Q3 2020 Johnson Controls International PLC Earnings Call
Welcome to Johnson controls third quarter 2020 earnings call their lines have been placed on listen only until the question answer session.
Next question. Please press star one well you touched on.
This conference is being recorded if you have any objections. Please disconnect.
I'll now turn over the course, <unk> antenna Franzen, Vice President and Chief Investor Relations and Communications Officer.
Good morning, and thank you for joining our conference call to discuss Johnson controls third quarter fiscal 2020 result.
A press release that all related tables issued earlier this morning as well as the conference call Slide presentation can be found on the Investor Relations portion of our web site at Johnson controls dotcom.
Joining me on the call today, our Johnson controls Chairman and Chief Executive Officer, George Oliver and our Vice Chairman and Chief Financial Officer right.
Before we begin I would like to remind you that during the course of today's call we will be providing certain forward looking information. We ask that you would you see.
Through the forward looking cautionary informational statements that we've included there.
In addition, we will use certain non-GAAP measures and our discussion.
For the sections of our press release that addressed it used to be like.
In discussing our results during the call references to adjusted earnings per share.
Hey, EBITDA and free cash flow exclude restructuring and integration costs as well as other special item.
These metrics are non-GAAP measures that are reconciled in the scheduled attached to our press release and in the appendix to the presentation posted on our website.
Additionally, all comparisons to the prior year on a continuing ops basis.
GAAP earnings per share from continuing operations.
Well for Johnson controls ordinary shareholders well the loss of 24 cents for the quarter and included a net charge of 92 cents related especially them.
Driven by a goodwill impairment restructuring and mark to market adjustment.
Excluding these special items non-GAAP adjusted diluted earnings per share from continuing operations was 67 cents compared to 65 cents in the prior year for now, let's turn the call over to George.
Hi, good smelled good morning, everyone. Thank you for joining us on todays call I Hope you and your families are continuing to stay healthy insane.
But we're going into the detailed review of our third quarter results.
I'd like to start by providing you with several highlights in key messages coming out of the quarter on slide three.
I am extremely pleased with how we executed in the quarter.
Been encouraged by the monthly sequential improvement.
Initiatives are beginning to normalize our facilities are operating in near normal levels and access to customer sites is improving or a more every day.
And although global macro conditions remain challenging no political and social climate in many parts of the world remain extraordinarily dynamic we are capitalizing on near term opportunities to engage with our customers as they enhance the health and safety of their buildings and position ourselves long term.
They leader and intelligent building solutions.
As I mentioned last quarter, protecting the health and wellbeing of our employees customers and the communities in which we live in work has been well always be a top priority of Johnson controls.
On that front or questions response team has been incredibly engaged with our teams across the globe.
Let the appropriate policies and procedures to ensure a safe workplaces, well also encouraging our employees to follow similar protocols at home in their communities.
And transmission.
[laughter] these policies and procedures have proven to be essential and our ability to ramp up and maintain operations throughout this crisis I could not be more proud of the leadership and collaboration. This team has demonstrated in the dedication all of our employees have shown to mitigating this risk.
As our customers plan for the same return of their occupancy we are committed to helping them prepare to reopen healthy buildings by delivering solutions and support that enhance.
The safety of their environment.
The efficiency of their operations.
We have one of the broadest portfolios of innovative products and solutions that promote building held and optimize customers infrastructure to support flexible resilient spaces.
On the cost of the last few months there has been active engagement with our customers related to these solutions, particularly indoor air quality location based services for contact tracing thermal cameras and tortuous access control, which are beginning to convert to revenue.
Throughout most of the quarter all of our fuel businesses experienced restricted access to customer sites limiting our ability to perform service and install work, which was an abnormal phenomenon relative to a typical downturn.
We will discuss orders in more detail in a few minutes based on the sequential improvement. We saw in June we believe orders have bottomed in our pipeline remains solid.
We've also seen sequential improvement in our topline and expect that to continue in the fourth quarter.
On the cost side, we were aggressive and rightsizing our cost structure for the current level of demand, including both temporary and permanent cost actions and have increased the expected benefit of these actions.
Free cash flow was another bright spot in the quarter as we generated approximately $800 million, we're well on track to exceed 100% conversion for the full year.
Additionally, we resumed our share repurchase program and begin buying back stock in early July.
[music].
In one of the recent events over the last several months the significance of having an organizational culture that embeds in promoting the strongest adherence to U.S.G. principles has never been more essential.
Sustainability is an integral part of our vision and values at Johnson controls and that extends not just to our environmental practices, but to our social and governance practices as well.
We have an ambitious strategy that incorporates sustainability into everything we do from the highest levels of corporate governance down to our operations.
We are on it to continually received recognition for our dedication to yesterday as a company, including being selected as one of the world's most ethical companies for the 13th consecutive year and ranking number 18 overall on the 100 best corporate citizens list among others.
Our employees customers and investors can expect that we will remain focused on advancing our leadership position on all environmental social and governance factors.
We believe that a culture of inclusion drives the right mindsets and behaviors in Boston is creativity, and innovation, which leads to exceptional customer outcomes and long term shareholder returns.
