the Asset Based Revolving Credit Facility (the "ABL Revolving Credit Facility") (subject to customary conditions, and subject to separate sublimits for letters of credit, swingline borrowings and borrowings made to certain non-U.S. Co-Borrowers), net of letters of credit outstanding in the aggregate principal amount of $19.1 , and taking into account the borrowing base limitations set forth in the ABL Revolving Credit Facility. At March 31, 2022, there was no borrowing balance on the ABL Revolving Credit Facility.
(7) LEASES
The Company leases office space, warehouses, vehicles, and equipment. Leases have remaining lease terms of 1 year to 20 years, some of which have renewal and termination options. Termination options are exercisable at the Company's option. The lease terms used to recognize right-of-use assets and lease liabilities include periods covered by options to extend the lease where the Company is reasonably certain to exercise that option and periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option. The majority of our leases are operating leases. Finance leases, which are recorded in "Property, Plant, and Equipment", are immaterial to our condensed consolidated financial statements.
Operating lease expenses are recorded in "Cost of sales" and "Selling, general and administrative expenses" on the Unaudited Condensed Consolidated Statements of Earnings (Loss). Refer to the below table for a summary of these lease expenses:
| Three months ended March 31, 2022 | Three months ended March 31, 2021 | ||||||||||||||||||||||
| Operating lease cost | $ | $ | |||||||||||||||||||||
| Short-term and variable lease cost | |||||||||||||||||||||||
| Total lease cost | $ | $ | |||||||||||||||||||||
Supplemental cash flow information related to operating leases is as follows:
| Three months ended March 31, 2022 | Three months ended March 31, 2021 | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash outflows - Payments on operating leases | $ | $ | |||||||||
| Right-of-use assets obtained in exchange for new lease obligations: | |||||||||||
| Operating leases | $ | $ | |||||||||
| Financial statement line item | March 31, 2022 | December 31, 2021 | ||||||||||||
| Operating lease right-of-use assets | $ | $ | ||||||||||||
| Operating lease liabilities | $ | $ | ||||||||||||
| Operating lease liabilities | ||||||||||||||
| Total lease liabilities | $ | $ | ||||||||||||
| March 31, 2022 | December 31, 2021 | ||||||||||
| Weighted Average Remaining Lease Term | |||||||||||
| Weighted Average Discount Rate | % | % | |||||||||
11
Maturities of lease liabilities are as follows:
| March 31, 2022 | December 31, 2021 | ||||||||||||||||
| Operating Leases | |||||||||||||||||
| 2022 | $ | $ | |||||||||||||||
| 2023 | |||||||||||||||||
| 2024 | |||||||||||||||||
| 2025 | |||||||||||||||||
| 2026 | |||||||||||||||||
| Thereafter | |||||||||||||||||
| Total Lease Payments | |||||||||||||||||
| Less: Imputed Interest | ( | ( | |||||||||||||||
| Present value of lease liabilities | $ | $ | |||||||||||||||
(8) INCOME TAXES
The Company's effective tax rate was 58.3 % and 24.0 % for the three months ended March 31, 2022 and 2021, respectively. The effective tax rate in the three months ended March 31, 2022 is primarily influenced by the mix of income between our U.S. and non-U.S. operations, net of changes in valuation allowances offset by non-taxable changes in fair value of the warrant liabilities. The effective rate for the comparative three month period is primarily influenced by the mix of income between our U.S. and non-U.S. operations and reflects the negative impact of Global Intangible Low-Taxed Income (or "GILTI"), which is offset by changes in the U.S. valuation allowance.
The Company has provided for U.S. federal income taxes and foreign withholding taxes on all temporary differences attributed to basis differences in foreign subsidiaries that are not considered indefinitely reinvested. As of March 31, 2022, the Company has certain earnings of certain foreign affiliates that continue to be indefinitely reinvested, but it was not practicable to estimate the associated deferred tax liability, due to interaction with other tax laws and regulations in the year of inclusion.
(9) RELATED PARTY TRANSACTIONS
Transactions with Affiliates of Advisors
The Company purchased and sold goods in the ordinary course of business with affiliates of Platinum Equity Advisors, LLC ("Advisors"). For the three months ended March 31, 2022 and 2021 purchases were $34.9 and $14.5 , respectively. For the three months ended March 31, 2022 sales were $31.4 , and sales with affiliates of Advisors were insignificant for the three months ended March 31, 2021. Accounts payable to affiliates of Advisors were $0.9 and $3.9 as of March 31, 2022 and December 31, 2021, respectively. Accounts receivable from affiliates of Advisors were $24.5 and $42.9 as of March 31, 2022 and December 31, 2021, respectively.
Tax Receivable Agreement
On December 31, 2021, the Company and an affiliate of Advisors (the "Vertiv Stockholder") agreed to amend and supplement the prior Tax Receivable Agreement to replace the Company’s remaining payment obligations under the prior agreement with an obligation to pay $100 million in cash in two equal installments. The first installment payment will be due on or before June 15, 2022, and the second installment payment will be due on or before September 15, 2022. Upon receipt of the second installment payment, the agreement will terminate and the Company will not be required to make any further payments to the Vertiv Stockholder.
For the three months ended March 31, 2021 we recorded $1.8 of accretion expense in "Interest expense, net" in the Unaudited Condensed Consolidated Statement of Earnings (Loss). An unrealized gain (loss) of $4.1 was recorded in "Accumulated other comprehensive income" in the Unaudited Condensed Consolidated Comprehensive Income (Loss), related to the change in fair value of the tax receivable liability for the three months ended March 31, 2021.
