Johnson Controls International plc

Welcome to Johnson Control's first quarter 2022 earnings call. Your lines have been placed on a listen only until the question and answer session. To ask a question, please press star 1 on your telephone keypad. This conference is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Antoinella Franzon, Vice President and Chief Investor Relations and Communications Officer.

Good morning and thank you for joining our conference call to discuss Johnson Control's first quarter fiscal 2022 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. Joining me on the call today are Johnson Control's Chairman and Chief Executive Officer, George Oliver, and our Chief Financial Officer, Olivier Leonetti. 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 discussion, 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 earnings per share, EBIT A and EBIT exclude restructuring as well as other special items. These metrics together with organic sales and free cash flow 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. Now let me turn the call over to George.

Thanks, Antonella, and good morning, everyone. Thank you for joining us on the call today. Let's get started on slide three. We are off to a strong start in fiscal 2022 with solid Q1 results as our teams across the world continue to demonstrate best-in-class execution, delivering both strong financial performance for the enterprise and smart, innovative solutions our customers demand to ensure a safe, healthy, and sustainable spaces. Our service activity in the quarter accelerated from both an orders and revenue perspective, and we are making great strides across all of our vectors of growth, decarbonization, healthy buildings, and smart buildings. I'm incredibly proud of how the team is operating in what still remains an incredibly challenging environment as we continue to face headwinds from supply chain and labor constraints in various dislocations caused by the latest variant of COVID-19. As the recovery in our end markets expands, I have been continuously encouraged by the underlying demand trends we are witnessing, as evidenced by high single-digit order and revenue growth this quarter and the $10.5 billion backlog we have built, which increased 10% on a year-over-year basis. What has been equally as encouraging is the drivers of this demand have been the retrofit replacement of equipment and service offerings required to achieve higher indoor air quality reduction in the energy efficiency goals, which perfectly aligns with our portfolio of end-to-end digital solutions and services. We continue to advance our initiatives to accelerate growth and transform our service business. Q1 was another quarter of solid revenue and order growth, and we continue to drive our attachment rate higher with a multifaceted approach. including a number of digitally enabled solutions. Additionally, there are significant actions underway across the organization to optimize the efficiency of our cost structure, and we remain on track to deliver $230 million in productivity savings this year. We had another quarter of strong free cash flow performance. As Olivier will share with you later, this has allowed us to continue to fund organic reinvestment in our business as well as share repurchase and M&A activity, all three of which remain top priorities. Over the next several slides, I will update you on some of the strategic growth vectors we continue to highlight, and all of these are supported by the global megatrends that will drive demand within the building sector for the next decade plus. As we have said in the past, we truly believe we are among the best in class when it comes to the ability to deliver fully integrated solutions designed to address the challenges associated with these trends. Based on our performance in Q1 and our expectations for the remainder of the year, we are reaffirming our EPS guidance for the year. Please turn to slide four. During the quarter, we were honored to be recognized for our leadership in sustainability and ESG, as well as our innovations in smart building platforms. We received our eighth consecutive ranking in the Corporate Night's Global 100 Most Sustainable Corporations in the World. We were recognized by Sustainalytics for managing material ESG issues, and we were one of 45 companies globally to receive His Royal Highness the Prince of Wales inaugural terracotta seal. In terms of smart buildings, I was humbled to receive, on behalf of the company, the IoT Company CEO of the Year Award from IoT Breakthrough. This award is a reflection of the work of our entire digital and OpenBlue teams, engineering, development, sales, service, and marketing. Lastly, we were also recognized by Verdantix for having the most prominent IoT platform for smart buildings in 2022, having achieved market-leading scores in several key categories. Please turn to slide five. Our service business continues to perform well. We are seeing good traction on our initiatives to accelerate growth and increase recurring revenues. We are also seeing encouraging trends in the adoption of our open blue digital service offerings. Overall, service revenues in the quarter were up 5% with broad-based growth across all regions. Borders were up 7% led by low double-digit growth in North America with strength across our applied commercial HVAC and fire and security platforms. We expect a 400 to 500 basis point improvement in our attach rate for the full year. It ended Q1 at approximately 41%. Turning to slide six. It goes without saying that sustainability is at the heart of everything we do. There are tremendous efforts underway in all parts of the world to decarbonize. And