Johnson Controls International plc

Good morning and welcome to the Johnson Controls Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Jim Lucas, Vice President, Investor Relations. Please go ahead.

Good morning, and thank you for joining our conference call to discuss Johnson Control's third 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 10-Q, Form 10-K, 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 Controls' 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. Johnson Controls delivered another strong quarter that met the high end of our guidance. We delivered 9% organic sales growth, adjusted segment EBITDA margin expansion of 130 basis points, and 21% adjusted EPS growth. Our longer cycle building solutions business continued to show strength globally as service momentum accelerated, driven by our enhanced solutions and increased adoption of our digital offerings. Orders grew 8% overall with service orders leading the way with 12% growth. Our backlog ended the quarter up 8% to $12 billion across both install and service. We remain confident in the resiliency of our backlog and order momentum as our performance during the quarter solidifies our investments in building a world-class service organization. We continue to see a strong pipeline of opportunities, and the outlook for orders in our longer cycle businesses remains robust. In our shorter cycle global products business, our applied and rooftop businesses delivered another quarter of very strong double-digit growth and demand remained strong. We also continue to see strength in our commercial ducted and fire detection businesses. Consistent with trends in the industry, our ducted North American residential business remains soft. Overall, we are encouraged by the continued strength and good visibility across our building solution segments. As we look ahead for the remainder of the year with one quarter to go, we are narrowing our full year adjusted EPS guide to approximately $3.55, which represents the midpoint of the previous range. At Johnson Controls, we continue to expand on the solid foundation that we have built with strong order momentum and a record backlog driving consistent top line growth. We have made good progress enhancing profitability across our portfolio throughout the fiscal year, and we have significant actions underway that we believe will result in further margin expansion. Now turning to slide four, we have spent the past few years investing more strategically in our service business, and we are seeing strong returns from those investments. During the third quarter, service orders and sales both grew 12%. Our service business has transformed from a traditional break and fix business to helping customers proactively and more efficiently optimize management of all assets in the building. Digital is becoming an important enabler to driving more service opportunities and growth. We also accelerated sales of our higher margin parts business, which once again grew at a strong double digit pace in the quarter. Decarbonization is an area of focus across the entire Johnson Controls portfolio. This includes our sustainable infrastructure or SI business, as well as many products and solutions in our portfolio, such as heat pumps, energy efficient refrigerants, and digital solutions. In fact, nearly 55% of revenue comes from sustainable products and solutions. We continue to see strong demand in our SI business with orders growing 20% in the quarter. Heat pump sales were up mid-single digits globally with very strong double-digit growth and are applied in industrial refrigeration businesses. During the quarter, we acquired M&M Carnot, a leading provider of natural refrigerant solutions with ultra-low global warming potential, or GWP. M&M designs equipment and controls that use carbon dioxide, which has a GWP of 1. By contrast, traditional refrigerants can have GWPs in thousands, magnifying rather than solving global warming. We have spent the past few years defining our multi-phase digital strategy to transform environments to more effectively use data to drive outcomes for our customers, and we continue to gain momentum. In the quarter, we grew our connected revenue at a high single-digit rate, and we surpassed 16,000 connected chillers. We are now expanding OpenBlue into connecting controls and security to better optimize customer assets and improve outcomes in buildings, further differentiating our offering. Historically, buildings required standalone systems to manage each asset within the building. Today, connected buildings are creating a single digital dashboard optimized for energy, but still require multiple systems to manage the assets. We are making great progress in creating the digital thread throughout the building lifecycle, and connecting controls is the next step in the evolution of this journey. Moving on to slide five, we recently announced the acquisition of FM Systems, which is an important next step in adding critical capabilities to OpenBlue. FM Systems is a leader in the growing integrated workplace management system, or IWMS, sector. IWMS furthers our OpenBlue capabilities, allowing Johnson Controls to offer a one-stop solution that helps customers accelerate their digital transformation journey, improve building efficiency, and reduce operational costs. FM Systems advances OpenBlue's capabilities and brings a significant amount of data, including service, space utilization, and real estate portfolio management. The addition of FM's capabilities into OpenBlue enhances Johnson Control's relationship with customers by providing a full suite of integrated outcome-based solutions. Turning to slide six. Extreme temperatures are increasingly straining buildings, putting at risk the ability to deliver comfortable and healthy indoor environments. Our OpenBlue digital solutions help optimize indoor air quality, comfort, and energy consumption while monitoring outdoor air conditions, ensuring our customers can meet their operating objectives even in the most extreme conditions. When paired with our open blue digital services, we are uniquely positioned to help our customers deliver healthy indoor environments while optimizing costs, reducing emissions, and ensuring HVAC equipment is operating at peak performance, ready for any condition. We spoke earlier to the progress we are making expanding margins, and we are not done. Supply chains are improving, which have normalized lead times, allowing us to create better operating leverage in our manufacturing facilities. We continue to make progress in improving our SG&A structure and have additional actions underway to further optimize our performance. On capital allocation, we have established a track record of being prudent and disciplined. In fiscal 2023, we have returned $1.3 billion to shareholders via share repurchases and dividends, in addition to investing in several strategic acquisitions. Climate change is the defining theme of this century. with nearly 40% of emissions coming from buildings, we have the technology and the people to turn buildings from one of the greatest challenges into one of the biggest and best solutions. I will now turn the call over to Olivier to go through the financial details of the quarter.