Vertiv Holdings Co – Jul 27, 2023

As digital transformation continues to be an important driver of efficiencies and growth for businesses around the world, critical digital infrastructure is the foundation for seamless communication, data management, and IT operations. Vertiv has positioned itself as a global provider of such infrastructure, facilitating the digital universe and allowing data to flow and businesses to thrive.

The company specializes in designing, manufacturing, and servicing a broad range of products that are integral to data centers, communication networks, and commercial and industrial environments. Its portfolio of hardware, software, analytics, and services aims to enable its customers’ vital applications to run continuously, perform optimally, and scale with business needs.

It also facilitates an increasingly interconnected marketplace of digital systems where large amounts of indispensable data need to be transmitted, analyzed, processed, and stored for its customers that span a wide range of sectors. Vertiv technologies and rapidly deployable customized solutions are designed to meet the specific business requirements and varying needs of these diverse clients, ultimately serving to ensure minimized downtime and optimized operational efficiency.

Focused on responding effectively to the ever-changing technology landscape, the company’s growth strategy is hinged on aligning its offerings with evolving business models through continuous innovation and expansion of its comprehensive product portfolio. Consequently, Vertiv is investing heavily in supply chain enhancements and manufacturing efficiency, which has resulted in an increased production capacity. This investment is not only supporting current technological requirements, but also seeking to be proactive in anticipating and enabling emerging technology trends such as the increasing demands of AI.

Vertiv’s roots date back to the mid-1940s and the beginning of the information age when Ralph Liebert founded the industry’s first manufacturer of computer room air conditioning. Fast forward to 1987, Liebert Corporation was acquired by Emerson Electric Co, which later formed its Network Power business to integrate critical infrastructure technologies under one brand.

Over the years, several acquisitions added outside plant and power systems, telecom industry solutions, enclosure systems, IT management software, and keyboard, video, and mouse solutions to Emerson Network Power. In 2016, this was spun off as a standalone business and ultimately became Vertiv.

Vertiv went public on the NYSE in 2020 and since then it has grown exponentially, bolstering its comprehensive product portfolio and deepening its presence globally. The company’s product range now includes power, cooling, and IT infrastructure solutions, as well as the software, controls, and services that maintain continuity and maximize the performance of data centers and other critical environments.

Emerson Network Power veteran, Giordano Albertazzi, became Vertiv’s chief executive officer in January 2023 taking control of all operations and business development across Vertiv globally. Joining the company back in 1998, he held various senior positions across Europe, the Middle East, and Africa, including the role of company president, where he drove significant operational and financial improvements.

Joining Albertazzi is Stephen Liang, serving as both Vertiv’s chief technology officer and executive vice president of infrastructure and solutions. He is responsible for aligning the organization’s technology strategies and resources for product development and R&D, and for leading the engineering and strategy for the large infrastructure and solutions lines of business. Liang is also a long-term Emerson veteran, starting his career at the company in 1994, and working through several positions with the power supply solutions side of the business.

Vertiv offers a broad range of hardware, software, and services to facilitate an increasingly interconnected marketplace of digital systems that must manage large amounts of indispensable data. Whether this growing quantity of data is managed centrally in hyperscale/cloud locations, distributed at the edge of the network, processed in an enterprise location, or managed via a hybrid platform, all of these locations rely on Vertiv’s critical digital infrastructure and services.

Delivered across a range of prominent brands that include Vertiv, Liebert, NetSure, Geist, E&I, Powerbar, and Avocent, specific products include:
– AC and DC power management for maintaining consistent and reliable power supplies
– Switchgear and busbar products for the distribution of electricity in a secure manner
– Thermal management products that ensure optimal operating temperatures, thus prolonging the life and reliability of the equipment
– Integrated rack systems and modular solutions for server and equipment housing
– Comprehensive management systems for monitoring and controlling digital infrastructure.

These products are essential to the technologies used for services such as e-commerce, online banking, file sharing, video-on-demand, energy storage, wireless communications, the Internet of Things, and online gaming.

In addition, through a global services network, Vertiv provides lifecycle management services, predictive analytics, and professional services for deploying, maintaining, and optimizing these products and their related systems.

Cloud and hyperscale data centers like Microsoft Azure, Amazon Web Services, and Google Cloud rely on Vertiv’s solutions for maintaining high uptime, efficient power management, and effective thermal control. Similarly, colocation companies like Digital Realty and Equinix benefit from Vertiv’s modular solutions and critical digital infrastructure that guarantees reliability for their customers’ equipment. While enterprise-class customers including major companies like Goldman Sachs, J.P. Morgan, Walmart, and Allianz, utilize Vertiv’s solutions for their on-premise data centers.

In the communication networks space, Vertiv provides infrastructure solutions to wireline, wireless, and broadband companies that need reliable power, cooling, and housing for their equipment, ensuring continuous service to their customers.

