Carrier Global Corporation

and welcome to CARRIE's first quarter 2022 earnings conference call. This call is being carried live on the internet and there is a presentation available to download from CARRIE's website at ir.carri.com. I would like to introduce your host for today's conference, Sam Prostein, Vice President of Investment Relations. Please go ahead, sir.

Thank you and good morning and welcome to CARRIE's first quarter 2022 earnings conference call. With me here today are David Gitlin, Chairman and Chief Executive Officer, and Patrick Gores, 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 reminds listeners that the sales, earnings, and cash flow expectations and any other forward-looking statements provided during the call are subject to risks and uncertainties. CARES SEC filings, including Forms 10-K, 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. We will leave time for questions at the end. Once the call is opened up for questions, we ask that you limit yourself to one question and one follow-up to give everyone the opportunity to participate. With that, I'd like to turn the call over to our Chairman and CEO, Dave Gitlin.

Dave Gitlin Thank you, Sam, and good morning, everyone. I'll start with a summary of our Q1 results on slide two. Q1 was another strong quarter for us, and I am proud of how our team continues to execute in the face of global challenges. We delivered 12% sales growth, excluding the impact of Chubb. Organic orders growth remained strong at 10%, and our backlog is up almost 30% organically versus last year. Adjusted operating profit was up 7 percent compared to last year and up high teens, excluding the impact of Chubb. Price cost was neutral in the quarter, better than expected. Free cash flow was a larger than expected outflow in the quarter, mainly due to supply chain shortages impacting inventory levels. We continue to expect to generate $1.65 billion of free cash flow this year. We remain focused on the priorities that you see on slide three. above-market organic growth, margin expansion, strong free cash flow, and disciplined capital allocation. This slide summarizes our value creation framework as presented at our recent Investor Day, which not only forms the basis for our updates to our investors, but also drives our priorities via our internal goal alignment process. I recently spent a week in Europe and a week in Asia and saw firsthand how our people globally are driving results tied to these priorities. From our world-class operations in our Singapore container factory to the tremendous innovation from our colleagues in Hyderabad and New Delhi to the discipline and energy in our sites throughout Poland, it was encouraging to see the power of focus, culture, and talented, empowered teams coming together to provide solutions for our customers. I'll address our progress on the key elements of this value creation framework starting with growth on slide four. We continue to lean into the opportunities provided by the secular trends presented at our investor day that we are confident will drive above market growth despite macro uncertainty and supply chain challenges. On healthy indoor environments, we saw 125 million worth of orders in Q1, and our healthy buildings pipeline is now $850 million, up more than 20% sequentially from the fourth quarter. We continue to play offense on ESG and sustainability. The combination of the upcoming Toshiba acquisition and our newly announced European Heat Pump Design Center of Excellence position us favorably to enter the attractive European residential heat pump market. This will complement our leadership in global commercial heat pumps. As an example, our low GWP heat pump chiller orders in Europe were up over 30 percent in the first quarter. Electrification is equally critical in transport refrigeration, where we recently added Woolworths, Australia's largest supermarket chain. We now have more than 10 countries where our vector e-cool all-electric reefer units are in service. In terms of digitalization, our key focus remains on rapid adoption of our Abound and Lynx platforms. We've incorporated energy monitoring and alert reporting capabilities into our Abound platform and achieved key wins across verticals, including education, retail, and industrial. There are now over 750 million square feet monitored by Abound. This includes an important recent win with Harvard's T.H. Chan School of Public Health. Our digital capabilities are receiving more widespread recognition. For example, within the Abound platform, our Cortex solution recently won several key awards, including the 2022 Artificial Intelligence Excellence Award organized by the Business Intelligence Group and the AI Breakthrough Awards 2021 Best Predictive Analytics Platform. Cordix offers predictive insights and autonomous actions to optimize equipment performance and building operations, and is currently connected to over 300,000 pieces of building equipment from multiple OEMs. This is a good example of how our digital platforms deliver customer value across a diverse installed base. We have also expanded our links capabilities, including asset tracking, prognostics, and temperature alarms, and we remain on track to have 100,000 link subscriptions by the end of this year. We remain confident that the increasing middle class will continue to drive demand for our products in countries such as India, where income levels are increasing and penetration levels of our portfolio of solutions remain low. In addition to the tailwinds from these secular trends, we continue to accelerate growth in our core businesses through innovation and differentiation, which you can see on slide five. After releasing 21 new products in Q1, we remain on track for more than 125 new product introductions in 2022. Our innovation pipeline is centered around our core strategy of healthy, safe, sustainable, and intelligent building and cold chain solutions. One example is that we recently introduced a smoke and carbon monoxide detector with embedded indoor air quality sensors with all the data connectable to smart home ecosystems. Our R&D efforts on disruptive technologies are progressing well. One example is our traction on the Department of Energy's challenge to improve the efficacy of heat pumps at cold ambient temperatures. Our unit is currently under test at the Oak Ridge National Labs. We have demonstrated the expected performance with a better than required coefficient of performance at ambient temperatures of 5 degrees Fahrenheit using our forthcoming low GWP refrigerant. We are working to commercialize our solution to increase adoption of heat pumps over oil and gas-fueled heating systems in colder regions. I am pleased to announce that we have a new Chief Technology Officer. Hakan Yilmaz recently led Honeywell Aerospace's 10,000 engineers and previously held critical roles at BorgWerner and Bosch. His experience driving customer solutions across a broad range of cutting-edge technologies at the intersection of hardware and digital positioned him perfectly to help take our innovation efforts to the next level. Another critical growth driver for us is aftermarket and recurring revenues, which you see on slide six. After 11% growth in 2021, aftermarket sales were up high single digits in Q1. Across carrier and within each segment, we have detailed KPIs across the vectors that you see here. Parts capture, service coverage, digital solutions, and healthy and sustainable offerings. We remain committed to delivering on our full-year KPIs, including having 70,000 chillers under long-term agreements and 20,000 connected chillers by year-end. So our growth drivers remain encouraging. Turning to margin expansion on slide seven. At our investor day, we committed to over 50 basis points of margin expansion per year, with 2022 projected to be closer to 75 basis points, and we exceeded that in the first quarter, growing adjusted operating margins by 110 basis points. We remain on track to deliver the $300 million of gross productivity savings that we committed to for 2022. Related to that productivity improvement, we are very purposeful about building a more resilient supply chain, and we are tracking to our commitments around dual sourcing of critical components and increasing factory automation. With that, let me turn it over to Patrick. Patrick?