Q4 2023 Carrier Global Corp Earnings Call

Operator: Good morning, and welcome to Carrier's fourth quarter 2023 earnings conference call. I would like to introduce your host for today's conference, Sam Perlstein, Vice President of Investor Relations. Please go ahead, sir.

Good morning, and welcome to carry your fourth quarter 'twenty to 'twenty three earnings conference call.

I'd like to introduce your host for todays conference Sam Pearlstein, Vice President of Investor Relations. Please go ahead Sir.

Sam Perlstein: Thank you. Thank you. Thank you.

Sam Perlstein: Thank you and good morning, and welcome to Carrier's fourth quarter 2023 earnings conference call. With me here today are David Gitlin, Chairman and Chief Executive Officer, and Patrick Goris, Chief Financial Officer. We will be discussing certain non-GAAP measures on this call, which management believes are relevant in assessing the financial performance of the business. These non-GAAP measures are reconciled to GAAP figures in our earnings presentation, which is available to download from Carrier's website at ir.carrier.com. The company reminds listeners that the sales, earnings, and cash flow expectations and any other forward-looking statements provided during the call are subject to risks and uncertainties. Carrier's SEC filings, including Forms 10-K, 10-Q, and 8-K, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. Once the call is open to questions, we ask that you limit yourself to one question and one follow-up to give everyone the opportunity to participate. With that said, I'd like to turn the call over to our Chairman and CEO, Dave Gitlin. Well, thank you, Sam.

Sam Pearlstein: Thank you and good morning, and welcome to carriers fourth quarter 2023 earnings Conference call with me here today are David <unk>, Chairman and Chief Executive Officer, and Patrick <unk>, Chief Financial Officer, we will be discussing certain non-GAAP measures on this call, which management believes are relevant in assessing the financial performance of the business he's not.

Sam Pearlstein: GAAP measures are reconciled to GAAP figures in our earnings presentation, which is available to download from carriers website at IR Doc carrier Dot com.

Sam Pearlstein: The company reminds listeners that the sales earnings and cash flow expectations and any other forward looking statements provided during the call are subject to risks and uncertainties carrier's SEC filings, including forms and forms 10-K, 10-Q, and 8-K provide details on important factors that could cause actual results to differ materially from those anticipated in the forward looking.

Sam Pearlstein: Once the call is open for questions. We ask that you limit yourself to one question and one follow up to give everyone. The opportunity to participate with that I'd like to turn the call over to our chairman and CEO, Dave Gitlin well.

David L. Gitlin: And good morning, everyone. Let me start by saying a heartfelt thank you to our team for delivering excellent results in 2023 while navigating such a significant and compelling portfolio transformation. I'd also like to thank and welcome our new 12,000 team members from Wiesman Climate Solutions. Our formal kickoff last month had more energy, warmth, and excitement than I have ever seen from a day one celebration.

David L. Gitlin: Well, thank you Sam and good morning, everyone. Let me start by saying a heartfelt. Thank you to our team for delivering excellent results in 2023, while navigating such a significant and compelling portfolio transformation.

David L. Gitlin: Also like to thank and welcome our new 12000 team members from Wiesbaden climate solutions, our formal kicked off last month had more energy warmth and excitement than I have ever seen from day, one celebrations I profoundly believe that this will go down as the most impactful business combination that our industry has ever seen.

David L. Gitlin: I profoundly believe that this will go down as the most impactful business combination that our industry has ever seen, and we are so excited to be on this journey together. As you can see on slide two, the fourth quarter capped a strong finish to a great year for Carrier. In the quarter, we achieved 33% adjusted EPS growth, driving another quarter of double-digit aftermarket growth and 80 basis points of margin expansion on flattish sales. Importantly, free cash flow of over $800 million significantly beat our expectations, driven by continued strong performance in working capital.

David L. Gitlin: And we are so excited to be on this journey together as you can.

See on slide two of the fourth quarter capped a strong finish to a great year for carrier in the quarter, we achieved 33% of adjusted EPS growth driving another quarter of double digit aftermarket growth and 80 basis points of margin expansion on flattish sales.

David L. Gitlin: Accordingly, free cash flow of over $800 million significantly beat our expectations driven by continued strong performance in working capital.

David L. Gitlin: Overall, for 2023, I am so proud of what the team accomplished, as you can see on slide three. Our team has consistently shown an ability to outperform without excuses, overcoming COVID headwinds to deliver strong results following our spin in 2020, persevering through supply chain challenges, and delivering for our customers and shareholders despite significant portfolio moves. For the year, we delivered 17% EPS growth on 3% organic sales growth, drove about 40% core earnings conversion, and improved our free cash flow performance by more than 50% year-over-year from $1.4 billion to over $2.1 billion. Not only did we deliver strong results in the year, but we also took key actions on growth initiatives and detailed productivity planning to position 2024 for solid growth and margin expansion. This consistent performance has led to differentiated shareholder returns since we became a public company, as you can see on slide four. As we prepared for our spin, our goal was to leverage our many strengths that Carrier established over the past century but also take advantage of the unique opportunity to create a new carrier.

David L. Gitlin: Overall for 2023, I am so proud of what the team accomplished as you can see on slide three.

David L. Gitlin: Our team has consistently shown an ability to outperform without excuses overcoming COVID-19 headwinds to deliver strong results. Following our spin in 2020, persevering through supply chain challenges and delivering for our customers and shareholders. Despite significant portfolio moves for.

David L. Gitlin: For the year, we delivered 17% EPS growth on 3% organic sales growth.

David L. Gitlin: Drove about 40% core earnings conversion improved our free cash flow performance by more than 50% year over year from $1 4 billion to over $2 1 billion.

David L. Gitlin: Not only did we deliver strong results in the year. We also took key actions on growth initiatives and detailed productivity planning to position 'twenty 'twenty four for solid growth and margin expansion.

David L. Gitlin: This consistent performance has led to a differentiated shareholder returns since we became a public company as you can see on slide four.

David L. Gitlin: As we prepared for our spin our goal was to leverage our many strengths that carrier established over the past century, but also take advantage of the unique opportunity to create a new carrier, we established a performance culture with innovation and customer intimacy at our core and simplified our business and portfolio.

David L. Gitlin: We established a performance culture with innovation and customer intimacy at our core and simplified our business and portfolio. We have been disciplined about continuous improvement and productivity, invested in growth, and have driven recurring revenues with a proven playbook. We sharpened our focus as an organization to lean into the long-term trends around sustainability and have accelerated our leadership in this space. Though we're proud of our track record, we're even more excited about our next chapter as we take our performance to the next level. Our mission is clear, to be the global leader in intelligent climate and energy solutions, as you can see on slide five. It starts with differentiated product introductions, some of which you see listed here.

David L. Gitlin: We have been disciplined on continuous improvement and productivity invested in growth and have driven recurring revenues with a proven playbook, we sharpened our focus as an organization to lean into the long term trends around sustainability and have accelerated our leadership in this space.

David L. Gitlin: So we're proud of our track record, we're even more excited about our next chapter as we take our performance to the next level.

David L. Gitlin: Our mission is clear.

David L. Gitlin: To be the global leader in intelligent climate and energy solutions as you can see on slide five.

David L. Gitlin: It starts with differentiated product introductions some of what you see listed here.

David L. Gitlin: We are now focusing our 6,000 engineers on developing differentiated, sustainable solutions for our customers. Specific technologies that cut across our portfolio across the globe, such as AI and sensing algorithms, low GWP refrigerants, energy efficiency, low-temperature heat pumps, electrification, and integrated energy management solutions. We are poised to out-innovate and win, and we will continue to invest to ensure that we do so. These efforts are reflected in our results as we gain share across our portfolio. European commercial heat pump sales were up 25% in 2023, nearly 40% of our North America residential split systems were heat pumps, and our market-leading electric transport refrigeration sales in Europe grew over 70%. For sustainability leadership, we walk the talk.

David L. Gitlin: We are now focusing our 6000 engineers not develop developing differentiated sustainable solutions for our customers.

David L. Gitlin: Specific technologies that cut across our portfolio across the globe, such as AI and sensing algorithms low G. W. P. Refrigerants energy efficiency low temperature heat pumps electrification and integrated energy management solutions, we are poised to out innovate and win and we will continue to invest to ensure that.

We do so.

David L. Gitlin: These efforts are reflected in our results as we gained share across our portfolio.

David L. Gitlin: European commercial heat pump sales were up 25% in 2023, nearly 40% of our North America residential split systems, where he pumps and our market leading electric transport transport refrigeration sales in Europe grew over 70%.

David L. Gitlin: For sustainability sustainability leadership, we walk the talk we have reduced our customers' emissions by more than 270 million metric tonnes on our way to our one giga tonnes scope III commitment for 2030.

David L. Gitlin: We have reduced our customers' emissions by more than 270 million metric tons on our way to our 1 gigaton Scope 3 commitment for 2030. We remain on track for carbon neutrality in our operations by 2030 and are using a binding across our footprint to help ensure that we achieve it. We also laid out a clear roadmap to achieve net-zero greenhouse gas emissions across our value chain by 2050 under the SBTI framework.

We remain on track for carbon neutrality in our operations by 2030 and are using our bound or cross our footprint to how to help ensure that we achieve it.

David L. Gitlin: We also laid out a clear roadmap to achieve net zero greenhouse gas emissions across our value chain by 2050 under the S. E T I framework.

David L. Gitlin: In addition to sustainability, one of our other key themes is achieving consistent double-digit aftermarket growth, which we achieved again last year, as you can see on slide six. Growing 12% last year represents our third consecutive year of double-digit growth. We now have approximately 30,000 connected chillers in the field versus 5,000 just three years ago.

David L. Gitlin: In addition to sustainability one of our other key themes is achieving consistent double digit aftermarket growth, which we achieved again last year as you can see on slide six.

David L. Gitlin: Growing 12% last year represents our third consecutive year of double digit growth.

David L. Gitlin: We now have approximately 30000 connected chillers in the field versus 5000, just three years ago.

David L. Gitlin: This has helped our attachment and our coverage rates, with commercial HVAC now at 45% attachment for long-term service agreements, up from roughly 20 percent just three years ago. We know the playbook, it's working, and we are targeting another year of double-digit aftermarket growth this year and beyond. In summary, we continue to perform while we are transforming, as you see on slide 7. I already mentioned the energy and warm reception that we received from our new team members and many customers across Europe just a few weeks ago. Here is what is clear. Wiesman is an organization with a deep culture of excellence, excellence in its product design, customer intimacy, channel superiority, culture, and team, all reflected in its deeply admired brand.

David L. Gitlin: This has helped our attachment in our coverage rates with commercial HVAC now at 45% attachment for long term service agreements up from roughly 20% just three years ago.

David L. Gitlin: We know the playbook, it's working and we are targeting another year of double digit aftermarket growth this year and beyond.

David L. Gitlin: In summary, we continue to perform while we are transforming as you see on slide seven.

David L. Gitlin: I already mentioned mentioned the energy and warm reception that we received from our new team members and many customers across Europe, just a few weeks ago.

David L. Gitlin: Here is what is clear.

David L. Gitlin: <unk> is an organization with a deep culture of excellence.

David L. Gitlin: Excellence in its product design customer intimacy channel superiority culture team all reflected in its deeply admired brand.

David L. Gitlin: The tangible and intangible benefits from this combination will benefit our people, customers, investors, and the planet for decades to come. We are also fortunate to now have Max Wiesman on our board, who is already providing us with unique insights and perspectives. When we look closer at 2024, we are planning for Riesman Climate Solution sales to be up mid-single digits off a 2023 year-end of about $4.2 billion U.S. dollars with high teens adjusted EBITDA margins. This includes the benefit of our targeted first-year cost energy. Internally, we are targeting significant revenue synergies, which would all be upside to our business. Even though last year's regulatory and subsidy uncertainty in some European countries delayed order intake, which we expect to impact growth in the first half of 2024, we do expect Vietnam climate solutions to return to solid growth in the second half of this year, and we target achieving or exceeding our year one business case adjusted EBITDA by accelerating supply chain and other cost savings. So, we're off and running.

David L. Gitlin: Tangible and intangible benefits from this combination will benefit our people customers investors.

David L. Gitlin: And the planet for decades to come.

David L. Gitlin: We are also fortunate to now have Max V spent on our board, who is already providing us with unique insights and perspectives.

