Vertiv Holdings Co - Quarter Report: 2023 September (Form 10-Q)
| UNITED STATES | ||||||||||||||
| SECURITIES AND EXCHANGE COMMISSION | ||||||||||||||
| Washington, D. C. 20549 | ||||||||||||||
FORM 10-Q | ||||||||||||||
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||||||||
For the Quarterly period ended September 30, 2023 | ||||||||||||||
| or | ||||||||||||||
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||||||||
| For the transition period from __to__ | ||||||||||||||
Commission File No. 001-38518 | ||||||||||||||
| Vertiv Holdings Co | ||||||||||||||
| (Exact name of registrant as specified in its charter) | ||||||||||||||
Delaware (State or other jurisdiction of incorporation or organization) | 81-2376902 (I.R.S Employer Identification No.) | |||||||||||||
505 N. Cleveland Ave., Westerville, Ohio 43082 | ||||||||||||||
| (Address of principal executive offices including zip code) | ||||||||||||||
614-888-0246 | ||||||||||||||
| (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 | ||||||||||||
Class A common stock, $0.0001 par value per share | VRT | New York Stock Exchange | ||||||||||||
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.
Yes ☒ No ☐
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).
Yes ☒ No ☐
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:
| Large accelerated filer | ☒ | 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 October 23, 2023, there were 381,441,500 shares of the Company’s 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 September 30, 2023 | Three months ended September 30, 2022 | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | ||||||||||||||||||||
| Net sales | |||||||||||||||||||||||
| Net sales - products | $ | 1,381.3 | $ | 1,135.4 | $ | 3,928.2 | $ | 3,039.8 | |||||||||||||||
| Net sales - services | 361.3 | 345.7 | 1,069.6 | 997.1 | |||||||||||||||||||
| Net sales | 1,742.6 | 1,481.1 | 4,997.8 | 4,036.9 | |||||||||||||||||||
| Costs and expenses | |||||||||||||||||||||||
| Cost of sales - products | 894.2 | 838.5 | 2,626.6 | 2,301.7 | |||||||||||||||||||
| Cost of sales - services | 220.8 | 213.3 | 654.1 | 630.8 | |||||||||||||||||||
| Cost of sales | 1,115.0 | 1,051.8 | 3,280.7 | 2,932.5 | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Selling, general and administrative expenses | 327.2 | 295.2 | 963.5 | 875.0 | |||||||||||||||||||
| Amortization of intangibles | 45.5 | 54.2 | 136.1 | 167.7 | |||||||||||||||||||
| Restructuring costs | 1.3 | (1.5) | 23.5 | 0.1 | |||||||||||||||||||
| Foreign currency (gain) loss, net | 2.7 | 0.2 | 13.3 | 1.8 | |||||||||||||||||||
| Other operating expense (income) | — | 1.2 | (6.3) | (1.2) | |||||||||||||||||||
| Operating profit (loss) | 250.9 | 80.0 | 587.0 | 61.0 | |||||||||||||||||||
| Interest expense, net | 43.5 | 38.8 | 137.2 | 101.5 | |||||||||||||||||||
| Change in fair value of warrant liabilities | 61.6 | 9.8 | 103.4 | (124.0) | |||||||||||||||||||
| Income (loss) before income taxes | 145.8 | 31.4 | 346.4 | 83.5 | |||||||||||||||||||
| Income tax expense | 51.7 | 10.2 | 118.8 | 33.5 | |||||||||||||||||||
| Net income (loss) | $ | 94.1 | $ | 21.2 | $ | 227.6 | $ | 50.0 | |||||||||||||||
| Earnings (loss) per share: | |||||||||||||||||||||||
| Basic | $ | 0.25 | $ | 0.06 | $ | 0.60 | $ | 0.13 | |||||||||||||||
| Diluted | $ | 0.24 | $ | 0.06 | $ | 0.59 | $ | (0.20) | |||||||||||||||
| Weighted-average shares outstanding: | |||||||||||||||||||||||
| Basic | 380,899,419 | 377,016,981 | 379,666,002 | 376,531,805 | |||||||||||||||||||
| Diluted | 388,240,664 | 377,444,002 | 383,832,268 | 378,038,809 | |||||||||||||||||||
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 September 30, 2023 | Three months ended September 30, 2022 | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | ||||||||||||||||||||
| Net income (loss) | $ | 94.1 | $ | 21.2 | $ | 227.6 | $ | 50.0 | |||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency translation | (63.5) | (146.1) | (23.5) | (332.3) | |||||||||||||||||||
| Interest rate swaps | 4.1 | 30.9 | 0.8 | 107.1 | |||||||||||||||||||
| Pension | (0.2) | 0.1 | (0.5) | 0.2 | |||||||||||||||||||
| Other comprehensive income (loss), net of tax | (59.6) | (115.1) | (23.2) | (225.0) | |||||||||||||||||||
| Comprehensive income (loss) | $ | 34.5 | $ | (93.9) | $ | 204.4 | $ | (175.0) | |||||||||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
3
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
VERTIV HOLDINGS CO
(Dollars in millions)
| September 30, 2023 | December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 500.0 | $ | 260.6 | |||||||
Accounts receivable, less allowances of $26.6 and $18.4, respectively | 2,020.7 | 1,888.8 | |||||||||
| Inventories | 921.7 | 822.0 | |||||||||
| Other current assets | 178.6 | 187.3 | |||||||||
| Total current assets | 3,621.0 | 3,158.7 | |||||||||
| Property, plant and equipment, net | 508.6 | 489.4 | |||||||||
| Other assets: | |||||||||||
| Goodwill | 1,284.3 | 1,284.7 | |||||||||
| Other intangible assets, net | 1,674.1 | 1,816.1 | |||||||||
| Deferred income taxes | 46.7 | 46.4 | |||||||||
| Right-of-use assets, net | 157.1 | 166.4 | |||||||||
| Other | 122.5 | 134.0 | |||||||||
| Total other assets | 3,284.7 | 3,447.6 | |||||||||
| Total assets | $ | 7,414.3 | $ | 7,095.7 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt | $ | 21.8 | $ | 21.8 | |||||||
| Accounts payable | 931.9 | 984.0 | |||||||||
| Deferred revenue | 543.3 | 358.7 | |||||||||
| Accrued expenses and other liabilities | 555.4 | 513.7 | |||||||||
| Income taxes | 49.1 | 19.7 | |||||||||
| Total current liabilities | 2,101.5 | 1,897.9 | |||||||||
| Long-term debt, net | 2,923.1 | 3,169.1 | |||||||||
| Deferred income taxes | 177.8 | 176.5 | |||||||||
| Warrant liabilities | 140.5 | 58.7 | |||||||||
| Long-term lease liabilities | 125.9 | 132.0 | |||||||||
| Other long-term liabilities | 231.6 | 219.6 | |||||||||
| Total liabilities | 5,700.4 | 5,653.8 | |||||||||
| Equity | |||||||||||
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, none issued and outstanding | — | — | |||||||||
Common stock, $0.0001 par value, 700,000,000 shares authorized, 381,349,156 and 377,368,837 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | — | — | |||||||||
| Additional paid-in capital | 2,698.3 | 2,630.7 | |||||||||
| Accumulated deficit | (915.0) | (1,142.6) | |||||||||
| Accumulated other comprehensive income (loss) | (69.4) | (46.2) | |||||||||
| Total equity | 1,713.9 | 1,441.9 | |||||||||
| Total liabilities and equity | $ | 7,414.3 | $ | 7,095.7 | |||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
4
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
VERTIV HOLDINGS CO
(Dollars in millions)
| Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | 227.6 | $ | 50.0 | |||||||
| Adjustments to reconcile net income (loss) to net cash used for operating activities: | |||||||||||
| Depreciation | 54.6 | 53.3 | |||||||||
| Amortization | 147.5 | 178.6 | |||||||||
| Deferred income taxes | (0.7) | (22.0) | |||||||||
| Amortization of debt discount and issuance costs | 6.3 | 7.4 | |||||||||
| Change in fair value of warrant liabilities | 103.4 | (124.0) | |||||||||
| Changes in operating working capital | (17.8) | (448.0) | |||||||||
| Stock-based compensation | 18.8 | 20.1 | |||||||||
| Payment of contingent consideration | — | (8.7) | |||||||||
| Other | 4.6 | (40.2) | |||||||||
| Net cash provided by (used for) operating activities | 544.3 | (333.5) | |||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | (80.1) | (61.7) | |||||||||
| Investments in capitalized software | (3.4) | (8.0) | |||||||||
| Acquisition of business, net of cash acquired | — | (5.0) | |||||||||
| Proceeds from disposition of property, plant and equipment | 12.4 | — | |||||||||
| Net cash provided by (used for) investing activities | (71.1) | (74.7) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings from ABL revolving credit facility and short-term borrowings | 224.6 | 578.4 | |||||||||
| Repayments of ABL revolving credit facility and short-term borrowings | (459.6) | (281.5) | |||||||||
| Repayment of long-term debt | (21.8) | (10.9) | |||||||||
| Debt issuance costs | — | (0.5) | |||||||||
| Payment of tax receivable agreement | — | (25.0) | |||||||||
| Payment of contingent consideration | — | (12.8) | |||||||||
| Exercise of employee stock options | 22.9 | 1.3 | |||||||||
| Employee taxes paid from shares withheld | (2.8) | (4.3) | |||||||||
| Net cash provided by (used for) financing activities | (236.7) | 244.7 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (4.7) | (14.9) | |||||||||
| Increase (decrease) in cash, cash equivalents and restricted cash | 231.8 | (178.4) | |||||||||
| Beginning cash, cash equivalents and restricted cash | 273.2 | 447.1 | |||||||||
| Ending cash, cash equivalents and restricted cash | $ | 505.0 | $ | 268.7 | |||||||
| Changes in operating working capital | |||||||||||
