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What changed in Vertiv Holdings Co's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Vertiv Holdings Co's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+297 added−324 removedSource: 10-K (2024-02-23) vs 10-K (2023-02-27)

Top changes in Vertiv Holdings Co's 2023 10-K

297 paragraphs added · 324 removed · 223 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

62 edited+21 added−19 removed31 unchanged
Biggest changeOn the closing date of the Business Combination, we entered into certain related agreements including the Registration Rights Agreement, the Tax Receivable Agreement, and the Stockholders Agreement (each of which is described below under “Related Agreements.”) Related Agreements Amended and Restated Registration Rights Agreement On the closing date of the Business Combination, we entered into an amended and restated registration rights agreement (the “Registration Rights Agreement”), with the Initial Stockholders, the Vertiv Stockholder, the GS ESC PIPE Investor, the Cote PIPE Investor and certain other PIPE Investors (collectively, the “RRA Parties”), pursuant to which the RRA Parties are entitled to registration rights in respect of certain shares of Vertiv’s Class A common stock and certain other of our equity securities that are held by the RRA Parties from time to time. 12 Table of contents Each of the GS Sponsor Member, the Cote Sponsor Member and the Vertiv Stockholder is entitled to make up to two demand registrations in any 12 month period in connection with an underwritten shelf takedown offering, in each case subject to certain offering thresholds, applicable lock-up restrictions and certain other conditions.
Biggest changeRelated Agreements Amended and Restated Registration Rights Agreement On the closing date of the Business Combination, we entered into an amended and restated registration rights agreement (the “Registration Rights Agreement”), with the initial stockholders [of GSAH], VPE Holdings, LLC, an affiliate of Platinum Equity Advisors, LLC (the "Vertiv Stockholder"), and certain other investors, including entities affiliated with our Executive Chairman (collectively, the “RRA Parties”), pursuant to which the RRA Parties are entitled to registration rights in respect of certain shares of Vertiv’s Class A common stock and certain other of our equity securities that are held by the RRA Parties from time to time.
We are working to shrink the carbon footprint of our operations, and we seek to minimize, and, where possible, eliminate hazardous waste through source reduction and recycling. Throughout our global facilities we implement processes, procedures, and policies to track and mitigate environmental impacts.
We are working to shrink the carbon footprint of our operations, and we seek to minimize, and, where possible, eliminate waste through source reduction and recycling. Throughout our global facilities we implement processes, procedures, and policies to track and mitigate environmental impacts.
Our Offerings We design, manufacture and service critical digital infrastructure technology for data centers, communication networks and commercial and industrial environments. Our principal offerings include: Critical infrastructure & solutions We identify delivery of products as performance obligations within the critical infrastructure & solutions offering.
Our Offerings We design, manufacture and service critical digital infrastructure technology primarily for data centers, communication networks and commercial and industrial environments. Our principal offerings include: Critical infrastructure & solutions We identify delivery of products as performance obligations within the critical infrastructure & solutions offering.
We offer our employees competitive pay packages and a broad range of company-paid benefits and recognize that our success is based in large part on the talents and dedication of those we employ.
We believe that we offer our employees competitive pay packages and a broad range of company-paid benefits and recognize that our success is based in large part on the talents and dedication of those we employ.
Upon the written request of any record holder or beneficial owner of Common Stock entitled to vote at the Annual Meeting, we will, without charge, provide a copy of our Annual Report, including the financial statements and the financial statement schedules, for the fiscal year ended December 31, 2022, as filed with the SEC.
Upon the written request of any record holder or beneficial owner of Common Stock entitled to vote at the Annual Meeting, we will, without charge, provide a copy of our Annual Report, including the financial statements and the financial statement schedules, for the fiscal year ended December 31, 2023, as filed with the SEC.
Additionally, this acquisition strengthens our participation with large customers as well as gain new customers, including Hyperscale cloud providers, as we have an expanded portfolio of products and services to offer customers more flexible and scalable power deployment options. We continued to integrate E&I into our business during 2022.
Additionally, this acquisition strengthens our participation with large customers as well as gain new customers, including Hyperscale cloud providers, as we have an expanded portfolio of products and services to offer customers more flexible and scalable power deployment options. We continued to integrate E&I into our business during 2023.
The backlog consists of product and services for which a customer purchase order or purchase commitment has been received and which has not yet been delivered. Orders may be subject to cancellation or rescheduling by the customer. The following table shows estimated backlog by business segment at December 31, 2022 and 2021, respectively.
The backlog consists of product and services for which a customer purchase order or purchase commitment has been received and which has not yet been delivered. Orders may be subject to cancellation or rescheduling by the customer. The following table shows estimated backlog by business segment at December 31, 2023 and 2022, respectively.
There are five key characteristics that differentiates Vertiv’s customer service and support from competitors: • Expertise: For over 50 years, Vertiv’s long-tenured service personnel have been trusted advisors to industry leaders and companies of all sizes. • Reliability & Safety: We provide around the clock, direct access to more than 3,500 field services engineers and over 200 technical support team members. • Response Time: Vertiv boasts an 87% first-time fix rate in site emergency visits, allowing customers to quickly gain assistance wherever and whenever. • Global Coverage : We provide a standardized support approach across the globe with more than 200 service centers, keeping our customer sites connected. • Broad Capabilities : Vertiv offers customers a complete lifecycle of capabilities such as project launch, remote monitoring, on-site project management, energy consumption management and preventive maintenance.
There are five key characteristics that differentiates Vertiv’s customer service and support from competitors: • Expertise: For over 50 years, Vertiv’s long-tenured service personnel have been trusted advisors to industry leaders and companies of all sizes. • Reliability & Safety: We provide around the clock, direct access to more than 3,500 field services engineers and over 200 technical support team members. • Response Time: Vertiv boasts a first-time fix rate of more than 80% during site emergency visits, allowing customers to quickly gain assistance wherever and whenever. • Global Coverage : We provide a standardized support approach across the globe with more than 200 service centers, keeping our customer sites connected. • Broad Capabilities : Vertiv offers customers a complete lifecycle of capabilities such as project launch, remote monitoring, on-site project management, energy consumption management and preventive maintenance.
Examples of companies in this space include Digital Realty and Equinix. • Enterprise: This classification refers to the “Fortune 1000” scale businesses that have their own on-premises data centers. Examples of companies in this space include Goldman Sachs, J.P. Morgan, Walmart and Allianz.
Examples of companies in this space include Digital Realty, Equinix, Compass, and QTS. • Enterprise: This classification refers to the “Fortune 1000” scale businesses that have their own on-premises data centers. Examples of companies in this space include Goldman Sachs, J.P. Morgan, Walmart and Allianz.
On February 7, 2020, through a business combination with GS Acquisition Holdings Corp (“GSAH”), a special purpose acquisition company later renamed Vertiv Holdings Co, Vertiv became a publicly-traded company (the “Business Combination”) with its shares listed on the New York Stock Exchange (NYSE:VRT).
Vertiv became publicly-traded on February 7, 2020, with its shares listed on the New York Stock Exchange (NYSE:VRT), through a business combination with GS Acquisition Holdings Corp (“GSAH”), a special purpose acquisition company later renamed Vertiv Holdings Co (the "Business Combination").
Risk factors—Risks relating to our customers and our industry—We may not realize all of the sales expected from our backlog of orders and contracts.” Strategic Priorities Our businesses are focused on the following strategic priorities: ■ Maintain Customer Focus ◦ Enhance the customer experience through best in-class tools, commercial, technical, delivery, and service execution. ◦ Nurture strong customer relationships. ◦ Create superior customer value enabling demand and margin expansion. ■ Achieve Operational Excellence ◦ Continuous process improvement mindset to achieve speed, efficiency, efficacy, and scalability. ◦ Achieve pervasive and efficient development and deployment of advanced IT tools and automation. ◦ Adopt a rigorous management operating process and cadence. ■ Build a High-Performance Culture ◦ Foster a culture of accountability, collaboration, and speed. ◦ Develop a widespread sense of urgency and reward performance. ◦ Deliver on commitments and execute agreed plans. ■ Foster Innovation ◦ Be a market leader in our technology and service domains, and continue to differentiate through our new products. ◦ Develop and introduce processes with effectiveness and velocity. ◦ Develop system-level strength that leverages our unique product and services portfolio. ■ Reinforce Financial Strength ◦ Achieve long- and short-term margin and profit expansion combined with fixed cost constant culture. ◦ Drive cash and balance sheet strength through rigorous resource allocation and management. ◦ Generate profitable growth and focus on continuous variable cost optimization and develop superior pricing capabilities. 7 Table of contents Our Customers Our customers operate in some of the world's most critical industries.
Risk factors—Risks relating to our customers and our industry—We may not realize all of the sales expected from our backlog of orders and contracts.” Strategic Priorities Our businesses are focused on the following strategic priorities: ■ Maintain Customer Focus ◦ Enhance the customer experience through best in-class tools, commercial, technical, delivery, and service execution. ◦ Nurture strong customer relationships. ◦ Create superior customer value enabling demand and margin expansion. ■ Achieve Operational Excellence ◦ Continuous process improvement mindset to achieve speed, efficiency, efficacy, and scalability. ◦ Achieve pervasive and efficient development and deployment of advanced IT tools and automation. ◦ Adopt a rigorous management operating process and cadence. ■ Build a High-Performance Culture ◦ Foster a culture of accountability, collaboration, and speed. ◦ Develop a widespread sense of urgency and reward performance. ◦ Deliver on commitments and execute agreed plans. ■ Foster Innovation ◦ Be a market leader in our technology and service domains, and continue to differentiate through our new products. ◦ Develop and introduce processes with effectiveness and velocity. ◦ Develop system-level strength that leverages our unique product and services portfolio. ■ Reinforce Financial Strength ◦ Achieve long- and short-term margin and profit expansion combined with fixed cost constant culture. ◦ Drive cash and balance sheet strength through rigorous resource allocation and management. ◦ Generate profitable growth and focus on continuous variable cost optimization and develop superior pricing capabilities.
In addition to providing high quality service to our customers, we follow a diversification strategy to avoid overconcentration or a significant dependence on a particular supplier or region. We continue to take action in 2023 to enhance our supply chain, such as qualifying new suppliers, and advancing our pricing plan.
In addition to providing high quality service to our customers, we follow a diversification strategy to avoid over concentration or a significant dependence on a particular supplier or region. We continue to take action to enhance our supply chain, such as qualifying new suppliers, and advancing our pricing plan.
This Annual Report contains some of our trademarks, service marks and trade names, including, among others, Vertiv, Liebert, NetSure, Geist, Energy Labs, E&I, Powerbar, and Avocent.
This Annual Report contains some of our trademarks, service marks and trade names, including, among others, Vertiv, Liebert, NetSure, Geist, Energy Labs, E&I, Albér, and Avocent.
Governing and managing our business in a responsible manner includes, but is not limited to, encouraging diversity, equity and inclusion ("DE&I"), respecting human rights, developing our employees, implementing data privacy and cybersecurity measures, establishing policies and codes that spell out expectations for our own behavior and that of our suppliers, and working to protect the interests of our company, stockholders, and other stakeholders.
Governing and managing our business in a responsible manner includes, but is not limited to, encouraging inclusion, respecting human rights, developing our employees, implementing data privacy and cybersecurity measures, establishing policies, procedures, and codes of conduct that spell out expectations for our own behavior and that of our suppliers, and working to protect the interests of our company, stockholders, and other stakeholders.
Our manufacturing facilities are supported by regional engineering and configuration centers where, if our customers desire, we can tailor our products to the local market and to a given customer’s specific requirements. We have established a robust supply chain that is complementary to our manufacturing footprint.
Our manufacturing facilities are supported by regional engineering and configuration centers where, if our customers desire, we can tailor our products to the local market and to a given customer’s specific requirements. 9 Table of contents We have established a robust supply chain that is complementary to our manufacturing and operations footprint.
Environmental, Health and Safety Meeting the growing demand for data and critical digital infrastructure while simultaneously mitigating environmental impacts from our operations and products and governing and managing our business in a responsible manner, are at the heart of our approach to environmental, social and governance ("ESG") matters.
Environmental, Health and Safety and Responsible Business Practices Meeting the growing demand for data and critical digital infrastructure while simultaneously mitigating environmental impacts from our operations and products, and governing and managing our business in a responsible manner, are at the heart of our approach to sustainability and responsible business matters.
Our website is www.vertiv.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the Securities and Exchange Commission (the “SEC”).
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the Securities and Exchange Commission (the “SEC”).
Our most prominent brands include Vertiv, Liebert, NetSure, Geist, E&I, Powerbar, and Avocent. We manage our business across three reportable segments based on our main geographic regions—the Americas, Asia Pacific and Europe, Middle East & Africa.
Our most prominent brands include Vertiv, Liebert, NetSure, Geist, Energy Labs, E&I, Albér, and Avocent. We manage our business across three reportable segments based on our main geographic regions—the Americas, Asia Pacific and Europe, Middle East & Africa.
Expanding lead-times caused by continuing global supply chain challenges, combined with continued strong demand have contributed to an increase in customer orders being placed in advance of our ability to fulfill them, which has added $1.6 billion to our backlog since December 31, 2021.
Expanding lead-times caused by continuing global supply chain challenges, combined with continued strong demand have contributed to an increase in customer orders being placed in advance of our ability to fulfill them, which has added $0.8 billion to our backlog since December 31, 2022.
Mitigating environmental impacts encompasses actions taken to minimize energy consumption and greenhouse gas emissions, manage materials and waste in our own operations, and provide customers with innovative products and solutions that help them minimize their own energy and water consumption.
Mitigating environmental impacts encompasses actions taken to minimize resource consumption and greenhouse gas (“GHG”) emissions, manage materials and waste in our own operations, and provide customers with innovative products and solutions that help them minimize their own energy and water use, carbon footprint, and waste.
We aim to provide the tools, training, and other resources needed to achieve our goal of reducing workplace risks and creating an injury-free workplace. We believe that creating a safe work environment is essential to our business.
Safety is of fundamental importance to Vertiv. We aim to provide the tools, training, and other resources needed to achieve our goal of reducing and controlling workplace risks and creating an injury-free workplace. We believe that creating a safe work environment is essential to our business.
There are a host of different sizes and types of data centers, but primarily they can be broken down into the following classifications: • Cloud/Hyperscale: These facilities are massive in scale and are primarily used to support cloud applications. This portion of the industry is growing rapidly.
There are a host of different sizes and types of data centers, but primarily they can be broken down into the following classifications: • Cloud/Hyperscale: These facilities are massive in scale and are primarily used to support cloud applications.
Research and Development We are committed to outpacing our competitors and being first to market with new product developments and improvements. In 2022, Vertiv spent $282.0 on Research and Development (“R&D”). We focus our R&D budget on engineering continuous improvement and new product innovation.
Research and Development We are committed to outpacing our competitors and being first to market with new product developments and improvements. In 2023, Vertiv spent $303.5 on research and development (“R&D”). We focus our R&D budget on engineering continuous improvement and new product innovation.
Total consideration was $1,770.4, net of $10.3 of cash acquired, payable in a mix of cash and stock. See “Note 2 – Acquisition” of our Consolidated Financial Statements. E&I is a leading provider of switchgear, busway and modular power units serving data center and commercial and industrial customers in Europe, Middle East, and America.
Total consideration was $1,770.4, net of $10.3 of cash acquired, payable in a mix of cash and stock. E&I is a leading provider of switchgear, busway and modular power units serving data center and commercial and industrial customers in Europe, Middle East, and America.
We maintain a robust environmental, health and safety compliance program, including policies and 11 Table of contents standards, dedicated staff, and periodic auditing and training.
We maintain a robust environmental, health and safety compliance program, including policies and standards, dedicated staff, and periodic auditing and training.
Simultaneously with the closing of the IPO, GSAH closed the private placement of an aggregate of 10,533,333 warrants, each exercisable to purchase one share of Class A common stock at an exercise price of $11.50 per share (the “Private Placement Warrants” and, together with the Public Warrants, the “Warrants”), initially issued to GS DC Sponsor I LLC, a Delaware limited liability company (the “Sponsor”), at a price of $1.50 per Private Placement Warrant, generating proceeds of $15.8.
Outstanding Warrants Simultaneously with the closing of the IPO of GSAH in June 2018 (prior to the Business Combination in 2020), GSAH closed the private placement of an aggregate of 10,533,333 warrants, each exercisable to purchase one share of Class A common stock at an exercise price of $11.50 per share (the “Private Placement Warrants”), initially issued to GS DC Sponsor I LLC, a Delaware limited liability company (the “Sponsor”), at a price of $1.50 per Private Placement Warrant, generating proceeds of $15.8.
We do not believe that Vertiv’s backlog estimates as of any date are necessarily indicative of our revenues for any future period. Additionally, our current backlog estimates are subject to a number of risks, see “Item 1A.
We do not believe that Vertiv’s backlog estimates as of any date are necessarily indicative of our net sales for any future period. Additionally, our current backlog estimates are subject to a number of risks, as further detailed in “Item 1A.
