Q1 2024 Carrier Global Corp Earnings Call

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Samuel Pearlstein: Good morning, and welcome to Carrier's first quarter 2024 earnings conference call. I would like to introduce your host for today's conference, Sam Pearlstein, Vice President of Investor Relations. Please go ahead, sir.

Good morning, and welcome to carriers first quarter 2024 earnings conference call I would like to introduce your host for todays conference Sam Pearlstein, Vice President of Investor Relations. Please go ahead Sir.

Samuel Pearlstein: Thank you and good morning, and welcome to Carrier's first quarter 2024 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.

Samuel Pearlstein: Thank you and good morning, and welcome to carriers first quarter 2024 earnings Conference call with me here today are David <unk>, Chairman and Chief Executive Officer, and Patrick <unk>, Chief Financial Officer 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.

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

Samuel 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 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. Thank you, Sam. Good morning, everyone.

Samuel 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 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 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. Thank you Sam and good morning, everyone. We had an exciting start to the year. We welcomed 12000, new team members from <unk> climate solution to the carrier family made grew.

David L. Gitlin: We've had an exciting start to the year. We welcomed 12,000 new team members from Wiesman Climate Solutions to the Carrier family, made great progress on our business exits, and delivered very strong financial results, positioning us for yet another year of significant margin expansion and solid growth. Starting with the highlights of our strong first quarter results on slide three. On low single-digit organic sales growth, we drove 280 basis points of adjusted margin expansion and 19% adjusted EPS. I am very proud of my team.

David L. Gitlin: Great progress on our business exits and delivered very strong financial results positioning us for yet another year of significant margin expansion and solid growth.

Starting with the highlights of our strong first quarter results on slide three.

David L. Gitlin: And low single digit organic sales growth, we drove 280 basis points of adjusted margin expansion and 19% adjusted EPS growth I am very proud of the team. We have made enormous progress on our lean journey and driving sustained productivity and we're seeing it in our results our formula is.

David L. Gitlin: We have made enormous progress on our lean journey and driving sustained productivity, and we are seeing it in our results. Our formula is working: drive productivity tenaciously, simplify the business, reduce overhead, invest in growth, all while increasing margins. Our performance and transformation all tie to our clear North Star to be the global leader in intelligent climate and energy solutions, and we are making great progress on our vision, as you see on slide four.

David L. Gitlin: Working drive productivity tenaciously simplify the business reduce overhead investing growth all while increasing margins.

David L. Gitlin: Our performance in transformation, all tied to our clear North star to be the global leader in intelligent climate and energy solutions, and we are making great progress on our vision as you see on slide four.

David L. Gitlin: We provide our customers with differentiated sustainability solutions for buildings. Our North American small rooftop units have the highest efficiency in the market with the smallest footprint. Our water-cooled chillers with magnetic bearings provide best-in-class efficiency with the ability to match cooling loads with variable demand during the course of the day.

David L. Gitlin: We provide our customers with differentiated sustainability solutions for buildings are.

David L. Gitlin: Our north American small rooftop units have the highest efficiency and the markets market with the smallest footprint.

David L. Gitlin: Our water cooled chillers with magnetic bearings provide best in class efficiency with the ability to match cooling loads with variable demand during the course of the day.

David L. Gitlin: For homes, Wiesman's newly launched heat pumps expand our addressable market in Europe by approximately $5 billion and, in typical Wiesman fashion, deliver 15 to 25 percent energy savings versus competitors and are the quietest on the market. For the coal chain, our new AG-19 trailer reefer unit reduces fuel consumption by 30% compared to our previous offerings and by 10% compared to our competition and our new Optimaline. The Container Unit consumes roughly 15% less energy than our competitor.

David L. Gitlin: For homes <unk> newly launched heat pumps expand our addressable market in Europe by approximately $5 billion and and typical <unk> fashion deliver 15% to 25% energy savings versus competitors and are the quietest on the market for.

David L. Gitlin: For the cold chain or a new 18, 19 trailer reefer unit reduces fuel consumption by 30% compared to our previous offerings and by 10% compared to our competition and.

David L. Gitlin: And our new optimal line.

David L. Gitlin: Painter unit consumes roughly 15% less energy than our competitors.

David L. Gitlin: Our digital strategy is also a critical enabler and differentiator. For buildings, we now monitor more than 1.2 billion square feet through a bound platform, a 10% increase from last quarter with additional key scale customers attracted to our new net zero feature. For homes, Wiesman's OneBase digital platform is the only home energy management system in the world that integrates space heating and cooling, water heating, solar PV with battery storage with a grid interface.

David L. Gitlin: Our digital strategy is also a critical enabler and differentiator for buildings, we now monitor more than $1 2 billion square feet through about a 10% increase from last quarter with additional key scale customers attracted to our new net zero features for.

David L. Gitlin: <unk> homes <unk>, one based digital platform is the only home energy management system in the world that integrate space heating and cooling water heating solar PV with battery storage with a grid interface.

David L. Gitlin: Both Wiesman's OneBase platform and our North American IntelliSense platform enable early detection of potential malfunctions with notifications to installers, helping address problems before they occur. In the cold chain, we have recently introduced new capabilities to help optimize cooling and thus reduce our customers' operating costs, helping us increase link subscriptions by 50% in just the past year. In summary, we are very pleased with our clear traction as the Global Climate Champions, driven by Technology and Digital Differentiation.

David L. Gitlin: Both <unk> one based platform in our North American intelligence platform enable early detection of potential malfunctions with notifications to installers, helping address problems before they occur.

David L. Gitlin: In the cold chain, we have recently introduced new capabilities to help optimize cooling and thus reduce our customers' operating costs, helping us increase linked subscriptions by 50% in just the past year.

David L. Gitlin: In summary, we are very pleased with our clear traction as the global climate champion driven by technology and digital differentiation.

David L. Gitlin: We also remain very purposeful in driving aftermarket growth, as you see on slide five. In Q1, aftermarket growth was up 6%, led by another quarter of double-digit growth in commercial HVAC, and we remain on track for another year of double-digit growth. We now have about 75,000 chillers under long-term agreements, about 35,000 of which are digitally connected, and our attachment rate reached its highest level ever, 48%. We also connected nearly 5,000 chillers, the highest number in a quarter since our spin four years ago.

David L. Gitlin: We also remain very purposeful in driving aftermarket growth as you see on slide five.

David L. Gitlin: In Q1 aftermarket was up 6% led by another quarter of double digit growth in commercial HVAC.

David L. Gitlin: And we remain on track for another year of double digit growth.

David L. Gitlin: We now have about 75000 chillers under long term agreement about 35000 of which are digitally connected and our attachment rate reached its highest level ever 48%. We also connected nearly 5000 chillers the highest in a quarter since our spin four years ago.

David L. Gitlin: The playbook works, and our KPIs are consistent and cascaded globally, bringing focus and execution to this imperative. We remain committed to our goal of $7 billion in aftermarket revenues by 2026. When we made this projection at our 2022 investor meeting, it assumed a high single to low double digit CAGR. With our planned business exits and now the addition of East, We will divest about $500 million of net aftermarket sales. So to achieve the 2026 target of $7 billion, we now require a low double-digit CAGR. We remain committed to this goal and are accelerating the deployment of our proven playbook to achieve it. Turning to slide six, we could not be more proud of our combination with Wiesman Climate Solutions.

David L. Gitlin: Our playbook works and our Kpis are consistent and cascaded globally, bringing focus and execution to this imperative.

David L. Gitlin: We remain committed to our goal of $7 billion of aftermarket revenues by 2026 when.

David L. Gitlin: When we made this projection at our 2022 Investor meeting it assumed a high single to low high single to low double digit CAGR.

David L. Gitlin: With our planned business exits and now. The addition of Eastman, we will divest about $500 million of net aftermarket sales so to achieve the 2026 target of $7 billion. We now require a low double digit CAGR. We remain committed to this goal and are accelerating the deployment of our proven playbook to achieve it turn.

David L. Gitlin: To slide six.

David L. Gitlin: We could not be more proud of our combination with visa climate solutions.

David L. Gitlin: <unk> and his team have been all in on ensuring that our teams work as one.

David L. Gitlin: Sharing best the best product technology digital solutions supply chain and operational opportunities and working seamlessly on multi brand multichannel strategies globally.

David L. Gitlin: Thomas Haim and his team have been all in on ensuring that our team's work is won. Sharing the best of the best product technology, digital solutions, supply chain, and operational opportunities and working seamlessly on multi-brand, multi-channel strategies globally. Vismint Climate Solutions is a company built on opportunities to leverage its excellence in customer intimacy.

David L. Gitlin: Climate solutions is a company built on excellence. This is a team that loves to win the opportunities to leverage its excellence in customer intimacy product design channel differentiation brand strategy sustainability solutions culture, and talent development and operations will give carrier a clear.

David L. Gitlin: Vantage to sustain differentiation and premier customer satisfaction.

David L. Gitlin: Product design, channel differentiation, brand strategy, sustainability solutions, culture and talent development, and operations will give Carrier a clear advantage to sustain differentiation and premier customer satisfaction. We remain deeply confident in the long-term transition toward electrification and sustained growth in the market. With Germany aiming to become greenhouse gas neutral by 2045 and individual federal states like Bavaria as soon as 2040, discussions in major municipalities have started as to when the supply of natural gas to households will be limited or effectively stopped.

David L. Gitlin: We remain deeply confident in the long term transition towards electrification and sustained growth in the market.

David L. Gitlin: With Germany, aiming to become greenhouse gas neutral by 2045 and individual federal states like Bavaria as soon as 2040 discussions in major municipalities have started as to when the supply of natural gas the households will be limited or effectively stopped.

David L. Gitlin: At the same time two weeks ago, the EU adopted the energy performance of buildings directive under which each member country must adapt its own plan to reduce building energy usage by 20% to 22% by 2035 with at least 55% of the reduction coming from renovations to the worst performing buildings.

David L. Gitlin: At the same time, two weeks ago, the EU adopted the Energy Performance of Buildings Directive, under which each member country must adopt its own plan to reduce building energy usage by 20 to 22 percent by 2035, with at least 55 percent of the reduction coming from renovations to the worst-performing buildings. While the long-term trend toward electrification remains robust, we are clear-eyed about the short-term market headwinds in the European residential market. Despite these headwinds, our team outperformed the end markets in Q1 through share gains, new product introductions, boiler sales, and pricing, and our team is poised to continue doing so for the full year. Beastman sales in Q1 were down 12% overall, more than half of which was driven by lower solar PV sales, which carry lower margins.

David L. Gitlin: While the long term trend towards electrification remains robust we are clear eyed about the short term market headwinds in the European residential market.

David L. Gitlin: Despite these headwinds our team outperformed the end markets in Q1 through share gains new product introductions boiler sales and pricing and our team is poised to continue doing so for the full year.

David L. Gitlin: <unk> sales in Q1 were down 12% overall more than half of which was driven by lower solar PV sales, which carry lower margins.

David L. Gitlin: For the full year, we now see Vcs sales flat to down 5% with Q2 revenues being similar to Q1 and an expected increase in the second half consistent with a typical seasonal pickup.

David L. Gitlin: Though he pump orders in Q1 were down year over year, they were up nearly 60% sequentially and were the highest in a year.

David L. Gitlin: Despite 2022 2020 for sale is expected to be lower than our February guidance, we only see a modest impact to our full year adjusted EPS because the team is driving to offset reduced volume with increased productivity and synergies and favorable mix.

David L. Gitlin: For the full year, we now see VCS sales flattened down 5%, with Q2 revenues being similar to Q1 and an expected increase in the second half consistent with a typical seasonal pickup. Though heat pump orders in Q1 were down year over year, they were up nearly 60% sequentially and were the highest in the year. Despite 2022 and 2024 sales expected to be lower than our February guide, we only see a modest impact on our full year adjusted EPS because the team is driving to offset reduced volume with increased productivity and synergies and favorable mix.

David L. Gitlin: Cost synergies are tracking to about $75 million in 2024 and over $200 million by year three.

David L. Gitlin: First actions position us for higher earnings conversion when the broader market recovers.

David L. Gitlin: We also remain very encouraged by revenue synergies, which we believe will be in the hundreds of millions of dollars.

David L. Gitlin: So we could not be more excited by the opportunities presented by this game changing combination.

Speaker Change: Let me shift gears and talk about the unique opportunity presented by data centers as you see on slide seven.

Speaker Change: Over the past three years, we've capitalized on this important opportunity by securing key wins with scale customers globally.

Speaker Change: AI movement is driving hyper and sustained growth in this space not only driving data center growth, but also an outsized opportunity for cooling providers given that AI chips drive seven ex the heat generation versus traditional chips.

David L. Gitlin: Cost synergies are tracking to about $75 million in 2024 and over $200 million by year three. The cost actions position us for higher earnings conversion when the broader market recovers. We also remain very encouraged by revenue synergies, which we believe will be in the hundreds of millions of dollars. Consequently, we could not be more excited by the opportunities presented by this game-changing combination.

Speaker Change: Today, It makes up about 20% of the load of a typical data center and some of our customers project that percentage to increase to 80% in the next few years, thus putting huge demand on the grid and increasing the need for differentiated HVAC and controls solutions.

Speaker Change: Accordingly, the datacenter market for the HVAC business is projected to increase from roughly $7 billion in 2023 to $15 billion to $20 billion in 2027.

David L. Gitlin: Let me shift gears and talk about the unique opportunity presented by data centers, as you see on slide 7. Over the past three years, we've capitalized on this important opportunity by securing key wins with large customers globally. The AI movement is driving hyper and sustained growth in this space, not only driving data center growth but also an outsized opportunity for cooling providers, given that AI chips drive 7x the heat generation versus traditional chips.

Speaker Change: For us this vertical represents a low double digit percentage of our global commercial HVAC applied business and we see a tremendous opportunity of increasing this segment to well over 20% of our commercial HVAC sales in the next few years.

Speaker Change: We doubled our backlog in Q1 alone and in April secured further key wins as we optimize the use of our global footprint to support our customers.

Speaker Change: Turning to our transformation updates on slide eight.

In addition to the <unk> integration our business exits also continue to progress well, we are moving with speed and maximizing shareholder value.

David L. Gitlin: Today, AI makes up about 20% of the load of a typical data center, and some of our customers project that percentage to increase to 80% in the next few years, thus spurring huge demand on the grid and increasing the need for differentiated HVAC and control solutions.

Speaker Change: In March we announced the definitive agreement for the sale of industrial fire for $1 4 billion in gross proceeds. This deal is expected to close in early <unk>.

Speaker Change: We now have definitive agreements for three of our four business exits and are within a couple of weeks are issuing our offering memorandum to prospective buyers for our residential and commercial fire business we.

David L. Gitlin: Accordingly, the data center market for the HVAC business is projected to increase from roughly $7 billion in 2023 to $15 to $20 billion in 2027. For us, this vertical represents a low double-digit percentage of our global commercial HVAC-applied business. And we see a tremendous opportunity to increase this segment to well over 20% of our commercial HVAC sales in the next few years. We doubled our backlog in Q1 alone and in April secured further key wins as we optimized the use of our global footprint to support our customers.

Speaker Change: We are targeting to close that deal by the end of this year.

We are focused but not finished the entire team remains extremely energized as we draw.

Speaker Change: Closer to becoming a higher growth simpler leaner a pure play climate champion the pace of our transformation and the net proceeds put us on track to achieve about a two <unk> net leverage ratio this year and resume share repurchases in 2024 with that let me turn this over to Patrick Patrick.

Patrick: Thank you, Dave and good morning, everyone.

Patrick: Please turn to slide nine.

Patrick: We had a good start to the year Q1 earnings were well ahead of our expectations in the guide we provided in February <unk>.

Patrick: Reported sales of $6 $2 billion were up 17% with organic sales up 2%.

David L. Gitlin: Turning to our transformation updates on slide eight, in addition to the Viestman integration, our business exits also continue to progress well. We are moving with speed and maximizing shareholder value. In March, we announced a definitive agreement for the sale of Industrial Fire for $1.4 billion in gross proceeds.

Patrick: And a 15% net contribution from acquisitions and divestitures substantially all of these climate solutions.

Q1, adjusted operating profit of $927 million was up 44% compared to last year, driven by favorable price and productivity and the contribution of Eastman climate solutions, partially offset by investments.

Patrick Goris: This deal is expected to close in early 3Q. We now have definitive agreements for three of our four business exits and are, within a couple of weeks, issuing or offering memorandums to prospective buyers for our residential and commercial fire business. We are targeting to close that deal by the end of this year. We are focused, but not finished. The entire team remains extremely energized as we draw closer to becoming a higher growth, simpler, leaner, pure play climate champion.

Patrick: Strong price and productivity also drove adjusted operating margin expansion of 280 basis points compared to last year. Despite the about 50 basis point dilutive impact from <unk>.

Core earnings conversion that is excluding the impact of acquisitions divestitures and currency was well over 100% in the quarter.

Patrick: Adjusted EPS of <unk> 62 was up 19% year over year and was well ahead of our Q1 guide of 50.

Patrick: March was particularly strong representing 50% of Q1 earnings.

Patrick Goris: The pace of our transformation and the net proceeds put us on track to achieve about a 2x net leverage ratio this year and resume share repurchases in 2024. With that, let me turn this over to Patrick.

Patrick: Compared to last year price and productivity more than offset the impact of increased investments and the expected <unk> <unk> dilution from recent climate solutions.

Patrick: We have included a year over year adjusted EPS bridge in the appendix on slide 23.

Patrick: Compared to our Q1 expectations productivity came in stronger and we benefited from the timing of a few items including tax.

Patrick Goris: Thank you, Dave, and good morning, everyone. Please turn to slide 9. We had a good start to the year. Q1 earnings were well ahead of our expectations in the guide we provided in February. Reported sales of $6.2 billion were up 17%, with organic sales up 2%, and a 15% net contribution from acquisitions and divestitures, largely all Wiesman Climate Solutions.

Patrick: <unk> to about five.

Patrick: Free cash flow free cash outflow of $64 million was in line with typical seasonality and also reflects payments of M&A related fees.

Patrick: Moving on to the segments starting on slide 10.

Patrick: HVAC reported sales growth of 25% reflects the contribution of Eastman climate solutions, and 2% organic sales growth.

Patrick Goris: Q1 adjusted operating profit of $927 million was up 44% compared to last year driven by favorable price and productivity and the contribution of Eastman Climate Solution, partially offset by investment. Strong price and productivity also drove adjusted operating margin expansion. [inaudible] Core Earnings Conversion, that is, excluding the impact of acquisitions, divestitures, and currency was well over 100% in the quarter.

Patrick: Organic sales in the Americas were up mid single digits, driven by continued strength in commercial and light commercial each up around 20%.

Patrick: This was partially offset by a low single digit decline in resi.

Patrick: North America Resi volume was down mid single digits as we guided.

Patrick: We expect volume to be up year over year in each of the remaining quarters.

Patrick: Organic sales in EMEA were down high single digits, driven by significant weakness in rescue light commercial while commercial sales in EMEA remained strong and were up around 10%.

Patrick Goris: Adjusted EPS of $0.62 was up 19% year-over-year and was well ahead of our Q1 guide of $0.50. March was particularly strong, representing 50% of Q1 earnings. Compared to last year, price and productivity more than offset the impact of increased investments and the expected six-cent dilution from Wiesman Climate Solutions. We have included a year-over-year adjusted EPS bridge in the appendix on slide 23. Compared to our Q1 expectations, productivity came in stronger, and we benefited from the timing of a few items, including tax, amounting to about five cents. Free cash outflow of $64 million was in line with typical seasonality and also reflects payments of M&A-related fees.

Sales in Asia Pacific were flat with growth in China, offsetting a decline in Japan as we continue to improve our mix in the country.

Patrick: This segment had very strong quarter at a very strong quarter with a 240 basis point adjusted operating margin expansion due to price and strong productivity and despite the consolidation of Eastman climate solutions, that's negatively impacted margin by about 80 basis points.

Patrick: Vcs earnings were broadly in line with our expectations with favorable mix productivity and synergies offsetting the impact of lower than expected sales.

Patrick: An excellent quarter for HVAC and based on first quarter operational performance. We now expect 2020 for full year HVAC segment margins to be up to be about 17, 5% up about 100 basis points compared to last year.

Patrick: Transitioning to refrigeration on slide 11, both reported and organic sales were down 2%.

Patrick: Within transport.

Patrick: <unk> was up over 50% year over year, and global truck and trailer was down low teens, driven by driven by North America truck and trailer, which was down about 25%, reflecting overall demand.

Patrick Goris: Moving on to the segments, starting on slide 10, HVAC reported sales growth of 25% reflects the contribution of Viesman Climate Solutions and 2% organic sales growth. Organic sales in the Americas were up mid-single digits, driven by continued strength in commercial and light commercial, each up around 20%. This was partially offset by a low single-digit decline in residences.

Patrick: Elevated field inventories.

Patrick: As a reminder, <unk>.

Patrick: North America truck and trailer was up over 40% in last year's Q1.

Patrick: European truck and trailer was flat and Asia trucking thriller was up a strong 20%.

Patrick: Our center Tech business, which.

Patrick: To provide solutions for tracking and monitoring performance.

Temperature was up mid single digits commercial refrigeration was down low single digits year over year.

Patrick Goris: North America Resi volume was down mid-single digits, as we guided, and we expect volume to be up year-over-year in each of the remaining quarters. Organic sales in EMEA were down high single digits, driven by significant weakness in Resulite commercial, while commercial sales in EMEA remained strong and were up around 10%. Sales in Asia Pacific were flat, with growth in China offsetting a decline in Japan as we continue to improve our mix in that country.

Patrick: We now expect refrigeration segment to be up low single digits in 2020 for organically.

Patrick: Adjusted operating margin was down 120 basis points compared to last year.

Patrick: This was mainly due to the absence of a $24 million gain related to a sale in last year's first quarter.

Excluding that gain Q1, adjusted operating margins were up 150 basis points year over year, driven by price and productivity.

Patrick Goris: This segment had a very strong quarter with a 240 basis point adjusted operating margin expansion. However, due to price and strong productivity and despite the consolidation of Eastman Climate Solution, that negatively impacted margins by about 80 basis points. VCS earnings were broadly in line with our expectations with favorable mixed productivity and synergies offsetting the impact of lower than expected sales, an excellent quarter for HVAC, and based on first quarter operational performance. We now expect 2024 full year HVAC segment margins to be up, to be about 17.5%, up about 100 basis points compared to last year. Transitioning to refrigeration on slide 11. Both reported and organic sales were down 2%.

Patrick: Moving on to fire <unk> security on slide 12.

Patrick: This segment had strong financial performance in the quarter reported sales were up 2% with 7% organic sales growth, partially offset by a 5% headwind from the <unk> deconsolidation.

The residential and commercial fire business was up mid single digits.

Patrick: Adjusted operating profit was up over 50% versus the prior year and adjusted operating margins were up a significant 610 basis points year over year as volume growth strong productivity and currency more than offset the headwinds of the KFI exit.

Patrick: <unk> a very good quarter for this segment.

Patrick: Turning to slide 13.

Patrick: Total company orders were down about 7% in the quarter, mostly driven by North America truck and trailer orders due to a tough compare.

