# Vertiv Holdings Co: Form 10-Q for the period ended Jun 30, 2020

- Company: [Vertiv Holdings Co](/companies/vrt.md) (CIK 1674101)
- Form: 10-Q
- Filed: 2020-08-05
- Accepted by EDGAR: Aug 5, 2020, 16:55 ET
- Period: 2020-06-30
- Accession: 0001628280-20-011825
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1674101/000162828020011825/vrt-20200630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1674101/000162828020011825/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-04-01 to 2020-06-30 | $1.01bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2020-01-01 to 2020-06-30 | $1.90bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2020-04-01 to 2020-06-30 | $659.3m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2020-01-01 to 2020-06-30 | $1.27bn | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2020-04-01 to 2020-06-30 | $226.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2020-01-01 to 2020-06-30 | $491.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Interest expense | 3 months, 2020-04-01 to 2020-06-30 | $30.1m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2020-01-01 to 2020-06-30 | $99.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2020-04-01 to 2020-06-30 | $14.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2020-01-01 to 2020-06-30 | $28.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-04-01 to 2020-06-30 | $26.2m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2020-01-01 to 2020-06-30 | −$242.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-04-01 to 2020-06-30 | $0.08 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2020-01-01 to 2020-06-30 | −$0.85 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-04-01 to 2020-06-30 | $0.08 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2020-01-01 to 2020-06-30 | −$0.85 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-04-01 to 2020-06-30 | 331,136,080 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2020-01-01 to 2020-06-30 | 284,534,285 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2020-01-01 to 2020-06-30 | −$121.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2020-01-01 to 2020-06-30 | $13.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2020-06-30 | $369.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-06-30 | $2.20bn | us-gaap:AssetsCurrent |
| Total assets | at 2020-06-30 | $4.73bn | us-gaap:Assets |
| Current liabilities | at 2020-06-30 | $1.44bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-06-30 | $4.38bn | us-gaap:Liabilities |
| Long-term debt | at 2020-06-30 | $2.41bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2020-06-30 | $22.0m | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2020-06-30 | $20.2m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2020-06-30 | $350.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 39,601 characters.

*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; (2) “GSAH” refers to GS Acquisition Holdings Corp prior to the Business Combination; and (3) “Vertiv” 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, 2019.*

### 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 & 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.

### Key Developments

Below is a summary of selected key developments affecting our business since December 31, 2019:

- On February 7, 2020, the Company (formerly known as GSAH), consummated its previously announced business combination pursuant to that certain Agreement and Plan of Merger, dated as of December 10, 2019 (the “Merger Agreement”), by and among the Company, Vertiv, a Delaware limited liability company, VPE Holdings, LLC, a Delaware limited liability company (the “Vertiv Stockholder”), Crew Merger Sub I LLC, a Delaware limited liability company and a direct, wholly-owned subsidiary of GSAH (“First Merger Sub”), and Crew Merger Sub II LLC, a Delaware limited liability company and a direct, wholly-owned subsidiary of GSAH (“Second Merger Sub”). As contemplated by the Merger Agreement, (1) First Merger Sub merged with and into Vertiv, with Vertiv continuing as the surviving entity (the “First Merger”) and (2) immediately following the First Merger and as part of the same overall transaction as the First Merger, Vertiv merged with and into Second Merger Sub, with Second Merger Sub continuing as the surviving entity and renamed “Vertiv Holdings, LLC” (collectively with the First Merger and the other transactions contemplated by the Merger Agreement, the “Business Combination”). The Business Combination was approved by GSAH shareholders on February 6, 2020, and on February 10, 2020, the Company announced the completion of the Business Combination. The Company began trading on the New York Stock Exchange beginning on Monday, February 10, 2020.
- On March 2, 2020, Vertiv Group and Holdings closed a new seven-year $2,200.0 term loan, the proceeds of which were used, together with the proceeds of certain borrowings under the ABL revolving credit facility referred to below, to repay in full Vertiv Group’s previous term loan and redeem in full the high-yield bonds of Vertiv Group and Holdco, including their 9.25% senior notes, 12.0%/13.0% PIK-toggle senior notes and 10.0% second-lien notes. At June 30, 2020, the new term loan bears annual interest at LIBOR plus an applicable margin of 3.0% (3.18% all-in), which applicable margin is 1.0% lower than under the previous term loan. In addition, Holdings, Vertiv Group and certain of its subsidiaries closed an amendment on their $455.0 asset-based lending (ABL) revolving credit facility which, among other changes, extended the maturity to March 2, 2025 and lowered the applicable margin on loans thereunder by 0.25%. Concurrently with the closing of the new term loan, Vertiv Group executed interest rate swaps on a notional amount of $1,200.0 in 2020, and $1,000.0 in the remaining tenor of the term loan. Combined with the economics of the term loan, this results in an all-in rate at June 30, 2020 of approximately 4.1%. The swap transactions exchange floating term loan interest payments for fixed rate interest payments on the notional amount to reduce interest rate volatility.
- On March 11, 2020, the World Health Organization designated the outbreak of the novel strain of coronavirus, known as COVID-19, as a global pandemic. Governments and businesses around the world have taken actions to mitigate the spread of COVID-19, including but not limited to, shelter-in-place orders, quarantines, significant restrictions on travel, as well as restrictions that prohibit many employees from going to work. To date, COVID-19 has surfaced in nearly all regions around the world and has impacted our sales channels, supply chain, manufacturing operations, workforce, and other key aspects of our operations. The outbreak and preventive measures taken to help curb the spread had an adverse impact on our operations and business results for the three and six months ended June 30, 2020. We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities and may