We primarily serve customers across three main end markets: (1) data centers (including hyperscale/cloud, colocation, enterprise and edge), (2) communication networks and (3) commercial and industrial applications. Data Centers : The primary purpose of a data center is to process, store and distribute data.
Our Customers Our customers operate in some of the world's most critical industries. We primarily serve customers across three main end markets: (1) data centers (including hyperscale/cloud, colocation, and enterprise), (2) communication networks and (3) commercial and industrial applications. Data Centers : The primary purpose of a data center is to process, store and distribute data.
We redeemed and delisted the Public Warrants on January 19, 2021. The Private Placement Warrants are exercisable on a cashless basis, at the holder’s option, and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees.
The Private Placement Warrants are exercisable on a cashless basis, at the holder’s option, and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees.
(Dollars in millions) December 31, 2022 December 31, 2021 Americas $ 3,337.3 $ 1,886.1 Asia Pacific 480.0 484.2 Europe, Middle East & Africa 937.1 820.7 Total Backlog $ 4,754.4 $ 3,191.0 The vast majority of the combined backlog as of December 31, 2022 is considered firm and is expected to be shipped within one year.
(Dollars in millions) December 31, 2023 December 31, 2022 Americas $ 3,365.2 $ 3,337.3 Asia Pacific 616.4 480.0 Europe, Middle East & Africa 1,545.1 937.1 Total Backlog $ 5,526.7 $ 4,754.4 The majority of the combined backlog as of December 31, 2023 is considered firm and is expected to be shipped within one year.
Additionally, logistical issues have significantly delayed the receipt of materials and, in some cases, we cannot procure critical parts at any price, creating production and delivery challenges pressuring the top and bottom line .
Additionally, logistical issues may delay the receipt of materials and, in some cases, we may not be able to procure critical parts at any price, creating production and delivery challenges pressuring the top and bottom line .
Vertiv prioritizes the health and safety of our global workforce and anyone who enters our facilities or interacts with our products. We believe we have effective EHS strategy that is evidenced in our strong safety record, including our total recordable injury rate relative to certain peers. Safety is of fundamental importance to Vertiv.
Vertiv prioritizes the health and safety of our global workforce and anyone who enters our facilities or interacts with our products. We believe we have an effective employee, health and safety strategy, as evidenced by our strong safety record, including our total recordable injury rate of 0.27 and our lost time incident rate of 0.16 relative to certain peers.
We have projects under way at certain current and former manufacturing facilities to investigate and remediate environmental contamination. Compliance with laws regulating contamination and the discharge of materials into the environment or otherwise relating to the protection of the environment has not had a material effect on our capital expenditures, earnings or competitive position.
Compliance with laws regulating contamination and the discharge of materials into the environment or otherwise relating to the protection of the environment has not had a material effect on our capital expenditures, earnings or competitive position.
Raw Materials We obtain raw materials and supplies from a variety of sources and generally from more than one supplier. We have experienced critical part shortages and supply chain constraints in addition to logistical issues which have significantly delayed receipt of materials, as well as increased the costs of certain raw materials.
From time to time, we have experienced critical part shortages and supply chain constraints in addition to logistical issues which have significantly delayed receipt of materials, as well as increased the costs of certain raw materials. We continue to address these challenges associated with our sources, supplies and costs of raw materials.
Through documented procedures, local safety team engagement, and a culture of open communication, our employees are encouraged to recommend safety improvements and report any safety hazards they see.
Through documented procedures, local management engagement, and a culture of open communication, our employees are encouraged to recommend safety improvements and report any safety hazards they see. Intellectual Property Our ability to create, obtain and protect intellectual property is important to the success of our business and our ability to compete.
For the year ended December 31, 2022, Vertiv’s revenue was $5,691.5, of which 48% was transacted in the Americas; 28% was transacted in Asia Pacific; and 24% was transacted in Europe, 6 Table of contents Middle East & Africa.
This compares with net sales for the year ended December 31, 2022 of $5,691.5, of which 48% was transacted in the Americas, 28% was transacted in Asia Pacific, and 24% in Europe, Middle East & Africa. 6 Table of contents Backlog Vertiv’s estimated combined order backlog was $5,526.7 and $4,754.4 as of December 31, 2023 and 2022, respectively.
If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by us and exercisable by such holders on the same basis as a Public Warrant. As of December 31, 2022, there are 10,533,333 Private Placement Warrants outstanding.
If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by us and exercisable by such holders.
Our Core Principles and Behaviors Core Principles Behaviors ■ Safety ■ Own it ■ Integrity ■ Act with urgency ■ Respect ■ Foster a customer-first mindset ■ Teamwork ■ Think big and execute ■ Diversity and inclusion ■ Lead by example ■ Drive continuous improvement ■ Learn and seek out development 10 Table of contents Employee Safety We believe a safe and healthy workplace is essential to flourish as a business.
Our Core Principles and Behaviors Core Principles Core Behaviors ■ Safety ■ Own it ■ Integrity ■ Act with urgency ■ Respect ■ Foster a customer-first mindset ■ Teamwork ■ Think big and execute ■ Diversity and inclusion ■ Lead by example ■ Drive continuous improvement ■ Learn and seek out development Investing in our People Our associates are critical to achieving our business objectives and investing in them is a key component to success.
Our Strategy We are committed to attracting, hiring and developing the best and brightest talent and focus significant resources on supporting and managing our diverse global employee population.
This training, known as VOS Academy, is offered virtually for salaried employees and all hourly employees receive training at our global manufacturing sites Our Strategy We are committed to attracting, hiring and developing the best and brightest talent and focus significant resources on supporting and managing our diverse global employee population.
We have significant manufacturing facilities in the Americas, Asia Pacific and Europe, Middle East & Africa. This well-diversified global network of facilities allows for improved service level cost, and working capital optimization.
This well-diversified global network of facilities allows for improved service level cost, and working capital optimization.
We consider our trademarks to be valuable assets, including well-known marks within the industry such as Vertiv, Geist, Liebert, Energy Labs, NetSure, E&I, Powerbar, and Avocent. In addition, we integrate licensed third party technology and IP into certain aspects of our products.
We create intellectual property (“IP”) in our operations globally, and we actively work to protect and enforce our IP rights. We consider our trademarks to be valuable assets, including well-known marks within the industry such as Vertiv, Geist, Liebert, Energy Labs, NetSure, E&I, Powerbar, Albér, and Avocent.
Driven by passion and innovation, Vertiv believes there is a better way to meet the world’s accelerating demand for data. We collaborate with our customers to envision and build future-ready infrastructures. Our portfolio of hardware, software, analytics and services aim to enable our customers' vital applications to run continuously, perform optimally and scale with business needs.
Driven by passion and innovation, Vertiv believes there is a better way to meet the world’s accelerating demand for data including the impact of emerging technologies such as artificial intelligence. We collaborate with our customers to envision and build future-ready infrastructures.
The Vertiv Stockholder sold shares of our Class A common stock in the following secondary offerings: (i) 26.0 million shares in August 2020; (ii) 18.0 million shares in November 2020; and, (iii) 23.1 million shares in November 2021.
The Vertiv Stockholder sold shares of our Class A common stock in the following secondary offerings: (i) 26.0 million shares in August 2020; (ii) 18.0 million shares in November 2020; (iii) 23.1 million shares in November 2021; and (iv) 20.0 million shares in August 2023. 13 Table of contents Stockholders Agreement On the closing date of the Business Combination, the Company, the Cote Sponsor Member, the Vertiv Stockholder, and certain other members entered into a Stockholders Agreement (the “Stockholders Agreement”).
These applications are growing in their need for intelligent infrastructure and may be regulated or need to satisfy some level of compliance. The growth in this area generally aligns with changes in gross domestic product. We engage these industries and end users through our global network of direct sales professionals, independent sales representatives, channel partners and original equipment manufacturers.
The growth in this area generally aligns with changes in gross domestic product, and can be further driven by increased automation and digitalization in both light and heavy industrial application environments. We engage these industries and end users through our global network of direct sales professionals, independent sales representatives, channel partners and original equipment manufacturers.
We provide the hardware, software and services to facilitate an increasingly interconnected marketplace of digital systems where large amounts of indispensable data need to be transmitted, analyzed, processed and stored.
Our global footprint comprises engineering, manufacturing, operations, sales and service locations in more than 40 countries across the Americas, Asia Pacific and Europe, Middle East & Africa. We provide the hardware, software and services to facilitate an increasingly interconnected marketplace of digital systems where large amounts of indispensable data need to be transmitted, analyzed, processed and stored.
At sites which we own, lease or operate, or have previously owned, leased or operated, or where we have disposed or arranged for the disposal of hazardous materials, we could incur liability for any potential contamination, and could in the future be liable for additional contamination.
We also have a program for complying with the European Union Restriction on the Use of Certain Hazardous Substances and Waste Electrical and Electronic Equipment Directives, the China Restriction of Hazardous Substances law, the European Union Registration, Evaluation, Authorization and Restriction of Chemicals regulation, and similar requirements. 12 Table of contents At sites which we own, lease or operate, or have previously owned, leased or operated, or where we have disposed or arranged for the disposal of hazardous materials, we could incur liability for any potential contamination, and could in the future be liable for additional contamination.
Communication Networks: This space is comprised of wireline, wireless, and broadband companies. These companies create content and are ultimately responsible for distributing voice, video, and data to businesses and consumers. They deliver this data through an intricate network of wireline and wireless mediums.
The growth of the enterprise market, based on data centers and square footage, has generally been flat for the past three years. Communication Networks: This space is comprised of wireline, wireless, and broadband companies. These companies create content and are ultimately responsible for distributing voice, video, and data to businesses and consumers.
We provide consistent service delivery for critical facilities in all regions of the world with service provided by knowledgeable, local specialists. Regular service of critical equipment supports maximum uptime and often reduces total cost of ownership for customers. We provide full support of critical infrastructures when and where our customers need us.
Regular service of critical equipment supports maximum uptime and often reduces total cost of ownership for customers. We provide full support of critical digital infrastructures when and where our customers need us. Vertiv services are used primarily in data centers, communications facilities, government agencies and industrial plants.
These teams work closely with our sales and service network, enabling us to obtain and act upon customer feedback to continuously improve our offerings. 9 Table of contents Facilities, Operations, and Supply Chain Our ability to serve our customers on both a global and local level is a key success factor, and we have built our manufacturing footprint with that principle in mind.
Facilities, Operations, and Supply Chain Our ability to serve our customers on both a global and local level is a key success factor, and we have built our manufacturing and operations footprint with that principle in mind. We have significant manufacturing and operations facilities in the Americas, Asia Pacific and Europe, Middle East & Africa.
Vertiv Operating System The Vertiv Operating System (“VOS”) leverages a proven foundational approach to operational excellence to drive greater efficiency, quality and competitiveness into our operations. VOS promotes teamwork and collaboration across the entire organization and leverages continuous improvement techniques focused on elimination of waste and reduction of process variation.
Vertiv Operating System The Vertiv Operating System (“VOS”) leverages a proven foundational approach to operational excellence and executes it at scale to drive greater efficiency, quality and competitiveness into our operations.
Vertiv services are used in data centers, communications facilities, government agencies and industrial plants. Across the globe, there are over 200 service centers and more than 3,500 service engineers. Competition The majority of our competitors target a specific offering or a specific geographic location.
Across the globe, we operate over 200 service centers and deploy more than 3,500 service engineers. 8 Table of contents Competition The majority of our competitors target a specific offering or a specific geographic location. Competition in our markets is primarily on the basis of reliability, quality, price, service and customer relationships.
Integrated Rack Solutions Performance obligations within integrated rack solutions include the delivery of racks, single phase UPS, rack power distribution, rack thermal systems, configurable integrated solutions, hardware, and software for managing I.T. equipment. 8 Table of contents Services & spares Global services include both pre-sale and faster-sales services, for example, preventative maintenance, project management, acceptance testing, engineering and consulting, performance assessments, remote monitoring, training, spare parts, and critical digital infrastructure software.
Services & spares Global services include both pre-sale and faster-sales services, for example, preventative maintenance, project management, acceptance testing, engineering and consulting, performance assessments, remote monitoring, training, spare parts, and critical digital infrastructure software. We provide consistent service delivery for critical facilities in all regions of the world with service provided by knowledgeable, local specialists.
Approximately 32% of our employees are in our manufacturing operations. Our talent acquisition and retention practices include college and university recruiting programs, job fairs, compensation benchmarking, employee engagement and communication through email, social media, and other communication platforms.
Our talent acquisition and retention practices include college and university recruiting programs, job fairs, compensation benchmarking, employee engagement and communication through email, social media, and other communication platforms. We have a vested interest in attracting, developing, and retaining top talent, and we continue to research, develop, and enhance our programs to do so with an emphasis on early career hiring.
The COVID-19 pandemic has led to supply chain constraints, despite strong market demand, and we have experienced significant material, freight and labor cost increases, which are expected to continue throughout 2023, with critical part shortages driving the need for additional spot buys at increased costs, and increased costs associated with premium freight to meet customer commitments.
We expect our supply chain to continue to normalize in 2024, but we may still experience critical part shortages which may drive the need for additional spot buys at increased costs, and increased costs associated with premium freight to meet customer commitments.
Such products include AC and DC power management, thermal management, low/medium voltage switchgear, busway, and integrated modular solutions.
Such products include AC and DC power management, thermal management, low/medium voltage switchgear, busway, and integrated modular solutions. Integrated Rack Solutions Performance obligations within integrated rack solutions include the delivery of racks, single phase UPS, rack power distribution, rack thermal systems, configurable integrated solutions, hardware, and software for managing I.T. equipment.
Although certain third party proprietary IP rights are important to our success, we do not believe that we are materially dependent on any particular third party IP rights. As of December 31, 2022 Vertiv had approximately 2,700 registered patents and approximately 500 pending, published or allowed patent applications, and approximately 1,500 registered trademarks and approximately 200 pending trademark applications.
In addition, we integrate licensed third party technology and IP into certain aspects of our products. Although certain third party proprietary IP rights are important to our success, we do not believe that we are materially dependent on any particular third party IP rights.
Additionally, some of these companies’ locations act as data centers where the data is delivered, processed and stored. This sector has a generally low single-digit growth profile. Commercial and Industrial: This space is comprised of commercial and industrial environments where our products keep critical systems running. Examples include transportation, manufacturing, and oil and gas.
They deliver this data through an intricate network of wireline and wireless mediums. Additionally, some of these companies’ locations act as data centers where the data is delivered, processed and stored. This sector has a generally low single-digit growth profile and generally aligned with telecom capex investment and new mobile deployment cycles.
We continue to address these challenges associated with our sources, supplies and costs of raw materials. Refer to the "Facilities, Operations, and Supply Chain" discussion above.
Refer to the "Facilities, Operations, and Supply Chain" discussion above.
Our Business Vertiv offers critical infrastructure technologies and rapidly deployable customized solutions to meet the specific business requirements and needs of a diverse group of customers. Our global footprint comprises engineering, manufacturing, sales and service locations in more than 40 countries across the Americas, Asia Pacific and Europe, Middle East & Africa.
As a result of the Business Combination, Vertiv directly owns all of the equity interests of Vertiv Holdings and indirectly owns the equity interests of its subsidiaries . Our Business Vertiv offers critical digital infrastructure technologies and rapidly deployable customized solutions to meet the specific business requirements and needs of a diverse group of customers.
This compares with revenue for the year ended December 31, 2021 of $4,998.1, of which 44% was transacted in the Americas, 32% was transacted in Asia Pacific, and 24% in Europe, Middle East & Africa. Backlog Vertiv’s estimated combined order backlog was $4,754.4 and $3,191.0 as of December 31, 2022 and 2021, respectively.
For the year ended December 31, 2023, Vertiv’s net sales was $6,863.2, of which 56% was transacted in the Americas; 22% was transacted in Asia Pacific; and 22% was transacted in Europe, Middle East & Africa.
Upon receipt of the third installment payment, the Tax Receivable Agreement terminated and we are not required to make any further payments and have no further obligations to the Vertiv Stockholder under the Tax Receivable Agreement. Corporate Information Our principal executive offices are located at 505 N. Cleveland Ave., Westerville, Ohio, 43082, and our telephone number is (614) 888-0246.
Following a sale of Class A common stock on August 8, 2023, the Vertiv Stockholder' holdings of our outstanding Class A common stock dropped to less than 5%. Corporate Information Our principal executive offices are located at 505 N. Cleveland Ave., Westerville, Ohio, 43082, and our telephone number is (614) 888-0246. Our website is www.vertiv.com.
Results of VOS are reflected in enhanced customer satisfaction and greater cost efficiencies. While VOS is concentrated mainly within our manufacturing operations, similar methods are used to improve performance across corporate functions and new product development. Human Capital Resources As of December 31, 2022, we employed approximately 27,000 full-time and part-time employees.
Historically, VOS was concentrated mainly within our manufacturing operations, and similar methods were used to improve performance across corporate functions and new product development.