Patrick: In Q1 of 2023, North America truck and trailer trailer orders were up 50% year over year five zero.

Patrick Goris: Within transport, the container was up over 50% year over year, and global truck and trailer was down in the low teens, driven by North America truck and trailer, which was down about 25%, reflecting overall demand and Elevated Field Inventory. As a reminder, North America truck and trailer was up over 40% in last year's Q1. European truck and trailer was flat, and Asian truck and trailer was up a strong 20%. Our Sensi-Tech business, which provides solutions for tracking and monitoring performance at temperature, was up mid-single digits. Commercial refrigeration was down low single digits year over year.

Patrick: Excluding North America truck and trailer carriers organic orders were flattish in Q1.

Patrick: Overall, HVAC orders were down between zero and 5% in the quarter within the Americas commercial orders were up mid single digits, and North America Resi orders had a second consecutive quarter of year over year growth.

Patrick: Light commercial orders were down roughly 35% as order rates are impacted by lead time and a tough compare.

EMEA commercial orders were up almost 30% with applied equipment orders up around 60%, including an over 45% increase in data center orders.

Organic recipe unlike commercial order intake in EMEA remains very weak.

Within Asia weak orders in Japan offset growth in other regions.

Patrick: Globally commercial HVAC orders were up about 10% and the backlog for that business continues to grow year over year and sequentially.

Patrick Goris: We now expect the refrigeration segment to be up low single digits in 2024 organically. Adjusted operating margin was down 120 basis points compared to last year, but this was mainly due to the absence of a $24 million gain related to a sale in last year's first quarter.

Patrick: Refrigeration orders were down about 25% to 30% in the quarter, mostly driven by the over 40% decline in global truck and trailer, reflecting reflecting the trends in North America, I mentioned earlier, along with growth in Europe and Asia.

Patrick: This was only partially offset by continued growth in orders in the container business.

Patrick: Orders were up high teens.

Patrick Goris: Excluding that gain, Q1 Adjusted Operating Margins were up 150 basis points year over year driven by price and productivity. Moving on to fire and security, on slide 12, this segment had strong financial performance in the quarter. Reported sales were up 2%, with 7% organic sales growth partially offset by a 5% headwind from the KFI deconsolidation.

Patrick: Orders in fire and security were flat.

Patrick: Turning to slide 14 guidance.

Patrick: Compared to our prior guidance the only change with respect to exits is that industrial fire is now included for the first half of the year.

Patrick: Our prior guidance included a full year of industrial fire as no definitive agreements had been announced at that time.

Patrick: So all three announced exits access solutions commercial refrigeration and industrial fire are now included for the first half only of our 2020 for full year guidance.

Patrick Goris: The residential and commercial fire business was up mid-single digit. Adjusted operating profit was up over 50% versus the prior year, and adjusted operating margins were up a significant 610 basis points year-over-year as volume growth, strong productivity, and currency more than offset the headwind of the KFI exit. Overall, a very good quarter for this segment. Turning to slide 13.

Taking that into account, we now expect reported full year sales of a little less than $26 billion.

Patrick: Earlier business exit timing represents roughly $400 million of the reduction and currency translation another $100 million.

Patrick: Lower expected revenue at least in the climate solutions is roughly offset by expected upside in light commercial and commercial HVAC.

The underlying organic growth rate in our guidance remains therefore unchanged at mid single digits.

Patrick Goris: Total company orders were down about 7% in the quarter, mostly driven by North America truck and trailer orders due to a tough compare. In Q1 of 2023, North America truck and trailer orders were up 50% year-over-year, 5-0. Excluding North America Truck and Trailer, Carrier's organic orders were flat as in Q1.

Patrick: We are increasing our adjusted operating margin guidance to roughly 15, 5% driven by the strong earnings performance in Q1.

Patrick: We now expect full year earnings conversion to be north of 40%.

Patrick: Interest expense will be about $25 million lower given the redeployment of the net proceeds from the industrial fire sale.

Patrick: We are maintaining our adjusted EPS guidance range. Despite the earlier exit of industrial fire, which is a <unk> <unk> headwind given stronger performance in our core business.

With the strong performance in Q1, and the exit of industrial fired in the second half. We now expect roughly 50% of full year adjusted EPS to be realized in the first half of the year.

Patrick Goris: Overall, HVAC orders were down between 0% and 5% in the quarter. Within the Americas, commercial orders were up mid-single digits, and North America Resi orders had a second consecutive quarter of year-over-year growth. Light commercial orders were down roughly 35% as order rates are impacted by lead times and a tough compare.

Patrick: Before I get to free cash flow I'd like to remind you that proceeds from the sale of businesses are reflected in cash flow from investing and therefore do not impact free cash flow.

Patrick: However, the tax payments on the gains on the sale of businesses are reflected in cash flow from operations and therefore do impact free cash flow.

Patrick Goris: EMEA commercial orders were up almost 30%, with applied equipment orders up around 60%, including an over 45% increase in data center orders. However, organic residue and light commercial order intake in EMEA remains very weak. Within Asia, weak orders in Japan offset growth in other regions.

Patrick: Whereas this of course does not impact overall cash performance for the company it does impact our free cash flow metric.

Patrick: Our free cash flow outlook is now $400 million.

Patrick: Reflecting above about $2 billion of tax payments on gains from the business exits and transaction related costs.

Patrick: So no change in the $2 4 billion underlying free cash flow performance versus the prior guide.

Patrick Goris: Globally, commercial HVAC orders were up about 10%, and the backlog for that business continues to grow year over year and sequentially. Refrigeration orders were down about 25 to 30 percent in the quarter, mostly driven by the over 40 percent decline in global truck and trailer orders, reflecting the trends in North America I mentioned earlier, along with growth in Europe and Asia. This was only partially offset by continued growth in orders in the container business, where orders were up in the high teens.

Patrick: The lower free cash flow outlook only reflects expected tax payments on the now announced industrial fire sale.

Patrick: Moving on to Slide 15, adjusted EPS Guide to guide bridge as you can see our adjusted EPS Guide at the midpoint remains $2 85.

Patrick: With stronger operational performance offsetting the <unk> impact of the earlier exit of industrial fire and the impact of lower expected sales of decent climate solutions.

Patrick: Dark blue represents the businesses, we are retaining including recent climate solutions, whereas the lighter blue represents the adjusted EPS contribution from the businesses we are exiting.

Patrick Goris: Orders for fire and security products, we're flat. Turning to slide 14, Guidance. Compared to our prior guidance, the only change with respect to exits is that industrial fire is now included for the first half of the year. Our prior guidance included a full year of industrial fire, as no definitive agreement had been announced at that time.

Patrick: At the midpoint of our new guidance core adjusted EPS increased <unk> <unk> compared to our February guidance to $2 60.

Patrick: In the appendix on Slide 24, you will find a year over year adjusted EPS bridge at guidance midpoint.

Patrick: Given the tremendous transformation in the portfolio. This year slide 16, maybe a helpful framework for 2025.

Patrick Goris: So all three announced exits, access solutions, commercial refrigeration, and industrial fire, are now included for the first half only of our 2024 full year guidance. Taking that into account, we now expect reported full year sales of a little less than $26 billion. Earlier business exit timing represents roughly $400 million of the reduction, and currency translation another $100 million. Lower expected revenue at Wiesman Climate Solutions is roughly offset by expected upside in light commercial and commercial HVAC. The underlying organic growth rate in our guidance remains, therefore, unchanged at mid-single digits.

Patrick: We start with the baseline of $2 60 from the core business at the midpoint of our 2020 for guidance.

Patrick: In addition to our double digit adjusted EPS growth targets from our value creation framework, we expect another half year benefit from deploying the proceeds of industrial fire towards debt reduction.

Patrick: In addition to that net proceeds from the exit of commercial and residential fire would be available for deployment, including for buybacks.

Patrick: Finally, an additional lever is 2024 and 2025 free cash flow funded share repurchases.

Patrick: All of this is consistent with our prior messaging that we intend to repurchase at least the equivalent $58 6 million shares issued to the <unk> family, while maintaining a solid investment grade credit rating.

Patrick Goris: We are increasing our adjusted operating margin guidance to roughly 15.5%, driven by the strong earnings performance in Q1. We now expect full-year earnings conversion to be north of 40%. Interest expense will be about $25 million lower given the redeployment of the net proceeds from the industrial fire sale.

Patrick: In short we have several levers available to deliver meaningful adjusted EPS growth in 2025 and beyond with that I'll turn it back over to Dave for Slide 17. Thanks, Patrick we delivered very strong results in the first quarter and are confident that we will continue to perform while we transform with the integrate.

Patrick Goris: We are maintaining our adjusted EPS guidance range despite the earlier exit of the industrial fire, which is a 5 cent headwind, given stronger performance in our core business. With the strong performance in Q1 and the exit of the industrial fire in the second half, we now expect roughly 50% of full-year adjusted EPS to be realized in the first half of the year. Before I get to free cash flow, I'd like to remind you that proceeds from the sale of businesses are reflected in cash flow from investing and therefore do not impact free cash flow. However, the tax payments on the gains on the sale of businesses are reflected in cash flow from operations and therefore do impact free cash flow.

<unk> of easement climate solutions, the completion of our exits and the superb progress on our base business, we continue to position ourselves as the global leader in intelligent climate and energy solutions and with that we'll open this up for questions.

Speaker Change: Thank you if you'd like to ask a question. Please press star one one if your question has been answered and you'd like to remove yourself from the queue. Please press star one again.

Speaker Change: First question comes from Julian Mitchell with Barclays. Your line is open.

Julian Mitchell: Hi, good morning.

Julian Mitchell: Thanks for distilling a lot of moving parts simply this morning.

Julian Mitchell: In terms of I guess, the first question maybe on Vcs No surprise, you talked about sales down.

Patrick Goris: Whereas this, of course, does not impact overall cash performance for the company, it does impact our free cash flow metric. Our free cash flow outlook is now $400 million, reflecting about $2 billion of tax payments on gains from business exits and transaction-related costs. So there was no change in the $2.4 billion underlying fee cash flow performance versus the prior guide. The lower free cash flow outlook only reflects expected tax payments on the now-announced industrial fire sale.

Julian Mitchell: Low double digits in Q1, and sort of down low single digits.

For the full year as a whole.

Julian Mitchell: Maybe help us understand sort of.

Julian Mitchell: Year on year, how we should think about the second quarter playing out.

Julian Mitchell: Within that.

Julian Mitchell: And then for the year as a whole.

Julian Mitchell: How much of that decline is driven by that solar PV.

Business as opposed to the sort of core HVAC part of ECS.

Speaker Change: Sure Julian let me start and Patrick can add.

Patrick Goris: Moving on to slide 15, Adjusted EPS Guide to Guide Bridge. As you can see, our adjusted EPS guide at the midpoint remains $2.85, with stronger operational performance offsetting the 5 cent impact of the earlier exit from the industrial fire and the impact of lower expected sales of decent climate solutions. The darker blue represents the businesses we are retaining, including Veachman Climate Solutions, whereas the lighter blue represents the adjusted EPS contribution from the businesses we are exiting. At the midpoint of our new guidance, core adjusted EPS increases 5 cents compared to our February guide to $2.60.

Julian Mitchell: Well, we did say actually flat to down.

Julian Mitchell: Mid single digits for the full year of previously of course up mid single digits. We expect for Q2 will be the absolute sales number should be about the same as Q1, which in that case.

Julian Mitchell: Would put Q2 year over year down about 10% to 15%.

Julian Mitchell: Our forecast assumes in the second half that revenue would be up about 20% compared to the first half. So this would be typical seasonality if that were to happen that would cause us to be down about 5% for the year, if orders pick up and we see better than seasonality pick up in the second.

Julian Mitchell: Half, then we would get closer to flat as.

Julian Mitchell: As we think about the full year we.

Patrick Goris: In the appendix on slide 24, you will find the year-over-year adjusted EPS bridge at guidance midpoint. Given the tremendous transformation in the portfolio this year, slide 16 may be a helpful framework for 2025. We start with a baseline of $2.60 from the core business at the midpoint of our 2024 guidance. In addition to our double-digit Adjusted EPS Growth Target from our Value Creation Framework, we expect another half year benefit from deploying the proceeds of industrial fires towards death reduction. In addition to that, net proceeds from the exit of commercial and residential fires would be available for deployment, including for buyback.

We still expect positive growth in heat pumps, that's probably up in the mid single digit range, we do see boilers down probably in the low double digit range you asked about solar PV that that's probably down.

Julian Mitchell: More than 30% for the year, which as we said has lower margins and Thomas and the team are doing a superb job with aftermarket that was up mid teens in the first quarter and we think that will continue for the full year.

Julian Mitchell: Yes.

Speaker Change: That's very helpful. Thank you and then just a quick follow up on the HVAC segment. So I think Patrick you talked about the full year margins in HVAC being up about 100 points year on year.

Patrick Goris: Finally, an additional lever is the 2024 and 2025 free cash flow funded share repurchase. All of this is consistent with our prior messaging that we intend to repurchase at least the equivalent 58.6 million shares issued to the Wiesman family while maintaining a solid investment grade credit rating. In short, we have several levers available to deliver meaningful adjusted EPS growth in 2025 and beyond. With that, I'll turn it back over to Dave on slide 17.

Speaker Change: Is that kind of.

Speaker Change: Similar year on year rate, we should expect each quarter for that.

Speaker Change: Balance of the year.

Speaker Change: Just wondered if you had made any changes to the assumptions within HVAC I think you called out stronger growth assume now light and applied commercial HVAC.

Patrick: Yes overall for the year compared to our earlier guidance, we think light commercial and commercial HVAC will be a little bit better.

Patrick: In terms of the year over year margin.

David L. Gitlin: Thanks, Patrick. We delivered very strong results in the first quarter and are confident that we will continue to perform while we transform. With the integration of Eastman Climate Solutions, the completion of our exits, and the superb progress on our base business, we continue to position ourselves as the global leader in intelligent climate and energy solutions. And with that, we'll open this up to questions. Thank you. If you would like to ask a question, please press star 11. If your question has not been answered and you would like to remove yourself from the queue, please press star 11 again.

Patrick: For HVAC as a segment, we do expect.

Patrick: Q2 to be up about 100 basis points year over year.

Patrick: Q3 will probably be somewhat similar in that we expect Q4 to be better year over year as well.

Great. Thank you.

Speaker Change: Thanks Julien.

Speaker Change: Thank you. Our next question comes from Jeffrey Sprague with vertical research partners. Your line is open.

Hey, Thank you good morning, everyone.

Jeffrey Todd Sprague: Hey, Hey, good morning.

Jeffrey Todd Sprague: Interesting to hear.

Jeffrey Todd Sprague: In commercial fire now prioritizing sale.

Jeffrey Todd Sprague: Year end close right. So it sounds like you're close to something.

Jeffrey Todd Sprague: So maybe you could address that and is there something happening on PFS to kind of expedite this and get it to kind of a.

Unknown Executive: Our first question comes from Julian Mitchell with Barclays. Your line is open. Hi, good morning, and thanks for distilling a lot of moving parts succinctly this morning. In terms of, I guess, the first question, maybe on VCS, no surprise, you talked about sales down low double digits in Q1 and sort of down low single digits for the full year as a whole. Maybe it could help us understand, sort of year on year, how we should think about, you know, the second quarter playing out within that.

Jeffrey Todd Sprague: Sale process second close obviously, we all saw ACI settled something in the MTL a couple of weeks ago.

Speaker Change: Yes look we feel that we have been progressing with PFS very well the chapter 11 with Caf II is gone.

Speaker Change: Exactly kind of as we expected and gone well and we've been in mediation with the plaintiffs and thats been progressing well so.

We looked at the <unk> of course their settlement was for the water claims.

Unknown Executive: And then for the year as a whole, you know, how much of that decline is driven by that solar PV business as opposed to the sort of core HVAC part of VCS. Sure, Julian, let me start, and Patrick can add.

Speaker Change: Cases, it didnt cover pie, but I think in terms of us.

Speaker Change: We're very pleased overall with the progress that our legal team has been making on PFS and then in terms of the sale of our residential and commercial fire business, we should be in the market with an offering memorandum probably in two weeks.

David L. Gitlin: Well, we did say actually flat to down mid-single digits for the full year, previously, of course, up mid-single digits. We expect for Q2 that the absolute sales number will be about the same as Q1, which in that case would put Q2 year-over-year down about 10 to 15 percent. Our forecast assumes that in the second half, revenue would be up about 20% compared to the first half. So this would be typical seasonality. If that were to happen, it would cause us to be down about 5% for the year.

Speaker Change: The business is performing extremely well the EBITDA this year is tracking.

Speaker Change: Much higher than it was.

Speaker Change: Last year and it's progressing.

Speaker Change: The business is performing well and for a whole variety of reasons. We're prioritizing. So we're not excluding the possibility of a public market exit, but we're prioritizing a sale we should be in the market with the offering memorandum and a couple of weeks and we are hoping to close by the end of this year.

Speaker Change: Great.

Speaker Change: The biggest question I did on the carrier actually maybe hits, a little close to home but.

Speaker Change: Dave you have a recent.

David L. Gitlin: If orders pick up and we see better than seasonality pickup in the second half, then we would get closer to flat. You know, as we think about the full year, we still expect positive growth in heat pumps. That's probably up in the mid-single-digit range. We do see boilers down, probably in the low-double-digit range. You asked about solar PV.

Dave: Kind of deal with the company incentive program and the like.

Speaker Change: Are you there for good as the door still cracked open to consider something else.

Speaker Change: Every other day I get asked if youre going to Boeing.

Dave: Well Jeff.

Dave: Frankly, I'm really glad you asked that because I do want to address it head on and I want to be clear of that.

Dave: Look I have notified both our board and the Boeing Board that I am 100% committed to carrier I'm really honored to be on the Boeing Board I'll do everything I can to support that.

David L. Gitlin: That's probably down more than 30 percent for the year, which, as we said, has lower margins. And Thomas and the team are doing a superb job with the aftermarket. You know, that was up mid-teens in the first quarter, and we think that will continue for the full year. That's very helpful.

Dave: Important company as a board member, but given my commitment to carrier I've removed my name from consideration as a potential CEO of Boeing and Im not only committed to carrier I have to tell you I'm. So excited to be part of this journey I mean rarely in your career or do you get to be part of such a transformational journey and.

Unknown Executive: And then just a quick follow-up on the HVAC segment. So I think, Patrick, you talked about the full-year margins in HVAC being up about 100 points year on year. Is that kind of a similar year on year rate we should expect, you know, each quarter for the balance of the year? And just wondered if you'd made any changes to the assumptions within HVAC.

I don't know what inning, we're in but we're in the early innings on what I think will go down as one of the biggest transformations ever and I'm. So excited to be on the journey with.

Dave: 70000, or so team members that carrier, so I'm staying put 100% committed to carrier and I do appreciate you asking that Jeff. Thank you.

Speaker Change: Great. Thanks for the answer thank you.

Speaker Change: Thank you. Our next question comes from Andy Kaplowitz with Citigroup. Your line is open.

Patrick Goris: I think you called out stronger growth assumed now for light and applied commercial HVAC. Yeah, overall for the year, compared to our earlier guide, we think light commercial and commercial HVAC will be a little bit better. In terms of the year-over-year margin for HVAC as a segment, we do expect Q2 to be up about 100 basis points year-over-year. Q3 will probably be somewhat similar, and then we expect Q4 to be better year-over-year as well. Great, thank you. Thanks, Julian.

Andrew Alec Kaplowitz: Hey, good morning, guys good.

Andrew Alec Kaplowitz: Good morning, good morning, Andy.

Andrew Alec Kaplowitz: Doug a bit data centers low double digits.

Andrew Alec Kaplowitz: Global HVAC sales could be 20% overtime I think you said that data center doubled this quarter in terms of backlog. So could you talk a little bit more about cash position in the data center market. Maybe what you think your share is where carriers in terms of liquid cooling and how to think about the shape of bookings going forward is 24 evolves do you see data.

Andrew Alec Kaplowitz: Senate bookings continue to increase from what you booked in Q1.

Speaker Change: Yes, I think frankly, we got some really good quarters Andy.

Speaker Change: Just even a couple of weeks ago in April. So this is a unique moment in time, it's exponential today I.

Speaker Change: I would say in the U S. We have low share.

Unknown Executive: Thank you. Our next question comes from Jeffrey Sprague with Vertical Research Partners. Your line is open. Hey, thank you. Good morning, everyone. Good morning, Jeff. Hey, good morning.

Speaker Change: This is both for water cooled and air cooled Chillers, but we think we're incredibly well positioned from a technology perspective, the key for US has not been technology. It's all been about expanding our capacity. So we're maxing out.

David L. Gitlin: Dave, interesting to hear Resi and Commercial Fire now prioritizing sale with a kind of year-end close, right? So, it sounds like you're close to something, and so maybe you could address that. And, you know, is there something happening on PFAS to kind of expedite this and get it to kind of a sale process that can close? Obviously, we all saw JCI settled something in the MDL a couple weeks ago

Speaker Change: All of our facilities globally, and we're also going to be.

Speaker Change: Expanding our capabilities to support this in Mexico as well so we our focus is making sure. We're therefore, the all of our customers.

Speaker Change: Especially some of the scale customers that are really leaning into this it's not like anything we've seen in some cases, we sell.

A few water cooled chillers at a time and here, we're looking at selling hundreds in a single order. So we feel very well positioned we see the growth being exponential we've invested.

David L. Gitlin: Yeah, look, we feel that we've been progressing with PFAS very well. You know, Chapter 11 with KFI is gone. [inaudible] We're very pleased overall with the progress that the legal team has been making on PFAS. And then, in terms of the sale of our residential and commercial fire business, we should be in the market with an offering memorandum probably within two weeks. The business is performing extremely well. The EBITDA this year is tracking higher, much higher than it was.

Speaker Change: In.

Speaker Change: In our liquid cooling, we made a VC type investment in <unk>, which is strategic thermal labs. So that's really positioning us for the liquid cooling space for direct to chip cooling, we're seeing strength globally, probably 70% of our sales are in North America, but we've done extremely well both in Asia.

David L. Gitlin: Last year, and it's progressing. The business is performing well, and for a whole variety of reasons, we're prioritizing sale. We're not excluding the possibility of a public market exit, but we're prioritizing sale. We should be in the market with the offering memorandum in a couple weeks, and we're hoping to close by the end of this year. And, I mean, the biggest question I get on Carrier actually maybe hits a little close to home.

And in Europe, and this is a market that we have a dedicated tiger team strictly focus on this space because it is such a unique moment in time.

Speaker Change: Very helpful and Dave maybe you could give us just a little more color into the productivity drove in Q1.

Dave: Youre thinking for the rest of the year I know you've guided to 30% incrementals in the past, but obviously you did a 100% there.

I understand you raised your margin guidance, but how sustainable is that kind of productivity acceleration you saw in Q1 and <unk>.

David L. Gitlin: But Dave, you have a recent, you know, kind of deal with the company and center program and the like. You know, are you there for good? Is the door still cracked open to consider something else?

Given rising material cost how do you think about sort of the offset there with pricing.

