Earnings call transcript Q1 2023

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Operator

Welcome to Johnson Controls First Quarter 2023 Earnings Call.

Your lines have been placed on listen-only until the question-and-answer session. [Operator Instructions] 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.

Jim Lucas

you first our quarter thank discuss call and Controls Johnson fiscal morning, for conference joining to Good XXXX results. and as slide release morning, portion of on press all at issued Relations tables The johnsoncontrols.com. website earlier the as Investor well can the presentation call our conference be found related this

Oliver; call Officer, Financial Olivier the today Chairman on Chief Johnson me Controls Chief and and Joining are Executive Officer, George Leonetti.

Listeners will are remind you that that our make begin, forward-looking subject we we statements. which are are and let me statements and difficult Before risks to of control uncertainties, cautioned Johnson the of presentation these during certain predict today, to beyond Controls. generally many

listeners uncertainties These XX-K risk differ actual the from in to factors can and to cautionary advise release. most today’s results Form carefully cause XX-Q, risks recent Form statements review our and materially our and We current expectations.

of most of contained Relations We schedules in Johnson measures. be non-GAAP of measures press release both to Reconciliations will the are the on found measures can non-GAAP section Controls GAAP and appendix the reference this also in to website. comparable our presentation these to which attached certain Investor the directly

the will to I now call over turn George.

George Oliver

Thank everyone. the morning, good for and Jim, joining us on you today. Thanks, call

Slide begin Let’s with strong solid to a start is with off X. Fiscal XXXX QX results.

provide growth. performance Our have to well with shareholders, customers our for financial our pushing next teams vectors while solutions globe pace phase strong across of the innovation our across delivering of the the of executed digital

range. billion XX% remains profitability across our our end at healthy grew higher we businesses, and quarter, adjusted Overall, delivered year-over-year. backlog drove $XX.X at revenue of growth and accelerated a service-based high growing our organic pace the resilient, During EPS guidance to the margins

Our a service competitive was remains resilient differentiator. key and strength

into quarter, China improvements heading and realization order in chain flow QX. the momentum during products install our supply global have policies are timing, order seeing we in field impacted order While incremental

we quarters, fundamentals the in we operational our last business our As remain few improving of the focused over mentioned on execution.

accelerate our our cost advancing structure. Our efficiency teams great to have and done the optimize job initiatives growth a of

During and are reach track course year. savings the cost million target our quarter, in this productivity of to the over delivered million we savings, fiscal $XX on $XXX

also pump approach reinvesting new shareholders. our recently products prudent Hybrid to Energy. long-term committed our to our to to drive are capital portfolio technology announced acquisition value the We to our allocation, while with of enhance industrial in plans capital heat and shareholder growing to return continuing We

by to integral building temperature investing an we heat leading efficient high provide are are portfolio global with technology, and Acquisitions the part most our in our strategy and solutions. customers sustainable Hybrid’s growth pump patented continuing of strengthen our product

opportunities We coverage domain our growth the customers. scale, are are global to dynamic leading business. buildings our our we well-positioned expertise, large across for field integrated healthy, capitalize Through towards and way smart, portfolio product sustainable on and and

the year. the lower While uncertain based year, guidance our range our raising bookend the remains for and remainder of adjusted QX for are we of to expectations on our strong start global the the EPS macroeconomic environment

Slide turning to Now X.

goals. meet at capabilities During is example to A OpenBlue deployment of as leveraging providing them our OpenBlue enhanced the help and energy the of we power their insights. good and with manufacturer quarter, our enterprise AI unique expand leading customers platform continued manager tech to the a sustainability

our through a solutions of enhanced XX,XXX to year-over-year. the utilization. existing their over productivity people. to at full create space we XX% chillers the carbon representing have OpenBlue, and at goals workspace their facility meet and From a healthier, we To date, more their emission productive for connectivity have to employee of OpenBlue installed increase empowers enhance advancing suite edge, integrations predictive analytics addition, customers In our recently companion

Moving on to Slide X.

launched we with innovative data since At increased installed journey our focus capabilities. of a Our digital at time, phase mining platform on entered accelerated in data base. fiscal enabling access OpenBlue growing OpenBlue across our and first connectivity that scale Over transformation our the XXXX. fiscal we the digital launched gateway enhancing we service has XXXX,

next service We our our with globally. standardize are while now journey optimizing can network. of the connected positioned global operations of for phase time deployment we Linking our field extensive monitoring service of the times response faster presence. the We our customers our of as field benefits to real provide devices

see We offerings of our enabling service results the to digital are growth. beginning

quarter, out the and a reach great grew revenue our year-over-year, in capture service by we revenue growth, are Day first fiscal XXXX. orders XXXX the service additional Investor $X During to set at goal we to billion position XX% with in continued in

helping Slide no matter On in nearly building these commercial our journey. carbon net the partnership vast role where emissions and zero of the from the integral in of sustainable with buildings, targets industrial coming achieve play in world’s at to level. an decarbonization we our infrastructure they customers their X, goal achieving XX% are Through ecosystem, starts

advisory their Starting first efficiency KPMG customers and established goals. step decarbonization we the with and our help Accenture, accelerate with to goal setting partnerships services take and and solve

full supply also reduction are With our solutions of regulatory fast and customer through and we distributed are track our targets help continued able tailwinds partnerships, customers’ zero take carbon services, to favorable collaborating to momentum. leading advantage renewable comprehensive and energy positioned with We net strategic energy providers.

million During X%. the with organic months, over QX, at XX revenue, over growing year-over-year orders we realized last over XX% growing in $XXX

Turning our in remains to Healthy environmental post-COVID. The indoor invest opportunity Buildings customers quality improvements Slide attractive X. as

a models sustainability challenges Healthy growth Buildings vectors. the of and for work is and our energy Solving strategic indoor air of consumption driving compelling intersection quality hybrid

a and momentum leadership a OpenBlue to as in our which OpenBlue position, as Manager. to leading air quality service, in continued thanks Enterprise as gain space are in indoor capabilities We well QX management IAQ

