2022 Shareholder Letter

Letter from:
Giordano Albertazzi and David M. Cote

 

To Our Shareholders

In a transformational year for Vertiv, we entered 2022 dealing with the challenges of strained supply chains, rising inflation and disappointing performance. We ended the year with the strongest quarterly results in Vertiv’s history. In the interim, we aggressively executed on our strategy to tackle pricing, addressed operational issues in the Americas, and undertook a successful leadership transition while continuing to innovate for our customers and deliver award-winning products and services to support critical digital infrastructure around the world.

Despite the challenging macroeconomic environment, demand for Vertiv’s hardware, software, and services remained strong throughout 2022, propelling our year-end backlog to a record level. While the outlook for the global economy remains uncertain, data continues its unrelenting proliferation. This underpins end-market demand for the critical digital infrastructure Vertiv supplies and amplifies our opportunities to help the data center industry efficiently manage energy and water and reduce their carbon footprint.

With the significant progress made in enhancing our operational performance, the right leadership in place to drive further gains and the enduring strength of our customer commitment and broad offerings, we are positioning Vertiv for sustained long-term growth and value creation.

Executing On Our Strategy

In February 2022, after a challenging end to 2021, we laid out a strategic framework for strengthening Vertiv’s supply chain, addressing cost pressures and operational issues in the Americas and advancing an aggressive pricing plan to improve margins and enhance profitability. To increase the resilience and flexibility of our supply chain we sought out and qualified alternate suppliers.

We continued to execute on an aggressive pricing plan to align our pricing to an increasingly inflationary operating environment and to reflect the value we deliver to the market. We are proud to say Vertiv realized $365 million in price in 2022, consistent with the targets established at the beginning of the year.

In the Americas, we initiated a transformation plan focused on optimizing price, ensuring leadership accountability, strengthening communication processes, improving sales, inventory & operations planning (SIOP) and delivering operational excellence. Giordano Albertazzi, who successfully transformed EMEA into a high growth and high margin region, tripling its adjusted operating margin to over 18% in a three-year period ending in 2021, assumed leadership of the Americas in March 2022 to drive its transformation.

The meaningful progress we’ve made is reflected in our overall results for Vertiv, which showed marked sequential improvement each quarter of the year, culminating in our record fourth quarter. The operational improvements in the Americas, though still underway, have yielded significant performance gains and we’re applying that same rigor across the organization to manage costs, sustain margin improvement and deliver improved performance and profitability.

2022: By the Numbers⁽¹⁾

Market demand for our products and services remained strong in 2022, with net sales for the year rising 14% to $5.7 billion. Strong sales and order growth contributed to our year-end record backlog of $4.8 billion, which was up nearly 50% from the end of 2021.

Though sequentially improving each quarter, our bottom-line results in 2022 were down from the previous year as we continued to work through a large backlog we had booked in 2021 before price levels were able to offset inflationary pressures.

2022 was really a story of two halves. In the first half of 2022, net sales were up 8%, and in the second half of 2022 they increased over 19%. Our organic sales were up 4% in the first half, and over 20% in the second half of the year. Operating profit was a $19 million loss in the first half and a positive $242 million in the second half while adjusted operating profit was $94 million in the first half and $345M in the second half of 2022. These are good indicators of the improvements underway at Vertiv.

Leadership Transition

In October 2022, Vertiv’s Board of Directors announced a leadership transition and named Giordano Albertazzi as Chief Executive Officer effective January 1, 2023, succeeding Rob Johnson, who retired from Vertiv. With more than two decades of experience leading various aspects of Vertiv’s business, including heading both our Americas and EMEA regions, and a track record of successful execution, Giordano is the right person to drive Vertiv forward and continue to execute on the strategy that is delivering results. Having taken the helm as CEO in a successful transition, his initial priorities are focused on building a high-performance culture of collaboration and innovation, institutionalizing excellence in execution across the organization and delivering profitable growth while prudently managing costs.

Giordano also joined Vertiv’s Board, which was further strengthened in 2022 with the appointments of JosephDeAngelo, who was President and CEO of HD Supply Holdings until it was acquired by Home Depot, and Jakki Haussler, who is Non-Executive Chairman of Opus Capital Management, Inc, to the expanded Board. The Board is already benefitting from the unique perspectives and wealth of operational, financial and accounting experience and expertise they bring to Vertiv.