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(10) OTHER FINANCIAL INFORMATION
| March 31, 2022 | December 31, 2021 | ||||||||||
| Reconciliation of cash, cash equivalents, and restricted cash | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in other current assets | |||||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | |||||||||
| March 31, 2022 | December 31, 2021 | ||||||||||
| Inventories | |||||||||||
| Finished products | $ | $ | |||||||||
| Raw materials | |||||||||||
| Work in process | |||||||||||
| Total inventories | $ | $ | |||||||||
| March 31, 2022 | December 31, 2021 | ||||||||||
| Property, plant and equipment, net | |||||||||||
| Machinery and equipment | $ | $ | |||||||||
| Buildings | |||||||||||
| Land | |||||||||||
| Construction in progress | |||||||||||
| Property, plant and equipment, at cost | |||||||||||
| Less: Accumulated depreciation | ( | ( | |||||||||
| Property, plant and equipment, net | $ | $ | |||||||||
| March 31, 2022 | December 31, 2021 | ||||||||||
| Accrued expenses and other liabilities | |||||||||||
| Deferred revenue | $ | $ | |||||||||
| Accrued payroll and other employee compensation | |||||||||||
Restructuring (see Note 5) | |||||||||||
| Operating lease liabilities | |||||||||||
| Product warranty | |||||||||||
Contract liabilities (see Note 4) | |||||||||||
Tax Receivable Agreement (see Note 9) | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
| 2022 | 2021 | ||||||||||
| Change in product warranty accrual | |||||||||||
| Beginning balance, January 1 | $ | $ | |||||||||
| Provision charge to expense | |||||||||||
| Paid/utilized | ( | ( | |||||||||
Ending balance, March 31, | $ | $ | |||||||||
(11) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
In accordance with ASC 820, the Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. Observable inputs are from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. These tiers include the following:
Level 1 — inputs include observable unadjusted quoted prices in active markets for identical assets or liabilities
Level 2 — inputs include other than quoted prices in active markets that are either directly or indirectly observable
Level 3 — inputs include unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions
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In determining fair value, the Company uses various valuation techniques and prioritizes the use of observable inputs. The availability of observable inputs varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded and other characteristics particular to the instrument. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants and the valuation does not require significant management judgment. For other financial instruments, pricing inputs are less observable in the marketplace and may require management judgment.
Recurring fair value measurements
A summary of the Company's financial instruments recognized at fair value, and the fair value measurements used, follows:
| Balance Sheet Location | Total | Quoted prices in active markets for identical assets (Level 1) | Other observable inputs (Level 2) | Unobservable inputs (Level 3) | ||||||||||||||||||||||
March 31, 2022 | ||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Interest rate swaps | Other current assets | $ | $ | $ | $ | |||||||||||||||||||||
| Interest rate swaps | Other noncurrent assets | |||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Contingent consideration | Accrued expenses and other liabilities | $ | $ | $ | $ | |||||||||||||||||||||
| Private warrants | Warrant liabilities | |||||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||||||||||||
| Balance Sheet Location | Total | Quoted prices in active markets for identical assets (Level 1) | Other observable inputs (Level 2) | Unobservable inputs (Level 3) | ||||||||||||||||||||||
December 31, 2021 | ||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Interest rate swaps | Other noncurrent assets | $ | $ | $ | $ | |||||||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Interest rate swaps | Accrued expenses and other liabilities | $ | $ | $ | $ | |||||||||||||||||||||
| Contingent consideration | Accrued expenses and other liabilities | |||||||||||||||||||||||||
| Private warrants | Warrant liabilities | |||||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||||||||||||
Contingent consideration — As of March 31, 2022 in conjunction with the Acquisition, there is $2.2 of contingent earnout related to E&I's projected future results recorded in "Accrued expenses and other liabilities" in the Unaudited Condensed Consolidated Balance Sheets. For the three months ended March 31, 2022 the change in fair value of contingent consideration of $1.5 is included within "Other operating expense (income)" on the Unaudited Condensed Consolidated Statements of Earnings(Loss). Refer to "Note 3 - Acquisition" for more details on the Acquisition.
Interest rate swaps — From time to time the Company may enter into derivative financial instruments designed to hedge the variability in interest expense on floating rate debt. Derivatives are recognized as assets or liabilities in the Unaudited Condensed Consolidated Balance Sheets at their fair value. When the derivative instrument qualifies as a cash flow hedge, changes in the fair value are deferred through other comprehensive income, depending on the nature and effectiveness of the offset.
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The Company uses interest rate swaps to manage the interest rate mix of our total debt portfolio and related overall cost of borrowing. At March 31, 2022 interest rate swap agreements designated as cash flow hedges effectively swapped a notional amount of $1,000.0 of LIBOR based floating rate debt for fixed rate debt. Our interest rate swaps mature in March 2027. The Company recognized $2.6 and $2.7 in earnings for the three months ended March 31, 2022 and 2021, respectively. At March 31, 2022, the Company expects that approximately $4.4 of pre-tax net gains on cash flow hedges will be reclassified from accumulated other comprehensive income (loss) into earnings during the next twelve months.
The interest rate swaps are valued using the LIBOR yield curves at the reporting date. Counterparties to these contracts are highly rated financial institutions. The fair values of the Company’s interest rate swaps are adjusted for nonperformance risk and creditworthiness of the counterparty through the Company’s credit valuation adjustment (“CVA”). The CVA is calculated at the counterparty level utilizing the fair value exposure at each payment date and applying a weighted probability of the appropriate survival and marginal default percentages.
Net investment hedge — From time to time the Company designates certain intercompany debt to hedge a portion of its investment in foreign subsidiaries and affiliates. The net impact of realized and unrealized translation adjustments from these hedges were insignificant and are included in "Foreign currency translation" in the Unaudited Condensed Consolidated Statement of Other comprehensive income (loss). As of March 31, 2022, approximately $257.0 of the Company's intercompany debt were designated to hedge investments in certain foreign subsidiaries and affiliates.
Private warrants — the fair value of the Private warrants is considered a Level 2 valuation and is determined using the Black-Sholes-Merton valuation model.
The significant assumptions which the Company used in the model are:
| Warrant valuation inputs | March 31, 2022 | December 31, 2021 | ||||||||||||
| Stock price | $ | $ | ||||||||||||
| Strike price | $ | $ | ||||||||||||
| Remaining life | ||||||||||||||
| Volatility | % | % | ||||||||||||
Interest rate (1) | % | % | ||||||||||||
Dividend yield (2) | % | % | ||||||||||||
(1) Interest rate determined from a constant maturity treasury yield
(2) March 31, 2022 and December 31, 2021 dividend yield assumes $0.01
Other fair value measurements
We determine the fair value of debt using Level 2 inputs based on quoted market prices. The following table presents the estimated fair value and carrying value of long-term debt, including the current portion of long-term debt as of March 31, 2022 and December 31, 2021.
