Vertiv Holdings 10-Q 2022-06-30

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:

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).

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As of July 29, 2022, there were 377,038,078 shares of the Company's Class A common stock, par value $0.0001, issued and outstanding.

Part I. Financial Information

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

VERTIV HOLDINGS CO

(Dollars in millions except for per share data)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

VERTIV HOLDINGS CO

(Dollars in millions)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

VERTIV HOLDINGS CO

(Dollars in millions)

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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, in our Quarterly Report on Form 10-Q for the three month period ended March 31, 2022, filed with the SEC on May 2, 2022, and in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022 (the “2021 Form 10-K”).

Cautionary Note Regarding Forward-looking Statements

This Quarterly Report on Form 10-Q, and other statements that Vertiv may make, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, with respect to Vertiv’s future financial or business performance, strategies or expectations, and as such are not historical facts. This includes, without limitation, statements regarding Vertiv's financial position, capital structure, indebtedness, business strategy and plans and objectives of Vertiv management for future operations. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Vertiv cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this Quarterly Report on Form 10-Q, words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “strive,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

The forward-looking statements contained or incorporated by reference in this Quarterly Report on Form 10-Q are based on current expectations and beliefs concerning future developments and their potential effects on Vertiv. There can be no assurance that future developments affecting Vertiv will be those that Vertiv has anticipated. Vertiv undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond Vertiv’s control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Vertiv has previously disclosed risk factors in its Securities and Exchange Commission (“SEC”) reports, including those set forth in the 2021 Form 10-K. These risk factors and those identified elsewhere in this Quarterly Report on Form 10-Q, among others, could cause actual results to differ materially from historical performance and include, but are not limited to: risks relating to the continued growth of Vertiv’s customers’ markets; disruption of Vertiv’s customers’ orders or Vertiv’s customers’ markets; less favorable contractual terms with large customers; risks associated with governmental contracts; failure to mitigate risks associated with long-term fixed price contracts; competition in the infrastructure technologies industry; failure to obtain performance and other guarantees from financial institutions; failure to realize sales expected from Vertiv’s backlog of orders and contracts; failure to properly manage Vertiv’s supply chain or difficulties with third-party manufacturers; our ability to forecast changes in prices, including due to inflation in material, freight and/or labor costs, and timely implement measures necessary to mitigate the impacts of any such changes; risks associated with our significant backlog, including that the impacts of any measures taken to mitigate inflation will not be reflected in our financial statements immediately; failure to meet or anticipate technology changes; risks associated with information technology disruption or security; risks associated with the implementation and enhancement of information systems; failure to realize the expected benefit from any rationalization, restructuring and improvement efforts; Vertiv’s ability to realize cost savings in connection with Vertiv's restructuring program; disruption of, or changes in, Vertiv’s independent sales representatives, distributors and original equipment manufacturers; changes to tax law; ongoing tax audits; costs or liabilities associated with product liability; the global scope of Vertiv’s operations; risks associated with Vertiv’s sales and operations in emerging markets; risks associated with future legislation and regulation of Vertiv’s customers’ markets both in the 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 business depends; third party intellectual property infringement claims; liabilities associated with environmental, health and safety matters, including risks associated with the COVID-19 pandemic; failure to realize the value of goodwill and intangible assets; exposure to fluctuations in foreign currency exchange rates; 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 Vertiv Stockholder’s significant ownership and influence over the Company; risks associated with Vertiv’s obligations to pay the Vertiv Stockholder portions of the tax benefits relating to pre-business combination tax assets and attributes; resales of Vertiv's securities may cause volatility in the market price of our securities; Vertiv's organizational documents contain provisions that may discourage unsolicited takeover proposals; Vertiv's certificate of incorporation includes a forum selection clause, which could discourage or limit stockholders’ ability to make a claim against it; the ability of Vertiv’s subsidiaries to pay dividends; volatility in Vertiv's stock price due to various market and operational factors; risks associated with the failure of industry analysts to provide coverage of Vertiv's business or securities; the ability of Vertiv to grow and manage growth profitably, maintain relationships with customers and suppliers and retain its management and key employees; factors relating to the business, operations and financial performance of Vertiv and its subsidiaries, including: global economic weakness and uncertainty; Vertiv’s ability to attract, train and retain key members of its leadership team and other qualified personnel; the adequacy of Vertiv’s insurance coverage; a failure to benefit from future acquisitions; risks associated with Vertiv's limited history of operating as an independent company; and other risks and uncertainties indicated in Vertiv’s SEC reports or documents filed or to be filed with the SEC by Vertiv.