David L. Gitlin: When we look closer at 2024, we are planning for visa in climate solutions sales to be up mid single digits off of 2023 year end of about four to $4 2 billion U S dollars with high teens adjusted EBITDA margins. This includes the benefit of our targeted first year cost synergies.

David L. Gitlin: Internally, we are targeting significant revenue synergies, which would all be upside to our business case.

David L. Gitlin: Even though last year's regulatory and subsidy uncertainty in some European countries delayed order intake, which we expect to impact growth in the first half of 'twenty 'twenty four we do expect these make climate solutions to return to solid growth in the second half of this year, and we target achieving or exceeding our year one business case adjusted EBITDA.

David L. Gitlin: By accelerating supply chain and other cost savings.

David L. Gitlin: So.

David L. Gitlin: We are applying the playbook from our successful integration with Toshiba to ensure that we preserve Beastman's superb team and culture while integrating to create tremendous value together. Turning to our business exits on slide 8. You all saw our announcements on access solutions and commercial refrigeration, which together will yield close to $6 billion, or about $4.5 billion in net proceeds. We are making good progress on our industrial fire sale and still expect to announce a definitive agreement around the end of the first quarter. We are also preparing to exit our combined residential and commercial fire businesses via a sale or public market exit.

David L. Gitlin: We're off and running we are applying the playbook from our successful integration with Toshiba to ensure that we preserve eastman superb team and culture.

David L. Gitlin: Integrating to create tremendous value together.

David L. Gitlin: Turning to our business exits on slide eight you all saw our announcements on access solutions and commercial refrigeration, which together will you have close to $6 billion or about $4 5 billion in net proceeds.

We are making good progress on our industrial fire sale and still expect to announce a definitive agreement around the end of the first quarter we.

David L. Gitlin: We are also preparing to exit our combined residential and commercial fire businesses via a sale or public market exit.

David L. Gitlin: Given our cash performance and the progress of these business ex- We now have a path to achieve about 2x net leverage ratio by the end of this year, which is about a year earlier than we previously indicated. Before I turn it over to Patrick, a quick word on our 2024 guidance on slide 9. Even though GDP in many of our key markets looks to be less than 2%, we are planning for mid-single-digit growth.

David L. Gitlin: Given our cash performance and the progress of these business exits we now have a path to achieve about two <unk> net leverage ratio by the end of this year, which is about a year earlier than we previously indicated.

David L. Gitlin: Before I turn it over to Patrick a quick word on our 2024 guidance on slide nine.

David L. Gitlin: Even though GDP in many of our key markets looks to be less than 2%. We are planning for mid single digit growth sustainability, Megatrends and continued double digit aftermarket growth enable us to significantly outgrow global economies, we will continue to be tenacious and disciplined on every aspect of productivity and we are therefore.

David L. Gitlin: Sustainability megatrends and continued double-digit aftermarket growth enable us to significantly outgrow global economies. We will continue to be tenacious and disciplined on every aspect of productivity, and we are therefore targeting over 50 basis points of adjusted operating margin expansion. With that, let me turn this over to Patrick.

David L. Gitlin: Targeting over 50 basis points of adjusted operating margin expansion with that let me turn this over to Patrick Patrick Thank you, David and good morning, everyone.

Patrick Goris: Thank you, Dave. And good morning, everyone. Please turn to slide 10. Q4 earnings were ahead of our expectations in the guide we provided in October, even though reported sales of $5.1 billion were about $150 million lower. Organic sales were flat, and a favorable one-point tailwind from currency translation was offset by the impact of diversification. Organic sales were lower than we expected, mostly in our North America residential HVAC business, as lower volumes reflected demand and distributors drove down field inventory.

Please turn to slide 10-Q.

Patrick: Q4 earnings were ahead of our expectations in the guide we provided in October even though reported sales of $5 $1 billion, we're at about $150 million lower.

Organic sales were flat and a favorable one point tailwind from currency translation was offset by the impact of divestitures.

Patrick: Organic sales were lower than we expected, mostly in our North America residential HVAC business as well.

Patrick: Lower volumes reflected demand and distributors drove down field inventories.

Patrick Goris: Q4 adjusted operating profit was up 8% compared to last year despite flat sales driven by favorable price, cost, and productivity, partially offset by investment. As a result, adjusted operating margin expanded by 80 basis points compared to last year.

Patrick: Q4, adjusted operating profit was up 8% compared to last year, despite flat sales driven by favorable price cost and productivity.

Patrick: Partially offset by investments.

As a result, adjusted operating margin expanded by 80 basis points compared to last year.

Patrick Goris: Adjusted EPS of 53 cents was up 33% year over year and was ahead of our implied Q4 guide of 50 cents, compared to our expectations. HVAC margins were a little better, fight insecurity and refrigeration margins were a little light, and we benefited from discrete tax items and somewhat lower net interest expense. The free cash flow of $829 million was about $150 million better than our October guide, and we generated $2.1 billion of free cash flow for the full year, which is 92% of adjusted net income, excluding some of the M&A-related fees and cash restructuring spend, which are adjusted out of our results. We will convert over 100% of adjusted net income into free cash flow in 2023.

Patrick: Adjusted EPS of <unk> 53 was up 33% year over year and was ahead of our implied Q4 guide of 50.

Patrick: Compared to our expectations HVAC margins were a little better fight in security and refrigeration margins were a little light and we benefited from discrete tax items and somewhat lower net interest expense.

Patrick: Free cash flow of $829 million was about $150 million better than our October guidance, and we generated $2 $1 billion of free cash flow for the full year, which is 92% of adjusted net income excluding.

Patrick: Excluding some of the M&A related fees in cash restructuring spend which are adjusted out of our results. We converted over 100% of adjusted net income into free cash flow in 2023.

Patrick Goris: Moving on to the segments, starting on slide 11, the HVAC segment had another good quarter with significant operating margin expansion despite flat sales. However, organic sales were down 1%, mostly due to North America residential HVAC sales being down in the high teens.

Patrick: Moving on to the segments starting on slide 11.

Patrick: The HVAC segment had another good quarter with significant operating margin expansion despite flat sales.

Patrick: Organic sales were down 1%, mostly due to North America residential HVAC sales being down high teens.

Patrick Goris: This headwind was almost completely offset by continued exceptional growth in light commercial HVAC, high single-digit growth in commercial HVAC, including over 20% growth in the Americas, and another quarter of double-digit growth in aftermarket. North American Residential HVAC volume was down in the high 20s, which was partially offset by continued price realization and the positive mix-up related to the 2023 HVAC, to your transition. Our light commercial HVAC business finished a very strong year with another quarter of about 20% year-over-year growth. This business was up 35% for the full year and an industry best. Adjusted operating margin was up 250 basis points year-over-year on flattish sales growth driven by price, cost, and productivity.

Patrick: This headwind was almost completely offset by continued exceptional growth in light commercial HVAC high single digit growth in commercial HVAC, including over 20% growth in the Americas and another quarter of double digit growth in aftermarket.

Patrick: North America residential HVAC volume was down in the high Twenty's, which was partially offset by continued price realization and a positive mix up related to the 2023.

Patrick: Seer transition.

Patrick: Our light commercial HVAC business finished a very strong year with another quarter of about 20% year over year growth.

This business was up 35% for the full year and industry best.

Patrick: Adjusted operating margin was up 250 basis points year over year on flattish sales growth driven by price cost and productivity.

Patrick Goris: This led to a full-year operating margin for this segment of 16.6%. Overall, another great year for our HVAC business. Transitioning to refrigeration on slide 12. As expected, organic sales for this segment returned to growth in the quarter and were up 6%. Within transport refrigeration, container sales were up significantly, around 60%. Our global truck and trailer business was up low single digits, with North America and Europe flat, and strong growth in Asia. Our Sensotec business, which provides comprehensive visibility solutions for tracking and monitoring temperature-sensitive products, was up high single digits. Commercial refrigeration was down high single digits year over year. Operating margin contracted 160 basis points year-over-year due to investments and a few one-time items such as warranty and insurance. Moving on to fire and security on slide 13, organic sales were down, given a very tough comparison in access solutions, partially offset by strength in industrial fire, which was up almost 20%.

Patrick: This led to a full year operating margin for this segment of 16, 6%.

Patrick: Overall, another great year for our HVAC business.

Patrick: Transitioning to refrigeration on slide 12.

Patrick: As expected.

Patrick: Organic sales for this segment returned to growth in the quarter and were up 6%.

Patrick: Within transport refrigeration container was up significantly around 60%.

Patrick: Our global truck and trailer business was up low single digits, with North America, and Europe flat and strong growth in Asia.

Patrick: Our sense of Tech business, which provides comprehensive visibility solutions for tracking and monitoring temperature sensitive products was up high single digits.

Patrick: Refrigeration was down high single digits year over year.

Patrick: Operating margin contracted 160 basis points year over year due to investments and a few onetime items, such as warranty and insurance.

Patrick: Moving on to fire and security on Slide 13.

Patrick: Organic sales were down given a very tough compare in access solutions, partially offset by strength in industrial fire, which was up almost 20%.

Patrick Goris: Adjusted operating profit was down 7% versus the prior year, driven by volume mix and currency partially offset by favorable price costs. The Revaluation of the Argentinian Peso Impacted Margins by Over 100 Bases. The full year operating margin for this segment was about 15%. Turning to slide 14.

Patrick: Adjusted operating profit was down 7% versus the prior year, driven by volume mix and currency, partially offset by favorable price cost.

Patrick: The reevaluation of the Argentinian peso impacted margins by over 100 basis points full.

Patrick: Full year operating margin for this segment was about 15%.

Patrick: Turning to slide 14.

Patrick Goris: As you can see on the left side of the chart, backlog for our longer cycle commercial HVAC business continues to increase while backlogs in our shorter cycle businesses continue to normalize. Total company orders were down low single digits in the quarter, mostly as a result of our North America truck and trailer orders being down significantly compared to last year. In Q4 of 2022, North America truck and trailer orders were up an exceptional 120% year over year as we opened the 2023 order book. Excluding North America truck and trailer, Carrier's organic orders were up mid-single digits in Q4. HVAC orders returned to low single-digit growth, as residential HVAC orders were up mid-teens, which more than offset the decline in light commercial orders, which were down roughly 40 percent as lead Commercial HVAC orders were up low single digits, and the longer cycle backlog remained strong, up around 30% on a two-year stack and extending well into the second half of 2024. Refrigeration orders were down about 20% in the quarter, with global truck and trailer orders down roughly 50%, reflecting the very tough comp in North America I mentioned earlier.

Patrick: You can see on the left side of the chart backlog for a longer cycle commercial HVAC business continues to increase while backlogs in our shorter cycle businesses continued to normalize.

Patrick: Total company orders were down low single digits in the quarter, mostly as a result of our North America truck and trailer orders being down significantly compared to last year.

Patrick: In Q4 of 2022, North America truck and trailer orders were up an exceptional 120% year over year as we opened the 2023 order book.

Patrick: Excluding North America truck and trailer.

Patrick: Organic orders were up mid single digits in Q4.

Patrick: Age back orders returned to low single digit growth as residential HVAC orders were up mid teens, which more than offset the decline in light commercial orders, which were down roughly 40% as lead times continue to improve in that business.

Patrick: Commercial HVAC orders were up low single digits and the longer cycle backlog remains strong up around 30% on a two year stack and extending well into the second half of 2024.

Patrick: Refrigeration orders were down about 20% in the quarter with global truck and trailer orders down roughly 50%, reflecting the very tough comp in North America I mentioned earlier.

Patrick Goris: This was only partially offset by a return to growth in orders in the container business, where orders were up nearly 60%, and low single-digit growth in commercial refrigeration. Overall, we enter 2024 with robust, longer-cycle backlogs in commercial HVAC and a return-to-orders growth in key businesses such as residential HVAC.

Patrick: This was only partially offset by a return to growth in orders in a container business, where orders were up nearly 60% and low single digit growth in commercial refrigeration.

Patrick: Overall, we enter 2024 with robust longer cycle backlogs in commercial HVAC and the return to orders growth in key businesses, such as residential HVAC and container.

Patrick Goris: Moving on to slide 15, guidance. Let me start with some key assumptions embedded in guidance related to our portfolio transformation. We have included a full year of Eastman Climate Solutions as we close the acquisition on January 2.