XX-month In our XX% billion orders trailing our and of $X.X Healthy remains year-over-year, increased pipeline Buildings business, strong.

benefits for quality customers. our delivers we growth of improvements Looking expect indoor continued forward, as value the momentum environmental

On to Slide X.

recognitions, Controls leaders to Johnson our recognized honored are were efforts. other for honorable their for of awarded Among be We continually efforts. two sustainability dedicated

Chief Anu Exploration Asia-Pacific, magazine. team values. our Rathninde, by Katie by of XX for XXXX’s Character Pioneer the awards by most Award Year of Jiemian. of Sustainability ESG women McGinty, sustainability executives from the of named am example executing proud Women leading I our for President Officer, Inc. ESG was one influential XXXX the leadership received on and

I over will financial quarter. to the Olivier? call of the to now turn the go through Olivier details

Olivier Leonetti

everyone. and Thanks, George, good morning,

across X% the start in during X% which a with quarter. the businesses, Slide me longer field cycle sales modest headwind with comprised sales volume the was Let performance X. grew We saw XX% organic price a summary of Total quarter. X%, increasing XX% decline. FX grew on and our strong

margins at Our XXX mix. by price shorter-cycle EBITDA was basis Positive in residential unfavorable of and to XX.X%. XX% EPS a guidance grew productivity demand. points and sales Global business business Adjusted Products $X.XX segment end XX% improved more offset our X%, of with Adjusted the increased costs impacted than year-over-year. high expanding slowdown increased

we year. absorbed FX quarter, to prior pattern $X.XX flow the the versus additional start cash usage returned guide. of headwinds the to the Free an During seasonal with the normal

green while continued residential impacted by our inventory to supply demand levels satisfy in impacted disruptions, well as as improving in commercial. were addition, chain which ability softness In

for the operations our an Turning to EPS Slide which year, to are including prior XX. versus $X.XX for the meet a benefit track share charges headwind savings cent year. Overall, corporate FX lower we favorable on and contributed higher productivity $X.XX by from net the below $X.XX non-controlling line offset our was quarter, targeted interest. the expense and were financing In a count bridge on programs our

Please Slide X%. turn to XX. increased orders our for field Total businesses

in billion, timing by the As our growing order quarter. backlog in while XX% were impacts $XXX year were George encouraged X% $XXX China. at growth impact digit COVID stated growth in-store earlier, orders double APAC. which sequentially. in We by affected service business, business timing the in both to and within and EMEA/LA grew XX% million increase are the versus Order quarter growing in our levels, by prior largest remains the million record driven related Field $XX.X

prior $X.X third-party more XX% products global the grew Our over to billion. backlog year than

across on results Sales segment Let’s now Slides XX% America XX. XX growth details North portfolio. were more and broad-based in the discussed up organically with our in

in Our while continues & and single low-double-digit growing year-over-year, Fire digits. to retrofit momentum, gain install mid-teens growth and HVAC construction. high Overall, increased business grew controls Security XX% both new with

X% Order impacted mainly timing our service X% of with in America business. North growth solid as orders increased

performance unfavorable XX.X% to margins construction benefits New single in in low offset XX%, were with year-over-year price primarily EMEA/LA over organically decreased XX% in Total HVAC digits. by quarter Segment and project in aggregate at mix. HVAC orders ongoing Fire productivity as applied commercial points Security. and grew cost Sales strong & the orders Security up grew positive basis XX year-over-year. Fire XX% grew ended $X.X billion backlog &

based growth. a mid-teens our X% revenue which industrial Security offset X% with billion. low-double-digit were by Orders Fire service was across Backlog to year-over-year and year-over-year platforms, growing recurring refrigeration. growth $X.X strong HVAC was Our by was partially in led business up in & contributing declines over up XX% quarter

during by Asia to and favorable margins grew the the in which primarily COVID dilutive well savings digits, Controls. Sales result Pacific mix growing points commercial XXX offset benefits Controls in price our declined mid-single-digit Segment quarter. X% shorter performed cost unfavorable benefiting our double basis EBITDA & a quarter HVAC by from in induced lockdowns. the X% the & as business, quarter X.X% driven of low increased transactional cost, volume in Service of growth and China impacted platform. in cycle leverage HVAC

continues building are momentum region. China As the with we within encouraged to reopen, that

HVAC XX.X% and installation. EBITDA $X.X headwinds positive Overall, X% savings, in growth offset year-over-year. to in lower which declined as declined decline increased driven basis XX margins Orders Backlog X% was low-double-digit organically. over Controls quarter. a Segment install & by billion cost points the price productivity offset by volumes decline orders service FX and of X%

digits in in North data we unfavorable XX% EMEA/LA the products XX% with our the and America, Outside were softened single the challenged global business were our commercial overhaul low as up in mix realization X% were within by up America increased benefiting our HVAC with declined Resi of chiller HVAC North up sales and channel. were cycle digits Commercial product in in America price of double over product Applied center market. digits. respectively. double residential and market Sales light sales continued in shorter HVAC strong driven demand low North XX%. growth HVAC low from by strength quarter, sales

from XX in high pump our products. driven XX.X% to of EBITDA the by aggregate North positive in for in Fire led cost applied by HVAC EMEA/LA, the basis benefit margins well America and more grew points mid-single-digits savings. business by grew & Our demand growth EMEA. products digits as as single led Fire in than strong heat Security our commercial Hitachi within in Middle price XXX demand and continued Detection East productivity expanded

our to times. within range XX. flow billion of and Slide Turning which X to target ended X.X and available balance QX debt at We $X.X X.X net with in on is sheet cash cash times, our

Now order resilience in start our backlog. XXXX discuss are XX. on let’s of strength encouraged were continued by and fiscal our pleased the and the year with guidance We Slide our and

Our and backlog grew digits record at level. remains double

QX being guidance We the organic principal XX% contributor. are price sales with approximately growth providing of

basis EBITDA of year XXX the to XX%. of and a we represents low margin wide range the to Segment raising basis, growth of which expected the end XX% is beginning year-over-year year. range an EPS to full XXX adjusted $X.XX introduced is expected we’re expand $X.XX, to to On points

quarter the start second year While macroeconomic for a we with the the and continue outlook, year our ongoing to given we are to full current encouraged uncertainty. outlook take strong cautious our