Forward-looking statements included in or incorporated by reference into this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q or any earlier date specified for such statements. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be filed with the SEC by Vertiv required under applicable securities laws. All subsequent written or oral forward-looking statements attributable to the Company or persons acting on the Company’s behalf may be qualified in their entirety by this Cautionary Note Regarding Forward-Looking Statements.

Overview

We are a global leader in the design, manufacturing and servicing of critical digital infrastructure technology that powers, cools, deploys, secures and maintains electronics that process, store and transmit data. We provide this technology to data centers, communication networks and commercial and industrial environments worldwide. We aim to help create a world where critical technologies always work, and where we empower the vital applications of the digital world.

Outlook and Trends

Below is a summary of trends and events that are currently affecting, or may in the future affect, our business, operations and short-term outlook:

• COVID-19 Pandemic: Unprecedented measures have been taken by governments and businesses to address the COVID-19 pandemic. These measures have included periodic shelter-in-place orders, restrictions on travel and business operations, temporary closures of businesses, quarantines, and attempts to institute various regulatory requirements. As a result of this pandemic, global economic activity has been significantly impacted, causing volatility and disruption in global financial markets. These responsive measures taken by many countries have affected, and could in the future materially impact, our business, results of operations, financial condition and stock price.

• The extent of the continuing impact of the COVID-19 pandemic on our operational and financial performance is uncertain and will depend on many factors outside our control, including, without limitation, the extent, timing and duration of the pandemic; the availability, distribution and effectiveness of vaccines; the imposition of protective public safety measures; and the impact of the pandemic on the global economy and demand for products. Refer to Part I, Item 1A of the 2021 Form 10-K under the heading “Risk Factors,” for more information. We continue to monitor the situation and will take further actions as may be required by federal, state, or local governmental authorities, or that we determine are in the best interests of our associates, customers, and stockholders. At the outset of the COVID-19 pandemic, we responded swiftly in support of our people, our clients and our communities. To protect our employees, and to do our part in stopping the spread of COVID-19, most of our salaried employees moved to a remote work environment. As we continue to monitor the situation, we have taken steps to cause our U.S. locations to return to a full-time workplace environment, which may require adjustment by employees or indirectly cause attrition. We recognize the benefits to our customers, associates, and stockholders of having full-time interaction, and we are working to balance those benefits with the ongoing concerns relating to the COVID-19 pandemic, macroeconomic conditions, and continued competition for talent.

• Supply Chain Constraints and Cost Increases: During 2022 and potentially beyond, aspects of our business continue to be affected by the COVID-19 pandemic as well as increasing costs for materials, freight and labor. Despite continued strong market demand, we expect that supply chain challenges and inflationary pressures will continue throughout 2022, with critical part shortages driving the need for additional spot buys at increased costs, and increased costs associated with premium freight to meet customer commitments. Additionally, logistical issues have significantly delayed the receipt of materials and, in some cases, we cannot procure critical parts at any price, creating production and delivery challenges pressuring the top and bottom line. We continue to take actions to improve our ability to forecast inflationary headwinds and reflect anticipated cost increases in our prices and will continue to take actions to address shortages and inflationary pressures, which are expected to continue, and may increase, throughout 2022. Based on the first six months of 2022, we anticipate continued pricing realization for the remainder of 2022, even within the current inflationary environment, as a result of the pricing actions that we undertook in the fourth quarter of 2021, the first six months of 2022, and which we will continue to take throughout the remainder of 2022.

• During the first six months of 2022, we have seen an increase in inventory build in order to support upcoming customer demand and large projects in addition to working through our significant backlog. We expect this trend to continue throughout the remainder of 2022 and potentially beyond as our backlog continues to increase.