Patrick: Moving onto slide 15 guidance.

Speaker Change: Let me start with some key assumptions embedded in guidance related to our portfolio transformation.

Speaker Change: We have included a full year of easement climate solutions as we close the acquisition on January 2nd.

Patrick Goris: You may recall that we previously communicated that our business... will remain in continuing operations until they close. Therefore, with definitive agreements in place for the sale of both global access solutions and commercial refrigeration, our guidance assumes a mid-year exit date, and so both businesses are included in 2024 guidance through the end of June. Accordingly, our guidance assumes the net proceeds from these two exits will be used to pay down debt.

Speaker Change: You may recall that we previously communicated that our business exits will remain in continuing operations until they close.

Speaker Change: Therefore with definitive agreements in place for the sale of both global access solutions and commercial refrigeration.

Speaker Change: Our guidance assumes a midyear exit date and so both businesses are included in 2024 guidance through the end of June.

Speaker Change: Accordingly, our guidance assumes the net proceeds from these two exits will be used to pay down debt.

Patrick Goris: We include industrial fire and residential and commercial fire for the full year 2024 in our guidance, and we will do so until there are definitive agreements in place and we have a good estimate as to the likely exit date. Now to details of the 2024 guidance. We expect reported sales of about $26.5 billion, including mid-single-digit organic sales growth with about an equal contribution from price and volume mix. We expect mid-single-digit organic growth for Viesman Climate Solutions to contribute about 20% to reported sales growth, and the deconsolidation of KFI along with the divestitures of global access solutions and commercial refrigeration to represent about a 5% headwind to reported sales. Adjusted operating margin is expected to be between 15 and 15.5 percent, up over 50 basis points compared to 23, driven by price, volume, and productivity. Productivity includes an $80 million benefit from restructuring actions we executed earlier this quarter as we simplify our structure given our transformation. The impact of Eastman Climate Solutions and overall company operating margin is about neutral. Core Earnings Conversion, that is, excluding the impact of acquisitions divested, and FX. It's over 30%.

Speaker Change: We include industrial fire and residential and commercial fire for the full year 2024 into our guidance and we will do so until there are definitive agreements in place and we have a good estimate as to the likely exit date.

Speaker Change: Now to details of the 2024 guidance.

Speaker Change: We expect reported sales of about $26 $5 billion, including mid single digit organic sales growth was about equal contribution from price and volume mix.

Speaker Change: We expect mid single digit organic growth for visa and climate solutions to contribute about 20% to reported sales growth.

Speaker Change: And the deconsolidation of <unk>, along with the divestitures of global access solutions and commercial refrigeration to represent about a 5% headwind to reported sales.

Speaker Change: Adjusted operating margin is expected to be between 15% and 15, 5% up over 50 basis points compared to 23.

Speaker Change: Driven by price volume and productivity.

Speaker Change: Productivity includes an $80 million benefit from our restructuring actions, we executed earlier this quarter as we simplify our structure given our transformation.

Speaker Change: The impact of Eastman climate solutions, and overall company operating margin is about neutral.

Speaker Change: Core earnings conversion that is excluding the impact of acquisitions divestitures and FX is over 30%.

Patrick Goris: Incorporating an estimated 23% adjusted effective tax rate, this gets us to an adjusted EPS guidance range of $2.80 to $2.90, which includes about a 7-set headwind from the Wiesman Acquisition as we expected. Although underlying free cash flow is expected to be up about 10% compared to 2023, reported free cash flow will be lower given some of the portfolio transformation activity. Similar to 2022, when we exited Chubb, cash flow from operations will be impacted by tax payments related to the gains on the sales of these business exports. Given the large expected gains on the two transactions already announced, we expect free cash flow to net about $700 million. This includes about $1.7 billion of cash outflows related to the expected tax payments on the gains of Axel Solutions and Commercial Refrigeration.

Speaker Change: Incorporating an estimate of 23% adjusted effective tax rate. This gets us to an adjusted EPS guidance range of $2 80 to $2 90.

Speaker Change: Which includes about seven said headwind from the <unk> acquisition as we expected.

Speaker Change: Underlying free cash flow is expected to be up about 10% compared to 2023.

Speaker Change: Reported free cash flow will be lower given some of the portfolio transformation activities.

Speaker Change: Similar to 2022, when we exited chubb cash flow from operations will be impacted by tax payments related to the gains on the sales of these business exits.

Speaker Change: Given the large expected gains on the two transactions already announced we expect free cash flow to net about $700 million.

Speaker Change: This includes about $1 $7 billion of cash outflows related to the expected tax payments on the gains of <unk> solutions and commercial refrigeration transaction.

Patrick Goris: Transaction fees related to all four exits and the Wiesman transaction, and Additional Restructuring. Similar to 2023, we expect higher than typical restructuring charges in 2024, about $100 million pre-tax. Seasonally, we expect our free cash flow to be back halfway. Unlike the tax payments on the gain on the business exits, proceeds from the divestitures will show on the cash flow statement as investing activities and therefore do not impact free cash flow.

Speaker Change: Transaction fees related to all four exits and of Eastman transaction and additional restructuring.

Speaker Change: Similar to 2023, we expect higher than typical restructuring charges in 2020 for about $100 million pre tax.

Speaker Change: Seasonally we expect our free cash flow to be back half weighted.

Speaker Change: Unlike the tax payments on the gain of the business exits proceeds from the divestitures will show in the cash flow statement as investing activities and therefore do not impact free cash flow.

Patrick Goris: As shown on the right side of the slide, we expect mid-single-digit organic growth in all three segments. The Fire and Security Operating Margin of about 14% reflects the absence of the higher-margin global access solutions business in the second half of the year. Now moving to slide 16, the 2024 Adjusted EPS Bridge. This chart shows how adjusted EPS increases, from $2.73 to $2.85 at the midpoint. Our guidance includes the benefit of volume leverage and strong productivity leading to over 30% core earnings conversion and over 50 bps of margin expansion. Think of the dark blue as our core business, representing all the businesses we will retain, and the lighter blue representing the four businesses we are exiting. We expect the earnings of our core business to be up close to 15% in 2024, despite the dilutive impact of VISA.

Speaker Change: As shown on the right side of the slide we expect mid single digit organic growth in all three segments.

Speaker Change: Fire <unk> security operating margin of about 14% reflects the absence of the higher margin global access solutions business in the second half of the year.

Speaker Change: Now moving to slide 16, 2024, adjusted EPS Bridge.

Speaker Change: This chart shows how adjusted EPS increases from $2 73 to $2 85 at the midpoint.

Speaker Change: Our guidance includes the benefit of volume leverage and strong productivity, leading to over 30% core earnings conversion and over 50 bps of margin expansion.

Speaker Change: Think of the dark blue as our core business, representing all the businesses, we will retain and the lighter blue representing the four businesses we are exiting.

Speaker Change: We expect the earnings of our core business to be up close to 15% in 2024, despite the dilutive impact of Eastman.

Patrick Goris: You can see the net contribution from Wiesman Climate Solutions and the Net Impact of Losing 6 Months of Earnings from Access Solutions and Commercial Refrigeration Offset by Interest Savings from the Process. We expect a headwind from tax as we return to a 23% adjusted effective tax rate. On the far right... see that our full year 2024 guide includes about 30 cents of adjusted EPS related to businesses being exited. The 30 cents, of course, does not reflect the benefit of the redeployment of expected net proceeds from the exits of industrial fire and residential and commercial fire.

Speaker Change: You can see the net contribution from visa climate solutions and the net impact of losing six months of earnings from access solutions and commercial refrigeration offset by interest savings from the proceeds.

Speaker Change: We expect the headwind from taxes, we returned to a 23% adjusted effective tax rate.

Speaker Change: On the far right you seeded our full year 2024 guide includes about 30 of adjusted EPS related to businesses being exited.

Speaker Change: 30 of course does not reflect the benefit of the redeployment of expected net proceeds from the exits of industrial fire and residential and commercial fire.

Patrick Goris: As usual, we provide estimates of other items in the appendix on slide 20. With respect to capital deployment in 2024, we recently announced a dividend increase payable starting with the February dividend. And our focus this year will be on deleveraging through free cash flow generation and net proceeds from the export.

Speaker Change: As usual, we provide estimates of other items in the appendix on slide 20.

Speaker Change: With respect to capital deployment in 2024, we recently announced the dividend increase payable starting with the February dividend.

Our focus this year will be on deleveraging through free cash flow generation and net proceeds from the exits.

Patrick Goris: As we return to about 2x net leverage, we do intend to resume share repurchase. Finally, before I turn it over to Dave, let me provide some additional color on the first quarter.

Speaker Change: As we return to about two <unk> net leverage we do intend to resume share repurchases.

Speaker Change: Finally, before I turn it over to Dave Let me provide some additional color on the first quarter.

Patrick Goris: We expect low single-digit organic revenue growth with about 50 bps of margin expansion. We have a $0.10 year-over-year adjusted EPS headwind, including $0.06 from Wiesmann, $0.02 from last year's gain on the sale of refrigeration, and $0.01 each from the KFI deconsolidation and a higher tax rate. We therefore expect Q1 revenues of a little less than $6.5 billion and adjusted EPS to be right at about, but not above, $0.50. We do expect organic revenue growth to be sequentially improved throughout the year, with easier comparisons in the second half of 2024. We expect a little less than 50% of full-year adjusted EPS to be realized in the first half of the year and the balance in the second half. With that, I'll turn it back over to Dave.

Speaker Change: We expect low single digit organic revenue growth with about 50 bps of margin expansion.

David L. Gitlin: We have a 10 year over year, adjusted EPS headwind, including <unk> <unk> from <unk> <unk> from last year's gain on the sale in refrigeration and one penny each from the <unk> deconsolidation and a higher tax rate.

David L. Gitlin: We therefore expect Q1 revenues of a little less than $6 5 billion and adjusted EPS to be right about right at about but not above 50.

David L. Gitlin: We do expect organic revenue growth sequentially.

David L. Gitlin: Throughout the year with easier comparisons in the second half of 2024.

David L. Gitlin: We expect a little less than 50% of full year adjusted EPS to be realized in the first half of the year and the balance in the second half.

David L. Gitlin: With that I'll turn it back over to Dave.

David L. Gitlin: Thanks, Patrick and closing.

David L. Gitlin: We delivered strong results in 2023 and are geared up to do so again in 2020 for.

This is a big year for us as a company and we will remain heads down focused on execution.

David L. Gitlin: And we will start realizing the tremendous benefits that we will see from the combination of Eastman and NSA sustainability focused higher growth pure play company.

David L. Gitlin: We delivered strong results in 2023 and are geared up to do so again in 2024. This is a big year for us as a company, and we will remain heads down, focused on execution, and we will start realizing the tremendous benefits that we'll see from the combination of Eastman and as a sustainability-focused, higher-growth, pure-play company. In 2024, we will continue to perform while we transform. With that, we'll open this up to questions. Thank you. If you would like to ask a question, please press star 11 on your telephone and wait for your name to be announced. And if your question has been answered and you would like to remove yourself from the queue, please press star 11 again.

David L. Gitlin: In 2024, we will continue to perform while we transform with that we'll open this up for questions.

Thank you if you would like to ask a question. Please press star one on your telephone and wait for your name to be announced and if your question has been answered and you would like to we meet yourself from the queue. Please press star one again, please standby, while we compile the Q&A roster.

David L. Gitlin: The first question comes from Jeffrey Sprague with vertical research your line is open.

Jeffrey Todd Sprague: Thank you and good morning, everyone.

Jeffrey Todd Sprague: Hey, Jay.

Jeffrey Todd Sprague: Good morning, David can you address just been a little bit more kind of color and detail, how you see things playing out and be spend through the year, obviously, the chairman political chaos and uncertainty on the incentives are clearly in play an impact at the end of the year in 2023, so just a little bit more color.

Operator: Please stand by while we compile the Q&A roster. The first question comes from Jeffrey Sprague with Vertical Research. Your line is open. Thank you. Good morning, everyone. Hey Dave, good morning.

David: On what Youre expecting in Germany in particular, how you might offset that in other countries.

