10-QPeriod: Q3 FY2020

Vertiv Holdings Co Quarterly Report for Q3 Ended Sep 30, 2020

Filed November 5, 2020For Securities:VRT

Summary

Vertiv Holdings Co (VRT) reported its third-quarter and nine-month results for the period ending September 30, 2020. The company saw an 8.5% increase in net sales for the third quarter, reaching $1.162 billion, driven by strong performance in APAC and EMEA regions, and a recovery from COVID-19 impacts. However, for the nine-month period, net sales decreased by 6.0% to $3.065 billion, largely due to the pandemic's adverse effects. The company's financial results were significantly impacted by restructuring charges, including $71.1 million in the third quarter related to workforce reductions and footprint optimization. Despite the sales increase in Q3, the company reported a net loss of $15.8 million for the quarter, compared to a loss of $13.7 million in the prior year. The nine-month period resulted in a net loss of $258.5 million, a substantial increase from the $106.9 million loss in the same period last year, heavily influenced by a $174 million loss on extinguishment of debt related to debt refinancing. Vertiv has also identified material weaknesses in its internal control over financial reporting, which it is actively working to remediate.

Financial Highlights

49 data points
Beta

Revenue

$1.16B

35.5% Gross Margin

Net Income

-$103.50M

-8.9% Net Margin

EPS (Diluted)

$-0.32

Total Assets

$4.77B

Cash & Equivalents

$332.30M

Free Cash Flow

$128.00M

Financial Statements
Beta
Revenue$1.16B
Cost of Revenue$749.00M
Gross Profit$413.00M
SG&A Expenses$251.70M
Operating Income$35.10M
Interest Expense$26.40M
Net Income-$103.50M
EPS (Basic)$-0.32
EPS (Diluted)$-0.32
Shares Outstanding (Basic)328.41M
Shares Outstanding (Diluted)328.41M

Key Highlights

  • 1Vertiv reported a net sales increase of 8.5% to $1,162.0 million in Q3 2020 compared to Q3 2019, driven by growth in APAC and EMEA.
  • 2For the nine months ended September 30, 2020, net sales decreased by 6.0% to $3,064.9 million, primarily due to the adverse impact of the COVID-19 pandemic.
  • 3The company incurred significant restructuring charges of $71.7 million in Q3 2020 and $73.0 million year-to-date, impacting profitability.
  • 4A substantial loss on extinguishment of debt of $174.0 million was recognized in the first nine months of 2020 due to debt refinancing activities.
  • 5Vertiv reported a net loss of $15.8 million for Q3 2020 and $258.5 million for the nine months ended September 30, 2020.
  • 6The company implemented a new debt structure with a seven-year $2.2 billion term loan and amended ABL revolving credit facility, leading to reduced interest expense.
  • 7Material weaknesses in internal control over financial reporting were identified, related to IT general controls and the aggregation of control deficiencies, with remediation plans underway.

Frequently Asked Questions

Net sales in Q3 2020 increased by 8.5% to $1,162.0 million, primarily driven by double-digit growth in the Asia Pacific (APAC) and Europe, Middle East & Africa (EMEA) regions. The company also noted an ongoing recovery from the impacts of the COVID-19 pandemic. Critical infrastructure & solutions sales saw a significant increase of $87.4 million.

The COVID-19 pandemic has had an adverse impact on Vertiv's operations and business results. For the nine months ended September 30, 2020, net sales decreased by 6.0% largely due to the pandemic. The company experienced disruptions in its sales channels, supply chain, and manufacturing operations, and expects the pandemic to continue to have a materially adverse impact through at least the end of 2020.

Vertiv completed a significant refinancing on March 2, 2020. This included closing a new seven-year $2.2 billion term loan, the proceeds of which were used to repay its previous term loan and redeem high-yield bonds. Additionally, the company amended its $455.0 million ABL revolving credit facility, extending its maturity. These actions led to lower interest expenses in Q3 2020 compared to Q3 2019.

Vertiv identified material weaknesses in its internal control over financial reporting related to (1) ineffective design and implementation of general IT controls for systems supporting financial reporting and (2) the aggregation of open control deficiencies across financial reporting processes. The company is implementing a remediation plan that includes improving IT systems, updating IT change management policies, enhancing user access controls, expanding finance and IT teams, and providing additional training. While these steps are underway, the material weaknesses are not considered remediated until the controls are fully implemented, tested, and proven effective over a sufficient period.