Lastly, I am very excited about this morning's announcement as it relates to our leading position in smart sustainable building solutions. The launch of opened below our digital platform.
Tom Johnson controls of the making building safer and smarter for 135 years open blow reflects the next step in how we will interact with buildings environments and shared spaces evolving from inflexible assets to dynamic resources in a digitally connected environment and leveraging our digital real.
Time service capabilities to deliver more value to customers.
By combining traditionally separate building systems, and enabling them to communicate open blow will create smarter and safer spaces that are also more efficient and sustainable for both new and existing buildings alike.
Moving to slide five.
Once you briefly touched on the technology that enables open blue.
Obviously, there was a lot of detail on this slide let me attempt to simplify the role of the platform itself.
This is the years into making based on extensive feedback from our customers our previous product innovation experiences.
Further research and development by our global team of Engineers and data Sciences.
We hope and blow we are conducting various products across our domains, which services that leverage our deep industry expertise in buildings to bring even more value to customers.
When you think of open Blue think about the combination of products applications technology and services.
Open glow brings together traditional I'd see with operational technology and cloud applications in a common platform that connects disparate systems and harmonizes data within a secure and reliable cloud based system.
The technology architecture is open flexible and easy to expand and the features advanced technologies, such as artificial intelligence and digital twins.
Importantly, we are also creating an ecosystem of partnerships with world class technology companies to help us bring more value to customers across all of our industry verticals.
Now, let me touch on the power of open Blue on slide six.
We have a $6.3 billion service business built upon a strong base of 2 million contract customers across all of our domains in H. back fire and security.
Our direct footprint of over 16000 field technicians gives us an advantage of resolving customer needs for safety security.
And risk avoidance.
Over the past two years, we've made significant strides in driving process efficiencies that have allowed us to leverage our large footprint, we're optimistic for our customers.
Our rapid service response capabilities were visible right at the beginning of the ongoing pandemic and move on China. We were actively involved in quickly installing in servicing hospital infrastructure and heavily constrained environments.
We are investing serviceability as the key aspect within our product designs, we're also investing and proactive surface technologies, including remote diagnostics predictive maintenance in advance risk assessments.
Technologies allow us to expand our range of outcome based services and enable our customers to extract higher levels of value from our products and solutions.
With the ongoing pandemic, we're now augmenting our core domain expertise, we location based services contact tracking and tracing flexible infrastructure and screening based axis.
These technologies allow our customers to raise their requirements on safety and risk avoidance without adversely impacting their comfort and convenience.
I also want to point out that we're raising our bars on sustainability and efficiency.
For example, you opened blow platform can be used to generate almost all energy from onsite solar systems achieved cost savings with energy efficiency and improve water usage volumes.
Working and living spaces in the post pandemic future going to be transform forever.
With all of the innovations that are currently available with open Blue we are a leader in defining safety security sustainability comfort inefficiency in the building space, which are all critical to opening the workplace.
In the coming weeks, you'll be hearing more about various digital services and solutions being launched in the tremendous capabilities of opened blue.
Thanks for the quarter, let's look at the order trend on slide seven which parts our monthly orders on a trailing three month basis.
Highlights what we anticipate to be the talk per order intake, which has the chart would suggest occurred in may.
Throughout Q3, we continued to see our order pipeline pushed to the right inline with our expectations.
Each of our segment followed a similar trends.
Steep declines in April and May and then material improvement in June, which actually the exited the quarter down around 10%.
I am optimistic at this trend line should continue to improve supported by our pipeline of opportunity.
With that said, we are still planning conservatively.
As a reminder, these orders do not include our global product segment as it is a book and Bill business.
We did see a significant pickup in June driven by a factor equipment.
Let's turn to slide eight for an update of the significant mitigating actions that have been executed in response to cope with 19.
As we mentioned last quarter, we had identified and begin executing on various actions both temporary and permanent though are expected to benefit the second half of this fiscal year by 400 to partnered $50 million.
As a result, and taking decisive action very early in the quarter, we were able to exceed our planned cost out and now expect these actions will result in approximately.
It's really a 500 million dollar benefit in fiscal 20.
This is a testament to the team's commitment to execution and agility when faced with extra ordinary challenges.
Our permanent actions will provide a nice tailwind for us in fiscal 21 in more than mitigate the temporary actions related to compensation that are expected to return next year.
As it relates to indirect spend in facility costs. We are in the process of streamlining some of those costs costs out on a permanent basis.
We are actively planning to govern the pace of those costs coming back to the piano with the gating factor being organic growth.
If there is a silver lining to this crisis is that we are building new capabilities and optimizing the way we operate as a leaner more efficient organization.
Turning now to slide nine for a summary of our financial results in the quarter.
Revenues declined 16% on an organic basis, we'd products down 20%, while our field businesses declined 13% in aggregate.
As expected service outperform declining 7% overall as our shorter cycle labor and material activity was significantly impacted by access restrictions and more selective discretionary spending throughout most of the quarter.
Install revenues declined 18%.