Dave: Yes, I have to tell you that you know Adrian button operations team working with our businesses. It is the best that I have felt since I've been at carrier about our ability to achieve sustained productivity. We have one single source of the truth every single one of our productivity actions globally is in one database, we can sorted 'twenty.

David L. Gitlin: Every other day, I get asked if you're going to Boeing. Well, Jeff, I'm really glad you asked that because I do want to address it head-on. And I want to be clear that, look, I've notified both our board and the Boeing board that I am 100% committed to Carrier. I'm really honored to be on the Boeing board. I'll do everything I can to support that important company as a board member. But given my commitment to Carrier, I've removed my name from consideration as a potential CEO of Boeing.

Dave: 20 different ways, we all are marching to the beat of the same drum I would say materials is doing particularly well that's probably 50% of our productivity logistics is still tailwind, that's probably 10 or so percent, we're really taking out a lot of overhead which is a significant piece in the factories are now resuming to productivity. After a couple of <unk>.

Dave: Years of negative productivity so.

David L. Gitlin: And I'm not only committed to Carrier, I have to tell you; I'm so excited to be part of this journey. How rarely in your career do you get to be part of such a transformational journey? And you know, I don't know what inning we're in, but we're in the early innings of what I think will go down as one of the biggest transformations ever. And I'm so excited to be on the journey with 70,000 or so team members at Carrier. So I'm staying put 100% committed to Carrier, and I do appreciate you asking that, Jeff. Great. Thanks for the answer.

Dave: We're also coming into the year and every quarter with a lot more productivity spoken for so I feel a tremendous about the progress yes, we've seen some copper headwind prices getting up to like $4 50, but we got a little bit of offset from steel and aluminum. So I think we're very we're probably about half hedged on copper for the year. So.

Dave: I feel very very very well calibrated on the year on productivity and also calibrated as we go forward beyond this.

Speaker Change: I appreciate the color guys.

Speaker Change: Thanks, Andy.

Thank you. Our next question comes from Tommy Moll with Stephens, Inc. Your line is open.

Unknown Executive: Thank you. Thank you. Our next question comes from Andy Kaplowitz with Citigroup. Your line is open.

Thomas Moll: Good morning, and thank you for taking my questions.

Thomas Moll: Tommy Good morning.

Thomas Moll: Dave I wanted to start with an update on <unk>, what can you give us there in terms of when you plan to start ramp production.

David L. Gitlin: Hey, good morning, guys. Good morning. We talked about data centers, low double digits of global HVAC sales, could be 20% over time. I think you said that data centers doubled this quarter in terms of backlog, so could you talk a little bit more about carriers' position in the data center market, maybe what you think your share is, where carriers are in terms of liquid cooling, and how to think about the shape of bookings going forward as 24 evolves. Do you see data center bookings continuing Yeah, I think, you know, Frankly, we got some really good quarters, Andy, and just even a couple weeks ago in April. So this is a unique moment in time.

Thomas Moll: On the pricing front any revision or reaffirmation of what you expect to capture over this year and next and then if there's a bogey you want to throw about throw out one of your competitors in the U S did yesterday just in terms of how much of the demand the new product by represent next year would be helpful. As well. Thank you.

Speaker Change: Sure Tommy Yes, I think first of all yes, we would reaffirm what we've said about 15% to 20% price increase over two years I mean that includes.

Speaker Change: No.

Tommy: Low double digit base price increase $4 54, b versus the 410, a and then Youll get a few percent of base price. This year and next year. So I know there are some skeptics on that we're already selling the 454 B units, we shipped our first in the first quarter.

Obviously, it won't be that much over the short term, but we already have have a price point in the marketplace for that and we feel confident in the 15% to 20% over two years I had previously said that we thought that.

David L. Gitlin: It's exponential. Today, I would say in the US, we have a low share. You know, this is both for water cooled and air cooled chillers.

David L. Gitlin: But we think we're incredibly well positioned from a technology perspective. The key for us has not been technology. It's all been about expanding our capacity, so we're maxing out. All of our facilities globally, and we're also going to be expanding our capabilities to support this in Mexico as well. So, our focus is making sure we're there for all of our customers, especially some of the big customers that are really leaning into this. It's not like anything we've seen before. In some cases, we sell a few water-cooled chillers at a time, and here we're looking at selling hundreds in a single order.

Tommy: About 20% of our mix this year would be $4 54, B I think it's going to be less than that but to the extent, we shipped less $4 54, B I think that for us for the year will be offset by probably a little more pre buy than we thought on the 410, a so we feel good overall about this year are calibrated at <unk> at the high single digits.

Tommy: I saw one of our peers said yesterday about the mix next year I think it look it's early to say I think they were suggesting in the 60% range for 450, <unk> I think it'll be more than that I think youll have some pre buy at the end of this year on the <unk> and that will cover into some percentage of the volume into <unk>, maybe a tiny.

David L. Gitlin: So, we feel very well-positioned. We see the growth being exponential. We've invested in... For liquid cooling, we made a VC-type investment in SLT, which is a strategic thermal lab. So that's really positioning us in the liquid cooling space for direct-to-chip cooling.

Tommy: Into <unk>, but I think the bulk of the year, we will transition to 450 <unk>. So I don't know if it's in the 70% range, but its I think its a bit higher than 60, but it remains to be seen.

David L. Gitlin: We're seeing strength globally; probably 70% of our sales are in North America, but we've done extremely well, both in Asia and in Europe. And this is a market where we have a dedicated Tiger team strictly focused on this space because it is such a unique moment in time. Very helpful.

Speaker Change: And Dave a follow up on <unk>.

Speaker Change: Commercial HVAC trends in Americas orders were down meaningfully, but obviously on a tough comp can you just refresh us on your revenue expectation there this year and describe any aspect of the demand environment. Thank you.

Speaker Change: Yeah.

It's hard to look at year over year quarters, yes.

Dave: Quarters orders in the quarter were down significantly we look more at how we're positioned for the year I think that we had said that.

David L. Gitlin: And Dave, maybe give us a little more color on the productivity you drove in Q1 and, you know, what you're thinking for the rest of the year. I know you've got to 30%, you know, incrementals in the past, but you did 100% there. I obviously understand you raised your margin guidance, but how sustainable is the kind of productivity acceleration you saw in Q1. And, you know, given rising material costs, how do you think about sort of the offset there with price?

Dave: Sales for light commercial would be down mid single digits, this year, which assume volume down high single digits, given that our first quarter was up a little north of 20% on sales and we still have good backlog.

Dave: Patrick said, it but I clearly think there is upside to that number and theres still verticals that remains strong.

Dave: Look at K through 12, some of that value based retail.

Dave: Health care space like some of the urgent care centers. Some of the quick serve restaurants. They are still strong so even though we expect year over year orders to decline that base business remains very strong and by the way, we keep we keep taking share and taking share the right way based on technology differentiation. So still a good vertical for us and again I think upside to our original.

David L. Gitlin: Yeah, I have to tell you that Adrian Button and the operations team working with our businesses, it is the best that I have felt since I've been a carrier about our ability to achieve sustained productivity. We have one single source of the truth; every single one of our productivity actions globally is in one database; we can sort it 20 different ways. We all are marching to the beat of the same drum. I would say materials is doing particularly well, that's probably 50% of our productivity. Logistics is still tailwind, that's probably 10 or so percent. We're really taking out a lot of overhead, which is a significant piece. And the factories are now resuming productivity after a couple years of negative productivity.

Dave: <unk> guide on light commercial.

Speaker Change: Thank you, Dave I will turn it back.

Dave: Thanks Tommy.

Dave: Thank you. Our next question comes from Deane Dray with RBC. Your line is open.

Deane Dray: Thank you and good morning, everyone.

Deane Dray: Good morning, Dan Good morning.

Deane Dray: Just circle back on the spend.

Deane Dray: We are holding their breath about destocking, so just kind of where does that all where does that all shake out and your line of sight on the resumption of the various European country incentives I know you touched on that in the prepared remarks, but what's the typical lag once the Germany.

David L. Gitlin: So we're also coming into the year and every quarter with a lot more productivity spoken for, so I feel tremendous about the progress. Yeah, we've seen some copper headwinds, you know, prices getting up to like 450. But we got a little bit of offset from steel and aluminum.

Deane Dray: Reinstates, Italy, Reinstates I think they have done that already but what's the typical lag between you start getting those orders.

David L. Gitlin: So I think we're very, we're probably about half hedged on copper for the year. So I feel very, very, very well calibrated for the year on productivity and also calibrated as we go forward beyond that. Appreciate the color, guys.

Deane Dray: Well look I think in terms of the first piece because we are direct to installer, we don't see the same destocking.

Deane Dray: Many of our peers do so I think that the way we look at it is that piece is largely behind US. We're now back to traditional book and ship business. So.

Unknown Executive: Our next question comes from Tommy Moll with Stephen Sink. Your line is open. Good morning, and thank you for taking my questions. Hey Tommy.

Deane Dray: The significant backlog that existed like many of US we saw the same thing in our U S. Resi business you had.

Unknown Executive: David, I wanted to start with an update on A2L. What can you give us there in terms of when you plan to start or ramp up production? On the pricing front, any revision or reaffirmation of what you expect to capture over this year and next? And then, if there's a bogeyman you want to throw out, one of your competitors in the U.S. did yesterday just in terms of how much of the demand a new product might represent next year. That'd be helpful as well. Sure, Tommy.

Deane Dray: Just a untypical atypical high level of backlog a year year and a half ago. That's now back to normal levels. When we look at what's kind of happening in Germany, and I think it's true in other countries that once the legislation gets promulgated you do typically see and we're experiencing a bit of a lag between.

Deane Dray: The subsidy definitive <unk> being finalized and new applications. So the question is why would both boilers and heat pumps be down I think that.

David L. Gitlin: Yeah, I think, first of all, yes, we would reaffirm what we've said about 15 to 20% price increase over two years. I mean, that includes, you know, a low double-digit base price increase of 454B versus 410A. And then you'll get a few percent of base price this year and next year. So I know there are some skeptics on that.

Deane Dray: Many customers in Germany, no and throughout Europe know that long term, you're going to transition to heat pumps. They wanted to make sure that the new legislation was going to stick and that there won't be changed obviously, the market's a little bit tight in Europe overall on the overall economy, but now that the legislation is clearly firm we do expect to.

Deane Dray: See orders start to pick up.

Deane Dray: And our expectation is orders start to pick up.

David L. Gitlin: We're already selling the 454B units we shipped our first in the first quarter, although obviously it won't be that much over the short term. But we already have, you know, a price point in the marketplace for that we feel confident in the 15 to 20% over two years. I had previously said that we thought that about 20% of our mix this year would be 454B. I think it's gonna be less than that, but to the extent we ship less 454B, I think that for us for the year, it would be offset by probably a little more pre-buy than we thought on the 410A. So we feel good overall about this year calibrated at RESI in the high single digits. I saw what one of our peers said yesterday about the mix for next year.

Deane Dray: As we get into May and June that position us for the heating season, as we get into September and October.

Speaker Change: That's really helpful. And then one of your other questions that we get on the dynamics of the heat pumps in Europe as well what about this threat of some of the Asian players coming in at.

Speaker Change: A discount product and would that matter would it take share and our view is that there's always been a good better best stratification of brands in HVAC and <unk> is at the high end you rattled off some of the.

The feature comparisons, but just what's is there a risk about new entrants into the European heat pump market.

Well I think you answered it perfectly well Deane I do think that this may clearly.

Speaker Change: Clearly plays in the premium end of the market. So.

David L. Gitlin: I think it, you know, look, it's early to say. I think they were suggesting in the 60% range for 454B. But I think it'll be more than that. I think you'll have some pre-buy at the end of this year on the 410A, and that will cover, you know, some percentage of the volume into one Q, maybe a tiny bit into two Qs, but I think the bulk of the year will transition to 454B. So I don't know if it's in the 70% range, but it's, I think it's a bit higher than 60, but you know, it remains.

Speaker Change: I do think that even though there will be more competition at the entry tier level in the mid tier.

Speaker Change: That because of the brand the technology differentiation or unique channel, we don't see that as a major threat directly to <unk> I will add by the way that.

Speaker Change:

Speaker Change: I was talking to the CEO of a major German company and he was.

Speaker Change: So impressed with the combination of carrier investment climate solutions together. He said that if you look at German brands.

Speaker Change: <unk> not number one it's in the top five most respected brands in the country and he was saying to me kind of unsolicited how powerful this combination will be so we will preserve the visa brand at the very high end, we are introducing carrier.

David L. Gitlin: And Dave, a follow-up on light commercial HVAC trends in America. Orders were down meaningfully, but obviously on a tough comp. Can you just refresh us on your revenue expectation there this year and describe any aspect of the demand environment? Thank you. You know, it's hard to look at year-over-year quarters.

Speaker Change: In the mid tier range, both for heating and for cooling. So we think thats a unique space and of course, we have Toshiba so.

David L. Gitlin: Yes, quarters. Orders in the quarter were down significantly. We look more at how we're positioned for the year. I think that we had said that sales for light commercial would be down mid-single digits this year, which assumed volume down high-single digits. Given that our first quarter was up a little north of 20% on sales and we still have a good backlog, Patrick said it, but I clearly think there's upside to that number, and there are still verticals that remain strong. You know, when you look at K-12, some of that value-based retail, some healthcare space, like some of the urgent care centers, some of the quick-serve restaurants, they're still strong.

Speaker Change: Yes, there will be some new entrants in the market, but we feel not only as vis men protected on the high end, but we're actually seeing a bit of price tailwind as well.

Speaker Change: Great to hear thank you.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next question comes from Noah Kaye with Oppenheimer <unk> Company. Your line is open.

Noah Kaye: Thanks, so much Dave I'd like to stick with with Vcs you highlighted early on the new product introductions, expanding the Tam by $5 billion would just love some more color on those product introductions curious to know to what extent they were developed and kind of any kind of synergy or technology roadmap.

Noah Kaye: Asian.

Noah Kaye: With legacy carrier and to what extent, that's an opportunity going forward across the portfolio.

David L. Gitlin: So even though we expect year-over-year orders to decline, that base business remains very strong. And, by the way, we keep taking share and taking share the right way based on technology differentiation. So, still a good vertical for us.

Dave: Yeah look no I wish I could take some form of credit, but this was done well before our watch I mean this was.

Speaker Change: These men.

Dave: Over a period of time developing products for the 16% to 19 kilowatt range, which is in that very high end single family home, which is a new market for them, which they introduced in the first quarter and here in the second quarter. They introduced 19 up to 40 kilowatts, which gets you into that small multifamily residential space. So very.

David L. Gitlin: And again, I think upside to our original guide on like. Thank you, Dave. I'll turn it back.

Unknown Executive: Thank you. Our next question comes from Deane Dray with RBC. Your line is open. Thank you. Good morning, everyone. Good morning, Deane.

Dave: Very attractive.

New very attractive new product introductions I mentioned, this 5 billion Tam that they.

Unknown Executive: I just circled back on Wiesman, you know, people were holding their breath about destocking. So just kind of where does that all shake out and your line of sight on the resumption of the various European country incentives? I know you touched on that in the prepared remarks. But what's the typical lag once the, you know, Germany reinstates, Italy reinstates? I think they have done that already.

Dave: Now positioned themselves for us so again, it's one of the many reasons why you can see headline <unk>.

Dave: Articles about heat pumps being down in Germany in the many tens.

Dave: Percentage range, while will be like flat or even heat pumps could be up for us. This year. One of the reasons is the new Tam I will say, though on.

David L. Gitlin: But what's the typical lag between you starting to get those orders? Well, look, I think in terms of the first piece, you know, because we're direct to installer, we don't see the same de-stocking that many of our peers do. So I think that the way we look at it is that piece is largely behind us. We're now back to the traditional book and ship business. So the significant backlog that existed, like many of us, we saw the same thing in our U.S. resi business.

Speaker Change: The latter part of your question when it comes to revenue synergies. We are actively working on a whole bunch of technologies and that's why I said that we.

Speaker Change: We could see revenue synergies in the hundreds of millions and we put virtually zero and our business case, I think thats going to when we look back five years from now I think we will look and say that was one of the best upsides to the business case that we saw even in.

In North America of Eastman has just introduced traditionally in North America <unk> was a boiler.

David L. Gitlin: Just an atypical high level of backlog a year, a year and a half ago. That's now back to normal. When we look at what's kind of happening in Germany, and I think it's true in other countries, that once the legislation gets promulgated, you do typically see, and we're experiencing this, a bit of a lag between the subsidy definition being finalized and new applications. So the question is, why would both boilers and heat pumps be down?

Speaker Change: Rail company, they've just introduced an air to water heat pump for North America, which could be very attractive in places like new England, and Canada and some other discrete locations and we can leverage their technology with our channel to go really attack.

Speaker Change: The market in the United States, So a lot of interesting upside there.

Very interesting thanks.

Speaker Change: Just on applied strength.

How much of this is just the data center story, how broad based is it maybe you can talk on some of the other verticals.

Speaker Change: The the demand just continues to sustain.

Speaker Change: Well.

David L. Gitlin: I think that many customers in Germany know and throughout Europe know that, long term, you're going to transition to heat pumps. They wanted to make sure that the new legislation was going to stick and that there wouldn't be any changes.

Speaker Change: Lot of it is data centers, that's been very very strong higher Ed still remains strong healthcare like hospitals remains strong when you look at it it varies a little bit by region. We've seen some changes in China. For example, what was very strong in China was EV solar production all things renewables, that's now shifted in China.

David L. Gitlin: Obviously, the market's a little bit tight in Europe overall because of the overall economy, but now that the legislation is clearly firm, we do expect to see orders start to pick up. And our expectation is orders start to pick up as we get into May and June, and that positions us for the heating season as we get into September and October. That's really helpful. And then one of the other questions that we get on the dynamics of the heat pumps in Europe is, oh, what about this threat of some of the Asian players coming in as a, you know, a discount product? And would that matter?

So we're now seeing strength in China from things like infrastructure and some of the other aspects of de carbonization. So some of the areas of strength will move data centers is strong globally and then what's frankly been strong other than some changes within China remains strong and what's been weak like commercial office.

Speaker Change: As generally remained weak.

Speaker Change: Okay very helpful. Thank you. Thank.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next question comes from Nigel Coe with Wolfe Research. Your line is open.

David L. Gitlin: Would it take share? And our view is that there's always been a good, better, best stratification of brands in HVAC, and Beastman is at the high end. You rattled off some of the feature comparisons, but just which is there a risk of new entrants into the European heat pump market? Well, I think you answered it perfectly well, Dean. I do think that Vismin clearly plays in the premium end of the market.

Nigel Coe: Thanks, Good morning, and.

Nigel Coe: Thanks for the question.

Nigel Coe: I want to go back to the CNS.

<unk>.

Nigel Coe: I got to say, we were expecting a capital markets transaction, Dave. So just wondering if you've had some indications of interest for that asset that gives you confidence in that sale process and.

Nigel Coe: Maybe Patrick if you could maybe size of that business, we got to bring those revenues, 10% EBITDA margin maybe.

David L. Gitlin: So I do think that even though there will be more competition at the entry tier level and in the mid tier, we think that because of the brand, the technology differentiation, and the unique channel, we don't see that as a major threat directly to Vismin. I will add, by the way, that You know, I was talking to the CEO of a major German company, and he was so impressed with the combination of Carrier and Wiesman Climate Solutions together. He said that if you look at German brands...

Nigel Coe: Sounds like it's having a good good yes may be just give us a projection between 'twenty four.

Speaker Change: Yes look.

Dave: And Nigel I mean, you were expecting it because I said it so fair very fair.

Nigel Coe: Yeah, So we've changed.

Nigel Coe: We are 100% prioritizing sale we completed.

Nigel Coe: I think a 15 page teaser we've discussed that with the number.

Nigel Coe: Of interested buyers the interest has been very high so we've been extremely pleased with the reaction because it's a great set of assets. I mean, you can see our fire and security business is performing very well youre looking at Edwards very differentiated GST very differentiated kidder very differentiated you have a phenomenal set of brands.

David L. Gitlin: If Viesman isn't number one, it's in the top five most respected brands in the country. And he was saying to me, kind of unsolicited, how powerful this combination will be. So we'll preserve the Viesman brand at the very high end. We are introducing Carrier in the mid-tier range, both for heating and for cooling. So we think that's a unique space.

Nigel Coe: Our uniquely positioned in their various spaces. So.

We will see exact.

Exactly where it ends up but I am very pleased with the level of interest thus far and we will send out our offering memorandum at two weeks Patrick on the financials, Yes. Nigel you can think of that business being roughly $2 billion I'm rounding and the current run rate EBITDA is in about the mid two hundreds now so.

David L. Gitlin: And, of course, we have Toshiba. Yes, there will be some new entrants in the market, but we feel not only is Vismin protected on the high end, but we're actually seeing a bit of a price tailwind as well. Great to hear. Thank you. Thank you. Our next question comes from Noah Kaye with Oppenheimer and Company. Your line is open. Thanks so much.

Nigel Coe: Much better and so we're happy with the improvement we're seeing in that business.

Unknown Executive: Dave, I'd like to stick with VCS. You highlighted early on the new product introductions, expanding the TAM by five billion. We'd just love some more color on those product introductions. Curious to know to what extent they were developed in any kind of synergy or technology roadmap coordination with Legacy Carrier, and to what extent that's an opportunity going forward across the portfolio. Yeah, look, no, I wish I could take some form of credit, but this was done well before our watch.

Speaker Change: Okay, that's great color, Thanks, and then.

Speaker Change: Two BCS I mean based on the comments Patrick you've made about the dilutive impact of on the segments.

Speaker Change: I'm backing into maybe a 14, 5% operating margin might be 15, five EBITDA margin.

Speaker Change: For the quarter is that is that right. So I'm just wondering if that is correct my math isn't too bulky.

Speaker Change: What is the path to high teens and for the full year.

Speaker Change: Yes, so from an operating profit margin point of view.

David L. Gitlin: I mean, this was Wiesman over a period of time developing products for the 16 to 19 kilowatt range, which is in that very high-end single-family home, which is a new market for them, which they introduced in the first quarter. And here in the second quarter, they introduced 19 up to 40 kilowatts, which gets you into that small multifamily residential space. So, very, very attractive new product introductions.

Speaker Change: Nigel you can think of Q1 being.

Speaker Change: About 12, five and for the full year for.

Speaker Change: For the full year again at the EBIT level it will be around 15% actually we think maybe a little higher than that so in line with the overall company average, but below the average for the HVAC segment and Thats at the EBIT level and you can probably add a couple of points for that.

Speaker Change: Three points to get to EBITDA.

Speaker Change: Okay. That's very helpful. Thanks, guys.

Thank you Nigel.

David L. Gitlin: I mentioned this 5 billion TAM that they now position them for themselves for. So again, it's one of the many reasons why you can see headline articles about, you know, heat pumps being down in Germany in the many tens. Percentage range while we'll be like flat or even heat pumps could be up for us this year One of the reasons is the new TAM I will say though on the latter part of your question when it comes to revenue synergies We are actively working on a whole bunch of technologies And that's why I said that We could see revenue synergies in the hundreds of millions and we put virtually zero in our business case I I think that's going to when we look back five years from now I think we'll look and say that was one of The best upsides to the business case that that we saw even in in North America V Smith has just introduced Traditionally in North America beastman was a boiler, Sale Company. They've just introduced an air-to-water heat pump for North America, which could be very attractive in places like New England and Canada and some other discreet locations.