take additional actions based on their recommendations; however, there are numerous uncertainties, including with respect to: the duration and severity of the pandemic, actions that may be taken by governmental authorities, including preventing or curtailing the operations of our plants, the potential impact on global economic activity, global supply chain operations, our employees, and our customers, supplier and end-markets, and other consequences that could negatively impact our business. We also face the possibility that government policies may become more restrictive especially if COVID-19 transmission rates increase in certain areas. As a result of these numerous uncertainties, we are unable to specifically predict the extent and length of time the COVID-19 pandemic will negatively impact our business. COVID-19 had an adverse impact on our operations and business results for the three and six months ended June 30, 2020 which are discussed in the Results of Operations section below and we expect that COVID-19 could continue to have a materially adverse impact on our business, results of operations, financial condition, cash flows and liquidity for at least the duration of 2020.

### RESULTS OF OPERATIONS

### Comparison of the quarters ended June 30, 2020 and June 30, 2019

*(Dollars in millions)*

|  | 2020 | 2019 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $1,005.7 | $1,134.1 | $(128.4) | (11.3)% |
| Cost of sales | 659.3 | 766.9 | (107.6) | (14.0)% |
| Gross profit | 346.4 | 367.2 | (20.8) | (5.7)% |
| Selling, general and administrative expenses | 226.3 | 263.3 | (37.0) | (14.1)% |
| Other deductions, net | 49.5 | 28.1 | 21.4 | 76.2% |
| Earnings before interest & income taxes | 70.6 | 75.8 | (5.2) | (6.9)% |
| Interest expense, net | 30.1 | 78.7 | (48.6) | (61.8)% |
| Income tax expense | 14.3 | 16.0 | (1.7) | (10.6)% |
| Net income (loss) | $26.2 | $(18.9) | $45.1 | (238.6)% |

### Net Sales

Net sales were $1,005.7 in Q2 2020, a decrease of $128.4, or 11.3 percent, compared with $1,134.1 in Q2 2019. The decrease in sales was primarily driven by negative volume due to impacts of the COVID-19 pandemic, decreases were related to the timing of large projects and negative impacts of foreign currency. By offering, critical infrastructure & solutions sales decreased $84.2 including the negative impacts from foreign currency of $19.1. Services & spares sales decreased $21.0 including the negative impacts from foreign currency of $6.4. Integrated rack solutions sales decreased $23.2 including the negative impacts of foreign currency of $3.4.

Excluding intercompany sales, net sales were $484.7 in the Americas, $322.8 in Asia Pacific and $198.2 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 $659.3 in Q2 2020, a decrease of $107.6, or 14.0 percent compared to Q2 2019. The decrease in cost of sales was primarily due to the flow-through impact of lower net sales volume resulting from the global impact of COVID-19, offset by manufacturing productivity, pricing and favorable mix in Americas and EMEA. Gross profit was $346.4 in Q2 2020, or 34.4 percent of sales, compared to $367.2, or 32.4 percent of sales in Q2 2019.

### Selling, General and Administrative Expenses

Selling, general and administrative expenses (SG&A) were $226.3 in Q2 2020, a decrease of $37.0 compared to Q2 2019. SG&A as a percentage of sales were 22.5 percent in Q2 2020, a 0.7 percentage point decrease compared with 23.2 percent in Q2 2019. The decrease in SG&A is primarily the result of fixed cost reduction actions in response to the COVID-19 pandemic, including discretionary spending cuts, suspension of merit increases and implementation of a global furlough program.

### Other Deductions, Net

Other deductions, net, were $49.5 in Q2 2020, an increase of $21.4, compared with Q2 2019. The increase is primarily due to a write-off of capitalized software and higher foreign currency losses, partially offset by a reduction of restructuring costs as certain transformation activities reached completion.

### Earnings Before Interest & Income Taxes

Earnings before interest & income taxes (EBIT) in Q2 2020 was $70.6, a decrease of $5.2 when compared to $75.8 in Q2 2019. On a segment basis, EBIT was $95.5 in the Americas, $44.5 in Asia Pacific, and $19.9 in EMEA. Corporate expenses were $89.3 in Q2 2020, including the implementation of cost reduction initiatives, digital project implementation costs and costs that support global product platform development. See “Business Segments” below for additional details.

### Interest expense

Interest expense, net, was $30.1 in Q2 2020 compared to $78.7 in Q2 2019. The $48.6 decrease is primarily due to the reduction in outstanding borrowings resulting from the business combination, and lower interest rates secured through the debt refinancing, as described in Note 6 to the unaudited condensed consolidated financial statements, offset by an increase of $7.1 due to accretion on the Tax Receivable Agreement.