David L. Gitlin: Dave, can you address just a little bit more kind of color and detail how you see things playing out in Wiesman through the year? Obviously, the German political chaos and uncertainty on, you know, the incentives are clearly in play and will impact the end of the year in 2023. So just a little bit more color on what you're expecting and, in Germany, in particular, how you might offset that in other countries and just how do we get comfortable with the business, you know, cycling higher in the back half of 24. Well, you know, Jeff, we feel we are well positioned as we look at January, February, and then we do need to see that order book increase as we go into March heading into 2Q. What we did see is exactly what you just said.

How do we get comfortable with the business cycling higher in the back half of 'twenty four.

David: Well you know, Jeff we feel we feel well positioned as we look at January February and then we do we do need to see that order book increase as we go into March heading into two Q. What we did see is exactly what you just said some of the dithering that we saw around legislation in countries like Germany and else.

David: Where it did put a slight pause on new orders for a period of stretch in <unk> heading into <unk>.

David: We now have clarity, we see the regulation coming out of the European Union, which is now looking like theyre going to add a new provision that talks about not only getting to 55% renewables and reduction in greenhouse gas emissions by 2030, but now 90% by 2040, you can't get there without more regulation around heat pumps. So.

David L. Gitlin: Some of the dithering that we saw around legislation in countries like Germany and elsewhere did put a slight pause on new orders for a period of time in 3Q heading into 4Q. However, we now have clarity. You know, we see the regulation coming out of the European Union, which is now looking like they're going to add a new provision that talks about not only getting to 55% renewable energy and reducing greenhouse gas emissions by 2030 but now 90% by 2040. But you can't get there without more regulation around heat pumps. So we got more definitive legislation in Germany in January, which has those subsidies in the 40 to 70% range, depending on a variety of factors. We also have more certainty in countries like France and Italy.

David: We got more definitive legislation in Germany in January which has those subsidies in the 40% to 70% range depending on a variety of factors, we have more certainty in countries like France, and Italy, we have a new administration in Poland, which should unleash some of the EU funding. So as we look at the year, we think France, and Poland will be up double digits.

David: It's Germany, probably in the mid single digit range, Italy will be down a bit to.

David: To your point, Jeff the sales are a bit back end I would say the EBITDA is a bit more back end loaded for us probably 60% to 65% in the second half when synergies start to we start to accumulate more synergies, especially from supply chain in the second half. So the bottom line of what we're watching orders were starting to see act.

David L. Gitlin: We have a new administration in Poland, which should unleash some of the EU funding. So as we look at the year, we think France and Poland will be up double digits, Germany, probably in the mid single-digit range, Italy will be down a bit.

David: <unk> pick up now now that German legislation is definitive highs we saw heat pump applications increase we saw preorder activity on our website increase as we got into January so that was very encouraging. So we're looking at orders. We're looking at clearly filling that second half growth. We're looking at full year, EBITDA, which should be at or free.

David L. Gitlin: To your point, Jeff, the sales are a bit back, and I would say the EBITDA is a bit more back-end loaded for us, probably 60-65% in the second half when synergies start to, we start to accumulate more synergies, especially in the supply chain in the second half. So the bottom line of what we're watching, orders, we're starting to see activity pick up now, now that German legislation is definitive We saw heat pump applications increase, and we saw pre-order activity on our website increase as we got into January. So that was very encouraging.

David: A little bit ahead of our original business case, and we're going to be aggressive on some of those supply chain synergies to set up the second half EBITDA growth over the first half.

Speaker Change: Great. Thank you and just pivoting a little bit for Patrick Patrick can you just.

Patrick: Give us I don't know as precise as possible how much actual revenue and profit then is actually in the 2024 guide for security and commercial refrigeration.

Patrick Goris: So we're looking at orders. We're looking at clearly meeting that second half growth. We're looking at full-year EBITDA, which should be at, or frankly, a little bit ahead of our original business case. And we're going to be aggressive on some of those supply chain synergies to set up second half EBITDA growth over the first half. Great, thank you. And just pivoting a little bit for Patrick, Patrick, can you just give us, I don't know, as precise as possible how much actual revenue and profit there is in the 2024 guide for security and commercial refrigeration? yet the oh for the full year.

Patrick: Yes.

Patrick: Oh.

Patrick: For the full year.

Patrick: Well, it's going to be gone in the second half for your guide right like how much revenue and profit is actually embedded in the first half guide for those two businesses that are leaving.

Patrick: Well, we lose for the full year, we lose about 5% of the exits and.

Patrick: Think of the business as being more or less evenly loaded for the full year. So think of the first year being about $1 billion give or take.

Patrick: And from a profitability point of view, probably a little bit more profit in the yeah, and I would say from a margin point of view similar to what we shared is the margin profile of these businesses, so give or take $1 billion.

Patrick: Jeff.

Jeff: Alright. Thank you. Thank you very much.

Speaker Change: Thank you.

Speaker Change: Please standby for our next question.

Patrick Goris: Yeah. Well, it's going to be gone in the second half for your guide, right? Like, how much revenue and profit is actually embedded in the first half guide for those two businesses that are leaving? Well, we lose, for the full year, we lose about 5% of the exits and think of the business as being more or less evenly loaded for the full year. So think of the first year being about a billion dollars, give or take. And from a profitability point of view, probably a little bit more profit in the first year. Yeah, and I would say, from a margin point of view, similar to what we shared as the margin profile of these. So, give or take a billion dollars, Jeff. All right. Thank you. Thank you very much.

Speaker Change: The next question comes from Julian Mitchell with Barclays. Your line is now open.

Julian Mitchell: Hi, good morning, and thanks for giving a lot of clear detailed amidst many moving parts.

Julian Mitchell: In terms of I guess my first question.

Julian Mitchell: On the call sort of HVAC.

Julian Mitchell: Segment guide on Slide 15.

Julian Mitchell: When you look the sales guide up sort of mid single digits for the full year.

Just any more detail on that in terms of for example price versus volumes and maybe what youre assuming for that U S. Resi HVAC business within that sales guide please.

Operator: Thank you. Please stand by for our next question. The next question comes from Julian Mitchell with Barclays. Your line is now open.

Julian Mitchell: Hi, good morning, and thanks for giving a lot of clear detail amidst many moving parts. In terms of, I guess, my first question, on the core sort of HVAC segment guide on slide 15, you've got the sales guided up sort of mid-single digits for the full year. Maybe just any more detail on that in terms of, for example, price versus volumes and maybe what you're assuming for that US Resi HVAC business within that sales guide. Yeah, Julian, the way I look at it is Resy and our sort of global commercial HVAC business, if you kind of think about it those two ways, those will both probably be up in the high single-digit range, and North American, the light commercial business in North America will probably be Yeah, I would say for price for HVAC, you're looking at about 2 to 2.5% of price. The rest is volume. Thanks very much.

Speaker Change: Yes Julien.

Speaker Change: Way I look at it is a rosy.

And our sort of global commercial HVAC business. If you kind of think about it those two ways. Those are both probably be up in the high single digit range and North American the light commercial business in North America will probably be down.

Speaker Change: Single digits.

Speaker Change: Thanks, and any thoughts on price volume within the segment for the year, Yeah, I would say for price for HVAC, if youre looking at about two to two 5% of price.

Speaker Change: The rest volume mix.

Speaker Change: Thanks, very much and then just a quick follow up on visa and the climate solutions.

Speaker Change: You talked about that mid single digits.

Speaker Change: Sales growth guide for the year in aggregate.

Speaker Change: I'm wondering if any color within that not so much by region, which you addressed and not so much by sort of seasonality, which you addressed the mold perhaps in terms of how much of that growth guide is volume based and if you could give any color across the some of the products, perhaps I think investors get very nervous.

David L. Gitlin: And then just a quick follow-up on Wiesman Climate Solutions. You talked about that mid-single-digit sales growth guide for the year in aggregate. I wondered if you could give any color within that, not so much by region, which you addressed, and not so much by sort of seasonality, which you addressed, but more perhaps in terms of, you know, how much of that growth guide is volume-based, and if you'd give any color across some of the products perhaps.

Speaker Change: About heat pumps, and so forth, but maybe any flavor as to some of the other products like boilers and so forth.

Speaker Change: Yeah, it's a it's more volume than price, you're probably looking at a couple of points of price the rest.

David L. Gitlin: I think investors get very nervous about heat pumps and so forth, but maybe any flavor as to some of the other products like boilers and so forth. Yeah, it's more volume than price. You're probably looking at a couple points of price, and the rest is volume. I would say a few things.

Speaker Change: I would say a few things.

Speaker Change: With respect to organic growth for <unk>, where I know some of.

Speaker Change: Our peers are talking about lower growth than we are in here is I think some of the reasons Julian I would say that we have high confidence in the mid single digit growth number one is that.

David L. Gitlin: Number One is that we're not a pure heat pump place. So we have the ability to flex with boilers, depending on kind of what the market conditions are. We are anticipating share gains. Wiesman has introduced new products.

Speaker Change: We're not a heat pump pure place so we have the ability to flex.

Speaker Change: Boilers, depending on kind of what the market conditions are we are anticipating share gains <unk> introduced new products. There is a new product line in that 16 to 19 kilowatts, which will now give us access to more than 90% of the single family residential market in Europe, where before that.

David L. Gitlin: There's a new product line in that 16 to 19 kilowatt range, which will now give us access to more than 90% of the single-family residential market in Europe, where before that sort of higher capacity part of that segment, we did not have a product offering for, and all the way much higher than that, which gets into the multifamily. So we're looking at not only share gains, but we're also looking for products that introduce us to new parts of the market. The geographic mix, we think, plays favorable as we see Germany start to recover certainly in the second half.

Speaker Change: That sort of higher capacity part of that segment, we did not have a product offering for and all the way much higher than that which gets into the multifamily. So we're looking at not only share gains, but we're also looking at products that introduce us into new parts of the market.

That geographic mix, we think plays favorable as we see Germany start to certainly recover in the second half, we'll push on the services and I do think there is going to start to be some level of benefit on the revenue synergies and internally we're targeting.

David L. Gitlin: We'll push on with the services, and I do think there is going to start to be some level of benefit from the revenue synergies internally, a fairly significant number for ourselves that we haven't put into our underlying model. So, you know, we'll start to see recovery of heat pumps taking place. We'll still see some more boiler cells.

Speaker Change: A fairly significant number for ourselves that we havent put into our underlying models. So.

Speaker Change: We will start to see recovery of heat pumps, taking place, we'll still see some more boiler sales PV may slow a little bit which would be.

David L. Gitlin: PV may slow a little bit, which would be something that we'll watch, but it is on the lower margin side for us as a business. So, all in all, I've had a chance to spend a lot of time with the VSMN leadership team and the salespeople, and we're starting to see, now that we have more clarity around the regulations, a lot of activity picking up that we do have confidence will certainly benefit us with growth in the second. That's very helpful.

Speaker Change: Something that we'll watch but it is on the lower margin side for us as a business. So all in all I'm I've had a chance to spend a lot of time with the <unk> leadership team and the salespeople and we're starting to see now that we have more clarity around the regulations a lot of activity picking up that we do have confidence will certainly benefit us with growth in the second half.

Speaker Change: That's very helpful. Thank you.

Thank you please standby for the next question.

Andrew Burris Obin: The next question comes from Andrew Koplowitz with Citigroup. Your line is open. Good morning, everyone.

Speaker Change: The next question comes from Andrew Kaplowitz with Citigroup. Your line is same thing.

Andrew Burris Obin: Hey, good morning, everyone.

David L. Gitlin: Morning David, Patrick, I think you mentioned the expectation of sales up high single digits and resi for the year. Can you break that out between price and volume? And then can you talk about the progress you're seeing on rolling out 454B? And then where did inventory go on the year and resi versus your target? I think you were talking about down mid. Well, Andy, it's Dave. Let me let me try to break it out.

Andrew Burris Obin: Good morning, Andy.

Andrew Burris Obin: Do you ever Patrick I think you mentioned the expectation of sales up high single digit in resi for the year can you break that out between price and volume and then can you talk about the progress you're seeing on rolling out 454, B and then where did an inventory in the year in <unk> versus your target I think you were talking about down mid teens.

David L. Gitlin: Well, Andy it's Dave.

David L. Gitlin: Let me, let me try to break it out I think that look we'll expect for Ramsey.