In the commercial and industrial sectors, Vertiv serves a variety of markets, including transportation, manufacturing, and oil and gas. These industries need robust, reliable, and often rugged solutions that can withstand demanding environments while keeping critical systems running.

Vertiv’s strategic direction is shaped by several key priorities which aim to continue its trajectory for growth. By delivering a best-in-class suite of products, backed up by stellar service execution, Vertiv not only endeavors to create excellent value for customers, but also nurture strong long-term customer relationships that drive demand and spur margin expansion.

While a mindset of continuous improvement and innovation constantly strives to enhance speed, efficiency, efficacy, and scalability, as the company seeks to continuously differentiate itself through its new product offerings.

Despite general uncertainty around the macro environment and tech sector, Vertiv has highlighted that it is already benefitting from strong regional growth, coupled with a significant secular growth story in the industry driven by increasing investments in AI.

Broadly, the company is seeing encouraging pipeline activity, as while some cloud hyperscale customers are pausing to digest capacity, others are seizing the opportunity to accelerate their build-outs. Vertiv’s business in the Americas has shown remarkable demand, with the CEO attributing this success to an improved supply chain and increased production capacity.

The company has acknowledged that while there are pockets of supply-chain tightness in electronics, tireless efforts over the last 12 months to qualify additional suppliers have proven invaluable. Consequently, the company remains confident of sustained growth, buoyed by its strong backlog and the realization of benefits due to investments in business transformation. Even with moderating capital expenditure growth, Vertiv expects some market reacceleration in the latter part of 2023, especially in China.

While in addition, the company has also started seeing the first signs of the AI investment cycle in its pipelines and orders. Given its market leadership and deep domain expertise in areas like thermal management and controls, vital elements for supporting the complexity of future AI infrastructures, Vertiv is uniquely positioned to capture significant growth from this trend.

Vertiv is also particularly well positioned in the data center infrastructure space as it focuses on managing the power and cooling needs of data centers. Recognizing the gradual industry migration to an air and liquid hybrid cooling environment and a transition to liquid-ready facility designs, Vertiv is leading these transitions to capitalize on the growth opportunities.

On the economic front, in light of inflationary pressures, Vertiv expects metal costs to be lower in 2023, as it also anticipates a more favorable environment for freight and distribution efficiency. The company has also developed a robust pricing process to help mitigate enduring inflation.

Despite a minor dip during the peak impacts of the covid pandemic, Vertiv has been delivering an exceptional pattern of double-digit annual revenue growth. The company hit an annual record of $5.7 billion in total sales in 2022 for year-over-year growth of 14%.

The solid performance has continued into the first quarter of 2023 which saw revenue jump 35% for the period as improved operational performance and backlog execution, resulted in sales surpassing $1.5 billion. Notably, the Americas region contributed significantly to this performance due to substantial improvements in supply chain and manufacturing efficiency.

Market demand remains healthy and a record-high backlog of almost $5 billion provides good visibility into top-line growth projections for 2023. In addition, the company is benefitting from recovering supply chains and better operational execution driven by improved manufacturing efficiency in North American plants. Management also believes seasonality is becoming less of an issue and there will be more uniformity of expected quarterly sales as the company progresses through the year. It is also driving vastly improved operating profit, which saw the first quarter of 2023 hit $176 million, exceeding the high-end of the company’s guidance range by $41 million.

Looking ahead, consensus estimates have Vertiv closing out 2023 with total sales of $6.55 billion, slightly improving year-over-year growth at 15%. Management is anticipating to end 2023 with an adjusted operating profit guidance midpoint of $800 million, a surge of 82% compared to 2022, thanks to volume leverage and a higher contribution margin percentage. Analysts are also forecasting full-year earnings per share to improve significantly from $0.53 per share in 2022 to $1.26 in 2023, representing a year-over-year increase of 138%.

The market for data center infrastructure and power management solutions is highly competitive, with significant fragmentation, and subject to fast-paced technological advancements and evolving customer needs. Vertiv faces competition from a variety of vendors, from large multinational corporations to smaller niche-focused firms. Key competitors include Schneider Electric, Eaton, ABB, and Huawei.

Despite this competition, Vertiv has several competitive advantages that have helped it maintain a strong market position including its broad portfolio of products and solutions, which allows it to offer a “one-stop-shop” for customers looking for data center infrastructure solutions. From power and cooling systems to racks and enclosures, Vertiv’s broad offering and ability to integrate with third-party software enable it to cater to diverse needs.

Furthermore, while the majority of Vertiv’s competitors target a specific offering or geographic location, Vertiv has a strong global presence and established relationships with leading technology companies, government agencies, and businesses across a range of industries, that not only helps it weather market fluctuations, but also capitalize on growth opportunities around the world.

Vertiv’s comprehensive suite of hardware, software, analytics, and services coupled with leadership in key areas such as thermal management and controls, have it well-placed to leverage emerging trends like AI. Improving operating performance, supply chains, and capacity, coupled with a record backlog of projects are also providing a compelling backdrop for continued growth ahead.