### Income Taxes

Income tax expense was $14.3 in Q2 2020 versus $16.0 in Q2 2019. The effective rate in the current period is primarily influenced by the mix of income between our U.S. and non-U.S. operations, changes in valuation allowance for U.S. and non-U.S. jurisdictions, the GILTI provisions of the Tax Cuts and Jobs Act (“the Act”), remeasurement and legislative changes impacting the indefinite reinvestment liability and changes in the liability for uncertain tax positions. For the three months ended June 30, 2019, income tax expense was primarily influenced by the impact of the GILTI provisions of the Act and the mix of income between our U.S. and non-U.S. operations which was offset by changes in valuation allowance for U.S. federal purposes.

The Q2 2020 tax expense is lower than Q2 2019 is primarily due to lower operating performance during Q2 2020 where the company has profitable operations and discrete tax adjustments recorded during the prior period.

### Business Segments

The following is detail of business segment results for the three months ended June 30, 2020 and 2019. Segment profitability is defined as earnings before interest and income taxes. Segment margin represents segment earnings expressed as a percentage of segment net sales. For reconciliations of segment net sales and earnings to the Company’s consolidated results, see Note 14 — 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 June 30, 2020 | Three months ended June 30, 2019 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $484.7 | $575.1 | $(90.4) | (15.7)% |
| Earnings before interest and taxes | 95.5 | 101.1 | (5.6) | (5.5)% |
| Margin | 19.7% | 17.6% |  |  |

Americas net sales of $484.7 in Q2 2020 represented a decrease of $90.4, or 15.7 percent from Q2 2019. Sales decreases were primarily due to the impacts of COVID-19 and lower critical infrastructure & solutions large project demand. By offering, net sales decreased for all offering categories, represented by declines in critical infrastructure & solutions of $66.8, services & spares of $9.8, and integrated rack solutions of $13.8. Additionally, Americas net sales were negatively impacted by foreign currency by approximately $10.6.

Earnings before interest and taxes in Q2 2020 was $95.5, a decrease of $5.6 compared with Q2 2019. Margin improved 2.1 percentage points mainly due to contribution margin improvements (mix, operations productivity, and pricing).

### Asia Pacific

*(Dollars in millions)*

|  | Three months ended June 30, 2020 | Three months ended June 30, 2019 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $322.8 | $323.3 | $(0.5) | (0.2)% |
| Earnings before interest and taxes | 44.5 | 46.2 | (1.7) | (3.7)% |
| Margin | 13.8% | 14.3% |  |  |

Asia Pacific net sales were $322.8 in Q2 2020, a decrease of $0.5, or 0.2 percent from Q2 2019. Sales were flat overall with increases in China data center, 5G projects and wind power, offsetting weaknesses in India and Rest of Asia. Critical infrastructure & solutions sales increased by $7.5, offset by decreases in services & spares of $3.4 and integrated rack solutions of $4.6. Additionally, Asia Pacific net sales were negatively impacted by foreign currency by approximately $12.2.

Earnings before interest and taxes were $44.5 in Q2 2020, a decrease of $1.7 compared with Q2 2019. Margin declined 0.5 percentage points primarily due to mix.

### Europe, Middle East & Africa

*(Dollars in millions)*

|  | Three months ended June 30, 2020 | Three months ended June 30, 2019 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $198.2 | $235.7 | $(37.5) | (15.9)% |
| Earnings before interest and taxes | 19.9 | 16.7 | 3.2 | 19.2% |
| Margin | 10.0% | 7.1% |  |  |

EMEA net sales were $198.2 in Q2 2020, a decrease of $37.5, or 15.9 percent from Q2 2019. Sales decreases were primarily due to the impacts of COVID-19 including site availability and customer push-outs, and timing of large projects in the prior year that did not repeat. Net sales decreased in all offering categories, represented by declines in critical infrastructure & solutions sales of $24.9, services & spares of $7.8, and integrated rack solutions of $4.8. Additionally, Europe, Middle East & Africa net sales were negatively impacted by foreign currency by approximately $6.1.

Earnings before interest and taxes was $19.9 in Q2 2020, an increase of $3.2 compared with Q2 2019. Margin increased 2.9% percentage points, despite lower sales, primarily as a result of benefits from recently implemented restructuring programs, and specific actions implemented to offset the negative impact of COVID-19.

### 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, Digital, Legal, and global product platform development and offering management. Corporate and other costs were $89.3 and $88.2 in Q2 2020 and Q2 2019, respectively. The $1.1 increase in corporate and other expenses in Q2 2020 versus the comparable prior year was primarily due to increased public company costs and increased R&D investment, offset by COVID-19 related actions to reduce fixed costs.

