Carrier Global Corporation

Good morning, and welcome to Carrier's first quarter 2020 earnings conference call. This call is being carried live on the Internet, and there is a presentation available to download from Carrier's website at ir.carrier.com. I would like to introduce your host for today's conference call, Sam Pearlstein, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Operator. Good morning and welcome to Carrier's first quarter 2020 earnings conference call. With me here today are Dave Gitlin, President and Chief Executive Officer, and Tim McLevish, Executive Vice President and Chief Financial Officer. Except as otherwise noted, the company will be speaking to results from operations, excluding restructuring costs and other significant items of a non-recurring and or non-operational nature often referred to by management as other significant items. The company also reminds listeners that the earnings and cash flow expectations and any other forward-looking statements provided in the call are subject to risks and uncertainties. Carrier's SEC filings, including Carrier's registration statement on Form 10 and the reports on Forms 10-Q and 8-K provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. This morning we'll review our financial results for the first quarter of 2020. share what the remainder of 2020 could look like under a few scenarios, and we'll leave time for questions at the end. Once the call is opened up for questions, we ask that you limit yourself to one question per caller to give everyone the opportunity to participate. You may ask further questions by reinserting yourself into the queue if time permits. With that, I'd like to turn the call over to our President and CEO, Dave Gitlin.

Okay, thank you, Sammy. Good morning, everyone. I hope that you and your families are all healthy and safe. Our thoughts go out to everyone affected by this crisis and our thanks go to the frontline workers who are fighting this pandemic. I would also like to recognize the incredible efforts of our entire team at Carrier, which has continued to deliver essential products and services to our customers during these challenging times. I have been so impressed with our 53,000 employees. They have stepped up in a truly profound way and I couldn't be more proud of this phenomenal team. Clearly, a lot has changed since we last spoke to you in February. Therefore, we are going to structure our comments as follows. First, I'll take you through the impact that COVID-19 is having on our business and how we are addressing these dynamics head on. Tim will then run you through our first quarter financials, as well as provide more detail on our approach to managing our liquidity, cash, and balance sheet. And then I'll provide more color on the remainder of 2020. Starting with slide two. In response to COVID-19, we jumped into gear early and aggressively. We started daily leadership team meetings that continue today, and we established four priorities that have guided our decision-making. Our first priority is the safety of our employees. Our office employees are generally working remotely while our factory personnel have largely continued in the workplace to support our customers given the critical nature of our products and services. In our factories, We have gone to tremendous lengths to keep our people safe by implementing an extensive range of safety protocols, and we are now applying those best practices to our offices as we begin to transition office employees back to the workplace. Our second priority has been to maintain business continuity to deliver essential products and services to our customers. Like other manufacturers, we did experience temporary closures in some of our 49 factories. In China, where we have nine factories and about 1,300 suppliers, all of our sites were operational within a couple of weeks after the February 10th reopening after the Lunar New Year, and our output from our sites and from our local suppliers has been close to 100% for the past month. We have had short-term factory closures in India, Malaysia, Mexico, the EU, and the U.S., but our team has done a superb job of minimizing the length of the occasional site closures and supporting our customers. While we continue to experience episodic supplier challenges, our supply chain team has been managing these issues as they arise. Our third priority is to effectively manage our costs and preserve cash. Tim will cover this topic in more detail, but I'm pleased with our proactive approach and early results. We accelerated and increased savings through Carrier 600, which is our plan to eliminate $600 million in costs over three years. Between our overdrive expectations on Carrier 600 for this year, together with other one-time cost actions, we will be driving $425 million in cost actions this year. For example, we have implemented a 15 percent pay cut for our senior leadership team, including myself, reduced the Board of Director pay, instituted a 15-day furlough, suspended merit increases, We're driving down expected incremental public company costs by about 25 million for the year, and we are aggressively managing our discretionary