David L. Gitlin: I think that, look, we'll expect for resi a few, a few points of price; the rest will be volume mixed. Remember, we talked about price for the 454B units being up 15 to 20% over two years, and the way you can think about that is a few percent of just basic price this year, a few percent of price next year. Remember, we announced a 6% price increase effective for March for Resi Business. And on top of that, you're probably looking at about a 10% or so price difference for the 454B units versus the 410A. And look, I'm proud of the team.

A few points of price the rest will be volume mix.

David L. Gitlin: Remember, we talked about price for the 454, b units being up 15% to 20% over two years and the way you can think about that is a few percent of just basic price. This year a few percent of price next year remember, we announced a 6% price increase effective for March for resi business and then on top of that you have.

David L. Gitlin: We're probably looking at about a 10% or so.

David L. Gitlin: Price difference for the 454 b units versus the <unk> and look I'm proud of the team I think that we're going to start shipping units as early as March we'll start for the $4 54, B, we're gonna start.

David L. Gitlin: I think that we're going to start shipping units as early as March. We'll start with the 454B on some of the new build side because our home builders don't want to mix. Subdivision, so to speak, so they're going to start taking 454B units a little bit earlier. We'll get some out for national heat pumps for training purposes. I think when all is said and done this year, probably 80% will be the 410A, and about 20% will be the 454B. And I'm sorry, Andy, did you have another piece in there that I failed to address?

David L. Gitlin: On some of the Newbuild side, because our homebuilders don't want a mixed subdivision so to speak so theyre going to start taking 454 b units a little bit earlier, we will get some out for national heat pumps for Trey.

David L. Gitlin: Training purposes, I think when all is said and done this year, probably be 80% will be the 410, a and about 20% will be the $4 54 B and.

Speaker Change: And I'm sorry, Andy did you have another piece in there that I failed to address.

David L. Gitlin: It's just we have inventories and the channel sort of ended the year. Yeah, you know, this was a big one for us. We wanted to end down mid-teens, and we ended up down 16% year over year in inventory. So that was a fairly purposeful effort by us working very closely with our distributors. That was one of our biggest targets in 4Q.

Speaker Change: Where inventories in the channel sort of ended the year.

Andy: Yeah. You know this was a big one for US we wanted to end down mid teens, and we ended up down 16% year over year in inventory. So that was a fairly purposeful effort by us working very closely.

Andy: With our distributors that was one of our biggest targets in <unk> now <unk> ended up being a little bit lighter than we had thought partly for that reason as we were making sure that we got.

David L. Gitlin: Now, 4Q resi ended up being a little bit lighter than we had thought, partly for that reason, as we were making sure that we got as much of the destocking behind us in 2023 as possible. And I think we achieved that. Could there be a tiny bit more destocking here in 1Q? Yes, but I think that's behind us for the next month or two. And then we'll go back to more typical levels. Great.

Andy: As much of the Destocking behind us in 2023 as possible and I think we achieved that because there'll be a tiny bit more destocking here in <unk>, but I think thats behind us over the next month or two and then go back to more typical levels.

David L. Gitlin: And then for the mid-single-digit growth guidance for HVAC, you know, you answered Julian's questions about the mix, but commercial HVAC orders actually re-accelerated a bit, up 5%. Are you seeing any sort of, you know, re-acceleration or anything in certain, you know, key markets for you guys? And then, you know, alternatively on the, like, commercial side, you talked, I think, David, about down mid-single digits, you know, and visibility to that sort of kind of decline in 2014. Yeah, you know, when we look at borders, we've actually been, it's been robust in the Americas for a while.

Speaker Change: Great and then sort of the mid single digit growth guidance for HVAC.

Speaker Change: Enter julians questions about the mix, but commercial HVAC orders actually we accelerated a bit up 5%.

Speaker Change: Seeing sort of reacceleration or anything in certain key markets for you guys and then alternatively on the light commercial side, you talked I think David miles down mid single digits.

And visibility to that sort of kind of decline in 'twenty four.

Speaker Change: Yeah, when we look at orders, we've actually been it's been robust in the Americas for Awhile you look at.

Speaker Change: Our sales for and orders for the Americas, both last year were up double digits.

Speaker Change: When we look at sales in commercial HVAC in the mirrors close to 20%.

David L. Gitlin: You look at... Our sales and orders for the Americas, both last year, were up double digits. You know, when we look at sales and commercial HVAC in the Americas, close to 20 percent. We had very strong double-digit growth in commercial HVAC in Europe. I would say it's been a little bit surprisingly strong. Orders still were fine in the fourth quarter there as well.

We had very strong double digit growth in commercial HVAC.

Speaker Change: In Europe, I would say, it's been a little bit surprisingly strong orders. There were there were fine in the fourth quarter, there as well and it's partly driven by this continuous demand for data centers, we see positive growth on some of the industrial side in Europe.

Speaker Change: Asia is still a pretty solid China orders in the fourth quarter were lower than we would have liked so China's kind of a watch item, but I will say in terms of commercial HVAC in China, we used to be 70% real estate and 30% industrial and infrastructure. It's now 70 525, the reverse so we're seeing very strong.

David L. Gitlin: And it's partly driven by this continuous demand for data centers. We see positive growth on some of the industrial side in Europe. Asia is still pretty solid, although Chinese orders in the fourth quarter were lower than we would have liked.

David L. Gitlin: So China is kind of a watch item. But I will say, in terms of commercial HVAC in China, we used to be 70 percent real estate and 30 percent industrial and infrastructure. It's now 75-25, the reverse. So we're seeing very strong demand for EV production. The data centers continue to be strong in China. So China's clearly properties a weak spot, and I think that will continue. But the rest is strong. So we're actually banking on strong growth in China this year, and we have some level of optimism because we continue to go where the customers are. Appreciate the color, guys.

Speaker Change: Man for EV production.

Speaker Change: The data centers continues to be strong in China. So China is clearly properties are weak a weak spot and I think that will continue but the rest is as strong. So we're actually banking on strong growth in China. This year and I and we have some level of optimism because we continue to go where the customers are.

Speaker Change: I appreciate the color guys.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Next question comes from Deane Dray with RBC capital markets. Your line is now open.

Deane Dray: Thank you. One moment for our next question. The next question comes from Deane Dray with RBC Capital Markets. Your line is now open. Thank you. Good morning, everyone. Good morning. Hey, Noah.

Deane Dray: Good morning, everyone.

Deane Dray: Hey, good morning, I know, it's kind of hard to see through the fog of all the moving pieces here, but we're hearing more about resumption of seasonality.

Patrick Goris: It's kind of hard to see through the fog of all the moving pieces here, but we're hearing more about resumption of seasonality. But just what's baked into the guide regarding what we would typically see as seasonality? I would say, Deane, in general, no different than prior years, so we expect, as always, Q2 and Q3. The EPS split would be, by far, our biggest quarters, generally driven, of course, by what's happening in residential HVAC. And then from a seasonality point of view, more on the cash flow side, as typical, very back-end loaded, so heavy in Q3 and in Q4. In terms of the EPS split, last year we did about 48% in the first half, and 52% of our full-year EPS in the second half. This year, our current guide assumes it's very similar, maybe a point lower in the first half offset by a point higher in the second half, so 47.53.

Deane Dray: Just what's what's baked into the guide regarding what we would typically see a seasonality.

Deane Dray: I would say in general no different than than prior years. So we expect as always Q2 and Q3 to be by far our.

Deane Dray: Our biggest quarters.

Deane Dray: Generally driven of course by what's happening in.

Deane Dray: In residential HVAC, and then from a seasonality point of view more on the on the cash flow side.

Deane Dray: As typical very backend loaded so heavy in Q3 and in Q4 in terms of the EPS split.

Deane Dray: Last year, we did about 48% in the first half 52 of our full year EPS in the second half of.

Deane Dray: This year, our current guide assumes it's very similar maybe a point lower than the first half offset in a five point higher than the second half of $47 53, but I would say besides that no.

Patrick Goris: But I would say, besides that, no big differences in seasonality than we typically see. As Dave mentioned, for Vistman specifically, we expect it to be a second half, more weighted towards the second half, one because of the expected volume pickup given the order activity we're seeing, but also given the cost synergies that we expect to kick in, particularly in the second half. Great. That's really helpful.

Deane Dray: No big differences in seasonality than we typically see as Dave mentioned for <unk>, specifically, we expect it to be a second half.

Deane Dray: More weighted towards the second half one because of the expected volume pick up given the order activity we are seeing.

Deane Dray: But also given the cost synergies that we expect to kick in particularly in the second half of the year.

Speaker Change: Great. That's real helpful. And then Dave lots of discussion this quarter across the industrials about all of these mega projects billion dollar plus it sounds like most of these are still in sort of the front log discussion stage.

David L. Gitlin: And then, Dave, lots of discussion this quarter across the industrials about all of these megaprojects, billions of dollars-plus. It sounds like most of these are still in sort of the front-log discussion stage. Where are you positioning yourself, and what do you expect to be with regard to wind rates and so forth? Very strong, Dean.

Speaker Change: There are you positioning.

Speaker Change: What do you expect to be in with regards to win rates and so forth.

David L. Gitlin: Very strong Deane, we feel very well positioned with.

David L. Gitlin: We feel very well positioned with the mega projects with some of our scale customers that we've really established a central group to go, Target, some of our bigger scale customers, data centers, are just unbelievably strong. When we look at it, you know, we've talked about the property market being a little bit less than 10% of our commercial HVAC business in the Americas. Data centers are a bigger percentage for us than the real estate market. That's in the low double-digit percentage for us as a company, and we've recently introduced new products. We have a new air-cooled chiller.

David L. Gitlin: The Mega projects with some of our scale customers that we've really we've established a central group to go.

David L. Gitlin: Target some of our bigger scale customers data centers is just unbelievably strong. It's when we look at it we've talked about the property market being a little bit less than 10% of our commercial HVAC business in the Americas data centers is bigger.

David L. Gitlin: As a percentage for us than the real estate market. That's in the low double double digit percentage for us as a company and we've recently introduced new products, we have a new air cooled chiller.

David L. Gitlin: That's helped us get significant wins both in the United States and in Europe. Europe has seen 10x growth in data center space over the last two years. So when we look at ChIPSAC bringing some of the production back, we look at data centers, there's other verticals that are strong too, education, K-12, spin strong, higher ed, retail, in some parts of retail, even healthcare continues to be strong. So we feel very well positioned overall in commercial HVAC. I would tell you we picked up share last year in the Americas and in Europe; we were probably flattish in share in Asia, so we feel well positioned with these megaprojects. That's really helpful.

David L. Gitlin: So that has helped us get significant wins, both in the United States and in Europe. Europe has seen 10 X growth in data center space over the last two years. So when we look at chips Act, bringing some of the production back we look at data centers. There's other verticals that are strong to education K through 12 has been strong higher add retail in some parts of retail.

David L. Gitlin: <unk> EBIT.

Health care continues to be strong so we feel very well positioned overall in commercial HVAC I would tell you we picked up share last year in the Americas and in Europe, we were probably flattish in share in Asia. So we feel well positioned with these mega projects.

Speaker Change: That's real helpful. Thank you.

Noah Kaye: Thank you. Thank you. Please stand by for the next question. The next question comes from Noah Kaye with Oppenheimer. Your line is now open. Good morning.

Speaker Change: Thank you.

Speaker Change: Please standby for the next question.

Speaker Change: Yeah.

Speaker Change: The next question comes from Noah Kaye with Oppenheimer. Your line is now open.

David L. Gitlin: First question: the guidance for mid-single-digit organic growth in the refrigeration segment for 24, can we talk a little bit about the assumptions to get there and, particularly, what you're assuming on a regional basis for transport refrigeration? Yeah, yeah, no. I'll take that. This is Dave.

Noah Kaye: Good morning first question.

Noah Kaye: The guidance for mid single digit organic growth in refrigeration segment for 2000 and for can we talk a little bit about the assumptions to get there.

Noah Kaye: Particularly what youre, assuming on a regional basis for transport refrigeration.

Noah Kaye: Yeah, Yeah, no I'll take that this is Dave.

David L. Gitlin: Well, first of all, we're looking at a strong rebound in the container business, both in terms of the market and in terms of share. So we think that for us, the container business will certainly be well north of double digits. For the global truck-trailer business, that's up in the low single-digit range. But the truck-trailer market, if you look at ACT, that market's down double digits. But remember last year, it was down significantly, and we actually grew last year, and it's partly because people look at ACT, and that's just a small piece of it. That is the sheer volume of trailers.