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GSAH was originally incorporated in Delaware on April 25, 2016 prior to the merger of its subsidiary with Vertiv Holdings.
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Our portfolio of hardware, software, analytics and services aim to enable our customers' vital applications to run continuously, perform optimally and scale with business needs.
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As a result of the consummation of the Business Combination, (a) Vertiv directly owns all of the equity interests of Vertiv Holdings and indirectly owns the equity interests of its subsidiaries and (b) VPE Holdings LLC, a Delaware limited liability company (the “Vertiv Stockholder”), the sole equity owner of Vertiv Holdings prior to the Business Combinatio n, hold s 37,955,215 shares of our Class A common stock as of February 17, 2023 .
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This portion of the industry is growing rapidly with drivers such as adoption of cloud based data services and artificial 7 Table of contents intelligence workloads.
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The growth of the enterprise market, based on data centers and square footage, has generally been flat for the past three years. • Edge: These types of data centers are at an early stage of their development and will likely be utilized by companies in all of the aforementioned categories in the future.
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Commercial and Industrial: This space is comprised of commercial and industrial environments where our products keep critical systems running. Examples include transportation, manufacturing, and oil and gas. These applications are growing in their need for intelligent infrastructure and may be regulated or need to satisfy some level of compliance.
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These locations are decentralized by nature and located closer to where the data is being demanded (i.e., towards the edge of the network). This market is currently small, but the opportunities for growth are expected to increase as the proliferation of connected devices and data storage needs continues to accelerate in the future.
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Across our three geographic segments, we encounter two principal types of competitors: niche players (e.g., Delta Electronics, Inc., Stulz GmbH, Johnson Controls International PLC, and Socomec Holding SA) and large-scale global competitors (e.g., Schneider Electric, S.E., Eaton Corporation Plc, Legrand SA, and Huawei Investment & Holding Co., Ltd.) We believe we differentiate ourselves through: (i) application expertise and customer collaboration to envision and build future-ready infrastructure; (ii) most complete portfolio and continual innovation; (iii) proven superior reliability and quality; (iv) truly global presence and ability to scale for our customers' operating flexibility and resilience; and (v) our industry-leading global service network to safeguard uptime and support.
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Competition in our markets is primarily on the basis of reliability, quality, price, service and customer relationships. Across our three geographic segments, we encounter two principal types of competitors: niche players and global competitors.
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These teams work closely with our sales and service network, enabling us to obtain and act upon customer feedback to continuously improve our offerings.
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We believe we differentiate ourselves through: (i) our ability to service customers in each phase of the product lifecycle; (ii) our large customer service network which allows us to address the local and regional needs of our customer base; (iii) our ability to apply our understanding of trends, technologies and the implementation of our offerings for our customers; (iv) our integration with third-party software which allows us to customize solutions according to a particular customer’s needs; and (v) our ability to meet our customers' needs better than competitors on the market.
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We have experienced some supply chain constraints over the past several years, and despite strong market demand, we have experienced significant material, freight and labor cost increases.
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Intellectual Property Our ability to create, obtain and protect intellectual property is important to the success of our business and our ability to compete. We create intellectual property (“IP”) in our operations globally, and we actively work to protect and enforce our IP rights.
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We believe VOS provides a clear operating model and a systemic way to run the business across the entire organization through rigorous operating cadences, leverages lean or continuous improvement techniques focused on waste & cycle-time reduction, streamlined processes, and promotes the dissemination of best practices. Results of VOS are reflected in enhanced customer satisfaction and greater cost efficiencies.
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We also have a program for complying with the European Union Restriction on the Use of Certain Hazardous Substances and Waste Electrical and Electronic Equipment Directives, the China Restriction of Hazardous Substances law, the European Union Registration, Evaluation, Authorization and Restriction of Chemicals regulation, and similar requirements.
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We intend to further integrate VOS, end-to-end, across the organization to pursue efficiencies and process optimizations in areas such as service & sales, new product development, and cross-functional processes including opportunity to cash, procure to pay, and sales, inventory, and operational planning. Human Capital Resources As of December 31, 2023, we employed approximately 27,000 full-time and part-time employees.
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Business Combination GSAH was incorporated on April 25, 2016 as a Delaware corporation under the name “GS Acquisition Holdings Corp” and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
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Approximately 31% of our employees are in our manufacturing operations. Our Culture Our high-performance culture creates an environment where employees are empowered to collaborate, learn, and teach others through their experiences.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOperations in emerging markets can also present risks that are not encountered in countries with well-established economic and political systems, including: • changes or ongoing instability in a country’s or region’s economic or political conditions, including inflation, recession, interest rate fluctuations and actual or anticipated military or political conflicts, which could make it difficult for us to anticipate future business conditions, cause delays in the placement of orders, complicate our dealings with governments regarding permits and other regulatory matters and make our customers less willing to make cross-border investments; • unpredictable or more frequent foreign currency exchange rate fluctuations; • inadequate infrastructure, including lack of adequate power and water supplies, transportation, raw materials and parts; • foreign state takeovers of our facilities, trade protectionism, state-initiated industry consolidation or other similar government actions or control; • changes in and compliance with international, national or local regulatory and legal environments, including laws and policies affecting trade, economic sanctions, foreign investment, labor relations, foreign anti-bribery and anti-corruption; • the difficulty of enforcing agreements and collecting receivables through certain foreign legal systems; • longer collection cycles and financial instability among customers; • trade regulations, tariffs, boycotts and embargoes, including policies adopted by countries that may favor domestic companies and technologies over foreign competitors, which could impair our ability to obtain materials necessary to fulfill contracts, pursue business or establish operations in such countries; • difficulty of obtaining adequate financing and/or insurance coverage; • fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure; • political or social instability that may hinder our ability to send personnel abroad or cause us to move our operations to facilities in countries with higher costs and less efficiencies; • difficulties associated with repatriating earnings generated or held abroad in a tax-efficient manner, changes in tax laws, or tax inefficiencies; and • exposure to wage, price and capital controls, local labor conditions and regulations, including local labor disruptions and rising labor costs which we may be unable to recover in our pricing to customers.
Biggest changeOperations in emerging markets can also present risks that are not encountered in countries with well-established economic and political systems, including: • changes or instability in a region’s economic or political conditions, including actual or anticipated military or political conflicts, could make it difficult for us to anticipate future business conditions, cause operational delays, complicate permitting and other regulatory matters and make our customers less willing to make cross-border investments; • unpredictable or more frequent foreign currency exchange rate fluctuations; • inadequate infrastructure, including lack of adequate power and water supplies, transportation, raw materials and parts; • foreign state takeovers of our facilities, trade protectionism, state-initiated industry consolidation or other similar government actions or control; • changes in and compliance with international, national or local regulatory and legal environments, including laws and policies affecting trade, economic sanctions, foreign investment, labor relations, foreign anti-bribery and anti-corruption; • the difficulty of enforcing agreements and collecting receivables through certain foreign legal systems; • longer collection cycles and financial instability among customers; • trade regulations, tariffs, boycotts and embargoes, which could impair our ability to obtain materials necessary to fulfill contracts, pursue business or establish operations in such countries; • difficulty of obtaining adequate financing and/or insurance coverage; • fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure; • political or social instability that may hinder our ability to send personnel abroad or cause us to move our operations to facilities in countries with higher costs and less efficiencies; • difficulties associated with repatriating earnings generated or held abroad in a tax-efficient manner, changes in tax laws, or tax inefficiencies; and • exposure to wage, price and capital controls, local labor conditions and regulations, including local labor disruptions and rising labor costs which we may be unable to recover in our pricing to customers. 21 Table of contents Consequently, our exposure to these conditions which may exist in or otherwise impact the emerging markets that we enter may have an adverse effect on our business, results of operations and financial condition.
Failure to obtain performance and other guarantees from financial institutions, may prevent us from bidding on or obtaining certain contracts, or cause our costs with respect to such contracts to be higher. In accordance with industry practice, for project opportunities we are required to provide guarantees, including bid-bonds, advance payment and performance guarantees.
Failure to obtain performance and other guarantees from financial institutions, may prevent us from bidding on or obtaining certain contracts, or cause our costs with respect to such contracts to be higher. In accordance with industry practice, for certain project opportunities we are required to provide guarantees, including bid-bonds, advance payment and performance guarantees.
In addition, the lenders under the Senior Secured Credit Facilities, the noteholders of the Notes or any future debtholder, could proceed against the collateral securing that indebtedness. This could have serious consequences to our financial position, results of operations and/or cash flows and could cause us to become bankrupt or insolvent.
In addition, the lenders under the Senior Secured Credit Facilities, the noteholders of the Notes or any future secured debtholder, could proceed against the collateral securing that indebtedness. This could have serious consequences to our financial position, results of operations and/or cash flows and could cause us to become bankrupt or insolvent.
The change in fair value of our Warrants is primarily the result of changes in stock price and Warrants outstanding at each reporting period. The Change in Fair Value of Warrant Liabilities represents the mark-to-market fair value adjustments to the outstanding Warrants issued in connection with GSAH's initial public offering.
The change in fair value of our Warrants is primarily the result of changes in our stock price and Warrants outstanding at each reporting period. The Change in Fair Value of Warrant Liabilities represents the mark-to-market fair value adjustments to the outstanding Warrants issued in connection with GSAH's initial public offering.
Under the current administration, the Department of Justice recently stated its intent to bolster its enforcement of and responses to environmental law violations by corporations, including an increased emphasis on pursuing criminal prosecutions for environmental violations. Similarly, in March 2021, the SEC formed the Climate and ESG Task Force, which monitors climate-related and other ESG disclosures in public company filings.
Under the current administration, the Department of Justice stated its intent to bolster its enforcement of and responses to environmental law violations by corporations, including an increased emphasis on pursuing criminal prosecutions for environmental violations. Similarly, in March 2021, the SEC formed the Climate and ESG Task Force, which monitors climate-related and other ESG disclosures in public company filings.
In that case, the applicable borrowers may be unable to borrow under the Senior Secured Credit Facilities, or any future debt, may not be able to repay the amounts due under the Senior Secured Credit Facilities, or any future debt, may not be able to make interest payments on the Notes and may not be able make cash available to us, by dividend, debt repayment or otherwise, to enable us to make payments on any future debt, meet other corporate needs or pay dividends.
In that case, the applicable borrowers may be unable to borrow under the Senior Secured Credit Facilities, the Notes, or any future debt, may not be able to repay the amounts due under the Senior Secured Credit Facilities, the Notes, or any future debt, may not be able to make interest payments on the Senior Secured Credit Facilities of the Notes and may not be able make cash available to us, by dividend, debt repayment or otherwise, to enable us to make payments on any future debt, meet other corporate needs or pay dividends.
The vast majority of our combined backlog is considered firm and expected to be delivered within one year. Our customers have the right in some circumstances, usually with penalties or termination consequences, to reduce or defer firm orders in backlog.
The majority of our combined backlog is considered firm and expected to be delivered within one year. Our customers have the right in some circumstances, usually with penalties or termination consequences, to reduce or defer firm orders in backlog.
We also have the ability to draw upon the uncommitted accordion provided under the Term Loan Facility (subject to the receipt of commitments and satisfaction of certain other conditions), which, as of the date of closing of the Term Loan Facility, permitted incremental term loans thereunder or certain equivalent debt outside of the Term Loan Facility documentation of up to (i) the greater of $325.0 and 60% of “Consolidated EBITDA” (as defined in the Term Loan Facility), plus (ii) the sum of all voluntary prepayments, repurchases and redemptions of the Term Loan Facility and certain permitted indebtedness that is secured on a pari passu basis with the Term Loan Facility, in each case, to the extent not financed with the incurrence of certain additional long-term indebtedness, plus (iii) an unlimited amount so long as, on a pro forma basis (x) with respect to indebtedness secured on a pari passu basis with the Term Loan Facility, the “consolidated first lien net leverage ratio” (as defined in the Term Loan Facility) of Vertiv Group (as defined herein) and its restricted subsidiaries would not exceed 3.75:1.00 and (y) with respect to indebtedness incurred outside of the Term Loan Facility documentation 27 Table of contents and secured on a junior basis with the Term Loan Facility or unsecured, the “ consolidated total net leverage ratio” (as defined in the Term Loan Facility) of Vertiv Group) (as defined herein) and its restricted subsidiaries would not exceed, subject to certain exceptions, 5.25:1.00.
We also have the ability to draw upon the uncommitted accordion provided under the Term Loan Facility (subject to the receipt of commitments and satisfaction of certain other conditions), which, as of the date of closing of the Term Loan Facility, permitted incremental term loans thereunder or certain equivalent debt outside of the Term Loan Facility documentation of up to (i) the greater of $325.0 and 60% of “Consolidated EBITDA” (as defined in the Term Loan Facility), plus (ii) the sum 27 Table of contents of all voluntary prepayments, repurchases and redemptions of the Term Loan Facility and certain permitted indebtedness that is secured on a pari passu basis with the Term Loan Facility, in each case, to the extent not financed with the incurrence of certain additional long-term indebtedness, plus (iii) an unlimited amount so long as, on a pro forma basis (x) with respect to indebtedness secured on a pari passu basis with the Term Loan Facility, the “Consolidated First Lien Net Leverage Ratio” (as defined in the Term Loan Facility) of Vertiv Group (as defined herein) and its restricted subsidiaries would not exceed 3.75:1.00 and (y) with respect to indebtedness incurred outside of the Term Loan Facility documentation and secured on a junior basis with the Term Loan Facility or unsecured, the “C onsolidated Total Net Leverage Ratio” (as defined in the Term Loan Facility) of Vertiv Group (as defined herein) and its restricted subsidiaries would not exceed, subject to certain exceptions, 5.25:1.00.
With any acquisition, we may encounter unexpected integration-related costs, fail to realize all the benefits anticipated or be subject to other factors that adversely affect preliminary estimates.
With any acquisition or divestiture, we may encounter unexpected integration or divestiture-related costs, fail to realize all the benefits anticipated or be subject to other factors that adversely affect preliminary estimates.
The occurrence of any of these events, individually or in combination, could have a material adverse effect on the combined business’s financial condition and operating results. Additionally, achieving benefits of any acquisition may require certain related one-time costs, charges and expenses, which may be material and have not yet been quantified.
The occurrence of any of these events, individually or in combination, could have a material adverse effect on the combined or remaining business’s financial condition and operating results. Additionally, achieving benefits of any acquisition or divestiture may require certain related one-time costs, charges and expenses, which may be material and have not yet been quantified.
Problems, disruptions, delays or other issues in the design and implementation of these systems or enhancements have in the past and could in the future adversely impact our forecasting and planning abilities, and our ability to process customer orders, ship products, provide service and support to our customers, bill and collect in a timely manner from our customers, fulfill contractual obligations, accurately record and transfer information, recognize revenue, file securities, governance and compliance reports in a timely manner or otherwise run our business.
Problems, disruptions, delays or other issues in the design and implementation of these systems or enhancements have in the past and could in the future adversely impact our forecasting and planning abilities, and our ability to process customer orders, ship products, provide service and support to our customers, bill and collect in a timely manner from our customers, fulfill contractual obligations, accurately record 19 Table of contents and transfer information, recognize revenue, file securities, governance and compliance reports in a timely manner or otherwise run our business.
For example, the former U.S. administration called for substantial changes to U.S. foreign trade policy with respect to China and other countries, including the possibility of imposing greater restrictions on international trade and significant increases in tariffs on goods imported into the U.S.
For example, a former U.S. administration previously called for substantial changes to U.S. foreign trade policy with respect to China and other countries, including the possibility of imposing greater restrictions on international trade and significant increases in tariffs on goods imported into the U.S.
Businesses including ours are facing increasing scrutiny in ESG-related areas, including renewable resources, environmental stewardship, supply chain management, climate change, safety, diversity and inclusion, workplace conduct, human rights, philanthropy and support for local communities.
Businesses including ours are facing increasing scrutiny in ESG-related areas, including renewable resources, environmental stewardship, supply chain management, climate change, safety, diversity, equity and inclusion (DEI), workplace conduct, human rights, philanthropy and support for local communities.
Failure to 24 Table of contents obtain or maintain trade secrets, protection of know-how and other confidential information could adversely impact our business. We also rely on licensing certain intellectual property rights from third parties, which requires that we monitor and manage our use of third-party and open-source software components to comply with applicable license terms.
Failure to obtain or maintain trade secrets, protection of know-how and other confidential information could adversely impact our business. We also rely on licensing certain intellectual property rights from third parties, which requires that we monitor and manage our use of third-party and open-source software components to comply with applicable license terms.
This could impede our sales and disrupt or prevent manufacturing, distribution or other critical functions, and the financial costs we could incur to eliminate or alleviate these security risks could be significant and may be difficult to anticipate or measure.
This could impede our sales, disrupt or prevent manufacturing, distribution or other critical functions or harm our customers, and the financial costs we could incur to eliminate or alleviate these security risks could be significant and may be difficult to anticipate or measure.
In addition, even if the operations of the two businesses are integrated successfully, the full benefits of the acquisition may not be realized, including the synergies, cost savings or sales or growth opportunities that we expect.