Our scenario. signifies The to our conversion range XX%. growth, third our of existing $X.XX guidance GDP growth of vectors top EPS and case EPS acceleration growth, This of range represent to $X.XX adjusted full account normalized for year XX% backlog. base of our continued

a which with of by be actions. potential of market resilient that additional a scenario, for potential offset degradation presence, mitigation accounts we The range provides low a end reflecting services will cost along our believe bookend global GDP downside this commercial macro and

XX EBITDA segment throughout line, about to high-single-digit low-double-digit to we expansion higher representing top of the growth the margin we to execute XX%. as price continue We fiscal XXX On organic points basis year. margin booked anticipate anticipate our with backlog

XX% gradual from further between supply of our Full we chain year to to continue and the normalizes. the capital XX%. management improve free flow cash expect Operationally, be conversion is inventories reduction improvements expected as working to

as disruptions As continue with while the well vectors the of the pipeline operational year. our secular our and our we half George to global improve see of fiscal robust start positive execution tailwinds our capture our we services. chain through Whilst to year. strong navigate pleased field growth, momentum mentioned, impact continuing first remains are are to in positioned the based business, we supply we fiscal to Across products

the lines please that operator, questions. open With up for

Operator

[Operator Nigel, from Our come is Research. first line to Wolfe going Instructions] your Coe question Nigel is from open.

Nigel Coe

Thanks, and good morning, everyone.

George Oliver

Nigel. morning, Good

Nigel Coe

hi guys. – So

So, yes, you orders field coming up – plus field X%. for mentioned timing

So that think I perhaps click the just like you on I understand, double maybe but what’s just delays expect? China. of continue outside of some China, causing didn’t

George Oliver

the encouraging? was over Yes, we’re with when you field services up our orders, install encouraged look Although, X%, up XX%, there, Nigel. making what we’re at very progress the is was and

growth the the business as a On and delay the a we now the it’s that conversion sustainability install X% the quarter. because impacted hard but X%. couple – it’s healthy was have disruption and China us incredible ultimately here these, and predict in lot in to in the drive of building. pipeline, of that’s and – so X%. There’s that another those project-based getting us to side, vectors quarter, And we COVID of and mainly factors of to our closed larger our It in here amounted projects that impacted around roughly lockdowns, then timing the X% to

the XX%. – strong orders far field digits be orders. backlog conversion. the is pipeline our to Nigel, in key the continues as drivers, up over double Those are as The

the to the that we’re QX year. the as give very is executing now the a beyond does us strategy, year the we with that able on then on ability in confidence our and for provided strong full up really for here year. here our are encouraged so lot be And of being that the been going And continue up way to the deliver now we’ve we backlog conversion for guide to set in

Nigel Coe

Great, the thanks the follow-up questions George. full year. for margin on expansion And then my

by XX bottom points. You’ve raised end the basis

EMEA/LA. here I’m weakness strengths we So between referring and the the in I’m obviously mix to saw how saw curious segment the we change. in the products, global

that just all. So at wondering mix changed if of expansion has margin the

George Oliver

making with We’re couple over that more we’re the costs our only it’s the has not price bringing value important about years tremendous around the and to been growth. on vectors progress discipline margins our market this – instilling a and propositions last of

combined got additional the only we’ve having that with you not in cycle business and playing so that we’re global value getting but that on now in And that’s the our we’re strength margins shorter see only leverage products our that’s – and the the that. productivity not proposition, through also

And the continue, and got so the to because in as business, we we’ve margins cycle project to current going see strong longer year, we’re going margins, momentum backlog.

As the year. to rest you’re stronger see going projects, much through the on increase on the of come margins to velocity these turn the we of start

you can the maybe Olivier, comment So on segments.

Olivier Leonetti

Absolutely.

point So one clarifying the on orders.

single orders the an impact from as be orders move to due QX. expect field orders of to high to We QX QX on the digits the in in

year about rest increase the and margin field basis Regarding after a Nigel, XXX with as turn QX, in we business. the end strong the probably positive margin the year, the XX and in remain at day product points to the level to of margin, we segment global EBITDA to for expect we significantly field increase the strong expect

Nigel Coe

Great. That’s helpful. Thank you. very

Operator

Our is next open. your from Ritchie question line Goldman comes Sachs. from Joe Joe,

Joe Ritchie

Good Thanks. morning, everyone.

George Oliver

morning, Joe. Good

Joe Ritchie

last to off that margins want pick improving. I Olivier, point on up field

bit North in quarter, America now and the I down unfavorable last on want so guys seven a year-over-year sequential both the have you And to you America, last but mix been specifically called quarters. know guys North this improvement better. out margins that saw I understand that And little then EMEA/LA, for

the business what understand in better getting driving was from what’s that mix just margins and those the with unfavorable quarter? was the through here coming this help us field issue confidence So

Olivier Leonetti

from it or – flowing a So would larger be through project projects in to project mix quarter. the

are And a business. at that discussed at higher high last of we If flow booked through margin we those you and have field year. orders job all orders have to through look a the level starting level now before,

segment thereafter. and to points So basis the expect Nigel in earlier, improve by to increasing margin XXX keep to QX as XX indicated EBITDA at field we level a

That segment America would our for expectation business. expected include the level full into EBITDA increase in margin North points. North increase The is to be over America the for two a also

the we we our at QX, business field increase, as in companies, momentum see productivity our and keep as will we of our the which in delivering as as margin converting between mix strong this Joe. continue which was QX, to we to a would keep keep I So QX we QX, is say, materially expect very margin, in backlog – business service higher initiatives, increasing the you

Joe Ritchie

ask good pretty business America was because of to That’s resi XX%. usually the to hear. portion a it North Okay. business, but small don’t see the it’s portfolio, on And that down I questions overall interesting

the guys product called you think mix I channel. out in

maybe So a be than of little a more there? we’ve seen bit from some happening little peers. your to so provide bit what’s far what reported color, lower That seems

