Vertiv Holdings 10-Q 2023-09-30

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 October 23, 2023, there were 381,441,500 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 (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

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.

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.

RESULTS OF OPERATIONS

Comparison of the Three Months Ended September 30, 2023 and Three Months Ended September 30, 2022

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.

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

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.

Asia Pacific

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

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.

Comparison of the Nine Months Ended September 30, 2023 and Nine Months Ended September 30, 2022

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.

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

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.

Asia Pacific

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

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.

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.

Summary Statement of Cash Flows

Nine Months Ended September 30, 2023 and 2022

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.

There has been no material changes in our quantitative and qualitative market risk disclosures from those described in our 2022 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 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.

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

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.

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.

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.