In addition, even if the operations of the two businesses are integrated or divested successfully, the full benefits of the acquisition or divestiture may not be realized, including the synergies, cost savings or sales or growth opportunities that we expect.
Nevertheless, such a violation could still occur, disrupting our business through fines, penalties, diversion of internal resources, negative publicity and possibly severe criminal or civil sanctions. 23 Table of contents We are subject to governmental export and import controls and sanction programs that could subject us to liability or impair our ability to compete in international markets.
Nevertheless, such a violation could still occur, disrupting our business through fines, penalties, diversion of internal resources, negative publicity and possibly severe criminal or civil sanctions. We are subject to governmental export and import controls and sanction programs that could subject us to liability or impair our ability to compete in international markets.
Our ability to realize the expected synergies and benefits of the Acquisition include, among other things, our ability to complete the timely integration of operations and systems, organizations, standards, controls, procedures, policies and technologies, as well as the harmonization of differences in the business cultures of us and E&I, our ability to minimize the diversion of management attention from ongoing business concerns during the integration process, our ability to retain the service of key management and other key personnel, our ability to preserve customer, supplier and other important relationships and resolve potential conflicts that may arise, the risk that certain customers and suppliers will opt to discontinue business with the combined business or exercise their right to terminate their agreements as a result of the Acquisition pursuant to change of control provisions in their agreements or otherwise, the risk that E&I may have liabilities that we failed to or were unable to discover or were unable to quantify in the course of performing due diligence and we may not be indemnified for any of these liabilities, difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the combination; and difficulties in managing the expanded operations of a significantly larger and more complex combined business.
Our ability to realize the expected synergies and benefits of the Acquisition include, among other things, our ability to complete the timely integration of operations and systems, organizations, standards, controls, procedures, policies and technologies, as well as the harmonization of differences in the business cultures of us and E&I, our ability to minimize the diversion of management attention from ongoing business concerns during the integration process, our ability to retain the service of key management and other key personnel, our ability to maintain customer, supplier and other important relationships and resolve potential conflicts that may arise, the risk that certain customers and suppliers will opt to discontinue business with the combined business or exercise their right to terminate their agreements, the risk that E&I may have liabilities that we failed to or were unable to discover or were unable to quantify in the course of performing due diligence and we may not be indemnified for any of these liabilities, difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the combination; and difficulties in managing the expanded operations of a significantly larger and more complex combined business.
Any such attack or breach could compromise such information systems, resulting in fraud, ransom attack or theft of proprietary or sensitive information which could be accessed, publicly disclosed, misused, stolen or lost.
Any such attack or breach could compromise such information systems, resulting in fraud, ransom attack or theft of our, or our customers', proprietary or sensitive information which could be accessed, publicly disclosed, misused, stolen or lost.
Additionally, the benefits of these new systems may not be realized until they are fully implemented and testing has been completed. 19 Table of contents We may not realize the expected benefits from any rationalization, restructuring, and improvement efforts that we have taken or may take in the future.
Additionally, the benefits of these new systems may not be realized until they are fully implemented and testing has been completed. We may not realize the expected benefits from any rationalization, restructuring, and improvement efforts that we have taken or may take in the future.
The invasion by Russia and resulting sanctions have had a broad range of adverse impacts on global business and financial markets, some of which have had and may continue to have adverse impacts on our business. These include increased inflation, significant market disruptions and increased volatility in commodity prices.
The invasion of Ukraine by Russia in February 2022 and resulting sanctions have had a broad range of adverse impacts on global business and financial markets, some of which have had and may continue to have adverse impacts on our business. These include increased inflation, significant market disruptions and increased volatility in commodity prices.
The existence of many patents in our fields, the secrecy of some pending patent applications, and the rapid rate of issuance of new patents makes it economically impractical to make conclusive advance determinations of whether a product or any of its components infringes the patent rights of others.
The existence of many patents in our fields, the secrecy of some pending patent applications, and the rapid rate of issuance of 24 Table of contents new patents makes it economically impractical to make conclusive advance determinations of whether a product or any of its components infringes the patent rights of others.
Our legal compliance and ethics programs and policies, including our code of business conduct, existing policies on anti-bribery, export controls, environmental and other legal compliance, and periodic training on these matters, mandate compliance with anti-corruption laws and are designed to reduce the likelihood of a compliance violation.
Our legal compliance and ethics programs and policies, including our code of business conduct, existing policies on anti-bribery, export controls, environmental and other legal compliance, and periodic training on these matters, mandate compliance with anti-corruption laws and are designed to reduce the likelihood of a compliance 23 Table of contents violation.
Additionally, if our customers, suppliers or financial institutions are unable to access the capital markets to meet their commitments to us, our business could be adversely impacted. 28 Table of contents Risks Related to the Ownership of our Securities The Vertiv Stockholder has significant influence over us.
Additionally, if our customers, suppliers or financial institutions are unable to access the capital markets to meet their commitments to us, our business could be adversely impacted. Risks Related to the Ownership of our Securities The Vertiv Stockholder has significant influence over us.
Further, changes in tax laws and rates or other regulatory actions may significantly impact the positions taken with regard to tax contingencies and we may be subject to audit and review by tax authorities, which may result in future taxes, interest and penalties.
Further, changes in tax laws and rates or other regulatory actions may significantly impact the positions taken with regard to tax contingencies and we may be subject to audit and review by tax authorities, which may result in future taxes, interest and penalties. We are regularly subject to audits by tax authorities.
Whether we realize the anticipated benefits from such activities depends, in part, upon the successful integration between the 21 Table of contents businesses involved, the performance and development of the underlying products, capabilities or technologies, our correct assessment of assumed liabilities and the management of the operations.
Whether we realize the anticipated benefits from such activities depends, in part, upon the successful integration between the businesses involved, the performance and development of the underlying products, capabilities or technologies, our correct assessment of assumed liabilities and the management of the operations.
At sites which we own, lease or operate, or have previously owned, leased or operated, or where we have disposed or arranged for the disposal of hazardous materials, we may have current liability exposure for contamination, and could in the future be liable for additional contamination.
At sites which we own, lease or operate, or have 25 Table of contents previously owned, leased or operated, or where we have disposed or arranged for the disposal of hazardous materials, we may have current liability exposure for contamination, and could in the future be liable for additional contamination.
We may also be subject to labor shortages, oversupply, or fixed contractual terms relating to the contingent workforce, and our ability to manage the size of, and costs for, such contingent workforce may be further constrained by local laws or future changes to such laws.
We may also be subject to labor shortages, oversupply, or fixed contractual terms relating to the contingent workforce, and our ability to manage the size of, and costs for, such contingent workforce may be further constrained by local laws or future changes to such laws. • Single-source suppliers.
Although the duration and extent of the ongoing military conflict is highly unpredictable, and the magnitude of the potential economic impact is currently unknown, Russian military actions and resulting sanctions could have a negative effect on 22 Table of contents our financial condition and operating results.
Although the duration and extent of the ongoing military conflict is highly unpredictable, and the magnitude of the potential economic impact is currently unknown, Russian military actions and resulting sanctions could have a negative effect on our financial condition and operating results.
Any decline in the ratings of our corporate credit or any indications from the rating agencies that their ratings on our corporate credit are under surveillance or review with possible negative implications could adversely impact our ability to access capital.
Any decline in the ratings of our corporate credit or any indications from the rating agencies that their ratings on our 28 Table of contents corporate credit are under surveillance or review with possible negative implications could adversely impact our ability to access capital.
If we cannot obtain such guarantees on commercially reasonable terms or at all, we could be prevented from bidding on or obtaining such large project contracts, or our costs for such contracts could be higher and, in either case, could have an adverse effect on our business, results of operations and financial condition. 17 Table of contents Risks Related to Our Business Operations We are subject to changes in costs of production due to factors beyond our control, the impacts of which may be exacerbated if we fail to properly manage our supply chain and inventory.
If we cannot obtain such guarantees on commercially reasonable terms or at all, we could be prevented from bidding on or obtaining such large project contracts, or our costs for such contracts could be higher and, in either case, could have an adverse effect on our business, results of operations and financial condition. 17 Table of contents Risks Related to Our Business Operations We are subject to various changes in costs of production, including some that are beyond our control, the impacts of which may be exacerbated if we fail to properly manage our supply chain and inventory.
We rely on our information systems and the information systems of a variety of third parties for processing customer orders, shipping products, billing our customers, tracking inventory, supporting finance and accounting functions, financial statement preparation, payroll services, benefit administration and other general aspects of our business.
We rely on our information systems and those of third parties for processing customer orders, shipping products, billing our customers, tracking inventory, supporting finance and accounting functions, financial statement preparation, payroll services, benefit administration and other general aspects of our business.
Defects could expose us to product warranty claims, including substantial expense for the recall and repair or replacement of a product or component, and product liability claims, including liability for personal injury or property damage.
Defects could expose us to product warranty claims, including substantial expense for the recall and repair or replacement of a product or component, and product liability claims, including liability for personal injury or property 20 Table of contents damage.
Large companies, such as communication network and cloud/hyperscale and colocation data center providers, comprise a material portion of our customer base and generally have greater purchasing power than smaller entities. Accordingly, these customers often require more favorable terms and conditions in contracts from suppliers including us.
Large companies, such as communication network and cloud/hyperscale and colocation data center providers, comprise a material portion of our customer base and generally have greater purchasing power than smaller entities. Accordingly, these customers often require more favorable terms and conditions in their contracts with us.
We believe that our future success will depend in part upon our ability to anticipate technology shifts and to enhance and develop new products and services that meet or anticipate such technology changes. Any such developments will require continued investment in engineering, capital equipment, marketing, customer service and technical support.
We believe that our future success will depend in part upon our ability to anticipate technology shifts, such as the growth in artificial intelligence, and to enhance and develop new products and services that meet or anticipate such technology changes. Any such developments will require continued investment in engineering, capital equipment, marketing, customer service and technical support.
For example, we will need to anticipate potential market shifts to efficient products, alternative power architectures, cooling technologies and energy storage that could diminish the demand for our existing offerings or affect our margins.
For example, we will need to anticipate potential market shifts to more efficient products, alternative power architectures, cooling technologies (such as liquid cooling) and energy storage that could diminish the demand for our existing offerings or affect our margins.
Legal and Regulatory Risks Future legislation and regulation, both in the U.S. and abroad, governing Internet-related services, other related communications services and information technologies could disrupt our customers’ markets resulting in declines in sales volume and prices of our products and otherwise have an adverse effect on our business operations.
Legal and Regulatory Risks Future legislation and regulation governing Internet-related services, other related communications services and information technologies could disrupt our customers’ markets resulting in declines in sales volume and prices of our products and otherwise have an adverse effect on our business operations.
As of December 31, 2022, we had approximately $2,139.8 of senior secured indebtedness outstanding under the Term Loan Facility, $850.0 of Senior Secured Notes due 2028 (the “Notes”) outstanding and $317.4 of undrawn commitments (which undrawn commitments are available subject to customary borrowing base and other conditions), and subject to separate sublimits for letters of credit, swingline borrowings and borrowings made to certain non-U.S. subsidiaries) under the ABL Revolving Credit Facility (as defined herein) (net of letters of credit outstanding in the aggregate principal amount of $17.1, and taking into account the borrowing base limitations set forth in the ABL Revolving Credit Facility), which, if drawn would constitute senior secured indebtedness.
As of December 31, 2023, we had approximately $2,118.1 of senior secured indebtedness outstanding under the Term Loan Facility, $850.0 of Senior Secured Notes due 2028 (the “Notes”) outstanding and $554.0 of undrawn commitments (which undrawn commitments are available subject to customary borrowing base and other conditions), and subject to separate sublimits for letters of credit, swingline borrowings and borrowings made to certain non-U.S. subsidiaries) under the ABL Revolving Credit Facility (as defined herein) (net of letters of credit outstanding in the aggregate principal amount of $16.0, and taking into account the borrowing base limitations set forth in the ABL Revolving Credit Facility), which, if drawn would constitute senior secured indebtedness.
The tariffs implemented on our products (or on materials, parts or components we use to manufacture our products) by the former U.S. administration increased the cost of our products manufactured in the U.S. and imported into the U.S.
Tariffs implemented on our products (or on materials, parts or components we use to manufacture our products) have in the past increased the cost of our products manufactured in the U.S. and imported into the U.S.
Risks Related to Our Financial Position, Investments and Indebtedness Our results of operations may be adversely affected if we fail to realize the full value of our goodwill and intangible assets. As of December 31, 2022, we had total goodwill and net intangible assets of $3,100.8 which constituted approximately 44% of our total assets in the aggregate.
Risks Related to Our Financial Position, Investments and Indebtedness Our results of operations may be adversely affected if we fail to realize the full value of our goodwill and intangible assets. As of December 31, 2023, we had total goodwill and net intangible assets of $3,003.2 which constituted approximately 38% of our total assets in the aggregate.
Our backlog consists of the value of product and service orders for which we have received a customer purchase order or purchase commitment and which have not yet been delivered. As of December 31, 2022 and 2021, Vertiv’s estimated combined order backlog was $4,754.4 and $3,191.0, respectively.
Our backlog consists of the value of product and service orders for which we have received a customer purchase order or purchase commitment and which have not yet been delivered. As of December 31, 2023 and 2022, Vertiv’s estimated combined order backlog was $5,526.7 and $4,754.4, respectively.
Our information systems or those of our third-party providers, including sensitive data stored through cloud-based services that may be hosted by third parties and in data center infrastructure maintained by third parties, may be vulnerable to attack or breach.
These information systems, including sensitive data stored through cloud-based services that may be hosted by third parties and in data center infrastructure maintained by third parties, may be vulnerable to attack or breach.
These risks include but are not limited to: • unanticipated technical problems with equipment, requiring us to incur added expenses to remedy such problems; • changes in costs or shortages of components, materials, labor or construction equipment; • recognition of revenues over the term of the contract; • project modifications and changes to the scope of work resulting in unanticipated costs; • delays caused by local weather or other conditions beyond our control; • changes in regulations, permits or government policy; • the failure of suppliers, subcontractors or consortium partners to perform; and • penalties, if we cannot complete all or portions of the project within contracted time limits and performance levels. 16 Table of contents Our failure to mitigate these risks may result in excess costs and penalties and may have an adverse effect on our results of operations and financial condition.
These fulfillment risks include but are not limited to: • unanticipated technical problems with equipment, requiring us to incur added expenses to remedy such problems; • changes in costs or shortages of components, materials, labor or construction equipment; • recognition of revenues over the term of the contract; • project modifications and changes to the scope of work resulting in unanticipated costs; • delays caused by local weather or other conditions beyond our control; • changes in regulations, permits or government policy; • the failure of suppliers, subcontractors or consortium partners to perform; and • penalties, if we cannot complete all or portions of the project within contracted time limits and performance levels.
We expect to incur significant, non-recurring costs in connection with consummating acquisitions, combining the operations of target companies and achieving desired synergies. These fees and costs may be substantial.
We expect to incur significant, non-recurring costs in connection with consummating acquisitions or divestitures, combining the operations of target companies or separating the operations of divested businesses, and achieving desired synergies and cost savings. These fees and costs may be substantial.
Macroeconomic weakness and uncertainty in global, regional or local areas may result in decreased orders, revenue, gross margin and earnings. Our business has been impacted from time to time in the past by macroeconomic weakness in the U.S. and various regions outside of the U.S.
Worldwide economic conditions generally impact demand for our product offerings. Macroeconomic weakness and uncertainty in global, regional or local areas may result in decreased orders, revenue, gross margin and earnings. Our business has been impacted from time to time in the past by macroeconomic weakness in the U.S. and various regions outside of the U.S.
Despite our levels of indebtedness, we have the ability to incur more indebtedness. Incurring additional debt could further intensify the risks described above.
Despite our current levels of indebtedness, we have the ability to incur more indebtedness, which could further intensify the risks described above.
Replacing a single-source supplier could delay production of some products because replacement suppliers, if available, may be subject to capacity constraints or other output limitations. Any of these risks could have an adverse effect on our results of operations and financial condition.
We obtain certain materials or components from single-source suppliers due to technology, availability, price, quality or other considerations. Replacing a single-source supplier could delay production of some products because replacement suppliers, if available, may be subject to capacity constraints or other output limitations. Any of these risks could have an adverse effect on our results of operations and financial condition.
We also must communicate and monitor company-wide standards and directives across our global network. Our failure to successfully manage our geographically diverse operations and our contractual and regulatory obligations could impair our ability to react quickly to changing business and market conditions and to enforce compliance with company-wide standards and procedures.
Our failure to successfully manage our geographically diverse operations and our contractual and regulatory obligations could impair our ability to react quickly to changing business and market conditions and to enforce compliance with company-wide standards and procedures.
Long-term, fixed-price contracts (including but not limited to turnkey projects) may have a duration greater than twelve months, and may involve substantial risks, which may result in excess costs and penalties.