George Oliver

When look more business, market, we’ve we Yes. here. the disruptions. two factors coming This when North America the now at we big in deducted teens, year, our were chain is that. it’s had look supply in still than you the at resi overall you had units continued it’s And where down into down really

through launch worked our product. chain. the product, the through new supply XXXX the had also we of We We worked that,

make which portion strong So with although, up there’s key to XX%. distribution, is on actually were worked field were channel, our in of units, and through. We pricing down we a small another coming our distributors direct further we we our had point

so seen. And others have to similar what that’s

through continued positioned have to to to going expectations the that with the as quarter a improve as in standpoint demand able our our worked we side, their through on we’ve be distributors of now from sure we’re go be we deliver the rest chain supply that year. distribution the now On to making

the actually down chain, our in had due when to single coming over year market so be we the units. that last now digits the at rest we with through And be supply that up chain. of industry. are And There’ll we in you high start with strong we believe lost continued some of line the look supply the the that year, share the pick recovery pricing of will and the projecting we’ll to be

Joe Ritchie

Got helpful. Thank it. Very you.

George Oliver

Thank you, Joe.

Operator

line is JPMorgan. question comes your from Steve, next Our Steve open. Tusa,

Steve Tusa

Hey guys, morning. good

George Oliver

Steve. morning, Good

Steve Tusa

seasonality? is, I implies If in just Good that of where That’s the guidance earnings XXX about of kind a quarter quarters give how you or on Maybe quarter bit – type you and of morning. half. how little consensus so look is more using $X, midpoint a little of we’re be your expect color per the materially of out roughly to fourth of EPS-wise? so above it or at above? quarter third the the kind the Would right about and break the fourth $X.XX $X third us by math. my Do second

George Oliver

product-based cases, that At expanding our tried we’re come as very and instance, businesses. for than Yes. see level, we build year at high X in continuing a we last we year, applied volume look in a accelerate In the for now Steve, were ramp, we’re some place this expansion X capacity across different seen our we’ve capacity to or we were our nice the when through. businesses. And to our times,

our supply chain. worked have with we then And

recovery aligned QX our going see of here to So we’re to QX, the continue now in begin as well and seasonality backlog and our into will be through as to seasonal QX. much accelerate able the we in that very that ramp

I’m we’re a board. year were business very execute ramp. see from the across the especially to is on strength, done, very than our that different applied and to across where, work beginning and in we’ve being able that pick that place encouraged that so core our with strength, a we’re we a And And ago up

So you any got Olivier, if I don’t additional. know

Olivier Leonetti

full productivity The is to on backlog to track. will It much still have strong its going now add. impact. not well onwards. No, from QX more initiatives The be conversion very are

backlog The new We through resilient. are very year. initiatives all the is identifying productivity

the portfolio. service very strong, is Our significantly mix accelerating across

see we Steve. margin half, the in second expansion So clearly

Steve Tusa

is it precision and weighted, fourth number steps is there? up quarter it maybe Or around line? a like just in $X little of So XQ for to more the bit more get right then kind people a from

Olivier Leonetti

Roughly, the you’re in Steve, indeed. ballpark,

Steve Tusa

activity. then one – Okay. one one And just last on non-res

What front? the outlook And in – here. things things that said up seeing how half I that some you things? trend on You the in seeing of things expect January year? you positive calendar pick to latest are are back assume on you’re the what’s

George Oliver

very the market, the we especially all and are of vectors our we as you it the growth, at look when overall we our at pipeline that then number Yes. track at our and look closely, relates growth pipeline you general to lagging When that. and – when look Dodge

we’re significant plays as opportunity that So seeing through. there

We that in the is It stabilize and November. soften did are ABI, term to which It December. longer are coming in projects watching back market. from come did

And applied – – year capacity and you chillers, be then portfolio, and look we’re working our support our at look at core with our seeing offerings, sure so you when over businesses, make a to that at across on the industrial across for started the look progress, demand for executing that at incredible that that be we positioned ago you made Steve. we And making we data demand. able expansions – our refrigeration, look we’re to we’re of our supply to when when we’re center it’s that business, good demand, us, to our mix

in strength So from and where building as pipeline. we a activity see non-res, our to our very we the as be, mix far continued strong see

Steve Tusa

lot. a Great. Thanks

George Oliver

Thank you.

Operator

line Our comes Julian, from Julian open. next question from Mitchell Barclays. your is

Julian Mitchell

Maybe wanted morning. just good to… Hi, I

George Oliver

Julian. morning, Good

Julian Mitchell

supply and little with off mix like start much I to think things commercial like supply a the in and $XXX like some kind other much too too up too too the areas and little resi Good cash perhaps HVAC. and in of because and of demand then it’s it demand about was morning. inventory I the seems sequentially, flow inventory just wanted million

does going mean the just kind help what’s flow on cash? current balance be inventory sort the or over more then free year-on-year up that that improves cash flow in of pace a you at us it’s recovery the quarter which understand in what second Do And think second on can of the of cash year? balance. free for maybe So half of

Olivier Leonetti

look it’s first of the you all, if free full XX% year. unchanged, guide, at, for full cash XX% So flow to the

of means look at to seasonality question, flow a go flow historical believe going that free That back should standpoint. QX, from generation be you of If cash we’re we free we seasonality. close the your cash to to year-to-date at end the breakeven

You positive would QX can that infer in we – from sorry. that, be in I’m QX,

So breakeven end in year-to-date at the QX, positive of QX.

in was is explaining what year. You’re free what going keep is Inventory trend. improving believe happened that. some mismatch this Resi through QX. inventory in this Largely, key flow all is explaining the to and right. We cash of covered George that variable the

free an after have half from standpoint. flow first we is place. achievable We even a detailed believe goal that action breaking And the cash in