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Fair Value | Par Value (1) | Fair Value | Par Value (1) | ||||||||||||||||||||
| Term Loan due 2027 | $ | $ | $ | $ | |||||||||||||||||||
| Senior Secured Notes due 2028 | |||||||||||||||||||||||
(1)See Note 6 — Debt for additional information
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(12) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Activity in accumulated other comprehensive income (loss) is as follows:
| Three months ended March 31, 2022 | Three months ended March 31, 2021 | ||||||||||||||||||||||
| Foreign currency translation, beginning | $ | $ | |||||||||||||||||||||
| Other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Foreign currency translation, ending | |||||||||||||||||||||||
| Interest rate swaps, beginning | ( | ||||||||||||||||||||||
Unrealized gain (loss) deferred during the period (1) | |||||||||||||||||||||||
| Interest rate swaps, ending | |||||||||||||||||||||||
| Pension, beginning | ( | ( | |||||||||||||||||||||
| Actuarial gain (losses) recognized during the period, net of income taxes | ( | ||||||||||||||||||||||
| Pension, ending | ( | ( | |||||||||||||||||||||
| Tax receivable agreement, beginning | ( | ||||||||||||||||||||||
Unrealized gain (loss) during the period (2) | |||||||||||||||||||||||
| Tax receivable agreement, ending | |||||||||||||||||||||||
| Accumulated other comprehensive income (loss) | $ | $ | |||||||||||||||||||||
(1)During the three months ended March 31, 2022 and 2021, $2.6 and $2.7 , respectively, was reclassified into earnings.
(2)The fair value movement on the Tax Receivable Agreement attributable to our own credit risk spread was recorded in "Other comprehensive income (loss)" prior to the amended Tax Receivable Agreement.
(13) SEGMENT INFORMATION
The primary income measure used for assessing segment performance and making operating decisions is operating profit (loss). Segment performance is assessed exclusive of Corporate and other costs, foreign currency gain (loss), and amortization of intangibles. Corporate and other costs primarily include headquarters management costs, stock-based compensation, other incentive compensation, global IT costs, change in warrant liabilities, asset impairments, and costs that support global product platform development and offering management.
Vertiv determines its reportable segments based on how operations are managed internally for the products and services sold to customers, including how the results are reviewed by the chief operating decision maker (CODM), which includes determining resource allocation methodologies used for reportable segments.
Summarized information about the Company’s results of operations by reportable segment and product and service offering follows:
Americas includes products and services sold for applications within the data center, communication networks and commercial/industrial markets in North America and Latin America. This segment’s principal product and service offerings include:
•Critical infrastructure & solutions includes AC and DC power management, thermal management, and modular hyperscale type data center sites.
•Integrated rack solutions includes racks, rack power, rack power distribution, rack thermal systems, and configurable integrated solutions; and hardware for managing I.T. equipment.
•Services & spares includes preventative maintenance, acceptance testing, engineering and consulting, performance assessments, remote monitoring, training, spare parts, and digital critical infrastructure software.
Asia Pacific includes products and services sold for applications within the data center, communication networks and commercial/industrial markets throughout Greater China and Australia & New Zealand, South East Asia and India. Products and services offered are similar to the Americas segment.
Europe, Middle East & Africa includes products and services sold for applications within the data center, communication networks and commercial/industrial markets in Europe, Middle East & Africa. Products and services offered are similar to the Americas segment.
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Reportable Segments
| Sales | Three months ended March 31, 2022 | Three months ended March 31, 2021 | |||||||||||||||||||||
| Americas | $ | $ | |||||||||||||||||||||
| Asia Pacific | |||||||||||||||||||||||
| Europe, Middle East & Africa | |||||||||||||||||||||||
| Eliminations | ( | ( | |||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||
Intersegment sales (1) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | |||||||||||||||||||||
| Americas | $ | $ | |||||||||||||||||||||
| Asia Pacific | |||||||||||||||||||||||
| Europe, Middle East & Africa | |||||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||
(1)Intersegment selling prices approximate market prices.
| Operating profit (loss) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | |||||||||||||||||||||
| Americas | $ | $ | |||||||||||||||||||||
| Asia Pacific | |||||||||||||||||||||||
| Europe, Middle East & Africa | |||||||||||||||||||||||
| Total reportable segments | |||||||||||||||||||||||
| Foreign currency gain (loss) | |||||||||||||||||||||||
| Corporate and other | ( | ( | |||||||||||||||||||||
| Total corporate, other and eliminations | ( | ( | |||||||||||||||||||||
| Amortization of intangibles | ( | ( | |||||||||||||||||||||
| Operating profit (loss) | $ | ( | $ | ||||||||||||||||||||
(14) EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) adjusted for the gain on fair value of warrant liability, if the impact is dilutive, by the weighted average number of common shares outstanding during the period increased by the number of additional shares that would have been outstanding related to potentially dilutive equity-based compensation and warrants.
The details of the earnings per share calculations for the three months ended March 31, 2022 and 2021 are as follows:
(In millions, except share and per share amounts) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | |||||||||||||||||||||
| Basic earnings (loss) per share computation: | |||||||||||||||||||||||
| Net income (loss) | $ | $ | |||||||||||||||||||||
| Weighted-average number of shares outstanding - basic | |||||||||||||||||||||||
| Basis earnings per share | $ | $ | |||||||||||||||||||||
| Diluted earnings (loss) per share computation: | |||||||||||||||||||||||
| Net income (loss) | $ | $ | |||||||||||||||||||||
| Gain on fair value of warrant liabilities | ( | ||||||||||||||||||||||
| Net income (loss) adjusted for the gain on fair value of warrant liabilities | $ | ( | $ | ||||||||||||||||||||
| Weighted-average number of shares outstanding - basic | |||||||||||||||||||||||
| Dilutive effect of private warrants | — | ||||||||||||||||||||||
| Dilutive effect of equity-based compensation | — | ||||||||||||||||||||||
| Weighted-average number of shares outstanding - diluted | |||||||||||||||||||||||
| Diluted earnings (loss) per share | $ | ( | $ | ||||||||||||||||||||
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The dilutive effect of private warrants was 3.7 million during the three months ended March 31, 2022. Additional equity-based compensation awards were also outstanding during the three months ended March 31, 2022, but were not included in the computation of diluted earnings (loss) per share because the effect would be anti-dilutive. Such anti-dilutive equity-based compensation awards represented 7.8 million shares for the three months ended March 31, 2022.