Our adjusted EBIT margin increased 70 basis points in the quarter to 13.2% aided primarily by the execution uncovered 19 related mitigating cost actions in the quarter.
Despite a 16% organic revenue decline adjusted EBIT of $707 million only declined 11% on an organic basis.
Adjusted EPS of 67 cents increased 3% over the prior year.
Brian will provide the details of the year over year bridge.
Free cash was approximately $800 million in the quarter up about 30% over the prior year, bringing the year to date totaled to approximately nine $900 million.
That I will turn it over to Brian to discuss our performance in a little more detail.
Thanks, George and good morning, everyone. So, let's take a look at the year over year EPS Bridge on slide 10.
You can see operations net of mitigating actions was 16 cents headwind in Q3.
I would point out that although volumes were down significantly year over year, we did benefit from slightly favorable mix. So.
Rights costs was again positive and we achieved significant cost savings during the quarter.
Ongoing synergies and productivity savings for additional four cents tailwind as planned and non controlling interest was a three cents tailwind as a result of lower earnings at our Hitachi joint venture.
Lower share count given our significant share repurchase activity over the past 12 months provided us 10 cents.
In total the quarter benefited from approximately $300 million in mitigating cost actions in response to covert 19.
So let's take a look at the segment margin bridge on slide 11.
As I mentioned, we saw broad base volume declines across all four business segments as a result of cobot 19.
However, our businesses did remain very disciplined on price in an increasingly competitive environment.
That accompanied with the benefit of a tailwind for most of our cost inputs, we were able to expand gross margins by 150 basis points year over year, and EBIT margins by 50 basis points.
As a result, we held decrementals at 13% at the segment EBITDA level and 9% at the consolidated EBIT level.
Relative to the framework, we provided you on our Q2 call forgot the models being in the low twentys net of mitigating actions and high teens, including ongoing synergies in productivity at the EBIT level I would just point out that volumes came in better than we expected and as George mentioned, we accelerated our cost actions.
So let's go to slide 12, and review our segment results in more detail.
Total Q3 revenues declined 16% organically.
Shorter cycle global products business declined 20%.
I'll install in service declined, 18% and 7% respectively.
The impacts of the pandemic widespread, particularly at the beginning of the third quarter with Lockdowns in many parts of the world restricting our access to customer sites in disrupting our production capacity.
Although field orders declined 16% in the quarter, we saw sequential improvement.
Backlog of 9.1 billion increase 3% year over year, and 1% on a sequential basis.
Looking at the segments individually North American revenues declined 13% with install down 16 and service down seven.
Applied H. fact declined high single digits and fire and security was down high teens with performance solutions growing mid single digits in the quarter.
Segment margins in North America increased 200 basis points to 15.4% given the acceleration of the cost mitigation actions that took place during the quarter.
I would also point out that North American gross margins continue to improve year over year.
Orders in North America declined 16% with similar percent declines in both H., Fac and fire and security.
In June North American orders improved sequentially trending down high single digits, North Americans backlog ended the quarter at 5.8 billion up 2% year over year.
Moving to a meal or revenues declined 15% with installed down 24 service down six.
By end market applied H. fact declined at a mid teens rate, while fire security, which accounts for approximately 60% of segment revenues decreased at a high teens rate.
Industrial refrigeration outperformed relative to the other end markets declining only mid single digits in the quarter.
I would note that by geography, we continue to see challenges across the regions Europe declined high teens, while the middle East fell off double digits.
In Latin America was down high single digits.
Although our meals EBITDA margins were down 300 basis points in the quarter, given the various countries shutdowns and our relative cost structure across the region gross margins are improving.
As many parts of the region are now reopen we expect improved margins in Q4, both on a year over year and sequential basis.
Orders in EMEA declined 20% in the quarter was service only down mid single digits.
Neal ended with backlog of 1.7 billion up 2% year over year.
Moving day pack revenues were down 12% with install down 16 and service down six.
China significantly improved from the mid Thirtys decline, we saw in Q2, two down only 4% in Q3.
Although activity in China continues to improve.
We were negatively impacted by extended and renewed lockdowns and other parts of Asia.
Hey, APAC orders declined 10% in Q3.
Backlog remains up 4% year over year at $1.6 billion.
So moving to global products, which declined 20% in the quarter. This outperformed our original expectations.
Our North America Resi business declined only mid single digits in Q3, driven primarily by favorable weather in June strong dealer acquisition and the sharp release of some pent up demand.
We also saw share gain in the quarter, primarily the result of our new 14, Seer split system and our competitors production issue.
We've seen significant momentum into July benefiting from unprecedented order growth in June and we expect a very strong Q4.
In Asia Pacific our residential business declined roughly 20%. However, we have seen signs of recovery in our largest markets with Japan in Taiwan showing improvement in June.
As you would expect any was down significantly in Q3, due primarily to extended lockdowns related to the pandemic.
Overall, we expect our APEC residential business to show strong performance in Q4.
Although our north American light commercial business declined more than 20% in the quarter. We saw strong signs of recovery in June with orders up 30%.
Daily order rates continue to track higher in July and we see good traction with our new higher tonnage rooftop replacement units. This will contribute to a significant sequential improvement in Q4.
