01—Abstract
Summary
Summary of the 10-K/A filed April 30, 2021. Cited figures are marked; the original filing is the authoritative source.
Vertiv Holdings Co (NYSE: VRT) filed this Form 10-K/A (Amendment No. 1) on April 30, 2021 to restate its fiscal 2020 financial statements after the SEC's April 12, 2021 staff statement on SPAC warrants.
The Public and Private Placement Warrants inherited from GS Acquisition Holdings Corp were reclassified from equity to liabilities at fair value. The restatement increased 2020 net loss by $143.7 million to $327.3 milliona (from $183.6 million as originally reported), increased total liabilities by $156.2 million, and reduced total equity by the same amount to $512.1 million. It has no impact on cash, liquidity, or cash flows from operations, investing, or financing.
Operationally, 2020 net sales were $4,370.6 millionb, down 1.4% from $4,431.2 million, as COVID-19 weighed on the Americas, while Asia Pacific (+7.1%) and EMEA (+4.1%) grew. Gross margin improved to 33.7% from 32.8%, and SG&A fell 8.4% to $1,008.4 million. Reported EBIT was negative at $(104.2) million, driven by a $174.0 million loss on debt extinguishment, the $143.7 million warrant fair value charge, $251.8 million of other deductions (including restructuring), and $85 million in targeted annualized savings from a restructuring program.
Operating cash flow improved to $208.9 millionc from $57.5 million, and year-end cash was $534.6 million. For investors, the central issues are the material weaknesses in IT general controls and control aggregation, which led management and Ernst & Young to conclude that internal control over financial reporting was not effective at December 31, 2020, along with ongoing warrant-driven earnings volatility and a leveraged balance sheet (roughly $2.18 billion term loan). The company also reports a $1.2 billion interest rate swap portfolio and a tax receivable agreement liability of about $155.6 million, payable to the Vertiv Stockholder (Platinum Equity affiliate), which owns roughly 22% of Class A shares.
02—Key points
Key Highlights
- Restatement: 2020 net loss increased by $143.7M to $327.3M due to reclassifying SPAC-related warrants as liabilities; total equity reduced by $156.2M to $512.1M; no cash flow impact.
- Revenue of $4,370.6M in 2020 (-1.4% YoY), with Americas down 8.5% on COVID-19 while Asia Pacific (+7.1%) and EMEA (+4.1%) grew; backlog rose to $1,844.8M from $1,401.2M.
- Gross margin expanded to 33.7% from 32.8%, and SG&A declined 8.4% to $1,008.4M, supported by fixed-cost reduction actions.
- Reported EBIT was $(104.2)M, weighed down by a $174.0M loss on debt extinguishment, $251.8M of other deductions (including restructuring), and the warrant charge.
- Operating cash flow improved to $208.9M from $57.5M; year-end cash was $534.6M and $434.2M was available under the $455M ABL revolver.
- Internal controls were not effective at December 31, 2020: material weaknesses in IT general controls and in aggregation of control deficiencies; remediation is ongoing, with the Oracle ERP go-live expected in 2021.
- Debt of roughly $2.18B under a seven-year term loan at LIBOR+3.00%, with interest rate swaps on $1.2B notional, and a tax receivable agreement liability of about $155.6M.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2020, Vertiv Holdings lost $0.07.
- Revenue$4.37B100.0%
- Cost of revenue−$2.90B66.3%
- Gross profit$1.47B33.7%
- Operating costs−$1.26B28.8%
- Operating income$213.5M4.9%
- Interest, other & tax−$540.8M12.4%
- Net income−$327.3M7.5%
Where FY2020 revenue went
$4.37B- Cost of revenue: $2.90B, 66% of revenue
- SG&A: $1.01B, 23% of revenue
- Operating income: $213.5M, 4.9% of revenue
- R&D: $228.6M, 5.2% of revenue
- Other operating costs: $23.2M, 0.5% of revenue
Kept 4.9% as operating incomeOperating income $213.5M · 4.9%Other operating costs $23.2M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-K/AFY2020filed April 30, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $4.37B$4.43B | −1.4% |
| Cost of Revenue | $2.90B$2.98B | −2.7% |
| Gross Profit | $1.47B$1.45B | +1.4% |
| R&D Expenses | $228.60M$229.40M | −0.3% |
| SG&A Expenses | $1.01B$1.10B | −8.4% |
| Operating Income | $213.50M$206.10M | +3.6% |
| Interest Expense | $150.40M$310.40M | −51.5% |
| Net Income | -$327.30M-$140.80M | −132.5% |
| EPS (Basic) | $-1.07$-1.19 | +10.1% |
| EPS (Diluted) | $-1.07$-1.19 | +10.1% |
| Shares Outstanding (Basic) | 307.08M118.26M | +159.7% |
| Shares Outstanding (Diluted) | 307.08M118.26M | +159.7% |
05—Questions
Frequently Asked Questions
Why was this 10-K/A filed and what changed?
The company restated its 2020 financial statements after the SEC's April 12, 2021 staff statement said SPAC-issued warrants with holder-dependent settlement terms should be liabilities, not equity. The warrants are now recorded at fair value, with changes flowing through earnings. The restatement raised the 2020 net loss by $143.7M to $327.3M and increased liabilities by $156.2M. Cash, liquidity and operating, investing and financing cash flows are unaffected.
How did Vertiv perform operationally in 2020?
Net sales fell 1.4% to $4,370.6M, mainly from COVID-19 impacts in the Americas, which declined 8.5%. Asia Pacific grew 7.1% on China data center, 5G and wind projects, and EMEA grew 4.1% on colocation demand. Gross margin rose to 33.7% and SG&A fell 8.4%. Backlog grew 32% to $1,844.8M, a positive signal for 2021 revenue visibility.
Why does the company report an operating loss and what are the one-time items?
Reported EBIT was $(104.2)M versus $206.1M in 2019. Main drivers were a $174.0M loss on extinguishment of debt from the March 2020 refinancing, a $143.7M change in fair value of warrant liabilities, and higher other deductions of $251.8M, which include $73.9M of restructuring and $21.0M of asset impairments. Excluding these items, underlying operations were considerably more profitable.
What are the main risks for investors, especially around controls and leverage?
Management and the auditor concluded internal control over financial reporting was not effective at December 31, 2020, due to IT general control weaknesses and aggregation of control deficiencies. Remediation depends on the Oracle ERP go-live expected in 2021, and the warrant restatement adds to these concerns. Leverage is significant, with about $2.18B of term loan debt, covenant restrictions, and LIBOR exposure. The Vertiv Stockholder also holds about 22% of Class A shares and is owed tax receivable agreement payments of roughly $191.5M undiscounted.
06—Continue