Johnson Controls International plc

Johnson Controls First Quarter 2023 Earnings Call. Your lines have been placed on 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, please disconnect at this time. I will turn the call over to Jim Lucas, Vice President, Investor Relations.

Good morning, and thank you for joining our conference call to discuss Johnson Control's first quarter fiscal 2023 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 Chief Financial Officer, Olivier Leonetti. Before we begin, let me remind you that during our presentation today, we will make forward-looking statements. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of Johnson Controls. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to carefully review the risk factors and cautionary statements in our most recent Form 10Q, Form 10K, and today's release. We will also reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are contained in the schedules attached to our press release and in the appendix to this presentation, both of which can be found on the investor relations section of Johnson Control's website. I will now turn the call over to George.

Thanks, Jim, and good morning, everyone. Thank you for joining us on the call today. Let's begin with slide three. Fiscal 2023 is off to a strong start with solid Q1 results. Our teams across the globe have executed well, delivering strong financial performance for our shareholders while pushing the pace of innovation to provide our customers with the next phase of digital solutions across our vectors of growth. During the quarter, we accelerated growth across our service-based businesses, drove higher margins, and delivered profitability at the high end of our adjusted EPS guidance range. Overall, organic revenue grew at a healthy pace, And our $11.3 billion backlog remains resilient, growing 11% year-over-year. Our service strength was resilient and remains a key competitive differentiator. While order timing, supply chain realization, and China policies have impacted our global products and field install order flow during the quarter, we are seeing incremental improvements in order momentum heading into Q2. As we mentioned over the last few quarters, we remain focused on the fundamentals of our business and improving our operational execution. Our teams have done a great job advancing our initiatives to accelerate growth and optimize the efficiency of our cost structure. During the quarter, we delivered $90 million in productivity cost savings and are on track to reach our $340 million savings target over the course of this fiscal year. We are also committed to our prudent approach to capital allocation, reinvesting in new products and technology to drive long-term shareholder value while continuing to return capital to our shareholders. We recently announced our plans to enhance our growing industrial heat pump portfolio with the acquisition of hybrid energy. Acquisitions are an integral part of our growth strategy, and by investing in hybrid's patented high-temperature heat pump technology, we are continuing to strengthen our leading global product portfolio and provide our customers with the most efficient, sustainable building solutions. We are well positioned to capitalize on large growth opportunities across our dynamic product portfolio and field business. Through our integrated domain expertise, global coverage, and scale, we are leading the way towards smart, healthy, and sustainable buildings for our customers. While the global macroeconomic environment remains uncertain, based on our strong start to Q1 and our expectations for the remainder of the year, we are raising the lower bookend of our adjusted EPS guidance range for the year. Now turning to slide four. During the quarter, our OpenBlue platform continued to expand as we enhanced our capabilities, leveraging the power of AI in providing customers with unique insights. A good example is the deployment of OpenBlue Enterprise Manager at a leading tech manufacturer to help them meet their energy and sustainability goals. In addition, we have recently installed OpenBlue Companion at their facility to enhance employee productivity and space utilization. From advancing predictive analytics to integrations at the edge, our full suite of solutions empowers our customers to meet their carbon emission goals and create a healthier, more productive workspace for their people. To date, we have enhanced the existing connectivity of over 11,000 chillers through OpenBlue, representing a 79% increase year over year. Moving on to slide five, our digital service journey has accelerated since we launched our innovative OpenBlue platform in fiscal 2021. At that time, we entered the first phase of our digital transformation with a focus on enhancing data mining capabilities. Over fiscal 2022, we launched the OpenBlue Gateway, enabling data access at scale and increased connectivity across our growing installed base. We are now positioned for the next phase of our journey as we standardize our field operations globally. Linking the benefits of real-time monitoring of connected devices to our extensive service network, we can provide our customers with faster response times while optimizing the deployment of our global field service presence. We are beginning to see the results of our digital offerings enabling service growth. During the first quarter, service orders and revenue grew 10% year over year. With continued growth, we are in a great position to reach the goal we set out at our investor day in fiscal 2021 to capture $2 billion in additional service revenue by 2024. On to slide six. With nearly 40% of the world's carbon emissions coming from commercial and industrial buildings, The goal of achieving net zero starts at the building level. Through our vast sustainable infrastructure partnership ecosystem, we play an integral role in helping our customers achieve these targets no matter where they are in their decarbonization journey. Starting with our established advisory services and goal setting partnerships with KPMG and Accenture, we help customers take the first step to accelerate and solve their decarbonization and efficiency goals. We are also able to help fast track our customers net zero targets through carbon reduction services, collaborating with leading renewable energy supply and distributed energy providers. With our comprehensive customer solutions and strategic partnerships, we are positioned to take full advantage of favorable regulatory tailwinds and continued momentum. During Q1, we realized over $200 million in organic revenue growing over 20% year-over-year, with orders over the last 12 months growing at 6%. Turning to slide seven, the healthy buildings opportunity remains attractive as our customers invest in indoor environmental quality improvements post-COVID. Solving for the indoor air quality and energy consumption challenges of hybrid work models is driving a compelling intersection of our healthy buildings and sustainability strategic growth vectors. We are in a leadership position thanks to OpenBlue Indoor Air Quality as a Service, which continued to gain momentum in Q1, as well as our leading IAQ and space management capabilities in OpenBlue Enterprise Manager. In our healthy buildings business, trailing 12-month orders increased 11% year-over-year, and our pipeline of $1.2 billion remained strong. Looking forward, we expect continued growth momentum as the value of indoor environmental quality improvements deliver as benefits for our customers. On to slide eight. We are honored to be continually recognized for our dedicated sustainability efforts. Among other honorable recognitions, two of Johnson Control's leaders were awarded for their efforts. Chief Sustainability Officer Katie McGinty was named one of 2022's most influential woman executives for sustainability leadership by Woman, Inc. Magazine. Anu Rathnindi, President of Asia Pacific, received the ESG Exploration Character Award of the Year from the 2022 ESG Pioneer 60 Awards by Jimeon. I am proud of our team for leading by example and executing on our values. I will now turn the call over to Olivier to go through the financial details of the quarter.