Apply chiller revenues declined around 20%, despite strong chiller and air handling unit replacements in North America as Apacs decline due to continued project delays and elevated channel inventories.
Fire and security products were impacted by production challenges early in the quarter, which we highlighted for you on our Q2 call.
Overall, we saw significant improvement in our global product segment in the month of Joan.
Excluding the quarter at a high single digit decline.
So let's move to corporate expense on slide 13.
Corporate expense was down significantly year over year to $48 million, reflecting cost mitigation actions ongoing synergy and productivity save and our cost reductions related to the power solutions divestiture.
We have not changed our guidance for fiscal 2000, which implies Q4 corporate expense should be in the range of $50 million to $60 million.
I would point out that certain benefits that were seeing in the second half of this year do relate to temporary cost reductions, which will put some pressure on corporate expense in fiscal 2001, I think the way to think about that is directionally for next year corporate expense will be in the range of 300, this writer and 30 million dollar.
Yes.
Turning to our balance sheet on slide 14, as you can see there are no significant changes versus what we discussed with you in early may.
Our short term debt increased as a result of the opportunistic financing arrangements, we put in place in April.
Overall, our net debt leverage remains at 1.8 times, well below our target range of two to two and a half.
Given our strong balance sheet position the cash generation in Q3 as George mentioned, we did resume our share repurchases in Q4, which will approximate $750 million.
We've also made excellent progress on our refinancing plan for our short term maturities, which we would expect you expect to complete sometime in Q4.
We're very comfortable with our liquidity and balance sheet position and we'll continue to maintain flexibility as we move through the next couple of quarters.
Turning to cash flow on slide 15, another strong cash quarter with reported cash flow just over $700 million driven primarily by solid working capital improvement, particularly receivable collections adjusted free cash flow is 800 million.
Year to date adjusted free cash flow is 900 million well above the prior year and for the full year. We continue to expect our conversion to be in excess of 100%.
Lastly, before I turn it over to George we did have three significant special items, which are listed on slide 16 that I'd like to comment on.
As we highlighted for you last quarter, we did take $186 million restructuring charge in connection with our Kogan 19 cost mitigation actions. The majority of this cash outflow related to this restructuring will occur in Q4.
In addition, we also took a 424 million noncash impairment charge related to goodwill for our retail business, which was triggered by the current depressed environment for the retail industry.
And finally, we had a noncash mark to market adjustment of 132 million the quarter, primarily related to our pension plans.
So overall, a real strong quarter in the current environment. We're seeing continued momentum as we enter Q4 with that George I'll turn it back over to you. Thanks, Brian Let's turn to slide 17 for a look at our guidance for the fourth quarter.
Given the trends in Q3, we expect to see nice sequential improvement in revenue, which is expected to result in a year over year organic revenue decline in the high single to low double digit range with sequential improvement expected across service.
Direct installation and products.
Although some temporary actions such as furloughs will come back in Q4, we will continue to benefit from significant mitigating actions, which we'll keep our net EBIT decrementals, including synergies and productivity in the low teens range.
Overall, we expect our fourth quarter earnings per share before special items to be in the range of 60 to 72 cents another strong quarter given the unprecedented environment.
First is our framework for 15% to 20% organic revenue decline in the second half we now expect to second half two only be down low teens.
This coupled with strong execution and additional cost savings puts us in a very strong position to finish the year.
We now expect our full year earnings per share to be in the range of 2016 cents to $2.20, which represents an impressive year over year increase of 10% to 12%.
As we continue to navigate through these unprecedented times Johnson controls is well positioned both financially and strategically.
The launch of opened Blue demonstrates our continued commitment to innovation enhances our service capabilities in future proves our strategy.
We are in a leadership position to capitalize on the recovery and create long term shareholder value.
With that operator, please open up the line for questions.
Thank you we will now begin a question answer session she'd like to ask a question. Please press star one.
Your phone a record your name clearly.
Respect of time, we ask that you limit yourself to one question and one follow up question.
Our first question comes from Jeff Sprague of vertical research your line is open.
Thank you good morning, everyone.
Foreign job owning Jeff.
Good.
George could you give us a little more color on open blew it looks like this can be a lot here for us to digest not just today, but going forward, but just thinking about.
How you might be selling deployment with this.
How the customer interaction might change and.
Any.
Any kind of an early color on adoption or feedback as you roll this out.
Yes.
Yes, let me let me just give the framework here. So we've been with the merger. We did four years ago. This was obviously, a big focus area, where we could take our multiple capabilities across our products our digital platforms remit altogether into one architecture. So this is really the investments that we've made over that period of time to bring.
The best together and ultimately create the platform and with this it's really combining products new technology solutions and services in one digital architecture.
And I think when you look at that it's taking what we do with our operational technology combined with his systems as well as a lot of new cloud applications that really does create a dynamic digital platform.
So when you look at this juncture it does enhance all of our domain today. So in each one of our whether it be h. back or security or fire. A lot of these digital capabilities are being put to work today to enhance the services that we ultimately provide to our customers.