### RESULTS OF OPERATIONS

### Comparison of the six months ended June 30, 2020 and June 30, 2019

*(Dollars in millions)*

|  | 2020 | 2019 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $1,903.0 | $2,188.9 | $(285.9) | (13.1)% |
| Cost of sales | 1,269.6 | 1,474.6 | (205.0) | (13.9)% |
| Gross profit | 633.4 | 714.3 | (80.9) | (11.3)% |
| Selling, general and administrative expenses | 491.2 | 549.7 | (58.5) | (10.6)% |
| Loss on extinguishment of debt | 174.0 | — | 174.0 | 100.0% |
| Other deductions, net | 83.8 | 67.0 | 16.8 | 25.1% |
| Loss (earnings) before interest & income taxes | (115.6) | 97.6 | (213.2) | (218.4)% |
| Interest expense, net | 99.1 | 156.4 | (57.3) | (36.6)% |
| Income tax expense | 28.0 | 34.5 | (6.5) | (18.8)% |
| Net Loss | $(242.7) | $(93.3) | $(149.4) | 160.1% |

### Net Sales

Net sales were $1,903.0 for the six months ended June 30, 2020 ("YTD 2020"), a decrease of $285.9, or 13.1 percent, compared with $2,188.9 for the six months ended June 30, 2019 ("YTD 2019"). The decrease in sales was primarily driven by negative impacts of the COVID-19 pandemic. Additional decreases were related to the timing of large projects and negative impacts of foreign currency. By offering, critical infrastructure & solutions sales decreased $231.7 including the negative impacts from foreign currency of $32.3, services & spares sales decreased $21.0 including the negative impacts from foreign currency of $9.5 and integrated rack solutions sales decreased $33.2 including the negative impacts of foreign currency of $6.2.

Excluding intercompany sales, net sales were $951.4 in the Americas, $546.7 in Asia Pacific and $404.9 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 $1,269.6 in YTD 2020, a decrease of $205.0, or 13.9 percent compared to YTD 2019. The decrease in cost of sales was primarily due to the flow-through impact of lower net sales volume resulting from the global impact of COVID-19, offset by the carryover benefit of pricing, purchasing improvements and manufacturing productivity actions executed in 2019. Gross profit was $633.4 in YTD 2020, or 33.3 percent of sales, compared to $714.3, or 32.6 percent of sales in YTD 2019.

### Selling, General and Administrative Expenses

Selling, general and administrative expenses (SG&A) were $491.2 in YTD 2020, a decrease of $58.5 compared to YTD 2019. SG&A as a percentage of sales were 25.8 percent in YTD 2020, a 0.7 percentage point increase compared with 25.1 percent in YTD 2019. The decrease in SG&A is primarily the result of fixed cost reduction actions in response to the COVID-19 pandemic, including discretionary spending cuts, suspension of merit increases and implementation of a global furlough program. In addition, there was lower spending related to transformation initiatives to improve operational efficiency, digital project implementation costs and other transition costs.

### Loss on Extinguishment of Debt

The loss on extinguishment of debt in YTD 2020 represents costs incurred in the refinancing and pay down of the Company’s long-term debt. The loss includes $99.0 write-off of deferred financing fees and $75.0 early redemption premium on high interest notes, for a total refinancing cost of $174.0.

### Other Deductions, Net

Other deductions, net, were $83.8 in YTD 2020, an increase of $16.8, compared with YTD 2019. The increase is primarily due to a write-off of capitalized software and higher foreign currency losses, partially offset by a reduction of restructuring costs as certain transformation activities reached completion.

### Earnings (loss) Before Interest & Income Taxes

Loss before interest & income taxes in YTD 2020 was $115.6, a decrease in earnings of $213.2 when compared to earnings of $97.6 in YTD 2020. On a segment basis, EBIT was $157.0 in the Americas, $58.1 in Asia Pacific, and $35.7 in EMEA. Corporate expenses were $366.4 in YTD 2020, including the loss on extinguishment of debt of $174.0 and implementation of cost reduction initiatives, digital project implementation costs, costs that support global product platform development, and costs related to the merger with GSAH. See “Business Segments” below for additional details.

### Interest expense

Interest expense, net, was $99.1 in YTD 2020 compared to $156.4 in YTD 2019. The $57.3 decrease is primarily due to the reduction in outstanding borrowings resulting from the business combination, and lower interest rates secured through the debt refinancing, as described in Note 6 to the unaudited condensed consolidated financial statements, offset by an increase of $16.2 due to accretion on the Tax Receivable Agreement.

### Income Taxes

Income tax expense was $28.0 in YTD 2020 versus $34.5 in YTD 2019. The effective rate in the year-to-date period is primarily influenced by the mix of income between our U.S. and non-U.S. operations, changes in valuation allowance for U.S. and non-U.S. jurisdictions, the GILTI provisions of the Act, remeasurement and legislative changes impacting the indefinite reinvestment liability, discrete changes in certain non-US valuation allowances and changes in the liability for uncertain tax positions. For the six months ended June 30, 2019, income tax expense was primarily influenced by the impact of the GILTI provisions of the Act and the mix of income between our U.S. and non-U.S. operations which was offset by changes in valuation allowance for U.S. federal purposes.

The year to date Q2 2020 tax expense is lower than Q2 2019 primarily due to lower operating performance during Q2 2020 where the company has profitable operations and discrete tax adjustments recorded during the periods.

### Business Segments

The following is detail of business segment results for the six months ended June 30, 2020. Segment profitability is defined as earnings before interest and income taxes. Segment margin represents segment earnings expressed as a percentage of segment net sales. For reconciliations of segment net sales and earnings to the Company’s consolidated results, see Note 14 — Segment Information, of the Company's condensed consolidated financial statements. Segment net sales are presented excluding intercompany sales.