Our failure to mitigate certain risks associated with fulfillment of such contracts may result in excess costs and penalties. Long-term, fixed-price contracts (including but not limited to turnkey projects) may have a duration greater than twelve months that involve substantial risks, which may result in excess costs and penalties.
In some locations, we rely on third-party suppliers for the provision of contingent workers, and our failure to manage such workers effectively could adversely impact our results of operations. We may in the future be exposed to various legal claims relating to the status of contingent workers.
In some locations, we rely on third-party suppliers for the provision of contingent workers, and our failure to manage such workers effectively could adversely impact our results of operations.
In addition, for U.S. dollar-denominated sales, an increase in the value of the U.S. dollar would increase the real cost to customers of our products in markets outside the U.S., which could result in price concessions in certain markets, impact our competitive position or have an adverse effect on demand for our products and consequently on our business, results of operations and financial condition.
In addition, for U.S. dollar-denominated sales, an increase in the value of the U.S. dollar would increase the real cost to customers of our products in markets outside the U.S., which could result in price concessions in certain markets, impact our competitive position or have an adverse effect on demand for our products and consequently on our business, results of operations and financial condition. 26 Table of contents In the future, if we identify new material weaknesses that are not remediated, it could result in material misstatements in our financial statements.
Such defects could also negatively impact customer satisfaction and sentiment, generate adverse publicity, reduce future sales opportunities and damage our reputation or the reputation of one or more of our brands.
Such defects could also negatively impact customer satisfaction and sentiment, generate adverse publicity, reduce future sales opportunities and damage our reputation or the reputation of one or more of our brands. Any of these outcomes could have an adverse effect on our results of operations and financial condition.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual consolidated financial statements will not be prevented or detected on a timely basis. 26 Table of contents As of December 31, 2021 management has concluded that the Company’s internal control over financial reporting was effective.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual consolidated financial statements will not be prevented or detected on a timely basis.
While the new administration could have a different approach to U.S. foreign trade policy, there remains uncertainty, which may reduce trade between the U.S and other countries, including countries in which we operate. Changes in policy or continued uncertainty could depress economic activity and restrict our access to suppliers or customers.
Other administrations could take a different approach to U.S. foreign trade policy, so there remains uncertainty as to whether, trade between the U.S and other countries, including countries in which we operate, may be impacted by these policy shifts. Changes in policy or continued uncertainty could depress economic activity and restrict our access to suppliers or customers.
Legal claims and proceedings may relate to labor and employment matters, commercial arrangements, intellectual property, disputes with customers, product liability or defects, environmental, health and safety matters, property damage, theft, personal injury, fiduciary duties of our directors and officers, and various other matters. Legal matters are inherently uncertain, and we cannot predict the duration, scope, outcome or consequences.
Legal claims and proceedings may relate to labor and employment matters, commercial contracts, intellectual property, disputes with customers and suppliers, product liability or defects, environmental, health and safety matters, property damage, theft, personal injury, fiduciary duties of our directors and officers, securities matters, and various other matters.
As of December 31, 2022, we had Warrants to purchase an aggregate of 10,533,333 shares of our Class A common stock outstanding.
As of December 31, 2023, we had Warrants to purchase an aggregate of 5,266,667 shares of our Class A common stock outstanding.
Our manufacturing facilities and operations could be disrupted by a natural disaster, labor strike, shortages in suppliers, components and parts, war, political unrest, terrorist activity, economic upheaval, changes in governmental regulations, government mandated shutdowns or shelter in place orders, or public health concerns (such as the spread of COVID-19).
Our manufacturing facilities and operations could be disrupted by a natural disaster, labor strike, shortages in suppliers, components and parts, war, political unrest, terrorist activity, economic upheaval, changes in governmental regulations, government mandated shutdowns or shelter in place orders, or public health concerns. Some of these conditions are more likely in certain geographic regions in which we operate.
Notwithstanding this conclusion, we have had material weaknesses in the past, and we cannot assure you that we will not identify additional material weaknesses in our internal control over financial reporting in the future.
As of December 31, 2023 management has concluded that the Company’s internal control over financial reporting was effective. Notwithstanding this conclusion, we have had material weaknesses in the past, and we cannot assure you that we will not additional material weaknesses in our internal control over financial reporting in the future.
Such changes could impact spending as customers evolve their strategies or integrate acquired operations. For example, if industry consolidation results in there being fewer customers, the loss of any one customer could have a material impact on results not anticipated in a customer marketplace composed of more numerous participants.
For example, if industry consolidation results in there being fewer customers, the loss of 15 Table of contents any one customer could have a material impact on results not anticipated in a customer marketplace composed of more numerous participants.
As of February 17, 2023, the Vertiv Stockholder beneficially owned approximately 10% of our outstanding Class A common stock.
As of February 16, 2024, the Vertiv Stockholder beneficially owned approximately 2.1% of our outstanding Class A common stock.
In addition, the products we produce or elements of such products that we procure from third parties may contain defects, vulnerabilities, or weaknesses in design, architecture or manufacture, which could lead to system security vulnerabilities in our products and compromise the network security of our customers If an actual or perceived breach of network security occurs, regardless of whether the breach is attributable to our products or services, the market perception of the effectiveness of our products or services could be harmed .
In addition, the products we produce or elements of such products that we procure from third parties may contain defects, vulnerabilities, or weaknesses in design, architecture or manufacture, which could lead to system security vulnerabilities in our products and compromise the network security of our customers.
Our sales and operations in emerging markets exposes us to economic and political risks. We generate a significant portion of our revenue from sales in emerging markets. Serving a global customer base requires that we place more materials, production and service assets in emerging markets to capitalize on market opportunities and maintain our cost position.
Serving a global customer base requires that we place more materials, production and service assets in emerging markets to capitalize on market opportunities and maintain our cost position.
More generally, we do not believe that our backlog estimates as of any date are indicative of revenues for any future period. Additionally, because of our significant backlog, there may be significant delays between the time that we alter the prices we charge customers for our offerings and the time such price changes are reflected in our financial results.
Additionally, because of our significant backlog, there may be significant delays between the time that we alter the prices we charge customers for our offerings and new orders and the time such price changes are reflected in our financial results.
If our products, services, and cost structure do not enable us to compete successfully based on any of those criteria, we may experience a decline in product sales and a corresponding loss of customers.
A significant element of our competitive strategy is focused on delivering reliable, high-quality products and solutions at the best relative global cost. If our products, services, and cost structure do not enable us to compete successfully based on any of those criteria, we may experience a decline in product sales and a corresponding loss of customers.
Our operations depend on production facilities throughout the world, which subjects us to varying degrees of risk of disrupted production. We operate manufacturing facilities worldwide.
Our operations depend on production facilities, including the expansion of existing facilities and opening of new facilities, throughout the world, which subjects us to varying degrees of risk of disrupted production. We operate manufacturing facilities worldwide and continue to expand and open new facilities in different locales.
Unanticipated changes in tax provisions, the adoption of new tax legislation or exposure to additional tax liabilities could cause increased variability in our effective tax rate and impact our financial performance.
Changes in the negotiating position of such third parties in future periods could have an adverse effect on our results of operations. Unanticipated changes in domestic or global tax provisions, the adoption of new tax legislation or exposure to additional tax liabilities could cause increased variability in our effective tax rate and impact our financial performance.
If we are unable to secure necessary supplies at reasonable prices or acceptable quality, we may be unable to manufacture products, fulfill service orders or otherwise operate our business. We may also be unable to offset unexpected increases in material and component costs with our own price increases without suffering reduced volumes, revenues or operating income. • Contractual terms.
We may also be unable to offset unexpected increases in material and component costs with our own price increases without suffering reduced volumes, revenues or operating income. • Contractual terms.
Changes in our executive management team, including our executive chairman, may also cause disruptions in, and harm to, our business and failure to have an effective succession plan in place for our key executive officers could significantly delay or prevent us from achieving our business and/or development objectives and could materially harm our business.
Changes in our executive management team, including our executive chairman, may also cause disruptions in, and harm to, our business and failure to have an effective succession plan in place for our key executive officers could significantly delay or prevent us from achieving our business and/or development objectives and could materially harm our business. 31 Table of contents We may elect not to purchase insurance for certain business risks and expenses and, for the insurance coverage we have in place, such coverage may not address all of our potential exposures or, in the case of substantial losses, may be inadequate.
In order to manage our day-to-day operations, we must overcome cultural and language barriers and assimilate different business practices. In addition, we are required to create compensation programs, employment policies and other administrative programs that comply with the laws of multiple countries, as well as, contractual labor requirements with unions in countries where we operate with local labor unions.
In addition, we are required to create compensation programs, employment policies and other administrative programs that comply with the laws of multiple countries, as well as, contractual labor requirements with unions in countries where we operate with local labor unions. We also must communicate and monitor company-wide standards and directives across our global network.
We have been, and may in the future be, required to participate in the remediation or investigation of, or otherwise bear liability for, such contamination and be subject to claims from third parties who were damaged or injured by such contamination. 25 Table of contents We are subject to risks related to increasing visibility and emphasis placed on various ESG-related metrics and goals, as well as any failure to achieve ESG-related goals that we establish.
We have been, and may in the future be, required to participate in the remediation or investigation of, or otherwise bear liability for, such contamination and be subject to claims from third parties who were damaged or injured by such contamination.
Further, the Vertiv Stockholder is in the business of making investments in companies and may acquire and hold interests in businesses that compete directly or indirectly with us. The Vertiv Stockholder may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.
The Vertiv Stockholder may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.
As of February 17, 2023, and pursuant to the Stockholders Agreement entered into by and among the Company, the Sponsor Members and the Vertiv Stockholder, the Vertiv Stockholder will have the right to nominate up to two directors to our Board.
As of February 16, 2024, and pursuant to the Stockholders Agreement entered into by and among the Company, the Sponsor Members and the Vertiv Stockholder, the Vertiv Stockholder does not have the right to nominate any directors to our Board. The Vertiv Stockholder’s interests may not align with our interests as a company or the interests of our other stockholders.
In addition, legal matters are expensive and time-consuming to defend, settle, and/or resolve, and may require us to implement certain remedial measures that could prove costly or disruptive to our business and operations. The unfavorable resolution of one or more of these matters could have an adverse effect on our business, results of operations and financial condition.
Legal matters are inherently uncertain, and we cannot predict the duration, scope, outcome or consequences. In addition, legal matters are expensive and time-consuming to defend, settle, and/or resolve, and may require us to implement certain remedial measures that could prove costly or disruptive to our business and operations.
Such contracts are also subject to various laws and regulations that apply to doing business with governmental entities, such as country-specific sourcing requirements. The laws relating to government contracts differ from other commercial contracting laws and our government contracts may contain pricing and other terms and conditions that are less favorable to the Company than those in commercial contracts .
Such contracts are also subject to various laws and regulations that apply to doing business with governmental entities, such as country-specific sourcing requirements.
The Vertiv Stockholder’s interests may not align with our interests as a company or the interests of our other stockholders. Accordingly, the Vertiv Stockholder could cause us to enter into transactions or agreements of which you would not approve or make decisions with which you would disagree.
Accordingly, the Vertiv Stockholder could cause us to enter into transactions or agreements of which you would not approve or make decisions with which you would disagree. Further, the Vertiv Stockholder is in the business of making investments in companies and may acquire and hold interests in businesses that compete directly or indirectly with us.
Moreover, prices for some of these materials and components have historically been volatile and unpredictable. We also rely upon labor and third-party freight services to produce and deliver our offerings to our customers. During 2021 and 2022, we experienced significant increases in material, freight and labor costs, and we expect inflationary pressures on such costs to continue in 2023.
We may experience a shortage of, or a delay in receiving, such materials or components because of strong demand, supplier constraints or other operational disruptions. Moreover, prices for some of these materials and components have historically been volatile and unpredictable. We also rely upon labor and third-party freight services to produce and deliver our offerings to our customers.
If customers terminate, reduce or defer firm orders, whether due to fluctuations in their business needs or purchasing budgets or other reasons, our sales will be adversely affected and we may not realize the revenue we expect to generate from our backlog or, if realized, may not result in profitable revenue.
If customers terminate, reduce or defer firm orders, the revenue we expect to generate from our backlog or, if realized, may not be fully realized.
The disruption of our customers’ markets could occur due to a number of factors, including government policy changes, industry consolidations or the shifting of market size and power among customers. Such consolidations or other disruptions may result in certain parties gaining additional purchasing leverage and, consequently, increasing the product pricing pressures facing our business.
Any disruption or consolidation of our customers’ markets or reduction in customer spending on technology could result in declines in the sales volume and prices of our products. The disruption of our customers’ markets could occur due to a number of factors, including government policy changes, industry consolidations or the shifting of market size and power among customers.
The invasion of Ukraine by Russia and resulting sanctions by the U.S., European Union and other countries have contributed to inflation, market disruptions and increased volatility in commodity prices more acutely in the U.S. and Europe and a slowdown in global economic growth. In February of 2022, a full-scale military invasion of Ukraine was commenced by Russian troops.
Any such disruption could cause delays in the manufacture and/or shipments of products, performance of services, and the loss of sales and customers, and insurance proceeds may not adequately compensate for losses. 22 Table of contents The invasion of Ukraine by Russia and resulting sanctions by the U.S., European Union and other countries have contributed to inflation, market disruptions and increased volatility in commodity prices more acutely in the U.S. and Europe and a slowdown in global economic growth.
General Risk Factors Global macroeconomic conditions, including economic weakness and uncertainty in the areas in which we operate, and ongoing ramifications from the COVID-19 pandemic, could adversely impact our business, results of operations and financial condition. Worldwide economic conditions generally impact demand for our product offerings.
Significant changes in our stock price or number of Warrants outstanding may adversely affect our net income (loss) in our consolidated statements of earnings (loss). General Risk Factors Global macroeconomic conditions, including economic weakness and uncertainty in the areas in which we operate, could adversely impact our business, results of operations and financial condition.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our principal executive offices are located at 505 N. Cleveland Ave., Westerville, Ohio 43082. We maintain offices and manufacturing facilities at approximately 300 locations in 40 countries. We are a lessee under a number of operating leases for certain real properties and equipment, none of which are individually material to our operations.
Biggest changeItem 2. Properties Our principal executive offices are located at 505 N. Cleveland Ave., Westerville, Ohio 43082. We maintain offices and manufacturing facilities at approximately 300 locations in over 40 countries. We are a lessee under a number of operating leases for certain real properties and equipment, none of which are individually material to our operations.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWhile we believe that we have meritorious defenses against the plaintiffs’ claims, we are unable at this time to predict the outcome of this dispute or the amount of any cost associated with its resolution. Item 4. Mine Safety Disclosures Not applicable. 34 Table of contents PART II.
Biggest changeWe believe we have meritorious defenses against the allegations made in the aforementioned lawsuits, which are at the preliminary stages. However, we are unable at this time to predict the outcome of these matters or the amount of any cost associated with their resolution.
The amended complaint alleges that certain of our public statements were materially false and/or misleading with respect to inflationary and supply chain pressures and pricing issues, and asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended.
The amended complaint alleges that certain of the Company’s public statements were materially false and/or misleading with respect to inflationary and supply chain pressures and pricing issues, and asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended.
On May 3, 2022, a putative securities class action, In re Vertiv Holdings Co Securities Litigation, 22-cv-3572 , was filed against Vertiv, certain of our officers and directors, and other defendants in the Southern District of New York. Plaintiffs filed an amended complaint on September 16, 2022.
On May 3, 2022, a putative securities class action, In re Vertiv Holdings Co Securities Litigation , 22-cv-3572, was filed against Vertiv, certain of the Company’s officers and directors, and other defendants in the Southern District of New York. Plaintiffs filed an amended complaint on September 16, 2022.
Item 3. Legal Proceedings With the exception of the below, we are not a party to any material, pending legal proceedings or claims at December 31, 2022. From time-to-time, we may be a party to, or otherwise involved in, legal proceedings arising in the normal course of business.
Item 3. Legal Proceedings With the exception of the below, we are not a party to any material, pending legal proceedings or claims at December 31, 2023. From time-to-time, we may be a party to, or otherwise involved in, legal proceedings arising in the normal course of business.
Added
On August 3, 2021, an American Arbitration Association arbitration hearing commenced with respect to a 2018 claim filed by Vertiv against SVO Building One, LLC (“SVO”) alleging damages of approximately $12.0 with respect to (i) unremitted payment for work and materials in connection with the design, engineering, procurement, installation, construction, and commissioning of a data center located in Sacramento, California and (ii) damages and injunctive relief relating to SVO’s unauthorized use of Vertiv’s intellectual property and work product.
Added
SVO filed a counterclaim in 2018 alleging damages of approximately $18.0 relating to (i) allegations that Vertiv was not a duly licensed contractor at all times during the project in violation of California’s contractor license regulations, (ii) breach of warranty, and (iii) gross negligence.