RESULTS OF OPERATIONS

Comparison of the Three Months Ended June 30, 2022 and Three Months Ended June 30, 2021

Net Sales

Net sales were $1,399.4 in the second quarter of 2022, an increase of $139.1, or 11.0%, compared with $1,260.3 in the second quarter of 2021. The increase in sales was primarily driven by E&I sales of $114.2, higher sales volumes than prior year, and strong growth in the DC Power offering, partially offset by negative impacts from foreign currency of $58.6 and lower sales due to the divestiture of a heavy industrial UPS business of $16.6. By product offering, critical infrastructure & solutions sales increased $119.9 including $114.2 of E&I sales and offset by the negative impacts from foreign currency of $37.2. Integrated rack solutions sales increased $13.2 including the negative impacts from foreign currency of $6.9. Services & spares sales increased $6.0, including negative impacts from foreign currency of $14.5.

Excluding intercompany sales, net sales were $647.2 in the Americas, $407.2 in Asia Pacific and $345.0 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 $1,027.9 in the second quarter of 2022, an increase of $176.9, or 20.8% compared to the second quarter of 2021. The increase in cost of sales was primarily driven by E&I costs of $83.8 and increased commodity and logistic costs, supply chain constraints and the impact of higher volumes. Gross profit was $371.5 in the second quarter of 2022, or 26.5% of sales, compared to $409.3, or 32.5% of sales in the second quarter of 2021.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) were $287.6 in the second quarter of 2022, an increase of $15.9 compared to the second quarter of 2021. SG&A as a percentage of sales were 20.6% in the second quarter of 2022 compared with 21.6% in the second quarter of 2021. The increase in SG&A was primarily driven by E&I costs of $13.0, higher commissions as a result of higher order volume of $2.5.

Other Operating Expense

The remaining other operating expenses includes amortization of intangibles, restructuring costs, foreign currency (gain) loss, and other operating expense (income). These remaining operating expenses were $57.7 for the second quarter of 2022, which was a $22.3 increase from the second quarter of 2021. The increase was primarily due to an increase in amortization of intangibles of $23.9 associated with the acquisition of E&I on November 1, 2021.

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. The change in fair value of the outstanding warrants during the second quarter of 2022 and 2021 resulted in a gain of $38.9 and a loss of $71.2, respectively. The change in fair value of warrants is the result of changes in market prices of our common stock and other observable inputs deriving the value of the financial instruments.

Interest Expense

Interest expense, net, was $33.4 in the second quarter of 2022 compared to $20.0 in the second quarter of 2021. The $13.4 increase is primarily driven by a $9.3 increase related to the Senior Secured Notes due 2028, which were not outstanding in the second quarter of 2021, a $3.4 increase related to the Term Loan due 2027, a $0.9 increase related to the ABL Revolving Credit Facility borrowings during the quarter, and slightly offset by a $0.9 decrease due to net settlement payments on our interest rate swaps as described in “Note 11 — Financial Instruments and Risk Management” to the Unaudited Condensed Consolidated Financial Statements. 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 $11.4 in the second quarter of 2022 versus $1.3 in the second quarter of 2021 and the $10.1 increase is primarily due to the change in mix of income in the countries in which we operate. The effective rate in the three months ended June 30, 2022 was primarily influenced by the mix of income between our U.S. and non-U.S. operations, net of valuation allowances, and reflects the positive impact of non-taxable changes in fair value of the warrant liabilities. For the three months ended June 30, 2021, 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, and reflects the negative impact of non-deductible changes in fair value of the warrant liabilities, as well as a discrete tax adjustment related to legislative changes enacted in the quarter. Negative tax impacts are partially offset by the benefit of certain internal reorganizations and tax elections outside the U.S.

Business Segments

The following is detail of business segment results for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. 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 13 — Segment Information,” of our Unaudited Condensed Consolidated Financial Statements. Segment net sales are presented excluding intercompany sales.

Americas

Americas net sales of $647.2 in the second quarter of 2022 increased $82.3, or 14.6% from the second quarter of 2021. The increase in sales was primarily driven by E&I sales of $47.0 and higher sales volume than prior year. By product offering, net sales increased in critical infrastructure & solutions by $63.6 driven primarily by E&I sales as well as strong growth in Thermal, AC and DC Power, and energy storage offerings, service & spares increased by $8.0 due to improved customer site availability, and integrated rack solutions increased $10.7 primarily due to demand in integrated rack systems offering. Additionally, Americas net sales were negatively impacted by foreign currency of approximately $1.8.