### Americas

*(Dollars in millions)*

|  | Six months ended June 30, 2020 | Six months ended June 30, 2019 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $951.4 | $1,129.7 | $(178.3) | (15.8)% |
| Earnings before interest and taxes | 157.0 | 188.1 | (31.1) | (16.5)% |
| Margin | 16.5% | 16.7% |  |  |

Americas net sales of $951.4 in YTD 2020 represented a decrease of $178.3, or 15.8 percent from YTD 2019. Sales decreases were primarily due to the impacts of COVID-19 and timing of I&S project demand from hyperscale and colocation customers. By offering, net sales decreased for all offering categories, represented by declines in critical infrastructure & solutions of $160.4, services & spares of $2.2, and integrated rack solutions of $15.7. Additionally, Americas net sales were negatively impacted by foreign currency by approximately $15.9.

Earnings before interest and taxes in YTD 2020 was $157.0, a decrease of $31.1 compared with YTD 2019. Margin declined 0.2 percentage points mainly due to the impact of deleveraging, but was partially offset by contribution margin improvements (mix, operations productivity, and pricing).

### Asia Pacific

*(Dollars in millions)*

|  | Six months ended June 30, 2020 | Six months ended June 30, 2019 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $546.7 | $582.3 | $(35.6) | (6.1)% |
| Earnings before interest and taxes | 58.1 | 66.6 | (8.5) | (12.8)% |
| Margin | 10.6% | 11.4% |  |  |

Asia Pacific net sales were $546.7 in YTD 2020, a decrease of $35.6, or 6.1 percent from YTD 2019. Sales decreases were primarily due to the impacts of COVID-19 partially offset by improvements in wind power and large data center projects. Net sales decreased in all offering categories, represented by declines in critical infrastructure & solutions sales of $17.6, services & spares of $7.2, and integrated rack solutions of $10.8. Additionally, Asia Pacific net sales were negatively impacted by foreign currency by approximately $19.7.

Earnings before interest and taxes were $58.1 in YTD 2020, a decrease of $8.5 compared with YTD 2019. Margin declined 0.8 percentage points due to volume declines, partially offset by COVID-19 related actions to reduce fixed costs, including reduction in discretionary spend.

### Europe, Middle East & Africa

*(Dollars in millions)*

|  | Six months ended June 30, 2020 | Six months ended June 30, 2019 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $404.9 | $476.9 | $(72.0) | (15.1)% |
| Earnings before interest and taxes | 35.7 | 37.3 | (1.6) | (4.3)% |
| Margin | 8.8% | 7.8% |  |  |

EMEA net sales were $404.9 in YTD 2020, a decrease of $72.0, or 15.1 percent from YTD 2019. Sales decreases were primarily due to the impacts of COVID-19 and project timing. Net sales decreased in all offering categories, represented by declines in critical infrastructure & solutions sales of $53.7, services & spares of $11.6, and integrated rack solutions of $6.7. Additionally, Europe, Middle East & Africa net sales were negatively impacted by foreign currency by approximately $12.4.

Earnings before interest and taxes was $35.7 in YTD 2020, a decrease of $1.6 compared with YTD 2019. Margin improved 1.0 percentage points primarily as a result of benefits from prior year restructuring programs and COVID related actions to reduce fixed costs, partially offset by volume declines.

### 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, Digital, Legal, and global product platform development and offering management. Corporate and other costs were $366.4 and $194.4 in YTD 2020 and YTD 2019, respectively. The $172.0 increase in corporate and other expenses in YTD 2020 versus the comparable prior year was primarily due to the loss on extinguishment of debt of $174.0, as described in Note 6 to the unaudited condensed consolidated financial statements.

### Capital Resources and Liquidity

Our primary future cash needs relate to working capital, operating activities, capital spending, strategic investments and debt service. In connection with the consummation of the Business Combination on February 7, 2020, the Company used $1,464.0 of the proceeds from the Merger Consideration and PIPE Investment to pay down its existing debt. On March 2, 2020, Vertiv announced the closing of a new seven-year $2,200.0 term loan, the proceeds of which were used to repay in full its previous term loan and redeem in full its high-yield bonds, including its 9.25% senior notes, 12.0%/13.0% PIK toggle senior notes and 10.0% second-lien notes. Additionally, Holdings, Vertiv Group and certain of its subsidiaries closed an amendment on their $455.0 ABL Revolving Credit Facility which extended the maturity to March 2, 2025.

In addition to the cash inflow generated from the closing of the merger with GSAH, 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 markets 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 markets and financing markets on acceptable terms.

At June 30, 2020, we had $369.7 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 June 30, 2020, Vertiv Group and certain other subsidiaries of the Company had $164.9 of availability under the ABL Revolving Credit Facility, net of letters of credit outstanding in the aggregate principal amount of $20.3, and taking into account the borrowing base limitations set forth in the ABL Revolving Credit Facility.