Added
On September 3, 2021, the arbitrator issued an interim phase one ruling finding (1) that Vertiv was in violation of California contractor license regulations and was barred from recovery of approximately $9.0 for work performed and equipment delivered in connection with the project, as well as requiring disgorgement plus interest of $10.0, (2) SVO was not in violation of California’s contractor license regulations, and (3) Vertiv and SVO agreed to a traditional baseball arbitration provision under the terms and conditions for the project, wherein each party is required to submit a proposed final award to the arbitrator for consideration, and the arbitrator is required to select one of the proposed awards submitted by the parties as the final award in the arbitration and is prohibited from issuing an alternative award.
Added
On December 31, 2021, the parties entered into a settlement agreement on ordinary and customary terms, settling all of the disputes between them. As of December 31, 2022 the settlement was recorded in “Accrued expenses and other liabilities” on the Consolidated Balance Sheet. The settlement was paid in the third quarter of 2023.
Added
On January 31, 2024, the Court issued an order dismissing the claims under Sections 11, 12(a)(2), and 15 of the Securities Act.
Added
The motion to dismiss the claims under Sections 10(b) and 20(a) of the Exchange Act remains pending. 35 Table of contents On June 9, 2023, two Vertiv shareholders, Matthew Sullivan and Jose Karlo Ocampo Avenido, brought a derivative lawsuit, Sullivan v. Johnson, et al., C.A.
Added
No. 2023-0608, against Vertiv (as nominal defendant only) and certain of the Company’s directors and officers in Delaware Court of Chancery for breach of fiduciary duty.
Added
The complaint alleges that certain of the named directors and officers caused the Company to issue materially false and/or misleading public statements with respect to inflationary and supply chain pressures and pricing issues, and that the Company suffered damages as a result. This action has been stayed since August 10, 2023, pending the securities class action.
Added
In November 2023, following the filing of the actions described above, the Company received a subpoena from the U.S. Securities and Exchange Commission (the “SEC”) and a parallel request for documents from the U.S. Attorney’s Office for the Southern District of New York, which relate to the allegations made in the class action complaint and derivative action.
Added
The Company is actively responding to these matters. In January 2024, the Mexican tax administration service, the Servicio de Administracion Tributaria (the "SAT"), initiated a process to suspend the importer registration of one of the Company's wholly owned Mexico subsidiaries, Tecnología del Pacífico S.A. de C.V.
Added
(“TDP”), in connection with a contested customs tax audit for the period April 2016 to February 2018. SAT claimed its basis for the suspension was a failure by TDP to provide sufficient e vidence of the export of goods temporarily imported at required levels under Mexico's Manufacturing, Maquila and Export Services Industries Program ("IMMEX Program").
Added
The Company and TDP has disputed SAT’s position throughout the customs tax audit, through the filing of various petitions and appeals with appropriate documentation evidencing the complete and timely export of the goods temporarily imported during the audit period.
Added
TDP has accepted a proposal from SAT to close the audit by making payments and fees totaling approximately $10.1 which has been recorded in “Accrued expenses and other liabilities” on the Consolidated Balance Sheets as of December 31, 2023.
Added
The Company intends to seek reimbursement of this amount as an undue payment in the near future from SAT, for which the outcome is currently unknown and no receivable has been established. Furthermore, the Company remains subject to other customs tax audits concerning other facilities located within Mexico.
Added
While we cannot predict with certainty the outcome of other assessments, based on currently known information, we believe a risk of loss, if any, is not currently estimable. Accordingly, no further reserve for loss contingency has been recorded in the Company's financial statements as of December 31, 2023 related to these other matters.
Added
In February of 2024 $5.2 was paid to SAT in connection with the accepted proposal. We are unable at this time to predict the outcome of these matters, including whether any proceedings may be instituted in connection with the government inquiries, or the amount of any cost associated with their resolution.
Added
As of December 31, 2023, other than as described above, there were no known contingent liabilities (including guarantees, taxes and other claims) that management believes were or will be material in relation to the Company’s Consolidated Financial Statements, nor were there any material commitments outside the normal course of business. Item 4.
Added
Mine Safety Disclosures Not applicable. 36 Table of contents PART II.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHolders of Common Stock As of February 17, 2023, there wer e 43 h olders of record of the Company's common shares. Such number does not include DTC participants or beneficial owners holding shares through nominee names.
Biggest changeSuch number does not include DTC participants or beneficial owners holding shares through nominee names. Cash Dividends On November 29, 2023, we declared a dividend of $0.025 per share, paid on December 27, 2023 to our shareholders of record, as of December 11, 2023.
The graph assumes that $100 was invested on July 30, 2018 in our Class A common stock and that any dividends were reinvested. The graph is not, and is not intended to be, indicative of future performance of our common stock.
The graph assumes that $100 was invested on December 31, 2018 in our Class A common stock and that any dividends were reinvested. The graph is not, and is not intended to be, indicative of future performance of our common stock.
In addition, there are various statutory, regulatory and contractual limitations and business considerations on the extent, if any, to which our subsidiaries may pay dividends, make loans or otherwise provide funds to us.
Our subsidiaries are separate and distinct legal entities and have no obligation to make funds available to us. In addition, there are various statutory, regulatory and contractual limitations and business considerations on the extent, if any, to which our subsidiaries may pay dividends, make loans or otherwise provide funds to us.
In addition, under Delaware law, our Board may declare dividends only to the extent of our surplus (which is defined as total assets at fair market value minus total liabilities, minus statutory capital) or, if there is no surplus, out of our net profits for the then-current and/or immediately preceding fiscal year. 35 Table of contents Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities; Repurchases of Securities None.
In addition, under Delaware law, our Board may declare dividends only to the extent of our surplus (which is defined as total assets at fair market value minus total liabilities, minus statutory capital) or, if there is no surplus, out of our net profits for the then-current and/or immediately preceding fiscal year.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our Class A common stock currently trades on the NYSE under the symbol “VRT”.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our Class A common stock currently trades on the NYSE under the symbol “VRT”. Holders of Common Stock As of February 16, 2024, there wer e 19 holders of record of the Company's common shares.
Stock performance graph The following graph provides a comparison of the cumulative total stockholder return on our common stock from our first day of trading on July 30, 2018 through December 31, 2022 to the returns of the S&P MidCap 400 and Russell 1000.
The Company did not repurchase any shares of Class A common stock during the fourth quarter of 2023 . 37 Table of contents Stock Performance Graph The following graph provides a comparison of the cumulative total stockholder return on our common stock from December 31, 2018 through December 31, 2023 to the returns of the S&P MidCap 400 and Russell 1000.
Accordingly, our ability to pay dividends depends upon the financial condition, liquidity and results of operations of, and our receipt of dividends, loans or other funds from, our subsidiaries. Our subsidiaries are separate and distinct legal entities and have no obligation to make funds available to us.
We are a holding company without any direct operations and have no significant assets other than our ownership interest in Vertiv Holdings. Accordingly, our ability to pay dividends depends upon the financial condition, liquidity and results of operations of, and our receipt of dividends, loans or other funds from, our subsidiaries.
Company / Index 7/30/2018 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Vertiv Holdings Co. 100.0 99.5 112.0 189.6 253.7 138.9 S&P MidCap 400 Index 100.0 85.2 107.5 122.2 152.5 132.6 Russell 1000 Index 100.0 90.0 118.2 143.0 180.9 146.3
Company / Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Vertiv Holdings Co. 100.0 112.6 190.6 255.0 139.6 491.2 S&P MidCap 400 Index 100.0 126.2 143.4 179.0 155.6 181.2 Russell 1000 Index 100.0 131.4 159.0 201.0 162.6 205.7 Item 6. [Reserved] 38 Table of contents
Removed
Our units and Public Warrants previously traded on the NYSE under the symbols “VERT.U” and “VRT WS,” respectively, from the consummation of the Business Combination until January 19, 2021 when they were delisted in connection with the redemption of all of our Public Warrants.
Added
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities; Repurchases of Securities On November 29, 2023, the Board of Directors of the Company approved a stock repurchase program, which authorizes the repurchase of shares of Company Class A common stock in an aggregate amount of up to $3.0 billion through December 31, 2027.
Removed
Cash Dividends On November 18, 2022, we declared an annual dividend of $0.01 per share, paid on December 15, 2022 to our shareholders of record, as of November 30, 2022. We are a holding company without any direct operations and have no significant assets other than our ownership interest in Vertiv Holdings.
Added
The stock repurchase program does not obligate the Company to repurchase any specific dollar amount or number of shares of Class A common stock and the Board's authorization of the program may be modified, suspended or discontinued at any time.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

53 edited+19 added−46 removed25 unchanged
Biggest changeWe have launched several working capital initiatives and as a result expect to optimize our inventory levels in 2023. 38 Table of contents RESULTS OF OPERATIONS Year ended December 31, 2022 compared to year ended December 31, 2021 (Dollars in millions) 2022 2021 $ Change % Change Net sales $ 5,691.5 $ 4,998.1 $ 693.4 13.9 % Cost of sales 4,075.4 3,475.4 600.0 17.3 % Gross profit 1,616.1 1,522.7 93.4 6.1 % Selling, general and administrative expenses 1,178.3 1,109.0 69.3 6.2 % Amortization of intangibles 215.8 144.3 71.5 49.5 % Restructuring costs 0.7 1.4 (0.7) (50.0) % Foreign currency (gain) loss, net 3.7 3.2 0.5 15.6 % Asset impairments — 8.7 (8.7) (100.0) % Other operating expense (income) (5.8) (3.8) (2.0) 52.6 % Operating profit (loss) 223.4 259.9 (36.5) (14.0) % Interest expense, net 147.3 90.6 56.7 62.6 % Loss on extinguishment of debt — 0.4 (0.4) (100.0) % Gain on tax receivable agreement — (59.2) 59.2 100.0 % Change in fair value of warrant liabilities (90.9) 61.9 (152.8) (246.8) % Income tax expense 90.4 46.6 43.8 94.0 % Net income (loss) $ 76.6 $ 119.6 $ (43.0) (36.0) % Net Sales Net sales were $5,691.5 in 2022, an increase of $693.4, or 13.9%, compared with $4,998.1 in 2021.
Biggest changeThis acquisition further strengthens advanced cooling technology, deep domain expertise, control systems, and testing for AI and other high density compute cooling requirements to our existing thermal management portfolio. 39 Table of contents RESULTS OF OPERATIONS Year ended December 31, 2023 compared to year ended December 31, 2022 (Dollars in millions) 2023 2022 $ Change % Change Net sales $ 6,863.2 $ 5,691.5 $ 1,171.7 20.6 % Cost of sales 4,462.7 4,075.4 387.3 9.5 % Gross profit 2,400.5 1,616.1 784.4 48.5 % Selling, general and administrative expenses 1,312.3 1,178.3 134.0 11.4 % Amortization of intangibles 181.3 215.8 (34.5) (16.0) % Restructuring costs 28.6 0.7 27.9 3,985.7 % Foreign currency (gain) loss, net 16.0 3.7 12.3 332.4 % Other operating expense (income) (9.9) (5.8) (4.1) 70.7 % Operating profit (loss) 872.2 223.4 648.8 290.4 % Interest expense, net 180.1 147.3 32.8 22.3 % Loss on extinguishment of debt 0.5 — 0.5 100.0 % Change in fair value of warrant liabilities 157.9 (90.9) 248.8 (273.7) % Income tax expense 73.5 90.4 (16.9) (18.7) % Net income (loss) $ 460.2 $ 76.6 $ 383.6 500.8 % Net Sales Net sales were $6,863.2 in 2023, an increase of $1,171.7, or 20.6%, compared with $5,691.5 in 2022.
The Private Placement Warrants are valued using a Black-Sholes-Merton pricing model as described in “Note 12 — Financial Instruments and Risk Management”, to the Consolidated Financial Statements. The changes in the fair value of the Warrants may be material to our future operating results. Income Taxes We are subject to income taxes in the United States and numerous foreign jurisdictions.
The Private Placement Warrants are valued using a Black-Sholes-Merton pricing model as described in “Note 12 — Financial Instruments and Risk Management”, to the Consolidated Financial Statements. Changes in the fair value of the Warrants may be material to our future operating results. Income Taxes We are subject to income taxes in the United States and numerous foreign jurisdictions.
Overview We are a global leader in the design, manufacturing and servicing of critical digital infrastructure technology that powers, cools, deploys, secures and maintains electronics that process, store and transmit data. We provide this technology to data centers, communication networks and commercial & industrial environments worldwide.
Overview We are a global leader in the design, manufacturing and servicing of critical digital infrastructure technology that powers, cools, deploys, secures and maintains electronics that process, store and transmit data. We primarily provide this technology to data centers, communication networks and commercial & industrial environments worldwide.
The effective rate in 2022 was primarily influenced by the mix of income between our U.S. and non-U.S. operations, net of changes in valuation allowances and uncertain tax positions, and reflects the impact of non-deductible changes in fair value of the warrant liabilities, as well as a discrete tax adjustment related to legislative changes enacted in the period.
The effective rate in 2023 was primarily influenced by the mix of income between our U.S. and non-U.S. operations, net of changes in valuation allowances and uncertain tax positions, and reflects the impact of non-deductible changes in fair value of the warrant liabilities, as well as a discrete tax adjustment related to legislative changes enacted in the period.
In addition, we have certain tax positions that are further discussed in “Note 9 — Income Taxes” of the consolidated financial statements. We do not have any guarantees or other off-balance sheet financing arrangements, including variable interest entities, which could materially impact our financial condition or liquidity.
In addition, we have uncertain tax positions that are further discussed in “Note 9 — Income Taxes” of the consolidated financial statements. We do not have any guarantees or other off-balance sheet financing arrangements, including variable interest entities, which could materially impact our financial condition or liquidity.
The discounted cash flow model requires several estimates and assumptions including future sales growth, earnings before interest, taxes, depreciation, and amortization (or “EBITDA”) margins, capital expenditures, a discount rate and a terminal revenue growth rate (the revenue growth rate for the period beyond the years forecasted by the reporting units) for each reporting unit.
The discounted cash flow model requires several estimates and assumptions including future sales growth, earnings before interest, taxes, depreciation, and amortization (or “EBITDA”) margins, capital expenditures, a discount rate and a terminal net sales growth rate (the net sales growth rate for the period beyond the years forecasted by the reporting units) for each reporting unit.
Management bases its estimates and judgments on historical experience, expected future outcomes, and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Management bases its estimates and judgments on historical experience, expected future outcomes, and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period.
On an ongoing basis, management evaluates its estimates and judgments related to these assets, liabilities, revenues and expenses. We believe these estimates to be reasonable under the circumstances.
On an ongoing basis, management evaluates its estimates and judgments related to these assets, liabilities, net sales and expenses. We believe these estimates to be reasonable under the circumstances.
Unbilled revenue is recorded when performance obligations have been satisfied, but we do not have present right to payment. For agreements with multiple performance obligations, judgment is required to determine whether performance obligations specified in these agreements are distinct and should be accounted for as separate revenue transactions for recognition purposes.
Unbilled revenue is recorded when performance obligations have been satisfied, but we do not have present right to payment. 45 Table of contents For agreements with multiple performance obligations, the Company is required to determine whether performance obligations specified in these agreements are distinct and should be accounted for as separate revenue transactions for recognition purposes.
We have omitted the discussion on our results of operations for the year ended December 31, 2020 which discussion was previously included in Item 7 of our 2021 Annual Report on Form 10-K, filed with the SEC on March 1, 2022.
We have omitted the discussion on our results of operations for the year ended December 31, 2021 which discussion was previously included in Item 7 of our 2022 Annual Report on Form 10-K, filed with the SEC on February 27, 2023.
Corporate and Other Corporate and other costs include costs associated with our headquarters located in Westerville, Ohio, as well as centralized global functions including Finance, Treasury, Risk Management, Strategy & Marketing, IT, Legal, and global product platform development and offering management. Corporate and other costs were $495.9 and $508.0 in 2022 and 2021, respectively.
Vertiv Corporate and Other Corporate and other costs include costs associated with our headquarters located in Westerville, Ohio, as well as centralized global functions including Finance, Treasury, Risk Management, Strategy & Marketing, IT, Legal, and global product platform development and offering management. Corporate and other costs were $533.8 and $495.9 in 2023 and 2022, respectively.
The tax expense in 2022 was $43.8 higher than 2021 primarily due to the change in mix of income, non-U.S. tax elections and changes in valuation allowances in the U.S. and a discrete tax adjustment related to legislative changes enacted in the period. Business Segments The following are business segment results for the years ended December 31, 2022 and 2021.
The tax expense in 2023 was $16.9 lower than 2022 primarily due to the change in mix of income, non-U.S. tax elections and changes in valuation allowances in the U.S. and a discrete tax adjustment related to legislative changes enacted in the period. Business Segments The following are business segment results for the years ended December 31, 2023 and 2022.
Actual results may differ from these estimates. 43 Table of contents We believe that the following accounting estimates are critical to our financial results: Business Combinations We allocate the purchase price of acquired companies to tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date.
We believe that the following accounting estimates are critical to our financial results: Business Combinations We allocate the purchase price of acquired companies to tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date.
The discounted cash flow approach, the comparable public company approach and the comparable acquisition approach were used to estimate the fair value of each reporting unit using a weighting of 40%, 40% and 20%, respectively.