George Oliver

we’re you our building So look the as Julian, achieve lines, just in doubling; cases, output the through product add being to applied process to the And year. course business, that able tripling. we’re many commercial and at of up some of in to that, in

quarter. with what total as on When well the up here strong So we’re it’s internally, business and a progress do first you applied applied at we’re the in look good externally our build we in as making business. very

that through it’s plant residential the Olivier to the our one residential really down we work comes second that, We’ve we supporting on really through had as and what business is with worked positioned quarter. the into coming we’re adjust. And to said, the then disruption, disruption

that, mismatch expect. had, with over the we’ve out what going we relative they next normalize here to X. And have the quarter confidence to lined distributors or we our Given that’s

Julian Mitchell

like And the North America longer but that I been you’ve business that, Field get corner. headwind was it XXX I And to margin margins I very down it Thanks think, first field then America quarter, you’d was to year-on-year. margin ago. a the to much. now predating again, just expected margin. back seven mix than pulling down circle you’d clearly, QX in The lower because as wanted of taken have mentioned North years to than two quarters points seems think the had, there specifically And turn issues it’s the

clearly, the $X an that color guide QX. much So that turn give doing And But I kind of organization example, benefits? getting what improvement think the embeds more bit sort EPS, some in you’re of how get there inside on maybe to us internal to improvement self-help margin for macro in margins of to around. getting the that of supplier versus is or a

George Oliver

and fourth ultimately, is margin Julian, into propositions. it’s then service. mix, what’s we second, it turning and quarter, value really the the And me I’ll let the look backlog. relative Olivier. over higher in to longer touch base, greater so booked at so are and to to And on the been what’s off that, And months, a now spin turn tied turn much we’ve over much XX last to that last it’s turning that what some the third When turn, look you at going year, margin booked – been the of to installed projects going you that cycle

because And think so prior we’re margins. was we’ve at in nice I more velocity inflationary higher been rate. going start velocity to because this projects could Those tail pickup turn ultimately these projects productivity see maybe are factor through. that the improvement the the of on – – margin when been to in you’ll our as Olivier, we the then other But of and year. to that of projects being have and through see turn, these then factors. big to the the going we through is And that much the the that building of executing, what confidence period costing work the how last the able I you’re two to you start supply a comment are coming we’ve of chain, consistently look still

Olivier Leonetti

Absolutely.

go a see, Julian, we details bit a I conversion, indicated I the earlier, the numbers So speed can as of the margin here. of backlog the would into of byproduct as more expansion,

to improvement today, So actually QX, X margin expect segment rates this points the And churn increase EBITDA points. in a business, to to probably of a we are close change margin a in close will we planning backlog. full QX, in not assuming significant for

Julian Mitchell

you. Thank Great.

Operator

Our next from is Research. Melius line from your open. Davis comes Scott, question Scott

Scott Davis

Hi, to flattens George really pricing here. guys, the cycle kind the How continue I I’m mean can something that Olivier, XXXX really the call kind backlog, good is maybe confidence big price of out suppose, our this you What’s see welcome some And COVID again here of in and contracts, Jim been and start in curious about story morning, in and to into anniversary. the as of don’t I has that think to And backlog to world about of power. kind I half in and you think demand back your XXXX. but forward backlog. drivers your that capture? of what’s in – the is But

George Oliver

focused focused energy are Scott, then outcome as And it’s together combined executing our quality of that’s with environmental how years and ultimately the our ultimately an couple value is leading we growth. OpenBlue pulled autonomous our we typically And now we and the now capitalizing done deliver strategy we journey, only heightened within and solutions obviously on look on not an building. outcome vectors a reduction, that at of much customers. capabilities we’ve as But bigger that products. really on in where outlined to indoor we in our creating back proposition for on are as a what been we’ve that on

outcomes, achieve the then to business to significant. as it that focused when at those is HVAC and And on we being our our able core look contribution has you

so in a been has that’s that historically then the being able value different comes products. deliver on solution in leveraging very core that we the to we technology being what our proposition than and to able leverage have with And create how provided the our with ultimately technology really

new being going we how indoor and our look energy are pumps applications pumps centers our as and we’re from that pricing and commercial the much across big the And investment to confident be all bringing portfolio chillers where across of the so into to as enhance in most market, our bring industrial XX%, refrigeration while heat going industrial today, Heat air the is applied the then And well heat reduce data about our of our that we’re with we’re we’re and complex continuing able we the being proposition you year-on-year. when We’ve portfolio at our technology XX% applied that a entire to products new quality. products portfolio. is up product new chillers have the today value pretty air-cooled residential rooftops pumps. got to leading part now across board solution across

them, I’m So outputs customers change to for delivering on value ability technology, momentum we confident our focus with how fundamentally solutions serve our that. the proposition we’re significant that then seeing and the with that on

Scott Davis

but I of building, changed has the that update That’s pitch sales years? Thanks. how value Security, so can helpful, mean, makes is When sense HVAC, break guess, less – & mean, you us Fire that in understand the HVAC. connected so I George. of has & when perhaps ton I And few a kind think proposition, over there. tangible how Fire certainly you in in I last which Security. it you but about Maybe certainly specifically

George Oliver

The It’s It’s & that systems. Yes. very our still our today, leveraged still revenues. of XX% way attractive. quarter portfolio Fire Security building we’ve it’s

into how On the building. they collect smart bring very that systems important critical for because with the and building. data systems do that the smart that create we sensors digital we an side, are of a OpenBlue ultimately integrate And building, overall these within the

there. starts it So

Now would more the argue systems. that you around security there’s

ultimately and can been intrusion sensors building but video, controls – apart those and So that historically separate OpenBlue, with with other all of the within those set. or into control, are one building data access systems important with bridge have be then very into the whether converge systems one now systems and digital it that we our solution,

So it starts there.

to customers we when system, that we significant a ultimately monitor how our to support we fire the proactive value service in through And standpoint connect a and through and be in our bring that be service. that proposition install then from ability very able fire is

ultimately think Scott. and we the proposition it when So has about the that two serve, differentiating value that you Fire Security, the those we’re outputs that solution are that building & the set create into customers can for – the we

Scott Davis

luck, I’ll Okay. Make Best it sense. of for XXXX. pass guys on.

