Business context and reporting period
Vertiv Holdings Co’s Form 10-K is for the fiscal year ended December 31, 2019. The filing explains that Vertiv’s business combination with GS Acquisition Holdings Corp. (GSAH) closed on February 7, 2020. Importantly, the audited financial statements in this 10-K are for GSAH as a pre-combination shell company, not Vertiv’s operating business. The filing directs investors to a separate Form 8-K amendment for Vertiv’s audited 2019 consolidated financial statements and related MD&A.
Vertiv designs, manufactures and services critical digital infrastructure for data centers, communications networks, and commercial and industrial customers. It reported operations across the Americas, Asia Pacific and EMEA.
Key financial and operating metrics
- Vertiv revenue: $4,431.2 million in 2019 versus $4,285.6 million in 2018, an increase of approximately 3.4%. Revenue mix was 50% Americas, 29% Asia Pacific and 21% EMEA.
- Vertiv net loss: The filing cites consolidated and combined net losses of $140.8 million in 2019, $314.0 million in 2018 and $369.6 million in 2017. Vertiv’s detailed income statement and cash flow figures are not included in this 10-K’s financial statements.
- Margins and operating cash flow: The filing text does not provide clear Vertiv 2019 gross-margin, operating-margin or operating-cash-flow values. It reports 2019 R&D spending of $198.3 million.
- Backlog: $1,401.2 million at year-end 2019, down from $1,502.0 million at year-end 2018 (approximately 6.7%). The vast majority was considered firm and expected to ship within one year, but orders may be canceled or rescheduled and backlog is not a reliable forecast of revenue.
- Debt and liquidity: In connection with the February 2020 business combination, Vertiv used proceeds to repay $176 million of revolving-credit borrowings and approximately $1.29 billion of term-loan debt. Following a March 2, 2020 refinancing, the filing reports approximately $2.3 billion of senior secured debt and $334 million of undrawn commitments, subject to borrowing-base and other conditions. The refinancing was described as reducing debt-service requirements and extending maturities. These are post-period figures.
- GSAH shell-company results—not Vertiv operating results: GSAH reported 2019 net income of $4.4 million, entirely attributable to investment dividends, and $9.7 million of operating cash flow. At December 31, 2019, it had $0.96 million of cash outside its trust account and a $4.8 million working-capital deficit, excluding specified trust and other balances. Its unaudited fourth-quarter 2019 net loss was $3.2 million, principally reflecting shell-company expenses; these figures should not be read as Vertiv’s Q4 results.
Material changes, outlook and risks
- The business combination raised $1.239 billion through a PIPE investment; the Vertiv stockholder received $341.6 million in cash and 118,261,955 newly issued shares. The filing also describes the post-combination refinancing and related changes to Vertiv’s capital structure.
- No specific company-wide revenue, earnings or cash-flow guidance for 2020 is provided in this filing. Management noted that quarterly results can fluctuate due to large-contract shipment timing, customer installation schedules, product mix and order variability; annual results may be more informative than interim results.
- The filing identifies the coronavirus outbreak as a risk, citing Vertiv’s China revenue, manufacturing presence, and reliance on customers, suppliers and subcontractors in China. Potential effects include operational delays, component shortages and broader economic disruption.
- Other key risks include substantial indebtedness and variable-rate exposure, refinancing execution, restrictive debt covenants, customer concentration and pricing pressure, supply-chain and inventory disruption, long-term fixed-price project exposure, technology shifts, foreign-exchange movements, and uncertain demand in data-center and communications markets.
- A tax receivable agreement generally requires payment to the former Vertiv stockholder of 65% of specified realized or deemed tax savings. Certain events can accelerate payments, potentially creating a significant liquidity burden.
- Vertiv reported no pending legal proceedings it then believed were material. It disclosed ongoing investigation or remediation at certain current and former sites, while stating environmental compliance had not materially affected capital expenditures, earnings or competitive position.
- The company expected to initiate an annual dividend of $0.01 per share, subject to board discretion and legal, liquidity and debt-agreement restrictions. The filing states that no cash dividends had yet been paid.
Important facts for investors to verify
- Review the separate Form 8-K amendment identified in the filing for Vertiv’s audited 2019 financial statements, MD&A, cash flows, margins and comparable-period detail.
- Confirm the refinancing’s final debt balances, interest rates, maturities, amortization, hedging and covenant headroom; the cited debt and availability figures are as of March 2, 2020.
- Assess whether the reported revenue growth and backlog conversion translated into improved profitability and cash generation, and whether backlog cancellations or delays changed expectations.
- Evaluate the potential financial and operational effects of coronavirus-related disruption, particularly in China and across Vertiv’s supply chain.
- Quantify the expected timing and potential acceleration exposure under the tax receivable agreement, and the potential dilution or resale pressure from PIPE, stockholder and warrant shares.