As we strive to maintain fixed costs constant in 2021, we anticipate announcing restructuring activities during the third quarter which could drive a $50 – $70 million reduction in fixed costs plus additional variable cost benefit. We estimate cash costs of $50 – $70 million including capital to realize these benefits, and we will evaluate these cash costs for a likely restructuring reserve to be recorded in the third quarter. While specific timing of cash needs is yet to be determined, it will likely begin in the fourth quarter of 2020 and through the end of 2021.

### Long-Term Debt Obligations

There is a discussion in Note 6 — Debt of the consolidated financial statements of the long-term debt arrangements issued by the Company with certain of our subsidiaries named as guarantors or co-borrowers.

### Summary Statement of Cash Flows

### Six months ended June 30, 2020 and 2019

*(Dollars in millions)*

|  | 2020 | 2019 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net cash used for operating activities | $(121.7) | $(81.6) | $(40.1) | 49.1% |
| Net cash used for investing activities | (19.4) | (28.6) | 9.2 | (32.2) |
| Net cash provided by financing activities | 293.5 | 4.9 | 288.6 | 5,889.8 |
| Capital expenditures | (13.2) | (23.0) | 9.8 | (42.6) |
| Investments in capitalized software | (6.2) | (10.6) | 4.4 | (41.5) |

### Net Cash used for Operating Activities

Net cash used for operating activities was $121.7 in YTD 2020, a $40.1 decrease in cash generation compared to YTD 2019. The decline in cash generation was primarily driven by a use of working capital from higher seasonal inventory build, a higher net loss from operations, higher bonus payouts, and transaction costs.

### Net Cash used for Investing Activities.

Net cash used for investing activities was $19.4 in YTD 2020 compared to net cash used for investing activities of $28.6 in YTD 2019. The lower use of cash over the comparable period was primarily the result of reduced capital expenditures.

### Net Cash provided by (used for) Financing Activities

Net cash provided by financing activities was $293.5 in YTD 2020 compared to $4.9 of cash generated in YTD 2019. The increase in cash generation was primarily driven by net borrowing on the ABL Revolving Credit Facility of $125.1 in YTD 2020 as compared to a net payment of $109.3 in YTD 2019. The remaining net financing activities resulted from the reverse recapitalization and refinancing transactions. Borrowings on the new Term loan of $2,189.0, net of original discount, and proceeds from the reverse recapitalization of $1,832.5 were offset by the repayment of the Prior Term Loan and Prior Notes as well as a payment made to Advisors in connection with the closing of the merger with GSAH.

### Off-balance sheet arrangements

Vertiv does not have any off-balance sheet arrangements for any of the periods presented.

### Contractual obligations

There have been no material changes outside of the ordinary course of business in our outstanding contractual obligations since December 31, 2019 and through June 30, 2020, except for the following changes to our debt obligations and tax receivable agreement:

|  | Term Loan | ABL | Short-term borrowings | Total |
| --- | ---: | ---: | ---: | ---: |
| Remainder of 2020 | $11.0 | $— | $20.2 | $31.2 |
| 2021 | 22.0 | — | — | 22.0 |
| 2022 | 22.0 | — | — | 22.0 |
| 2023 | 22.0 | — | — | 22.0 |
| 2024 | 22.0 | — | — | 22.0 |
| 2025 | 22.0 | 269.9 | — | 291.9 |
| Thereafter | 2,073.5 | — | — | 2,073.5 |
| Total | $2,194.5 | $269.9 | $20.2 | $2,484.6 |

On the Closing Date, the Company entered into the Tax Receivable Agreement, with the Vertiv Stockholder. The Company has estimated total payments of approximately $191.5 on an undiscounted basis. Due to the uncertainty with respect to the timing of future payments, the Tax Receivable Agreement has not been included in the table above. Payments are due under the agreement over a 10 year period beginning in 2023.

### Critical Accounting Policies

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 2019 financial statements filed as part of Amendment No. 2 to Form 8-K filed on March 12, 2020 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.

We have identified the following to be our critical accounting policies:

#### Revenue recognition

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. Control is transferred when the customer has the ability to direct the use of and obtain benefits from the goods or services. The majority of the Company’s sales agreements contain performance obligations satisfied at a point in time when control is transferred to the customer. Sales for service contracts, including installation, inventory with no alternative use and an enforceable right of payment upon customer termination and other discrete services, generally are recognized over time as the services are provided. Payments received in advance for service arrangements are recorded as deferred revenue and recognized in net sales when the revenue recognition criteria are met. Unbilled revenue is recorded when performance obligations have been satisfied, but the Company does not have present right to payment.

For agreements with multiple performance obligations, judgment is required to determine whether performance obligations specified in these agreements are distinct and should be accounted for as separate revenue transactions for recognition purposes. In these types of agreements we allocate sales price to each distinct obligation on a relative stand-alone selling price basis. The majority of revenue from arrangements with multiple performance obligations is recognized when tangible products are delivered, with smaller portions for associated installation and commissioning recognized shortly thereafter. Generally, contract duration is short term, and cancellation, termination or refund provisions apply only in the event of contract breach. These provisions have historically not been invoked.