| Accounts receivable | $ | (136.7) | $ | (257.0) | |||||||
| Inventories | (101.5) | (202.3) | |||||||||
| Other current assets | 28.5 | (4.2) | |||||||||
| Accounts payable | (44.9) | 42.2 | |||||||||
| Deferred revenue | 184.6 | 35.8 | |||||||||
| Accrued expenses and other liabilities | 45.5 | (51.5) | |||||||||
| Income taxes | 6.7 | (11.0) | |||||||||
| Total changes in operating working capital | $ | (17.8) | $ | (448.0) | |||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
5
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ 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, 2021 | 375,801,857 | $ | — | $ | 2,597.5 | $ | (1,215.4) | $ | 35.6 | $ | 1,417.7 | |||||||||||||||||||||||||||
| Net income (loss) | — | — | — | 8.5 | — | 8.5 | ||||||||||||||||||||||||||||||||
| Exercise of employee stock options | 89,566 | — | 1.0 | — | — | 1.0 | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 6.6 | — | — | 6.6 | ||||||||||||||||||||||||||||||||
| Employee 401K match with Vertiv stock | 100,541 | — | 2.3 | — | — | 2.3 | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | 18.0 | 18.0 | ||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | 375,991,964 | $ | — | $ | 2,607.4 | $ | (1,206.9) | $ | 53.6 | $ | 1,454.1 | |||||||||||||||||||||||||||
| Net income (loss) | — | $ | — | $ | — | $ | 20.3 | $ | — | $ | 20.3 | |||||||||||||||||||||||||||
| Exercise of employee stock options | 4,279 | — | 0.1 | — | — | 0.1 | ||||||||||||||||||||||||||||||||
Stock-based compensation, net of withholding for tax(1) | 563,597 | — | 2.9 | — | — | 2.9 | ||||||||||||||||||||||||||||||||
| Employee 401K match with Vertiv stock | 161,333 | — | 2.2 | — | — | 2.2 | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | (127.9) | (127.9) | ||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | 376,721,173 | $ | — | $ | 2,612.6 | $ | (1,186.6) | $ | (74.3) | $ | 1,351.7 | |||||||||||||||||||||||||||
| Net income (loss) | — | — | $ | — | $ | 21.2 | $ | — | $ | 21.2 | ||||||||||||||||||||||||||||
| Exercise of employee stock options | 20,649 | — | 0.2 | — | — | 0.2 | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 6.3 | — | — | 6.3 | ||||||||||||||||||||||||||||||||
| Employee 401K match with Vertiv stock | 316,905 | — | 2.8 | — | — | 2.8 | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | (115.1) | (115.1) | ||||||||||||||||||||||||||||||||
Balance at September 30, 2022 | 377,058,727 | $ | — | $ | 2,621.9 | $ | (1,165.4) | $ | (189.4) | $ | 1,267.1 | |||||||||||||||||||||||||||
Balance at December 31, 2022 | 377,368,837 | $ | — | $ | 2,630.7 | $ | (1,142.6) | $ | (46.2) | $ | 1,441.9 | |||||||||||||||||||||||||||
| Net income (loss) | — | — | — | 50.3 | — | 50.3 | ||||||||||||||||||||||||||||||||
| Exercise of employee stock options | 246,653 | — | 2.2 | — | — | 2.2 | ||||||||||||||||||||||||||||||||
Stock-based compensation, net of withholding for tax(2) | 14,730 | — | 5.4 | — | — | 5.4 | ||||||||||||||||||||||||||||||||
| Employee 401K match with Vertiv stock | 135,245 | — | 2.1 | — | — | 2.1 | ||||||||||||||||||||||||||||||||
Exercise of warrants(3) | 1,368,194 | — | 21.6 | — | — | 21.6 | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | 27.3 | 27.3 | ||||||||||||||||||||||||||||||||
Balance at March 31, 2023 | 379,133,659 | $ | — | $ | 2,662.0 | $ | (1,092.3) | $ | (18.9) | $ | 1,550.8 | |||||||||||||||||||||||||||
| Net income (loss) | — | $ | — | $ | — | $ | 83.2 | $ | — | $ | 83.2 | |||||||||||||||||||||||||||
| Exercise of employee stock options | 649,884 | — | 7.8 | — | — | 7.8 | ||||||||||||||||||||||||||||||||
Stock-based compensation, net of withholding for tax(4) | 365,055 | — | 4.4 | — | — | 4.4 | ||||||||||||||||||||||||||||||||
| Employee 401K match with Vertiv stock | 217,041 | — | 2.8 | — | — | 2.8 | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | 9.1 | 9.1 | ||||||||||||||||||||||||||||||||
Balance at June 30, 2023 | 380,365,639 | $ | — | $ | 2,677.0 | $ | (1,009.1) | $ | (9.8) | $ | 1,658.1 | |||||||||||||||||||||||||||
| Net income (loss) | — | $ | — | $ | — | $ | 94.1 | $ | — | $ | 94.1 | |||||||||||||||||||||||||||
| Exercise of employee stock options | 892,030 | — | 12.9 | — | — | 12.9 | ||||||||||||||||||||||||||||||||
Stock-based compensation, net of withholding for tax(5) | 6,465 | — | 6.2 | — | — | 6.2 | ||||||||||||||||||||||||||||||||
| Employee 401K match with Vertiv stock | 85,022 | — | 2.2 | — | — | 2.2 | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | (59.6) | (59.6) | ||||||||||||||||||||||||||||||||
Balance at September 30, 2023 | 381,349,156 | $ | — | $ | 2,698.3 | $ | (915.0) | $ | (69.4) | $ | 1,713.9 | |||||||||||||||||||||||||||
(1)Net stock compensation activity includes 876,358 vested shares offset by 312,761 shares withheld for taxes valued at $4.3 and stock-based compensation of $7.2.
(2)Net stock compensation activity includes 14,730 shares withheld for taxes valued at $0.1 and stock-based compensation of $5.5.
(3)On February 24, 2023, GS Sponsor LLC elected to exercise 5,266,666 warrants on a cashless basis pursuant to the agreement governing the warrants, in exchange for which the Company issued 1,368,194 shares of Class A common stock.
(4)Net stock compensation activity includes 562,320 vested shares offset by 197,265 shares withheld for taxes valued at $2.4 and stock-based compensation of $6.8.
(5)Net stock compensation activity includes 10,707 vested shares offset by 4,242 shares withheld for taxes valued at $0.3 and stock-based compensation of $6.5.
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
6
Vertiv Holdings Co
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share amounts)
(1) DESCRIPTION OF BUSINESS
Vertiv Holdings Co ("Holdings Co", and together with its majority-owned subsidiaries, “Vertiv”, “we”, “our”, or “the Company”), formerly known as GS Acquisition Holdings Corp, provides mission-critical infrastructure technologies and life cycle services for data centers, communication networks, and commercial and industrial environments. Vertiv’s offerings include AC and DC power management products, thermal management products, integrated rack systems, modular solutions, management systems for monitoring and controlling digital infrastructure, and services. Vertiv manages and reports results of operations for three reportable segments: Americas; Asia Pacific; and Europe, Middle East & Africa.
(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 U.S. 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 unaudited 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.
The preparation of financial statements in conformity with GAAP 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 that have impacted, and may continue to impact, the Company's sales channels, supply chain, manufacturing operations, workforce, or other key aspects of the Company’s 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 for the year ended December 31, 2022, filed with the SEC on February 27, 2023.
Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2020-04: Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions to ease the potential burden in accounting for contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued as part of reference rate reform. The amendments became effective March 12, 2020 and can generally be applied through December 31, 2024.
On April 18, 2023, the Company transitioned its interest rate swaps from LIBOR to the Secured Overnight Financing Rate ("SOFR") effective July 2, 2023. The Term Loan Credit Agreement, dated as of March 2, 2020 (as amended), by and among (i) Vertiv Group Corporation, as borrower, (ii) Vertiv Intermediate Holding II Corporation, (iii) the administrative agent and (iv) the lenders, relating to a term loan due in 2027 (the “Term Loan Credit Agreement”), was amended on June 22, 2023, to allow for the transition, effective July 1, 2023, from the LIBOR available for borrowings under the Term Loan Credit Agreement and related LIBOR-based mechanics to an interest rate based on the SOFR and related SOFR-based mechanics. The Company adopted ASU 2020-04 and elected to apply the optional expedient to consider the amended swap contracts as a continuation of the existing arrangements. The application of this ASU did not have a material impact on the Condensed Consolidated Financial Statements.
In March 2023, the FASB issued ASU 2023-01: Leases (Topic 842) Common Control Arrangements. This ASU provides amendments that require leasehold improvements associated with common control leases be amortized over the useful life of the leasehold improvements to the common control group as long as the lessee controls the underlying asset through a lease. The amendments are effective in fiscal years beginning after December 15, 2023. The Company does not expect the adoption to have a material impact on its Consolidated Financial Statements.
7
(3) 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 receive in exchange for those goods or services.