Speaker Change: Thank you and our next question comes from Stephen Tusa with Jpmorgan Chase <unk> Company. Your line is open.

Charles Stephen Tusa: Hi, Good morning, guys. Thanks for the man.

Charles Stephen Tusa: Good morning.

Charles Stephen Tusa: Just on that on that EBIT comment.

Charles Stephen Tusa: EBIT right.

Charles Stephen Tusa: Excluding the amortization when you say EBIT.

Speaker Change: Yes, that's right, Steve we adjust out the intangible amortization and some of the step ups as well.

Speaker Change: You guys said I think previously you.

Speaker Change: You added a bunch of DNA from the regular versus the prior guidance.

Speaker Change: Is that just truing up some of the financials on investment.

Yes, you're right in essence at the time of the February Guide of course, we didn't have all the detail to provide the best accurate estimate of the DNA and so inventory and backlog step up was not yet fully included there and also since then we refined the difference between the intangibles and then the goodwill and that impacts the amortization.

Speaker Change: Well, so you can think of that being.

Speaker Change: Got it and then sorry, just on resi just to follow up on the on the <unk> hundred 50 <unk> did.

Speaker Change: Did you guys. I think you guys are like at least we had heard you are amongst the earlier movers on that you already have a product in the channel which is congrats.

David L. Gitlin: And we can leverage their technology with our channel to really attack the market in the United States. So a lot of interesting upsides. Very interesting. Thanks. And just on applied strength, I mean, how much of this is just the data center story? How broad a base is it?

Speaker Change: Congratulations on that that's definitely ahead of some of your peers.

Speaker Change: Did you kind of.

Speaker Change: Have you been pivoting at all as far as evaluating the market and working.

Speaker Change: <unk> a product in there.

There as as the demand changes like how fluid is that situation thats kind of the first question and then just a very quick follow up for Patrick could you just give us the price and inflation for the first quarter and then just any updates on that for the year for the bridge.

David L. Gitlin: Maybe you can talk about some of the other verticals, you know, where the demand just continues to sustain? Well, a lot of it is data centers. That's been very, very strong. Higher ed still remains strong.

David L. Gitlin: Healthcare, like hospitals, remains strong. When you look at it, it varies a little bit by region. We've seen some changes in China, for example. What was very strong in China was EV, solar production, all things renewables. That has now shifted in China. So we're now seeing strength in China from things like infrastructure and some of the other aspects of decarbonization. Some of the areas of strength will move.

Patrick: Thanks, Yes, let me, yes, Steve let me start on the <unk> our strategy is to.

Patrick: We did it with the CEO change we're doing it with the Hol changed Derisk everything get way out in front, we don't want any.

Technical produce ability capacity any issues as we get into the end of this year. Our number one priority is support our customers and make this a seamless transition. So we are getting way out in front not only on shipping the product, but on training our dealers we had.

David L. Gitlin: Data centers are strong globally. Then what's frankly been strong, other than some changes within China, remains strong. What's been weak, like commercial office space, has generally remained weak. Very helpful.

Patrick: Dealers over 1000 dealers together last week, we had closer to 10000 together.

Unknown Executive: Thank you. Thank you. Thank you. Our next question comes from Nigel Coe with Wolf Research. Your line is open.

Patrick: For a discussion probably about 18 months ago. So we are getting all over in terms of the preparation.

Unknown Executive: Thanks. Good morning and thanks for the question. I want to go back to the C&R fire sale.

Patrick: And I do think that.

Patrick: As I mentioned, I think it'll be less than 20% this year, probably a bit of pre buy on <unk>, but I do think it'll be higher than that 60% that I know others mentioned for next year.

David L. Gitlin: I've got to say, we were expecting a capital markets transaction, Dave. So I was just wondering if you've had some indication of interest in that asset that gives you confidence in that sale process. And maybe, Patrick, if you could maybe size that business, we've got $2 billion in revenues, about 10% EBITDA margin. Maybe it sounds like it's having a good year, so maybe you just give us a projection for 2024. Yeah, look, and Nigel, I mean, you were expecting it because I said it.

Okay, and then Steve following up on your questions about price price for the quarter was about 2% for the overall company, we expect to be.

It'd be about the same for the full year, so about half of our organic growth.

Patrick: In terms of price and net productivity combined that includes the headwinds of raw material inflation. For example that combined was about $200 million in Q1, and we expect that to be about $600 million for the full year and our current guidance.

David L. Gitlin: So fair, very fair. Yeah. So we've changed. You know, we are 100% prioritizing a sale. We completed about, I think, a 15 page teaser. We've discussed that with a number of interested buyers, and the interest has been very high. So we've been extremely pleased with the reaction because it's a great set of assets. I mean, you can see our fire and security presence is performing very well. You're looking at Edwards, very differentiated, GST, very differentiated, Kita, very differentiated. You have a phenomenal set of brands that are uniquely positioned in their various spaces. So we'll see.

Speaker Change: Thank you.

Speaker Change: Thank you.

Thank you. Our next question comes from Gladden Cano with TD Cowen Your line is open.

Gladden Cano: Yes, thanks, good morning, guys.

Gladden Cano: I was wondering if.

Gladden Cano: Just talking about 2025 and that bridge.

Gladden Cano: Is the growth algorithm still kind of north of 10% earnings growth.

Gladden Cano: So the adjusted.

Gladden Cano: The adjusted base, if you could just talk through kind of your 25 expectations given.

Gladden Cano: The.

Gladden Cano: The bridge that you provided on.

Gladden Cano: What the remain co is and the like.

Gladden Cano: Also what basis, if you will right.

Gladden Cano: If you look at slide 23 of the deck that we posted our core business this year.

It was up 12% in Q1 was up 12% for the full year, we expect our core business, including the dilution from <unk> in year one.

Patrick Goris: Exactly where it ends up, but I am very pleased with the level of interest thus far, and we'll send out our offering memorandum in two weeks. Patrick on the financial... Yes, Nigel, you can think of that business being roughly $2 billion. I'm rounding, and the current run rate EBITDA is in about the mid-200s now, much better, and so we're happy with the improvement we're seeing in that. Okay, that's great. Thanks. And then we go back to BCS.

Gladden Cano: The growth to be 17% and our value creation framework says that we'd like to grow our business double digits every year. So management I think we'd be very disappointed if our core business will not grow at least double digit EPS in 2025 and on top of that as you can see on that on that slide there are the additional levers.

Gladden Cano: Redeploying net proceeds from industrial fire for half of the year, that's going to be net that's going to be debt reduction.

Patrick Goris: I mean, based on the comments Patrick you made about the dilutive impact on the segment, I'm backing into maybe a 14.5% operating margin, maybe 15.5 EBITDA margin for the quarter. Is that right? And I'm just wondering if that is correct, if my math isn't too wonky. What is the path to the high teens for the full year?

Gladden Cano: Crown.

Gladden Cano: Our industrial and commercial fire.

Gladden Cano: I mentioned earlier run rate EBITDA of $2 50, you can assume a multiple on that and some tax leakage that would be available for redeployment, including buybacks.

Gladden Cano: Our free cash flow generated in 2024, and 2025 X dividend again available for deployment, including buybacks and so a long way of saying we think there is cigna.

Patrick Goris: Yes, so from an operating profit margin point of view, Nigel, you can think of Q1 being about 12 and a half. And for the full year, for the full year, again, at the EBIT level, it will be around 15 percent. Actually, we think it might be a little higher than that.

Gladden Cano: Significant earnings growth power available to us.

Gladden Cano: And what would your what would your opinion of free cash conversion and 25 feet off of that approximately $3 number.

Gladden Cano: We havent provided that $3 number, but whatever the number is we target about 100%.

Patrick Goris: So, in line with the overall company average, but below the average for the HVAC segment. And that's at the EBIT level. You can probably add a couple of points for that.

Gladden Cano: Net income.

Gladden Cano: Appreciate it and just a quick follow up on <unk>, there's been a lot of chatter about repair versus replace.

Potential trading down have you seen any evidence of that.

Gladden Cano: I know, it's early in the cooling season, but.

Unknown Executive: Two, three points to get to EBITDA. Okay, that's very helpful. Thanks, guys. Yep. Thank you. Thank you. And our next question comes from Stephen Tusa with JPMorgan Chase & Company. Your line is open. Hi, good morning, guys. Thanks for letting me in.

Speaker Change: Yes, starting to drop no we have not seen any evidence of that we asked that ourselves a lot and we have not seen evidence of that.

Speaker Change: Thanks, a lot guys. Thank.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next question comes from Brett Linzey with Mizuho. Your line is open.

Hey, good morning, Thanks for taking the questions.

Speaker Change: Right.

Brett Logan Linzey: What I wanted to come back to light commercial obviously, it's been a source of strength for a few years here orders did take a step down in the first quarter, but you did talk about the light commercial being up a profit outperformer for the year, maybe just some detail on the expectations and some of those moving pieces.

Unknown Executive: Morning. Just on that eBit comment, that's eBit-ah, right? Excluding the amortization when you say eBit? Yeah, that's right, Steve. We adjust out the intangible amortization and some of the step-ups as well. Yeah, you guys said, I think previously, you added a bunch to DNA from the regular versus the prior guidance. Is that just truing up some of the financials on Viesman? Yes, Steve, you're right. In essence, at the time of the February guide, we didn't have all the details.

Speaker Change: Yeah look I mean.

Speaker Change: It's a question we get because it's been so strong for so long so.

Speaker Change: Last year, we were up 35%, we knew we'd have a tough comp coming in into this year, but.

Speaker Change: I think it's a very nice combination of share gains the underlying verticals that have been strong generally remaining strong.

Speaker Change: The team performing and of course, we don't talk about it as much but we will have the same $4 54 be dynamic here, where we see the same kind of base price and mix increase that we're mentioning for resi, we see for light commercial so that 15% to 20% over two years, there won't be the same kind of pre buy there might be a little bit on this.

Unknown Executive: [inaudible] Got it. And then, sorry, just on Resi, just to follow up on the 454A2L, did you guys, I think you guys are like, at least we had heard you're amongst the earlier movers on that. You know, you already have a product in the channel, which is, congratulations on that. That's definitely ahead of some of your peers. Did you kind of, have you been pivoting at all as far as evaluating the market and working the 410A product in there as the demand changes? Like how fluid is that situation?

<unk> rooftop units, but so you would expect to see an even higher mix next year for $4 54, B, which gives you a tailwind as you go into light commercial next year in these verticals continue to be strong so.

Speaker Change: We think it'll be slightly better than down mid single digits. This year, given more than 20% in the first quarter.

David L. Gitlin: That's kind of the first question. And then just a very quick follow-up for Patrick, can you just give us the price and inflation for the first quarter and then just any updates on that for the year on the bridge? Thanks. Yeah, let me, yeah, Steve, let me start on the A2L.

Speaker Change: Okay, Great and then just shifting over to container of 50%.

Speaker Change: I guess is the worst behind US here what are you hearing from some of those customers and then anything on sort of the sequential trends through the in the last couple of quarters.

Speaker Change: Yes, I do think the worst is behind us spread.

David L. Gitlin: Our strategy is to, and we did it with the CIRA change, we're doing it with the A2L change, de-risk everything, get way out in front. We don't want any technical, producibility, capacity, issues as we get into the end of this year. Our number one priority is to support our customers and make this a seamless transition. So we are getting way out in front, not only on shipping the product but on training our dealers. We had a thousand dealers, over a thousand dealers together last week. We had closer to 10,000 together for a discussion probably about 18 months ago.

Speaker Change: We were up significantly in the fourth quarter, we were up about 50% in the first quarter I think for the full year, it's probably up in the in the 30% range and then you look at the.

Speaker Change: The other thing that we've done which is very important as we've introduced a new digital platform for that space as well called links which instead of just being an equipment provider. We're now getting subscription based recurring revenues and we have 130000 subscriptions for something that we just introduced a few years ago, so hats off to the team there as well.

Patrick Goris: So we are getting all over in terms of the preparation. And I do think that, you know, as I mentioned, I think it'll be less than 20% A2L this year, probably a bit of pre-buy on 410, but I do think it'll be higher than that 60% that I know others mentioned for next year. And then, Steve, following up on your questions about price, price for the quarter was about 2%. For the overall company, we expect that to be about the same for the full year, so about half of our organic growth will be price.

Speaker Change: And that will help smooth some of the cycles in that business.

Speaker Change: Okay, great congrats on the strong start.

Speaker Change: Thanks, Brett.

Brett Logan Linzey: Thank you. Our next question comes from Andrew <unk> with Bank of America. Your line is open.

Andrew: Hey, good morning, guys.

Andrew: Morning, Andrew.

Andrew: Hey, just a question on the buyback you guys alluded that you have capacity to restart the buyback in 'twenty four.

Andrew: How is it incorporated in your current outlook, just trying to understand that or is that where the margin of safety for the guide.

Patrick Goris: In terms of price and net productivity combined, that includes the headwinds of material inflation, for example, that was about $200 million in Q1, and we expect that to be about $600 million for the full year in our current guide. Thank you.

Speaker Change: Yes, Andrew Thank you for your question and I will provide some context on this so since the acquisition, we've paid down about $500 million in terminals in Q1.

Speaker Change: And the three exits that we have announced.

Will yield about $5 $5 billion in net proceeds so that's our expectation and what we've communicated is that all of this will be used for.

Deleveraging, although we may keep some cash as it may be economically more attractive than just paying down some of the debt.

Unknown Executive: Your line is open. Yes, thanks. Good morning, guys. Good morning.

Speaker Change: But excluding.

Unknown Executive: Just talking about 2025 and that bridge, is the growth algorithm still going to north at 10% earnings growth? off of the adjusted The Adjusted Base, if you could just talk through kind of your 25 expectations, given, you know, the bridge that you provided on, what the Remaining Co is and the like, just off a work basis, if you will. Right.

Speaker Change: If I look at the buybacks for this year.

Speaker Change: We have not included them in our guide for the year, but given the timing of our free cash flow generally would be second half weighted and as you probably recall our free cash flow tends to be very heavy in Q3 and in Q4. So not included in our guide as we resume in the second half of the year there might be some benefit I think the.

Speaker Change: It will be much more <unk>.

Speaker Change: Meaning full in 2025.

Speaker Change: And then it will be in 2024.

Patrick Goris: If you look at slide 23 of the deck that we posted, our core business this year... is up 12% or in Q1 was up 12% for the full year. We expect our core business, including the dilution from Wiesman, to be up 12% in year one. The growth is expected to be 17%, and our value creation framework says that we'd like to grow our business double-digits every year. So management, I think, would be very disappointed if our core business did not grow at least double-digit EPS in 2025, and on top of that, as you can see on that slide.

Speaker Change: Thank you Patrick just a follow up on <unk>.

Speaker Change: You know what.

Your ability if for whatever reason second half.

Patrick: Orders do not pick up as you expected, what's your ability to accelerate restructuring of this one because I guess you guys kept the outflow for restructuring flat.

Speaker Change: Versus last quarter, you, David or limited in any way of what you have on the timing of what you can do in Germany. Other levers on cost at Eastman that you can still pull in 24. Thank you.

David: Yeah, Andrew I have to say I've been so proud of Thomas and the team working with the central ops folks at carrier to be incredibly and.

Patrick Goris: There are the additional levers Redeploying net proceeds from the industrial fire for half a year. That's going to be net debt reduction, plus a free cash flow generated in 2024 and 2025 ex-dividend, again, available for deployment, including buybacks. And so, a long way of saying we think that is. Thank you very much.

David: And appropriately aggressive on costs and.

David: If you look at the actions that Thomas is taking what's been very important for that for our 12000, new colleagues at <unk> that fully understand this as it has nothing to do with the combination with carrier. It's all actions that business would've taken because of the overall market condition. So they've been very aggressive on.

Patrick Goris: And what would your opinion of free cash conversion and 25 be off of that approximately $3 number? We haven't provided a $3 number, but whatever the number is, we target about 100% of net income. Appreciate it.

David: On.

All elements of takeout of cost not just on basic G&A, but they've been aggressive on materials logistics cost value engineering, which is part of the benefit and in sourcing part of the benefit of coming together with carrier and Theyre going to continue to take costs out there. So there's a lot of levers that that business can.

David L. Gitlin: And just a quick follow-up on Rezi, you know, there's been a lot of chatter about repair versus replace, potential trading down. Have you seen any evidence of that? I know it's early in the cooling season, but any opinion on how that might have folded? Yeah, sorry to interrupt. No, we have not seen any evidence of that.

David: And we will pull to take costs out of the business there are certain.

David: Kind of natural limitations.

David: In the agreement that we had with them, but those are not things that are in any way going to affect the ability for that business to take the appropriate cost actions.

David L. Gitlin: We ask that ourselves a lot, and we have not seen any evidence. Thanks a lot, guys. Thank you. Our next question comes from Brett Linzey with Mizuho. Your line is open. Hey, good morning. Yeah, thanks for taking the questions. I wanted to come back to a light commercial.

David: So when you talk about cost synergies that excludes whatever actions as you have alluded we spend would have taken these actions regardless given the market conditions is that a fair point that.

David: $200 million by year, three we have but at the same time be spun Ken accelerated internal cost control given the market conditions is that the right way of thinking about sorry, I think it's a fair description Andrew.

Andrew: Look I think cost synergies, we have a very specific definition, we use as costs thats taken out because of the combination. So theres a bunch of examples of that where we both buy from the same supplier and we have.

Unknown Executive: Obviously, it's been a source of strength for a few years here. Orders did take a step down in the first quarter, but you did talk about the light commercial being a profit outperformer for the year. Maybe some detail on the expectations and some of those moving pieces. Yeah, look, I mean, It's a question we get because it's been so strong for so long.

Speaker Change: The ability to go renegotiate with those suppliers or the ability to get more work to certain suppliers.

Speaker Change: We have a whole lot of value engineering between Toshiba carrier.

David L. Gitlin: So, you know, last year, we were up 35%. We knew we'd have a tough comp coming in into this year, but, I think it's a very nice combination of share gains, the underlying verticals that have been strong, generally remaining strong, the team performing, and of course, you know, we don't talk about it as much, but we'll have the same 454B dynamic here, where we see the same kind of base price and mix increase that we're mentioning for Resi, we see for light commercials, so that 15 to 20% over two years.

Speaker Change: And.

Speaker Change: <unk>, so theres things that cost takeout that we can do because we are now part of the same family we see it with some of our factory.

Speaker Change: <unk>. So yes, there is cost takeout that they're doing on their own and then there is cost synergies on top of that.

Speaker Change: Very very helpful. Dave. Thank you I'm glad you're saying thank you bye bye. Thank you.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Yes, Thank you and just to close it out I want to end.

Speaker Change: By thinking.

Speaker Change: Our customers, who always support us and our team who is doing a phenomenal job. So thank you also to our investors and as always Sam will be available all day for questions. Thank you all.

David L. Gitlin: There won't be the same kind of pre-buy; there might be a little bit on the small rooftop units, but so you would expect to see an even higher mix next year for 454B, which gives you tailwind as you go into light commercial next year, and these verticals continue to be strong, so we think it'll be slightly better than down mid-single digits this year, given more than 20% in the first quarter. Okay, great. And then just shift over to a container of 50%. I guess the worst is behind us here?

Speaker Change: Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.

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David L. Gitlin: What are you hearing from some of those customers? And then anything on sort of the sequential trends through the last couple quarters? Yeah, I do think the worst is behind us, Brett. You know, we were up significantly in the fourth quarter, we were up about 50% in the first quarter. I think for the full year, it's probably up in the 30% range.

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David L. Gitlin: And then, you know, the other thing that we've done, which is very important, is we've introduced a new digital platform for that space called Links, which, instead of just being an equipment provider, we're now getting subscription-based recurring revenues. And we have 130,000 subscriptions for something that we just introduced a few years ago. So hats off to the team there as well. And that will help smooth some of the cycles in that.

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David L. Gitlin: Okay, great. Yeah, congratulations on the strong start. Thanks, Brett. Thank you. Our next question comes from Andrew Obin with Bank of America. Your line is open. Hey, good morning, guys. Good morning, Andrew.

Speaker Change: No.

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Unknown Executive: Hey, just a question on the buyback. You guys alluded that you have the capacity to restart the buyback in 24 hours. How is that incorporated in your current outlook? Just trying to understand that? Or is that where the margin of safety comes for the guys?

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Patrick Goris: Yes, Andrew, thank you for your question. And I'll provide some context on that. So since the acquisition, we have paid down about $500 million in term loans in Q1, and we have the three exits that we have announced. [inaudible] If I look at the buybacks for this year, we have not included them in our guide for the year. But given the timing of our free cash flow, generally, it would be second-half weighted. And as you probably recall, our free cash flow tends to be very heavy in Q3 and in Q4. So it is not included in our guide.

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Patrick Goris: As we resume it in the second half of the year, there might be some benefit. I think the benefit will be much more meaningful in 2025 than it will be in 2020. Thank you, Patrick.

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David L. Gitlin: And just to follow up on Fiesman, you know, what is your ability if, for whatever reason, second half orders do not pick up as you expected? What is your ability to accelerate restructuring at Fiesman? Because I guess you guys kept the outlook for restructuring flat versus last quarter. Are you gated or limited in any way on the timing of what you can do in Germany?

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David L. Gitlin: Yeah, Andrew, I have to say I've been so proud of Thomas and the team working with the Central Ops folks at Carrier to be incredibly and Appropriately Aggressive on Cost. You know, if you look at the actions that Thomas has taken, what's been very important for that, for our 12,000 new colleagues at Visman that fully understand this, it has nothing to do with the combination with Carrier. It's all actions that businesses would have taken because of the overall market condition.

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David L. Gitlin: So they've been very aggressive on all elements of takeout of cost, not just on basic G&A, but they've been aggressive on materials, logistics costs, value engineering, which is part of the benefit, and insourcing, part of the benefit of coming together with Carrier. And they're going to continue to take costs. So there are a lot of levers that businesses can and will pull to take costs out of the business. There are certain, You know, kind of natural limitations in the agreement that we had with them, but those are not things that are in any way going to affect the ability for that business to take the appropriate cost action.

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David L. Gitlin: So when you talk about cost synergies, that excludes whatever actions, as you've alluded, Fiesman would have taken these actions regardless, given the market conditions. Is that the fair point that, you know, there's $200 million by year three we have, but at the same time, Fiesman can accelerate internal cost control given the market conditions? Is that the right way of thinking?

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David L. Gitlin: I think it's a fair description, Andrew. Look, I think cost synergies, we have a very specific definition we use, is cost that's taken out because of the combination. So there's a bunch of examples of that where we both buy from the same supplier, and we have the ability to go renegotiate with those suppliers or the ability to give more work to certain suppliers. We do a whole lot of value engineering between Toshiba, Carrier, G-Way, and Fiesman. So there's things that cost takeout that we can do because we're now part of the same family.

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David L. Gitlin: We see it with some of our factory optimization. So, yes, there's cost takeout that they're doing on their own, and then there's cost synergies on top of that. That's very, very helpful, Dave. Thank you. I'm glad you're staying.

