Emerging from a spinoff of Emerson Network Power, which some have called one of the most successful SPACs, Vertiv has become one of the most talked-about companies among investors and those in the AI development space. As a manufacturer of the physical and digital infrastructure required to develop and store the chips and computers that power AI, it’s no surprise that Vertiv’s stock price has risen more than 100% this year while also quadrupling its market cap to nearly $30 billion over the past four years.
Considering the metrics that indicate growth for Vertiv, CFO David Fallon attributes a large portion of the company’s success to a complete transformation of operations. With the help of a new CEO, a reprioritization of the finance team’s role in the business and a culture that emphasizes leaving emotions at the door, Fallon expects to continue this trajectory of growth — as long as the essence of what got them there stays intact.
Optional Caption
Permission granted by David Fallon
David Fallon
CFO, Vertiv
First CFO position: 2002
Notable previous companies:
- Clacor
- Noble international
- Textron automotive company
- Oakland University
This interview has been edited for brevity and clarity.
ADAM ZAKI: What do you make of the hype around AI as it pertains to the finance function, and in what areas of your finance operations have you implemented new AI, if any?
DAVID FALLON: I would say, like many other CFOs probably are, we are still in the piloting phase of AI in the finance function.
We are looking at things from a practical perspective when it comes to AI implementation in finance. Things like payroll and identifying payroll errors are still very manual exercises, so we are now implementing a learning module with AI to see if there’s a way to automate that. Our spend analysis tools could also use AI from a predictive perspective on things like collections. If AI can identify an account that’s likely to be late or not pay at all, we can reach out and plan around that proactively.
For all of these things, it’s a learning mechanism and many of these tools are still in the ideation stage right now.
I think the world is in a nascent position as it relates to AI and what it means not only in finance but everywhere. With this in mind, we are one of the many businesses that have benefited from the AI buzz over the last nine months or so.
The most important thing to understand is GPUs are just exponentially more powerful than what we all use with CPUs. For example, the Blackwell chip from NVIDIA is 30 times more powerful than its predecessor. In three to five years from now, I believe the computing power that will be available, along with its benefits, will be extraordinary.
Your stock has grown tremendously this year and you’ve become a hot topic of conversation among investors. What’s the story behind this?
FALLON: In 2021 and 2022, we experienced inflation and supply chain issues that impacted our financial performance. What we’ve seen from then up until today is the result of a complete transformation across the business. Giordano Albertazzi, now the CEO, came in to run our Americas business at that time and helped us lead the transformation.
If you look at 2022, I think our operating margin was right around 8%. This year, we’re at close to 19%. If you look at our cash flow performance, we were down $260 million in 2022. In 2023, we generated close to $800 million — a billion-dollar improvement — all while growing our top-line revenue by around 20%. Our market cap right now is somewhere around $30 billion. A year ago it was $10 billion and at the beginning of 2023, we were at $5 billion.
“Oftentimes, you see finance at the end of the parade just reporting on what happened, but I believe that is too late.”
Our [recent] stock price and performance were driven by two things. Number one was the financial turnaround, which was driven by an operational turnaround. Even before we benefited from the AI buzz, we were doing just fine from the perspective of running the company and growing 20%.
We’re now at the heart of the AI conversation. All these chips are in data centers. These data centers need power and cooling, and we, as infrastructure providers, give the ability for these companies to power and cool these chips. Servicing data centers is also a big part of our business. It’s these factors that have contributed to our recent growth.
Were there any changes to the finance team or their function that also helped drive this?
FALLON: Yes. We have enhanced our forecasting and internal reporting processes. Over the last 24 months, we as a finance team have spent a lot of time getting closer to the business. When you look at our cycles and process changes, we have moved finance from the back end of the business to the front end.
If you look at our sales process, for example, it all starts with a quote. Whether it’s terms like pricing, margin, payment terms or strategy. Oftentimes, you see finance at the end of the parade just reporting on what happened, but I believe that is too late. So, what we have done is shift the focus of the finance team to the very front end of processes like these to identify potential challenges.
We required every single finance employee in the company worldwide to take the same product training a new salesperson takes. It was all online, over a series of months, and it was so our finance team could learn about the business, the products we sell and details about our customers.
“Everyone, especially those on the leadership team, should have the freedom to not only voice their opinions and disagree but also passionately disagree with emotion.”
We tracked this pretty religiously, and for some, it was probably a task, but we saw some people fly through the training and enjoy the process. I believe this requirement gives our finance teams the insight required to make good decisions, which has driven our success.
This has helped successfully drive upfront payments and improvement on payment terms and also helped minimize payment terms after shipment. By allowing finance teams to analyze situations, placing them as far upstream in the business as you can, it can be beneficial. Even for situations when the finance team would say something like “Who bought that? They paid too much” on a purchase after the fact, this type of collaboration and shift of processes reduces the likelihood of things like that occurring again.
During this time of growth and success, do you find yourself being a more skeptical CFO? And how do you make sure your growth process is well controlled?
FALLON: Everyone, especially those on the leadership team, should have the freedom to not only voice their opinions and disagree but also passionately disagree with emotion. Across our company, I think we’ve done a really good job of creating a culture and environment where that’s okay.
Here, we have a culture where people speak their minds and this expectation, certainly for the finance team, is to be vocal skeptics.
I always say I get paid to be paranoid. I think in finance, you always have to have that mindset of looking around the corner and being able to see both the good things and the risks to come. I think that’s not only my job as CFO, but the role of the finance team in general.
