Johnson Controls International plc

Welcome to the Johnson Controls fourth quarter 2022 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 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 Michael Gates, Senior Director, Investor Relations. Thank you.

Good morning and thank you for joining our conference call to discuss Johnson Control's fourth 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. As a reminder, before we begin, during the course of today's call, we'll 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'll 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 are made to adjusted earnings per share, EBIT A and EBIT, excluding restructuring as well as other special items. These metrics together with organic sales, free cash flow, and other measures specified in the slide presentation 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. With that, I will turn the call over to George.

Thanks, Mike, and good morning, everyone. Thank you for joining us on the call today. I will start out with a quick look back at fiscal year 2022 and update you on our progress across our strategic priorities. Olivier will provide a detailed review of our fourth quarter results in our fiscal 2023 guidance. As always, we will leave the remainder of the call to take your questions. Let's begin with slide three. As we rounded out fiscal year 2022, we delivered another quarter of solid results that had us meeting or exceeding our updated outlook for the full year. Despite a challenging macroeconomic environment that saw unprecedented inflation levels, foreign exchange headwinds, and continued supply chain disruptions, we achieved robust top-line growth and maintained margin strength as we closed out the fiscal year. Compared to the prior year, reported sales for the year increased approximately 7% to $25 billion and grew 9% organically, in line with the high end of our guide. The strong demand is also shown in total field orders, up approximately 10% organically year over year, in our record backlog, which grew significantly, up 13% year over year. This strong demand backdrop further highlights our unique value proposition for mission-critical products and services supported by secular trends that continue to drive the industry. We've made significant progress over the year, working closely with our suppliers to mitigate the impact of supply chain disruptions. We have also continued to execute our productivity savings plan, exceeding our $230 million cost savings target throughout the fiscal year. Lastly, our disciplined approach to pricing has helped drive sequential margin improvement, offsetting material foreign exchange impacts as we continue to cycle through our higher margin backlog during the second half of the fiscal year. With our focus on fundamentals and execution, our team's work this year positions Johnson Controls to capitalize on our strong momentum heading into fiscal year 2023. Overall, 2022 was a significant year in improving our operations and increasing our competitive edge as we continue to deliver on enhancing our digital capabilities leading the way for smart and connected building solutions. Across the organization, we have continued to invest in key technologies and foster partnerships, allowing us to capitalize on the vectors of growth we serve. We have also continued to gain market share across our global products and services, driven by commercial HVAC, industrial refrigeration, and fire detection. We are in a great position to realize the benefits of our transformative service offerings through our differentiated digital platforms. And as the trends for healthy and sustainable buildings continue to expand, I am confident in the strength of our capabilities, which continues to serve the needs of our customers. Lastly, while the market is faced with macro uncertainties, we are seeing tailwinds within our business. Favorable government incentives across the world, global heat pump demand, and continued backlog strength will provide us with additional momentum heading into fiscal year 2023. Now turning to slide four. OpenBlue's suite of connected solutions continues to play a vital role in meeting our customers' needs, laying the blueprint for the future of smart buildings. In fiscal year 2022, we have significantly expanded our suite of digital services and offerings, spanning across a breadth of devices from connected chillers, industrial refrigeration equipment, to connected controls and BAS systems. To date, we have enhanced the existing connectivity of almost 11,000 chillers through OpenBlue, representing a 106% increase year over year. This provides customers with added levels of connectivity to monitor and improve performance with actionable insights. We've also made significant progress in advancing the latest edition of our OpenBlue Bridge. With this solution, we can seamlessly reduce the complexity of integrating devices and expand the range of building solutions and devices that interface with the OpenBlue stack. This provides our customers with the added benefits of AI at the edge and gives them the peace of mind that comes with zero-trust cybersecurity explicitly tailored for operational equipment. Our enterprise software as a solution offerings continue to expand, spanning from comprehensive enterprise management to specific customer use cases covering decarbonization, occupant health, and safety. Along with these added capabilities, our footprint is also expanding. During the fourth quarter, we are proud to announce our recently launched OpenBlue enterprise management solution for AliCloud, supporting our expansion of smart building solutions into China. The future lies with OpenBlue, and we are excited to continue disrupting the building environment as we look ahead to the upcoming year. Moving on to slide five. While our digital growth strategies continue to mature, we have accelerated our core service growth through our field business and the strength of our OpenBlue service offerings. In fiscal year 2022, core service orders increased during the fourth quarter, with orders and revenues up over 7% and 8% year over year. By 2024, we anticipate additional service revenue opportunities of more than $2 billion. On to slide six. Turning to our growth factors, we are successfully growing our sustainability initiatives. Johnson Controls is uniquely positioned to take full advantage of recent favorable market tailwinds, including credits for renewable offerings from the Inflation Reduction Act to an actionable shift towards heat pump usage as Europe continues to push for energy independence and low emission alternatives. Heat pump demand continues to be a momentum driver, and we have gained market share realizing $800 million in the quarter, representing 48% of total HVAC sales. Our partnership with Microsoft is driving results in their Beijing's West Campus, helping reduce emissions and improve uptime. In addition, our work with Colorado State University has helped transform the campus and reach net zero electricity throughout our 20-year relationship. We help customers design, digitize, and deploy solutions to achieve net zero. We are continuously expanding our open blue net zero buildings offerings. Decarbonization is a priority among our customers, and as climate change poses an impending risk, we continue to build out energy efficient and secure solutions. During Q4, we had our largest historical quarter of about $420 million in orders, which led to secured orders of over $1 billion for the full year, growing 12% year over year. Turning to slide seven, the healthy buildings market opportunity remains strong as our customers invest in unlocking employee health, wellness, and productivity benefits associated with well-managed indoor environments. We are positioned to capture this trend and help customers manage challenges through our open blue indoor air quality as a service with some exciting wins coming in Q4. Additionally, we're leading the way in advancing new solutions and research into the linkage between healthy buildings and decarbonization, helping our customers achieve both outcomes simultaneously. Notably, during the quarter, we delivered promising results. In fiscal year 22, orders increased 45% year over year. Our healthy buildings pipeline represents over $1.3 billion in revenue, And we expect continued order growth as more customers leverage the value of improved indoor environmental quality. And now we turn to slide eight. We consistently demonstrate our commitment to sustainability. During the quarter, Fortune's 2022 Change the World list recognized Johnson Controls for our service offerings of open blue solutions and open blue net zero buildings. I'm also very proud that we have been named one of Forbes World's Best Employers in 2022. I am now going to turn the call over to Olivier to go through the financial details of the quarter.