Speaker Change: Yes.

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Unknown Executive: Thank you. Bye-bye. Thank you. Thanks, Andrew. Okay, well.

Speaker Change: Okay.

Unknown Executive: Yes. Thank you. And just to close it out, I want to end by thanking our customers who always support us and our team who's doing a phenomenal job. So thank you also to our investors. And as always, Sam, we'll be available all day for questions. Thank you all. This does conclude the program, and you may now disconnect.

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Unknown Executive: Everyone have a great day. Unknown Executive, Charles Tusa, Timothy White, Carrier Global Unknown Executive, Charles Tusa, Timothy White, Carrier Global, ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Good morning and welcome to Carrier's first quarter 2024 earnings conference call. I would like to introduce your host for today's conference, Sam Pearlstein, Vice President of Investor Relations. Please go ahead, sir.

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Speaker Change: [music].

Thank you and good morning, and welcome to Carrier's first quarter 2024 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.

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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.

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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. Thank you, Sam. Good morning, everyone.

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Speaker Change: Great.

We've had an exciting start to the year. We welcomed 12,000 new team members from Wiesman Climate Solutions to the Carrier family, made great progress on our business exits, and delivered very strong financial results, positioning us for yet another year of significant margin expansion and solid growth. Starting with the highlights of our strong first quarter results on slide three. On low single-digit organic sales growth, we drove 280 basis points of adjusted margin expansion and 19% adjusted EPS. I am very proud of my team.

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We have made enormous progress on our lean journey and driving sustained productivity, and we are seeing it in our results. Our formula is working. Drive productivity tenaciously, simplify the business, reduce overhead, and invest in growth, all while increasing margins. Our performance and transformation all tie to our clear North Star to be the global leader in intelligent climate and energy solutions, and we are making great progress on our vision, as you see on slide four.

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We provide our customers with differentiated sustainability solutions for buildings. Our North American small rooftop units have the highest efficiency in the market with the smallest footprint. Our water-cooled chillers with magnetic bearings provide best-in-class efficiency with the ability to match cooling loads with variable demand during the course of the day.

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For homes, Wiesmann's newly-launched heat pumps expand our addressable market in Europe by approximately $5 billion and, in typical Wiesmann fashion, deliver 15 to 25 percent energy savings versus competitors and are the quietest on the market. For the coal chain, our new HE19 trailer reefer unit reduces fuel consumption by 30% compared to our previous offerings and by 10% compared to our competition, and our new Optimaline. The Container Unit consumes roughly 15% less energy than our competitors.

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Our digital strategy is also a critical enabler and differentiator. For buildings, we now monitor more than 1.2 billion square feet through a bound platform, a 10% increase from last quarter with additional key scale customers attracted to our new net zero feature. For homes, Wiesman's OneBase digital platform is the only home energy management system in the world that integrates space heating and cooling, water heating, solar PV, with battery storage, and a grid

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Both Wiesman's OneBase platform and our North American IntelliSense platform enable early detection of potential malfunctions with notifications to installers, helping address problems before they occur. In the cold chain, we have recently introduced new capabilities to help optimize cooling and thus reduce our customers' operating costs, helping us increase link subscriptions by 50% in just the past year. In summary, we are very pleased with our clear traction as the Global Climate Champions, driven by Technology and Digital Differentiation.

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We also remain very purposeful in driving aftermarket growth, as you see on slide five. In Q1, aftermarket was up 6%, led by another quarter of double-digit growth in commercial HVAC, and we remain on track for another year of double-digit growth. We now have about 75,000 chillers under long-term agreements, about 35,000 of which are digitally connected, and our attachment rate reached its highest level ever, 48%.

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We also connected nearly 5,000 chillers, the highest number in a quarter since our spin-off four years ago. The playbook works, and our KPIs are consistent and cascaded globally, bringing focus and execution to this imperative. We remain committed to our goal of $7 billion of aftermarket revenues by 2026. When we made this projection at our 2022 investor meeting, it assumed a high single to low, a high single to low double digit CAGR. With our planned business exits and now the addition of these,

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We will divest about $500 million of net aftermarket sales. So, to achieve the 2026 target of $7 billion, we now require a low double-digit CAGR. We remain committed to this goal and are accelerating the deployment of our proven playbook to achieve it. Turning to slide six.

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Speaker Change: Good morning, and welcome to carriers first quarter 2024 earnings conference call.

We could not be more proud of our partnership with Wiesman Climate Solutions. Thomas Heim and his team have been all in on ensuring that our team's work is won. Sharing the best of the best product technology, digital solutions, supply chain, and operational opportunities and working seamlessly on multi-brand, multi-channel strategies globally. Wiesman Climate Solutions is a company built on this. This is a team that loves to win. The opportunities to leverage its excellence in customer intimacy.

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

Samuel Pearlstein: Thank you and good morning, and welcome to carriers first quarter 2024 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. These non-GAAP.

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

Product design, channel differentiation, brand strategy, sustainability solutions, culture and talent development, and operations will give Carrier a clear advantage to sustain differentiation and premier customer satisfaction. We remain deeply confident in the long-term transition toward electrification and sustained growth in the market. With Germany aiming to become greenhouse gas neutral by 2045 and individual federal states like Bavaria as soon as 2040, discussions in major municipalities have started as to when the supply of natural gas to households will be limited or effectively stopped.

Samuel 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 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.

Samuel Pearlstein: 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. Thank you Sam and good morning, everyone. We had an exciting start to the year. We welcomed 12000, new team members from <unk> climate solutions to the carrier family made great.

At the same time, two weeks ago, the EU adopted the Energy Performance of Buildings Directive, under which each member country must adopt its own plan to reduce building energy usage by 20 to 22 percent by 2035, with at least 55 percent of the reduction coming from renovations to the worst-performing buildings. While the long-term trend towards electrification remains robust, we are clear eyed about the short-term market headwinds in the European residential market.

David L. Gitlin: <unk> on our business exits and delivered very strong financial results positioning us for yet another year of significant margin expansion and solid growth.

David L. Gitlin: <unk> with the highlights of our strong first quarter results on slide three.

David L. Gitlin: And low single digit organic sales growth, we drove 280 basis points of adjusted margin expansion and 19% adjusted EPS growth.

David L. Gitlin: I am very proud of the team we have made enormous progress on our lean journey and driving sustained productivity and we are seeing it in our results. Our formula is working to drive productivity tenaciously simplify the business reduce overhead investing growth all while increasing margins are.

Despite these headwinds, our team outperformed the end markets in Q1 through share gains, new product introductions, boiler sales, and pricing, and our team is poised to continue doing so for the full year. Beastman sales in Q1 were down 12% overall, more than half of which was driven by lower solar PV sales, which carry lower margins.

David L. Gitlin: Our performance in transformation, all tied to our clear North star to be the global leader in intelligent climate and energy solutions, and we are making great progress on our vision as you see on slide four.

For the full year, we now see VCS sales flat to down 5%, with Q2 revenues being similar to Q1 and an expected increase in the second half consistent with a typical seasonal pickup. Though heat pump orders in Q1 were down year over year, they were up nearly 60% sequentially and were the highest in the year. Despite 2022 and 2024 sales expected to be lower than our February guide, we only see a modest impact on our full year adjusted EPS because the team is driving to offset reduced volume with increased productivity and synergies and favorable mix.

David L. Gitlin: We provide our customers with differentiated sustainability solutions for buildings are north American small rooftop units have the highest efficiency and the markets market with the smallest footprint.

David L. Gitlin: Our water cooled chillers with magnetic bearings provide best in class efficiency with the ability to match cooling loads with variable demand during the course of the day.

David L. Gitlin: For homes <unk> newly launched heat pumps expand our addressable market in Europe by approximately $5 billion and in typical <unk> fashion deliver 15% to 25% energy savings versus competitors and are the quietest on the market for.

David L. Gitlin: For the cold chain or a new 18, 19 trailer reefer unit reduces fuel consumption by 30% compared to our previous offerings and by 10% compared to our competition and.

Cost synergies are tracking to about $75 million in 2024 and over $200 million by year three. The cost actions position us for higher earnings conversion when the broader market recovers. We also remain very encouraged by revenue synergies, which we believe will be in the hundreds of millions of dollars. Consequently, we could not be more excited by the opportunities presented by this game-changing combination.

David L. Gitlin: And our new optimum line.

David L. Gitlin: Our unit consumes roughly 15% less energy than our competitors.

David L. Gitlin: Our digital strategy is also a critical enabler and differentiator for buildings, we now monitor more than $1 2 billion square feet through about a 10% increase from last quarter with additional key scale customers attracted to our new net zero features.

David L. Gitlin: For homes <unk>, one based digital platform is the only home energy management system in the world that integrate space heating and cooling water heating solar PV with battery storage with a grid interface.

Let me shift gears and talk about the unique opportunity presented by data centers, as you see on slide seven. Over the past three years, we've capitalized on this important opportunity by securing key wins with global scale customers. The AI movement is driving hyper- and sustained growth in this space. This is driving data center growth but also an outsized opportunity for cooling providers, given that AI chips drive 7x the heat generation versus traditional.

David L. Gitlin: Both <unk> one based platform in our North American and <unk> platform enable early detection of potential malfunctions with notifications to installers, helping address problems before they occur.

David L. Gitlin: In the cold chain, we have recently introduced new capabilities to help optimize cooling and thus reduce our customers' operating costs, helping us increase linked subscriptions by 50% in just the past year.

Today, AI makes up about 20% of the load of a typical data center, and some of our customers project that percentage to increase to 80% in the next few years, thus spurring huge demand on the grid and increasing the need for differentiated HVAC and control solutions.

David L. Gitlin: In summary, we are very pleased with our clear traction as the global climate champion driven by technology and digital differentiation.

David L. Gitlin: We also remain very purposeful in driving aftermarket growth as you see on slide five.

David L. Gitlin: In Q1 aftermarket was up 6% led by another quarter of double digit growth in commercial HVAC and.

Accordingly, the data center market for the HVAC business is projected to increase from roughly $7 billion in 2023 to $15 to $20 billion in 2027. For us, this vertical represents a low double-digit percentage of our global commercial HVAC-applied business. And we see a tremendous opportunity to increase this segment to well over 20% of our commercial HVAC sales in the next few years. We doubled our backlog in Q1 alone and in April secured further key wins as we optimized the use of our global footprint to support our customers.

David L. Gitlin: And we remain on track for another year of double digit growth.

David L. Gitlin: We now have about 75000 chillers under long term agreement about 35000 of which are digitally connected and our attachment rate reached its highest level ever 48%. We also connected nearly 5000 chillers the highest in a quarter since our spin four years ago.

David L. Gitlin: Playbook works and our Kpis are consistent and cascaded globally, bringing focus and execution to this imperative.

David L. Gitlin: We remain committed to our goal of $7 billion of aftermarket revenues by 2026 when.

Turning to our transformation updates on slide eight, in addition to the Viestman integration, our business exits also continue to progress well. We are moving with speed and maximizing shareholder value. In March, we announced a definitive agreement for the sale of Industrial Fire for $1.4 billion in gross proceeds.

David L. Gitlin: When we made this projection at our 2022 Investor meeting it assumed a high single to low high single to low double digit CAGR.

David L. Gitlin: With our planned business exits and now the addition of Eastman.

David L. Gitlin: We'll divest about $500 million of net aftermarket sales so to achieve the 2026 target of $7 billion, we now require a low double digit CAGR.

This deal is expected to close in early 3Q. We now have definitive agreements for three of our four business exits and are, within a couple of weeks, issuing or offering memorandums to prospective buyers for our residential and commercial fire business. We are targeting to close that deal by the end of this year. We are focused, but not finished. The entire team remains extremely energized as we draw closer to becoming a higher growth, simpler, leaner, pure play climate champion.

David L. Gitlin: We remain committed to this goal and are accelerating the deployment of our proven playbook to achieve it.

David L. Gitlin: Turning to slide six.

David L. Gitlin: We could not be more proud of our combination with visa in climate solutions.

David L. Gitlin: <unk> and his team have been all in on ensuring that our teams work as one share.

David L. Gitlin: Sharing best the best product technology digital solutions supply chain and operational opportunities and working seamlessly on multi brand multichannel strategies globally.

The pace of our transformation and the net proceeds put us on track to achieve about a 2x net leverage ratio this year and resume share repurchases in 2024. With that, let me turn this over to Patrick.

David L. Gitlin: <unk> climate solutions is a company built on excellence. This is a team that loves to win the opportunities to leverage its excellence in customer intimacy product design channel differentiation brand strategy sustainability solutions culture, and talent development and operations will give carrier a clear <unk>.

Thank you, Dave, and good morning, everyone. Please turn to slide 9. We had a good start to the year. Q1 earnings were well ahead of our expectations in the guide we provided in February. Reported sales of $6.2 billion were up 17%, with organic sales up 2%, and a 15% net contribution from acquisitions and divestitures, largely all Wiesman Climate Solutions.

David L. Gitlin: <unk> to sustain differentiation and premier customer satisfaction.

David L. Gitlin: We remain deeply confident in the long term transition towards electrification and sustained growth in the market.

David L. Gitlin: With Germany, aiming to become greenhouse gas neutral by 2045 and individual federal states like Bavaria as soon as 2040 discussions in major municipalities have started as to when the supply of natural gas the households will be limited or effectively stopped at.

Q1 adjusted operating profit of $927 million was up 44% compared to last year, driven by favorable price and productivity and the contribution of Eastman Climate Solutions, partially offset by investment. Strong price and productivity also drove adjusted operating margin expansion. [inaudible] Core Earnings Conversion, that is, excluding the impact of acquisitions, divestitures, and currency, was well over 100% in the quarter.

David L. Gitlin: At the same time two weeks ago, the EU adopted the energy performance of buildings directive under which each member country must adopt its own plan to reduce building energy usage by 20% to 22% by 2035 with at least 55% of the reduction coming from renovations to the worst performing buildings.

David L. Gitlin: While the long term trend towards electrification remains robust we are clear eyed about the short term market headwinds in the European residential market.

Adjusted EPS of $0.62 was up 19% year-over-year and was well ahead of our Q1 guide of $0.50. March was particularly strong, representing 50% of Q1 earnings. Compared to last year, price and productivity more than offset the impact of increased investments and the expected six-cent dilution from Wiesman Climate Solutions. We have included a year-over-year adjusted EPS bridge in the appendix on slide 23. Compared to our Q1 expectations, productivity came in stronger, and we benefited from the timing of a few items, including tax, amounting to about five cents. The free cash outflow of $64 million was in line with typical seasonality and also reflects payments of M&A-related fees.

David L. Gitlin: Despite these headwinds our team outperformed the end markets in Q1 through share gains new product introductions boiler sales and pricing and our team is poised to continue doing so for the full year <unk>.

David L. Gitlin: <unk> sales in Q1 were down 12% overall more than half of which was driven by lower solar PV sales, which carry lower margins for.

David L. Gitlin: For the full year, we now see Vcs sales flat to down 5% with Q2 revenues being similar to Q1 and an expected increase in the second half consistent with a typical seasonal pickup.

David L. Gitlin: So he pump orders in Q1 were down year over year, they were up nearly 60% sequentially and were the highest in a year.

David L. Gitlin: Despite 2022 2024 sales expected to be lower than our February guidance, we only see a modest impact to our full year adjusted EPS because the team is driving to offset reduced volume with increased productivity and synergies and favorable mix.

Moving on to the segments, starting on slide 10, HVAC reported sales growth of 25% reflects the contribution of Wiesman Climate Solutions and 2% organic sales growth. Organic sales in the Americas were up mid-single digits, driven by continued strength in commercial and light commercial, each up around 20%. This was partially offset by a low single-digit decline in residences. North America Resi volume was down mid-single digits, as we guided, and we expect volume to be up year-over-year in each of the remaining quarters. Organic sales in EMEA were down high single digits, driven by significant weakness in Resulite commercial, while commercial sales in EMEA remained strong and were up around 10%.

David L. Gitlin: Cost synergies are tracking to about $75 million in 2024 and over $200 million by year three.

David L. Gitlin: The cost actions position us for higher earnings conversion when the broader market recovers.

David L. Gitlin: We also remain very encouraged by revenue synergies, which we believe will be in the hundreds of millions of dollars.

David L. Gitlin: So we could not be more excited by the opportunities presented by this game changing combination.

Speaker Change: Let me shift gears and talk about the unique opportunity presented by Datacenters as you see on slide seven.

Speaker Change: Over the past three years, we've capitalized on this important opportunity by securing key wins with scale customers globally.

Speaker Change: AI movement is driving hyper and sustained growth in this space not only driving data center growth, but also an outsized opportunity for cooling providers given that AI chips drive seven ex the heat generation versus traditional chips.

Sales in Asia Pacific were flat, with growth in China offsetting a decline in Japan as we continue to improve our mix in that country. This segment had a very strong quarter with a 240 basis point adjusted operating margin expansion. Due to price and strong productivity and despite the consolidation of Eastman Climate Solution, that negatively impacted margin by about 80 basis points. VCS earnings were broadly in line with our expectations, with favorable mixed productivity and synergies offsetting the impact of lower than expected sales, an excellent quarter for HVAC and based on first quarter operational performance.

Speaker Change: Today, It makes up about 20% of the load of a typical data center and some of our customers project that percentage to increase to 80% in the next few years, thus putting huge demand on the grid and increasing the need for differentiated HVAC and controls solutions Accordingly, the data center market for.

Speaker Change: The HVAC business is projected to increase from roughly $7 billion in 2023% to 15% to $20 billion in 2027.

Speaker Change: For us this vertical represents a low double digit percentage of our global commercial HVAC applied business and we see a tremendous opportunity of increasing this segment to well over 20% of our commercial HVAC sales in the next few years.

We now expect 2024 full-year HVAC segment margins to be up, to be about 17.5%, up about 100 basis points compared to last year. Transitioning to refrigeration, on slide 11. Both reported and organic sales were down 2%.

Speaker Change: We doubled our backlog in Q1 alone and in April secured further key wins as we optimize the use of our global footprint to support our customers.

Within transport, the container was up over 50% year over year, and global truck and trailer was down in the low teens, driven by North America truck and trailer, which was down about 25%, reflecting overall demand and Elevated Field Inventory. As a reminder, North America truck and trailer was up over 40% in last year's Q1. European truck and trailer was flat, and Asia truck and trailer was up a strong 20%. Our SENSITEC business, which provides solutions for tracking and monitoring performance at temperature, was up mid-single digit. Commercial refrigeration was down low single digits year over year.

Speaker Change: Turning to our transformation updates on slide eight in.

Speaker Change: In addition to the <unk> integration our business exits also continue to progress well, we are moving with speed and maximizing shareholder value.

Speaker Change: In March we announced the definitive agreement for the sale of industrial fire for $1 4 billion in gross proceeds. This deal is expected to close in early <unk>.

Speaker Change: We now have definitive agreements for three of our four business exits and are within a couple of weeks are issuing our offering memorandum to prospective buyers for our residential and commercial fire business.

Speaker Change: We are targeting to close that deal by the end of this year.

Speaker Change: We are focused but not finished the entire team remains extremely energized as we draw.

Speaker Change: Closer to becoming a higher growth simpler leaner a pure play climate champion the pace of our transformation and the net proceeds put us on track to achieve about a two <unk> net leverage ratio this year and resume share repurchases in 2024 with that let me turn this over to Patrick Patrick.

We now expect the refrigeration segment to be up low single digits in 2024 organically. Adjusted operating margin was down 120 basis points compared to last year, but this was mainly due to the absence of a $24 million gain related to a sale in last year's first quarter.

Patrick: Thank you, Dave and good morning, everyone.

Patrick: Please turn to slide nine.

Patrick: We had a good start to the year Q1 earnings were well ahead of our expectations in the guide we provided in February.

Excluding that gain, Q1 Adjusted Operating Margins were up 150 basis points year over year driven by price and productivity. Moving on to fire and security, on slide 12, this segment had strong financial performance in the quarter. Reported sales were up 2%, with 7% organic sales growth partially offset by a 5% headwind from the KFI deconsolidation.

Patrick: Reported sales of $6 $2 billion were up 17% with organic sales up 2% and a 15% net contribution from acquisitions and divestitures.

Patrick: Substantially all of these climate solutions.

Patrick: Q1, adjusted operating profit of $927 million.

Patrick: It was up 44% compared to last year, driven by favorable price and productivity and the contribution of Eastman climate solutions.

Patrick: We offset by investments.

Patrick: Strong price and productivity also drove adjusted operating margin expansion of 280 basis points compared to last year. Despite the about 50 basis point dilutive impact from <unk>.

The residential and commercial fire business was up mid-single digits. Adjusted operating profit was up over 50% versus the prior year, and adjusted operating margins were up a significant 610 basis points year-over-year, as volume growth, strong productivity, and currency more than offset the headwind of the KFI exit. Overall, a very good quarter for the segment. Turning to slide 13. Total company orders were down about 7% in the quarter, mostly driven by North America truck and trailer orders due to a tough compare. In Q1 of 2023, North America truck and trailer orders were up 50% year-over-year, 5-0. Excluding North America Truck and Trailer, Carrier's organic orders were flat as in Q1.

Patrick: Core earnings conversion that is excluding the impact of acquisitions divestitures and currency was well over 100% in the quarter.

Patrick: Adjusted EPS of <unk> 62 was up 19% year over year and was well ahead of our Q1 guide of 50.

Patrick: March was particularly strong representing 50% of Q1 earnings.

Patrick: Compared to last year price and productivity more than offset the impact of increased investments and the expected <unk> <unk> dilution from recent climate solutions.

Patrick: We have included a year over year adjusted EPS bridge in the appendix on slide 23.

Patrick: Compared to our Q1 expectations productivity came in stronger and we benefited from the timing of a few items, including tax amounting to about five.

Patrick: Free cash flow free cash outflow of $64 million was in line with typical seasonality and also reflects payments of M&A related fees.

Overall, HVAC orders were down between 0% and 5% in the quarter. Within the Americas, commercial orders were up mid-single digits, and North America Resi orders had a second consecutive quarter of year-over-year growth. Light commercial orders were down roughly 35% as order rates are impacted by lead times and a tough compare.

Patrick: Moving on to the segments starting on slide 10.

Patrick: HVAC reported sales growth of 25% reflects the contribution of Eastman climate solutions, and 2% organic sales growth.

Patrick: Organic sales in the Americas were up mid single digits, driven by continued strength in commercial and light commercial each up around 20%.

EMEA commercial orders were up almost 30%, with applied equipment orders up around 60%, including an over 45% increase in data center orders. However, organic residue and light commercial order intake in EMEA remains very weak. Within Asia, weak orders in Japan offset growth in other regions.

Patrick: This was partially offset by a low single digit decline in resi.

Patrick: North America Resi volume was down mid single digits as we guided.

Patrick: We expect volume to be up year over year in each of the remaining quarters.

Patrick: Organic sales in EMEA were down high single digits, driven by significant weakness in rescue light commercial while commercial sales in EMEA remained strong and were up around 10%.

Globally, commercial HVAC orders were up about 10%, and the backlog for that business continues to grow year over year and sequentially. Refrigeration orders were down about 25 to 30 percent in the quarter, mostly driven by the over 40 percent decline in global truck and trailer orders, reflecting the trends in North America I mentioned earlier, along with growth in Europe and Asia. This was only partially offset by continued growth in orders in the container business, where orders were up in the high teens.

