Carrier Global Corporation

Good morning and welcome to Carrier's Q3 2026 earnings release. I would like to introduce your host for today's conference, Michael Rednor, Vice President of Investor Relations. Michael, please go ahead.

Good morning and welcome to Carrier's third quarter 2026 earnings conference call. On the call with me today are David Gitlin, Chairman and Chief Executive Officer, and Patrick Goris, Chief Financial Officer. Except where otherwise noted, the company will speak to results from continuing operations including restructuring costs and certain significant non-recurring items. A reconciliation of these and other non-GAAP financial measures can be found in the appendix of the webcast. We also remind listeners that the presentation contains forward-looking statements which are subject to risks and uncertainties. Carrier's SEC filings, including our Form 10-K and quarterly reports on Form 10-Q provide details on important factors that could cause actual results to differ materially. With that, I'd like to turn the call over to Dave.

Well, thanks, Mike, and good morning, everyone. We delivered a strong third quarter. Organic sales grew 15%, adjusted operating profit increased about 35%, with adjusted operating margins expanding 260 basis points. Adjusted EPS increased 30%, or approximately 15%, excluding the impact of IEPA refunds. Year-to-date free cash flow was also very strong at $1.5 billion. Our strategy is working and we are winning. Global orders increased 35% in the quarter with global commercial orders up over 60%. Data center orders increased 300% and year to date data center orders have exceeded $3 billion, an increase of nearly 350%. We delivered more than 550 million in data center sales in the third quarter, exceeding our target and we remain on track to deliver our full year commitment of $2 billion. This momentum has contributed to record backlog of more than $8.5 billion. And remember, that backlog excludes minimum volume commitments under long-term agreements. Earlier this month, we signed an agreement with a hyperscaler for more than $3 billion with a significant portion of that covered by a minimum volume commitment. Our team is also working with several other leading hyperscalers and large colo customers to secure future agreements across our differentiated commercial HVAC portfolio, including chillers, CDUs, and building management systems. It is also encouraging that data center sales are margin accretive to our applied business. Importantly, we see strength beyond data centers. Non-data center commercial orders increased 20% in the quarter. Residential sales in CSA increased more than 30%. Residential and light commercial sales in Europe grew 13%. Aftermarket grew 9%. And the install base created by today's commercial growth positions our aftermarket for sustained long-term expansion. The quarter was strong, but the bigger story is how fundamentally Carrier's growth profile has changed, as you can see on slide four. We now have a powerful combination of long-cycle commercial growth, Expanding aftermarket revenue and improving short cycle residential and light commercial markets. This gives us both increased visibility and multiple avenues for sustained growth. Our commercial HVAC and aftermarket businesses have grown at double digit rates every year since SPIN. By the end of this year, we expect these businesses to be approximately twice their size versus SPIN. And by the end of next year, we expect them to represent nearly half of our portfolio. We are winning in commercial through differentiation as you see on slide 5. We have fundamentally transformed our commercial HVAC business. Our sales are up 2x in spin and our backlog is up 4x. We invested in a new and innovative product portfolio with us seeing great demand for our new 2 and 3 megawatt air-cooled chillers and our new family of CDUs. In addition to products, we have significantly enhanced our digital, BMS, AI, and system offerings, complemented by a far more expansive field network of technicians, spec engineers, and selling professionals, all to provide our customers with differentiated outcomes, namely intelligent, autonomous, and efficient buildings. We are also winning because of our execution and customer support. Just in the past month, two key hyperscalers have doubled down on their commitments to us based in part on our performance. Not only product, digital, and systems performance, but also our on-site commissioning and field support. Our strong demand and backlog require additional capacity. Last week, we announced a new advanced manufacturing and engineering site in Fort Worth, Texas. The facility will add approximately 1,500 highly skilled jobs, insource critical sub-assemblies and components, and expand our test lab capacity. We plan to begin customer deliveries from this site in the late summer of next year. Given the tremendous backlog and growth opportunities within our CSA segment, we are appointing two proven leaders to ensure that we fully realize our growth and earnings potential in both commercial and RLC in this segment. will focus all of his efforts on the CSA commercial business, while Ed Dryden, who has been a driving force of our operational digital and engineering transformation within CST, will now take responsibility for CSA RLC. Both are great leaders and will continue to report to me. I will take on responsibility for overall CSA segment, and we will continue to report CSA as such. In addition to a transformed commercial business, we have market-leading resi and light commercial businesses where markets are improving, as you can see on slide 6. We had expected the CSA residential market to be below 7 million units this year. It now appears to be tracking to between 7.5 million and 8 million units. In Europe, the heating market is stabilizing, Germany has returned to growth, and demand for both heat pumps and air conditioning is extremely strong. Beyond market recovery, we continue to outperform through product, digital, and systems differentiation. The combination of Carrier, Toshiba, and Wiesman gives our 5,000 engineers a unique collection of technologies to scale globally. We are leveraging compressors, inverters, controls, drives, and software developed across our global centers of excellence to deliver our residential customers globally with intelligent, For example, in the U.S., we recently launched a mid-tier heat pump using Toshiba's variable frequency drive and rotary compressor technology, and initial orders have been strong. In Europe, the Wiesmann VitoCal 200A has launched across more than 10 countries with record pre-sales. We are also applying Wiesmann's one-base digital framework to our digital offerings in CSA. and our systems approach continues to gain traction. Systems profi installers in Europe delivered 70% growth in the third quarter while in CSA we will be initiating field trials of our first integrated air-to-air heat pump and domestic hot water solution in the first half of 2027 with full launch expected by the end of next year. Carrier energy is progressing our integrated battery heat pump offering through key partnerships, including our selection as the first new technology partner for PG&E's share program funded by Google. And we are installing our first revenue producing units this quarter. We are also applying the same strategy across buildings and homes. Differentiated and cost competitive products, digital and controls, system solutions, Lifecycle Solutions, and Go-to-Market Excellence. Before I put 2026 in perspective, I want to address Climate Solutions Europe.