Disaggregation of Revenues
The following table disaggregates revenue by business segment, product and service offering and timing of transfer of control:
| Three months ended September 30, 2023 | |||||||||||||||||||||||
| Americas | Asia Pacific | Europe, Middle East, & Africa | Total | ||||||||||||||||||||
| Sales by Product and Service Offering: | |||||||||||||||||||||||
| Critical infrastructure & solutions | $ | 670.8 | $ | 244.3 | $ | 223.2 | $ | 1,138.3 | |||||||||||||||
| Services & spares | 206.2 | 103.1 | 84.0 | 393.3 | |||||||||||||||||||
| Integrated rack solutions | 126.2 | 41.2 | 43.6 | 211.0 | |||||||||||||||||||
| Total | $ | 1,003.2 | $ | 388.6 | $ | 350.8 | $ | 1,742.6 | |||||||||||||||
| Timing of revenue recognition: | |||||||||||||||||||||||
| Products and services transferred at a point in time | $ | 772.8 | $ | 296.0 | $ | 210.4 | $ | 1,279.2 | |||||||||||||||
| Products and services transferred over time | 230.4 | 92.6 | 140.4 | 463.4 | |||||||||||||||||||
| Total | $ | 1,003.2 | $ | 388.6 | $ | 350.8 | $ | 1,742.6 | |||||||||||||||
| Three months ended September 30, 2022 | |||||||||||||||||||||||
| Americas | Asia Pacific | Europe, Middle East, & Africa | Total | ||||||||||||||||||||
| Sales by Product and Service Offering: | |||||||||||||||||||||||
| Critical infrastructure & solutions | $ | 417.3 | $ | 265.7 | $ | 224.3 | $ | 907.3 | |||||||||||||||
| Services & spares | 203.6 | 113.3 | 71.1 | 388.0 | |||||||||||||||||||
| Integrated rack solutions | 91.7 | 57.1 | 37.0 | 185.8 | |||||||||||||||||||
| Total | $ | 712.6 | $ | 436.1 | $ | 332.4 | $ | 1,481.1 | |||||||||||||||
| Timing of revenue recognition: | |||||||||||||||||||||||
| Products and services transferred at a point in time | $ | 492.7 | $ | 343.4 | $ | 231.8 | $ | 1,067.9 | |||||||||||||||
| Products and services transferred over time | 219.9 | 92.7 | 100.6 | 413.2 | |||||||||||||||||||
| Total | $ | 712.6 | $ | 436.1 | $ | 332.4 | $ | 1,481.1 | |||||||||||||||
| Nine months ended September 30, 2023 | |||||||||||||||||||||||
| Americas | Asia Pacific | Europe, Middle East, & Africa | Total | ||||||||||||||||||||
| Sales by Product and Service Offering: | |||||||||||||||||||||||
| Critical infrastructure & solutions | $ | 1,868.2 | $ | 646.9 | $ | 699.1 | $ | 3,214.2 | |||||||||||||||
| Services & spares | 602.5 | 317.3 | 248.3 | 1,168.1 | |||||||||||||||||||
| Integrated rack solutions | 354.2 | 133.2 | 128.1 | 615.5 | |||||||||||||||||||
| Total | $ | 2,824.9 | $ | 1,097.4 | $ | 1,075.5 | $ | 4,997.8 | |||||||||||||||
| Timing of revenue recognition: | |||||||||||||||||||||||
| Products and services transferred at a point in time | $ | 2,164.2 | $ | 830.6 | $ | 716.1 | $ | 3,710.9 | |||||||||||||||
| Products and services transferred over time | 660.7 | 266.8 | 359.4 | 1,286.9 | |||||||||||||||||||
| Total | $ | 2,824.9 | $ | 1,097.4 | $ | 1,075.5 | $ | 4,997.8 | |||||||||||||||
8
| Nine months ended September 30, 2022 | |||||||||||||||||||||||
| Americas | Asia Pacific | Europe, Middle East, & Africa | Total | ||||||||||||||||||||
| Sales by Product and Service Offering: | |||||||||||||||||||||||
| Critical infrastructure & solutions | $ | 1,080.5 | $ | 692.5 | $ | 642.6 | $ | 2,415.6 | |||||||||||||||
| Services & spares | 555.9 | 330.8 | 208.0 | 1,094.7 | |||||||||||||||||||
| Integrated rack solutions | 258.5 | 152.8 | 115.3 | 526.6 | |||||||||||||||||||
| Total | $ | 1,894.9 | $ | 1,176.1 | $ | 965.9 | $ | 4,036.9 | |||||||||||||||
| Timing of revenue recognition: | |||||||||||||||||||||||
| Products and services transferred at a point in time | $ | 1,323.3 | $ | 909.5 | $ | 681.9 | $ | 2,914.7 | |||||||||||||||
| Products and services transferred over time | 571.6 | 266.6 | 284.0 | 1,122.2 | |||||||||||||||||||
| Total | $ | 1,894.9 | $ | 1,176.1 | $ | 965.9 | $ | 4,036.9 | |||||||||||||||
The opening and closing balances of current and long-term deferred revenue as of September 30, 2023 and December 31, 2022 were as follows:
Balances at September 30, 2023 | Balances at December 31, 2022 | ||||||||||
Deferred revenue - current | $ | 543.3 | $ | 358.7 | |||||||
Deferred revenue - noncurrent (1) | 55.9 | 49.5 | |||||||||
(1) Noncurrent deferred revenue is recorded within “Other long-term liabilities” on the Unaudited Condensed Consolidated Balance Sheets.
Deferred revenue - noncurrent consists primarily of maintenance, extended warranty and other service contracts. The Company expects to recognize noncurrent deferred revenue of $31.1, $14.4 and $10.4 in the next 13 to 24 months, the next 25 to 36 months, and thereafter, respectively.
(4) 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. Severance and benefits, plant closing and other costs are recorded in "Restructuring costs" on the Unaudited Condensed Consolidated Statement of Earnings (Loss). Restructuring costs by business segment were as follows:
| Three months ended September 30, 2023 | Three months ended September 30, 2022 | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | ||||||||||||||||||||
| Americas | $ | 0.6 | $ | 0.4 | $ | 1.8 | $ | 1.4 | |||||||||||||||
| Asia Pacific | 0.6 | (1.7) | 11.0 | (1.7) | |||||||||||||||||||
| Europe, Middle East & Africa | 0.3 | (0.1) | 3.9 | 0.6 | |||||||||||||||||||
| Corporate | (0.2) | (0.1) | 6.8 | (0.2) | |||||||||||||||||||
| Total | $ | 1.3 | $ | (1.5) | $ | 23.5 | $ | 0.1 | |||||||||||||||
The current liability and non-current liability for estimated restructuring costs is recorded in "Accrued expenses and other liabilities” and "Other long-term liabilities", respectively, on the Unaudited Condensed Consolidated Balance Sheets. The change in the current liability for the restructuring costs during the nine months ended September 30, 2023 were as follows:
| December 31, 2022 | Expense | Paid/Utilized | September 30, 2023 | ||||||||||||||||||||
| Severance and benefits | $ | 15.3 | $ | 22.9 | $ | (11.9) | $ | 26.3 | |||||||||||||||
| Plant closing and other | 0.1 | 0.6 | (0.6) | 0.1 | |||||||||||||||||||
| Total | $ | 15.4 | $ | 23.5 | $ | (12.5) | $ | 26.4 | |||||||||||||||
The change in the current liability for the restructuring costs during the nine months ended September 30, 2022 were as follows:
| December 31, 2021 | Expense | Paid/Utilized | September 30, 2022 | ||||||||||||||||||||
| Severance and benefits | $ | 33.8 | $ | (1.7) | $ | (15.7) | $ | 16.4 | |||||||||||||||
| Plant closing and other | 0.2 | 1.8 | (1.8) | 0.2 | |||||||||||||||||||
| Total | $ | 34.0 | $ | 0.1 | $ | (17.5) | $ | 16.6 | |||||||||||||||
9
(5) DEBT
Long-term debt, net, consisted of the following as of September 30, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022 | ||||||||||
Term Loan due 2027 at 8.19% and 6.89% at September 30, 2023 and December 31, 2022, respectively | $ | 2,123.4 | $ | 2,139.8 | |||||||
Senior Secured Notes due 2028 at 4.125% at both September 30, 2023 and December 31, 2022 | 850.0 | 850.0 | |||||||||
ABL Revolving Credit Facility | — | 235.0 | |||||||||
| Unamortized discount and issuance costs | (28.5) | (33.9) | |||||||||
| 2,944.9 | 3,190.9 | ||||||||||
| Less: Current Portion | (21.8) | (21.8) | |||||||||
| Total long-term debt, net of current portion | $ | 2,923.1 | $ | 3,169.1 | |||||||
Term Loan Amendment
On June 22, 2023, Citibank, N.A., as administrative agent (in such capacity, the “Administrative Agent”) entered into an Amendment no. 2 to Term Loan Credit Agreement (the “Amendment”), which amends that certain Term Loan Credit Agreement. Refer to further information in “Note 2 — Basis of Presentation and Summary of Significant Accounting Policies”.
Pursuant to the Amendment, the interest rate under the Term Loan Credit Agreement transitioned, effective July 1, 2023, from the LIBOR available for borrowings under the credit agreement and related LIBOR-based mechanics to an interest rate based on the SOFR and related SOFR-based mechanics.
ABL Revolving Credit Facility
At September 30, 2023, Vertiv Group Corporation (a wholly-owned subsidiary of the Company), as Borrower, and certain subsidiaries of the Borrower as co-borrowers (the “Co-Borrowers”), had $545.9 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 $17.0, and taking into account the borrowing base limitations set forth in the ABL Revolving Credit Facility. At September 30, 2023, there was no outstanding balance on the ABL Revolving Credit Facility. At December 31, 2022, there was a $235.0 balance on the ABL Revolving Credit Facility with a weighted-average borrowing rate of 5.85%.
(6) INCOME TAXES
The Company’s effective tax rate was 35.5%, 34.3%, 32.5% and 40.1% for the three and nine months ended September 30, 2023 and 2022, respectively. The effective tax rate in the three and nine months ended September 30, 2023 is primarily influenced by the mix of income between the Company’s U.S. and non-U.S. operations, net of changes in valuation allowances and reflect the negative impacts of non-deductible changes in the fair value of the warrant liabilities and changes in our indefinite reinvestment liability. The effective rate for the comparative three and nine months ended September 30, 2022 was primarily influenced by the mix of income between the Company’s U.S. and non-U.S. operations, net of changes in valuation allowances offset by the positive impact of non-deductible or non-taxable changes in fair value of the warrant liabilities.
The Company provided 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 September 30, 2023, 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.