David L. Gitlin: First of all we're looking at a strong rebound in the container business both.

David L. Gitlin: In terms of the market and in terms of share. So we think that for us the container business will certainly be well north of of double digits for the global.

David L. Gitlin: Truck trailer business, that's up in the in the low single digit range than North American.

David L. Gitlin: Trailer market. If you look at acte that market's down double digits, but remember last year. It was down significantly and we we actually grew last year and it's partly because people look at <unk> and that's just a small piece of it that is the share volume for trailers. It excludes things like truck Apu used pricing mix that we get from <unk>.

David L. Gitlin: It excludes things like trucks, APUs, pricing, and mix that we get from electrification. So even though the market says, I think the market could be down double digits, you know, ACT, I think is saying 37,000 units this year from 42,500 or so last year, we actually think that we'll end up probably flattish in both NATT, maybe, you know, kind of give or take a point or two, and then I would say flattish on the European truck-trailer side as well. Europe would probably be down maybe a point or two, but we continue to see strength in Asia truck trailer, and we see commercial refrigeration business. I'm starting to rebound this year, and we're looking at double-digit growth in that. Very helpful, Dave.

David L. Gitlin: Electrification, so even though that the market says I think the market could be down double digits ACP I think you're saying 37000 units. This year from 42500 or so last year, we actually think that we will end up.

David L. Gitlin: Probably flattish in both ATT maybe.

David L. Gitlin: Kind of give or take a point or two and then I would say flattish on the European truck trailer side as well Europe would probably be down maybe a point or two but we continue to see strength.

David L. Gitlin: In Asia truck trailer and we see commercial refrigeration business.

David L. Gitlin: I'm starting to rebound this year and we're looking at double digit growth in that in that business.

David L. Gitlin: Business.

Speaker Change: Yes extremely helpful. Dave.

Noah Kaye: You know, I think when we adjust the free cash flow profile back for the one-time cash outflows, looking at, you know, core free cash flow conversion, north of 90 percent. I guess as we move past some of these transformation initiatives. How do we think about the core free cash flow conversion on a go forward basis?

Speaker Change: I think when we.

Speaker Change: Just a free cash flow profile back for the one time cash outflows looking at.

Speaker Change: Core free cash flow conversion north of 90%.

Speaker Change: I guess as we as we move past.

Speaker Change: So these transformation initiatives.

Speaker Change: How do we think about the core free cash flow conversion on a go forward basis.

Patrick Goris: You know, is there still that potential to get to 100 percent? And what are you going to be focused on over the course of this year to get there? Yes, we're always focused on free cash flow conversion. As I mentioned this year, or in 2023, we take $2.4 billion. We expect 2024 to be elevated from a CAPEX perspective as well, which is embedded in that guide for 2024, and a key reason for that is that within our recent climate solutions business, we're finalizing some of the larger projects. So we think that our Catholic outlook for 2024 of about $550 million is probably about $75 or so million higher than what the underlying run rate would be. So that's an element in 2024, but obviously taking into account the cash spin on restructuring. We would always target to be at 100% pre-castral conversion, and I think in 2023, if you take that into account, we absolutely did. I appreciate that. Thanks, Patrick.

Speaker Change: There is still that potential to get to a 100% and what are you going to be focused on over the course of this year to get you there.

Speaker Change: Yes, we're always focused on free cash flow conversion as I mentioned this year or in 2023.

Speaker Change: If you adjust for items like restructuring and some of the M&A related fees, which we adjust out. So they are not part of our adjusted income we're actually we're actually well over 100% of free cash flow conversion. So some of it relates back to do you think it over GAAP income or adjusted net income now for 2024.

Speaker Change: Our guidance for free cash flow.

Speaker Change: Mentioned 700 million includes $1 seven of those items.

Speaker Change: Take $2 4 billion, we expect 2020 for it to be elevated from a capex perspective, as well, which is embedded in that guide for 2024 and a key reason for that is that within our at least in the climate solutions business. We're finalizing some of the larger projects and so we think that our capex out.

Speaker Change: <unk> for 2024 of about $550 million is probably about 75, or so million higher and what the underlying run rate would be.

Speaker Change: So that's an element in 2024.

Speaker Change: Taking into account the cash spent on restructuring we would always target to be at 100% free cash flow conversion and I think in 2023, if you take that into account we absolutely did.

Speaker Change: I appreciate that thanks Patrick.

Joseph Alfred Ritchie: Thank you. One moment for our next question. The next question comes from Joe Ritchie with Goldman Sachs. Your line is open.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Next question comes from Joe Ritchie with Goldman Sachs. Your line is open.

Joseph Alfred Ritchie: Thanks. Good morning, guys. Hey, Jeff.

Joseph Alfred Ritchie: Hi, Thanks, Good morning, guys.

David L. Gitlin: Hey Dave, I want to focus my first question just on Wiesman. So, you know, what are the kind of like the exit trends for 2023? And then, and then just embedded in that mid single-digit number for the year, kind of what's expected in the first half of the year? I know it's expected to be a slower start.

Joseph Alfred Ritchie: Hey, good morning.

Hey, Dave I wanted to focus my first question just on beef men.

Joseph Alfred Ritchie: So what we're kind of like the exit trends for 2023, and then just embedded in that mid single digit number for the year kind of what what's expected in the first half of the year I know it is expected to be a slower start.

Joseph Alfred Ritchie: Yeah.

David L. Gitlin: Yeah. Look, we did see that orders were lighter in the second half, and that did impact. I would say the fourth quarter came in a little bit lower than we thought. It was still up mid-single digits versus the fourth quarter of last year. But when we look at the calendarization of this year, from a sales perspective, you're probably looking at about 45 percent or so of the sales in the first half and about 55 percent of the sales in the back half. When you look at EBITDA, it's a little bit more weighted towards the back half because that's when we see our But as I was mentioning earlier, Joe, the encouraging piece is once we get the definitive legislation out of Germany and you can apply for the subsidies, which are retroactively beneficial, effective as of January. We did see, It was kind of like a tale of two cities.

David L. Gitlin: Look we are we did see that.

Speaker Change: Orders were lighter in.

Speaker Change: The second half and that did impact I would say the fourth quarter came in a little bit lower than we thought it was still up mid single digits versus the the fourth quarter of last year, but when we look at the calendar as Asian of this year from a sales perspective, you're probably looking at.

Speaker Change: At about.

Speaker Change: 45% or so of the sales in the first half and about 55%.

Speaker Change: The sales in the back half when you look at the EBITDA, it's more a little bit more weighted towards the back half because that's when we see our synergies start to come in but as I was mentioning earlier, Joe I think the.

Speaker Change: The encouraging piece is once we got the definitive legislation out of Germany, and you can apply for the subsidies, which become retroactively beneficial.

Speaker Change: <unk>.

Speaker Change: And as of January.

We did see it was kind of like a tale of two cities you saw activity on the <unk> web pages picked up you're starting to see energy amongst the installers and you started to see heat pump applications increased so clearly some of that dithering. We saw on the legislative side impacted new orders now that we have a level of certainty.

David L. Gitlin: You saw activity on the Wiesman webpages pick up. You started to see excitement amongst the installers, and you started to see heat pump applications increase. So clearly, some of that dithering we saw on the legislative side impacted new orders. But now that we have a level of certainty, we're very confident that we'll start to see heat pump orders and sales pick up in the second half. And Patrick, were you gonna add something?

Speaker Change: We're very confident that we'll start to see the heat pump orders and sales pick up in the second half and Patrick are you going to add something Joe is just going to say for Q4 of 2023 <unk> sales were down about mid single digits and so for Q1 of this year, we expect them to be about flattish.

Patrick Goris: Yeah, Joe, I was just gonna say for Q4 of 2023, Wiesman sales were down about mid-single digit. And so for Q1 of this year, we expect them to be about flattish, with a pickup in the second half of 2024, as Dave just mentioned. No, that's perfect. That's good. Good color.

With a pick up in the second half that's great for Us Dave just mentioned.

David L. Gitlin: Thank you. Thank you both. And I guess just, um, I know we've already kind of talked through the Resi HVAC inventory cycle and where we are. I'm just curious, across the rest of your portfolio, can you maybe just provide some color on inventories? Um, you know, I'm specifically curious about the security business and what you're seeing in that business right now. Well, you know, look, we, on the security side, as Patrick said, we've been leading for half the year. We feel calibrated on where we are for our, you know, for where we are in the first half.

Speaker Change: That's perfect that's great color. Thank you. Thank you both and I guess just.

Speaker Change: We've already kind of talked through the resi HVAC.

Speaker Change: The inventory cycle, and where we are I'm. Just curious is that across the rest of your portfolio can you maybe just provide some color on inventories.

Speaker Change: Hum.

Speaker Change: I'm, specifically curious on the on the security business and what Youre seeing in that business right now.

Speaker Change: Well.

Speaker Change: Uh huh.

Speaker Change: Look we are on.

Speaker Change: On the security side.

Speaker Change: As Patrick said, we've guided for half of the year, we feel calibrated on where we are for our for where we are in the first half and I think that we're sort of.

David L. Gitlin: And I think that we're sort of back to more normal levels of backlog in security. When we look at other parts, I mean, for our commercial HVAC side, we're still looking at backlog up to 30 percent on a two-year stack. So we're well; we have very good coverage going into the second half of this year.

Speaker Change: Back to more normal.

Speaker Change: More and more normal levels.

Speaker Change: Backlog in security when we look at other parts I mean for our commercial HVAC side were still looking at backlog up 30% on a two year stack. So we're well we have very good coverage going into the second half of this year. So we feel good about the growth.

David L. Gitlin: So we feel good about the growth projections that we have for commercial HVAC. And you know, when we look at the light commercial piece, we're watching the inventory levels in the channel. It's partly helped frame our – when we said we think of sales down in the mid-single-digit range, it's partly because we're watching that. Now I will say, even with our 2024 forecast, it would still be lower than the kind of numbers we saw in 2019, 2018.

Speaker Change: Projections that we have for commercial HVAC.

Speaker Change: And north when we look at the light commercial piece, we're watching the inventory levels in the channel, it's partly help frame our when we said we.

Speaker Change: A sales down in the mid single digit range, it's partly because we're watching that now I will say, we actually even with our 2024 forecast it would still be lower than the kind of numbers. We saw in 2019 2018. So we're watching the inventory levels, but we still have very strong coverage heading into <unk>.

David L. Gitlin: So we're watching the inventory levels, but we still have very strong coverage heading into 2Q and beyond. So we'll keep an eye on that, but – and we obviously have a tough compare there. And remember, light commercial is about 5 percent of all of Carrier. But we'll watch the inventory levels, but we are encouraged by the coverage that we have.

Speaker Change: And beyond so we will keep an eye on that but and we obviously have a tough compare there and remember like commercials about 5% of all of carrier, but we will watch the inventory levels, but we are encouraged.

Speaker Change: Encouraged by the coverage that we have.

Joseph Alfred Ritchie: Thank you, guys. Thank you. One moment for our next question. The next question comes from Nigel Coe with Wolf Research Alliance. Thanks. Good morning.

Speaker Change: Helpful. Thank you guys.

Speaker Change: Thank you. Thank you.

Speaker Change: One moment for our next question.

Speaker Change: The next question comes from Nigel Coe with Wolfe Research your line.

Speaker Change: Yeah.

Nigel Coe: And I echo Julian's comments. Thanks for making a pretty complex setup a little bit easier for us. So, thanks for the details. I just want to go back to Wiesman.

Nigel Coe: Thanks, Good morning.

Nigel Coe: Echo Julians comments, thanks for making a pretty complex setup.

Nigel Coe: It'll be easier for us so thanks for the details.

Nigel Coe: Just want to go back to visa.

Nigel Coe: And the comments about 45-55, Patrick, I think you mentioned that. Based on our model, we got 50-50 roughly for 2023. We just want to make sure that's more normal seasonality. And then, can you maybe comment on where we finished up on EBITDA for Wiesman? I think €0.7 billion was sort of the benchmark.

The comments about $45 55, Patrick I think you mentioned that.

Nigel Coe: Based on our model, we got 50 50, roughly 480 threes. So just to make sure that sort of more normal seasonality and then can you just maybe comment on where we finished up on EBITDA. So these men I think 7 billion euros, what's sort of the benchmark and in the spirit of the question really is.

