Johnson Controls International plc

Good morning. Welcome to Johnson Control's first quarter 2020 earnings call. Your lines have been placed on listen only until the question and answer session. To ask a question, please press star one on your touchtone phone. This conference is being recorded. If you have any objections, please disconnect at this time. I will now turn the call over to Antonella Franzen, Vice President and Chief Investor Relations and Communications Officer Ma'am, you may begin.

Good morning, and thank you for joining our conference call to discuss Johnson Control's first quarter fiscal 2020 results. The press release and all related tables issued earlier this morning, as well as the conference call slide presentation, can be found on the investor relations portion of our website at johnsoncontrols.com. With me today are Johnson Control's Chairman and Chief Executive Officer, George Oliver, and our Vice Chairman and Chief Financial Officer, Brian Steefe. Before we begin, I'd like to remind you that during the course of today's call, we will be providing certain forward-looking information. We ask that you review today's press release and read through the forward-looking, cautionary, informational statements that we've included there. In addition, we will use certain non-GAAP measures in our discussions, and we ask that you read through the sections of our press release that address the use of these items. In discussing our results during the call, references to adjusted EBIT A and adjusted EBIT margins, exclude restructuring and integration costs, as well as other special items. These metrics are non-GAAP measures and are reconciled in the schedules attached to our press release and in the appendix to the presentation posted on our website. Additionally, all comparisons to the prior year are on a continuing ops basis, excluding the results of Power Solutions. GAAP earnings per share from continuing operations attributable to Johnson Control's ordinary shareholders was 21 cents for the quarter and included a net charge of 19 cents related to special items, which Brian will address in his comments. Excluding these special items, non-GAAP adjusted diluted earnings per share from continuing operations was 40 cents per share compared to 26 cents in the prior year quarter. Now let me turn the call over to George.

Thanks, Antonella, and good morning, everyone. Thank you for joining us on today's call. Before we get into the details of the quarter, I would like to provide a few thoughts as we look ahead to the rest of fiscal 2020. Starting on slide three, we continue to see good momentum across the majority of our key performance metrics, with Q1 providing a strong start to the year. We saw 70 basis points of margin expansion this quarter. This resulted from a reduction in structural costs, improved project execution, accelerated service growth, expansion in gross margins, and driving innovation. All of these initiatives will remain key focal points for us as we go forward. We've also made significant progress in improving our cash generation profile with important steps towards better management of our trade working capital and continued discipline around CapEx spending. We still have more work to do to bring free cash conversion up to 100 percent on a sustainable basis but I am extremely pleased with the progress we have made to date. As we will discuss on the next slide, orders were flat in the quarter, but I am confident, given the continued strength we see in our pipeline, we will see acceleration in Q2. Our primary end markets, commercial HVAC, building controls, fire and security remain healthy, and we are well positioned as leaders in each market. We have significantly strengthened our balance sheet over the course of the last nine months with ample flexibility when it comes to future capital deployment opportunities. Finally, as I've said many times in these calls over the last couple of years, we remain intently focused on execution and building a strong performance culture to drive sustained performance and maximize shareholder value. Turning to some of the details for the quarter, starting with orders on slide four. Orders for our field businesses were flat in aggregate in Q1, as we faced tough prior year comparisons given the timing of announced price increases. Last year, our announced price increases were effective in January, which resulted in a pull forward into Q1 fiscal 19. This year, we accelerated our announced price increases to be effective in October, which resulted in a pull forward into late fiscal 19. Looking forward, our order pipeline remains robust with an attractive mix of service and a balanced profile of small and large projects. We expect order growth in Q2 to be in the mid-single-digit range, and we remain very confident in our low to mid-single-digit growth target for the full year. Backlog ended the quarter at $9 billion, up 6% organically versus the prior year, and up 2% on a quarter sequential basis, which provides high visibility through 2020. Turning now to slide five for a quick recap of the financial results in the quarter. Sales of $5.6 billion increased 3% on an organic basis. Within the field businesses, total service revenues grew 3% in the quarter on top of mid-single digit growth in the prior year. Our service business represents over $6 billion in revenues, or a little more than 40% of our field revenue base, and provides us with a very profitable, resilient revenue stream. As growing and expanding our service offering has been a key priority, we recently appointed a dedicated global service leader. Ganesh Ramaswamy joined the team from Danaher and will drive improved consistency of fundamentals across our global direct channel, leverage our infrastructure and investments, and work closely with regional leaders to execute on our strategic priorities. With the strength and depth of our portfolio, we have a tremendous opportunity to strengthen our core service business while building and deploying new service solutions leveraging our digital capabilities. Adjusted EBIT of $448 million grew 13% on an organic basis, driven by solid 7% growth in segment profit and a continued focus on reducing corporate expense. Overall, underlying EBIT margins expanded 80 basis points year-over-year, excluding a 10 basis point headwind from FX. Adjusted EPS of 40 cents increased 54% over the prior year with solid operational performance and a significant contribution from the deployment of proceeds related to the power solution sale. Adjusted free cash was an outflow of under $100 million in the quarter, in line with our normal seasonal patent, but a significant improvement over the last two years. With that, I will turn it over to Brian to discuss our performance in more detail.