George Oliver

Scott. you, Thank

Operator

Kaye comes Our is open. line from Noah next from your Noah, question Oppenheimer.

Noah Kaye

any quarter, back helping improving line morning. then what of in to much impact Circling on just lines Thanks. the a us sight particularly chain quantify sense Good supply of of Can saw the across revenue backlog Maybe conversion. chain business you pace give better how health. Global that on supply Products. pushed and was of during little bit you the your a

George Oliver

Yes.

the volume, Products, the X% goods make look impacted a level fire impact warehouse rate to to try work Global our think here we or our suppression that business. we we that Global It at other the point although quarter, fire the impacted product stored. growth had, within finished our Products we at And recover that Looking had a that our had in when and I in the on about to at you X%.

that factor. big a is So

We’re recover most third here second in that of but and the the in going quarter. second quarter into volume the quarter, to maybe it

And worthy to X% up mention us to to – hit then demand it’s resi we’re to ramping roughly be ability another the for when So able and China look The significantly X%. at we businesses. applied then our that.

double-digit when mix, our up the across applied you board. at So look we’re

we’re visibility in our in expansion, have tripling or some the with volumes cases, confident I and with we’re volumes the to our our that making like so we’ve base doubling capacity with said sure done that supply work the applied we as space. And earlier, ramp, we

our total and So solutions. flat units into at channel although our look when relatively because I’m of we’re product do that some units, confident direct – the go then you

So we’re going to be ramping here.

We’re that turn. our to continue be going to ability to factors, and expand key able for QX. impacting as been we are through the unit we go QX Those deliver have as growth to Noah, position That here QX. will

Noah Kaye

then significant can the circle focus at versus just to And helpful. on particularly we pipeline wanted it sustainability. We Very Okay. orders growing, back much growth of XX%, to the out orders was look timing in timing. lot Maybe How obviously as into quarter. had We’ve clients relevant figure the playing that actual is and a the this implications? policy. legislation the of

guidance treasury the kind And are of things folks increase Or quarter sign? to we there before waiting more air do any Is an here? for you next expected two? in pocket like expect or that conversion significantly

George Oliver

then We energy and the We’re this next electrification, through – over It’s all incentives which capacity grid significantly XX at there’s it’s our expecting on continue and we which focused deliver look renewable believe efficiency. to in the $XXX focused is impact that incorporate generation, you heat increase. pumps. into to we solutions on When just billion overall IRA, do years. on and going supply

This is right sweet in spot. our

so actually the resource billion that sustainability in multiplied by on think X the And $XXX customers’ goals. we XX to amount given of to to our will able be deliver being work times put

so working you the pipeline well at look to And when $X billion. we’re it’s that over convert,

of year, last serving expertise, that course projects, changes on the we’re predict the over so that We the see But solutions accelerating These we I how last of and fundamentally hard ramped are larger up had timing $X billion, can our depth with team that the it’s that developing. type to we’ve that our customers the of about with had field think – year, we conversion. got go teams, to the about year. the

solution, equipment. when that the you think of leadership it’s about not – equipment because all we And is the just delivered optimal have

heat with together developing customers’ equipment of digital but that platform pumps, how leadership delivers We’re our ultimately expectations. the comes its on portfolio a our

as been in only pipeline, going just but build begin mean talked a IRA. net deal, And in the we’ve we to strategies, to, And about zero on I that’s what’s think with convert the differentiate ahead. Europe. not we the Europe. with But the very the opportunity note capitalize closely their build I working by us and XXXX. one EU green of last similar number It’s

energy fossil EU got was initiative. And focusing the climate around. on REPowerEU got the performance Russian more then law. recently, fuels. independent level buildings They it They firm an got the They’ve of legislation

ultimately these positioned making aligned sure activities, goals to that been and aligned out setting of to we’ve be achieve. so All the working going we’re achieve that they’re we’re to

Noah Kaye

correct and out Healthy was I’ll very pipeline That’s myself, sustainability that and helpful up color, XX%. Buildings XX%

for you thank the So color.

George Oliver

you, Noah. Thank

Operator

Our your next from comes Research. is line Jeff from open. question Vertical Jeff, Sprague

Jeff Sprague

Hey, you. morning, Good everyone. thank

George Oliver

Jeff. Hey,

Olivier Leonetti

Hey.

Jeff Sprague

already of come really to, back been have guess, addressed, but that wanted I to just I just a actually topics to couple of kind clarify.

updated doesn’t margins improving for kind of of guiding. the First, of it out of don’t if seem that’s execution acceleration just year. I volume backlog, what forecast on like you’re you the on notion know the the

sort of of no guide your kind little guess or I But assumes growth. volume

governing question thing sites, the that willing supply you chain, So happen, first? to get first expect is quite that that it factor, way past I but guess labor there you’re job yet. not to you’re is, of Or to guide acceleration is that on sort some the looking

Olivier Leonetti

is conversion, that margin unit you not with associated is the volumes. acceleration, variable said, if look a byproduct you of backlog at as which really the Jeff, a So

about quality. which indoor measure is $XX based, which and business, we sustainability, is because field sell relevant of you is business sell less this the more air need a where services, more and at we look you solution If a the solution billion revenue we for less enterprise, sell

just half the conversion, your the of the a planning So be point, of is year. byproduct we growing to volume back the margin digits, for to are about for acceleration low-single and X%

Jeff Sprague

Great. And then…

George Oliver

on ability in comment that, the sure we’re the Jeff, improvement last over instituted price we’re A as two years, within have that make we significant incorporating and strategically that then future inflation. to pricing, our

we’re improved. terms and conditions we the right significantly costing as sure the and have the right making longer-cycle projects, So that and like, cost in these has

to three we look the at are projects turn to of And going are backlog. next in going quarters, what’s when turn a percentage high the so in that

that that less through period, less. as backlog And becoming older have the the to inflationary was margin working been is prior we the is and priced

significant And so in is backlog we’re confident step-up. margin that a the what’s in

revenue to Now that able of more recognize projects. so, to it’s the these the able precise and to our cycle. standpoint, we material on accelerate ability support ability be with to flows also, be gives just velocity inventory a turn. And to the productivity the what it get execution from us that minimize And higher our doing an relative by shorter does, disruption, then

a So big that’s element.

