01—Abstract
Summary
Summary of the 10-K filed March 12, 2020. Cited figures are marked; the original filing is the authoritative source.
This filing is an unusual 10-K for Vertiv Holdings Co (NYSE: VRT), formerly GS Acquisition Holdings Corp (GSAH), a special purpose acquisition company.
The report covers GSAH's financial statements for the year ended December 31, 2019, which reflect only a blank-check shell with $707 milliona held in trust, while the business description, risk factors, and governance sections describe the combined company after the February 7, 2020 Business Combination with Vertiv Holdings, LLC. Investors should read the two halves separately: the financial statements show a shell that earned dividend income of $14.2 million and recorded net income of $4.4 million, whereas Vertiv's own operating results are not in this filing and appear only in the 8-K/A referenced in the explanatory note. Vertiv is a global provider of critical digital infrastructure, with 2019 revenue of $4,431.2 million (up from $4,285.6 million in 2018), roughly 50% from the Americas, 29% from Asia Pacific, and 21% from EMEA.
Its year-end 2019 backlog was $1,401.2 millionb, down from $1,502.0 million, and it reported R&D spending of $198.3 million and net losses of $140.8 million in 2019 and $314.0 million in 2018. The business combination was valued at approximately $1.5 billion and was funded with $341.6 million of cash, 118.3 million newly issued Class A shares, and a $1.239 billion PIPE. Platinum Equity controls about 36% of the Class A stock, which gives it significant influence over the company.
Balance sheet and capital structure changed materially at closing. Vertiv used roughly $1.47 billionc of proceeds to repay prior term loans and asset-based revolver borrowings, and on March 2, 2020 it refinanced into new senior secured credit facilities, with about $2.3 billion of senior secured debt outstanding and $334 million of undrawn commitments.
The company is an emerging growth company, has not yet paid dividends, and expects to initiate an annual $0.01d per share dividend. The filing also flags the emerging coronavirus outbreak as a risk, given Vertiv's significant China revenue and manufacturing exposure.
02—Key points
Key Highlights
- Vertiv's operating business generated $4,431.2 million in 2019 revenue (+3.4% year over year), with Americas at 50%, Asia Pacific at 29%, and EMEA at 21%.
- Year-end 2019 backlog declined to $1,401.2 million from $1,502.0 million, with the vast majority considered firm and expected to ship within one year.
- The February 7, 2020 Business Combination valued the deal at about $1.5 billion and included a $1.239 billion PIPE, which together with $341.6 million of cash consideration funded the transaction.
- Net losses were $140.8 million in 2019 and $314.0 million in 2018 for the Vertiv business, and the company has a history of net losses.
- Post-refinancing debt includes about $2.3 billion of senior secured debt and $334 million of undrawn commitments under the new Senior Secured Credit Facilities, with a March 2, 2020 refinancing that extended maturities.
- Platinum Equity (VPE Holdings) beneficially owns about 36.01% of Class A common stock and can nominate up to four directors, giving it substantial control over corporate actions.
- The coronavirus outbreak poses a specific risk given significant revenue from China, manufacturing facilities there, and supplier concentration in Asia.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2019, Vertiv Holdings lost $0.03.
- Revenue$4.43B100.0%
- Cost of revenue−$2.98B67.2%
- Gross profit$1.45B32.8%
- Operating costs−$1.25B28.1%
- Operating income$206.1M4.7%
- Interest, other & tax−$346.9M7.8%
- Net income−$140.8M3.2%
04—Financials
Financial Highlights
Figures from 10-KFY2019filed March 12, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $4.43B$4.29B | +3.4% |
| Cost of Revenue | $2.98B$2.87B | +3.9% |
| Gross Profit | $1.45B$1.42B | +2.3% |
| R&D Expenses | $229.40M$198.30M | +15.7% |
| SG&A Expenses | $1.10B$1.22B | −10.1% |
| Operating Income | $206.10M— | — |
| Interest Expense | $310.40M$288.80M | +7.5% |
| Net Income | -$140.80M$5.03M | −2898.8% |
| EPS (Basic) | $-1.19$-2.65 | +55.1% |
| EPS (Diluted) | $-1.19$-2.65 | +55.1% |
| Shares Outstanding (Basic) | 118.26M118.26M | 0.0% |
| Shares Outstanding (Diluted) | 118.26M118.26M | 0.0% |
05—Questions
Frequently Asked Questions
Why do the financial statements in this 10-K show only a small shell company rather than Vertiv's operations?
The financial statements are those of GS Acquisition Holdings Corp, the SPAC, for fiscal 2019 because the business combination closed on February 7, 2020, after the fiscal year end. Vertiv's audited financial statements were filed separately in an 8-K/A amendment filed substantially concurrently with this 10-K. The SPAC's 2019 results consist of $14.2 million of trust dividend income, $7.7 million of G&A expense, $2.1 million of tax, and net income of $4.4 million.
How does Vertiv's financial profile look based on the information in this filing?
Vertiv reported 2019 revenue of $4.43 billion, up from $4.29 billion in 2018, but posted net losses of $140.8 million in 2019 and $314.0 million in 2018. Its R&D spending was $198.3 million, and goodwill plus intangibles of $2.05 billion represented about 44% of total assets. Investors should review the 8-K/A for full Vertiv financial statements and margin detail.
What are the main risks for investors in the combined company?
Key risks include heavy leverage with about $2.3 billion of senior secured debt and variable-rate exposure, significant control by Platinum Equity, possible TRA payments of 65% of realized tax savings that could be accelerated on a change of control, exposure to China and emerging markets, dependence on large data center customers with negotiating leverage, long-term fixed-price contracts, and the coronavirus outbreak. Additional near-term risks include warrant dilution and the expiry of lock-up periods that could pressure the share price.
Will Vertiv pay dividends and what is its capital allocation plan?
Vertiv has not paid any cash dividends on its Class A common stock to date. Management expects to initiate an annual dividend of $0.01 per share. As a holding company, its ability to pay dividends depends on receiving funds from subsidiaries, which may be restricted by the credit agreements governing its senior secured facilities.
06—Continue