The valuation methods used by us to estimate the fair value of each reporting unit include the discounted cash flow approach, the comparable public company approach and the comparable acquisition approach using a weighting of 40%, 40% and 20%, respectively.
Capital Expenditures: Our capital expenditures are primarily related to the maintenance of our long-term assets, as well as the investment in projects that support growth and innovation to further our enterprise strategy. Our capital expenditures (including capitalized software) were approximately $100.0 in 2022. We expect to have capital expenditures (including capitalized software) of approximately $150 in 2023.
Capital Expenditures: Our capital expenditures are primarily related to the maintenance of our long-term assets, as well as the investment in projects that support growth and innovation to further our enterprise strategy. Our capital expenditures (including capitalized software) were approximately $134.6 in 2023. We expect to have capital expenditures (including capitalized software) of $175 to $200 in 2024.
At December 31, 2022, Vertiv had $317.4 of availability (subject to customary borrowing base and other conditions) under the ABL Revolving Credit Facility, net of letters of credit outstanding in the aggregate principal amount of $17.1, and taking into account the borrowing base limitations set forth in the ABL Revolving Credit Facility.
At December 31, 2023, Vertiv had $554.0 of availability (subject to customary borrowing base and other conditions) under the ABL Revolving Credit Facility, net of letters of credit outstanding in the aggregate principal amount of $16.0, and taking into account the borrowing base limitations set forth in the ABL Revolving Credit Facility.
We record amounts billed to customers for shipping and handling in a sales transaction as revenue. Shipping and handling costs are treated as fulfillment costs and are included in costs of sales. Private Placement Warrants As of December 31, 2022, 10,533,333 Private Placement Warrants remain outstanding.
We record amounts billed to customers for shipping and handling in a sales transaction as revenue. Shipping and handling costs are treated as fulfillment costs and are included in costs of sales. Private Placement Warrants As of December 31, 2023, 5,266,667 Private Placement Warrants remain outstanding.
We, through our subsidiaries, are party to certain indebtedness arrangements, including the Senior Secured Notes, due 2028, with an outstanding principal amount of $850.0 as of December 31, 2022 (the “Notes”), the Term Loan, due 2027, with an outstanding principal amount of $2,139.8, as of December 31, 2022 (the “Term Loan”), and the ABL Revolving Credit Facility, due 2025, providing up to $570.0 of revolving borrowings, and for which $235.0 was outstanding as of December 31, 2022 (the “ABL Revolving Credit Facility” and collectively with the Term Loan, the “Senior Secured Credit Facilities”).
We, through our subsidiaries, are party to certain indebtedness arrangements, including the Senior Secured Notes, due 2028, with an outstanding principal amount of $850.0 as of December 31, 2023 (the “Notes”), the Term Loan, due 2027, with an outstanding principal amount of $2,118.1 as of December 31, 2023 (the “Term Loan”), and the ABL Revolving Credit Facility, due 2025, providing up to $570.0 of revolving borrowings, with separate sublimits for letters of credit and swingline borrowings and an uncommitted accordion of up to $30.0, for which none was outstanding as of December 31, 2023 (the “ABL Revolving Credit Facility” and collectively with the Term Loan, the “Senior Secured Credit Facilities”).
We are not asserting indefinite reinvestment of cash or outside basis for our non-U.S. subsidiaries due to the outstanding debt obligations in instances where alternative repatriation options other than dividends are not available.
Non-U.S. cash is generally available for repatriation without legal restrictions, subject to certain taxes, mainly withholding taxes. We are not asserting indefinite reinvestment of cash or outside basis for our non-U.S. subsidiaries due to the outstanding debt obligations in instances where alternative repatriation options, other than dividends, are not available.
Long-lived assets Goodwill We account for goodwill and other intangible assets acquired in a business combination in conformity with current accounting guidance, which does not allow for goodwill and indefinite-lived intangible assets to be amortized. We review goodwill for impairment annually in the fourth quarter or when events and circumstances indicate an impairment may have occurred.
Goodwill We account for goodwill acquired in a business combination in conformity with current accounting guidance, which does not allow for goodwill to be amortized. We review goodwill for impairment annually in the fourth quarter or when events and circumstances indicate an impairment may have occurred. The impairment assessment for goodwill is performed at the reporting unit level.
Other Operating Expenses The remaining other operating expenses include amortization of intangibles, restructuring costs, foreign currency (gain) loss, and other operating expense (income). These remaining other expenses were $214.4 for 2022, which was a $60.6 increase from 2021.
Other Operating Expenses The remaining other operating expenses include amortization of intangibles, restructuring costs, foreign currency (gain) loss, asset impairments and other operating expense (income). These remaining other expenses were $216.0 for 2023, which was a $1.6 increase from 2022.
Selling, General and Administrative Expenses Selling, general and administrative expenses (or “SG&A”) were $1,178.3 in 2022, an increase of $69.3 compared to 2021. SG&A as a percentage of sales were 20.7% in 2022 compared with 22.2% in 2021.
Selling, General and Administrative Expenses Selling, general and administrative expenses (or “SG&A”) were $1,312.3 in 2023, an increase of $134.0 compared to 2022. SG&A as a percentage of sales were 19.1% in 2023 compared with 20.7% in 2022.
As interest rates increase, our interest expense will increase, although the effect will be mitigated by our interest rate swaps. Income Taxes Income tax expense was $90.4 in 2022 compared to $46.6 in 2021.
To the extent that interest rates continue to increase, our interest expense will increase as well, although the effect will be mitigated by our interest rate swaps. Income Taxes Income tax expense was $73.5 in 2023 compared to $90.4 in 2022.
Net Cash provided by (used for) Investing Activities Net cash used for investing activities was $112.1 in 2022 compared to net cash used for investing activities of $1,216.8 in 2021.
Net Cash provided by (used for) Investing Activities Net cash used for investing activities was $139.1 in 2023 compared to $112.1 in 2022.
There can be no assurance that we will continue to have access to the capital and financing markets on acceptable terms. 42 Table of contents Summary Statement of Cash Flows Year ended December 31, 2022 compared to year ended December 31, 2021 (Dollars in millions) 2022 2021 $ Change % Change Net cash provided by (used for) operating activities $ (152.8) $ 210.9 $ (363.7) (172.5) % Net cash provided by (used for) investing activities (112.1) (1,216.8) 1,104.7 (90.8) Net cash provided by (used for) financing activities 100.2 914.9 (814.7) (89.0) Capital expenditures (100.0) (73.4) (26.6) 36.2 Investments in capitalized software (11.0) (11.2) 0.2 (1.8) Net Cash provided by (used for) Operating Activities Net cash used for operating activities was $152.8 in 2022, a $363.7 decrease in cash generation compared to 2021.
There can be no assurance that we will continue to have access to the capital and financing markets on acceptable terms. 43 Table of contents Summary Statement of Cash Flows Year ended December 31, 2023 compared to year ended December 31, 2022 (Dollars in millions) 2023 2022 $ Change % Change Net cash provided by (used for) operating activities $ 900.5 $ (152.8) $ 1,053.3 (689.3) % Net cash provided by (used for) investing activities (139.1) (112.1) (27.0) 24.1 Net cash provided by (used for) financing activities (247.5) 100.2 (347.7) (347.0) Capital expenditures (127.9) (100.0) (27.9) 27.9 Investments in capitalized software (6.7) (11.0) 4.3 (39.1) Net Cash provided by (used for) Operating Activities Net cash provided by operating activities was $900.5 in 2023, a $1,053.3 increase in cash generation compared to 2022.
Net Cash provided by (used for) Financing Activities Net cash provided by financing activities was $100.2 in 2022 compared to $914.9 in 2021.
Net Cash provided by (used for) Financing Activities Net cash used by financing activities was $247.5 in 2023 compared to $100.2 of net cash provided by financing activities in 2022.
In evaluating the objective evidence that historical results provide, we generally considers three years of cumulative income or loss at the jurisdictional taxpayer level as an important factor.
We attach the most weight to historical earnings as they are more objectively verifiable compared to forecasts. In evaluating the objective evidence that historical results provide, we generally consider three years of cumulative income or loss at the jurisdictional taxpayer level as an important factor.
Europe, Middle East & Africa (Dollars in millions) December 31, 2022 December 31, 2021 $ Change % Change Net sales $ 1,361.6 $ 1,201.7 $ 159.9 13.3 % Operating profit (loss) 234.6 217.6 17.0 7.8 % Margin 17.2 % 18.1 % Europe, Middle East & Africa net sales of $1,361.6 in 2022 increased $159.9, or 13.3% from 2021.
Europe, Middle East & Africa (Dollars in millions) December 31, 2023 December 31, 2022 $ Change % Change Net sales $ 1,490.9 $ 1,361.6 $ 129.3 9.5 % Operating profit (loss) 380.0 234.6 145.4 62.0 % Margin 25.5 % 17.2 % Europe, Middle East & Africa net sales of $1,490.9 in 2023 increased $129.3, or 9.5% from 2022.
Americas (Dollars in millions) December 31, 2022 December 31, 2021 $ Change % Change Net sales $ 2,728.6 $ 2,187.4 $ 541.2 24.7 % Operating profit (loss) 426.1 441.2 (15.1) (3.4) % Margin 15.6 % 20.2 % Americas net sales of $2,728.6 in 2022 increased $541.2, or 24.7% from 2021.
Americas (Dollars in millions) December 31, 2023 December 31, 2022 $ Change % Change Net sales $ 3,844.5 $ 2,728.6 $ 1,115.9 40.9 % Operating profit (loss) 958.8 426.1 532.7 125.0 % Margin 24.9 % 15.6 % Americas net sales of $3,844.5 in 2023 increased $1,115.9, or 40.9% from 2022.
If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by us and exercisable by such holders. 45 Table of contents We evaluated the Private Placement Warrants under ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and concluded that they do not meet the criteria to be classified in stockholders’ equity.
We evaluated the Private Placement Warrants under ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and concluded that they do not meet the criteria to be classified in stockholders’ equity.
The following are critical estimates in valuing intangible assets we have acquired or may acquire in the future and include but are not limited to: • forecasted earnings before interest, taxes, and amortization; • forecasted revenue; • customer attrition rates; • royalty rates; and • discount rates.
Although we believe the assumptions and estimates we have made are reasonable, they are based in part on historical experience, market conditions and information obtained from management of the acquired companies, and are inherently uncertain. 44 Table of contents The following are critical estimates in valuing intangible assets we have acquired or may acquire in the future and include but are not limited to: • forecasted earnings before interest, taxes, and amortization; • forecasted net sales; • customer attrition rates; • royalty rates; and • discount rates.
For segment reporting Greater China and ASI are aggregated into one reportable business segment, refer to “Note 14 — Segment Reporting” of the accompanying consolidated financial statements for more information. We considered the overall macroeconomic conditions and performed a quantitative impairment test for all of our reporting units with goodwill during the fourth quarter of 2022.
For segment reporting Greater China, India and Asia are aggregated into one reportable business segment, refer to “Note 14 — Segment Reporting” of the accompanying consolidated financial statements for more information.
Operating profit (loss) in 2022 was $274.4, an increase of $21.0 compared with 2021. Margin increased primarily due to price realization exceeding increased commodity and logistics costs.
Operating profit (loss) in 2023 was $380.0, an increase of $145.4 compared with 2022. Margin increased primarily due to price realization in addition to leveraging our fixed costs which more than offset inflationary pressures.
In 2021, income tax expense was primarily influenced by the mix of income between our U.S. and non-U.S. operations, net of changes in valuation allowances and uncertain tax positions, and discrete tax benefits related to a change in our indefinite reinvestment liability caused by legislative changes and movement in foreign currencies.
In 2022, income tax expense was primarily influenced by the mix of income between our U.S. and non-U.S. operations, net of changes in valuation allowances and uncertain tax positions, and reflects the impact of non-deductible changes in fair value of warrant liabilities, as well as discrete tax adjustments related to legislation changes enacted in the period.
We test goodwill for impairment by comparing the estimated fair value of the reporting units to the related carrying value. If the fair value of the reporting unit is lower than its carrying amount, goodwill is written down for the amount by which the carrying amount exceeds fair value. However, the loss recognized cannot exceed the carrying amount of goodwill.
If a quantitative approach is required or elected, we test goodwill for impairment by comparing the estimated fair value of the reporting units to the related carrying value.
The change in fair value of the outstanding warrants liability during 2022 and 2021 resulted in a gain of $90.9 and a loss of $61.9, respectively. The change in fair value of stock warrants was the result of changes in market prices and other observable inputs deriving the value of the financial instruments.
The change in fair value of the outstanding Private Placement Warrants during 2023 and 2022 resulted in a loss of $157.9 and a gain of $90.9, respectively.
Additionally, the positions taken with regard to tax contingencies may be subject to audit and review by tax authorities, which may result in future taxes, interest and penalties.
Additionally, the positions taken with regard to tax contingencies may be subject to audit and review by tax authorities, which may result in future taxes, interest and penalties. 46 Table of contents In determining the recoverability of deferred tax assets, we give consideration to all available positive and negative evidence including reversals of deferred tax liabilities, projected future income, tax planning strategies and recent trends in financial results.
Asia Pacific (Dollars in millions) December 31, 2022 December 31, 2021 $ Change % Change Net sales $ 1,601.3 $ 1,609.0 $ (7.7) (0.5) % Operating profit (loss) 274.4 253.4 21.0 8.3 % Margin 17.1 % 15.7 % Asia Pacific net sales of $1,601.3 in 2022 decreased $7.7, or 0.5% from 2021.
Margin increased primarily due to higher sales volumes and pricing actions in addition to leveraging our fixed costs. 41 Table of contents Asia Pacific (Dollars in millions) December 31, 2023 December 31, 2022 $ Change % Change Net sales $ 1,527.8 $ 1,601.3 $ (73.5) (4.6) % Operating profit (loss) 248.5 274.4 (25.9) (9.4) % Margin 16.3 % 17.1 % Asia Pacific net sales of $1,527.8 in 2023 decreased $73.5, or 4.6% from 2022.
The comparable public company and comparable acquisition approaches require several assumptions including EBITDA multiples for comparable companies and transactions that operate in the same markets as our reporting units. Discounted cash flow models are highly reliant on various assumptions, including projected business results, long-term growth factors and discount rate.
The comparable public company and comparable acquisition approaches require several assumptions, including EBITDA multiples for comparable companies and transactions that operate in the same markets as our reporting units. We performed our annual goodwill impairment using the qualitative approach in the fourth quarter for each reporting unit.
The $56.7 increase was primarily due to a $37.2 increase due to the Term Loan due 2027, a $30.2 increase related to the Senior Secured Notes due 2028, which were not outstanding for all of 2021, and a $7.5 increase due to borrowings throughout 2022 on our ABL Revolving Credit Facility, due 2025, partially offset by a $13.0 decrease due to net settlement payments on our interest rate swaps as described in “Note 12 — Financial Instruments and Risk Management” to the Consolidated Financial Statements, and a $4.5 decrease in accretion expense associated with the Tax Receivable Agreement.
The $32.8 increase reflects a $72.0 increase due to the Term Loan due 2027, partially offset by a $36.5 decrease due to net settlement payments on our interest rate swaps as described in “Note 12 — Financial Instruments and Risk Management” to the Consolidated Financial Statements.
Reporting units are defined as either operating segments or one level below the operating segments for which discrete financial information is available and reviewed by the business management. The Company’s four reporting units are comprised of the Americas; Greater China; Australia & New Zealand, South East Asia and India (ASI); and Europe, Middle East & Africa reporting units.
The Company’s five reporting units are comprised of the Americas; Greater China; India; Southeast Asia, Australia & New Zealand, Japan and South Korea (Asia); and Europe, Middle East & Africa.
By product offering, net sales increased in critical infrastructure & solutions by $418.8 driven mostly due to increases in the thermal product lines and $122.3 related to the incremental E&I sales in 2022. Integrated rack solutions increased by a $72.9 primarily due to higher volume. Service & spares increased by $49.5 due to improved customer site availability.
The increase in sales was primarily driven by higher sales volumes and price realization compared to prior year. By product offering, net sales increased in critical infrastructure & solutions by $952.1, integrated rack solutions increased by $95.1, and service & spares increased by $68.7 due to improved customer site availability.
Excluding intercompany sales, net sales were $2,728.6 in the Americas, $1,601.3 in Asia Pacific and $1,361.6 in Europe, Middle East & Africa. Movements in net sales by segment and offering are each detailed in the Business Segments section below. Cost of Sales Cost of sales were $4,075.4 in 2022, an increase of $600.0, or 17.3% compared to 2021.
Movements in net sales by segment and offering are each detailed in the Business Segments section below. Cost of Sales Cost of sales were $4,462.7 in 2023, an increase of $387.3, or 9.5% compared to 2022. The increase in cost of sales was primarily driven by the impact of higher volumes and increased commodity and logistics costs.
The lower use of cash over the comparable period was primarily the result of the E&I Acquisition for $1,163.7 in 2021, slightly offset by increased capital expenditures, and $21.7 in proceeds from the sale of a heavy industrial UPS business in 2021.