The dilutive effect of equity-based compensation awards was 3.8 million during the three months ended March 31, 2021. Additional equity-based compensation awards and warrants were also outstanding during the three months ended March 31, 2021, but were not included in the computation of diluted earnings per common share because the effect would be anti-dilutive. Such anti-dilutive equity-based compensation awards and warrants represented 0.8 million and 5.3 million shares for the three months ended March 31, 2021, respectively.
(15) COMMITMENTS AND CONTINGENCIES
The Company is a party to a number of pending legal proceedings and claims, including those involving general and product liability and other matters. The Company accrues for such liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Accruals are based on developments to date; management’s estimates of the outcomes of these matters; the Company’s experience in contesting, litigating and settling similar matters; and any related insurance coverage. While the Company believes that a material adverse impact is unlikely, given the inherent uncertainty of litigation, a future development in these matters could have a material adverse impact on the Company. The Company is unable to estimate any additional loss or range of loss that may result from the ultimate resolution of these matters, other than those described below.
On December 28, 2017, Vertiv acquired Energy Labs, Inc. (“Energy Labs”). The purchase agreement contained a provision for contingent consideration in the form of an earn-out payment based on the achievement of 2018 operating results. The range of outcomes was zero to $34.5 . On June 4, 2019, Vertiv notified the selling shareholders of Energy Labs of Vertiv’s determination that the applicable 2018 operating results had not been achieved and that no contingent consideration was due to the selling shareholders. On September 6, 2019, the selling shareholders of Energy Labs notified Vertiv of their dispute regarding the contingent consideration due to them. The selling shareholders assert that the applicable 2018 operating results were exceeded and that Vertiv owes $34.5 in earn-out, the highest amount of earn-out possible under the agreement. On December 21, 2021, the parties agreed to a settlement term sheet, which includes, among other terms, the following: the Company agrees to pay $21.5 to the selling shareholders of Energy Labs; a full and complete waiver, release and discharge of all claims and liabilities; and a dismissal of the pending lawsuit. The parties executed a Settlement Agreement on December 30, 2021 consistent with the aforementioned terms. On January 12, 2022, the Company paid the agreed upon settlement of $21.5 .
On August 3, 2021, an American Arbitration Association arbitration hearing commenced with respect to a 2018 claim filed by Vertiv against SVO Building One, LLC (“SVO”) alleging damages of approximately $12.0 with respect to (i) unremitted payment for work and materials in connection with, the design, engineering, procurement, installation, construction, and commissioning of a data center located in Sacramento, California and (ii) damages and injunctive relief relating to SVO’s unauthorized use of Vertiv’s intellectual property and work product. SVO filed a counterclaim in 2018 alleging damages of approximately $18.0 relating to (i) allegations that Vertiv was not a duly licensed contractor at all times during the project in violation of California’s contractor license regulations, (ii) breach of warranty, and (iii) gross negligence. On September 3, 2021, the arbitrator issued an interim phase one ruling finding (1) that Vertiv was in violation of California contractor license regulations and was barred from recovery of approximately $9.0 for work performed and equipment delivered in connection with the project, as well as requiring disgorgement plus interest of $10.0 , (2) SVO was not in violation of California’s contractor license regulations, and (3) Vertiv and SVO agreed to a traditional baseball arbitration provision under the terms and conditions for the project, wherein each party is required to submit a proposed final award to the arbitrator for consideration, and the arbitrator is required to select one of the proposed awards submitted by the parties as the final award in the arbitration and is prohibited from issuing an alternative award. On December 31, 2021, the parties entered into a settlement agreement on ordinary and customary terms, settling all of the disputes between them.
On March 24, 2022, a putative securities class action, Kirk Vinings v. Vertiv Holdings Co, 22-cv-02416, was filed against Vertiv, Rob Johnson, and David Fallon, in the Southern District of New York. The plaintiff asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and SEC Rule 10b-5 on behalf of a putative class of all persons and entities that purchased or otherwise acquired Vertiv securities between April 28, 2021 and February 23, 2022. The complaint alleges that Vertiv failed to disclose in certain of its filings made with the SEC during 2021 that it was not able to sufficiently anticipate and respond to supply chain issues and inflation. While Vertiv believes it has meritorious defenses against the plaintiff’s claims, Vertiv is unable at this time to predict the outcome of this dispute or the amount of any cost associated with its resolution.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise indicates or requires, references to (1) “the Company,” “we,” “us” and “our” refer to Vertiv Holdings Co, a Delaware corporation, and its consolidated subsidiaries following the business combination; and (2) “Holdings” refers to Vertiv Holdings, LLC and its subsidiaries prior to the business combination. In addition, dollar amounts are stated in millions, except for per share amounts. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2021.