it has become very clear that buildings play a pivotal role in these efforts. We were pleased to see the recent announcement from the Biden administration forming a new national building performance standards coalition consisting of more than 30 state and local governments across the U S incentivizing the development of healthier, lower carbon emitting buildings. Building performance standards are among the core policy initiatives we have flagged as primary demand drivers for decarbonization in achieving net zero. This major announcement by the White House is the latest in a number of regulatory actions taken by the local and national governments globally in support of decarbonizing economies, and more specifically, in support of accelerating progress towards net zero buildings. These standards will mandate stringent carbon reduction requirements for new and existing buildings in the U.S., including financial penalties for noncompliance. The official adoption of these standards would represent an important step towards the formation of the $240 billion decarbonization industry we expect through 2035. Moving to slide seven. We recently launched our latest offering under the open blue healthy buildings portfolio, indoor air quality as a service. This is the industry's first dedicated as a service model for delivering indoor air quality. This offering allows us to combine our traditional holistic approach to delivering healthy indoor environments with innovative financing models that eliminate the need for our customers to commit capital up front, lowering the risk and time to implement. This offering provides a turnkey solution that delivers clean air while simultaneously optimizing the energy efficiency of a building, all while leveraging a subscription-based model. Solutions like these, enabled by OpenBlue, are truly differentiating factors when it comes to our customers' decision-making process. Importantly, we continue to expand our partner ecosystem not only to supplement our solution portfolio, but also to advance our research and development. This quarter we announced an important partnership with the Asthma and Allergy Foundation of America to advance our advocacy of indoor air quality. We also kicked off a collaboration with Well Living Lab in the Mayo Clinic to study the cognitive and productivity benefits associated with enhancements to ventilation and filtration. which will leverage the partnership established with Biogen last quarter. Next on slide eight, we are very excited to welcome Foghorn to the Johnson Controls team. Foghorn is recognized as the industry's leading developer of edge AI software for industrial and commercial IoT solutions with the most advanced technology. Their edge intelligence combined with cloud-based model building enables secure real-time machine learning to take place at the device level, which means easier access to actionable insights and increased flexibility for our customers. BOG1 software will be integrated throughout the entire OpenBlue platform, embedded within our OpenBlue bridge data exchange, which will allow us an even better value proposition when it comes to applying intelligence at the edge device level, faster, more secure, and at a lower cost relative to cloud-based applications. We view edge intelligence as a critical technology for the future of smart, autonomous buildings and for Johnson Controls. Boghorn gives us in our OpenBlue platform an immediate competitive advantage in edge AI with a software platform that is widely recognized as best in class. It avoids the time and cost to build out these capabilities organically. Please turn to slide nine. Among the notable wins for these themes in Q1, we have a few examples across regions, all centered around sustainability. In North America, we are partnering with the University of Windsor on their 2030 Carbon Reduction Plan, as well as their 2050 carbon neutrality objectives. We will be installing a uniquely configured chiller on our AI-enabled open blue connected chiller platform, which will ensure optimal chiller performance and enable digital service. We are excited to be partnering with Aldar Properties, a prominent developer in the UAE, as they begin a digital transformation to achieve their sustainability commitments. We were awarded an energy performance contract to improve the energy efficiency across Aldar's network of schools in Abu Dhabi. In addition to replacing the HVAC equipment in other energy-consuming assets, we will also be deploying our OpenBlue Net Zero Buildings portfolio of digital solutions. In China, we were selected to upgrade an existing customer's Metasys building automation system and controls system, and integrate OpenBlue on-prem to leverage key AI capabilities that will optimize the chiller performance to reduce energy consumption. This includes a long-term service agreement leveraging our digital capabilities. These are great examples of the power and breadth of our portfolio, where we deliver tailored, sustainable outcomes for our customers while expanding our installed base and driving attractive recurring service growth. To wrap up my prepared remarks, I remain extremely excited about the continued advancements we have made relative to our key growth vectors, and I couldn't be more pleased with the way our teams are executing in such a difficult environment. We remain laser focused on our strategic commitments into delivering the outcomes our customers need on the path to a healthy and more sustainable future. With that, I'm going to turn the call over to Olivier to walk you through the financial details in the quarter and update you on our outlook for Q2 and for the full year. Olivier?