Johnson Controls International plc

Good morning and welcome to the Johnson Controls Second Quarter 2024 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. Also note that in respect of time, we ask that you limit yourself to one question and one follow-up question. Please also 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 second quarter fiscal 2024 results. The press release and 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 Control's Chairman and Chief Executive Officer, George Oliver, and Chief Financial Officer, Mark Van Diepenbeek. Before we begin, let me remind you that during our presentation today, we will make forward-looking statements. Actual results may differ materially from those indicated by forward-looking statements due to a variety of risks and uncertainties. Please note that we assume no obligation to update these forward-looking statements, even if actual results or future expectations change materially. Please refer to our SEC filings for detailed discussions of these risks and uncertainties, in addition to the inherent limitations of such forward-looking statements. 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. We were very pleased with our second quarter performance as our adjusted EPS came in at the high end of our guidance. Sales growth returned this quarter following the cyber disruption at the start of the fiscal year, and our team delivered strong margin expansion. This was driven by productivity and conversion of our higher margin backlog. Orders noticeably rebounded in the quarter, up 12% year-over-year. This was driven by continued strength in data centers, which I will talk about in an upcoming slide. Our backlog remained at record levels, growing 10% to $12.6 billion, and the quality of the backlog is strong, as I mentioned. Customers continue to come to John's controls because of our ability to deliver attractive outcomes. The fact is, our focus on delivering engineered solutions for commercial buildings continues to serve as a differentiator for John's controls, allowing us to deliver unparalleled value. With the business performing at a high level, free cash flow continues to improve, and we are taking action to further strengthen our balance sheet. Most recently, we reached a broad settlement with a nationwide class of public water systems related to our AFFF product. Additionally, we announced that we discontinued use of our receivable factoring programs. Our efforts are turning into results, and the value of our transformation is coming into focus. Going forward, we remain active in pursuing strategic alternatives of certain non-core product lines that do not align with our focus on being a comprehensive solutions provider for commercial buildings. While we do not have any updates to provide at this time, we continue to make good progress on the exploration of alternatives for some of these assets. The results from the quarter and the performance of our team give us confidence that we will continue to build momentum into the second half, and we will be able to meet our financial objectives for the year. Mark will discuss these in more detail later in the call. Please turn to the next slide. I want to take an opportunity to discuss how we see the composition of our company going forward. The core of Johns Controls is our engineered solutions offering. These solutions include commercial HVAC, controls, fire, security, and services. Our solutions center around our domain expertise, forming the smart building trifecta of energy-efficient equipment, clean electrification, and digitalization. We have created one end-to-end operating model that we now have deployed around the globe, which allows us to better serve our customers more efficiently with greater predictability. Our solutions include both systems and services that focus on maximizing the opportunities around the lifecycle of the equipment. These solutions are enhanced further by our digitally enabled offerings, which allow us to provide tailored outcomes for the customers which we serve. Our systems business begins at the engineering and design phase. It is managed through installation of the project. The systems business is an important vehicle to capture a service event, and we have created a scalable service model that is driving more consistent growth, and that carries higher margins. The service business will continue to be a positive contributor to our long-term margin expansion. Our solutions operating model is enabled by connected equipment throughout the building, allowing us to collect data that drives a consistent and enjoyable occupant experience with repeatable outcomes. We create incredible value for our customers, which is clearly demonstrated by our results in the most recent quarter. The transformation of our portfolio into our pure play provider of comprehensive solutions for commercial buildings is an opportunity. Once complete, we will be able to flow additional resources to the most attractive opportunities. Part of our commitment to discipline capital allocation remains ensuring that we are deploying resources to the right opportunities. Turning to the next slide. Johnson Controls plays an important role in serving the rapidly growing data center market. We provide cooling needs for the top hyperscale and colocation data center customers. The demand for data centers is accelerating globally, with the next generation of data centers projected to be designed for more than one gigawatt of power consumption. We have intentionally positioned the company to benefit from this emerging trend due to our relentless innovation efforts and inherent strategic advantages. These include, one, creating leading technologies around a broad range of air-cooled and water-cooled chillers to support the exponential growth in cooling demand. Two, investing in R&D teams and world-class test laboratories to design, build, test, and demonstrate performance of equipment over the entire data center operating envelope. Speed is the key, so we are investing to accelerate the pace of innovation. And three, creating leading domain expertise to provide complete package solutions that drive outcomes, such as high-efficiency chiller plant, space cooling, critical environmental monitoring, security systems, and fire safety and asset protection systems, while providing service for the entire lifecycle of the asset. Underscoring these advantages is our core identity as a comprehensive solution provider for commercial buildings. This enables us to fulfill more than cooling needs for our customer, which makes us a preferred partner that can expand with our customers across all geographies. In fiscal 2023, our sales to data centers were approximately $2 billion. We continue to see solid demand for our solutions, which is evident in our orders. This is reinforced by the fact that our fiscal first half orders for data centers have already surpassed the orders we booked for all of fiscal 2023. With orders growing, we have been investing in capacity to be able to execute on our accelerated data center backlog. Our strong presence in data centers starts with our advanced chiller technology. Given the amount of heat generated at data centers, our customers are looking for solutions that maintain constant temperatures in even the most extreme environments. In addition to chillers, we have extended our offerings with both air handling units and computer room air handlers. Our cooling solutions continue to advance and we are working on next generation technologies to keep up with the growing needs of data centers. The case study on this slide was for a half-gigawatt facility that is being expanded now to a full gigawatt. The project included the deployment of our chillers air handlers, and just as important, we have secured planned service agreements for all of the chillers. Our pipeline for data centers remains very healthy, and we are continuing to expand our capacity to meet this strong demand. We remain excited about the opportunities in this fast-growing vertical and look forward to updating you on our progress in the future. Before we turn the call over to Mark to go through the financial details, I want to say how proud I am of the Johnson Controls team. While we faced some challenges in the first fiscal quarter and will continue to navigate a dynamic environment, we delivered on our commitments to our customers to drive value for our shareholders. Now, with that, I'll turn it over to Mark.