Operating profit (loss) in the second quarter of 2022 was $82.5, a decrease of $46.1 compared with the second quarter of 2021. Margin decreased primarily due to increased commodity and logistic costs and supply chain constraints, partially offset by decreased year-over-year restructuring charges of $0.9.

Asia Pacific

Asia Pacific net sales were $407.2 in the second quarter of 2022, an increase of $9.2, or 2.3% from the second quarter of 2021. Sales increases were primarily due to growth in India. By product offering, net sales increased in service & spares by $6.6, and critical infrastructure & solutions increased by $3.2, and decreased in integrated rack solutions by $0.6. Additionally, Asia Pacific net sales were negatively impacted by foreign currency of approximately $14.2.

Operating profit (loss) in the second quarter of 2022 was $68.5, an increase of $5.7 compared with the second quarter of 2021. Margin increased primarily due to decreased year-over-year restructuring charges of $3.2 and fixed cost improvement, partially offset by increased commodity and logistic costs and supply chain constraints.

Europe, Middle East & Africa

Europe, Middle East & Africa net sales were $345.0 in the second quarter of 2022, an increase of $47.6, or 16.0% from the second quarter of 2021. Sales increases were primarily due to E&I sales of $67.2 and higher selling prices, partially offset by the loss of net sales of $16.6 due to the divested heavy industrial UPS business. By product offering, net sales increased in critical infrastructure & solutions by $53.1 mostly due to E&I sales, increases in integrated rack solutions by $3.1, and partially offset by a decrease of $8.6 in service & spares. Additionally, Europe, Middle East & Africa net sales were negatively impacted by foreign currency of approximately $42.6.

Operating profit (loss) in the second quarter of 2022 was $61.8, a decrease of $0.6 compared with the second quarter of 2021. Margin decreased primarily due to increased commodity and logistic costs and supply chain constraints.

Vertiv Corporate and Other

Corporate and other costs include costs associated with our headquarters located in Columbus, Ohio, as well as centralized global functions including Finance, Treasury, Risk Management, Strategy & Marketing, IT, Legal, and global product platform development and offering management. Corporate and other costs were $130.8 and $119.7 in the second quarter of 2022 and 2021, respectively. Corporate and other costs increased $11.1 compared with the second quarter of 2021 primarily due to IT investments of $11.3, research and development costs of $3.5, and partially offset by decreased year-over-year restructuring charges of $0.3.

Comparison of the Six Months Ended June 30, 2022 and Six Months Ended June 30, 2021

Net Sales

Net sales were $2,555.8 in the first six months of 2022, an increase of $197.1, or 8.4%, compared with $2,358.7 in the first six months of 2021. The increase in sales was primarily driven by E&I sales of $201.7 and higher sales volumes than prior year, partially offset by the negative impacts from foreign currency of $76.8, and lower sales from the divested heavy industrial UPS business of $32.5. By product offering, critical infrastructure & solutions sales increased $156.9, which included negative impacts from foreign currency of $47.2. Integrated rack solutions sales increased $21.7, which included the negative impacts from foreign currency of $8.5. Services & spares sales increased $18.5, which included negative impacts from foreign currency of $21.1.

Excluding intercompany sales, net sales were $1,182.3 in the Americas, $740.0 in Asia Pacific and $633.5 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 $1,880.7 in the first six months of 2022, an increase of $289.3, or 18.2% compared to the first six months of 2021. The increase in cost of sales was primarily driven by E&I costs of $149.6 and increased commodity and logistic costs, and supply chain constraints, and the impact of higher volumes. Gross profit was $675.1 in the first six months of 2022, or 26.4% of sales, compared to $767.3, or 32.5% of sales, in the first six months of 2021.

Selling, General and Administrative Expenses

SG&A were $579.8 in the first six months of 2022, an increase of $58.0 compared to the first six months of 2021. SG&A as a percentage of sales was 22.7% for the six months ended June 30, 2022 compared with 22.1% in the six months ended June 30, 2021. The increase in SG&A was primarily driven by E&I costs of $25.5, increased research and development spend of $8.1, higher sales commissions as a result of higher order volume of $10.0, and increased professional service fees.

Other Operating Expenses

The remaining other operating expenses include amortization of intangibles, restructuring costs, foreign currency (gain) loss, and other operating expense (income). These remaining other expenses were $114.3 for the first six months of 2022, which was a $50.8 increase from the first six months of 2021. The increase was primarily due to an increase in amortization of intangibles of $49.8 associated with the acquisition of E&I on November 1, 2021.