Cautionary Note Regarding Forward-looking Statements
This Quarterly Report on Form 10-Q, and other statements that Vertiv may make, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, 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 Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q 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, including those set forth in its Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC. These risk factors and those identified elsewhere in this Quarterly Report on Form 10-Q, among others, could cause actual results to differ materially from historical performance and include, but are not limited to: risks relating to the continued growth of Vertiv’s customers’ markets; 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; competition in the infrastructure technologies industry; failure to obtain performance and other guarantees from financial institutions; failure to realize sales expected from Vertiv’s backlog of orders and contracts; failure to properly manage Vertiv’s supply chain or difficulties with third-party manufacturers; our ability to forecast changes in prices, including due to inflation in material, freight and/or labor costs, and timely implement measures necessary to mitigate the impacts of any such changes; risks associated with our significant backlog, including that the impacts of any measures taken to mitigate inflation will not be reflected in our financial statements immediately; failure to meet or anticipate technology changes; risks associated with information technology disruption or security; risks associated with the implementation and enhancement of information systems; failure to realize the expected benefit from any rationalization, restructuring and improvement efforts; Vertiv’s ability to realize cost savings in connection with Vertiv's restructuring program; disruption of, or changes in, Vertiv’s independent sales representatives, distributors and original equipment manufacturers; changes to tax law; ongoing tax audits; costs or liabilities associated with product liability; the global scope of Vertiv’s operations; risks associated with Vertiv’s sales and operations in emerging markets; risks associated with future legislation and regulation of Vertiv’s customers’ markets both in the United States and abroad; 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 Vertiv; risks associated with current or potential litigation or claims against Vertiv; 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; failure to realize the value of goodwill and intangible assets; exposure to fluctuations in foreign currency exchange rates; failure to maintain internal controls over financial reporting; the unpredictability of Vertiv’s future operational results, including the ability to grow and manage growth profitably; potential net losses in future periods; Vertiv’s level of indebtedness and the ability to incur additional indebtedness; Vertiv’s ability to comply with the covenants
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and restrictions contained in our credit agreements, including restrictive covenants that restrict operational flexibility; Vertiv’s ability to comply with the covenants and restrictions contained in our credit agreements that is not fully within our control; Vertiv’s ability to access funding through capital markets; the Vertiv Stockholder’s significant ownership and influence over the Company; risks associated with Vertiv’s obligations to pay the Vertiv Stockholder portions of the tax benefits relating to pre-business combination tax assets and attributes; resales of Vertiv's securities may cause volatility in the market price of our securities; Vertiv's organizational documents contain provisions that may discourage unsolicited takeover proposals; Vertiv's certificate of incorporation includes a forum selection clause, which could discourage or limit stockholders’ ability to make a claim against it; the ability of Vertiv’s subsidiaries to pay dividends; volatility in Vertiv's stock price due to various market and operational factors; risks associated with the failure of industry analysts to provide coverage of Vertiv's business or securities; the ability of Vertiv to grow and manage growth profitably, maintain relationships with customers and suppliers and retain its management and key employees; factors relating to the business, operations and financial performance of Vertiv and its subsidiaries, including: global economic weakness and uncertainty; 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; risks associated with Vertiv's limited history of operating as an independent company; and other risks and uncertainties indicated in Vertiv’s SEC reports or documents filed or to be filed with the SEC by Vertiv.
Forward-looking statements included in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q or any earlier date specified for such statements. The Company 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 filed with the SEC by Vertiv required under applicable securities laws. All subsequent written or oral forward-looking statements attributable to the Company or persons acting on the Company’s behalf may be qualified in their entirety by this Cautionary Note Regarding Forward-Looking Statements.
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Overview
We are a global leader in the design, manufacturing and servicing of critical digital infrastructure technology that powers, cools, deploys, secures and maintains electronics that process, store and transmit data. We provide this technology to data centers, communication networks and commercial and industrial environments worldwide. We aim to help create a world where critical technologies always work, and where we empower the vital applications of the digital world.
Outlook and Trends
Below is a summary of trends and events that are currently affecting, or may in the future affect, our business, operations and short-term outlook:
•COVID-19 Pandemic: Unprecedented measures have been taken by governments and businesses to address the COVID-19 pandemic. These measures have included periodic shelter-in-place orders, restrictions on travel and business operations, temporary closures of businesses, quarantines, and attempts to institute various regulatory requirements. As a result of this pandemic, global economic activity has been significantly impacted, causing volatility and disruption in global financial markets. These responsive measures taken by many countries have affected, and could in the future materially impact, the Company’s business, results of operations, financial condition and stock price.
•The extent of the continuing impact of the COVID-19 pandemic on the Company’s operational and financial performance is uncertain and will depend on many factors outside the Company’s control, including, without limitation, the extent, timing and duration of the pandemic; the availability, distribution and effectiveness of vaccines; the imposition of protective public safety measures; and the impact of the pandemic on the global economy and demand for products. Refer to Part I, Item 1A of Form 10-K for the year ended December 31, 2021 filed with the SEC under the heading “Risk Factors,” for more information. The Company continues to monitor the situation and will take further actions as may be required by federal, state, or local governmental authorities, or that we determine are in the best interests of our associates, customers, and shareholders.
•Supply Chain Constraints and Cost Increases: During 2022, aspects of the Company’s business continue to be affected by the COVID-19 pandemic as well as increased costs for materials, freight and labor. Despite continued strong market demand, we expect that supply chain challenges and inflationary pressures will continue throughout 2022, with critical part shortages driving the need for additional spot buys at increased costs, and costs associated with premium freight to meet customer commitments. Additionally, logistical issues have significantly delayed the receipt of materials and, in some cases, the Company cannot procure critical parts at any price, creating production and delivery challenges pressuring the top and bottom line. The Company continues to take actions to improve our ability to forecast inflationary headwinds and reflect anticipated cost increases in our prices and will continue to take actions to address shortages and inflationary pressures, which are expected to continue, and may increase, throughout 2022. Based on first quarter results, we anticipate continued pricing realization in the remainder of 2022, even within the current more inflationary environment, as a result of the pricing actions undertaken by the Company in the fourth quarter of 2021 and which we have and will continue to take throughout 2022.
