Johnson Controls International plc

Good morning and welcome to the Johnson Control's fourth 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 one on your telephone keypad. To withdraw your question, please press star then two. Please note today's 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 fourth quarter fiscal 2023 results. The press release and all related tables that were 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 Controls 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. Before discussing our fourth quarter in fiscal 2023 results, I wanted to take a moment to thank all of our employees for their quick, agile response to the cyber incident beginning in the last week of September. Our teams responded quickly and worked diligently to minimize the impact from the incident. We greatly appreciate everyone's patience from customers to suppliers to shareholders as we work through our remediation efforts. We now have the incident behind us and our operations are back to normal. Now let's begin with slide three. We feel it is important to not lose sight of the strong year we had in fiscal 2023, regardless of the impact on our fourth quarter results from the cyber incident. For the full year, we grew sales organically 8%, expanded segment margins 80 basis points to 15%, and delivered adjusted EPS growth of 17%. We saw continued strength in our service business as our efforts in maximizing our large installed base are coming to fruition. In fact, we grew service 10% for the year with solid order momentum ending the fiscal year. Our total backlog grew 9% to $12.1 billion as demand remains strong across our commercial building solutions offerings. In fiscal 2023, we generated $1.8 billion in free cash flow, which represented 76% conversion. During the year, we returned $1.6 billion to shareholders via dividends and share repurchases. Our capital allocation strategy remains unchanged, targeting to return 100% of our free cash flow to shareholders through dividends and share repurchases. We have the highest conviction ever in our strategy to lead in building solutions and will continue to prioritize allocating capital accordingly toward that objective. Overall, we are pleased with our continued execution despite macro-driven headwinds over the fiscal year and believe that we are well-positioned heading into fiscal 2024 with our strong backlog and resilient service business. We are initiating guidance for fiscal 2024 for approximately mid-single-digit sales and adjusted EPS growth, respectively, and for a free cash flow conversion of approximately 85%. Olivier will provide additional color on the guides later in the call, but fiscal 2024 will show improvement following a seasonally slower first quarter. Now turning to slide four, demand for our building solutions is accelerating with our customers around the globe as we are developing applied solutions to deliver outcomes that save energy and reduce emissions while improving the overall occupant experience. We are able to achieve these outcomes not only through our leading domain expertise and applied HVAC and control solutions, but also through world-class fire detection and protection and smart security solutions enabled by an industry-leading digital platform, OpenBlue. All of our systems build on each other and are complementary components of our total solutions offerings. The journey starts with our customer as we design, digitize, and deploy solutions that achieve efficiency, sustainability, and decarbonization. This turnkey offering drives operations, service, and maintenance, which underpin our as-a-service offerings that make building smarter through our digital solutions. This helps our customers enable peak operating conditions, protect investments, and achieve the lowest lifecycle cost. Johnson Controls is unique with our value proposition to make buildings smarter through OpenBlue. Our comprehensive ecosystem of connected digital solutions for buildings can break down silos and connect building systems regardless of equipment OEM and make them interoperable to build resiliency and efficiency. We were honored recently to be ranked number two on the GuideHouse Insights Leaderboard in an assessment of leading energy service companies. The recognition underscores our commitment to excellence and sustainability on a global scale. It is a testament to our hard work and continued commitment to helping clients meet their sustainability goals. Moving on to slide five, fiscal 2023 saw continued strength in install orders, which creates a strong service opportunity over the life of the equipment. As we advance our digital strategy, including more than doubling our connected assets during the fiscal year, we are gathering more intelligence through data. This data allows us to better segment customer needs and create more proactive offerings across all of our domains, effectively utilizing our industry-leading service organization of over 20,000 professionals that make over 5.5 million visits annually. With our large installed base, improved operations, and strong pipeline, we see a long runway of continued growth for our service business. Turning to slide six, our value creation framework remains unchanged. We truly believe we are well positioned to drive continued growth, delivering solutions across sustainable and healthy buildings, while leveraging the increased adoption of OpenBlue to drive margin expansions. Our pipeline remains strong in our longer cycle building solutions business as we continue to realize top line growth. Our shorter cycle businesses and global products, primarily global residential HVAC and parts of fire and security, are stabilizing as the new fiscal year progresses. Converting our strong top line growth into improved margins and cash flow is our top priority. We are beginning to see our gross margins improve as supply chain disruptions continue to lessen. Within building solutions, we are also seeing stronger margins in our record backlog, and as service continues to accelerate, we should see favorable mix as well. Cash flow is a key area of focus for us. On the receivables front, we are making progress in improving the longer collection cycle historically associated with our install business. Inventories in our short cycle businesses continue to reduce as lead times normalize, and we are adding capacity to meet the strong demand in our applied HVAC business. As you can see, we are very excited about the opportunity ahead. I will now turn the call over to Olivier to go through the financial details of the quarter.