Loss on Extinguishment of Debt

Loss on extinguishment of debt was $0.4 for the first six months of 2021 related to lender fees associated with the amendment to our Term Loan due 2027. This was not repeated in 2022.

Change in Fair Value of Warrant Liabilities

Change in fair value of warrant liabilities represents the mark-to-market fair value adjustments to the outstanding warrants issued in connection with the initial public offering of our predecessor, GS Acquisition Holdings Corp. The change in fair value of the outstanding warrants liability during the first six months of 2022 and 2021 resulted in a gain of $133.8 and a loss of $84.8, respectively. The change in fair value of stock warrants was the result of changes in market prices of our common stock and other observable inputs deriving the value of the financial instruments.

Interest Expense

Interest expense, net, was $62.7 in the first six months of 2022 compared to $44.1 in the first six months of 2021. The $18.6 increase was primarily due to a $18.7 increase related to the Senior Secured Notes due 2028, which were not outstanding in the first six months of 2021, and a $2.4 increase due to the Term Loan due 2027, slightly offset by a $1.6 decrease in accretion expense associated with the Tax Receivable Agreement. 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 $23.3 in the first six months of 2022 compared to $11.3 in the first six months of 2021 and the $12.0 increase is primarily due to the change in mix of income in the countries in which we operate. The effective rate in the first six months of 2022 was primarily influenced by the mix of income between our U.S. and non-U.S. operations, net of changes in valuation allowances which is offset by the positive impact of non-taxable changes in fair value of the warrant liabilities. In the first six months of 2021, 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, and reflects the negative impact of non-deductible changes in fair value of the warrant liabilities, as well as a discrete tax adjustment related to legislative changes enacted in the first three months of the period. Negative tax impacts are partially offset by the benefit of certain internal reorganizations and tax elections outside the U.S.

Business Segments

The following is detail of business segment results for the six months ended June 30, 2022 compared to the six months ended June 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 13 — Segment Information,” of our unaudited condensed consolidated financial statements. Segment net sales are presented excluding intercompany sales.

Americas

Americas net sales of $1,182.3 in the first six months of 2022 increased $115.9, or 10.9% from the first six months of 2021. The increase in sales was primarily driven by E&I sales of $64.0 and higher sales volumes compared to prior year. By product offering, net sales increased in critical infrastructure & solutions by $78.4 mostly due to E&I sales. Integrated rack solutions increased by $18.9 primarily due to higher rack power distribution unit sales. Service & spares increased by $18.6 due to improved customer site availability. Americas net sales were negatively impacted by foreign currency of approximately $1.8.

Operating profit (loss) in the first six months of 2022 was $140.4, a decrease of $114.6 compared with the first six months of 2021. Margin declined primarily due to increased commodity and logistic costs exceeding price realization.

Asia Pacific

Asia Pacific net sales were $740.0 in the first six months of 2022, a decrease of $15.4, or 2.0% from the first six months of 2021. Sales decreases were primarily due to lower volumes driven by supply chain constraints and customer site access as a result of COVID-19, particularly in China, and the expiration of governmental subsidies in our wind power business, partially offset by stronger sales elsewhere in the region, particularly in India. By product offering, net sales weakened in critical infrastructure & solutions and integrated rack solutions by $29.0 and $2.1, respectively, which was slightly offset by $15.7 of improvements in service & spares. Additionally, Asia Pacific net sales were negatively impacted by foreign currency of approximately $14.6.

Operating profit (loss) in the first six months of 2022 was $110.0, a decrease of $5.9 compared with the first six months of 2021. Margin declined primarily due to volume deleveraging, primarily in Greater China, and unfavorable mix, primarily in South East Asia. The impact of increased commodity and logistics costs was offset by price realization.

Europe, Middle East & Africa

Europe, Middle East & Africa net sales were $633.5 in the first six months of 2022, an increase of $96.6, or 18.0% from the first six months of 2021. Sales increases were primarily due to E&I sales of $137.7 and higher selling prices, partially offset by the loss of net sales of $32.5 due to our divestment of the heavy industrial UPS business. By product offering, net sales improved in critical infrastructure & solutions by $107.5 mostly related to E&I sales, improvements in integrated rack solutions by $4.9, and slightly offset by a $15.8 decrease in service & spares. Additionally, Europe, Middle East & Africa net sales were negatively impacted by foreign currency of approximately $60.4.