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RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 2022 and Three Months Ended March 31, 2021
| (Dollars in millions) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | $ Change | % Change | |||||||||||||||||||||||||
| Net sales | $ | 1,156.4 | $ | 1,098.4 | $ | 58.0 | 5.3 | % | |||||||||||||||||||||
| Cost of sales | 852.8 | 740.4 | 112.4 | 15.2 | |||||||||||||||||||||||||
| Gross profit | 303.6 | 358.0 | (54.4) | (15.2) | |||||||||||||||||||||||||
| Selling, general and administrative expenses | 292.2 | 250.1 | 42.1 | 16.8 | |||||||||||||||||||||||||
| Amortization of intangibles | 57.7 | 31.8 | 25.9 | 81.4 | |||||||||||||||||||||||||
| Restructuring costs | 0.8 | 2.0 | (1.2) | (60.0) | |||||||||||||||||||||||||
| Foreign currency (gain) loss, net | (1.3) | (6.9) | (5.6) | (81.2) | |||||||||||||||||||||||||
| Other operating expense (income) | (0.6) | 1.2 | (1.8) | (150.0) | |||||||||||||||||||||||||
| Operating profit (loss) | (45.2) | 79.8 | (125.0) | (156.6) | |||||||||||||||||||||||||
| Interest expense, net | 29.3 | 24.1 | 5.2 | 21.6 | |||||||||||||||||||||||||
| Loss on extinguishment of debt | — | 0.4 | (0.4) | (100.0) | |||||||||||||||||||||||||
| Change in fair value of warrant liabilities | (94.9) | 13.6 | (108.5) | (797.8) | |||||||||||||||||||||||||
| Income tax expense | 11.9 | 10.0 | 1.9 | 19.0 | |||||||||||||||||||||||||
| Net income (loss) | $ | 8.5 | $ | 31.7 | $ | (23.2) | (73.2) | % | |||||||||||||||||||||
Net Sales
Net sales were $1,156.4 in the first three months of 2022, an increase of $58.0, or 5.3%, compared with $1,098.4 in the first three months of 2021. The increase in sales was primarily driven by E&I sales of $87.5, partially offset offset by the negative impacts from foreign currency of $18.3, and lower sales from a divested business of $15.9. The impact of higher selling prices was offset by lower volumes due to on-going supply chain constraints. By product offering, critical infrastructure & solutions sales increased $37.0, which included negative impacts from foreign currency of $2.4. Services & spares sales increased $12.4, which included negative impacts from foreign currency of $8.3. Integrated rack solutions sales increased $8.6, which included the negative impacts from foreign currency of $7.6.
Excluding intercompany sales, net sales were $535.1 in the Americas, $332.8 in Asia Pacific and $288.5 in EMEA. Movements in net sales by segment and offering are each detailed in the Business Segments section below.
Cost of Sales
Cost of sales were $852.8 in the first three months of 2022, an increase of $112.4, or 15.2% compared to the first three months of 2021. The increase in cost of sales was primarily driven by E&I of $65.8 and increased commodity and logistic costs, and supply chain constraints, partially offset by the impact of lower volumes and fixed cost investments. Gross profit was $303.6 in the first three months of 2022, or 26.3% of sales, compared to $358.0, or 32.6% of sales, in the first three months of 2021.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) were $292.2 in the first three months of 2022, an increase of $42.1 compared to the first three months of 2021. SG&A as a percentage of sales was 25.3% for the three months ended March 31, 2022 compared with 22.8% in the three months ended March 31, 2021. The increase in SG&A was primarily driven by E&I costs of $12.5, increased research and development spend of $7.4, higher commissions of $7.5 as a result of higher order volume, and increased employee compensation costs.
Other Operating Expenses
Other operating expenses include amortization of intangibles, restructuring costs, foreign currency (gain) loss, and other operating expense (income). Other expenses were $56.6 for the first three months of 2022, which was a $28.5 increase from the first three months of 2021. The increase was primarily due to an increase in amortization of intangibles of $25.9 associated with the acquisition of E&I on November 1, 2021.
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Loss on Extinguishment of Debt
Loss on extinguishment of debt was $0.4 for the first three months of 2021 related to lender fees associated with the Term Loan Amendment. This was not repeated in 2022.
Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities represents the mark-to-market fair value adjustments to the outstanding warrants issued in connection with the IPO of our predecessor, GS Acquisition Holdings Corp. The change in fair value of the outstanding warrants liability during the first three months of 2022 and 2021 resulted in a gain of $94.9 and a loss of $13.6, respectively. The change in fair value of stock warrants was the result of changes in market prices and other observable inputs deriving the value of the financial instruments.
Interest Expense
Interest expense, net, was $29.3 in the first three months of 2022 compared to $24.1 in the first three months of 2021. The $5.2 increase was primarily due to a $9.4 increase related to the Senior Secured Notes due 2028, slightly offset by a $1.8 decrease in accretion expense associated with the Tax Receivable Agreement, and $1.3 decrease as a result of the term loan refinancing in the first three months of 2021.
Income Taxes
Income tax expense was $11.9 in the first three months of 2022 compared to $10.0 in the first three months of 2021. The effective rate in the first three months of 2022 was primarily influenced by the mix of income between our U.S. and non-U.S. operations, net of changes in valuation allowances which is offset by non-taxable changes in fair value of the warrant liabilities. In the first three months of 2021, income tax expense was primarily influenced by the mix of income between our U.S. and non-U.S. operations, and reflects the negative impact of GILTI which is partially offset by changes in valuation allowance in the U.S.
The tax expense in the first three months of 2022 was $1.9 higher than the first three months of 2021 primarily due to the change in mix of income in the countries in which we operate.
Business Segments
The following is detail of business segment results for the three months ended March 31, 2022. Segment profitability is defined as operating profit (loss). Segment margin represents segment operating profit (loss) expressed as a percentage of segment net sales. For reconciliations of segment net sales and earnings to the Company’s consolidated results, see "Note 13 — Segment Information", of the Company's condensed consolidated financial statements. Segment net sales are presented excluding intercompany sales.
Americas
| (Dollars in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | |||||||||||||||||||||||||
| Net sales | $ | 535.1 | $ | 501.5 | $ | 33.6 | 6.7 | % | |||||||||||||||||||||
| Operating profit (loss) | 57.9 | 126.4 | (68.5) | (54.2) | % | ||||||||||||||||||||||||
| Margin | 10.8 | % | 25.2 | % | |||||||||||||||||||||||||
Americas net sales of $535.1 in the first three months of 2022 increased $33.6, or 6.7% from the first three months of 2021. The increase in sales was primarily driven by E&I sales of $17.1 and higher selling prices with volumes relatively flat with prior year. By product offering, net sales increased in critical infrastructure & solutions by $15.1 mostly due to E&I sales. Service & spares increased by $10.5 due to improved customer site availability. Integrated rack solutions increased by $8.0 primarily due to higher rack power distribution unit sales. Americas net sales were negatively impacted by foreign currency of approximately $0.1.