Patrick: Sales in Asia Pacific were flat with growth in China, offsetting a decline in Japan as we continue to improve our mix in the country.

Patrick: This segment had very strong quarter at a very strong quarter with a 240 basis point adjusted operating margin expansion due to price and strong productivity and despite the consolidation of recent climate solutions, that's negatively impacted margin by about 80 basis points.

Patrick: Ccs earnings were broadly in line with our expectations with favorable mix productivity and synergies offsetting the impact of lower than expected sales.

Orders for fire and security products, we're flat. Turning to slide 14, Guidance. Compared to our prior guidance, the only change with respect to exits is that industrial fire is now included for the first half of the year. Our prior guidance included a full year of industrial fire, as no definitive agreement had been announced at that time.

Patrick: An excellent quarter for HVAC and based on first quarter operational performance. We now expect 2020 for full year HVAC segment margins to be up to be about 17, 5% up about 100 basis points compared to last year.

Patrick: Transitioning to refrigeration on slide 11, both reported and organic sales were down 2%.

So all three announced exits, Access Solutions, Commercial Refrigeration, and Industrial Fire, are now included for the first half only of our 2024 full year guidance. Taking that into account, we now expect reported full year sales of a little less than $26 billion. Earlier business exit timing represents roughly $400 million of the reduction, and currency translation another $100 million. Lower expected revenue at Wiesman Climate Solutions is roughly offset by expected upside in light commercial and commercial HVAC. The underlying organic growth rate in our guidance remains, therefore, unchanged at mid-single digits.

Patrick: Within transport container was up over 50% year over year and global truck and trailer was down low teens, driven by driven by North America truck and trailer, which was down about 25%, reflecting overall demand and elevated field inventories.

Patrick: As a reminder, North America truck and trailer was up over 40% in last year's Q1.

Patrick: European truck and trailer was flat and Asia trucking 300 was up a strong 20%.

Patrick: Our center Tech business, which provides solutions for tracking and monitoring performance.

Patrick: Temperature was up mid single digits commercial refrigeration was down low single digits year over year.

Patrick: We now expect refrigeration segment to be up low single digits in 2020 for organically.

We are increasing our adjusted operating margin guidance to roughly 15.5%, driven by the strong earnings performance in Q1. We now expect full-year earnings conversion to be north of 40%. Interest expense will be about $25 million lower given the redeployment of the net proceeds from the industrial fire sale.

Patrick: Adjusted operating margin was down 120 basis points compared to last year.

Patrick: This was mainly due to the absence of a $24 million gain related to a sale in last year's first quarter.

Patrick: Excluding that gain Q1, adjusted operating margins were up 150 basis points year over year, driven by price and productivity.

Patrick: Moving on to fire <unk> security on slide 12.

We are maintaining our adjusted EPS guidance range despite the earlier exit of the industrial fire, which is a 5 cent headwind, given stronger performance in our core business. With the strong performance in Q1 and the exit of the industrial fire in the second half, we now expect roughly 50% of full-year adjusted EPS to be realized in the first half of the year. Before I get to free cash flow, I'd like to remind you that proceeds from the sale of businesses are reflected in cash flow from investing and therefore do not impact free cash flow. However, the tax payments on the gains on the sale of businesses are reflected in cash flow from operations and therefore do impact free cash flow.

Patrick: This segment had strong financial performance in the quarter reported sales were up 2% with 7% organic sales growth, partially offset by a 5% headwind from the <unk> deconsolidation.

Patrick: The residential and commercial fire business was up mid single digits.

Patrick: Adjusted operating profit was up over 50% versus the prior year and adjusted operating margins were up a significant 610 basis points year over year as volume growth strong productivity and currency more than offset the headwinds of the KFI exit.

Patrick: <unk> a very good quarter for this segment.

Patrick: Turning to slide 13.

Patrick: Total company orders were down about 7% in the quarter, mostly driven by North America truck and trailer orders due to a tough compare.

Whereas this, of course, does not impact overall cash performance for the company, it does impact our free cash flow metric. Our free cash flow outlook is now $400 million, reflecting about $2 billion of tax payments on gains from business exits and transaction-related costs. So there was no change in the $2.4 billion underlying fee cash flow performance versus the prior guide. The lower free cash flow outlook only reflects expected tax payments on the now-announced industrial fire sale.

Patrick: In Q1 of 2023, North America truck and trailer orders were up 50% year over year five zero.

Patrick: Excluding North America truck and trailer carriers organic orders were flattish in Q1.

Patrick: Overall, HVAC orders were down between zero and 5% in the quarter.

Patrick: Within the Americas commercial orders were up mid single digits, and North America Resi orders had a second consecutive quarter of year over year growth.

Patrick: Light commercial orders were down roughly 35% as order rates are impacted by lead times.

Patrick: Compare.

Patrick: EMEA commercial orders were up almost 30% with applied equipment orders up around 60%, including an over 45% increase in data center orders.

Moving on to slide 15, Adjusted EPS Guide to Guide Bridge. As you can see, our Adjusted EPS Guide at the midpoint remains $2.85, with stronger operational performance, offsetting the five-cent impact of the earlier exit of the industrial fire and the impact of lower expected sales of decent climate solutions. The darker blue represents the businesses we are retaining, including Visa and Climate Solutions, whereas the lighter blue represents the adjusted EPS contribution from the businesses we are exiting. At the midpoint of our new guidance, core adjusted EPS increases 5 cents compared to our February guide to $2.60.

Patrick: Organic <unk>, unlike commercial order intake in EMEA remains very weak.

Patrick: Within Asia weak orders in Japan offset growth in other regions Glo.

Patrick: Globally commercial HVAC orders were up about 10% and the backlog for that business continues to grow year over year and sequentially.

Patrick: Refrigeration orders were down about 25% to 30% in the quarter, mostly driven by the over 40% decline in global truck and trailer, reflecting reflecting the trends in North America, I mentioned earlier, along with growth in our Europe and Asia.

Patrick: This was only partially offset by continued growth in orders in the container business.

In the appendix on slide 24, you will find the year-over-year adjusted EPS bridge at guidance midpoint. Given the tremendous transformation in the portfolio this year, slide 16 may be a helpful framework for 2025. We start with a baseline of $2.60 from the core business at the midpoint of our 2024 guidance. In addition to our double-digit Adjusted EPS Growth Target from our Value Creation Framework, we expect another half-year benefit from deploying the proceeds of industrial fires towards death reduction. In addition to that, net proceeds from the exit of commercial and residential fires would be available for deployment, including for buyback.

Patrick: Orders were up high teens.

Patrick: Orders in fire and security were flat.

Patrick: Turning to slide 14 guidance.

Patrick: Compared to our prior guidance the only change with respect to exits is that industrial fire is now included for the first half of the year.

Patrick: Our prior guidance included a full year of industrial fire as no definitive agreements had been announced at that time.

Patrick: So all three announced exits access solutions commercial refrigeration and industrial fire are now included for the first half only of our 2020 for full year guidance.

Patrick: Taking that into account, we now expect reported full year sales of a little less than $26 billion.

Finally, an additional lever is the 2024 and 2025 free cash flow funded share repurchase. All of this is consistent with our prior messaging that we intend to repurchase at least the equivalent 58.6 million shares issued to the Wiesman family while maintaining a solid investment credit rating. In short, we have several levers available to deliver meaningful adjusted EPS growth in 2025 and beyond. With that, I'll turn it back over to Dave on slide 17.

Patrick: Earlier business exit timing represents roughly $400 million of the reduction and currency translation another $100 million.

Patrick: Lower expected revenue at least in the climate solutions is roughly offset by expected upside in light commercial and commercial HVAC.

Patrick: The underlying organic growth rate in our guidance remains therefore unchanged at mid single digits.

Patrick: We are increasing our adjusted operating margin guidance to roughly 15, 5% driven by the strong earnings performance in Q1.

Thanks, Patrick. We delivered very strong results in the first quarter and are confident that we will continue to perform while we transform. With the integration of Eastman Climate Solutions, the completion of our exits, and the superb progress on our base business, we continue to position ourselves as the global leader in intelligent climate and energy solutions. And with that, we'll open this up to questions. Thank you. If you would like to ask a question, please press star 11. If your question has been answered and you would like to remove yourself from the queue, please press star 11 again.

Patrick: We now expect full year earnings conversion to be north of 40%.

Speaker Change: Interest expense will be about $25 million lower given the redeployment of the net proceeds from the industrial fire sale.

Patrick: We are maintaining our adjusted EPS guidance range. Despite the earlier exit of industrial fire, which is a <unk> <unk> headwind given stronger performance in our core business.

Patrick: With the strong performance in Q1, and the exit of industrial fired in the second half. We now expect roughly 50% of full year adjusted EPS to be realized in the first half of the year.

Patrick: Before I get to free cash flow I'd like to remind you that proceeds from the sale of businesses are reflected in cash flow from investing and therefore do not impact free cash flow.

Our first question comes from Julian Mitchell with Barclays. Your line is open. Hi, good morning, and thanks for distilling a lot of moving parts succinctly this morning. In terms of, I guess, the first question, maybe on VCS, no surprise, you talked about sales down low double digits in Q1 and sort of down low single digits for the full year as a whole. Maybe it could help us understand, sort of year on year, how we should think about, you know, the second quarter playing out within that.

Patrick: However, the tax payments on the gains on the sale of businesses are reflected in cash flow from operations and therefore do impact free cash flow.

Patrick: Whereas this of course does not impact overall cash performance for the company it does impact our free cash flow metric.

Patrick: Our free cash flow outlook is now $400 million.

Patrick: Reflecting above about $2 billion of tax payments on gains from the business exits and transaction related costs.

And then for the year as a whole, you know, how much of that decline is driven by that solar PV business as opposed to the sort of core HVAC part of VCS. Sure, Julian, let me start, and Patrick can add.

Patrick: So no change in the $2 4 billion underlying free cash flow performance versus the prior guide.

Unknown Executive: The lower free cash flow outlook only reflects expected tax payments on the now announced industrial fire sale.

Well, we did say actually flat to down, mid single digits for the full year previously, and, of course, up mid single digits. We expect for Q2 the absolute sales number to be about the same as Q1, which, in that case, would put Q2 year over year down about 10 to 15%. Our forecast assumes in the second half that revenue would be up about 20 percent compared to the first half. So this would be typical seasonality.

Patrick: Moving onto Slide 15, adjusted EPS Guide to guide bridge as you can see our adjusted EPS Guide at the midpoint remains $2 85.

Patrick: With stronger operational performance offsetting the <unk> impact of the earlier exit of industrial fire and the impact of lower expected sales of decent climate solutions.

Unknown Executive: Dark blue represents the businesses, we are retaining including recent climate solutions. What is the lighter blue represents the adjusted EPS contribution from the businesses we are exiting.

If that were to happen, that would cause us to be down about five percent for the year. If orders pick up and we see better than seasonality pick up in the second half, then we would get closer to flat. You know, as we think about the full year, we still expect positive growth in heat pumps, but that's probably up in the mid-single-digit range. We do see boilers down, probably in the low-double-digit range. You asked about solar PV.

Unknown Executive: At the midpoint of our new guidance core adjusted EPS increased <unk> <unk> compared to our February guidance to $2 60.

Unknown Executive: In the appendix on Slide 24, you will find the year over year adjusted EPS bridge at guidance midpoint.

Unknown Executive: Given the tremendous transformation in the portfolio. This year slide 16 may be a helpful framework for 2025.

Unknown Executive: We start with the baseline of $2 60 from the core business at the midpoint of our 2020 for guidance.

Unknown Executive: In addition to our double digit adjusted EPS growth targets from our value creation framework, we expect another half year benefit from deploying the proceeds of industrial fire towards debt reduction.

That's probably down more than 30 percent for the year, which, as we said, has lower margins. And Thomas and the team are doing a superb job with the aftermarket. You know, that was up mid-teens in the first quarter, and we think that will continue for the full year. That's very helpful, thank you.

Unknown Executive: In addition to that net proceeds from the exit of commercial and residential fire would be available for deployment, including for buybacks.

And then just a quick follow-up on the HVAC segment. So I think, Patrick, you talked about the full year margins in HVAC being up about 100 points year-on-year. Is that kind of a similar year-on-year rate we should expect each quarter for the balance of the year? And I just wondered if you'd made any changes to the assumptions within HVAC. I think you called out stronger growth assumed now for light and applied commercial HVAC.

Unknown Executive: Finally, an additional lever is 2024 and 2025 free cash flow funded share repurchases.

Speaker Change: All of this is consistent with our prior messaging that we intend to repurchase at least the equivalent $58 6 million shares issued to the <unk> family, while maintaining a solid investment grade credit rating.

Unknown Executive: In short we have several levers available to deliver meaningful adjusted EPS growth in 2025 and beyond with that I'll turn it back over to Dave for Slide 17. Thanks, Patrick we delivered very strong results in the first quarter and are confident that we will continue to perform while we transform with the integration.

Yeah, overall for the year, compared to our earlier guide, we think light commercial and commercial HVAC will be a little bit better. In terms of the year-over-year margin for HVAC as a segment, we do expect Q2 to be up about 100 basis points year-over-year, Q3 will probably be somewhat similar, and then we expect Q4 to be better year-over-year as well. Great, thank you. Thanks, Julian.

Speaker Change: <unk> of easement climate solutions, the completion of our exits and the superb progress on our base business, we continue to position ourselves as the global leader in intelligent climate and energy solutions and with that we'll open this up for questions.

Speaker Change: Thank you if you'd like to ask a question. Please press star one.

Thank you. Our next question comes from Jeffrey Sprague with Vertical Research Partners. Your line is open. Hey, thanks. Good morning, everyone.

Jeffrey Todd Sprague: If your question has been answered and you'd like to remove yourself from the queue. Please press star one again.

Unknown Executive: First question comes from Julian Mitchell with Barclays. Your line is open.

Good morning, Jeff. Hey. Hey, good morning.

Dave, interesting to hear Resi and Commercial Fire now prioritizing sales with kind of a year-end close, right? So it sounds like you're close to something, and so maybe you could address that. And, you know, is there something happening on PFAS to kind of expedite this and get it to some kind of sale process that can close? Obviously, we all saw JCI settled something in the MDL a couple weeks ago. Yeah, look, we feel that we've been progressing with PFAS very well. You know, Chapter 11 with KFI is gone.

Jeffrey Todd Sprague: Hi, good morning.

Jeffrey Todd Sprague: Thanks for distilling a lot of moving parts simply this morning.

Unknown Executive: In terms of I guess, the first question maybe on Vcs No surprise, you talked about sales down.

Unknown Executive: Low double digits in Q1, and sort of down low single digits.

Unknown Executive: For the full year as a whole.

Unknown Executive: Maybe help us understand sort of.

Unknown Executive: Year on year, how we should think about the second quarter playing out within that.

Unknown Executive: And then for the year as a whole.

Unknown Executive: How much of that decline is driven by that solar PV.

[inaudible] We're very pleased overall with the progress that the legal team has been making on PFAS. And then, in terms of the sale of our residential and commercial fire business, we should be in the market with an offering memorandum probably in two weeks. The business is performing extremely well. EBITDA this year is tracking higher, much higher than it was.

Unknown Executive: Business as opposed to the sort of core HVAC part of ECS.

Speaker Change: Sure Julian let me start and Patrick can add.

Unknown Executive: Well, we did say actually flat to down.

Unknown Executive: Mid single digits for the full year of previously of course up mid single digits. We expect for Q2 will be the absolute sales numbers should be about the same as Q1, which in that case.

Last year, and it's progressing. The business is performing well, and for a whole variety of reasons, we're prioritizing sale. We're not excluding the possibility of a public market exit, but we're prioritizing sale. We should be in the market with the offering memorandum in a couple weeks, and we're hoping to close by the end of this year. And, I mean, the biggest question I get on Carrier actually maybe hits a little close to home.

Unknown Executive: Would put Q2 year over year down about 10% to 15%.

Unknown Executive: Our forecast assumes in the second half that revenue would be up about 20% compared to the first half. So this would be typical seasonality if that were to happen that would cause us to be down about 5% for the year, if orders pick up and we see better than seasonality pick up in the second.

Unknown Executive: Half, then we would get closer to flat as.

But Dave, you have a recent, you know, kind of deal with the company and center program and the like. You know, are you there for good? Is the door still cracked open to consider something else?

Unknown Executive: As we think about the full year we.

Unknown Executive: We still expect positive growth in heat pumps, that's probably up in the mid single digit range, we do see boilers down probably in the low double digit range you asked about solar PV that that's probably down.

Every other day, I get asked if you're going to Boeing. Well, Jeff, I'm really glad you asked that because I do want to address it head-on. And I want to be clear that, look, I've notified both our board and the Boeing board that I am 100% committed to Carrier. I'm really honored to be on the Boeing board. I'll do everything I can to support that important company as a board member. But given my commitment to Carrier, I've removed my name from consideration as a potential CEO of Boeing.

Unknown Executive: More than 30% for the year, which as we said has lower margins and Thomas and the team are doing a superb job with aftermarket that was up mid teens in the first quarter and we think that will continue for the full year.

Unknown Executive: Yes.

Speaker Change: That's very helpful. Thank you and then just a quick follow up on the HVAC segment. So I think Patrick you talked about the full year margins in HVAC being up about 100 points year on year.

Unknown Executive: Is that kind of.

Unknown Executive: Similar year on year rate, we should expect each quarter for that.

And I'm not only committed to Carrier, I have to tell you; I'm so excited to be part of this journey. How rarely in your career do you get to be part of such a transformational journey? And, you know, I don't know what inning we're in, but we're in the early innings of what I think will go down as one of the biggest transformations ever. And I'm so excited to be on the journey with 70,000 or so team members at Carrier. So I'm staying put, 100% committed to Carrier. And I do appreciate you asking that, Jeff. Great. Thanks for the answer.

Unknown Executive: The balance of the year and just wondered if you had made any changes to the assumptions within HVAC I think you called out stronger growth assume now for light and applied commercial HVAC.

Speaker Change: Yes overall for the year compared to our earlier guidance, we think light commercial and commercial HVAC will be a little bit better.

Unknown Executive: In terms of the year over year margin.

Unknown Executive: For HVAC as a segment, we do expect Q.

Unknown Executive: Q2 to be up about 100 basis points year over year.

Unknown Executive: Q3 will probably be somewhat similar in that we expect Q4 to be better year over year as well.

Thank you. Thank you. Our next question comes from Andy Kaplowitz with Citigroup. Your line is open.

Speaker Change: Great. Thank you.

Speaker Change: Thanks Julien.

Andrew Alec Kaplowitz: Thank you. Our next question comes from Jeffrey Sprague with vertical research partners. Your line is open.

Hey, good morning, guys. This morning, We talked about data centers, which are low double digits of global HVAC sales and could be 20% over time. I think you said that data centers doubled this quarter in terms of backlog, so could you talk a little bit more about Carrier's position in the data center market, maybe what you think your share is, where Carrier is in terms of liquid cooling, and how to think about the shape of bookings going forward as 24 evolves. Do you see data center bookings continuing to increase from what you booked in Q1?

Andrew Alec Kaplowitz: Hey, Thank you good morning, everyone.

Speaker Change: Good morning, Jeff, Hey, Hey, good morning.

Unknown Executive: Interesting to hear.

Unknown Executive: In commercial fire now prioritizing sale kind of year end close right. So it sounds like you're close to something.

Unknown Executive: So maybe you could address that and is there something happening on P. Fast kind of expedite this and get it to kind of.

Unknown Executive: Sale process second close obviously, we all saw ACI settled something in the MTL a couple of weeks ago.

Unknown Executive: Yes look we feel that we have been progressing with PFS very well the chapter 11 with Caf II is gone.

Unknown Executive: Exactly kind of as we expected and gone well and we've been in mediation with the plaintiffs and thats been progressing well so.

Yeah, I think, you know, Frankly, we got some really good quarters, Andy, and just even a couple weeks ago in April. So this is a unique moment in time. It's exponential. Today, I would say in the US, we have a low share. You know, this is both for water cooled and air cooled chillers.

Unknown Executive: We looked at the <unk> of course their settlement was for the water claims.

Unknown Executive: Cases, it didnt cover pie, but I think in terms of us.

Unknown Executive: We're very pleased overall with the progress that our legal team has been making on PFS and then in terms of the sale of our residential and commercial fire business, we should be in the market with an offering memorandum probably in two weeks.

But we think we're incredibly well positioned from a technology perspective. The key for us has not been technology. It's all been about expanding our capacity, so we're maxing out. All of our facilities globally, and we're also going to be expanding our capabilities to support this in Mexico as well. So, our focus is making sure we're there for all of our customers, especially some of the big customers that are really leaning into this. It's not like anything we've seen, you know. In some cases, we sell a few water-cooled chillers at a time.

Unknown Executive: The business is performing extremely well the EBITDA this year is tracking.

Unknown Executive: Higher much higher than it was.

Unknown Executive: Last year and it's progressing.

Unknown Executive: The business is performing well and for a whole variety of reasons, we're prioritizing Sal we're not excluding the possibility of a public market exit, but we're prioritizing a sale we should be in the market with the offering memorandum at a couple of weeks and we are hoping to close by the end of this year.

Unknown Executive: Great.

Unknown Executive: The biggest question I did on the carrier actually maybe it hits, a little close to home but.

And here we're looking at selling hundreds in a single order. So we feel very well positioned. We see the growth being exponential. We've invested in liquid cooling. We made a VC-type investment in SLT, which is a strategic thermal lab. So that's really positioning us for the liquid cooling space for direct-to-chip cooling.

Unknown Executive: Dave you have a recent.

Unknown Executive: Kind of deal with the company incentive program and the like.

Speaker Change: Are you there for good as the door still cracked open to consider something else I'd rather.

Speaker Change: Today, I would ask if youre going to Boeing.

Speaker Change: Well Jeff.

Speaker Change: Frankly, I'm really glad you asked that because I do want to address it head on and I want to be clear that.

Unknown Executive: Look I have notified both our board and the Boeing Board that I am 100% committed to carrier I'm really honored to be on the Boeing Board I'll do everything I can to support that.

We're seeing strength globally; probably 70% of our sales are in North America, but we've done extremely well, both in Asia and in Europe. And this is a market where we have a dedicated Tiger team strictly focused on this space because it is such a unique moment in time. Very helpful.

Speaker Change: Important company as a board member, but given my commitment to carrier I remove my name from consideration as the potential CEO of Boeing and Im not only committed to carrier I have to tell you. So excited to be part of this journey I mean rarely in your career or do you get to be part of such a transformational journey and I don't.

And Dave, maybe you could give us just a little more color on the productivity you drove in Q1 and, you know, what you're thinking for the rest of the year. I know you've got to 30%, you know, incrementals in the past, but you did 100% there. I obviously understand you raised your margin guidance, but how sustainable is the kind of productivity acceleration you saw in Q1? And, you know, given rising material costs, how do you think about sort of the offset there with price? Yeah, I have to tell you that Adrian Button's operations team working with our businesses is the best that I have felt since I've been a carrier about our ability to achieve sustained productivity. We have one single source of the truth; every single one of our productivity actions globally is in one database; we can sort it 20 different ways.