Operating profit (loss) in the first six months of 2022 was $95.0, a decrease of $0.8 compared with the first six months of 2021. Margin declined primarily due to increased commodity and logistic costs exceeding price realization.

Vertiv Corporate and Other

Corporate and other costs include costs associated with our headquarters located in Columbus, Ohio, as well as centralized global functions including Finance, Treasury, Risk Management, Strategy & Marketing, IT, Legal, and global product platform development and offering management. Corporate and other costs were $250.9 and $221.0 in the first six months of 2022 and 2021, respectively. Corporate and other costs increased $29.9 compared with the first six months of 2021 primarily due to research and development costs of $13.7, IT investments of $10.7, and E&I integration costs.

Capital Resources and Liquidity

Our primary future cash needs relate to working capital, operating activities, capital spending, strategic investments and debt service. As previously disclosed in our 2021 Form 10-K, on October 22, 2021, Vertiv Group Corporation (the “Vertiv Group”), completed its offering (the “Offering”) of $850.0 aggregate principal amount of its Senior Secured Notes due 2028 (the “Notes”) in a private placement at par. The Notes will bear interest at a fixed rate of 4.125% per annum and mature on November 15, 2028.

We believe our current cash and cash equivalent levels, augmented by long-term debt arrangements and the ABL Revolving Credit Facility, will provide adequate near-term liquidity for the next 12 months of independent operations, as well as the resources necessary to invest for growth in existing businesses and manage our capital structure on a short- and long-term basis. We expect to continue to opportunistically access the capital and financing markets from time to time. Access to capital and the availability of financing on acceptable terms in the future will be affected by many factors,

including our credit rating, economic conditions, and the overall liquidity of capital markets. There can be no assurance that we will continue to have access to the capital and financing markets on acceptable terms.

At June 30, 2022, we had $194.4 in cash and cash equivalents, which includes amounts held outside of the U.S., primarily in Europe and Asia. Non-U.S. cash is generally available for repatriation without legal restrictions, subject to certain taxes, mainly withholding taxes. We are not asserting indefinite reinvestment of cash or outside basis for our non-U.S. subsidiaries due to the outstanding debt obligations in instances where alternative repatriation options other than dividends are not available. Our ABL Revolving Credit Facility provides for up to $455.0 of revolving borrowings, with separate sublimits for letters of credit and swingline borrowings and an uncommitted accordion of up to $145.0. At June 30, 2022, Vertiv Group and certain other subsidiaries of the Company had $262.3 of availability under the ABL Revolving Credit Facility, net of letters of credit outstanding in the aggregate principal amount of $17.7, and taking into account the borrowing base limitations set forth in the ABL Revolving Credit Facility. At June 30, 2022, there was a $175.0 balance on the ABL Revolving Credit Facility.

Long-Term Debt Obligations

Our long-term debt obligations are discussed in “Note 6 — Debt” in Part I. Item I. of this Form 10-Q, which contains further details of the long-term debt arrangements reflected in our Unaudited Condensed Consolidated Financial Statements, which debt was issued by the Company and certain of our subsidiaries as borrowers, co-borrowers or guarantors. “Note 11 — Financial Instruments and Risk Management” in Part I. Item I. of this Form 10-Q addresses our approach to interest rate risk management through the use of swaps to mitigate the effects of increases in interest rates.

Summary Statement of Cash Flows

Six Months Ended June 30, 2022 and 2021

Net Cash provided by (used for) Operating Activities

Net cash used for operating activities was $337.9 in the first six months of 2022, a $457.9 decrease in cash generation compared to the first six months of 2021. Net income from operations of $28.8 included $31.8 of net non-cash expense items, consisting of a gain on the change in fair value of warrant liabilities of $133.8 and deferred taxes of $9.2, partially offset by depreciation and amortization of $156.2, non-cash stock-based compensation expense of $13.8 and amortization of debt discount and issuance costs of $4.8. Trade working capital used $377.8 in comparison to $126.1 in the first six months of 2021, primarily as a result of increased accounts receivable associated with higher sales volume, inventory build to support forecasted sales and to meet customer demand, and a $8.7 payment related to a litigation settlement. Refer to “Note 15 — Commitments and Contingencies” in Part I. Item I. of this Form 10-Q for additional information related to this settlement.