Operating profit (loss) in the first three months of 2022 was $57.9, a decrease of $68.5 compared with the first three months of 2021. Margin declined primarily due to increased commodity and logistic costs exceeding price realization.
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Asia Pacific
| (Dollars in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | |||||||||||||||||||||||||
| Net sales | $ | 332.8 | $ | 357.4 | $ | (24.6) | (6.9) | % | |||||||||||||||||||||
| Operating profit (loss) | 41.5 | 53.1 | (11.6) | (21.8) | % | ||||||||||||||||||||||||
| Margin | 12.5 | % | 14.9 | % | |||||||||||||||||||||||||
Asia Pacific net sales were $332.8 in the first three months of 2022, a decrease of $24.6, or 6.9% from the first three months of 2021. Sales decreases were primarily due to lower volumes driven by supply chain constraints and customer site access as a result of COVID-19, particularly in China, and the expiration of governmental subsidies in our Wind Power business, partially offset by stronger sales elsewhere in the region, particularly in India. By product offering, net sales weakened in critical infrastructure & solutions and integrated rack solutions of $32.5 and $1.2, respectively, and slightly offset by $9.1 of improvements in service & spares. Additionally, Asia Pacific net sales were negatively impacted by foreign currency of approximately $0.6.
Operating profit (loss) in the first three months of 2022 was $41.5, a decrease of $11.6 compared with the first three months of 2021. Margin declined primarily due to volume deleveraging, primarily in Greater China, and unfavorable mix, primarily in South East Asia. The impact of increased commodity and logistics costs was offset by price realization.
Europe, Middle East & Africa
| (Dollars in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | ||||||||||||||||||||||
| Net sales | $ | 288.5 | $ | 239.5 | $ | 49.0 | 20.5 | % | ||||||||||||||||||
| Operating profit (loss) | 33.2 | 33.4 | (0.2) | (0.6) | % | |||||||||||||||||||||
| Margin | 11.5 | % | 13.9 | % | ||||||||||||||||||||||
EMEA net sales were $288.5 in the first three months of 2022, an increase of $49.0, or 20.5% from the first three months of 2021. Sales increases were primarily due to E&I sales of $70.4 and higher selling prices, partially offset by $15.9 of the divested heavy industrial UPS business. By offering, net sales improved in critical infrastructure & solutions by $54.4 of which $70.4 related to E&I sales, improvements in integrated rack solutions of $1.8, and slightly offset by a $7.2 decrease in service & spares. Additionally, Europe, Middle East & Africa net sales were negatively impacted by foreign currency of approximately $17.6.
Operating profit (loss) in the first three months of 2022 was $33.2, a decrease of $0.2 compared with the first three months of 2021. Margin declined primarily due to increased commodity and logistic costs exceeding price realization.
Vertiv Corporate and Other
Corporate and other costs include costs associated with our headquarters located in Columbus, Ohio, as well as centralized global functions including Finance, Treasury, Risk Management, Strategy & Marketing, IT, Legal, and global product platform development and offering management. Corporate and other costs were $120.1 and $101.3 in the first three months of 2022 and 2021, respectively. Corporate and other costs increased $18.8 compared with the first three months of 2021 primarily due to $10.2 increased research and development costs and E&I integration costs.
Capital Resources and Liquidity
Our primary future cash needs relate to working capital, operating activities, capital spending, strategic investments and debt service. As previously disclosed in the Company's 2021 Annual Report, on October 22, 2021, Vertiv Group Corporation (the “Vertiv Group”), completed its offering (the “Offering”) of $850.0 aggregate principal amount of its Senior Secured Notes due 2028 (the “Notes”) in a private placement at par. The Notes will bear interest at 4.125% per annum and mature on November 15, 2028.
We believe that net cash provided by operating activities, augmented by long-term debt arrangements and the ABL Revolving Credit Facility, will provide adequate near-term liquidity for the next 12 months of independent operations, as well as the resources necessary to invest for growth in existing businesses and manage our capital structure on a short- and long-term basis. We expect to continue to opportunistically access the capital and financing markets from time to time. Access to capital and the availability of financing on acceptable terms in the future will be affected by many factors, including our credit rating, economic conditions, and the overall liquidity of capital markets. There can be no assurance that we will continue to have access to the capital and financing markets on acceptable terms.
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At March 31, 2022, we had $288.5 in cash and cash equivalents, which includes amounts held outside of the U.S., primarily in Europe and Asia. Non-U.S. cash is generally available for repatriation without legal restrictions, subject to certain taxes, mainly withholding taxes. We are not asserting indefinite reinvestment of cash or outside basis for our non-U.S. subsidiaries due to the outstanding debt obligations in instances where alternative repatriation options other than dividends are not available. Our ABL Revolving Credit Facility provides for up to $455.0 of revolving borrowings, with separate sublimits for letters of credit and swingline borrowings and an uncommitted accordion of up to $145.0. At March 31, 2022, Vertiv Group and certain other subsidiaries of the Company had $432.2 of availability under the ABL Revolving Credit Facility, net of letters of credit outstanding in the aggregate principal amount of $19.1, and taking into account the borrowing base limitations set forth in the ABL Revolving Credit Facility.
Long-Term Debt Obligations
There is a discussion in "Note 6 — Debt" in Part I. Item I. of this Form 10-Q contains further details of the long-term debt arrangements reflected in our consolidated financial statements, which debt was issued by the Company and certain of our subsidiaries as borrowers, co-borrowers or guarantors.
