Johnson Controls International plc

Hello, everyone, and welcome to the Johnson Controls Q2 2026 Earnings Conference Call. My name is Ryan, and I'll be coordinating the call today. If you would like to ask a question at the end of the presentation, please use the following method based on how you are joining us today. If you are attending via the webinar, please click the raise hand icon at the bottom of your screen to be added to the question queue. If you are dialing in by phone, please press star followed by five on your telephone keypad. I will now hand the call over to Mike Gates, Senior Director of Investor Relations to begin. Mike, please go ahead.

Good morning and thank you for joining our conference call to discuss Johnson Control's fiscal second quarter 2026 results. Joining me on the call today are Johnson Control's Chief Executive Officer Yoakum Wittimenis and Mark van Diepenbeek, our Chief Financial Officer. Before we begin, let me remind you that during our presentation today we will make forward-looking statements that reflect our current views about our future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Please refer to our SEC filings for a list of these important risk factors that could cause actual results to differ from our predictions. We will also reference certain non-GAAP measures throughout today's presentation. Reconciliations of these non-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 Joachim.

Thanks, Mike, and good morning, everyone. Thank you for joining us on today's call. Before I begin, I want to acknowledge our more than 2,500 colleagues in the Middle East. Against the backdrop of ongoing conflict and an increasingly complex geopolitical environment, they continue to show commitment to our customers and to one another. Our thoughts are with them and their families, and we remain focused on their safety and well-being. Let's begin with slide four. We entered the year with strong momentum, and this quarter demonstrates continued progress. Demand for our products, solutions, and services remains strong, led by data centers where we're holding a leading position. In these environments, customers need high-performance cooling, delivering precise operating conditions while requiring better energy efficiency. Meeting those requirements depends on how well we execute across the business. While early in the journey, our proprietary business system is beginning to strengthen how we lead and execute throughout parts of the organization. I continue to be encouraged as leaders spend more time focusing on customers and as teams begin to adopt more common language and approach to problem solving together at Gemba. Against that backdrop, yesterday we announced the release of our second AI factory reference design guide focused on air-cooled chiller architectures and providing customers with globally repeatable blueprints for cooling gigawatt scale AI factories. This builds on our water-cooled guide released earlier this year. It's the next step in a comprehensive set of global design guides mapping the full data center thermal chain, providing clear design parameters to enable high-performance, efficient operation as customers plan and scale AI with greater clarity. Turning to the results. Orders increased 30% this quarter, building on the nearly 40% growth we delivered last quarter. That consistency reflects sustained customer demand in the markets where our technology-based innovation and strong field footprint differentiates us. And with our pipeline remaining strong, it gives us confidence as we move forward. Revenue grew 6%. Adjusted EBIT margin expanded 310 basis points to 15.5%. And adjusted EPS was up 45% and exceeded our guide. Backlog grew 26% to a record $20 billion, providing an improved visibility and confidence in the trajectory of the business. This quarter reinforces our ability to convert demand strength into consistent growth, margin expansion, and earnings performance. Given our strong start in the first half and the visibility we have across the business, we are raising our full year guidance. Mark will walk through the details later in the call. Before that, I want to step back and talk about why we're seeing this consistency. Please turn to slide five. The breakthroughs our customers are pursuing are advancing society. Take, for example, biologics, semiconductor, and advanced battery manufacturing and data centers, where the need for indoor operating conditions within tight tolerances is driving greater reliance on high-capacity, high-precision, application-specific thermal management systems. At the same time, these industries are much more energy intense than their previous generation. Biologics are seven times as energy intense as traditional pharma manufacturing. And in light of material energy cost increases, energy efficient solutions are essential. Let's take, for example, our high performance York chillers. To simplify, this is about customers getting rapid high capacity cooling precisely when it's needed. enabling mission critical operating conditions that deliver their targeted outcomes. As you can see on slide five, our differentiation operates both at the subsystem level and at the overall system level. Our York-Chillers leverage five core subsystems enhanced by our Metasys proprietary intelligent controls and further strengthened by our OpenBlue proprietary digital AI capabilities. Because we own the underlying technology platforms, as well as design, develop, and manufacture these subsystems, we're positioned to innovate faster and deliver application-specific higher performance with structural cost advantages. That capability has been built over decades and includes more than 1,000 patents, each focused on higher performance, reliability, and energy efficiency for our customers. With that context, let me briefly walk through the five subsystems in our high performance York chillers, because this is where the differentiation really comes to life. And this is exactly what many of you will see in action during our upcoming in-person investor visit, starting at JDEC, our Advanced Development Engineering Center in Pennsylvania. Let me start with the aerodynamic innovation centered on our compressor design. We hold over 270 patents specifically related to the compressor technology. Simply put, the compressor is the heart of the engine of the chiller. It does the heavy lifting, and it's one of the biggest drivers of performance and efficiency. We design our compressors specifically for applications that require high capacity, precision, and reliability, like data centers, advanced manufacturing, and large healthcare facilities. What differentiates