And it's also gives us an opportunity to create an ecosystem to be able to bring together other technology companies and where were now deploying artificial intelligence and digital twins.
To be able to deliver unrealized and increased value to our customers and so I think as we see it today. We are selling this is part of our core and now the with the announcement today, it's really not taking that to the next level that we think now more than ever it's critical that that building environments, a safe and secure so it's not only making.
Sure that we have the highest level of indoor air quality, but it's also combining what we do there with all of the other digital systems within the building to ultimately create the did the healthiest and safest environment for our customers and so I think it's we're already deploying this today in a number of our core business.
As is and I believe that this is going to enable us now with the bigger problems that were focusing on solving to be able to do a lot more and how we ultimately support our customers they returned to work.
Thanks, and then.
Unrelated follow up obviously distinguish yourself very nicely here with this decremental margin improvement it looks like.
You are trying to make sure.
Your position to also had a leverage the recovery, but I think that's a question on a lot of People's minds as things go the other way.
Thinking about incremental margins now when your revenues do kind of flip the positives.
Attention here in the next few quarters.
Yes, what I would say is what I said in my prepared remarks, we've done incredible job here really going after the caused not only on a temporary basis, but really looking at.
Significant restructuring thats going to position us here going forward in and 21, and so I believe that the permanent actions that we've taken will absolutely offset the mitigate the temporary actions related to the compensation that we ultimately benefit up this year and so when you looked at the incremental margins going forward.
With all of the changes that ultimately have occurred I believe we're going to be very well positioned post cobot and we believe that there's still lots of opportunity certainly we're focused on on making sure that we're we're playing offense and really focusing on the topline and and going after the new opportunities that we see given the environment.
In but at the same time, we're being very disciplined from a cost standpoint, not only executing on the restructuring but also on the on the temporary cost that we address this year, making sure that they don't come back in.
And at a level that doesn't align to the volumes that we ultimately going to see as we get into 2021, and so I feel very good Jeff that would get incremental margins of 30, 30% as we go forward and and with the work that the team has done here.
I feel very good as we position to 21.
Thank you for that appreciate it.
Thank you. Our next question comes from Joe Ritchie of Goldman Sachs. Your line is open.
Thank you good morning, everyone.
Morning.
So maybe just just starting off like on the service versus install I think I think as expected service stayed a little bit better that installed this quarter I'm just curious.
You kind of progress throughout the quarter, how did onsite access work, we're able to get into a lot more access into facilities I think when we had talked inter quarter. You had mentioned that you had about.
20% of your business that you had access to but.
Wanted to see how that trended as the as a quarter progress.
Yes, what we saw our during this period of time is really unprecedented given the shutdowns.
It occurred in throughout most of the quarter, what I would say all of our field businesses.
Experienced a lot of restricted access to customer sites limiting our ability to perform our typical service and install work and it was really.
Normal phenomenal relative to what we would see as a typical downturn and so even with that like I said I believe we outperformed were down 9% on a global basis, and we pretty pretty much.
In line with where we saw the most significant locked up.
When I looked at our service space.
And in line with your question is that about two thirds of our service revenue is recurring.
And about 40% of that is actually done done remotely where we are over about 40% does not require access to the customer and requires access on an at an agreed upon time and that typically is mainly mainly in fire, where you actually act have to go on site given codes on.
On on from inspections were performed and that's that's a that's a big chunk of our service business is roughly well over $1 billion NP assays in fire.
That are excluded from that 40% and so we do see that getting better Joe.
We're going forward.
Seeing a significant improvement in June and then again now in July with our overall service activity and so it does help we can do remotely, but and I think we've done that extremely well given the restrictions that we've had but now with things opening up we're starting to see that demand come back very nicely.
That's great that's great to hear George and I guess may one I want to follow on question and by the way. They also kind of congratulations on an open blue.
But the one the one quick follow on was on free cash flow clearly very strong this quarter that are better than last year, which is a pretty incredible just given given.
The president decline, we've seen this quarter I guess, Brian just.
Maybe provide a little bit more detailed on what drove the free cash so this quarter and how to think about.
Free cash flow going forward I know its little early for 21, but how are you guys thinking about that on a go forward basis.
Yes, I think when you when you look at Q3 very strong quarter I do think there was probably some timing between Q3 and Q4, which is why we didnt change our guide here to greater than 100% for for the full year, but I.
What I look forward I still believe 100% free cash flow is our near term target and I.
I have all.
Positive signs that we're going to be able to deliver that I think some of the activities that are cash management office that we put in place two years ago.
They have done a fantastic job of really getting policies and procedures and protocols in place on a global basis now.
And I think we're starting to see the benefits of that.
In the routine processes that we've got around cash collection cash forecasting so.
When we look at the second half I think you ought to think of it in terms of second half getting us to that greater than 100% free cash there might have been a little pull forward here in Q3.
Okay. Good to know thank you.
Thank you. Our next question comes from Nigel Coe Wolfe Research Your line is open.
Thanks, Good morning.
Well I want to Nigel.
Yes, so first of all appreciate the guidance.
Is this still.