spend. We will also be reducing our CapEx from our initial plan of 350 to 400 million to 200 to 225 million. Though we are aggressively containing spend, we continue to invest in areas that are critical to our growth agenda, including R&D, sales, and digital, all critical to our core strategy to get to sustain mid-single-digit growth levels. On the cash side, we are comfortable with our liquidity position. We started with $1.3 billion in cash on April 3rd, and we are confident in our ability to generate more than a billion in free cash flow this year. We have access to a $2 billion revolver if needed. So we have a strong cash position and are carefully managing it. Finally, our fourth priority has been to ensure that we emerge from this pandemic stronger, by accelerating implementation of our strategic imperatives. And I'll give you more color on that on the next slide. So turning to slide three, it highlights how we're positioning Carrier for long-term success, starting with our organization, culture, focus, and values. This truly is a new Carrier with a very different feel to it, both internally and externally. We recently launched the Carrier Way, which lays out our vision, values, and behaviors. Our culture is focused on customers, winning, growth, agility, innovation, and empowerment. We are breaking down barriers to enable our people to be more externally focused and empowering them to drive our long-term growth agenda. On people, we have made great progress in assembling a world-class leadership team with both external hires and promotions of internal talent. We launched the new carrier operating system, which is both nimble and disciplined. And we are doubling down on our ESG commitments with a laser focus on our commitment to the environment through not only our own factories, but also more innovative energy efficient products. And we've supplemented our focus on the environment with initiatives that support the needs of our communities by playing our part in the fight against this pandemic. For example, we designed and produced our new OptiClean negative error machines in just a few weeks and early feedback from the hospitals on our prototype units is very positive. Turning to our strategy and growth pillars, these remain unchanged. We continue to deliver against our three strategic top-line priorities funded by Carrier 600. In the first pillar, growing our core, we remain well positioned within each of our segments building off of our number one or two market positions. We are also adding 500 net sales employees while we continue to make key strategic R&D and digital investments. we've had significant wins across the portfolio, including our largest order ever of 19 DV chillers for data centers in Indonesia, an exclusive long-term resi deal with Fisher Homes in the U.S., and very significant wins across our refrigeration and FNS portfolios. In our second pillar, extending our products and geographic coverage, as a vote of confidence in our CO2 technology that we're using to enter warehouse refrigeration, we were selected to provide the cooling for the Beijing Olympics ice rink, and we secured a VRF win for the Sanya Olympic Village apartments in China for 3,500 heat pumps and 1,000 condensing units. And in the third pillar, driving aftermarket and digital, we have a dedicated aftermarket team in place. We indicated that we'd get to a 30% conversion rate in commercial HVAC by the end of next year, and we are on track to do so this year, We're rolling out structured tiered offerings customized to customers' needs, and we have leaned forward on digital as a differentiator through remote monitoring, diagnostics, and prognostics. We've had some key aftermarket wins, including a four-year chiller service agreement with the Hong Kong International Airport for 52 chillers across 17 buildings, and support for Tim Horton's China operations that is projected to scale to 1,500 stores over the next 10 years. And on the right side of this slide, we're very proud of our essential and vital role in society. We support air conditioning systems in hospitals and nursing homes and the delivery of food and pharmaceuticals safely around the world. Looking ahead, as countries and regions around the world are preparing to reopen economies and society, we intend to play a critical role in anticipating and creating the new normal. For example, indoor air quality will be critical. We're putting the V back in HVAC, and our unique electrostatic systems can filter microscopic-sized contaminants. Carrier will be a leader in transitioning buildings around the world from sick to healthy buildings. Addressing food safety in the new normal will be paramount, and we have been making tremendous progress on holistic cold chain solutions. And in our fire and security business, touchless and traceability will be very thematic in the future. With our touchless Blue Diamond solution, we can eliminate 80% of typical contact points in an office building by enabling employees to use their cell phones instead. So with that, let me turn it over to Tim to discuss 1Q, cost and cash, and I'll come back to discuss our best sense of 2020. Tim.