(7) RELATED PARTY TRANSACTIONS
Transactions with Affiliates of Advisors
On August 8, 2023 (the "Stock Sale Transaction date"), VPE Holdings, LLC, an affiliate of Platinum Equity Advisors, LLC (the "Vertiv Stockholder") completed the sale of 20,000,000 shares of Class A common stock of the Company (the "Stock Sale Transaction"). Subsequent to the Stock Sale Transaction, the Vertiv Stockholder holds less than 5% of the outstanding Class A common stock of the Company and as such is no longer considered a related person of the Company for purposes of Item 404 of Regulation S-K by virtue of its ownership in the Company.
10
The Company purchased and sold goods in the ordinary course of business with affiliates of the Vertiv Stockholder. Purchases from the start of the current quarter and current year through the Stock Sale Transaction date were $11.6 and $74.1, respectively. For the three and nine months ended September 30, 2022 purchases were $34.4 and $103.6, respectively. Sales from the start of the current quarter and current year through the Stock Sale Transaction date were $6.7 and $89.5, respectively. For the three and nine months ended September 30, 2022 sales were $36.5 and $98.1, respectively. Accounts payable were $3.8 as of December 31, 2022. Accounts receivable were $33.3 as of December 31, 2022.
Tax Receivable Agreement
In 2021, the Company and the Vertiv Stockholder agreed to amend and supplement the tax receivable agreement entered into by the Company and the Vertiv Stockholder on February 7, 2020 (the “Tax Receivable Agreement”), to replace the Company’s remaining payment obligations under the Tax Receivable Agreement with an obligation to pay $100.0 in cash in two equal installments. The first two installment payments were scheduled to be on or before June 15, 2022 and September 15, 2022, respectively. On June 15, 2022, the Company and the Vertiv Stockholder agreed to further amend the payment schedule under the Tax Receivable Agreement into three installment payments, wherein the first installment payment of $12.5 became due and was paid on June 15, 2022, the second installment of $12.5 became due and was paid on September 15, 2022, and the third installment of $75.0 became due and was paid on November 30, 2022. The Tax Receivable Agreement terminated on November 30, 2022 upon receipt of final payment.
(8) OTHER FINANCIAL INFORMATION
| September 30, 2023 | December 31, 2022 | ||||||||||
| Reconciliation of cash, cash equivalents, and restricted cash | |||||||||||
| Cash and cash equivalents | $ | 500.0 | $ | 260.6 | |||||||
| Restricted cash included in other current assets | 5.0 | 12.6 | |||||||||
| Total cash, cash equivalents, and restricted cash | $ | 505.0 | $ | 273.2 | |||||||
| September 30, 2023 | December 31, 2022 | ||||||||||
| Inventories | |||||||||||
| Finished products | $ | 280.3 | $ | 276.5 | |||||||
| Raw materials | 476.4 | 377.2 | |||||||||
| Work in process | 165.0 | 168.3 | |||||||||
| Total inventories | $ | 921.7 | $ | 822.0 | |||||||
| September 30, 2023 | December 31, 2022 | ||||||||||
| Property, plant and equipment, net | |||||||||||
| Machinery and equipment | $ | 441.0 | $ | 405.4 | |||||||
| Buildings | 332.4 | 312.4 | |||||||||
| Land | 40.6 | 41.0 | |||||||||
| Construction in progress | 45.3 | 41.5 | |||||||||
| Property, plant and equipment, at cost | 859.3 | 800.3 | |||||||||
| Less: Accumulated depreciation | (350.7) | (310.9) | |||||||||
| Property, plant and equipment, net | $ | 508.6 | $ | 489.4 | |||||||
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| September 30, 2023 | December 31, 2022 | ||||||||||
| Accrued expenses and other liabilities | |||||||||||
| Accrued payroll and other employee compensation | $ | 143.4 | $ | 132.6 | |||||||
Restructuring (see Note 4) | 26.4 | 15.4 | |||||||||
| Operating lease liabilities | 42.3 | 45.2 | |||||||||
| Product warranty | 24.0 | 25.6 | |||||||||
| Other | 319.3 | 294.9 | |||||||||
| Total | $ | 555.4 | $ | 513.7 | |||||||
| Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | ||||||||||
| Change in product warranty accrual | |||||||||||
| Balance at the beginning of the period | $ | 25.6 | $ | 30.0 | |||||||
| Provision charge to expense | 15.1 | 10.8 | |||||||||
| Paid/utilized | (16.7) | (16.5) | |||||||||
| Balance at the end of the period | $ | 24.0 | $ | 24.3 | |||||||
(9) 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
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 are as follows:
As of September 30, 2023 | ||||||||||||||||||||||||||
| Balance Sheet Location | Total | Quoted prices in active markets for identical assets (Level 1) | Other observable inputs (Level 2) | Unobservable inputs (Level 3) | ||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Interest rate swaps | Other current assets | $ | 41.6 | $ | — | $ | 41.6 | $ | — | |||||||||||||||||
| Interest rate swaps | Other noncurrent assets | 69.3 | — | 69.3 | — | |||||||||||||||||||||
| Total assets | $ | 110.9 | $ | — | $ | 110.9 | $ | — | ||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Private warrants | Warrant liabilities | $ | 140.5 | $ | — | $ | 140.5 | $ | — | |||||||||||||||||
| Total liabilities | $ | 140.5 | $ | — | $ | 140.5 | $ | — | ||||||||||||||||||
12
As of December 31, 2022 | ||||||||||||||||||||||||||
| Balance Sheet Location | Total | Quoted prices in active markets for identical assets (Level 1) | Other observable inputs (Level 2) | Unobservable inputs (Level 3) | ||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Interest rate swaps | Other current assets | $ | 36.9 | $ | — | $ | 36.9 | $ | — | |||||||||||||||||
| Interest rate swaps | Other noncurrent assets | 73.3 | — | 73.3 | — | |||||||||||||||||||||
| Total assets | $ | 110.2 | $ | — | $ | 110.2 | $ | — | ||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Private warrants | Warrant liabilities | $ | 58.7 | $ | — | $ | 58.7 | $ | — | |||||||||||||||||
| Total liabilities | $ | 58.7 | $ | — | $ | 58.7 | $ | — | ||||||||||||||||||
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 effectiveness of the instrument.
The Company uses interest rate swaps to manage the interest rate risk of the Company’s total debt portfolio and related overall cost of borrowing. At September 30, 2023, the interest rate swap agreements designated as cash flow hedges effectively swapped a notional amount of $1,000.0 of SOFR-based floating rate debt for fixed rate debt. At December 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. The Company’s interest rate swaps mature in March 2027. During the three and nine months ended September 30, 2023 and 2022, the Company recognized $10.8, $28.4, $(1.6), and $2.7, respectively, within “Interest expense, net” on the Unaudited Condensed Consolidated Statements of Earnings (Loss). At September 30, 2023, the Company expects that approximately $41.6 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 SOFR 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. On April 18, 2023, the Company transitioned its interest rate swaps from LIBOR to SOFR effective July 2, 2023. As mentioned previously, the Company transitioned its Term Loan due 2027 to SOFR effective July 1, 2023.
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. On February 24, 2023, GS Sponsor LLC elected to exercise 5,266,666 warrants on a cashless basis pursuant to the agreement governing the warrants, in exchange for which the Company issued 1,368,194 shares of Class A common stock. For the nine months ended September 30, 2023, the Company recognized a gain of $7.7 in "Change in the fair value of warrant liabilities" on the Unaudited Condensed Consolidated Statement of Earnings (Loss) associated with the exercise of these private warrants. The Company recognized a loss of $61.6 and $111.1, respectively, for the three and nine months ended September 30, 2023 in "Change in the fair value of warrant liabilities" on the Unaudited Condensed Consolidated Statement of Earnings (Loss) associated with the mark-to-market adjustment on the remaining 5,266,667 outstanding private warrants. The Company recognized a loss of $9.8 and a gain of $124.0, respectively, for the three and nine months ended September 30, 2022 in "Change in the fair value of warrant liabilities" on the Unaudited Condensed Consolidated Statement of Earnings (Loss) associated with the mark-to-market adjustment on the 10,533,333 then outstanding private warrants.
13
The significant assumptions which the Company used in the model are:
| Warrant valuation inputs | September 30, 2023 | December 31, 2022 | ||||||||||||
| Stock price | $ | 37.20 | $ | 13.66 | ||||||||||
| Strike price | $ | 11.50 | $ | 11.50 | ||||||||||
| Remaining life | 1.36 | 2.10 | ||||||||||||
| Volatility | 60.0 | % | 56.0 | % | ||||||||||
Interest rate (1) | 5.31 | % | 4.39 | % | ||||||||||
Dividend yield (2) | 0.03 | % | 0.07 | % | ||||||||||
(1) Interest rate determined from a constant maturity treasury yield.
(2) September 30, 2023 and December 31, 2022 dividend yield assumes $0.01 per share per annum.
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 translation adjustments from these hedges was $(1.5) and $19.5 for the three and nine months ended September 30, 2023, respectively, and are included in “Foreign currency translation” in the Unaudited Condensed Consolidated Statement of Other Comprehensive Income (Loss). The net impact of translation adjustments from these hedges was $13.6 for both the three and nine months ended September 30, 2022. As of September 30, 2023 and December 31, 2022, $202.6 and $233.6, respectively, of the Company’s intercompany debt was designated to hedge investments in certain foreign subsidiaries and affiliates.
Other fair value measurements
The Company determines 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 September 30, 2023 and December 31, 2022.
| September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Fair Value | Par Value (1) | Fair Value | Par Value (1) | ||||||||||||||||||||
| Term Loan due 2027 | $ | 2,122.1 | $ | 2,123.4 | $ | 2,062.4 | $ | 2,139.8 | |||||||||||||||
| Senior Secured Notes due 2028 | 751.1 | 850.0 | 726.1 | 850.0 | |||||||||||||||||||
| ABL Revolving Credit Facility due 2025 | — | — | 235.0 | 235.0 | |||||||||||||||||||
(1)See “Note 5 — Debt” for additional information.