Payment terms vary by the type and location of the customer and the products or services offered. Revenue from our sales have not been adjusted for the effects of a financing component as we expect that the period between when we transfer control of the product and when we receive payment to be one year or less. Sales, value add, and other taxes collected concurrent with revenue are excluded from sales. The Company records amounts billed to customers for shipping and handling in a sales transaction as revenue. Shipping and handling costs are treated as fulfillment costs and are included in costs of sales.

#### Goodwill and Other Indefinite Lived Intangible Assets

Assets and liabilities acquired in business combinations are accounted for using the acquisition method and recorded at their respective fair values. Goodwill represents the excess of consideration paid over the net assets acquired and is assigned to the reporting unit that acquires the business. A reporting unit is an operating segment as defined in ASC 280, Segment Reporting, or a business one level below an operating segment if discrete financial information for that business is prepared and regularly reviewed by segment management. The Company conducts annual impairment tests of goodwill in the fourth quarter or more frequently if events or circumstances indicate a reporting unit’s fair value may be less than its carrying value. If an initial assessment indicates it is more likely than not goodwill may be impaired, it is evaluated by comparing the reporting unit’s estimated fair value to its carrying value. If its carrying value exceeds its estimated fair value, goodwill impairment is recognized to the extent that recorded goodwill exceeds the fair value of goodwill. Estimated fair values of the reporting unit are Level 3 measures and are developed under an income approach that discounts estimated future cash flows using risk-adjusted interest rates and also the market approach.

Indefinite lived intangible assets consist of certain trademarks which are also evaluated annually for impairment or upon the occurrence of a triggering event. Impairment is determined to exist when the fair value is less than the carrying value of the assets being tested.

#### Income Taxes

The provision for income taxes is determined using the asset and liability approach of ASC 740 by jurisdiction on a legal entity by legal entity basis. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes result from differences between the financial and tax basis of the Company’s assets and liabilities and are measured using enacted rates in effect for the year in which the temporary differences are expected to be recovered or settled. The impact of a change in income tax rates on deferred tax assets and liabilities is recognized in earnings in the period that includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The tax carryforwards reflected in the Company’s consolidated financial statements have been determined using the separate return method. The tax carryforwards include net operating losses and tax credits.

## Market risk

As filed, 1,041 characters.

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.

## Controls and procedures

As filed, 6,985 characters.

### Evaluation of Disclosure Controls and Procedures

The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 as "controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms." Our disclosure controls and procedures are designed to ensure that material information relating to us and our consolidated subsidiaries is accumulated and communicated to our management, including our President and Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding our required disclosures.

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 June 30, 2020 (the end of the period covered by this Quarterly Report on Form 10-Q). Based upon that evaluation, our President and Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2020, because of material weaknesses in internal control over financial reporting described below.

Notwithstanding the identified material weaknesses, management has concluded that the consolidated financial statements included in this quarterly report on Form 10-Q present fairly, in all material respects, the Company's financial position, results of operations and cash flows for the periods disclosed in conformity with U.S. generally accepted accounting principles (U.S. GAAP).

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

Management has identified material weaknesses in controls related to (a) not fully designing, implementing and monitoring general information technology controls in the areas of user access and program change-management for systems supporting all of the Company’s internal control processes; and (b) the aggregation of open control deficiencies across the Company’s financial reporting processes because the controls were not fully designed and operating effectively.

These material weaknesses did not result in any identified material misstatements to the consolidated financial statements as of and for the quarter ended June 30, 2020. However, the material weaknesses create a reasonable possibility that a material misstatement to our consolidated financial statements will not be prevented or detected on a timely basis and, therefore, we concluded that the deficiencies represent material weaknesses in our internal control over financial reporting.

### Remediation Plan

We currently are implementing a number of actions, as described below, to remediate the material weaknesses described in this Item 4. Company management is committed to ensuring that our internal controls over financial reporting are designed and operating effectively.

#### General Information Technology Controls (GITCs)

During 2020, we continue to make progress in advancing foundational elements of our GITCs. These elements are providing value as we are leveraging them in the design of our future state processes and controls within Oracle, which is expected to go-live in 2021. Our remediation plan includes, but is not limited to:

- Implementing new, relevant IT systems;
- Implementing improved IT change management policies and procedures, control activities, and tools to ensure changes affecting financial IT applications are identified, authorized, tested, and implemented appropriately;
- Implementing improved processes for requesting, authorizing, and reviewing user access to key systems which impact our financial reporting, including identifying access to roles where manual business process controls may be required;
- Implementing appropriate segregation of duties in relevant systems that impact internal control over financial reporting;
- Increasing resources dedicated to monitoring GITCs to ensure compliance with policies and procedures; and
- Implementing additional training to ensure a clear understanding of risk assessment and monitoring activities related to automated processes and IT systems and GITCs.