Unknown Executive: What inning, we're in but we're in the early innings on what I think will go down as one of the biggest transformation as ever and I am so excited to be on the journey with.

Speaker Change: 70000, or so team members at carrier, so I'm staying put 100% committed to carrier and I do appreciate you asking that Jeff. Thank you.

Speaker Change: Great. Thanks for the answer thank you.

Unknown Executive: Thank you. Our next question comes from Andy Kaplowitz with Citigroup. Your line is open.

Speaker Change: Good morning, guys.

Speaker Change: Good morning, Andy.

Unknown Executive: <unk> talked about data centers low double digits.

Unknown Executive: Global HVAC sales could be 20% overtime I think you said that data center has doubled this quarter in terms of backlog. So could you talk a little bit more about cash position in the data center market. Maybe what you think your share is where carriers in terms of liquid cooling and how to think about the shape of bookings going forward is 24 evolves do you see data.

Unknown Executive: Bookings continue to increase from what you booked in Q1.

We are all marching to the beat of the same drum; I would say materials is doing particularly well, that's probably 50% of our productivity; logistics is still tailwind, that's probably 10 or so percent. We're really taking out a lot of overhead, which is a significant piece. And the factories are now resuming productivity after a couple years of negative productivity.

Speaker Change: Yes, I think frankly, we got some really good quarters, Andy and just even a couple of weeks ago. In April. So this is a unique moment in time, it's exponential today I.

Speaker Change: I would say in the U S. We have low share.

Unknown Executive: This is both for water cooled and air cooled Chillers, but we think we're incredibly well positioned from a technology perspective, the key for US has not been technology. It's all been about expanding our capacity. So we're maxing out.

So we're also coming into the year and every quarter with a lot more productivity spoken for, so I feel tremendous about the progress. Yeah, we've seen some copper headwinds, you know, prices getting up to like 450. But we got a little bit of offset from steel and aluminum.

Unknown Executive: All of our facilities globally, and we're also going to be.

Unknown Executive: Expanding our capabilities to support this in Mexico as well so we our focus is making sure. We're therefore, the all of our customers.

Unknown Executive: Especially some of the scale customers that are really leaning into this it's not like anything we've seen in some cases, we sell.

So I think we're very, we're probably about half hedged on copper for the year. So I feel very, very, very well calibrated for the year on productivity and also calibrated as we go forward beyond that. Appreciate the cover, guys.

Unknown Executive: A few water cooled chillers at a time and here, we're looking at selling hundreds in a single order. So we feel very well positioned we see the growth being exponential we've invested.

Our next question comes from Tommy Moll with Stevens, Inc. Your line is open. Good morning, and thank you for taking my questions. Hey Tommy.

Unknown Executive: In.

Thomas Moll: In our liquid cooling, we made a VC type investment in SLT, which is strategic thermal labs. So that's really positioning us for the liquid cooling space for direct to chip cooling, we're seeing strength globally, probably 70% of our sales are in North America, but we've done extremely well both in Asia.

David, I wanted to start with an update on A2L. What can you give us there in terms of when you plan to start or ramp up production? On the pricing front, any revision or reaffirmation of what you expect to capture over this year and next? And then, if there's a bogeyman you want to throw out, one of your competitors in the U.S. did yesterday just in terms of how much of the demand a new product might represent next year. That'd be helpful as well. Sure, Tommy.

Unknown Executive: <unk>.

Speaker Change: And in Europe, and this is a market that we have a dedicated tiger team strictly focus on this space because it is such a unique moment in time.

Tommy: It's very helpful and Dave maybe you could give us just a little more color into the productivity drove in Q1, and what youre thinking for the rest of the year I know you've guided to 30% incrementals in the past, but obviously it did 100% there.

Yeah, I think, first of all, yes, we would reaffirm what we've said about 15 to 20% price increase over two years. I mean, that includes, You know, a low double-digit base price increase of 454B versus 410A, and then you'll get a few percent of base price this year and next year. So I know there are some skeptics on that.

Speaker Change: I understand you raised your margin guidance, but how sustainable is that kind of productivity acceleration you saw in Q1 and <unk>.

Unknown Executive: Given rising material cost how do you think about sort of the offset there with pricing.

Unknown Executive: Yes, I have to tell you that Adrian button operations team working with our businesses. It is the best that I have felt since I've been at carrier about our ability to achieve sustained productivity. We have one single source of the truth every single one of our productivity actions globally is in one database, we can sorted 'twenty.

We're already selling the 454B units. We shipped our first in the first quarter. Obviously, it won't be that much over the short term, but we already have, you know, a price point in the marketplace for that; about 20% of our mix this year would be 454B. I think it's gonna be less than that, but to the extent we ship less 454B, I think that for us for the year would be offset by probably a little more pre-buy than we thought on the 410A.

Unknown Executive: 20 different ways, we all are marching to the beat of the same drum I would say materials is doing particularly well that's probably 50% of our productivity logistics is still tailwind, that's probably 10 or so percent, we're really taking out a lot of overhead which is a significant piece in the factories are now resuming to productivity after a couple of years.

Unknown Executive: Ears of negative productivity so.

Unknown Executive: We're also coming into the year and every quarter with a lot more productivity spoken for so I feel tremendous about the progress yes, we've seen some copper headwind prices getting up to like $4 50, but we got a little bit of offset from steel and aluminum. So I think we're very we're probably about half hedged on copper for the year. So.

So we feel good overall about this year calibrated at RESI in the high single digits. I saw what one of our peers said yesterday about the mix next year. I think it, you know, look, it's early to say, I think they were suggesting in the 60% range for 454B, but I think it'll be more than that. I think you'll have some pre-buy at the end of this year on the 410A, and that will cover, you know, some percentage of the volume into one Q, maybe a tiny bit into two Q, but I think the bulk of the year will transition to So I don't know if it's in the 70% range, but it's, I think it's a bit higher than 60, but you know, it remains.

Unknown Executive: I feel very very very well calibrated on the year on productivity and also calibrated as we go forward beyond this.

Speaker Change: I appreciate the color guys.

Speaker Change: Thanks, Andy.

Unknown Executive: Thank you. Our next question comes from Tommy Moll with Stephens, Inc. Your line is open.

Speaker Change: Good morning, and thank you for taking my questions.

Tommy: Tommy Good morning.

Speaker Change: Dave I wanted to start with an update on <unk>, what can you give us there in terms of when you plan to start ramp production.

Speaker Change: On the pricing front any revision or reaffirmation of what you expect to capture over this year and next and then if there's a bogey you want to throw about throw out one of your competitors in the U S did yesterday just in terms of how much of the demand of new product by represent next year that'd be helpful. As well. Thank you.

And Dave, a follow-up on light commercial HVAC trends in America. Orders were down meaningfully, but obviously on a tough comp. Can you just refresh us on your revenue expectation there this year and describe any aspect of the demand environment? Thank you. You know, it's hard to look at year over year quarters.

Dave: Sure Tommy Yes, I think first of all yes, we would reaffirm what we've said about 15% to 20% price increase over two years I mean that includes.

Unknown Executive: No.

Dave: Low double digit base price increase $4 54, b versus the 410, a and then Youll get a few percent of base price. This year and next year. So I know, there's some skeptics on that we're already selling the 454 B units, we shipped our first in the first quarter.

Yes, quarters. Orders in the quarter were down significantly. We look more at how we're positioned for the year. I think that we had said that sales for light commercial vehicles would be down mid-single digits this year, which assumed volume down high single digits. Given that our first quarter was up a little north of 20% on sales and we still have good backlog, Patrick said that, but I clearly think there's upside to that number.

Unknown Executive: Obviously, it won't be that much over the short term, but we already have have a price point in the marketplace for that and we feel confident in the 15% to 20% over two years I had previously said that we thought that.

Unknown Executive: About 20% of our mix this year would be $4 54, B I think it is going to be less than that but to the extent, we shipped less $4 54, B I think that for us for the year will be offset by probably a little more pre buy than we thought on the <unk> hundred 10, <unk>. So we feel good overall about this year are calibrated at <unk> at the high single digits.

And there are still verticals that remain strong. You know, you look at K through 12, some of that value-based retail, some healthcare space, like some of the urgent care centers, some of the quick-serve restaurants. They're still strong.

Unknown Executive: I saw one of our peer said yesterday about the mix next year I think look it's early to say I think they were suggesting in the 60% range for $4 54, B I think it'll be more than that I think youll have some pre buy at the end of this year on the <unk> and that will cover into some percentage of the volume into <unk>, maybe a tiny.

So even though we expect year over year orders to decline, that base business remains very strong. And, by the way, we keep taking share and taking share the right way based on technology differentiation. So, still a good vertical for us.

And again, I think upside to our original guide on like. Thank you, Dave. I'll turn it back.

Speaker Change: Into <unk>, but I think the bulk of the year, we will transition to 450 <unk>. So I don't know if it's in the 70% range, but its I think its a bit higher than 60, but it remains to be seen.

Our next question comes from Deane Dray with RBC. Your line is open. Thank you. Good morning, everyone.

Good morning, Dean. I just circled back on Wiesman. You know, people were holding their breath about destocking. So just kind of where does that all shake out, and what is your line of sight on the resumption of the various European country incentives? I know you touched on that in the prepared remarks. But what's the typical lag once the, you know, Germany reinstates, Italy reinstates? I think they have already done that.

Unknown Executive: And Dave a follow up on <unk>.

Unknown Executive: Commercial HVAC trends in Americas orders were down meaningfully, but obviously on a tough comp can you just refresh us on your revenue expectation there this year and describe any aspect of the demand environment. Thank you.

Unknown Executive: It's hard to look at year over year quarters, yes.

Unknown Executive: <unk> orders in the quarter were down significantly we look more at how we're positioned for the year I think that we had said that.

But what's the typical lag between you starting to get those orders? Well, look, I think in terms of the first piece, you know, because we're direct to installer, we don't see the same de-stocking that many of our peers do. So I think that the way we look at it is that piece is largely behind us. We're now back to the traditional book and ship business. So the significant backlog that existed, like many of us, we saw the same thing in our U.S. resi business.

Unknown Executive: Sales for light commercial would be down mid single digits, this year, which assume volume down high single digits, given that our first quarter was up a little north of 20% on sales and we still have good backlog.

Unknown Executive: Patrick said, it but I clearly think there is upside to that number and theres still verticals.

Unknown Executive: That remains strong you look at K through 12, some of that value based retail some health care space like some of the urgent care centers. Some of the quick serve restaurants. They are still strong so even though we expect year over year orders to decline that base business remains very strong and by the way, we keep we keep taking share and taking share the right way base.

Just an atypical high level of backlog a year, a year and a half ago. That's now back to normal. When we look at what's kind of happening in Germany, and I think it's true in other countries, that once the legislation gets promulgated, you do typically see, and we're experiencing this, a bit of a lag between the subsidy definition being finalized and new applications. So the question is, why would both boilers and heat pumps be down?

Unknown Executive: On technology differentiation, so still a good vertical for us and again I think upside to our original guide on light commercial.

Speaker Change: Thank you, Dave I'll turn it back.

Speaker Change: Thanks Tommy.

Unknown Executive: Thank you. Our next question comes from Deane Dray with RBC. Your line is open.

Speaker Change: Thank you and good morning, everyone. Good.

Unknown Executive: Good morning, Dan Good morning.

Unknown Executive: Circle back on the spend.

I think that... Many customers in Germany know, and throughout Europe know, that in the long term, you're going to transition to heat pumps. They wanted to make sure that the new legislation was going to stick and that there wouldn't be any changes.

Unknown Executive: We are holding their breath about destocking, so just kind of where does that all where does that all shake out and your line of sight on the resumption of the various European country incentives I know you touched on that in the prepared remarks, but what's the typical lag once the Germany.

Obviously, the market's a little bit tight in Europe overall because of the overall economy, but now that the legislation is clearly firm, we do expect to see orders start to pick up. And our expectation is orders start to pick up as we get into May and June, and that positions us for the heating season as we get into September and October. That's really helpful. And then one of the other questions that we get on the dynamics of the heat pumps in Europe is, oh, what about this threat of some of the Asian players coming in as a, you know, a discount product? And would that matter?

Unknown Executive: Reinstates, Italy, Reinstates I think they have done that already but what's the typical lag between you start getting those orders.

Speaker Change: Look I think in terms of the first piece because we are direct to installer, we don't see the same destocking there.

Unknown Executive: At many of our peers do so I think that the way we look at it is that piece is largely behind US. We're now back to traditional book and ship business. So.

Unknown Executive: The significant backlog that existed like many of US we saw the same thing in our U S. Resi business you had.

Unknown Executive: Just a untypical atypical high level of backlog a year year and a half ago. That's now back to normal levels. When we look at what's kind of happening in Germany, and I think it's true in other countries that once the legislation gets promulgated you do typically see and we're experiencing a bit of a lag between the.

Would it take share? And our view is that there's always been a good, better, best stratification of brands in HVAC, and Viesman is at the high end. You rattled off some of the feature comparisons, but just which, is there a risk about new entrance into the European heat pump market?

Unknown Executive: The subsidy definitive <unk> being finalized and new applications. So the question is why would both boilers and heat pumps be down I think that.

Well, I think you answered it perfectly well, Dean. I do think that Wiesman clearly plays in the premium end of the market. So I do think that even though there will be more competition at the entry tier level in the mid tier, we think that because of the brand, the technology differentiation, the unique channel, we don't see that as a major threat directly to Wiesman. I will add, by the way, that I was talking to the CEO of a major German company, and he was so impressed with the combination of Carrier and Wiesman Climate Solutions together. He said that if you look at German brands...

Unknown Executive: Many customers in Germany, no and throughout Europe know that long term, you're going to transition to heat pumps. They wanted to make sure that the new legislation was going to stick and that there won't be change obviously, the market's a little bit tight in Europe overall on the overall economy, but now that the legislation is clearly firm we do expect to.

Unknown Executive: See orders start to pick up.

Unknown Executive: And our expectation is orders start to pick up.

Unknown Executive: As we get into May and June that position us for the heating season, as we get into September and October.

Dean: That's really helpful. And then one of your other questions that we get on the dynamics of the heat pumps in Europe as well what about this threat of some of the Asian players coming in at.

If Viesman isn't number one, it's in the top five most respected brands in the country. And he was saying to me, kind of unsolicited, how powerful this combination will be. So we'll preserve the Viesman brand at the very high end. We are introducing Carrier in the mid-tier range, both for heating and for cooling. So we think that's a unique space.

Unknown Executive: A discount product and would that matter would it take share and our view is that there's always been a good better best stratification of brands in HVAC and <unk> is at the high end you rattled off some of the.

And, of course, we have Toshiba. Yes, there will be some new entrants in the market, but we feel not only is Vismin protected on the high end, but we're actually seeing a bit of a price tailwind as well. Great to hear. Thank you. Thank you. Our next question comes from Noah Kaye with Oppenheimer and Company. Your line is open. Thanks so much.

Unknown Executive: The feature comparisons, but just what's is there a risk about new entrants into the European heat pump market.

Noah Kaye: Well I think you answered it perfectly well I do think that this may.

Noah Kaye: Clearly plays in the premium end of the market. So.

Noah Kaye: I do think that even though there will be more competition at the entry tier level in the mid tier we think that because of the brand the technology differentiation or unique channel, we don't see that as a major threat directly to <unk> I will add by the way that.

Dave, I'd like to stick with VCS. You highlighted early on the new product introductions, expanding the TAM by $5 billion. We'd just love some more color on those product introductions. Curious to know to what extent they were developed in any kind of synergy or technology roadmap coordination, you know, with Legacy Carrier, and to what extent that's an opportunity going forward across the portfolio. Yeah, look, no, I wish I could take some form of credit, but this was done well before our watch.

Unknown Executive: I was talking to the CEO of a major German company and he was.

Unknown Executive: So impressed with the combination of carrier investment climate solutions together. He said that if you look at German brands.

Unknown Executive: <unk> not number one it's in the top five most respected brands in the country and he was saying to me kind of unsolicited how powerful this combination will be so we will preserve the vistaprint brand at the very high end, we are introducing carrier.

I mean, this was Biesman over a period of time developing products for the 16 to 19 kilowatt range, which is in that very high-end single-family home, which is a new market for them, which they introduced in the first quarter. And here in the second quarter, they introduced 19 up to 40 kilowatts, which gets you into that small multifamily residential space. So, very, very attractive new product introductions.

Unknown Executive: In the mid tier range, both for heating and for cooling. So we think thats a unique space and of course, we have Toshiba so.

Unknown Executive: Yes, there will be some new entrants in the market, but we feel not only has been protected on the high end, but we're actually seeing a bit of price tailwind as well.

Speaker Change: Great to hear thank you.

Speaker Change: Thank you.

Unknown Executive: Thank you. Our next question comes from Noah Kaye with Oppenheimer <unk> Company. Your line is open.

Speaker Change: Thanks, so much Dave I'd like to stick with with Vcs you highlighted early on the new product introductions, expanding the Tam by $5 billion would just love some more color on those product introductions curious to know to what extent they were developed and kind of any kind of synergy or technology roadmap.

I mentioned this 5 billion TAM that they now position themselves for. So again, it's one of the many reasons why you can see headline articles about, you know, heat pumps being down in Germany by many tens of percentage range, while we'll be like flat or even heat pumps could be up for us this year. One of the reasons is the new TAM.

Unknown Executive: Asian.

Unknown Executive: With legacy carrier and to what extent, that's an opportunity going forward across the portfolio.

Speaker Change: Yeah look no I wish I could take some form of credit, but this was done well before our watch I mean this was.

I will say, though, on the latter part of your question, when it comes to revenue synergies, we are actively working on a whole bunch of technologies. And that's why I said that we could see revenue synergies in the hundreds of millions, and we put virtually zero in our business case. I think that's going to, when we look back five years from now, I think we'll look back and say that was one of the best upsides to the business case that we saw. Even in North America, Viesman has just introduced, traditionally, in North America, Viesman was a boiler.

Unknown Executive: These men.

Unknown Executive: Over a period of time developing products for the 16% to 19 kilowatt range, which is in that very high end single family home, which is a new market for them, which they introduced in the first quarter and here in the second quarter. They introduced 19 up to 40 kilowatts, which gets you into that small multifamily residential space. So very.

Unknown Executive: Very attractive.

Unknown Executive: New very attractive new product introductions I mentioned, this 5 billion Tam that they now positioned themselves for so again, it's one of the many reasons why you can see headline articles about heat pumps being down in Germany in the many tens.

[inaudible] Very interesting. Thanks. And just on applied strength, I mean, how much of this is just the data center story? How broad a base is it?

Maybe you can talk about some of the other verticals, you know, where the demand just continues to sustain? Well, a lot of it is data centers. That's been very, very strong. Higher ed still remains strong.

Unknown Executive: <unk>.

Unknown Executive: Percentage range, while will be like flat or even heat pumps could be up for us. This year. One of the reasons is the new Tam I will say, though on.

Unknown Executive: On the latter part of your question when it comes to revenue synergies. We are actively working on a whole bunch of technologies and that's why I said that.

Healthcare, like hospitals, remains strong. When you look at it, it varies a little bit by region. We've seen some changes in China, for example. What was very strong in China was EV, solar production, all things renewables.

Unknown Executive: We could see revenue synergies in the one hundreds of millions and we put virtually zero and our business case, I think thats kind of when we look back five years from now I think we will look and say that was one of the best Upsides said the business case that we saw even.

That has now shifted in China, so we're now seeing strength in China from things like infrastructure and some of the other aspects of decarbonization. So some of the areas of strength will shift.

Unknown Executive: In North America of Eastman has just introduced.

Unknown Executive: Traditionally in North America, <unk> was a boiler.

Unknown Executive: <unk> company, they've just introduced an air to water heat pump for North America, which could be very attractive in places like new England, and Canada and some other discrete locations and we can leverage their technology with our channel to go really attack.

Data centers are strong globally. And then what's frankly been strong, other than some changes within China, remains strong. And what's been weak, like commercial office, has generally remained. Very helpful, thank you.

Unknown Executive: The market in the United States, So a lot of interesting upside there.

Speaker Change: Very interesting thanks.

Our next question comes from Nigel Coe with Wolf Research. Your line is open. Thanks, good morning, and thanks for the question. I want to go back to the CNR fire sale.

Unknown Executive: On applied strength.

Nigel Coe: Much of this is just the data center story, how broad based is that maybe you can talk on some of the other verticals.

Nigel Coe: Where the demand just continues to sustain.

Unknown Executive: Well.

Nigel Coe: A lot of it is data centers, that's been very very strong higher Ed still remains strong healthcare like hospitals remains strong when you look at it it varies a little bit by region. We've seen some changes in China. For example, what was very strong in China was EV solar production all things renewables, that's now shifted in.

I've got to say, we were expecting a capital markets transaction, Dave. So I was just wondering if you've had some indication of interest in that asset that gives you confidence in that sale process. And maybe, Patrick, if you could maybe size that business, we've got $2 billion in revenues, a 10% EBITDA margin, maybe it sounds like it's having a good, good year. So maybe just give us a projection for 2024. Yeah, look, and Nigel, I mean, you were expecting it because I said it was so fair, very fair.

Unknown Executive: So we're now seeing strength in China from things like infrastructure and some of the other aspects of de carbonization. So some of the areas of strength will move data centers is strong globally and then what's frankly been strong other than some changes within China remains strong and what's been weak like commercial office.

Unknown Executive: Has generally remained weak.

Speaker Change: Okay very helpful. Thank you.

Speaker Change: Thank you.

Unknown Executive: Thank you. Our next question comes from Nigel Coe with Wolfe Research. Your line is open.

Yeah. So we've changed. You know, we are 100% prioritizing a sale. We completed about a 15 page teaser.

Speaker Change: Thanks, Good morning. Thanks.

Speaker Change: Thanks for the question.

Unknown Executive: I want to go back to the <unk>.

Unknown Executive: <unk>.

We've discussed that with a number of interested buyers, and the interest has been very high. So we've been extremely pleased with the reaction because it's a great set of assets. I mean, you can see our fire and security presence is performing very well.

Unknown Executive: I've got to say, we were expecting a capital markets transaction, Dave. So just wondering if you've had some indications of interest for that asset that gives you confidence in that sale process and.

Unknown Executive: Maybe Patrick if you could maybe size that business, we've got to bring those revenues, 10% EBITDA margin maybe.

You're looking at Edwards, very differentiated, GST, very differentiated, KIDDA, very differentiated. You have a phenomenal set of brands that are uniquely positioned in their various spaces. So we'll see.

Unknown Executive: Sounds like it's having a good good year, so maybe just give us a projection for 234.

Speaker Change: Yes look.

Unknown Executive: And Nigel I mean, you were expecting it because I've said it so fair very fair.

Speaker Change: Yeah, So we've changed.

Exactly where it ends up, but I am very pleased with the level of interest thus far, and we'll send out our offering memorandum in two weeks. Yes, Nigel, you can think of that business as being roughly $2 billion. I'm rounding, and the current run rate EBITDA is in about the mid-200s now, much better, and so we're happy with the improvement we're seeing in that. Okay, that's great. Thanks. And then I'll go back to BCS.