us is ownership. While much of the industry relies on third-party compressor platforms, we design and manufacture our own application-specific compressor architectures. That gives us greater control over speed of innovation and the ability to optimize performance for our target applications. Next is power electronics, our variable speed drives, or VSDs, where we hold over 220 patents. Innovative VSDs allow the chiller to precisely adjust output in real time, rather than running at a fixed speed. That precision helps customers achieve and sustain tight operating tolerances while reducing energy consumption under real-world operating conditions. The third subsystem is oil-free compression, or magnetic bearings, where we hold over 65 patents. By eliminating physical contact inside the compressor, we reduced friction, wear, and noise, while improving reliability and energy efficiency. Because we design and manufacture our own magnetic bearing compressors, we can fully integrate sensing and controls, enabling higher uptime and predictive maintenance. Fourth. is thermal transfer, where we hold over 260 patents. Our heat exchanger designs are engineered end to end as part of the full system, helping minimize material and refrigerant usage. This allows customers to get consistent, dependable performance in demanding environments. And finally, are embedded intelligent chiller controls. We hold over 300 patents in this area. These controls optimize the overall system performance in real time. Because the controls are designed with proprietary insights of our subsystems, they allow us to clearly understand how each part of the system is performing and turn that into more precise and reliable operation and better service outcomes over the customer lifecycle. The result of that subsystem ownership and overall system integration starts with thermal performance, delivering precise, reliable operations in the most demanding environments and extends to higher energy efficiency and flexibility across applications. That comes from deep technical expertise across each subsystem and the ability to design them together as one system. This gives us confidence that we can continue to drive further differentiated performance and margin improvement. Now, let me connect that system level technology advantage to how we're ensuring it shows up consistently for our customers. Our technology platforms are a clear strength and we continue to invest. The opportunity head is translating that strength more reliably through both rate and speed of innovation, meaning reductions in speed of market through innovation, manufacturing, delivery, and field execution. Our proprietary business system is how we do that. Please turn to slides six and seven. Our business system is how we win with customers, how we empower our frontline colleagues, including our innovation teams, to perform their very best for our customers, and how we run the company. It is anchored in a global cross-functional language and methodology for how we communicate, collaborate, and drive strong continuous improvement momentum to win. As a reminder, our business system is built on three pillars. simplify apply 80 20 principles to focus on what matters most accelerate use lean methodologies to remove waste to speed up execution improving productivity and reducing assets such as working capital tied up in the process in short i think of it as helping us accelerate work from weeks to days amplify leverage digital and AI approaches to amplify impact across the enterprise. In short, I think of it as taking that same work and reducing it from days to hours and minutes. Real change in culture sustainment doesn't happen over a single quarter's timeline. It takes time to put the right practices in place, learn what works, and then scale it with discipline. Slide seven shows how this journey looks in practice. The starting point is adoption and alignment. Think of it as connecting head, heart, and hands. What you know, what you believe, and how you show up differently. That begins with leaders, and we're seeing real momentum here. Today, approximately 1,400 colleagues are actively engaged in this work, and about a thousand leaders have been trained on the business system. More importantly, we're beginning to see early shifts in how work gets done and prioritize the narrow areas as leaders and teams apply these behaviors and use the business system approaches more consistently. While doing that, we start narrow and go deep in a few areas of opportunity. As we've highlighted in the previous quarters, we have early and strong examples of cross-functional teams concentrating on specific priority areas, getting to root causes, and implementing countermeasures leading to significant performance improvement. To date, we've completed more than 150 Kaizens across roughly 20 priority areas around the world. Only after that work is proven do we scale. And this must be done by deliberately replicating what works and standardizing it across the organization. Earlier, I commented on the opportunity we have to extend our technology-based strengths through the entire customer lifecycle by better enabling our people to deliver for our customers. A strong example is our service sales work stream, which helps ensure we establish a service engagement shortly after our new chillers are commissioned. Unnecessary internal processes weigh down our sellers' ability to proactively engage with customers for service needs, assessments, and proposals. Starting in West Florida, a cross-functional team used business system approaches like problem solving, value stream mapping, Kaizen, and daily management to redesign the process end-to-end, taking the process for an individual customer from weeks and days to a matter of hours. The focus on the customer and the frontline enablement led to tripling service agreements immediately following new chiller startup commissioning. After proving success in one market, we scaled the same playbook to two additional local markets with strong follow-on progress. This is also what many of you will see at our upcoming investor event in real operating environments at Canva where the value is created. At JDAG, we will illustrate how the business system accelerates innovation, both rate and speed, from development to new product launch. At our Airside Center of Excellence, or ACE, and in our Baltimore Local Market Office, we will show the same system driving scalable manufacturing, commercial execution, and service delivery using common tools, language, and leadership behaviors to deliver more consistently and predictable outcomes. With that, Marc will walk you through the details.