Carrier Global Corporation

Good morning, and welcome to Carrier's Third Quarter 2023 Earnings Conference Call. I would like to introduce your host for today's conference, Sam Pearlstein, Vice President of Investor Relations. Please go ahead, sir.

Thank you, and good morning, and welcome to Carrier's Third Quarter 2023 Earnings Conference Call. With me here today are David Gitlin, Chairman and Chief Executive Officer, and Patrick Orr, Chief Financial Officer. We will be discussing certain non-GAAP measures on this call, which management believes are relevant in assessing the financial performance of the business. These non-GAAP measures are reconciled to GAAP figures in our earnings presentation, which is available to download from Carrier's website at ir.carrier.com. 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. Carrier's 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 statement. Once the call is open 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.

Thank you, Sam, and good morning, everyone. I am very proud of our team for delivering another strong quarter, enabling us to, again, increase our full-year guidance. HVAC and fire and security sales were both up mid single digits with the overall company delivering yet another quarter of double digit aftermarket growth. Adjusted operating profit and adjusted EPS were both up over 20% year over year with adjusted operating margins up 240 basis points in the quarter. The HVAC and fire and security segments both delivered record adjusted operating margins in the quarter, approximately 21% and 18% respectively. Free cash flow performance also continues to be strong, positioning us for some upside for our full-year guidance. Bottom line is we continue to perform while we transform, as you can see on slide three. We are a team that is very clear-eyed about macro challenges. We are focused on controlling the controllables, driving operational excellence, being tenacious about customer centricity, out-innovating our peers, and consistently delivering on our commitments. With two months left in the year, we are confident that in 2023, we will deliver mid-single-digit organic growth, 15% adjusted EPS growth, margin expansion despite the negative impact from consolidating Toshiba Carrier, and strong free cash flow. Not only are we poised to close out 2023 on a strong note, we have significantly matured our productivity processes, so we will enter 2024 with even more rigor and detailed plans around our cost reduction activities, positioning us for further margin expansion next year and beyond. We also have confidence in continued growth driven in part by our aftermarket and recurring revenue traction, as you see on slide four. We're on track for 80,000 chillers under long-term agreements and 30,000 connected chillers by year-end. The attachment rate at Q3 was approximately 50%, nearly double pre-spin performance. Abound continues to gain market traction, exemplified by new, scaled customers committing to our Abound Healthy Air solution and Abound Net Zero management offerings in Q3. Additionally, we announced the launch of Lynx Logic, a new software-as-a-service application within our Lynx digital platform that helps predict and address supply chain disruption by automatically identifying trends, patterns, and issues in distribution networks and transportation lanes. customers clearly see the benefit of Lynx capabilities, and we now have over 100,000 paid Lynx subscriptions. Our playbook around digitally-enabled lifecycle recurring sales continues to yield encouraging results globally, as we are well-positioned for another year of double-digit growth in 2023 and beyond. Our other major growth theme is around driving differentiated solutions to ensure sustainability leadership. You see examples of that on slide five. We continue to introduce industry-leading products into the market that help our customers achieve their sustainability targets while decarbonizing the planet for generations to come. Carrier Transicle introduced the new Optimaline refrigerated container unit, which offers best-in-class energy efficiency versus the competition and is approximately 15% more fuel efficient than our prior unit. We also introduced a comprehensive new line of high and very high temperature heat pumps for use in industrial, commercial, and health care buildings, as well as district heating. These heat pumps reduce both carbon emissions and energy costs up to 80% versus traditional gas boiler applications. Additionally, our new zero GWP refrigerant air to water high efficiency heat pump will nicely complement Wiesman's offerings in the European market. And on top of these new product introductions, our existing business continues to gain momentum as European commercial heat pump sales were up 70% in Q3 and are up 40% year to date. Thanks to our sustainability product and service offerings, we are well on our way to achieving our scope three commitment of reducing our customers' greenhouse gas emissions by more than one gigaton by 2030. having achieved approximately 270 million metric tons of reduction since 2020. We have and will continue to invest a disproportionate amount of our R&D in sustainability differentiation. We are pleased to have been recognized by Time Magazine, Newsweek, and many others for our sustainability leadership. Excitingly, the combination with Biesemann Climate Solutions will further accelerate our mission of becoming the world leader in intelligent climate and energy solutions, as you see on slide six. Last month, we had the pleasure of hosting Max Wiesman, Chairman and CEO of the Wiesman Group, in our headquarters for a webcast event to discuss his views on the future combination. We are profoundly confident and excited in the value creation opportunities ahead of us. The trend toward heat pumps in Europe is unambiguous and will continue for many years to come. Max confirmed that European decarbonization is a trend that is not changing and is well supported by governments in Europe. While individual countries may adjust regulations and subsidy levels from year to year, we see a multi-year growth opportunity as those countries meet their commitments for emission reductions backed by EU and country-specific funding. Residential heat pump penetration in Europe is only about 8%. and 21 countries have subsidies to support 2030 and 2050 decarbonization goals. Wiesman Climate Solutions is also well positioned for continued share gains. Unlike some of its competitors, it has the advantage of providing solutions for all energy classes, heat pumps, gas boilers, hydrogen boilers, while some of its competitors are pure plate heat pump or boiler providers. It has a connected ecosystem of offerings for an electric home such as solar PV, batteries, and a differentiated digital platform while also driving increased subscription sales. A good example is the VitoCal 250A natural refrigerant air-to-water heat pump that won this year's award for the best heat pump in Germany. Wiesmann Climate Solutions is soon introducing a 19 kilowatts of output version that will now give it access to over 90% of the single-family home heating market. Additionally, the brand new VitoCal 250A Pro, also releasing a Q1, will offer heat pumps outputs of up to 40 kilowatts, ideal for multifamily and commercial buildings. And based on our experience with Toshiba Carrier and that acquisition and integration, which is going extremely well, we are certainly confident in the cost synergies and already see potential for revenue synergies, which go well beyond our deal model. In short, Wiesman Climate Solutions is the most attractive business in the most attractive segment in our space, and we cannot wait to come together as one business, which is likely to close the first week of January 2024. Lastly, a brief update on our business exits on slide seven. First, my thanks to our teams who are working quite literally around the clock and doing a superb job. We have many advisors who, together with our bankers, Goldman Sachs and J.P. Morgan on fire and security, and Bank of America on commercial refrigeration, are focused on maximizing the net proceeds and speed while ensuring a clean exit of these businesses. We are progressing very well with the prospective buyers for security, commercial refrigeration, and industrial fire. The interest level has been extremely high, and we expect to be able to announce signed agreements before the end of 1Q, hopefully sooner. The capital market transactions for the combined commercial and residential fire business is on track. These are superb assets with deeply committed and effective team members, and we remain very optimistic about the value that we will realize on these exits. With that, let me turn it over to Patrick. Patrick?