Patrick Goris: And the spirit of the question really is, I think, yeah, Patrick, you mentioned Wiesman being fairly neutral to margins in 2024. I've got EBITDA margins in the 16.5-17% range for 2024. So just to make sure that's where you see Wiesman's margins for 2024. Okay, quite a few things there, Nigel.

Nigel Coe: I think Patrick you mentioned sort of easement be fairly neutral to Tim.

Nigel Coe: Margins in 2024.

Nigel Coe: EBITDA margins in the 16% range for 24, so it doesn't make sure that's where you see visa visa margins for FY 'twenty.

Nigel Coe: Okay.

Patrick Goris: I'll start with where Wiesman ended in 2023. We have set about four billion dollars in, four billion euros, and about $700 million in EBITDA, so $4 billion in sales. Yes, in EBITDA. On both items, they came in slightly below, so sales were close to 3.9 billion euros, and EBITDA came in about 50 or so million below that. So that's where Wiesman ended the year.

Patrick: Quite a few things there Nigel I'll start with the wear of Eastman ended in 2023.

Patrick: We had said about $4 billion 4 billion euros.

Speaker Change: And about $700 million in EBITDA.

Speaker Change: EBITDA, so $400 billion in sales $700 million.

Charles: Charles Yes, you're right.

Charles: And EBIT and EBITDA on both items. They came in slightly below sales were close to $3 nine.

Charles: $1 billion okay.

Charles: And EBITDA came in about 50, or so million below that so that's where we ended the year in terms of V.

Patrick Goris: In terms of VCS margins for the full year, from an operating margin point of view, Wiesman, embedded in our guide, is right at mid-teens, so right at the middle of the mid-teens, and I think from an EBITDA margin point of view, they're in the high teens. So their EBITDA margin is slightly accretive to the overall company. The operating margin is basically right in line with the company average as well. Okay, I'll follow up offline.

Charles: Vcs margins for the full year.

Charles: From an operating margin point of view.

Charles: Eastman embedded in our guide is right at mid teens, so right at the call. It middle of mid teens and think from an EBITDA margin point of view. They are in the high teens. So your EBITDA margin is slightly accretive to the overall company. The operating margin is basically right in line with the company average as well.

Charles: Okay.

Speaker Change: I'll follow up offline I felt the depreciation was quite quite low that out, but we'll follow up offline and just just a quick follow on to that point that there was a step up in the fixed assets as part of the transaction and that's okay.

Nigel Coe: I thought the depreciation was quite low there, but we'll follow up offline. And just a quick follow-on... and that's who boosted the depreciation. Okay, that makes total sense. And then just thinking about Dave, you've talked about the ability for Viesman to pivot between heat pumps and boilers. Just wondering about the mixed impact there, because my understanding is heat pumps have a much higher sticker price than boilers. Just wondering if there's a mixed impact we should consider as well. Yeah, I think on the margin side, they're both very similar, but clearly, on the sales side, we're looking at about 3x the price for heat pumps than you're seeing for boilers.

Speaker Change: The depreciation.

Speaker Change: Okay that makes total sense.

Speaker Change: And then just thinking about see Dave you talked about the ability for visa and the pivot between heat pumps and on bolus, just wondering about the mix impact there because my understanding is he pump so much.

Speaker Change: <unk> still got price them then.

Speaker Change: I was just wondering if there is a mix impact we should consider as well.

David L. Gitlin: Yeah, I think on the margin side Theyre, both very similar but.

David L. Gitlin: Clearly on the sales side, we are looking at about three X the price.

David L. Gitlin: For heat pumps than youre seeing for boiler so.

David L. Gitlin: So when we look at that heat pump growth, we think long term you're looking at more than 20%. It remains to be seen whether, obviously, a bit of a tough comparison last year, whether we'll get that 20% growth in 2024, but the mix that we see between expected heat pumps and boilers is baked into our mid-single digit guide for them for the top line. Great, thank you.

David L. Gitlin: When we look at that heat pump growth, we think long term youre looking at heat pump growth more than 20%. It remains to be seen whether you know obviously a bit of a tough compare last year, whether it will get that 20% growth in 2024, but the mix that we see between expected heat pumps boilers is baked into our <unk>.

David L. Gitlin: Single digit guide for them for the top line for this year.

Speaker Change: Great. Thank you.

Jeffrey Todd Sprague: One moment for our next question. The next question comes from Jeff Hammond with KeyBank Capital Markets. Your line is open. Hey, good morning, guys. Hey, Jeff.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: The next question comes from Jeff Hammond with Keybanc capital markets. Your line is open.

Jeffrey Todd Sprague: Hey, good morning, guys.

Jeffrey Todd Sprague: Good morning.

David L. Gitlin: Morning. Hey, just a couple of cleanups on HVAC. One, just on Resi, maybe speak to sell-through versus, you know, sell-in. What are you thinking for the market versus the absence of D-stock? And then the light commercial, you know, down mid-single digits, is that purely comps, or are you seeing order weakness there? Well, look, on the latter one first. Comps are a part of it, and orders, it's very difficult to look at orders because we're seeing such enormous swings in orders. So you can look at a certain quarter when orders were down 30 or 40 percent.

Jeffrey Todd Sprague: Hey, just a couple of clean ups on an H one just on <unk>, maybe speak to sell through versus sell in home. What are you thinking for the market versus absence of destocking in the light commercial.

Down mid single digits is that purely comps are you seeing them order weakness there.

Jeffrey Todd Sprague: Well.

Jeffrey Todd Sprague: I.

Speaker Change: Look on the latter one first.

Speaker Change: <unk> is a part of it.

Speaker Change: And orders is just it's very difficult to look at orders because we're seeing such enormous swings in order. So you can look at a certain quarter with orders down 30, or 40%, what we're actually looking more at for light commercial is coverage.

David L. Gitlin: What we're actually looking more at for light commercial is coverage. We're looking at just fundamental demand that we're seeing out in the marketplace and how much backlog we have to support that demand, and then we look at the underlying verticals. So as we look at the first half of 2024, we have good coverage for the sales that we expect, and that goes way beyond where it normally would go. It goes into the second quarter.

Speaker Change: We're looking at just fundamental.

Speaker Change: Demand that we're seeing out in the marketplace and how.

Speaker Change: How much backlog, we have to support that demand and then we look at the underlying verticals. So as we look at the first half of 2024, we have good coverage for the sales that we expect and that goes into way beyond where it normally would go it goes into the second quarter. So we're watching inventory levels we have.

David L. Gitlin: So we're watching inventory levels. We generally have pretty good coverage. We do know that some verticals remain quite strong, like K through 12, and things like some of the lower end retail parts of the business. And then we're watching new orders come in to feed the second half of the year in the light commercial space. Please remind me what your question was about Res-E.

Speaker Change: Generally pretty good coverage, we do know that some verticals remained quite strong like K through 12.

Speaker Change: And things like some of the lower end retail parts of the business and then we're watching.

Speaker Change: New orders come in to feed the second half of the year in the light commercial space.

Speaker Change: Please remind me what was your question on resi just on what you think.

David L. Gitlin: Just on Res-E, what do you think market demand is? Yeah, you know, I think we're now back to a point which would have been more like what we would have been used to pre-COVID, which is you'll start to see sales and movement start to feel very similar to each other. We sell into the channel what moves from our channel partners into the dealer. So we should start to see more of a one-to-one match for movement, our sales, and our movement from our distributors. We're sort of back to more normal levels.

Speaker Change: Market demand is yeah yeah.

Speaker Change: Yes.

Speaker Change: I think we're now back to a point, which would have been more like what we would have been used to pre COVID-19, which is youll start to see sales in movement start to feel very similar to each other we sell into the channel what moves from our channel partners into the dealer. So we should start to see more of a one to one match for movement.

Speaker Change: Our sales and our movement from our distributors were sort of back to more normal levels and you think about the market over these last handful of years look at a market level Youre looking at total shipments are inducted splits of back in 2018 19 of around $6 5 million and this year Youre looking at about $6 5 million. So it feels like we're kind of in the zone of.

David L. Gitlin: And you think about the market over these last handful of years. Look at the market level. You're looking at total shipments on ducted splits back in 2018-19 of around $6.5 million. And this year, you're looking at about $6.5 million.

David L. Gitlin: So it feels like we're kind of in the zone of where we would have been pre-COVID, and we'll grow from there. Last year was a bit of a reset year coming off a couple of years where we got up into that $8 million range.

Speaker Change: Where we would have been pre COVID-19 and we'll grow from there last year was a bit of a reset year coming off a couple of years, where we got up into that $8 million range and now we're sort of back to more traditional levels and we feel good about the growth rates that we've projected for resi for this year.

David L. Gitlin: And now we're sort of back to more traditional levels, and we feel good about the growth rate that we have projected for Resi. Okay, and then just on the commercial resi fire business, when do you think you'll have resolution, and what's the kind of lean spin versus sale at this point? Yeah, you know, when we think about it, we're looking at combining the commercial and the residential fires in an exit together.

Speaker Change: Okay, and then just on the commercial resi fire business. When do you think youll have resolution on what's kind of the lean spin versus sale at this point.

Speaker Change: Yeah.

Speaker Change: When we think about we're looking at combining.

Speaker Change: The commercial and the residential fire in an exit together and I'll tell you right now our number one priority is we want to make sure that we do everything we can to close security closed the commercial refrigeration as effectively and as soon as we can working with the buyers and that's a little bit more than half of the EBITDA that we're exiting the next priority.

David L. Gitlin: And I'll tell you right now, our number one priority is we want to make sure that we do everything we can to close the security, close the commercial refrigeration as effectively and as soon as we can, working with the buyers. And that's a little bit more than half of the EBITDA that we're exiting. The next priority we have in line is industrial fire, and that's, frankly, progressing very well. We're looking at, hopefully, an announced deal here within the next couple of months. Then we're doing all the prep work right now internally for commercial and residue fires, and we're preparing it both ways.

Speaker Change: We have in line is industrial fire and Thats, frankly, progressing very well, we're looking at hopefully in announced deal here within the next couple of months then we're doing all the prep work right now internally for commercial and resi fire and were preparing it both ways. We're preparing it as though we could do a sale with <unk> and all the work associated with that and we have a whole.

David L. Gitlin: We're preparing it as though we could do a sale with a Q of E and all the work associated with that, and we have a whole prep activity around a public market exit. And in the meantime, we're heads down, focused on improving the underlying performance of what are really great franchises in those businesses like Kidda and Edwards. And at the end of the day, which way we'll go, sale or public market exit, it just comes down to maximizing long-term shareholder value, and we continue to assess that internally. Okay, great. I appreciate the color.

Speaker Change: Prep activity.

Speaker Change: Round of public market exit and in the meantime, we're heads down focused on improving the underlying performance of what are really great franchises in those businesses like Kidder and Edwards and at the end of the day, which way, we'll go sale or public market exit. It just comes down to maximizing long term shareholder value and we continue to assess that internally.

Speaker Change: <unk>.

Operator: Thank you. One moment for our next call. The next question comes from Stephen Tussa with J.P. Morgan. Your line is open. Hi, good morning.

Speaker Change: Okay, great appreciate the color.

Speaker Change: Thank you.

One moment for our next call.

Speaker Change: The next question comes from Steven <unk> with J P. Morgan Your line is open.

Stephen Tussa: Morning. Congratulations on closing the Vistamin deal. Thank you. We're excited by it. Dave, you mentioned six and a half million ducted splits. What were you talking about versus the eight and a half million? What data point are you talking about there?

Hi, good morning.

Good morning.

Steven: Congrats on.

Steven: Closing the <unk> deal.

Thank you we're excited by it.

Steven: Dave You mentioned $6 5 million duct. It splits what were you talking about versus the $85 million, what exactly data point, you're talking about there.

David L. Gitlin: Yes, Steve, I know you've talked differently. That's like total split volume for North America. So how does that differ from the HRI data?

David L. Gitlin: Yes, Steve I know you've talked different that's like total split volume for North America.

David L. Gitlin: So how does that differ from the AHRI data.