to that margins over And that turn course been significantly that relative continued going think so the have be in year. of those factors, are improved but the seeing we’re cautious booked in improvement the I the we’re confident we’re and to

Jeff Sprague

But that for my of to thanks and question. And come to that I mix. projects addresses second kind back partially and did want

OpenBlue mix So buildings, I indoor in the you larger projects. lot negative kind healthy of of often the pointed quarter. inherently to a be being of projects large And kind think would air

issue through of appropriately as maybe wasn’t was that the projects if stuff but the coming also of just say, kind understand that. inflation the to Really also through to embedded it Is for come we’re an in had on coming newer priced is you inherently less backlog waiting that’s the that stuff it? big want

In fact, equation. they’re when the to convert margin-accretive we them,

George Oliver

the differentiate field-based business on and it’s which and vectors, on mean of our overall at look the the building. automation have I strategy actually We core, our then opposite, when reduction, focused our the environment to Jeff. is you really growth energy – capitalize healthy we ultimately

it deploying capability, converting technology, getting and our a to core then ultimately core that it service. connected sure everything Making is we do

a by lot low we’re hadn’t digital contracting was higher that out taking has the greater and might it done services, so the value on there’s margin have we achieved. historically of leveraging a that focus much business core, refocused what – leveraging that we the doing delivering on our so, to didn’t And historical and proposition So ultimately been is that ultimately obviously, convert then outcomes with do.

is that we’re so business, applied our which look us product with the applied helping – standpoint, you use our from the data that getting It’s And products to ultimately installed into also propositions drives that up from create us channel, it’s we a double-digit flowing base. bigger create I at new think then connectivity to when base, with to able up the ultimately that which installed base. be value

Jeff Sprague

Great. Thanks color. Appreciate it. the for

George Oliver

Thanks, Jeff.

Operator

Our Nicole line is Bank. your Deutsche Nicole, from next from open. question DeBlase comes

Nicole DeBlase

Good questions. morning, my guys. taking for Thanks Yes.

George Oliver

Good morning.

Nicole DeBlase

getting of pick off because just totally where I’m Jeff I’m I off just sure wanted not kind it. left to

the seems big this field we but unfavorable mix rest then the if margins throughout mean, the not be that I mix like in seems the you of think business So about – unfavorable year. the like cause a confidence quarter, will have do factor of weaker was it it

again? risk guess, expected the larger the piece that getting. then you the That’s is I’m mix the just I come through, second again, So in that than what quarter fourth to you. unfavorable projects greater driving Thank not quarter

George Oliver

a from track simple then is it how booked and proposition book we standpoint value and how cost we what a tie Yes, fundamental turns. and to does was how that the

you incorporate over when so. the mix, talk a that XX projects quarter, Nicole, every much – experienced have a higher now so older months last And have the we about have of on you less forward-looking the or inflationary that maybe didn’t basis, rates we

projects able it’s be get that to standpoint – we aligned well And a will about we recurring so a improve, as continues we base create everything is as with ability we’ve about turning factored more have to have how and a then revenue an base installed didn’t – ultimately that service. that installed to booking when to our that that from from recognizing talk still strategy mix, on of talk we that when that go-forward is be basis, that necessarily And been in. part

Nicole DeBlase

hit gross do you big field can sorry, improve a weakness some to a on really to and Okay. Products from see second the of kind At continue have Thanks, think George. guess wanted Global here. that the margin – been driver I upside That’s I thing confidence like somewhat I of what’s really Thanks. or helpful clarification. several margins margins the Global ceiling? Products impressive to And offset the then just of point, for you now. is quarters

Olivier Leonetti

Yes.

the to Nicole, going on is conversion the margin so prior to at field. anything question your the Products If I improvement variable mix in maintain know else. back the backlog and go we Global for today, in look mix, improving margin than be more you the we’re just believe big to able to keep

improvement And lead with no now we have time. a high confidence happening in that in

to we a today back commercial in Resi what Going small of Products. indicated, to you back your market question, is are mainly exposed our go to has margin global proportion the portfolio. George Global

we heavily Products, are in Global in And investing pump.

If quarter are the a of you capabilities. heat today, small look at heat the [indiscernible] in strong product very them introductions bought asset also new with We pump. XX% pump

So it’s portfolio strong we look no today And if a to the keep Products. standpoint, the the from is for Nicole, the that macro, channel, still – was at believe Global a strong commercial commercial. maintain margin you us allowing going strength in to of there

Nicole DeBlase

Olivier. Thanks,

Operator

your from open. comes is Stanley. Morgan Our from next Josh question Pokrzywinski line Josh,

Josh Pokrzywinski

Hi, guys. morning, good

George Oliver

morning, Good Josh.

Josh Pokrzywinski

Yes. Good morning.

shipments follow-up Wondering don’t maybe a start expect until way is if any to something year guys the this IRA. XXXX. timing on booking you of start expect thinking the next sort we start of Is just see that booking about and that are and So see year? really that guys sort the to to this if the benefit you year revenue

George Oliver

already was Yes. this part I they working formed. obviously mean working that we’re with means as customers and through it recognizing bill this – obviously, we’re of we’re what about and how go and that

here order so start going on And we’re momentum side. see to some the to definitely

we keep confidence the the updated. solutions pipeline turn that more you But portfolio, in. from is continue And through but that that across but into on complex to that our being then sustainable this not and able in we’ll year book It’s some we turn flows through offerings we of the have of residential have. to right then the right, – next, – to incentives helping that up timing, and ultimately how have the depending all only build

Olivier Leonetti

the important. presence where is field is very this Josh, And

how We our field today the IRA. a of leverage benefits about the advise have presence, customers us to best allowing to