#### Financial Reporting

We continue to make progress on our automated and manual business process controls, including reports generated from these IT systems, that are dependent upon the completeness and accuracy of information from the affected GITC material weakness. These elements are providing value as we are leveraging them in the design of our future state processes and controls within Oracle, which is expected to go-live in 2021. Our remediation plan includes, but is not limited to:

- Frequent communications between our Audit Committee and management regarding our financial reporting and internal control environment;
- Expanded Business Unit Finance, Accounting and Reporting and Information Technology teams through the addition of experienced and qualified resources;
- Delivery of additional internal controls training, as well as policy and control standardization where possible;
- Re-designed internal controls processes and locations as part of our Sarbanes-Oxley program to drive accountability and efficiency;
- Instituted monthly review of financial statements disaggregated by key business units, and functional areas to evaluate results, observe adherence to policies and agree on necessary actions;
- Engaged outside resources to assist with the design and implementation of a risk-based internal controls plan, enhance process documentation, provide company-wide training, and help with management's self-assessment and testing of internal controls.

When fully implemented and operational, we believe the controls we have designed or plan to design will remediate the control deficiencies that have led to the material weaknesses we have identified and strengthen our internal controls over financial reporting.

The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

### Changes in Internal Control over Financial Reporting

We have undertaken strategic remediation actions, as discussed above, to address the material weaknesses in our internal controls over financial reporting. These remediation actions continued throughout the quarter ended June 30, 2020 but have not materially affected our internal control over financial reporting

## Risk factors

As filed, 6,449 characters.

*An investment in our securities involves risks and uncertainties. You should carefully consider the following risks as well as the other information included in our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q, including our financial statements and the related notes and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, before investing in our securities. We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could materially adversely affect our operations. Any of the following risks could materially and adversely affect our business, financial condition, results of operations or prospects. However, the selected risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition, results of operations or prospects. In such a case, the trading price of our securities could decline and you may lose all or part of your investment in us. Unless the context otherwise requires, all references in this subsection to the “Company,”*

*“we,” “us” or “our” refer to Vertiv Holdings Co and its consolidated subsidiaries following the Business Combination, other than certain historical information which refers to the business of Vertiv prior to the consummation of the Business Combination.*

***Our business, results of operations, financial position, cash flows and liquidity have been and could continue to be adversely affected by the COVID-19 pandemic or other similar outbreaks.***

The ongoing global COVID-19 global pandemic and efforts to reduce its spread have led to a significant decline of economic activity and significant disruption and volatility in global markets. To date, the COVID-19 outbreak and response by governments and other third parties to contain or mitigate the outbreak have caused, and are continuing to cause, business slowdowns or shutdowns in affected areas and significant disruption in global financial markets. For example, many state, local, and foreign governments have put in place quarantines, executive orders, shelter-in-place orders, and similar government orders and restrictions in order to control the spread of the disease. Such orders or restrictions, or the perception that such orders or restrictions could occur, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions, and cancellation or postponement of events, among other effects that could negatively impact productivity and disrupt our operations and those of our customers.

Although we are unable to predict the ultimate impact of the COVID-19 outbreak at this time, the pandemic has adversely affected, and could continue to adversely affect, our business, results of operations, financial position, cash flows and liquidity. Such effects may be material and may include, but are not limited to:

- disruptions in our supply chain due to transportation delays, travel restrictions and closures of businesses or facilities;
- reductions in our operating effectiveness due to workforce disruptions, the need for social distancing, and the unavailability of key personnel necessary to conduct our business activities; and
- volatility in the global financial markets, which could have a negative impact on our ability to access capital and additional sources of financing in the future.

In addition, we cannot predict the impact that COVID-19 will have on our customers, subcontractors, suppliers, distributors, and employees and any adverse impacts on these parties may have a material adverse impact on our business.

***We have identified two material weaknesses in our internal control over financial reporting which, if not remediated, could result in material misstatements in our financial statements.***

During the quarter ended June 30, 2020, we identified material weaknesses in internal control over financial reporting that pertain to (1) the ineffective design and implementation of effective controls with respect to the implementation of our ERP system consistent with our financial reporting requirements and (2) the design and maintenance of information technology general controls for information systems that are relevant to the preparation of financial statements. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim unaudited condensed consolidated financial statements will not be prevented or detected on a timely basis.

As further described in “Item 4. Controls and Procedures,” we have developed and are implementing a plan to remediate these material weaknesses. However, we cannot assure you that this will occur within a specific timeframe. These material weaknesses will not be remediated until all necessary internal controls have been implemented, tested and determined to be operating effectively. In addition, we may need to take additional measures to address the material weaknesses or modify the planned remediation steps, and we cannot be certain that the measures we have taken, and expect to take, to improve our internal controls will be sufficient to address the issues identified, to ensure that our internal controls are effective or to ensure that the identified material weaknesses will not result in a material misstatement of our unaudited condensed consolidated financial statements. Moreover, we cannot assure you that we will not identify additional material weaknesses in our internal control over financial reporting in the future.

If we are unable to remediate the material weaknesses, our ability to record, process and report financial information accurately, and to prepare financial statements within the time periods specified by the rules and forms of the Securities and Exchange Commission, could be adversely affected. This failure could negatively affect the market price and trading liquidity of our Class A common stock, warrants and units, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties and generally materially and adversely impact our business and financial condition.

Filed Aug 5, 2020.
Source: SEC EDGAR, the filing index for accession 0001628280-20-011825. Last ingested by Listed: Oct 28, 2026, 06:05 ET. No prices; not investment advice.