Unknown Executive: We are 100% prioritizing a sale we completed.

Speaker Change: I think a 15 page teaser we've discussed that with a number.

Unknown Executive: Of interested buyers the interest has been very high so we've been extremely pleased with the reaction because it's a great set of assets. I mean, you can see our fire and security business is performing very well youre looking at Edwards very differentiated GST very differentiated kidder very differentiated you have a phenomenal set of brands.

I mean, based on the comments Patrick you made about the dilutive impact on the segment, I'm backing into maybe a 14.5% operating margin, maybe 15.5 EBITDA margin for the quarter. Is that right? And I'm just wondering if that is correct, if my math isn't too wonky. What is the path to the high teens for the full year?

Unknown Executive: That are uniquely positioned in their various spaces. So.

Speaker Change: We will see exact.

Speaker Change: Exactly where it ends up but I am very pleased with the level of interest thus far and we will send out our offering memorandum at two weeks Patrick on the financials, Yes. Nigel you can think of that business being roughly 2 billion I'm rounding and the current run rate EBITDA is in about the mid two hundreds now so.

Unknown Executive: Much better and so we're happy with the improvement we're seeing in that business.

Yes, so from an operating profit margin point of view, Nigel, you can think of Q1 being about twelve and a half. And for the full year, for the full year, again, at the EBIT level, it will be around 15 percent. Actually, we think it might be a little higher than that.

Speaker Change: Okay. That's great color. Thanks, and then back to BCS I mean based on the comments Patrick you made about the dilutive impact of on the segments.

Unknown Executive: I'm backing into maybe a 14, 5% operating margin might be 15, five EBITDA margin.

So, in line with the overall company average, but below the average for the HVAC segment. And that's at the EBIT level. You can probably add a couple of points for that.

Nigel: For the quarter is that is that right and I'm. Just wondering if that is correct. If my math isn't too bulky.

Nigel: What is the path to high teens and for the full year.

Unknown Executive: Yes, so from an operating profit margin point of view.

Two, three points to get to EBITDA. Okay, that's very helpful. Thanks, guys. Yep. Thank you. Thank you. And our next question comes from Stephen Tusa with JPMorgan Chase & Company. Your line is open. Hi, good morning, guys. Thanks for letting me in. Good morning.

Charles Stephen Tusa: Nigel you can think of Q1 being.

Charles Stephen Tusa: About 12, five and for the full year for.

Charles Stephen Tusa: For the full year again at the EBIT level it will be around 15% actually we think maybe a little higher than that so in line with the overall company average, but below the average for the HVAC segment and Thats at the EBIT level and you can probably add a couple of points for that.

Just on that eBit comment, that's eBit-ah, right? Excluding the amortization when you say eBit? Yeah, that's right, Steve, we adjust out the intangible amortization and some of the step-ups as well. Yeah, you guys said previously that you added a bunch to DNA from the regular versus the prior guidance. Is that just truing up some of the financials on Visman? Yes, Steve, you're right. In essence, at the time of the February guide, we didn't have all the details.

Unknown Executive: Three points to get to EBITDA.

Speaker Change: Okay. That's very helpful. Thanks, guys.

Speaker Change: Thank you Nigel.

Speaker Change: Thank you.

Unknown Executive: Next question comes from Stephen Tusa with Jpmorgan Chase <unk> Company. Your line is open.

Speaker Change: Hi, Good morning, guys. Thanks for the man.

Unknown Executive: Good morning.

Unknown Executive: Just on that on that EBIT comment.

Unknown Executive: EBIT right.

Unknown Executive: Excluding the amortization when you say EBIT.

Unknown Executive: Yes, that's right, Steve we adjust out the intangible amortization and some of the step ups as well.

Unknown Executive: You guys said I think previously you.

Unknown Executive: You added a bunch of DNA from the regular versus the prior guidance.

Provide the Best Accurate Estimate of the DNA, and so inventory and backlog step-up was not yet fully included there, and also, since then, we have refined the difference between the intangibles and then the goodwill, and that impacts the amortization as well. So you can think of that being the main driver. Got it.

Unknown Executive: Is that just truing up some of the financials lot of Eastman.

Speaker Change: Yes, you're right in essence at the time of the February Guide of course, we didn't have all the detail to provide the best accurate estimate of the DNA and so inventory and backlog step up was not yet fully included there and also since then we refined the difference between the intangibles and then the goodwill and that impacts the amortization.

And then, sorry, just on Resi, just to follow up on the 454A2L, did you guys, I think you guys are, at least we had heard you're amongst the earlier movers on that. You know, you already have a product in the channel, which is, you know, congratulations on that. That's definitely ahead of some of your peers. Did you kind of, have you been pivoting at all as far as evaluating the market and working, you know, the 410A product in there as the demand changes? Like, how fluid is that situation?

Unknown Executive: As well so you can think of that being.

Unknown Executive: Got it and then sorry, just on resi just to follow up on the on the <unk> hundred 50 <unk> did.

Unknown Executive: Did you guys. I think you guys are like at least we had heard you are amongst the earlier movers on that you already have a product in the channel which is.

Unknown Executive: Congratulations on that that's definitely ahead of some of your peers.

Unknown Executive: Did you kind of.

Unknown Executive: Have you been pivoting at all as far as evaluating the market and working.

Unknown Executive: <unk> a product.

That's kind of the first question. And then just a very quick follow-up for Patrick, can you just give us the price and inflation for the first quarter and then just any updates on that for the year for the bridge? Thanks. Yeah, let me.

Unknown Executive: And there as as the demand changes like how fluid is that situation. That's kind of the first question and then just a very quick follow up for Patrick can you just give us the price and inflation for the first quarter and then just any updates on that for the year for the bridge. Thanks.

Yeah, Steve, let me start on the A2L. Our strategy is to, we did it with the CIRA change, we're doing it with the A2L change, de-risk everything, and get way out in front.

Speaker Change: Yes, let me, yes, Steve let me start on the <unk>.

Unknown Executive: Our strategy is to.

Speaker Change: We did it with the CEO change we're doing it with the Hol changed Derisk everything get way out in front, we don't want any.

We don't want any technical, producibility, capacity, or any issues as we get into the end of this year. Our number one priority is to support our customers and make this a seamless transition. So we are getting way out in front, not only on shipping the product but on training our dealers. We had over a thousand dealers together last week. We had closer to 10,000 together for a discussion probably about 18 months ago.

Unknown Executive: Technical produce ability capacity any issues as we get into the end of this year. Our number one priority is support our customers and make this a seamless transition. So we are getting way out in front not only on shipping the product, but on training our dealers. We had 1000 dealers over 1000 dealers together last week.

Unknown Executive: We had closer to 10000 together.

Unknown Executive: For a discussion probably about 18 months ago. So we are getting all over in terms of the preparation.

So we are getting all over in terms of the preparation. And I do think that, you know, as I mentioned, I think it'll be less than 20% A2L this year, probably a bit of pre-buy on 410, but I do think it'll be higher than that 60% that I know others mentioned for next year. Okay, and then Steve, following up on your questions about price, the price for the quarter was about 2%. For the overall company, we expect it to be about the same for the full year.

Unknown Executive: And I do think that.

Unknown Executive: As I mentioned I think it will be less than 20% this year, probably a bit of pre buy on <unk>, but I do think it'll be higher than that 60% that I know others mentioned for next year.

Unknown Executive: Okay, and then Steve following up on your questions about price price for the quarter was about 2% for the overall company. We expect to be it has to be about the same for the full year. So about half of our organic growth the price in terms of price and net productivity combined that includes the headwinds of raw material inflation for example.

So about half of our organic growth will be price. In terms of price and net productivity combined, that includes the headwinds of material inflation, for example, that was about $200 million in Q1, and we expect that to be about $600 million for the full year in our current guide. Thank you.

Unknown Executive: That combined with about $200 million in Q1, and we expect that to be about $600 million for the full year and our current guidance.

Unknown Executive: Yes.

Speaker Change: Thank you.

Speaker Change: Thank you.

Unknown Executive: Yes.

Speaker Change: Thank you. Our next question comes from Guangdong <unk> with TD Cowen Your line is open.

Your line is open. Yes, thanks. Good morning, guys. Morning. Just talking about 2025 and that bridge, is the growth algorithm still going to go north at 10% earnings growth? off of the adjusted The Adjusted Base.

Speaker Change: Yes, thanks, good morning, guys.

Speaker Change: I was wondering if.

Speaker Change: Just talking about 2025 and that bridge.

Speaker Change: Is the growth algorithm still kind of north of 10% earnings growth.

Speaker Change: So the adjusted.

If you could just talk through kind of your 25 expectations, given, you know, the bridge that you provided on, what the Remain Co is, and the like, just on a work basis, if you will. Right. If you look at slide 23 of the deck that we posted, our core business this year... is up 12% or in Q1 was up 12% for the full year. We expect our core business, including the dilution from Wiesman, to be up 12% for the full year.

Speaker Change: The adjusted base, if you could just talk through kind of your 25 expectations given.

Unknown Executive: The bridge that you provided on.

Unknown Executive: What the remain co is and the like just.

Unknown Executive: Off of what base since you will right.

Unknown Executive: If you look at slide 23 of the deck that we posted our core business this year.

Unknown Executive: It is up 12% in Q1 was up 12% for the full year, we expect our core business, including the dilution from <unk> in year one.

The growth is to be 17%, and our value creation framework says that we'd like to grow our business double digits every year. So management, I think, would be very disappointed if our core business did not grow at least double digit EPS in 2025. And on top of that, as you can see on that slide, there are additional levers.

Unknown Executive: The growth to be 17% and our value creation framework says that we'd like to grow our business double digits every year.

Unknown Executive: Management, I think we'd be very disappointed if our core business will not grow at least double digit EPS in 2025 and on top of that as you can see on that on that slide there are the additional levers.

Redeploying net proceeds from the industrial fire for half a year. That's going to be net, that's going to be debt reduction. [inaudible] Plus a free cash flow generated in 2024 and 2025 ex-dividend will be again available for deployment, including buybacks. And so, a long way of saying we thank you. Thank you very much. And what would your opinion of free cash conversion and 25 be off of that approximately $3 number?

Unknown Executive: Deploying net proceeds from industrial fire for half of the year, that's going to be net that's going to be debt reduction.

Unknown Executive: Crown.

Unknown Executive: Our industrial and commercial fire.

Unknown Executive: I mentioned earlier run rate EBITDA of $2 50, you can assume a multiple on that and some tax leakage that would be available for redeployment, including buybacks.

Unknown Executive: Plus our free cash flow generated in 2024, and 2025 X dividend again available for deployment, including buybacks and so on.

Unknown Executive: A long way of saying, we think there is significant earnings growth power available.

Unknown Executive: To us.

Unknown Executive: And what would your what would your opinion of free cash conversion and 25% off of that approximately $3 number.

We haven't provided a $3 number, but whatever the number is, we target about a hundred percent of UpNet Inc. Appreciate it. And just a quick follow up on Rezi, you know; there's been a lot of chatter about repair versus replace, and potential trading down. Have you seen any evidence of that? I know it's early in the cooling season, but any opinion on how that might have cooled? Yeah, sorry to interrupt. No, we have not seen any evidence of that.

Unknown Executive: We havent provided that $3 number but whatever the number is we targeted about 100% of net income.

Unknown Executive: Appreciate it and just a quick follow up on <unk>.

Unknown Executive: Theres been a lot of chatter about repair versus replace.

Unknown Executive: Potential trading down have you seen any evidence of that.

Unknown Executive: I know, it's early in the cooling season, but.

Unknown Executive: Any asset.

Unknown Executive: Starting to drop no we have not seen any evidence of that we ask that ourselves a lot and we have not seen evidence of that.

We ask that ourselves a lot, and we have not seen any evidence. Thanks a lot, guys. Thank you. Our next question comes from Brett Linzey with Mizuho. Your line is open. Hey, good morning. Yeah, thanks for taking the questions. Hey, Brett. I wanted to come back to the light commercial.

Brett Logan Linzey: Thanks, a lot guys.

Unknown Executive: <unk>.

Unknown Executive: Thank you. Our next question comes from Brett Linzey with Mizuho. Your line is open.

Brett Logan Linzey: Hey, good morning, Thanks for taking the questions.

Brett Logan Linzey: Hey, Brett.

Obviously, it's been a source of strength for a few years here, although orders did take a step down in the first quarter. But you did talk about the light commercial being a profit outperformer for the year. Maybe just some detail on the expectations and some of those moving pieces. Yeah, look, I mean, it's a question we get because it's been so strong for so long. So, you know, last year, we were up 35%. We knew we'd have a tough comp coming into this year.

Brett Logan Linzey: I wanted to come back to light commercial obviously, it's been a source of strength for a few years here orders did take a step down in the first quarter, but you did talk about the light commercial being a profit outperformer for the year, maybe just some detail on the expectations and some of those moving pieces.

Unknown Executive: Yeah look I mean.

Unknown Executive: It's a question we get because it's been so strong for so long so.

Unknown Executive: Last year, we were up 35%, we knew we'd have a tough comp coming in into this year, but.

But, I think it's a very nice combination of share gains, the underlying verticals that have been strong, generally remaining strong, the team performing, and of course, you know, we don't talk about it as much, but we'll have the same 454B dynamic here where we see the same kind of base price and mix increase that we're mentioning for Resi for Resi, we see for light commercial, so that 15 to 20% over There won't be the same kind of pre-buy; there might be a little bit on the small rooftop units, but so you would expect to see an even higher mix next year for 454B, which gives you tailwind as you go into light commercial next year, and these verticals continue to be strong. So we think it'll be slightly better than down mid-single digits this year, given more than 20% in the first quarter. Okay, great. And then just shift over to a container of 50%.

Unknown Executive: I think it is.

Unknown Executive: It's a very nice combination of share gains the underlying verticals that have been strong generally remaining strong.

Unknown Executive: The team performing and of course, we don't talk about it as much but we will have the same $4 54 be dynamic here, where we see the same kind of base price and mix increase that we're mentioning for resi, we see for light commercial so that 15% to 20% over two years, there won't be the same kind of pre buy there might be a little bit on the small.

Unknown Executive: Rooftop units, but so you would expect to see an even higher mix next year for 454, B, which gives you a tailwind as you go into light commercial next year in these verticals continue to be strong so we.

Unknown Executive: We think it will be slightly better than down mid single digits. This year, given more than 20% in the first quarter.

Speaker Change: Okay, Great and then just shifting over to container of 50%.

I guess the worst is behind us here? What are you hearing from some of those customers? And then anything on sort of the sequential trends through the last couple quarters? Yeah, I do think the worst is behind us, Brett. You know, we were up significantly in the fourth quarter, we were up about 50% in the first quarter. I think for the full year, it's probably up in the 30% range.

Unknown Executive: I guess is the worst behind US here what are you hearing from some of those customers and then anything on sort of the sequential trends through the in the last couple of quarters.

Speaker Change: Yes, I do think the worst is behind us spread.

Unknown Executive: We were up significantly in the fourth quarter, we were up about 50% in the first quarter I think for the full year, it's probably up in the in the 30% range and then you look at the.

And then, you know, the other thing that we've done, which is very important, is we've introduced a new digital platform for that space called Links, which, instead of just being an equipment provider, we're now getting subscription-based recurring revenues. And we have 130,000 subscriptions for something that we just introduced a few years ago. So hats off to the team there as well. And that will help smooth some of the cycles in that.

Unknown Executive: The other thing that we've done which is very important as we've introduced a new digital platform for that space as well called links which instead of just being an equipment provider. We're now getting subscription based recurring revenues and we have 130000 subscriptions for something that we just introduced a few years ago, so hats off to the team there as well.

Unknown Executive: And that will help smooth some of the cycles in that business.

Okay, great. Yeah, congratulations on the strong start. Thanks, Brett. Thank you. Our next question comes from Andrew Obin with Bank of America. Your line is open.

Andrew Burris Obin: Okay, great congrats on the strong start.

Andrew Burris Obin: Thanks, Brett.

Andrew Burris Obin: Thank you. Our next question comes from Andrew <unk> with Bank of America. Your line is open.

Andrew Burris Obin: Hey, good morning, guys.

Andrew Burris Obin: Morning, Andrew.

Andrew Burris Obin: Hey, just a question on the buyback you guys alluded that you have capacity to restart the buyback in 'twenty four how is it incorporated in your current outlook just trying to understand that or is that where the margin of safety for the guide.

Hey, good morning, guys. Hey, just a question on the buyback. You guys alluded that you have the capacity to restart the buyback in 24 hours. How is that incorporated in your current outlook? Just trying to understand that? Or is that where the margin of safety comes for the guys?

Speaker Change: Yes, Andrew Thank you for your question and I will provide some context on this so since the acquisition, we've paid down about $500 million in terminals in Q1.

Unknown Executive: And the three exits that we have announced.

Yes, Andrew, thank you for your question. And I'll provide some context on that. So since the acquisition, we have paid down about $500 million in term loans in Q1, and we have the three exits that we have announced. [inaudible] If I look at the buybacks for this year, we have not included them in our guide for the year, but given the timing of our free cash flow, generally, it would be second half weighted, and, as you probably recall, our free cash flow tends to be very heavy in Q

Unknown Executive: Will yield about $5 $5 billion in net proceeds so that's our expectation and what we've communicated is that all of this will be used for.

Unknown Executive: Deleveraging, although we may keep some cash as it may be economically more attractive than just paying down some of the debt.

Unknown Executive: But excluding.

Unknown Executive: If I if I look at the buybacks for this year.

Unknown Executive: We have not included them in our guide for the year, but given the timing of our free cash flow generally would be second half weighted and as you probably recall our free cash flow tends to be very heavy in Q3 and in Q4. So not included in our guide as we resume in the second half of the year there might be some benefit I think the.

So, not included in our guide, as we resume it in the second half of the year, there might be some benefit. I think the benefit will be much more meaningful in 2025 than it will be in 2024. Thank you, Patrick. And just to follow up on Fiesman, you know, what's your ability if, for whatever reason, the second half orders do not pick up as you expected? What's your ability to accelerate restructuring at Fiesman? Because I guess you guys kept the outlook for restructuring flat versus last quarter. Are you gated or limited in any way on the timing of what you can do in Germany?

Speaker Change: It will be much more <unk>.

Speaker Change: Meaning full in 2025.

Speaker Change: And then it will be in 2024.

Speaker Change: Thank you Patrick just a follow up on <unk>.

Speaker Change: You know what.

Speaker Change: Your ability if for whatever reason second half.

Unknown Executive: Orders do not pick up as you expected, what's your ability to accelerated restructuring at this point because I guess you guys kept the outflow for restructuring flat.

Speaker Change: Versus last quarter, you, David or limited in any way or whats on the timing of what you can do in Germany.

Speaker Change: There are levers on cost at Eastman that you can still pull in 24. Thank you.

Yeah, Andrew, I have to say I've been so proud of Thomas and the team working with the central ops folks at Carrier to be incredibly and Appropriately Aggressive on costs. You know, if you look at the actions that Thomas has taken, what's been very important for that, for our 12,000 new colleagues at Visman who fully understand this, it has nothing to do with the combination with Carrier; they're all actions that a business would have taken because of the overall market condition.

Unknown Executive: Yes, Andrew I have to say I've been so proud of Thomas and the team working with the central ops folks at carrier to be incredibly and.

Unknown Executive: And appropriately aggressive on costs.

Unknown Executive: If you look at the actions that Thomas has taken what's been very important for that for 12000, new colleagues at <unk> that fully understand this as it has nothing to do with the combination with carrier. It's all actions that business would have taken because of the overall market condition. So they've been very aggressive on.

So they've been very aggressive on all elements of take-out of costs, not just on basic G&A, but they've been aggressive on materials, logistics costs, value engineering, which is part of the benefit, and insourcing, part of the benefit of coming together with Carrier. And they're going to continue to take costs out. So there are a lot of levers that businesses can and will pull to take costs out of the business. There are certain, You know, kind of natural limitations in the agreement that we had with them, but those are not things that are in any way going to affect the ability for that business to take the appropriate cost action.

Unknown Executive: <unk>.

Unknown Executive: All elements of takeout of cost not just on basic G&A, but they've been aggressive on materials logistics cost value engineering, which is part of the benefit and in sourcing part of the benefit of coming together with carrier and Theyre going to continue to take costs out there. So there's a lot of levers that that business can.

Unknown Executive: And we will pull to take costs out of the business there are certain.

Unknown Executive: Kind of natural limitations.

Unknown Executive: In the agreement that we had with them, but those are not things that are in any way going to affect the ability for that business to take the appropriate cost actions. So.

So when you talk about cost synergies, that excludes whatever actions, as you've alluded, Fiesman would have taken these actions regardless, given the market conditions. Is that the fair point that, you know, there's $200 million by year three we have, but at the same time, Fiesman can accelerate internal cost control, given the market conditions? Is that the right way of thinking?

Unknown Executive: So when you talk about cost synergies that excludes whatever actions as you have alluded. This amount would have taken these actions regardless given the market conditions is that a fair point that there's $200 million by year three we have but at the same time be spun Ken accelerated internal cost control given the market conditions is that the right way of thinking.

Sorry. I think it's a fair description, Andrew. Look, I think cost synergies. We have a very specific definition we use. It's cost that's taken out because of the combination.

Speaker Change: Sorry, I think it's a fair description Andrew.

Unknown Executive: Look I think cost synergies, we have a very specific definition, we use as costs thats taken out because of the combination. So theres a bunch of examples of that where we both buy from the same supplier and we have.

So there are a bunch of examples of that, where we both buy from the same supplier, and we have the ability to go renegotiate with those suppliers or the ability to give more work to certain suppliers. We do a whole lot of value engineering between Toshiba, Carrier, G-Way, and Fiesman. So there's things that cost takeout that we can do because we're now part of the same family. We see it with some of our factory optimization.

Unknown Executive: The ability to go renegotiate with those suppliers or the ability to get more work to certain suppliers.

Unknown Executive: We have a whole lot of value engineering between Toshiba carrier.

Unknown Executive: And.

Unknown Executive: Basement, so theres things that cost takeout that we can do because we are now part of the same family, we see with some of our factory.

So, yes, there's cost takeout that they're doing on their own, and then there's cost synergies on top of that. That's very, very helpful, Dave. Thank you. I'm glad you're staying.

Unknown Executive: Optimization. So yes, there is cost takeout that they're doing on their own and then there is cost synergies on top of that.

Unknown Executive: That's very very helpful. Dave Thank you and I'm glad you're staying thank you bye bye. Thank you.

Thank you. Bye-bye. Thank you. Thanks, Andrew. Okay, well. Yes.

Unknown Executive: Okay.

And just to close it out, I want to end by thanking our customers who always support us and our team who's doing a phenomenal job. So thank you also to our investors. And as always, Sam, we'll be available all day for questions. Thank you all. This does conclude the program, and you may now disconnect. Everyone have a great day.

Speaker Change: Yes. Thank you.

Speaker Change: And just to close it out I want to end.

Unknown Executive: By thinking.

Unknown Executive: Our customers, who always support us and our team who is doing a phenomenal job. So thank you also to our investors and as always Sam will be available all day for questions. Thank you all.

Unknown Executive: Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.