Josh Pokrzywinski

just Got on then deeper a it. little the And weeds into on IRA. maybe the trip

industry, My so a in stuff it I square that is incentives. for can fast? like significantly like it a guess like $X there’s commercial customers. like them yourselves Like just anything? layup products only of below install hold I understanding energy back, seems would the is some foot. Or of included, if square per foot is What think the retrofit OpenBlue sort

George Oliver

purely it’s we that there’s mean just can element And the your what and becomes on it output that is we then and working problem to that the and understanding point, an very again, go customer. like what – how proposition can solving we’re incentives. being I the we with can and to able through it educational about Yes. create, the we capitalize for attractive the value bring do

of to isn’t think – it they’re So matter I going proceed. that that a ultimately

in going built that initial It’s of market be able of the that that result more set But come capitalize timing through the process a confident, solution we’ve getting it that upfront well-positioned to and just the going be into then able dollars we’re to Josh, to the on to that. defined being ultimately as with execute. we’re

capital how changing And match thinking benefits OpEx look be at some the whether you to models these it’s of it customers, also they’re are it how is, they business when how and about that or they and that see. configured then

with our team a sorting directly working in got going momentum we’re be able see that that’s to ability that on that. base through then the in and to So convert. We’ve that we’re customer but working to to both orders out, start our

Josh Pokrzywinski

there. it I’ll All right. Thanks. leave

George Oliver

you, Josh. Thank

Operator

Khanna open. from your last Our line we is question Gautam, Cowen. have Gautam

Gautam Khanna

guys. morning, good Hey,

George Oliver

morning. Good

Olivier Leonetti

Good morning.

Gautam Khanna

when that you’re what remember would I consistent the you Day, seeing was & any thought order had between Security applied Fire those HVAC at wondering you if is back could today? you your forward And you’re with grow a about this market. seeing rate. pipeline similar I Investor talk differences in and markets pipeline,

George Oliver

Yes.

the and thrive we and So the ultimately seeing space the that in service the a through, on the Security, Dodge on more construction standpoint Fire like. indoor the upgrade reconfigure strength well side, and positioned we coming and are how and & on – – we with activity on and retrofit the from we’re

how we’re seeing the And hybrid a lot to work back coming and given that people work. of are

are in the in both & those – typically revenue We little up orders up that both bit is factors see growth close we HVAC. drive than lower Security. what to a were rate Fire that and so double-digit And

frequently driven around equipment deployment the only the during HVAC then really call what for we here the with we’ve being the of value proposition pumps, that bring is efficiency today’s but within new discussed instance. by here heat And not

where we We a are can that situation generate. with our we’ve the temperatures improved technology in

X reduces take then the time, boiler, a the of unit. When for and customers. our a the you’re same and significantly to you be out footprint the heat a to convert carbon able chiller pump replace X getting to times At efficiency

a so you payback. tremendous And get

to believe And to Gautam, so different it’s in unleash be to be we our through than to historically demand strengths, as does models, HVAC. what going play we that very begin that market cycle attractive what a and these we’ve a is seen

Olivier Leonetti

One statistic, is today has Gautam, to George reflecting has complement just what indicated, adjusted pipeline growth our the in George mid-teens, what indicated.

Gautam Khanna

space. lead or could And HVAC that And you Okay. updated for on also are say, you. just quoting comment comment times you if commercial could commodity should then in year? the then applied I guys you deflation, this Thank on your inflation expectations

George Oliver

Yes.

on as inflation continued But Certainly, has some watching other moderated, that increase. So moderated. they’ve commodities, costs the closely. relates as have we’re to that it of to

have. we watching impact closely. we’re that to stay something the make disciplined that’s that And I that, with So certainly, want might sure

as is creating now to that proposition tied necessarily that have we’re I cost we us the business here is price think what purely historically to what’s done. important not would value

that’s factor. think I So one

on second was the – – what the And then on applied second the the was…

Gautam Khanna

times. lead The

George Oliver

we’ve you’ve we’ve of result that in strong applied. our Gautam, as times to year, the demand, realize, through pickup as gone The lead significant around last had a backlog got the

chillers our air so basis, on a cooled of We that plants, industrial building go-forward And important chillers been cooled our expanding or get capacity. – it whether water number a we were it’s refrigeration. or we’ve be

recovery solutions, that been center we’ve in we’ve capacity with been our and increasing ramping we’ve supply on. significantly data we’re been as doing this line executing chain the Our up,

so be able we up see shorter And the demand backlog so capacity once strong to to very we with that what this we’re forward. can to trying on times with lead to open going be – now capitalize backlog, address

see. them where respond lead we be. very year, They’re a being the time So to be the capacity lead online customer we from to not putting But to times to we are competitively demand like able as ultimately through the we’re additional going be and positioned to reduced. we’re support that the with go

Gautam Khanna

like it? us you months? to what What give you today? do think is XX times Can What lead are it X of the in months

George Oliver

vary. They

state six the been hard them reducing the last the to it’s here one, on any months. So depending residential from but right significantly over the commercial, large we’ve to

capacity volumes at and chillers, rate basis on basis that our run board, X to air water additional you, chillers our with coming chillers cooled X a a times. now applied tell the or business are I with our volumes we’re then We cooled in on looking would our be rate are our on run and going

times place, that does so opportunity in a us an on give that we’re And basis we’re forward-looking putting quoting to it the as to those capacity our reduce customers. lead

Gautam Khanna

Thanks, guys.

George Oliver

Thanks, Gautam.

Operator

final That question for for call now I turn comments. was our today. the final will back to speakers over the

George Oliver

everyone today’s like us for again I’d joining on And Yes. to call. thank once

And confident very momentum we execute in to have the step quarters year. – in ability a we discussed, the up I’m strong the really our fiscal into coming step continue as our concludes to have that, we of start over to over very As and many I look or next call. the our with of forward the conferences phase the next that so. And with of journey. digital you next transformation seeing couple that, – operator, month

Operator

Thank participating. the for call. concludes That you

time. may at You this disconnect

Johnson Controls International (JCI) 1 Feb 232023 Q1 Earnings call transcript