Summary Statement of Cash Flows
Three Months Ended March 31, 2022 and 2021
| (Dollars in millions) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
| Net cash (used for) provided by operating activities | $ | (132.2) | $ | 60.7 | $ | (192.9) | (317.8) | % | ||||||||||||||||||
| Net cash used for investing activities | (18.2) | (17.9) | (0.3) | (1.7) | ||||||||||||||||||||||
| Net cash (used for) provided by financing activities | (1.5) | 102.9 | (104.4) | (101.5) | ||||||||||||||||||||||
| Capital expenditures | (15.1) | (16.8) | 1.7 | 10.1 | ||||||||||||||||||||||
| Investments in capitalized software | (3.1) | (1.1) | (2.0) | (181.8) | ||||||||||||||||||||||
Net Cash (used for) provided by Operating Activities
Net cash used for operating activities was $132.2 in the first three months of 2022, a $192.9 decrease in cash generation compared to the first three months of 2021. Net income from operations of $8.5 included $11.4 of net non-cash expense items, consisting of a gain on the change in fair value of warrant liabilities of $94.9 and deferred taxes of $4.6, partially offset by depreciation and amortization of $79.2, non-cash stock based compensation expense of $6.6 and amortization of debt discount and issuance costs of $2.3. Trade working capital used $116.1 primarily as a result of inventory build to support forecasted sales and to meet customer demand and there was a $8.7 payment related to a litigation settlement. Refer to "Note 15 - Commitments and Contingencies” in Part I. Item I. of this Form 10-Q for additional information related to this settlement.
Net Cash used for Investing Activities
Net cash used for investing activities was $18.2 in the first three months of 2022 compared to net cash used for investing activities of $17.9 in the first three months of 2021. The increased use of cash over the comparable period was primarily the result of increased investment in capitalized software.
Net Cash (used for) provided by Financing Activities
Net cash used for financing activities was $1.5 in the first three months of 2022 compared to $102.9 provided by in the first three months of 2021. The decrease was primarily the result of the proceeds from the exercise of public warrants totaling $107.5 in 2021.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. The preceding discussion and analysis of our consolidated results of operations and financial condition should be read in conjunction with our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. The 2021 financial statements, as part of our Form 10-K filed with the SEC, includes additional information about us, our operations, our financial condition, our critical accounting policies and accounting estimates, and should be read in conjunction with this Quarterly Report on Form 10-Q. Our significant accounting policies are described in "Note 1 - Summary of Significant Accounting Policies" of our 2021 Annual Report on Form 10-K.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On a regular basis, Vertiv monitors third-party depository institutions that hold its cash and short-term investments, primarily for safety of principal and secondarily for maximizing yield on those funds. The Company diversifies its cash and short-term investments among counterparties to minimize exposure to any one of these entities. Vertiv also monitors the creditworthiness of its customers and suppliers to mitigate any adverse impact.
Vertiv uses derivative instruments to manage exposure to volatility in interest rates on certain debt instruments. Derivative financial instruments used by the Company are straightforward and non-leveraged. The counterparties to these instruments are financial institutions with strong credit ratings. Vertiv maintains control over the size of positions entered into with any one counterparty and regularly monitors the credit rating of these institutions. See Note 11 to the Unaudited Consolidated Financial Statements for additional information about hedges and derivative financial instruments.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company maintains (a) disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), and (b) internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
Our management, with the participation of our President and Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2022 (the end of the period covered by this Quarterly Report on Form 10-Q). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2022, our disclosure controls and procedures were effective in ensuring that material information for the Company, including its consolidated subsidiaries, required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that it is accumulated and communicated to management, including our principal executive and financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the first three months of 2022, there have been no change in the Company's internal control over financial reporting that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
The Company completed the Acquisition of E&I as of November 1, 2021. As such, E&I has been excluded from the Company's assessment of internal control over financial reporting. Companies are permitted to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition while integrating the acquired company under guidelines established by the Securities and Exchange Commission.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information required by this item is set forth in "Note 15 - Commitments and Contingencies” to the Company’s condensed consolidated financial statements included in Part I Item 1 “Financial Statements”, which is incorporated by reference herein.
ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
The Company's risk factors, as of March 31, 2022, have not materially changed from those described in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
A) Recent Sales of Unregistered Securities
None.
B) Use of Proceeds from our Initial Public Offering of Common Stock
None.
C) Repurchases of Shares or of Company Equity Securities
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
| EXHIBIT INDEX | ||||||||||||||
| Exhibit No. | Description | |||||||||||||
| 31.1 | ||||||||||||||
| 31.2 | ||||||||||||||
| 32.1 | ||||||||||||||
| 32.2 | ||||||||||||||
| 101.INS | The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL: (i) Consolidated Statements of Cash Flows, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Balance Sheets, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | |||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema (filed herewith) | |||||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase (filed herewith) | |||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase (filed herewith) | |||||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase (filed herewith) | |||||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase (filed herewith) | |||||||||||||
| 104 | Cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL (and contained in Exhibit 101) | |||||||||||||
29
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 2, 2022 | Vertiv Holdings Co | ||||
| /s/ Rob Johnson | |||||
| Name: Rob Johnson | |||||
| Title: Chief Executive Officer | |||||
| /s/ David Fallon | |||||
| Name: David Fallon | |||||
| Title: Chief Financial Officer | |||||
30
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Rob Johnson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Vertiv Holdings Co;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 2, 2022 | Vertiv Holdings Co | ||||
| /s/ Rob Johnson | |||||
| Name: Rob Johnson | |||||
| Title: Chief Executive Officer | |||||
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, David Fallon, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Vertiv Holdings Co;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 2, 2022 | Vertiv Holdings Co | ||||
| /s/ David Fallon | |||||
| Name: David Fallon | |||||
| Title: Chief Financial Officer | |||||
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Vertiv Holdings Co (the Company) on Form 10-Q for the period ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Rob Johnson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 2, 2022 | Vertiv Holdings Co | ||||
| /s/ Rob Johnson | |||||
| Name: Rob Johnson | |||||
| Title: Chief Executive Officer | |||||
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Vertiv Holdings Co (the Company) on Form 10-Q for the period ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, David Fallon, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 2, 2022 | Vertiv Holdings Co | ||||
| /s/ David Fallon | |||||
| Name: David Fallon | |||||
| Title: Chief Financial Officer | |||||