Carrier Global Corporation

Good morning and welcome to Carrier 4th 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 4th 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 and Carriers SEC filings including forms 10K, 10Q, and 8K provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. 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.

Well, thank you, Sam and good morning everyone, let me start by saying a heartfelt thank you to our team for delivering excellent results in 2023 while navigating such a significant and compelling portfolio transformation. i'd also like to thank and welcome our new 12,000 TEAM members from basement climate solutions. Our formal kickoff last month had more energy warmth and excitement than I have ever seen from day one celebrations. I profoundly believe that this will go down as the most impactful business combination that our industry has ever seen, and we are so excited to be on this journey together. As you can see on slide two, the fourth quarter kept a strong finish to a great year for Carrier. In the quarter, we achieved 33% of adjusted EPS growth, driving another quarter of double-digit aftermarket growth and 80 basis points of margin expansion on Flattish sales. Importantly, free cash flow of over $800 million significantly beat our expectations, driven by continued strong performance and working capital. Overall for 2023, I am so proud of what the team accomplished, as you can see on slide three. Our team has consistently shown an ability to outperform without excuses, overcoming COVID headwinds to deliver strong results following our spin in 2020. persevering through supply chain challenges, and delivering for our customers and shareholders despite significant portfolio moves. For the year, we delivered 17% EPS growth on 3% organic sales growth, drove about 40% core earnings conversion, improved our free cash flow performance by more than 50% year-over-year, from $1.4 billion to over $2.1 billion. Not only did we deliver strong results in the year, we also took key actions on growth initiatives and detailed productivity planning to position 2024 for solid growth and margin expansion. This consistent performance has led to differentiated shareholder returns since we became a public company, as you can see on slide four. As we prepared for our spin, our goal was to leverage our many strengths that Carrier established over the past century, but also take advantage of the unique opportunity to create a new Carrier. We established a performance culture with innovation and customer intimacy at our core and simplified our business and portfolio. We have been disciplined on continuous improvement and productivity invested in growth and have driven recurring revenues with a proven playbook. We sharpened our focus as an organization to lean into the long-term trends around sustainability and have accelerated our leadership in this space. So we're proud of our track record. We're even more excited about our next chapter as we take our performance to the next level. Our mission is clear, to be the global leader in intelligent climate and energy solutions, as you can see on slide five. It starts with differentiated product introductions, some of which you see listed here. We are now focusing our 6,000 engineers on developing differentiated sustainable solutions for our customers. Specific technologies that cut across our portfolio across the globe, such as AI and sensing algorithms, low GWP refrigerants, energy efficiency, low temperature heat pumps, electrification, and integrated energy management solutions. We are poised to out innovate and win, and we will continue to invest to ensure that we do so. These efforts are reflected in our results as we gain share across our portfolio. European commercial heat pump sales were up 25% in 2023. Nearly 40% of our North America residential split systems were heat pumps and our market leading electric transport refrigeration sales in Europe grew over 70%. For sustainability leadership, we walk the talk. We have reduced our customers emissions by more than 270 million metric tons on our way to our one gigaton Scope 3 commitment for 2030. We remain on track for carbon neutrality in our operations by 2030 and are using Abound across our footprint to help ensure that we achieve it. We also laid out a clear roadmap to achieve net zero greenhouse gas emissions across our value chain by 2050 under the SBTI framework. In addition to sustainability, one of our other key themes is achieving consistent double-digit aftermarket growth, which we achieved again last year, as you can see on slide six. Growing 12% last year represents our third consecutive year of double-digit growth. We now have approximately 30,000 connected chillers in the field versus 5,000 just three years ago. This has helped our attachment and our coverage rates with a commercial HVAC now at 45% attachment for long-term service agreements up from roughly 20% just three years ago. We know the playbook, it's working and we are targeting another year of double digit aftermarket growth this year and beyond. In summary, we continue to perform while we are transforming as you see on slide seven. I already mentioned the energy and warm reception that we received from our new team members and many customers across Europe just a few weeks ago. Here is what is clear. Wiesman is an organization with a deep culture of excellence. Excellence in its product design, customer intimacy, channel superiority, culture, team, all reflected in its deeply admired brand. The tangible and intangible benefits from this combination will benefit our people, customers, investors, and the planet for decades to come. We are also fortunate to now have Max Wiesman on our board who is already providing us with unique insights and perspectives. When we look closer at 2024, we are planning for Wiesman climate solution sales to be up mid single digits off a 2023 year end of about 4.2 billion US dollars with high teens adjusted EBITDA margins. This includes the benefit of our targeted first year cost synergies. Internally, we are targeting significant revenue synergies, which would all be upside to our business case. Even though last year's regulatory and subsidy uncertainty in some European countries delayed order intake, which we expect to impact growth in the first half of 2024, we do expect Wiesman Climate Solutions to return to solid growth in the second half of this year, And we target achieving or exceeding our year one business case adjusted EBITDA by accelerating supply chain and other cost savings. So, we're off and running. We are applying the playbook from our successful integration with Toshiba to ensure that we preserve Wiesman's superb team and culture while integrating to create tremendous value together. Turning to our business exits on slide eight. You all saw our announcements on access solutions and commercial refrigeration, which together will yield close to $6 billion or about $4.5 billion in net proceeds. We are making good progress on our industrial fire sale and still expect to announce a definitive agreement around the end of the first quarter. We are also preparing to exit our combined residential and commercial fire businesses via a sale or public market exit. Given our cash performance and the progress of these business exits, We now have a path to achieve about 2x net leverage ratio by the end of this year, which is about a year earlier than we previously indicated. Before I turn it over to Patrick, a quick word on our 2024 guidance on slide 9. Even though GDP in many of our key markets looks to be less than 2%, we are planning for mid-single-digit growth. Sustainability megatrends and continued double-digit aftermarket growth enable us to significantly outgrow global economies. We will continue to be tenacious and disciplined on every aspect of productivity, and we are therefore targeting over 50 basis points of adjusted operating margin expansion. With that, let me turn this over to Patrick. Patrick?