Net Cash used for Investing Activities

Net cash used for investing activities was $49.9 in the first six months of 2022 compared to net cash used for investing activities of $35.8 in the first six months of 2021. The increased use of cash over the comparable period was primarily the result of increased capital expenditures and a $5.0 increase related to measurement period adjustment due to a final working capital adjustment to the purchase price.

Net Cash provided by (used for) Financing Activities

Net cash provided by financing activities was $153.5 in the first six months of 2022 compared to $91.7 provided by in the first six months of 2021. The increase was primarily the result of the proceeds of $175.0 from the ABL Revolving Credit Facility, offset by the lack of proceeds from the exercise of public warrants totaling $107.5 in 2021.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the 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 2021 financial statements, as part of the 2021 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 2021 Form 10-K.

There has been no material changes in our quantitative and qualitative market risk disclosures from those described in our 2021 Form 10-K.

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).

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 June 30, 2022 (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 June 30, 2022, 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 June 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

The Company completed the acquisition of E&I as of November 1, 2021. As such, E&I has been excluded from the Company's assessment of internal control over financial reporting. Companies are permitted to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition while integrating the acquired company under guidelines established by the Securities and Exchange Commission.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information required by this item is set forth in “Note 15 — Commitments and Contingencies” to the Company’s Unaudited Condensed Consolidated Financial Statements included in Part I Item 1 “Financial Statements”, which is incorporated by reference herein.

ITEM 1A. RISK FACTORS

Other than as noted below, there have been no material changes to the Company’s risk factors presented in Part 1, Item 1A of the 2021 Form 10-K.

We are required to pay the Vertiv Stockholder for a significant portion of the tax benefits relating to pre-Business Combination tax assets and attributes, regardless of whether any tax savings are realized.

On December 10, 2019 we entered into a tax receivable agreement (“Tax Receivable Agreement”), which generally provided for the payment by us to the Vertiv Stockholder of 65% of the cash tax savings in U.S. federal, state, local and certain foreign taxes, that we actually realize (or are deemed to realize) in periods after the closing of the Business Combination as a result of (i) increases in the tax basis of certain intangible assets of Vertiv resulting from certain pre-Business Combination acquisitions, (ii) certain U.S. federal income tax credits for increasing research activities (so-called “R&D credits”) and (iii) tax deductions in respect of certain Business Combination expenses.

On December 31, 2021, the Company and the Vertiv Stockholder agreed to amend and supplement the Tax Receivable Agreement to replace our remaining payment obligations under the Tax Receivable Agreement with an obligation to pay $100 in cash in two equal installments. The first installment payment was scheduled to be due on or before June 15, 2022 and the second installment was scheduled to be due on or before September 15, 2022. 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 will be due on or before September 15, 2022, and the third installment of $75 will be due on or before November 15, 2022. Upon receipt of the third installment payment, the Tax Receivable Agreement will terminate and we will not be required to make any further payments to the Vertiv Stockholder. In the event of a change of control of us prior to delivery of all installment payments, all unpaid installment payments (together with any accrued interest thereon) will accelerate and become payable upon the consummation of such change of control. In addition, in the event of a material breach by us of any of our material obligations under the amended Tax Receivable Agreement, all unpaid obligations will accelerate and become payable immediately and will accrue interest at a rate equal to the lesser of the Default Rate and the Maximum Rate (each, as defined in the amended Tax Receivable Agreement) until satisfied in full.

The acceleration of our obligations could have a substantial negative impact on our liquidity. Additionally, the obligation to make payments under the amended Tax Receivable Agreement, including the acceleration of our obligation to make payments in the event of a change of control, could make us a less attractive target for a future acquisition.

Because we do not presently know the tax savings we may realize in future periods, it is possible that the actual cash tax savings realized by us may be significantly less than the corresponding payments we are required to make under the amended Tax Receivable Agreement.

For more information about the Tax Receivable Agreement, please see the section entitled “Item 1. Business — Business Combination — Related Agreement — Tax Receivable Agreement” of the 2021 Form 10-K.

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.

None.

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.