Advancing Sustainability

In 2022, Vertiv reaffirmed its commitment to advancing the sustainability of its global operations and working with customers to provide solutions and build future-ready infrastructures that meet growing digital demand while minimizing environmental impacts:

• In January 2022, Vertiv joined founding partners, including Meta, Ericsson and ABB, in the RISE Research Institutes of Sweden’s partnership program for data center systems technologies, an innovative group of industry leaders dedicated to sustainability initiatives in EMEA. This partnership is an addition to Vertiv’s other industry collaborations, like theClean Hydrogen Partnership with E2P2, dedicated to developing low-carbon fuel cells to power data centers, and participation in groups including Open Compute Project (OCP) and Open 19 that work to improve data center best practices.
• In June, we released our first ESG report to provide an overview of Vertiv’s approach to energy efficiency, diversity, equity and inclusion (DE&I), employee health and safety and other ESG topics and to serve as a baseline for our sustainability efforts going forward.
• In October, Vertiv released its Guide to Data Center Sustainability, an online resource to share best practices and emerging technologies to help the industry advance toward “net zero” operations.

Delivering Award-Winning Innovation

Vertiv is at the forefront of providing solutions to the industry’s challenges as global data center operators build out increasingly complex, hybrid networks leveraging enterprise, cloud and edge applications to meet growing consumer demand. Our continuous innovation is essential to meeting the needs of our customers and providing the critical infrastructure that keeps the digital economy up and running.

In 2022, Vertiv was recognized for micro data center solutions in two Gartner® Hype Cycle™ reports for Edge Computing and Midsize Enterprises, and in the Gartner report, Emerging Tech Impact Radar: Communications. Vertiv also received three industry leadership awards from Frost & Sullivan, with recognition for product leadership in the prefabricated modular (PFM) data center industry, and for competitive strategy and customer value leadership in the critical power industry.

During the year, we continued to introduce innovative products and build our capacity to sustain long-term growth, including:

• Expansion of Vertiv’s power distribution portfolio with systems designed to enable seamless,on-demand power upgrades in dynamic data center environments;
• Opening of our state-of-the-art thermal test lab and manufacturing plant in Monterrey, Nuevo Leon, Mexico, a strategic location to expand Vertiv’s market presence in the region and serve customers in the Americas; and
• Introduction of new power and cooling solutions for the edge of the network that support increasingly critical and complex edge computing environments and support customers’ sustainability efforts:
• Broadened our portfolio of lithium-ion UPS with the addition of Vertiv™ Liebert® GXT5 Lithium-Ion, a new version of Vertiv’s most popular single- phase, online UPS for the channel market, at a time that Vertiv’s analysis of IDC data shows 168% growth in lithium-ion UPS sales in North America in 2022 vs. 2021.
• Introduced eco-friendly, low GWP refrigerant chillers with the Vertiv™ Liebert® AFC inverter screw chiller and high efficiency Vertiv™ Liebert® CWA chilled water thermal wall units. These efficient solutions are designed to reduce CO2 emissions, limit carbon footprint, and operate with high energy efficiency.
• Supported the reliability of 5G radio and edge equipment with the launch of the latest Vertiv™ NetSure™ M Series outdoor enclosure solution. The innovative solution enables constant power including battery backup, temperature and humidity control, and a secure cabinet that deploys quickly. The system allows the use of solar panels and other renewable energy sources.

Looking Ahead

While the global macroeconomic outlook remains uncertain, data continues to grow with advanced AI and other emerging trends likely to only increase demand further. While overall market demand remains strong, the rate of growth is moderating from record high levels we have recently experienced. This is a good thing and healthy for the overall industry as customers grow more confident in our increasingly resilient supply chain and our ability to meet their demand requirements. Additionally, there is a normalization of order patterns underway, as supply chains incrementally improve and lead times reduce. We expect demand for our products to remain strong through economic cycles as Vertiv plays a vital role in providing the critical digital infrastructure that keeps the digital economy up and running.

Our industry-leading products, solutions and services, capacity for continuous innovation and talented global team enable us to continue to anticipate and meet the evolving and dynamic needs of our customers. With the pivotal actions we’ve taken in 2022 to strengthen our operational execution and build a truly high-performing organization, we are very excited for the future and have a lot of runway ahead to create long-term value for our shareholders.

Giordano Albertazzi Chief Executive Officer

David M. Cote Executive Chairman

Forward-Looking Statements

This letter contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27 of the Securities Act, and Section 21E of the Securities Exchange Act. These statements are only predictions and actual events or results may differ materially from those in the forward-looking statements set forth herein. Readers are referred to Vertiv’s filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q for a discussion of these and other important risk factors concerning Vertiv and its operations. Vertiv is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

^[1]This letter contains certain non-GAAP metrics. For reconciliations to the relevant GAAP measures and an explanation of the non-GAAP measures and reasons for their use, please refer to Annex A in the Company’s proxy statement, filed on April 28, 2023.