(10) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Activity in accumulated other comprehensive income (loss) is as follows:
| Three months ended September 30, 2023 | Three months ended September 30, 2022 | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | ||||||||||||||||||||
| Foreign currency translation, beginning | $ | (117.0) | $ | (146.4) | $ | (157.0) | $ | 39.8 | |||||||||||||||
| Other comprehensive income (loss) | (63.5) | (146.1) | (23.5) | (332.3) | |||||||||||||||||||
| Foreign currency translation, ending | (180.5) | (292.5) | (180.5) | (292.5) | |||||||||||||||||||
| Interest rate swaps, beginning | 106.9 | 84.9 | 110.2 | 8.7 | |||||||||||||||||||
Unrealized gain (loss) deferred during the period (1) | 4.1 | 30.9 | 0.8 | 107.1 | |||||||||||||||||||
| Interest rate swaps, ending | 111.0 | 115.8 | 111.0 | 115.8 | |||||||||||||||||||
| Pension, beginning | 0.3 | (12.8) | 0.6 | (12.9) | |||||||||||||||||||
| Actuarial gain (losses) recognized during the period, net of income taxes | (0.2) | 0.1 | (0.5) | 0.2 | |||||||||||||||||||
| Pension, ending | 0.1 | (12.7) | 0.1 | (12.7) | |||||||||||||||||||
| Accumulated other comprehensive income (loss) | $ | (69.4) | $ | (189.4) | $ | (69.4) | $ | (189.4) | |||||||||||||||
(1)During the three and nine months ended September 30, 2023 and 2022, $10.8, $28.4, $(1.6) and $2.7, respectively, was reclassified into earnings.
14
(11) SEGMENT INFORMATION
Operating profit (loss) is the primary income measure the Company uses to assess segment performance and make operating decisions. Segment performance is assessed exclusive of Corporate and other costs, foreign currency gain (loss), and amortization of intangibles. Corporate and other costs primarily include stock-based compensation, other incentive compensation, change in fair value of warrant liabilities, asset impairments, and costs that support centralized global functions including Finance, Treasury, Risk Management, Strategy & Marketing, IT, Legal, and global product platform development and offering management.
The Company 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, 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 and 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, low/medium voltage switchgear, busway, and integrated modular solutions.
•Integrated rack solutions includes racks, rack power, rack power distribution, rack thermal systems, 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 critical digital infrastructure software.
Asia Pacific includes products and services sold for applications within the data center, communication networks and commercial and industrial markets throughout Greater China, 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 and industrial markets in Europe, Middle East & Africa. Products and services offered are similar to the Americas segment.
Reportable Segments
| Sales | Three months ended September 30, 2023 | Three months ended September 30, 2022 | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | |||||||||||||||||||
| Americas | $ | 1,014.5 | $ | 722.5 | $ | 2,854.8 | $ | 1,925.8 | |||||||||||||||
| Asia Pacific | 411.3 | 460.3 | 1,160.3 | 1,250.7 | |||||||||||||||||||
| Europe, Middle East & Africa | 423.3 | 381.1 | 1,235.9 | 1,096.7 | |||||||||||||||||||
| 1,849.1 | 1,563.9 | 5,251.0 | 4,273.2 | ||||||||||||||||||||
| Eliminations | (106.5) | (82.8) | (253.2) | (236.3) | |||||||||||||||||||
| Total | $ | 1,742.6 | $ | 1,481.1 | $ | 4,997.8 | $ | 4,036.9 | |||||||||||||||
Intersegment sales (1) | Three months ended September 30, 2023 | Three months ended September 30, 2022 | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | |||||||||||||||||||
| Americas | $ | 11.3 | $ | 9.9 | $ | 29.9 | $ | 30.9 | |||||||||||||||
| Asia Pacific | 22.7 | 24.2 | 62.9 | 74.6 | |||||||||||||||||||
| Europe, Middle East & Africa | 72.5 | 48.7 | 160.4 | 130.8 | |||||||||||||||||||
| Total | $ | 106.5 | $ | 82.8 | $ | 253.2 | $ | 236.3 | |||||||||||||||
(1)Intersegment selling prices approximate market prices.
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| Operating profit (loss) | Three months ended September 30, 2023 | Three months ended September 30, 2022 | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | |||||||||||||||||||
| Americas | $ | 254.0 | $ | 115.2 | $ | 684.4 | $ | 255.6 | |||||||||||||||
| Asia Pacific | 74.1 | 83.3 | 175.8 | 193.3 | |||||||||||||||||||
| Europe, Middle East & Africa | 96.9 | 57.4 | 262.4 | 152.4 | |||||||||||||||||||
| Total reportable segments | 425.0 | 255.9 | 1,122.6 | 601.3 | |||||||||||||||||||
| Foreign currency gain (loss) | (2.7) | (0.2) | (13.3) | (1.8) | |||||||||||||||||||
| Corporate and other | (125.9) | (121.5) | (386.2) | (370.8) | |||||||||||||||||||
| Total corporate, other and eliminations | (128.6) | (121.7) | (399.5) | (372.6) | |||||||||||||||||||
| Amortization of intangibles | (45.5) | (54.2) | (136.1) | (167.7) | |||||||||||||||||||
| Operating profit (loss) | $ | 250.9 | $ | 80.0 | $ | 587.0 | $ | 61.0 | |||||||||||||||
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(12) 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 warrants are in-the-money and 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 and nine months ended September 30, 2023 and 2022 are as follows:
(In millions, except share and per share amounts) | Three months ended September 30, 2023 | Three months ended September 30, 2022 | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | |||||||||||||||||||
| Basic earnings (loss) per share computation: | |||||||||||||||||||||||
| Net income (loss) | $ | 94.1 | $ | 21.2 | $ | 227.6 | $ | 50.0 | |||||||||||||||
| Weighted-average number of shares outstanding - basic | 380,899,419 | 377,016,981 | 379,666,002 | 376,531,805 | |||||||||||||||||||
| Basic earnings per share | $ | 0.25 | $ | 0.06 | $ | 0.60 | $ | 0.13 | |||||||||||||||
| Diluted earnings (loss) per share computation: | |||||||||||||||||||||||
| Net income (loss) | 94.1 | $ | 21.2 | $ | 227.6 | $ | 50.0 | ||||||||||||||||
Gain on fair value of warrant liabilities(1) | — | — | — | (124.0) | |||||||||||||||||||
| Net income (loss) adjusted for the gain on fair value of warrant liabilities | $ | 94.1 | $ | 21.2 | $ | 227.6 | $ | (74.0) | |||||||||||||||
| Weighted-average number of shares outstanding - basic | 380,899,419 | 377,016,981 | 379,666,002 | 376,531,805 | |||||||||||||||||||
| Dilutive effect of private warrants | — | — | — | 1,507,004 | |||||||||||||||||||
| Dilutive effect of equity-based compensation | 7,341,245 | 427,021 | 4,166,266 | — | |||||||||||||||||||
| Weighted-average number of shares outstanding - diluted | 388,240,664 | 377,444,002 | 383,832,268 | 378,038,809 | |||||||||||||||||||
| Diluted earnings (loss) per share | $ | 0.24 | $ | 0.06 | $ | 0.59 | $ | (0.20) | |||||||||||||||
(1) For the three months ended September 30, 2022, the warrants were out of the money and therefore the net income is not adjusted for the gain on fair value of warrant liabilities to calculate diluted earnings (loss) per share.
The dilutive effect of equity-based compensation awards was 7.3 million and 4.2 million shares, respectively, during the three and nine months ended September 30, 2023. Additional equity-based compensation awards and warrants were also outstanding during the three and nine months ended September 30, 2023, 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 and warrants represent 0.3 million and 3.4 million shares for the three months ended September 30, 2023, respectively, and 4.0 million and 2.7 million shares for the nine months ended September 30, 2023, respectively.
The dilutive effect of equity-based compensation awards was 0.4 million shares during the three months ended September 30, 2022. The dilutive effect of private warrants was 1.5 million shares during the nine months ended September 30, 2022. Additional equity-based compensation awards and warrants were also outstanding during the three and nine months ended September 30, 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 represent 20.3 million and 15.0 million shares for the three and nine months ended September 30, 2022, respectively.
(13) 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.
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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. As of December 31, 2022 the settlement was recorded in “Accrued expenses and other liabilities” on the Unaudited Condensed Consolidated Balance Sheet. The settlement was paid in the third quarter of 2023.
On May 3, 2022, a putative securities class action, In re Vertiv Holdings Co Securities Litigation, 22-cv-3572, was filed against Vertiv, certain of the Company’s officers and directors, and other defendants in the Southern District of New York. Plaintiffs filed an amended complaint on September 16, 2022. The amended complaint alleges that certain of the Company’s public statements were materially false and/or misleading with respect to inflationary and supply chain pressures and pricing issues, and asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended. These claims are asserted on behalf of a putative class of all persons and entities that (i) purchased Vertiv securities between February 24, 2021 and February 22, 2022; and/or (ii) purchased Vertiv securities in or traceable to the November 4, 2021 secondary public offering by a selling stockholder pursuant to a resale registration statement.
On June 9, 2023, two Vertiv shareholders, Matthew Sullivan and Jose Karlo Ocampo Avenido, brought a derivative lawsuit, Sullivan v. Johnson, et al., C.A. No. 2023-0608, against Vertiv (as nominal defendant only) and certain of the Company’s directors and officers in Delaware Court of Chancery for breach of fiduciary duty. The complaint alleges that certain of the named directors and officers caused the Company to issue materially false and/or misleading public statements with respect to inflationary and supply chain pressures and pricing issues, and that the Company suffered damages as a result.
Defendants believe they have meritorious defenses against the plaintiffs' claims in these lawsuits, which are at the preliminary stages, but the Company is unable at this time to predict the outcome of these disputes or the amount of any cost associated with their resolution.