Looking forward guidance I appreciate that.
My first question is can we just.
So the detail the difference between the commercial HPC performance in gold products.
So in the geographic segments.
I think it's probably due to de stocking.
Hello.
Do you go through independent channels, England products, but can you maybe just talk about whether there's.
Any geographic things to think about that was it just permit.
Okay.
We look at.
Commercial.
On commercial applied we were down on a revenue basis were down about 9%.
Let's split between install being a little bit greater in service being down about 6% and when you look at the orders on commercial applied we were down about a 11% and that's split where Asia started to recover faster and that was down a little less than north American mailer that we've done.
In in the high teens, so thats.
I believe that's where you were looking for that's on the applied and then when you looked at the commercial unitary.
Back was down about 25% and when you look at what we said is that we are gaining traction as we look at share in the progress that we made.
In the quarter and then in June what we saw from an order standpoint, really you've seen a pickup there and so I think we feel very good about that space going forward and then that's on the commercial side and did you.
I missed your I couldn't really hear you Nigel where you as far as on the residential HVAC.
No. This is really more about just explaining the difference between.
Performance we saw in.
Products, where I think we saw.
Much heavier declines in both.
Unitary.
Slide commercial versus what we saw in the Geo segments. So just trying to understand that dynamic that was what you. Just my question. Okay and then on the when you look at the products with pure products I apologize superior products were down roughly when you look at the different businesses.
We were down.
Overall for about 20% and we broke that down out into residential which.
As Brian said North America was was pretty strong that's coming back nicely.
In orders in June were were very very strong up.
It was 200% and then on the on the on the other side on the North America commercial when you look at that like I said, we're coming back there and then the other one is on the APAC residential were down we've done about 20% in Hitachi and Thats, mainly driven by some of the.
The challenges that we've had in the markets being.
Being shut down as well as the Japan and Taiwan, Mark is now beginning to recover Nick they are actually coming back very nicely.
And so that was the so to your point early in the quarter.
Saw destocking and in some challenges there, but what we saw during the quarter from an order standpoint, that's coming back very nicely within our global products business and that's going to play out here as we get through the fourth quarter.
Okay. Thanks, George I'm, a follow on is really about.
Yes.
Hey, good returns work.
Getting getting customers prepared for that and.
I was able to get very excited about coffee into equality and it seems that the breadth of your portfolio is pretty uniquely well positioned to help customers.
So all these problems.
Racing employees so.
Axis continental access and even the change that filters and that kind of stuff.
Our customers looking for complete solutions here are you seeing that.
But to your portfolio helping.
Oh is it still very much bucket by buckets and any color, though we would be helpful.
Now, let me start Nigel by assumed the changes that are coming to buildings and infrastructure poses pandemic, absolutely does play to our strengths our entire strategy revolves around capitalizing on the evolution to these smarter several spaces.
Why we have a unique competitive position, we do look at this holistically and when you look at our service techs, we have the largest team of service Texan Salesforce globally with B, we're the largest installed bases in an unmatched product portfolio depth and breadth and so if you go through the domain, so let's start with each new.
I can indoor air quality, we're certainly addressing this when you start with you can start with active filtration. We're now the recommendation is going from a merv six to eight to emerge 13, 14, and then we can do that and we ultimately you can do that but many many times it does require.
Prior to upgrade the within motor to be able to get the full airflow necessary to to support the the space that you are conditioning and so yes, we're doing that the other piece is with our controls and making sure that you get the proper proper flow of outdoor gear. So you get the maximum air purification.
With the outdoor exchange, we're very much that's another part of the solution and then in our air handlers as well as our rooftop units, where we deployed you the lighting technologies or bipolar ionization that ultimately depending on the space that you're serving ultimately purifies the year and then at the high end.
It would happen filters, we not only provide point of portable units, but we also attach our hepper filtration units to Ducted systems, and we've been the leader in being able to provide stand up capacity for hospitals with this temporary space that we've been building across the globe with our with our capabilities.
And then with that every one of these situations requires engineering and so how you go into a particular customer and whether it be filtration or air purification technologies into our how you change the makeup beer or outdoor air flow and then ultimately how you you upgrade the overall system.
To be able to achieve the highest level of air purification, that's one aspect, but what I see the opportunity to be is how does that combined with the other building systems, we ultimately deploy which is fire and security you might have seen where we launched.
Our new Cameron thermal imaging camera last week that has got the the it's approved by the FDA and it's got the Titus variation on being able to to check temperatures not only at entries, but then being able to to be deployed more broadly across indoor space and so that can be attached to the soon.
Assumes that we deployed frictionless as far as how we upgrade all of the devices within a facility and become frictionless and then the last is what's been most exciting for US is taking what we do today with those systems and being able to track and trace. So we can ultimately identify individuals where they've been within a facility who.
They've been with and potentially if they were to be infected who would need to be quarantine. So I believe that digital controls does create a competitive advantage. It offers a unique enhanced user experience with these type of capabilities beyond just any one of the domains Nigel.
Yes.
Thank you. Our next question comes from Scott Davis of Meli US Research Your line is open.