The higher use of cash over the comparable period was primarily driven by the acquisition of business for $28.8, increased capital expenditures of $27.9, partially offset by increased proceeds from the disposition of property, plant, and equipment of $12.4, and proceeds from the sale of business of $11.9.
At December 31, 2022, we had $260.6 in cash and cash equivalents, which includes amounts held outside of the U.S., primarily in Europe and Asia. Non-U.S. cash is generally available for repatriation without legal restrictions, subject to certain taxes, mainly withholding taxes.
See “Note 6 — Debt” of the consolidated financial statements for more detailed discussion of the material terms of the Notes and the Senior Secured Credit Facilities. At December 31, 2023, we had $780.4 in cash and cash equivalents, which includes amounts held outside of the U.S., primarily in Europe and Asia.
By offering, net sales improved in critical infrastructure & solutions and integrated rack solutions of $178.5 and $9.2 respectively, and service & spares decreased by $27.8. Operating profit (loss) in 2022 was $234.6, an increase of $17.0 compared with 2021. Margin declined primarily due to increased commodity and logistic costs exceeding price realization.
By product offering, net sales decreased in critical infrastructure & solutions by $37.9, integrated rack solutions decreased by $23.6, and service & spares decreased by $12.0. Operating profit (loss) in 2023 was $248.5, a decrease of $25.9 compared with 2022 mainly driven by decreased volume and the negative impact of foreign currency.
We satisfied this obligation as of November 30, 2022 and as of December 31, 2022, we no longer have any obligation under the Tax Receivable agreement. 37 Table of contents Outlook and Trends Below is a summary of trends and events that are currently affecting, or may in the future affect, our business, operations and short-term outlook: • COVID-19 Pandemic: Over the past three years, unprecedented measures have been taken by governments and businesses to address the COVID-19 pandemic.
Outlook and Trends Below is a summary of trends and events that are currently affecting, or may in the future affect, our business, operations and short-term outlook: • Capacity Expansion: We have invested in capacity expansion to meet current and anticipated additional customer demand.
Sales decreases were primarily driven by the negative impact of foreign currency of approximately $79.8 which were partially offset by the impact of stronger sales, particularly in India. By product offering, net sales improved in service & spares by $20.2. Critical infrastructure & solutions and integrated rack solutions decreased by $22.4 and $5.5, respectively.
Sales decreases were primarily driven by slower than expected economic recovery in China and the negative impact of foreign currency of approximately $66.2, which were partially offset by the impact of stronger sales throughout the rest of Asia Pacific.
The increase in SG&A was primarily driven by $45.6 of E&I costs in the first ten months of 2022, $29.8 of higher commissions as a result of increased order volume, $25.9 of higher compensation due to increased bonus, higher long-term incentive, and one-time employee separation costs, $9.6 of increased research and development spend, $1.9 of increased investment in IT, which was partially offset by a decrease in mergers and acquisition costs of $39.4 and $18.7 related to litigation settlement costs in 2021.
The increase in SG&A was primarily driven by $60.1 of higher commissions in the Americas reportable segment as a result of increased order volume and $41.2 of higher compensation costs due to increased bonus and long-term incentives.
The increase in cost of sales was primarily driven by the impact of higher volumes, E&I costs of $265.4, increased commodity and logistic costs, and supply chain constraints. Gross profit was $1,616.1 in 2022, or 28.4% of sales, compared to $1,522.7, or 30.5% of sales in 2021.
Gross profit was $2,400.5 in 2023, or 35.0% of sales, compared to $1,616.1, or 28.4% of sales in 2022. Margin increased primarily due to higher sales volume, pricing actions more than offsetting higher commodity and logistics costs, and improved leverage of fixed costs.
The increase in sales is primarily due to higher sales volumes and E&I sales of $359.2 in the first ten months of 2022, which were partially offset by the negative impacts from foreign currency of $251.8, and lower sales from the divested heavy industrial UPS business in 2021 of $76.4.
The increase in sales is primarily due to higher sales volumes and price realization of $470 compared to the prior year , and partially offset by the negative impacts from foreign currency of $43.7. By product offering, critical infrastructure & solutions sales increased $973.8, which included negative impacts from foreign currency of $22.5.
By product offering, critical infrastructure & solutions sales increased $574.9, including the negative impacts from foreign currency of $158.5. Services & spares sales increased $41.9, including the negative impacts from foreign currency of $62.9. Integrated rack solutions sales increased $76.6, including the negative impacts from foreign currency of $30.4.
Services & spares sales increased $111.4, including the negative impacts from foreign currency of $15.1. Integrated rack solutions sales increased $86.5, including the negative impacts from foreign currency of $6.1. Excluding intercompany sales, net sales were $3,844.5 in the Americas, $1,527.8 in Asia Pacific and $1,490.9 in Europe, Middle East & Africa.
Removed
Key Developments Below is a summary of selected key operational developments affecting our business in 2022: • Succession Planning: Following our announcement on October 3, 2022, our Chief Executive Officer, Rob Johnson, retired on December 31, 2022 for health reasons.
Added
Key Developments Below is a summary of selected key developments affecting our business in 2023: • Stock Repurchase Program: As discussed in Item 5, on November 29, 2023, the Company announced authorization of a stock repurchase program of up to $3.0 billion through December 31, 2027.
Removed
Giordano Albertazzi assumed the role of Chief Operating Officer on October 3, 2022 in addition to his role as President, Americas, and then the role of Chief Executive Officer on January 1, 2023. • Board of Directors: In 2022, the Board of Directors increased the authorized number of directors on the Board from nine to eleven and appointed two new directors Jakki Hausler and Joseph J.
Added
Repurchases of shares of the Company’s Class A common stock under the program may be made from time to time through open market purchases, privately negotiated transactions, Rule 10b5-1 plans, accelerated stock repurchases, block trades, derivative contracts or otherwise, including in compliance with Rule 10b-18.
Removed
DeAngelo. Mr. Albertazzi assumed Mr. Johnson's position on our Board on January 1, 2023. • Facility Expansion: In 2022, we opened a new thermal plant in Monterrey, Mexico.
Added
The specific timing of any repurchases will be determined in management's discretion and will depend on a number of factors, including available liquidity, the Company's stock price, the Company's financial outlook, and alternative investment options.
Removed
We believe the additional capacity of the Monterrey facility will help to meet the increased demand and backlog in the thermal business. • Price Realization: In 2022, we successfully delivered $365.0 of price realization actions. • TRA settlement: On December 31, 2021, the Company and the Vertiv Stockholder agreed to amend and supplement the tax receivable agreement entered into by the Company and the Vertiv Stockholder on February 7, 2020, (the “Tax Receivable Agreement”) to replace the Company’s remaining payment obligations under the Tax Receivable Agreement with an obligation to pay $100.0.
Added
The stock repurchase program does not obligate the Company to repurchase any specific dollar amount or number of shares of Class A common stock and the Board's authorization of the program may be modified, suspended or discontinued at any time.
Removed
These measures have included periodic shelter-in-place orders, restrictions on travel and business operations, temporary closures of businesses, quarantines, and attempts to institute various regulatory requirements. As a result of this pandemic, global economic activity was significantly impacted, causing volatility and disruption in global financial markets.
Added
For example, since acquiring E&I in late 2021, we have approximately doubled our manufacturing capacity for switchgear, busbar and integrated modular solutions by opening new facilities and adding production to existing facilities.
Removed
These responsive measures taken by many countries have affected, and could in the future materially impact, our business, results of operations, financial condition and stock price.
Added
We anticipate continuing to invest in having capacity in place globally with the geographic presence that our customers need, the ability to rapidly scale and to ensure resiliency. • Artificial Intelligence ("AI"): Increased maturity and adoption of AI and high-performance compute is currently impacting the data center industry driving technology innovation and could lead to increased demand.
Removed
The extent of the continuing impact of the COVID-19 pandemic on our operational and financial performance is uncertain and will depend on many factors outside our control, including, without limitation, the extent, timing and duration of new variants of the COVID-19 virus and their impact on the global economy and demand for products.
Added
The Company has invested in developing new product, services, and solutions to serve this industry trend, is increasing capacity to support additional demand for AI infrastructure as necessary and we will continue to invest to support additional growth driven by AI. • Thermal Management Portfolio Expansion - Liquid Cooling: In December of 2023, we acquired CoolTera Ltd., an existing technology partner and provider of coolant distribution infrastructure for data center cooling technology.
Removed
Refer to Part I, Item 1A of this Annual Report under the heading “Risk Factors,” for more information. We continue to monitor the situation and will take further actions as may be required by federal, state, or local governmental authorities, or that we determine are in the best interests of our associates, customers, and stockholders.
Added
The increase was primarily due to a $27.9 increase in restructuring costs, and a $12.3 increase in foreign currency loss, offset by decreased amortization of intangibles of $34.5. 40 Table of contents Change in Fair Value of Warrant Liabilities Change in fair value of warrant liabilities represents the mark-to-market fair value adjustments to the outstanding Private Placement Warrants.
Removed
At the outset of the COVID-19 pandemic, we responded swiftly in support of our people, our clients and our communities. As we continue to monitor the evolving situation, we have taken steps to cause our U.S. locations to return to a full-time in-person workplace environment, which has required adjustment by employees and has indirectly caused attrition.
Added
The change in fair value of these warrants was the result of changes in market prices of our common stock and other observable inputs deriving the value of the financial instruments and the exercise of 5,266,666 of the Private Placement Warrants in February 2023.
Removed
We recognize the benefits to our customers, associates, and stockholders of having in-person full-time interaction, and we are working to balance those benefits with the ongoing concerns relating to the COVID-19 pandemic, macroeconomic conditions, and continued competition for talent. • Supply Chain Constraints and Cost Increases: Aspects of our business continue to be affected by the COVID-19 pandemic as well as increasing costs for materials, freight and labor.
Added
As of December 31, 2023 and 2022, there were 5,266,667 and 10,533,333 Private Placement Warrants outstanding, respectively. Interest expense Interest expense, net, was $180.1 in 2023 compared to $147.3 in 2022.
Removed
Despite continued strong market demand, we expect that supply chain challenges and inflationary pressures will continue into 2023, with critical part shortages driving the need for additional spot buys at increased costs, and increased costs associated with premium freight to meet customer commitments.
Added
Americas net sales were positively impacted from foreign currency of approximately $8.1. Operating profit (loss) in 2023 was $958.8, an increase of $532.7 compared with 2022.
Removed
Additionally, logistical issues have significantly delayed the receipt of materials and, in some cases, we cannot procure critical parts at any price, creating production and delivery challenges pressuring the top and bottom line.
Added
Sales increases were evenly driven by higher selling prices and increased volume. Europe, Middle East & Africa net sales were positively impacted by foreign currency of approximately $14.4. By product offering, net sales increased in critical infrastructure & solutions by $59.6, service & spares increased by $54.7, and integrated rack solutions increased by $15.0.
Removed
We continue to take actions to improve our ability to forecast inflationary headwinds and reflect anticipated cost increases in our prices and will continue to take actions to address shortages and inflationary pressures.
Added
Corporate and other costs increased $37.9 compared to 2022 primarily due to higher compensation costs due to bonus and long-term incentive costs of $23.2 and increased foreign currency loss of $12.3. 42 Table of contents Capital Resources and Liquidity Our primary future cash needs relate to working capital, operating activities, capital spending, strategic investments and debt service.
Removed
Based on full year 2022, we anticipate continued pricing realization into 2023 as a result of the pricing actions that we undertook in 2021, the year ended 2022, and which we plan to continue to take into 2023. • Inventory Build: During 2022, we saw an increase in inventory build in order to support upcoming customer demand and large projects in addition to working through our significant backlog.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

9 edited+2 added−0 removed4 unchanged
Biggest changeCommodity Risk We are subject to commodity risk from fluctuating prices of certain raw materials, steel, copper and aluminum and electronic components. Additional information relating to market risks is presented in “Note 12 - Financial Instruments and Risk Management” in the Notes to Consolidated Financial Statements and is incorporated by reference into Part II of this Annual Report.
Biggest changeAdditional information relating to market risks is presented in “Note 12 - Financial Instruments and Risk Management” in the Notes to Consolidated Financial Statements and is incorporated by reference into Part II of this Annual Report. Our Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements are filed as part of this Annual Report under “Item 15.
We enter into one-month foreign exchange forwards in order to mitigate exposures such as European Euro, Chinese Yuan, and Great British Pound on the carrying amount of foreign currency-denominated assets, liabilities, commitments and, when applicable, anticipated foreign currency transactions. As of December 31, 2022 we had an insignificant amount of outstanding currency hedges.
We enter into one-month foreign exchange forwards in order to mitigate exposures such as European Euro, Chinese Yuan, and Great British Pound on the carrying amount of foreign currency-denominated assets, liabilities, commitments and, when applicable, anticipated foreign currency transactions. As of December 31, 2023 we had an insignificant amount of outstanding currency hedges.
Financial statements and supplementary data The Report of Independent Registered Public Accounting Firm, our Consolidated Financial Statements, and the accompanying Notes to Consolidated Financial Statements that are filed as part of this Annual Report are listed under “Item 15. Exhibits, Financial Statement Schedules” and are set forth immediately following the signature pages of this Annual Report.
Financial statements and supplementary data The Report of Independent Registered Public Accounting Firm, our Consolidated Financial Statements, and the accompanying Notes to Consolidated Financial Statements that are filed as part of this Annual Report are listed under “Item 15. Exhibits, Financial Statement Schedules” and are set forth immediately following the signature pages of this Annual Report. Item 9.
We have translation exposure resulting from translating the financial statements of foreign subsidiaries into United States Dollars. During 2022, we hedged portions of the net investment in foreign subsidiaries against fluctuations in the European Euro and Chinese Yuan through derivative financial instruments.
We have translation exposure resulting from translating the financial statements of foreign subsidiaries into United States Dollars. During 2023, we hedged portions of the net investment in foreign subsidiaries against fluctuations in the European Euro and Chinese Yuan through derivative financial instruments.
At December 31, 2022, there was a $235.0 balance on the ABL Revolving Credit Facility with a weighted-average borrowing rate of 5.85%. At December 31, 2021, there were no borrowings outstanding under the ABL Revolving Credit Facility. Cash and cash equivalents were $260.6 and $439.1 at December 31, 2022 and 2021, respectively.
At December 31, 2022, there was a $235.0 balance on the ABL Revolving Credit Facility with a weighted-average borrowing rate of 5.85%, and there was an outstanding principal amount of $2,139.8 on the Term Loan, due 2027 with a borrowing rate of 6.89%. Cash and cash equivalents were $780.4 and $260.6 at December 31, 2023 and 2022, respectively.
Based on the outstanding balances of floating rate debt, net of interest rate swap agreements, our annual net interest expense would increase (decrease) in variable interest rates at December 31, 2022 and 2021 by approximatel y: Basis point change scenario December 31, 2022 December 31, 2021 +100 $ 11.0 $ 12.0 +200 23.0 23.0 Due to the rapid increase in the Federal Funds Rate during 2022, we are presenting larger basis point change scenarios than previously presented.
Based on the outstanding balances of floating rate debt, net of interest rate swap agreements, our annual net interest expense would increase (decrease) in variable interest rates at December 31, 2023 and 2022 by approximatel y: Basis point change scenario December 31, 2023 December 31, 2022 +100 $ 11.2 $ 12.0 +200 22.4 23.0 Commodity Risk We are subject to commodity risk from fluctuating prices of certain raw materials, steel, copper and aluminum and electronic components.
Our Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements are filed as part of this Annual Report under “Item 15. Exhibits, Financial Statement Schedules” and are set forth immediately following the signature pages of this Annual Report. Item 8.
Exhibits, Financial Statement Schedules” and are set forth immediately following the signature pages of this Annual Report. 47 Table of contents Item 8.
A discussion of our accounting policies for derivative instruments and hedging activities is included in “Note 1 – Summary of Significant Accounting Policies”.
A discussion of our accounting policies for derivative instruments and hedging activities is included in “Note 1 – Summary of Significant Accounting Policies”. Information relating to market risks is presented in “Note 12 - Financial Instruments and Risk Management” in the Notes to Consolidated Financial Statements and is incorporated by reference into Part II of this Annual Report.
Information relating to market risks is presented in “Note 12 - Financial Instruments and Risk Management” in the Notes to Consolidated Financial Statements and is incorporated by reference into Part II of this Annual Report. 46 Table of contents Foreign Exchange Rate Risk We have transactional foreign currency exposures related to buying and selling in currencies other than the local currencies in which we operate.
Foreign Exchange Rate Risk We have transactional foreign currency exposures related to buying and selling in currencies other than the local currencies in which we operate.
Added
At December 31, 2023, there were no borrowings outstanding under the ABL Revolving Credit Facility and there was an outstanding principal amount of $2,118.1 on the Term Loan, due 2027 with a borrowing rate of 7.97%.
Added
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not Applicable.

Other VRT 10-K year-over-year comparisons