At September 30, 2023, other than as described above, there were no known contingent liabilities (including guarantees, taxes and other claims) that management believes were or will be material in relation to the Company’s Unaudited Condensed Consolidated Financial Statements, nor were there any material commitments outside the normal course of business.
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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,” “Vertiv,” “we,” “us” and “our” refer to Vertiv Holdings Co, a Delaware corporation, and its consolidated subsidiaries. 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 unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q (this "Form 10-Q") and the audited consolidated financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 27, 2023 (the “2022 Form 10-K”).
Cautionary Note Regarding Forward-Looking Statements
This 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, and as such are not historical facts. Such statements may include, without limitation, those regarding Vertiv’s future financial performance or position, capital structure, indebtedness, business performance, strategy and plans, and expectations and objectives of Vertiv management for future operations and financial performance. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of results of performance. Vertiv cautions that such forward-looking statements are subject to numerous assumptions, risks and uncertainties, which may 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 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. When Vertiv discusses its strategies or plans, it is making projections, forecasts or forward-looking statements. Such statements are based on the beliefs of, as well as assumptions made by and information currently available to, Vertiv’s management at the time of such statements.
The forward-looking statements contained in this 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. Forward-looking statements included in this Form 10-Q speak only as of the date of this filing or any earlier date specified for such statements. 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. All subsequent written or oral forward-looking statements attributable to Vertiv or persons acting on Vertiv’s behalf are qualified in their entirety by this Cautionary Note Regarding Forward-Looking Statements.
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 the 2022 Form 10-K. These risk factors and those identified elsewhere in this 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 U.S. 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
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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 achieve environmental, social and governance goals; failure to realize the value of goodwill and intangible assets; exposure to fluctuations in foreign currency exchange rates; exposure to increases in interest rates set by central banking authorities; 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 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 significant ownership and influence certain stockholders have over Vertiv; 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; the ability of Vertiv to grow and manage growth profitably, maintain relationships with customers and suppliers and retain its management and key employees; Vertiv's ability to manage the succession of its 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 corporate transactions; 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.
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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:
•Supply Chain Constraints and Cost Increases: In the first nine months of 2023, we saw pockets of inflation in key areas, such as materials and labor, and we anticipate that this trend will continue for the balance of 2023. Despite continued strong market demand, we expect that certain supply chain challenges and inflationary pressures will continue in the fourth quarter of 2023. However, at this time, the need for spot buys at increased costs and premium freight to meet customer commitments has been greatly reduced compared to 2022 due to improved availability to materials. Logistical challenges which previously hampered deliveries and pressured the top and bottom line have abated. We continue to take proactive 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. We anticipate continued pricing realization for the remainder of 2023 as a result of the pricing actions that we previously implemented, and which we will continue to implement in the fourth quarter. Moving into 2024 we anticipate supply chains to continue to stabilize as supplier delivery performance improves and lead times reduce in addition to reductions in commodity pricing.
•Order Normalization: Recent supply chain constraints have had a direct impact on lead-times and ordering behavior. During the first nine months of 2023 we have observed certain improvements in the overall supply chain environment and customer orders have started to normalize as a result of improved lead times.
•Artificial Intelligence ("AI"): Increased focus in AI is a trend impacting the data center and telecommunications industry and could lead to increased demand in the future. We have invested in capacity expansion to improve our ability to meet anticipated additional customer demand.
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RESULTS OF OPERATIONS
Comparison of the Three Months Ended September 30, 2023 and Three Months Ended September 30, 2022
| (Dollars in millions) | Three months ended September 30, 2023 | Three months ended September 30, 2022 | $ Change | % Change | |||||||||||||||||||
| Net sales | $ | 1,742.6 | $ | 1,481.1 | $ | 261.5 | 17.7 | % | |||||||||||||||
| Cost of sales | 1,115.0 | 1,051.8 | 63.2 | 6.0 | |||||||||||||||||||
| Gross profit | 627.6 | 429.3 | 198.3 | 46.2 | |||||||||||||||||||
| Selling, general and administrative expenses | 327.2 | 295.2 | 32.0 | 10.8 | |||||||||||||||||||
| Amortization of intangibles | 45.5 | 54.2 | (8.7) | (16.1) | |||||||||||||||||||
| Restructuring costs | 1.3 | (1.5) | 2.8 | (186.7) | |||||||||||||||||||
| Foreign currency (gain) loss, net | 2.7 | 0.2 | 2.5 | 1,250.0 | |||||||||||||||||||
| Other operating expense (income) | — | 1.2 | (1.2) | (100.0) | |||||||||||||||||||
| Operating profit (loss) | 250.9 | 80.0 | 170.9 | 213.6 | |||||||||||||||||||
| Interest expense, net | 43.5 | 38.8 | 4.7 | 12.1 | |||||||||||||||||||
| Change in fair value of warrant liabilities | 61.6 | 9.8 | 51.8 | 528.6 | |||||||||||||||||||
| Income tax expense | 51.7 | 10.2 | 41.5 | 406.9 | |||||||||||||||||||
| Net income (loss) | $ | 94.1 | $ | 21.2 | $ | 72.9 | 343.9 | % | |||||||||||||||
Net Sales
Net sales were $1,742.6 in the third quarter of 2023, an increase of $261.5, or 17.7%, compared with $1,481.1 in the third quarter of 2022. The increase in sales was primarily driven by higher sales volumes and price realization of $120.0 compared to the prior year, and the positive impacts from foreign currency of $6.1. By product offering, critical infrastructure & solutions sales increased $231.0, including the positive impacts from foreign currency of $15.2. Integrated rack solutions sales increased $25.2, including the positive impacts from foreign currency of $2.6. Services & spares sales increased $5.3, including the negative impacts from foreign currency of $11.7.
Excluding intercompany sales, net sales were $1,003.2 in the Americas, $388.6 in Asia Pacific and $350.8 in Europe, Middle East & Africa. Movements in net sales by segment and offering are each detailed in the Business Segments section below.
Cost of Sales
Cost of sales were $1,115.0 in the third quarter of 2023, an increase of $63.2, or 6.0% compared to the third quarter of 2022. The increase in cost of sales was primarily driven by the impact of higher volumes. Gross profit was $627.6 in the third quarter of 2023, or 36.0% of sales, compared to $429.3, or 29.0% of sales in the third quarter of 2022. The margin expansion in the third quarter of 2023 was driven by price realization, which more than offset the inflation for the period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A”) were $327.2 in the third quarter of 2023, an increase of $32.0 compared to the third quarter of 2022. The increase in SG&A was primarily driven by $20.3 of higher commissions as a result of increased sales volume and $5.7 of higher compensation costs due to increased bonus and long-term incentive costs. SG&A as a percentage of sales were 18.8% in the third quarter of 2023 compared with 19.9% in the third quarter of 2022.
Other Operating Expense
The remaining other operating expenses includes amortization of intangibles, restructuring costs, foreign currency (gain) loss, asset impairments, and other operating expense (income). These remaining operating expenses were $49.5 for the third quarter of 2023, which was a $4.6 decrease from the third quarter of 2022. The decrease was primarily due to a $8.7 decrease in amortization of intangibles associated with the acquisition of E&I on November 1, 2021, slightly offset by a $2.8 increase in restructuring costs and a $2.5 increase in foreign currency loss.
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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 initial public offering of our predecessor GS Acquisition Holdings Corp ("Private Placement Warrants"). The change in fair value of the outstanding Private Placement Warrants during the third quarter of 2023 and 2022 resulted in a loss of $61.6 and $9.8, respectively. The change in fair value of these warrants is the result of changes in market prices of our common stock and other observable inputs deriving the value of the financial instruments. As of September 30, 2023 and 2022, there were 5,266,667 and 10,533,333 Private Placement Warrants outstanding, respectively.
Interest Expense
Interest expense, net, was $43.5 in the third quarter of 2023 compared to $38.8 in the third quarter of 2022. The $4.7 increase is primarily driven by a $16.6 increase related to the Term Loan due 2027, partially offset by a $9.2 decrease due to net settlement payments on our interest rate swaps as described in “Note 9 — Financial Instruments and Risk Management” to the Unaudited Condensed Consolidated Financial Statements and a $2.0 decrease related to the ABL Revolving Credit Facility borrowings during the quarter. As interest rates increase, our interest expense will increase although the effect will be mitigated by our interest rate swaps.
Income Taxes
Income tax expense was $51.7 in the third quarter of 2023 compared to $10.2 in the third quarter of 2022. The $41.5 increase is primarily due to the change in mix of income in the countries in which we operate and increased business performance. The effective rate in the third quarter of 2023 was primarily influenced by the mix of income between our U.S. and non-U.S. operations, net of valuation allowances, and reflects the negative impact of non-deductible changes in fair value of the warrant liabilities. For the third quarter of 2022, income tax expense was primarily influenced by the mix of income between our U.S. and non-U.S. operations, net of valuation allowances, and reflects the negative impact of non-deductible changes in fair value of the warrant liabilities.
Business Segments
The following is detail of business segment results for the three months ended September 30, 2023 compared to the three months ended September 30, 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 our consolidated results, see “Note 11 — Segment Information,” of our Unaudited Condensed Consolidated Financial Statements. Segment net sales are presented excluding intercompany sales.
Americas
| (Dollars in millions) | Three months ended September 30, 2023 | Three months ended September 30, 2022 | $ Change | % Change | |||||||||||||||||||
| Net sales | $ | 1,003.2 | $ | 712.6 | $ | 290.6 | 40.8 | % | |||||||||||||||
| Operating profit (loss) | 254.0 | 115.2 | 138.8 | 120.5 | |||||||||||||||||||
| Margin | 25.3 | % | 16.2 | % | |||||||||||||||||||
Americas net sales of $1,003.2 in the third quarter of 2023 increased $290.6, or 40.8%, from the third quarter of 2022. The increase in sales was primarily driven by higher sales volume and price realization. By product offering, net sales increased in critical infrastructure & solutions by $253.5 driven primarily by strong growth in Thermal, integrated rack solutions increased $34.5, and service & spares increased by $2.6 due to price realization. Americas net sales were positively impacted by foreign currency of approximately $5.2.