Hi, good morning, guys.
Hey, Scott.
The Openflow seems pretty interesting.
Oh, I'm, just logistically George one styles that product I mean, you kept your field technicians your 16000.
Folks do you have any infrastructure.
Does it require some sort of specialization to install the product and customize it for the customer and you guys do that or someone else does that.
So one of our advantages Scott is that we do that Ami, we have technicians in the field and as we've been deploying these capabilities. We've been obviously enhancing the skill sets of the technicians are required to ultimately deploy these type of solutions and so that has been ongoing as we've been enhancing these capabilities and so I think when you look at our.
Brent and not only having our core technologies that we deployed but now being able to put all of those together into a simple architecture and be able to to then now create outcomes that our customers are looking forward to solve some of these new challenges. This is going to give us an incredible advantage.
Got it seems interesting but.
When you think about your main competitors sure give you I mean, how do I was a pretty solid product Schneider as a solid product described plenty of others, but do you guys feel like you you've had a chance to see what everybody else hasn't come up but something that.
Is better or is it just better because.
You've got the installed base and you know the customer.
You know the needs more even you've got a broader set of product in the building et cetera.
Trying to get a sense of where you think it stacks up versus.
Perhaps the competitors.
Yes, I believe that is absolutely a step forward because it's taken all of the operational technology that we have embedded within our products and edge devices. It's ultimately then integrating that with systems, allowing us with that with our platform to be able to create cloud applications.
So it's built off of our core product technologies and now with the integration of the software into one architecture allow that allows us to be able to create a very dynamic digital platform that we can now create significant outcomes. It takes what I've said earlier very inflexible asset and make.
Very dynamic with the data that we can extract and then ultimately create new services for the customers and it just happens to be timed when our customers are looking for a lot of new solutions given given the challenges that they're facing now with the pandemic and the return to work.
Yeah.
Excellent well good luck, you guys and congrats on the product.
Thanks Scott.
Thank you. Our next question comes from Steve Tusa of JP Morgan Your line is open.
Hey, guys good morning.
Good morning to achieve.
The the order pipeline I mean, it just seems like we're kind of.
Across the industry, obviously in residential, but even then maybe commercial little bit.
Everybody showing these kind of.
Tough order declines, but backlog is not going down.
So it seems like there is a little bit of kind of pent up push forward and you said in your remarks at the pipeline hasn't there hasn't been the many cancellations, there's basically been pushed to the right.
Thats, what does that total pipeline to look like on a year over year basis, I I assume it's not like.
Growing.
So is it just is it the same number of opportunities that are just kind of getting like pushed forward a bit.
Maybe just talk about kind of that.
That dynamic on the commercial side as we try and gauge orders to revenues and how that's going to convert over the next several quarters.
Yes, let me let me give you some color there.
I think throughout Q3 and of course, we're engaging with customers on a real time basis understanding what their demands are and what ultimately we need to do to support some of the new challenges. So we have a lot a good insight into what is happening we did see like I said, the field order pipeline being pushed a bit to the right.
We haven't seen significant cancellations of existing orders, we have seen some of what was in the pipeline get removed from the pipeline now given the economic conditions, but even with all of that our pipeline was up 3% on a year on year basis. So we did see steep decline.
Lines in April May we did see material improvement in June.
And so I think that that gives us the sense at now what's in the pipeline is beginning to convert.
And then as I sit on the on the global products, where we were challenged.
From May.
And that's we track book and Bill there, but we did see.
On a on a recovery basis in June and Thats continuing in July we're seeing very good order flow over that period of time.
And so we believe overall, Steve that order should continue to improve sequentially in Q4.
Supported by the pipeline, which I just just discussed.
And I think when you look at.
We continue to engage with customers in providing support to the the Coca 19 challenges and.
I believe that based on what we're seeing here real time that continues to improve.
Yes, yes that makes sense.
So I would just to add in there and just just to remind folks that are.
Global products or not.
Overall.
And you mentioned earlier, you know like commercial and residential and a lot of activity that folks are seeing and just to be clear we sold a very similar trend.
Really good order growth in both commercial side in the residential side in our global products business, particularly in the month of June and as Brian mentioned.
Good order growth in June in residential.
Right and that that backlog of one that you showed in the in the slides there yes.
The book to Bill.
But yeah.
Got it got it got it got it and then they did just one last one.
Anyway to kind of quantify any any kind of what the mix benefits our win.
Install goes down.
So much more than services.
Well, let me, let me take that one could overall mix, there's a lot of different dynamics to think about when you think about yes.
Service and install is one component of mix, but then remember within each field business and even within global product.
Each domain mix as well so overall for the quarter. When you look at all the businesses and various mix across the board I would say mix overall was about a 20 basis points.
Okay, great. Thanks, a lot guys good execution congrats.
Thanks.
Thank you. Our next question comes from team tray of RBC capital markets. Your line is open.
Thank you good morning, everyone.
Morning quantity.
Hey, can we go back to the indoor air quality topic, and George what percent of your installed base do you think have done their initial assessment of their age HVAC systems.
Well as their security systems.
