Carrier Global Corporation

Good morning and welcome to Carrier's third quarter 2024 earnings conference call. I would like to introduce your host for today's conference, Sam Pearlstein, Vice President of Investor Relations and CFO of the Fire and Security segment. Please go ahead, sir.

Thank you and good morning and welcome to Carrier's third quarter 2024 earnings conference call. With me here today are David Gitlin, Chairman and Chief Executive Officer of and Patrick Gores, 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. Carriers 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. Before turning the call over to Dave, please turn to page three. And with the commercial and residential fire businesses qualifying as held for sale during the third quarter, the fire and security segment in aggregate met the criteria to be presented as discontinued operations. Christopher Ptomey, Historical sales margins and earnings per share in the appendix on page 27 and 28 to help for comparisons. Christopher Ptomey, To help you interpret the results continuing operations includes the HVAC segment the refrigeration segment, including commercial refrigeration. Christopher Ptomey, And the corporate expenses and eliminations guidance now includes the corporate expenses that were previously allocated to the fire and security segment, as well as the controls business that was part of the fire and security segment. Results discussed on this call will be continuing operations only, with the exception of preliminary free cash flow, unless stated otherwise. Once the call is open for questions, we ask that you limit yourself to one question and one follow-up. And with that, I'd like to turn the call over to our Chairman and CEO, Dave Gitlin. Well, thank you, Sam.

And let me start by saying a heartfelt thanks to you for everything that you have done for Carrier over the past five years. We wish you the best as the CFO of the commercial and residential fire business. I'd also like to welcome Mike Redner, who will succeed Sam and join Carrier on November 4th. Our team continues to perform while we put the finishing touches on our transformation. Organic orders were up 20%, about 20%, compared to last year, and we continue to increase our backlog, positioning us for continued growth as we head into 2025. The team drove 4% organic sales growth by leaning into verticals of strength to help offset continued headwinds in residential and light commercial HVAC in Europe and China. Importantly, we delivered double-digit aftermarket growth, and we are on a path for our fourth year in a row of double-digit growth. Organic sales growth combined with productivity drove very strong core earnings conversion of about 40%. We repurchased roughly $400 million worth of shares in Q3, and with our new reauthorization, we expect to repurchase approximately $5 billion worth of shares between the second half of this year and the end of next year. We had said that we wanted 2025 to be a clean year. We are on track to do just that. We closed on the sale of the commercial refrigeration business on October 1st, and we are on track to close on our final divestiture, commercial and residential fire, by year end. In addition to completing our portfolio moves, we have reached settlements subject to court approvals that we are confident will largely put the inherited AFFF potential exposure behind us. We are pleased with the outcome, which Patrick will discuss in more detail. Turning to slide five, our vision remains unwavering to be the global leader in intelligent climate and energy solutions. Global leadership entails winning and winning the right way through differentiation and customer solutions. We have gained share in nearly every business. In commercial HVAC, we are achieving outsized growth in key verticals, including data centers, decarbonization-related infrastructure spend, and megaprojects. For example, we had a recent win for a new semiconductor fab facility on the west coast of the United States. In data centers, our orders year-to-date are up more than 3x, and we expect continued momentum. Data center equipment growth will drive aftermarket growth where there is a 5 to 10x multiplier opportunity versus the installed base over time. Our commercial HVAC business is far better positioned now than it has ever been. Everything connected, everything intelligent. In Q3, we connected an additional 5,000 new chillers in the field and are on track for 50,000 connected chillers by year end. We also continue to expand our overall number of connected devices and offerings for our Abound and Lynx digital platforms. Climate is at our core as a company. We achieved the U.S. Department of Energy's cold climate heat pump challenge by validating that our infinity variable speed heat pumps with green speed intelligence can operate in the field at 100% capacity at zero degrees Fahrenheit and reliably at negative 13 degrees Fahrenheit. We also introduced a new version of the vector trailer refrigeration unit, which will reduce CO2 emissions by 73% while maintaining best-in-class performance. With our increased investments and expanded HVAC portfolio, we are now running a year or two ahead of our goal to reduce our customers' carbon emissions by one gigaton by 2030. On energy, we are focused on introducing complete home energy management solutions. In Europe, we remain confident in the sustained transition from boilers to heat pumps, where we see a mix-up factor of more than three to one. Adding integrated solar PV and battery can more than double the mix-up factor. In North America, we are making great progress working with major utilities, validating that our technology can help them manage peak-hour demand, which would also result in savings for our customers. We will be introducing pilots into the field next year. And finally, on solutions, our aftermarket growth formula continues to yield results. Coverage for our chillers is about 75,000 units, and we remain on track for more than 80,000 by the end of this year. Our aftermarket playbook continues to gain traction across the portfolio. As we look ahead, there is no question that we are a new carrier, as you can see on slide six. In just the four years since our spin, our HVAC business revenues will have nearly doubled from $10 billion in 2020. We are focused and simpler and now positioned as a higher growth profile company with our complete portfolio exposed to sustainability related secular talents. In addition, we have leading positions in all our targeted HVAC R markets globally to help us drive consistent profitable growth through geographic and vertical cycles. Turning to slide seven. I am very excited about the benefits that focus will bring. Since our spin, we have made great progress on culture, talent, winning, innovation, customer centricity, growth, and margin expansion. We have done this while navigating COVID supply chain challenges and a significant portfolio transformation. With that behind us, our portfolios going forward are clear. Laser focus on our customers and share and margin gains in our core businesses. double-digit aftermarket growth, complete ecosystem solutions for our customers, and continued balanced capital deployment. I am so excited for 2025 as we can double down on our focus on execution and growth, benefiting our customers, our people, and our shareholders. Last, before I turn it over to Patrick, a few words on Vesma Climate Solutions on slide eight. For the first time this year, we are seeing encouraging market indications. The backlog, which was still elevated coming into the year, is now back to traditional levels. So this business has returned to being a book and ship business with about a month of backlog. Orders for much of the year in Germany were constrained, in large part because the government declared in February that subsidies would not be paid until October. We thought orders would start to pick up in Q3, which they did, just later in the quarter than we anticipated. Q3 sales were down about 25% rather than our estimated 20%, resulting in the full-year expectation now being down in the high teens rather than our previous estimate of down in the mid-teens. Encouragingly, recent trends around orders and subsidy applications have improved. Heat pump subsidy applications in Germany in Q3 were up about 50% sequentially and up 2x versus last year. VCS orders overall turned positive, up low single digits, and it was the best orders quarter in over a year. Orders were up about 10% in September, and that strength has continued in October. More broadly, the integration has exceeded our expectations. There are so many obvious and some less obvious benefits to this game-changing combination. Consider technology development and now having best of the best approaches to scalable global platforms, we are now harmonizing our electronic control board designs around the basement platform. Cost per board is projected to decrease significantly, and we will also benefit from avoiding duplication across the network supply chain management obsolescence management management and quality. The same is true for embedded software. We will be harmonizing standard embedded software for all of our electronics around the Wiesman OneBase ecosystem, which will shorten time to market and decrease development costs. We are also working on implementing best of the best digital connectivity with our customers. For revenue synergies, we are targeting over $100 million in revenue synergies next year. These include new carrier cooling and heat pump offerings through the basement channel and a new carrier branded propane heat pump for light commercial applications. And we know we will drive cost synergies. We remain on track for over 200 million in cost synergies in 2026. And of course, we are driving internally to do better than that. By controlling the controllables and leveraging this phenomenally differentiated company, I am confident that we will together drive tremendous value for decades to come. With that, I will turn it over to Patrick. Patrick?