Operating profit (loss) in the third quarter of 2023 was $254.0, an increase of $138.8 compared with the third quarter of 2022. Margin increased primarily due to higher sales volumes and pricing actions in addition to leveraging our fixed costs.
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Asia Pacific
| (Dollars in millions) | Three months ended September 30, 2023 | Three months ended September 30, 2022 | $ Change | % Change | |||||||||||||||||||
| Net sales | $ | 388.6 | $ | 436.1 | $ | (47.5) | (10.9) | % | |||||||||||||||
| Operating profit (loss) | 74.1 | 83.3 | (9.2) | (11.0) | |||||||||||||||||||
| Margin | 19.1 | % | 19.1 | % | |||||||||||||||||||
Asia Pacific net sales of $388.6 in the third quarter of 2023 decreased $47.5, or 10.9%, from the third quarter of 2022. Sales decreases were primarily driven by slower than expected economic recovery in China and the negative impact of foreign currency of approximately $16.6 which were partially offset by stronger sales throughout the rest of Asia Pacific. By product offering, net sales decreased in critical infrastructure & solutions by $21.4, integrated rack solutions by $15.9, and service & spares by $10.2.
Operating profit (loss) in the third quarter of 2023 was $74.1, a decrease of $9.2 compared with the third quarter of 2022 mainly driven by decreased volume and the negative impact of foreign currency partially offset by improved price realization.
Europe, Middle East & Africa
| (Dollars in millions) | Three months ended September 30, 2023 | Three months ended September 30, 2022 | $ Change | % Change | |||||||||||||||||||
| Net sales | $ | 350.8 | $ | 332.4 | $ | 18.4 | 5.5 | % | |||||||||||||||
| Operating profit (loss) | 96.9 | 57.4 | 39.5 | 68.8 | |||||||||||||||||||
| Margin | 27.6 | % | 17.3 | % | |||||||||||||||||||
Europe, Middle East & Africa net sales of $350.8 in the third quarter of 2023, increased $18.4, or 5.5%, from the third quarter of 2022. Sales increases were primarily due to higher selling prices and the positive impact of foreign currency of approximately $17.5, partially offset by a decrease in volume. By product offering, net sales increased by $12.9 in service & spares and $6.6 in integrated rack solutions, offset by a decrease of $1.1 in critical infrastructure & solutions.
Operating profit (loss) in the third quarter of 2023 was $96.9, an increase of $39.5 compared with the third quarter of 2022. Margin increased primarily due to price realization in addition to leveraging our fixed costs which more than offset inflationary pressures.
Vertiv Corporate and Other
Corporate and other costs include costs associated with our headquarters located in Westerville, 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 $128.6 and $121.7 in the third quarter of 2023 and 2022, respectively. Corporate and other costs increased $6.9 compared to the third quarter of 2022 primarily due to higher compensation costs attributable to increased bonus and long-term incentive costs of $4.2 and foreign currency loss of $2.5.
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Comparison of the Nine Months Ended September 30, 2023 and Nine Months Ended September 30, 2022
| (Dollars in millions) | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | $ Change | % Change | |||||||||||||||||||
| Net sales | $ | 4,997.8 | $ | 4,036.9 | $ | 960.9 | 23.8 | % | |||||||||||||||
| Cost of sales | 3,280.7 | 2,932.5 | 348.2 | 11.9 | |||||||||||||||||||
| Gross profit | 1,717.1 | 1,104.4 | 612.7 | 55.5 | |||||||||||||||||||
| Selling, general and administrative expenses | 963.5 | 875.0 | 88.5 | 10.1 | |||||||||||||||||||
| Amortization of intangibles | 136.1 | 167.7 | (31.6) | (18.8) | |||||||||||||||||||
| Restructuring costs | 23.5 | 0.1 | 23.4 | 23,400.0 | |||||||||||||||||||
| Foreign currency (gain) loss, net | 13.3 | 1.8 | 11.5 | 638.9 | |||||||||||||||||||
| Other operating expense (income) | (6.3) | (1.2) | (5.1) | 425.0 | |||||||||||||||||||
| Operating profit (loss) | 587.0 | 61.0 | 526.0 | 862.3 | |||||||||||||||||||
| Interest expense, net | 137.2 | 101.5 | 35.7 | 35.2 | |||||||||||||||||||
| Change in fair value of warrant liabilities | 103.4 | (124.0) | 227.4 | (183.4) | |||||||||||||||||||
| Income tax expense | 118.8 | 33.5 | 85.3 | 254.6 | |||||||||||||||||||
| Net income (loss) | $ | 227.6 | $ | 50.0 | $ | 177.6 | 355.2 | % | |||||||||||||||
Net Sales
Net sales were $4,997.8 in the first nine months of 2023, an increase of $960.9, or 23.8%, compared with $4,036.9 in the first nine months of 2022. The increase in sales was primarily driven by higher sales volumes and price realization of approximately $350.0 compared to the prior year, partially offset by the negative impacts from foreign currency of $54.4. By product offering, critical infrastructure & solutions sales increased $798.6, which included negative impacts from foreign currency of $14.9. Integrated rack solutions sales increased $88.9, which included the negative impacts from foreign currency of $1.5. Services & spares sales increased $73.4, which included negative impacts from foreign currency of $38.0.
Excluding intercompany sales, net sales were $2,824.9 in the Americas, $1,097.4 in Asia Pacific and $1,075.5 in Europe, Middle East & Africa. Movements in net sales by segment and offering are each detailed in the “Business Segments” section below.
Cost of Sales
Cost of sales were $3,280.7 in the first nine months of 2023, an increase of $348.2, or 11.9%, compared to the first nine months of 2022. The increase in cost of sales was primarily driven by the impact of higher volumes and increased commodity and logistic costs. Gross profit was $1,717.1 in the first nine months of 2023, or 34.4% of sales, compared to $1,104.4, or 27.4% of sales, in the first nine months of 2022. Margin increased primarily due to higher sales volumes and pricing actions exceeding inflationary costs.
Selling, General and Administrative Expenses
SG&A expenses were $963.5 in the first nine months of 2023, an increase of $88.5 compared to the first nine months of 2022. The increase in SG&A was primarily driven by $54.9 of higher sales commissions as a result of increased order volume, and $19.0 higher compensation costs due to increased bonus, long-term incentive, and one-time employee separation costs. SG&A as a percentage of sales was 19.3% for the nine months ended September 30, 2023 compared with 21.7% in the nine months ended September 30, 2022.
Other Operating Expenses
The remaining other operating expenses include amortization of intangibles, restructuring costs, foreign currency (gain) loss, asset impairments, and other operating expense (income). These remaining other expenses were $166.6 for the first nine months of 2023, which was a $1.8 decrease from the first nine months of 2022. The decrease was primarily due to a $23.4 increase in restructuring costs, and a $11.5 increase in foreign currency loss, offset by decreased amortization of intangibles of $31.6 and a one-time favorable settlement of a contractual obligation.
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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 Private Placement Warrants. The change in fair value of the outstanding warrant liability during the first nine months of 2023 and 2022 resulted in a loss of $103.4 and a gain of $124.0, respectively. The change in fair value of these warrants was the result of changes in market prices of our common stock and other observable inputs deriving the value of the financial instruments and the exercise of 5,266,666 of the Private Placement Warrants in February 2023 by GS Sponsor LLC. As of September 30, 2023 and 2022, there were 5,266,667 and 10,533,333 Private Placement Warrants that remained outstanding, respectively.
Interest Expense
Interest expense, net, was $137.2 in the first nine months of 2023 compared to $101.5 in the first nine months of 2022. The $35.7 increase reflects a $62.9 increase due to the Term Loan due 2027 and a $5.4 increase due to borrowings in 2023 on the ABL Revolving Credit Facility, due 2025, partially offset by a $31.1 decrease due to net settlement payments on our interest rate swaps as described in “Note 9 — Financial Instruments and Risk Management” to the Unaudited Condensed Consolidated Financial Statements. To the extent interest rates continue to increase, our interest expense will increase as well, although we expect the effect of such increase to be mitigated by our interest rate swaps.
Income Taxes
Income tax expense was $118.8 in the first nine months of 2023 compared to $33.5 in the first nine months of 2022. The $85.3 increase is primarily due to the change in mix of income in the countries in which we operate and increased business performance. The effective rate in the first nine months of 2023 was primarily influenced by the mix of income between our U.S. and non-U.S. operations, net of changes in valuation allowances and the negative impacts of non-deductible changes in fair value of the warrant liabilities and changes in our indefinite reinvestment liability. In the first nine months of 2022, income tax expense 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 the positive impact of non-taxable changes in fair value of the warrant liabilities.
Business Segments
The following is detail of business segment results for the nine months ended September 30, 2023 compared to the nine months ended September 30, 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 our consolidated results, see “Note 11 — Segment Information,” of our Unaudited Condensed Consolidated Financial Statements. Segment net sales are presented excluding intercompany sales.
Americas
| (Dollars in millions) | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | $ Change | % Change | |||||||||||||||||||
| Net sales | $ | 2,824.9 | $ | 1,894.9 | $ | 930.0 | 49.1 | % | |||||||||||||||
| Operating profit (loss) | 684.4 | 255.6 | 428.8 | 167.8 | |||||||||||||||||||
| Margin | 24.2 | % | 13.5 | % | |||||||||||||||||||
Americas net sales of $2,824.9 in the first nine months of 2023 increased $930.0, or 49.1% from the first nine months of 2022. The increase in sales was primarily driven by higher sales volumes and price realization compared to prior year. By product offering, net sales increased in critical infrastructure & solutions by $787.7, integrated rack solutions increased by $95.7, and service & spares increased by $46.6 due to improved customer site availability. Americas net sales were positively impacted by foreign currency of approximately $5.1.