Because you do the initial assessment first and then you can assess what is needed in terms of upgrades on filtration and air handling and so forth.
That's the first part and then can you provide us a framework for what you think that potential revenue ramp will look like again for all the cold bid upgrades.
Yes at this stage, it's hard to predict Dean, but what I would say is that every all of our customers with.
And I think this is true for all of US right as we're thinking about our own our own spaces were all.
This goes right up to the CEO level understanding what is being done within facilities to be able to safely return.
They are in place to work and and so I think is active engagement and understanding what ultimately needs to be done and what the potential solutions can be so I think we're in that early phase, where there's very very active engagement and putting forward. What we can do and ultimately how we can address the challenges in what needs to happen.
So not only improve the indoor air quality, but how do you in handset with with our ability to be able to do temperature checking and and be able to integrate that would they are building systems, and and do track and trace and and so I think it's in the very early stages, but very active engagement with our customers and so.
I think at this stage, it's hard to to predict what that ultimately is going to be but I would tell you that.
The activity is significant across all of our across all of our customers and so were.
Already I can tell you would this just thermal imaging camera for instance, you can attach that to an existing system you can deploy that not only at the entrance to a site, but then maybe in some common areas within the facility. So that you could detect very accurately temperatures of of of occupants and.
Then you'd be able to then quickly assess if there was an elevated temperature to be able to then isolate that individual and and then if there weren't any other people with our track and trace around that individual than you'd be able to address and isolate the problem and so these are being deployed incrementally as far as parts of slow.
Ones and then obviously working with customers and looking at more comprehensive solutions that ultimately address the new workplace.
That's real helpful and just can you expand on the point on the importance of doing remote monitoring now you're already positioned in fire and security for monitoring but now.
Actual buildings care so much about their indoor air quality on a go forward basis, not just in the time of the upgrade but on a regular go forward basis, and maybe that's CEO to monitoring, but what do you what of that from the technology standpoint are you position today to incorporate H. fact monitoring going forward.
Well it starts with everything being connected and so we're making sure that all all products that we deploy our connected and then when that connection being able to provide services that ultimately address whether be energy efficiency, whether it be monitoring the equipment operation and.
Maintaining the service of that so connectivity is the start of that and then the ability to be able to collect data not only on an individual piece of equipment, but how does that correlate to other systems within the building that enable us with now open blue that we can provide.
The most enhance solution are the most value for our customers and how we view that drive sustainability efficiency health health or safety and that's that's unique advantage that we have now with this connectivity and with this with this architecture within this platform.
That's real helpful. Thank you.
Thank you our last question comes from markets Mr. Meyer.
Yes. Your line is open.
Yes, hi, good morning, everyone may get stuck with open through us well the slide that you have on on page five here on the ecosystem.
You should consider sort of the profit who is behind this snap.
When do you see a currency swings in the portfolio and gaps and other sub been relates to the M&A priorities. I mean do you think most of the vertical across the various take players AWS is sort of focused on long the edge and.
Device layer, maybe let's start there.
Yes, so the idea of open Blue is where we bring our domain and core capabilities to the platform and then it's open so that we can integrate other other systems within the building, where we don't have that domain and then bring that together into one platform that allows us to then be able to utilize the.
Data.
And applied analytics.
Analytics to be able to create the outcomes that we're committed to achieve and so it doesnt mean that that you have to have every one of these domains, although what I would say it does build off of our strength of being a leader in building controls and then having the multiple digital systems that we have today, we've been security and fire that.
Comes together into the platform that gives us incredible opportunity to now be able to to bring these type of solution to the market with this connectivity.
Great. Thanks, and then maybe take them on supply and security can you just to the I mean going a little bit you mentioned the production issues that you have slack and sort of like extend that.
And renewed Lockdowns in Asia, if I look at the supplemental data that you published which is quite helpful.
Retail looks like in India was sort of down low teens, North America mid teens, how much of that you sort of like really pushed out rather than.
You know kind of disappeared you mentioned the billion roughly.
Okay.
Glenn debit class access how should we think about Q4.
In light of all these access initiatives studies had thank you.
Yes. So we were when you look at I mean, we go through each of the regions, but in general I think what's happened is certainly with the shutdowns that was a significant impact in Q3 and very unusual to these typical downturns and so.
What we're seeing now with with the return to work as facilities are opening certainly no. The demand is coming back as we would expect.
In the month of June and now even more so in July and so we'll see sequential improvement on those were as we're going forward.
Each one of these areas.
Based on I mean, we are concerned in a few areas, where we're going through.
We're going through kind of a second wave or or shutdowns in a couple of regions and in Asia Pac and maybe Latin America in the light, but where are the opening up is continuing we're seeing similar type demand come come back for our services.
Great. Thank you.
Operator, I'd like to turn the call over to George for some closing comments.
Yes again, thanks, Thanks again for joining our call. This morning, I want to thank our employees for their extraordinary efforts. During this unprecedented time I'm extremely pleased with our continued strong performance and again I hope that you in your family's remain safe.
Poets has taken with many of you soon operator that concludes our call.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation you may disconnect at this time.
[noise].