David L. Gitlin: for the Industry. We can take it offline, Steve, if you have different numbers. Okay, and then just for when we kind of roll forward into 2025, can you just help us with, you know, what that profile looks like, you know, how much OP rolls off and then the interest savings, you know, with that, how should we kind of maybe put what you're talking about this year in context for next year? Yes, Steve, it might be helpful to look at the DPS bridge we included in our deck for this.

David L. Gitlin: For the industry.

Speaker Change: We could take it offline Steve if you have different factors, Okay, and then just for when we kind of roll forward into.

25 can you just help us with what how much.

What that profile looks like how much rolls off in and then the interest savings.

Speaker Change: With that how should we kind of maybe put what you are talking about this year in context for next year.

Steve: Yes, Steve.

Steve: Might be helpful to look at the EPS Bridge, we included in our in our in our deck for this and the way I'm thinking that this is our core business this year.

Patrick Goris: And the way I'm thinking of this... Our core business this year, the dark blue one, grows by about 14 or so percent year-over-year. Next year, assuming, of course, we exit all the business... this year, that would be a $0.30 dilutive impact that we would lose. What's not amended there, of course, is the offset related to the redeployment of the net process.

The dark blue one gross.

Steve: <unk> 14, or so percent year over year next.

Steve: Next year, assuming of course, we exited all of the businesses.

Steve: At the end of this year definitely 30 dilutive impact that we would lose what's not embedded there is of course is the offset related to the redeployment of the net proceeds so.

Steve: Cort business $2 55, this year and part of our guide.

Steve: We would be disappointed of course if.

Steve: If we could not continue to grow at a double digits at the depth the redeployments.

Steve: The net proceeds in addition to that free cash flow at that point, given that we would be close to two <unk> net leverage we'd be back in the market doing repo and so I think we would be positioning ourselves for our core business to grow and grow at attractive rates.

Patrick Goris: So, at, We'd be back in the market doing a repo. So I think we would be positioning ourselves for our core business to grow at a steady rate. So kind of take like 255 and then like, you know, grow it at about 10% ish?

Steve: After this year.

Speaker Change: So kind of help answer the question, yes, so so kind of take like $2 55, and then like.

Speaker Change: Grow it at about 10% ish.

Patrick Goris: This year, we're doing 14% in our core business, including the impact of the Wiesman dilution, so we'd be disappointed if it was less, but yes, somewhere in the teens. On top of that, with the redeployment of the net proceeds and the free cash flow we generate, we intend to repurchase the equivalent shares issued to the Wiesman family. So there is, I think there is a lot of earnings power available. Yeah, okay, that helps. Then we're just the last one.

Speaker Change: This year, we're doing 14% in our core business the.

Speaker Change: The effective Eastman dilution, so we'd be disappointed if it would be less.

Speaker Change: But so yes somewhere in the teens on top of that the redeployment of the net proceeds and the free cash flow, we generate we intend to repurchase the equivalent shares issued through divestment family.

Speaker Change: So there is I think there is a lot of.

Speaker Change: Earnings power available to US yes, Okay that helps and then just one last one what was price cost for the quarter.

Stephen Tussa: What was the price cost for the quarter? Yeah, you know, the net, the net. So what was the pricing for the quarter and then the net? Yeah. I don't have an exact number, but it was significantly favorable because, from the overall company point of view, our margin expanded to 80 basis points. That was basically all due to price, cost, and productivity. I embed productivity in there. Yeah, that was probably over 200 bips offset by some unfavorable mix in investment.

Speaker Change: Price cost for the quarter the net the net so what was the pricing for the quarter and then the net yeah understood I don't have an exact number but it was significantly favorable because for the overall company point of view our margin expanded 80 basis points that was basically all due to <unk>.

Speaker Change: <unk> cost and productivity I am bit productivity in there Steve Yes. It was probably that was over 200 bps offset by.

Speaker Change: Some unfavorable mix and investments.

Patrick Goris: Okay, great. Thanks a lot for all the detail. Appreciate it. Thank you. One moment for our next question. The next question comes from Brett Linzey with Mizuho. Your line is now open. Yeah, thanks. Good morning.

Speaker Change: Okay, great. Thanks, a lot for all the detail I appreciate it.

Speaker Change: <unk>.

Speaker Change: One moment for our next question.

Speaker Change: The next question comes from Brett Linzey with Mizuho. Your line is now open.

Brett Logan Linzey: Hey, I just want to come back to Asia and specifically China. You gave a little bit of color there, but fourth quarter orders, you know, up 20-25% there. Could you just give the contrast between, you know, the buildings markets versus transport markets in that order number and, you know, some of the activity you're seeing there? Yeah, we, we, well, first of all, we saw extremely high, it was around 20% orders in China, Brett. The ref orders were extremely high.

Brett Logan Linzey: Yes. Thanks. Good morning, just wanted to come back to Asia, and specifically, China, you gave a little bit of color, there, but fourth quarter orders up 20%, 25%. There could you just give the complexion between.

Brett Logan Linzey: The buildings markets versus transport transport markets in that order number and some of the activity Youre seeing there.

Brett Logan Linzey: Yeah.

We well first of all we saw extremely high it was around 20%.

Brett Logan Linzey: Orders in China Brett.

Brett Logan Linzey: The ref orders were extremely high but it's a relatively small number amongst for the business overall, but that was that was very high and we had a little bit of headwind on the commercial HVAC side in China, and then Fnf's was kind of in the mid single digit range. So we were we were very <unk>.

David L. Gitlin: But you know, it's a relatively small number compared to the business overall, but that was, that was very high. And we had a little bit of headwind on the commercial HVAC side in China, and then FNS was kind of in the mid-single-digit range. So we were very pleased, I would say, overall, with the orders in China. You know, it was about 9 percent of our sales when we picked up Toshiba. We picked up a little bit more on the residential and light commercial business, and we have a lot of new product launches in that space. So kind of like what I said with Viesman before, where we introduce new products that get us into a new market, some of the revenue synergies that the teams worked on between Toshiba and Zhiyue to really introduce some new products into the Chinese market, we know and we anticipate that will continue, has been helping us a lot. And I think the big thing is this pivot between what was real estate and property now to some of the more industrial So we actually have China for us up in 24. I think it's in the high single-digit range.

Brett Logan Linzey: Please.

Brett Logan Linzey: I'd say overall with the orders in China, it's about 9% of our sales when we picked up Toshiba, we picked up a little bit more on the residential and light commercial business and we have a lot of new product launches in that space. So kind of like what I said with Eastman before where we introduced new product that gets us into a new market some of the revenue.

Brett Logan Linzey: Synergies that the teams worked on between Toshiba and <unk> to really introduce some new products into the China market. We think as we know and we anticipate that will continue it's been helping us a lot and I think the big thing is this pivot between what was real estate and property now to some of the more industrial pieces.

Brett Logan Linzey: EV electronics infrastructure manufacturing strong so we actually have China for us up in 24, I think it is in the high single digit range and obviously, we all know China will have to continue to watch, but if we feel like if we play in the right spaces in China, we're well positioned.

David L. Gitlin: Obviously, we all know China. We'll have to continue to watch. But if we feel like if we play in the right spaces in China, we're well positioned. Okay. Great. And then just to follow up on that, you identified significant synergies at Wiesman. You've had some time for integration here.

Speaker Change: Okay, Great and then just a follow up to that you identified the significant synergies advancement.

David L. Gitlin: Maybe it'll put a finer point on the sizing and the timing of those and what really is that new branding, new products, and so on. Yeah, that would be great in any context. What I would do is I would put the revenue synergies, and we'll start to dimensionalize those for our investors here over time, but it's a little bit early. But what I would do is I would put the revenue synergies in three categories. One is multi-channel and multi-brand.

Speaker Change: <unk> have some time for the integration herein may be able to put a finer point on the sizing and the timing of those and what really is that new branding new products and so on any context would be great.

Speaker Change: Yeah, we.

Speaker Change: I would do is I would put the revenue synergies and we will we will start to dimensionalize those for our investors here over time, but it's a little bit early but what I would do is put the I would put the revenue synergies in three categories. One is multichannel multi brand <unk> has I think everyone would agree the single best channel for the residential.

David L. Gitlin: Wiesman has, I think everyone would agree, the single best channel for the residential market in Europe. So, direct-to-installers, more than 80,000 installer relationships, and we're looking at introducing a secondary brand, potentially the Carrier brand, into that channel. And then there's more we can do with the Toshiba brand in Europe as well. So that's an example, and is there more we can do with the Wiesman brand in places like China or India or the United States and North America? So multi-channel, multi-brand. The second one is just pure innovation. They have – Wiesman has a phenomenal digital tool that they use with their installers.

Speaker Change: <unk> market in Europe, so a direct to installers more than 80000 installer relationships.

Speaker Change: And we're looking at introducing a secondary brand potentially the carrier brand into into that channel and then there's more we can do with the Toshiba brand in Europe as well. So that's an example, and is there more we can do with the <unk> brand in places like China or in India or in the United in the United States and North America, So multichannel multi brand or the <unk>.

Speaker Change: Second one is just pure innovation you know they have a b spin has a phenomenal digital tool that they use with their installers is there more that we can do to drive services growth through the digital tools that we have within carrier or that we have with investment or even some of that heat pump.

David L. Gitlin: Is there more that we can do to drive services growth through the digital tools that we have within Carrier or that we have within Wiesman? Or even some of that heat pump technology? Could you see more air to water in the United States, especially for homes in places like New England that have radiated heat today? Or might we see more of a trend, even though it's a bit of a niche market, around geothermal in the United States? And then the last is what I would call integrated offerings, like complete home energy management systems, which Wiesman does very well today in Europe. Is that an opportunity for us in the United States? And then things like district heating, where we could do a commercial heat pump combined with the apartment transfer units that Wiesman has.

<unk> could you see more ore to water in the United States, especially for homes in places like new England that have radiated heat today or might we see more of a trend even though it's a bit of a niche market around geothermal in the United States and then the last is what I would call. It integrated offerings like complete home energy management systems, which <unk> does very well.

Speaker Change: Today in Europe is that an opportunity for us in the United States and things like district heating, where we could do a a commercial heat pump combined with the apartment transfer units that there'd be some in house. So we see a lot of opportunity we've given a very kind of audacious aggressive target for ourselves internally and as we get some wins on the.

David L. Gitlin: So we see a lot of opportunity. We've set a very kind of audacious, aggressive target for ourselves internally. And as we get some wins on the board, we'll start to dimensionalize that for our investors. Okay, and that's not baked in this year, right, Becca?

Speaker Change: Our board will start to more dimensionalize that for our investors.

Speaker Change: Okay, and Thats baked in this year right Becker correct.

David L. Gitlin: Correct. Thank you. Okay.

Speaker Change: Thank you.

Speaker Change: Yes.

David L. Gitlin: Well, let me wrap things up. First of all, thank you all for joining us. For us, it's a big day. We're actually here at the New York Stock Exchange. We will be a little bit overdue because we were going to ring the bell when we spun as a public company back in 2020, but it was COVID. The New York Stock Exchange was shut down.

Speaker Change: Okay, well, let me let.

Speaker Change: Let me, let me wrap things up first of all thank you all for joining for US. It's a big day, we're actually here on the New York Stock Exchange, we will be.

Speaker Change: A little bit overdue, because we were going to ring. The bell when we spun as a public company back in 2020, but it was Covid The New York Stock Exchange, which was shut down. So we're excited to have our many of our key leaders here with us and will be ringing the.

David L. Gitlin: So we're excited to have many of our key leaders here with us, and we'll be ringing the bell here shortly. We have customers with us in the building today, and we're excited to spend time with them. And we're so excited about not only 2024 but the future of this company. We are so well positioned around this sustainability trend, and I'm so proud of what this team has accomplished since our spin, but I assure you that our best days are ahead.

Speaker Change: The bell here shortly we have customers with us in the building today, which we're excited to spend time with them.

Speaker Change: And we are so excited about not only 2024, but the future of this company we are so well positioned.

Speaker Change: Round, the sustainability trend and I'm. So proud of what this team has accomplished since our spin, but I assure you that our best days are ahead. So thank you all for joining and Sam is always available for questions.

Operator: So thank you all for joining us. And Sam is, as always, available for questions. Thank you for participating. This does conclude the program. You may now disconnect. Everyone have a great day. Thanks for watching!

Speaker Change: Thank you for participating this does conclude the program you may now disconnect everyone have a great day.

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