Operating profit (loss) in the first nine months of 2023 was $684.4, an increase of $428.8 compared with the first nine months of 2022. Margin increased primarily due to higher sales volumes and pricing actions in addition to leveraging our fixed costs.
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Asia Pacific
| (Dollars in millions) | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | $ Change | % Change | |||||||||||||||||||
| Net sales | $ | 1,097.4 | $ | 1,176.1 | $ | (78.7) | (6.7) | % | |||||||||||||||
| Operating profit (loss) | 175.8 | 193.3 | (17.5) | (9.1) | |||||||||||||||||||
| Margin | 16.0 | % | 16.4 | % | |||||||||||||||||||
Asia Pacific net sales were $1,097.4 in the first nine months of 2023, a decrease of $78.7, or 6.7%, from the first nine months of 2022. Sales decreases were primarily driven by slower than expected economic recovery in China and the negative impact of foreign currency of approximately $59.8 which were partially offset by the impact of stronger sales throughout the rest of Asia Pacific. By product offering, net sales weakened in critical infrastructure & solutions by $45.6, in integrated rack solutions by $19.6, and in service & spares by $13.5.
Operating profit (loss) in the first nine months of 2023 was $175.8, a decrease of $17.5 compared with the first nine months of 2022 mainly driven by decreased volume and the negative impact of foreign currency partially offset by improved price realization.
Europe, Middle East & Africa
| (Dollars in millions) | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | $ Change | % Change | |||||||||||||||||||
| Net sales | $ | 1,075.5 | $ | 965.9 | $ | 109.6 | 11.3 | % | |||||||||||||||
| Operating profit (loss) | 262.4 | 152.4 | 110.0 | 72.2 | |||||||||||||||||||
| Margin | 24.4 | % | 15.8 | % | |||||||||||||||||||
Europe, Middle East & Africa net sales were $1,075.5 in the first nine months of 2023, an increase of $109.6, or 11.3%, from the first nine months of 2022. Sales increases were evenly driven by higher selling prices and increased volume. By product offering, net sales improved across all offerings, including $56.5 in critical infrastructure & solutions, $40.3 in service & spares, and $12.8 in integrated rack solutions. Additionally, Europe, Middle East & Africa net sales were positively impacted by foreign currency of approximately $0.3.
Operating profit (loss) in the first nine months of 2023 was $262.4, an increase of $110.0 compared with the first nine months of 2022. Margin increased primarily due to price realization in addition to leveraging our fixed costs which more than offset inflationary pressures.
Vertiv Corporate and Other
Corporate and other costs include costs associated with our headquarters located in Westerville, 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 $399.5 and $372.6 in the first nine months of 2023 and 2022, respectively. Corporate and other costs increased $26.9 compared to the third quarter of 2022 primarily due to higher compensation costs primarily due to bonus and long-term incentive costs of $12.7, increased foreign currency loss of $11.5, and restructuring charges of $7.0, partially offset by decreased professional service fees.
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Capital Resources and Liquidity
Our primary future cash needs relate to working capital, operating activities, capital spending, strategic investments and debt service.
Capital Expenditures: Our capital expenditures are primarily related to the maintenance of our long-term assets, as well as the investment in projects that support growth and innovation to further our enterprise strategy. Our capital expenditures (including capitalized software) were approximately $83.5 during the first nine months of 2023. We expect to have capital expenditures (including capitalized software) of approximately $150 for the full year 2023.
We have additional obligations as part of our ordinary course of business, beyond those committed for capital expenditures, which consist of debt obligations and other financial instruments. Refer below, as well as to “Note 5 — Debt” and “Note 13 — Commitments and Contingencies” of the Unaudited Condensed Consolidated Financial Statements for more information. In addition, we have uncertain tax positions that are further discussed in “Note 6 — Income Taxes” of the Unaudited Condensed Consolidated Financial Statements. We anticipate payments for lease obligations of approximately $60 for the full year 2023. We do not have any guarantees or other off-balance sheet financing arrangements, including variable interest entities, which could materially impact our financial condition or liquidity.
We, through our subsidiaries, are party to certain indebtedness arrangements, including the Senior Secured Notes due 2028, with an outstanding principal amount of $850.0 as of September 30, 2023 (the “Notes”), the Term Loan due 2027, with an outstanding principal amount of $2,123.4, as of September 30, 2023 (the “Term Loan”), and the ABL Revolving Credit Facility due 2025, providing up to $570.0 of revolving borrowings, for which none was outstanding as of September 30, 2023 (the “ABL Revolving Credit Facility” and collectively with the Term Loan, the “Senior Secured Credit Facilities”). See “Note 5 — Debt” of the Unaudited Condensed Consolidated Financial Statements for more detailed discussion of the material terms of the Notes and the Senior Secured Credit Facilities.
At September 30, 2023, we had $500.0 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 $570.0 of revolving borrowings, with separate sublimits for letters of credit and swingline borrowings and an uncommitted accordion of up to $30.0. At September 30, 2023, Vertiv had $545.9 of availability (subject to customary borrowing base and other conditions) under the ABL Revolving Credit Facility, net of letters of credit outstanding in the aggregate principal amount of $17.0, and taking into account the borrowing base limitations set forth in the ABL Revolving Credit Facility.
We believe our current cash and cash equivalent levels, augmented by availability under 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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Summary Statement of Cash Flows
Nine Months Ended September 30, 2023 and 2022
| (Dollars in millions) | 2023 | 2022 | $ Change | % Change | |||||||||||||||||||
| Net cash provided by (used for) operating activities | $ | 544.3 | $ | (333.5) | $ | 877.8 | (263.2) | % | |||||||||||||||
| Net cash used for investing activities | (71.1) | (74.7) | 3.6 | 4.8 | |||||||||||||||||||
| Net cash provided by (used for) financing activities | (236.7) | 244.7 | (481.4) | (196.7) | |||||||||||||||||||
| Capital expenditures | (80.1) | (61.7) | (18.4) | (29.8) | |||||||||||||||||||
| Investments in capitalized software | (3.4) | (8.0) | 4.6 | 57.5 | |||||||||||||||||||
Net Cash provided by (used for) Operating Activities
Net cash provided by operating activities was $544.3 in the first nine months of 2023, an $877.8 increase in cash generation compared to the first nine months of 2022. Net income from operations of $227.6 included $329.9 of net non-cash expense items, consisting of depreciation and amortization of $202.1, a loss on the change in fair value of warrant liabilities of $103.4, non-cash stock-based compensation expense of $18.8, amortization of debt discount and issuance costs of $6.3, and deferred taxes of $0.7. Trade working capital used $17.8 in the first nine months of 2023 in comparison to $448.0 in the first nine months of 2022, primarily as a result of trade working capital initiatives.
Net Cash used for Investing Activities
Net cash used for investing activities was $71.1 in the first nine months of 2023 compared to net cash used for investing activities of $74.7 in the first nine months of 2022. The lower use of cash over the comparable period was primarily driven by increased capital expenditures of $18.4, partially offset by increased proceeds from the disposition of property, plant and equipment of $12.4, and a decrease in investments of capitalized software of $4.6.
Net Cash provided by (used for) Financing Activities
Net cash used for financing activities was $236.7 in the first nine months of 2023 compared to $244.7 provided by financing activities in the first nine months of 2022. The change was primarily the result of the year-over-year net repayments of $531.9 on the ABL Revolving Credit Facility, and $10.9 increase of repayments on the Term Loan in the first nine months of 2023, partially offset by the decrease of $12.8 payment of contingent consideration, a $25.0 decrease in the payment under the Tax Receivable Agreement and $23.1 increase in net cash received associated with equity-based compensation activity.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the U.S. 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 Unaudited Condensed Consolidated 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 Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q. The 2022 financial statements, as part of the 2022 Form 10-K, 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 the 2022 Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material changes in our quantitative and qualitative market risk disclosures from those described in our 2022 Form 10-K.
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).
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The Company’s management, with the participation of its Chief Executive Officer and its Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2023 (the end of the period covered by this Quarterly Report on Form 10-Q). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2023, the Company’s 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
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information required by this item is set forth in “Note 13 — Commitments and Contingencies” to the Company’s Unaudited 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 September 30, 2023, have not materially changed from those described in Part 1, Item 1A of our 2022 Form 10-K for the fiscal year ended December 31, 2022.
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
Not applicable.
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
During the fiscal quarter covered by this Quarterly Report on Form 10-Q, Karsten Winther, President EMEA an officer of the Company adopted a “Rule 10b5-1 trading arrangement” as each term is defined in Item 408(a) of Regulation S-K. The Rule 10b5-1 trading arrangement, adopted by Mr. Winther on September 7, 2023, provides for the sale of up to 44,924 shares and will remain in effect until the earlier of (1) December 31, 2024; (2) the first date on which all trades have been executed or all orders relating to such trades have expired; (3) upon written notice by Mr. Winther or the broker to terminate or modify the Rule 10b5-1 trading arrangement.
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ITEM 6. EXHIBITS
| EXHIBIT INDEX | ||||||||||||||
| Exhibit No. | Description | |||||||||||||
| 10.1 | ||||||||||||||
| 10.2 | ||||||||||||||
| 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 September 30, 2023, formatted in Inline XBRL: (i) Unaudited Condensed Consolidated Statements of Earnings (Loss), (ii) Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Unaudited Condensed Consolidated Balance Sheets, (iv) Unaudited Condensed Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Condensed 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 September 30, 2023, formatted in Inline XBRL (and contained in Exhibit 101) | |||||||||||||
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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: October 27, 2023 | Vertiv Holdings Co | ||||
| /s/ Giordano Albertazzi | |||||
| Name: Giordano Albertazzi | |||||
| Title: Chief Executive Officer | |||||
| /s/ David Fallon | |||||
| Name: David Fallon | |||||
| Title: Chief Financial Officer | |||||
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