Q3 2024 Johnson Controls International PLC Earnings Call

Good morning and welcome to the Johnson Controls Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero.

Operator: Earnings Conference Call. All participants will be in listen-only mode.

Operator: Arning's conference call. All participants will be in Muslim-only mode. Should you need assistance, please signify conference specialists by pressing the star key followed by zero.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, today's event is being recorded.

After today's presentation, there will be an opportunity to ask questions.

To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2.

Operator: Please note, today's event is being recorded. I would now like to turn the conference over to Jim Lucas, Vice President, Investor Relations. Please go ahead.

Jim Lucas: I would now like to turn the conference over to Jim Lucas, Vice President and Vice Relations. Please go ahead.

Please note, today's event is being recorded.

Jim Lucas: I would now like to turn the conference over to Jim Lucas, Vice President, Investor Relations. Please go ahead. Good morning, and thank you for joining our conference call to discuss Johnson Controls fiscal third quarter 2024 results.

Jim Lucas: Good morning, and thank you for joining our conference call to discuss Johnson Controls Fiscal Third Quarter 2024. The press release and related tables that were issued earlier this morning, as well as the conference call slide presentation, can be found on the investor relations portion of our website at JohnsonControls.com. Joining me on the call today are Johnson Controls Chairman and Chief Executive Officer George Oliver and Chief Financial Officer Marc Vandiepenbeeck. Before we begin, let me remind you that during our presentation today, we will make forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties.

Jim Lucas: Good morning. And thank you for joining our conference call to discuss Johnson Controls' physical third quarter 2024 results. The press release and related tables that were issued earlier this morning, as well as the conference call slide presentation, can be found on the investor relations portion of our website at johnsoncontrols.com.

Speaker Change: The press release and related tables that were issued earlier this morning as well as the conference call slide presentation can be found on the investor relations portion of our website at JohnsonControls.com.

Jim Lucas: Joining me on the call today are Johnson Controls Chairman and Chief Executive Officer George Oliver and Chief. We begin. Let me remind you that during our presentation today, we will make forward-looking statements. Actual results may differ materially from those indicated by forward-looking statements, due to a variety of risks and uncertainties. Please refer to our SEC filings for a detailed discussion of these risks and uncertainties. In addition to the inherent limitations of such forward-looking statements, we will also reference certain non-GAAP measures. Reconciliation of these non-gap measures to the most directly comfortable gap measures are contained in the schedule of the test or press release.

Speaker Change: Joining me on the call today are Johnson Controls Chairman and Chief Executive Officer George Oliver and Chief Financial Officer Marc Vandiepenbeeck.

Jim Lucas: Please refer to our SEC filings for a detailed discussion of these risks and uncertainties, in addition to the inherent limitations of such forward-looking statements. We will also reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are contained in the schedules attached to our press release and in the appendix to this presentation, both of which can be found on the Investor Relations section of Johnson Controls' website. I will now turn the call over to George.

Speaker Change: Before we begin, let me remind you that during our presentation today, we will make forward-looking statements. Actual results may differ materially from those indicated by forward-looking statements due to a variety of risks and uncertainties.

Speaker Change: Please refer to our SEC filings for a detailed discussion of these risks and uncertainties in addition to the inherent limitations of such forward looking statements.

Speaker Change: We will also reference certain non-GAAP measures.

Speaker Change: Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are contained in the schedules attached to our press release and in the appendix to this presentation, both of which can be found on the investor relations section of Johnson Controls website.

Jim Lucas: And in the epimics of this presentation, both of which can be found on the Investor Relations section of Johnson Controls' website.

George Oliver: I will now turn the call over to George. Thanks, jamming.

George R. Oliver: Thanks, Jim, and good morning, everyone. Thank you for joining us on the call today. Let's begin with slide three. We were very pleased to deliver fiscal third quarter results that exceeded almost all of our targets. Organic sales growth was 3%, which was in line with our guidance of low single digits. We delivered a robust 150 basis points of segment margin expansion to 17.9%, which exceeded our guidance of 17%. We are also proud of our free cash flow generation during the quarter, which was more than $500 million higher than the comparable period one year ago.

George Oliver: Good morning, everyone. Thank you for joining us on the call today. Let's begin with slide three. We were very pleased to deliver a physical third quarter results that exceeded almost all of our targets. Organic sales growth was 3%, which was in line with our guidance of low single digits. We delivered a robust 150 basis points of segment margin expansion to 17.9%, which exceeded our guidance of 17%. We were also proud of our free cash flow generation during the quarter, which was more than $500 million higher than the comparable period one year ago. Service led the way once again with 9% growth, which continues to validate our transformation efforts.

Speaker Change: I will now turn the call over to George. Thanks, Jim, and good morning, everyone. Thank you for joining us on the call today.

George R. Oliver: Let's begin with slide 3. We were very pleased to deliver a fiscal third quarter result that exceeded almost all of our targets. Organic sales growth was 3%, which was in line with our guidance of low single digits.

George R. Oliver: We delivered a robust 150 basis points of segment margin expansion to 17.9%, which exceeded our guidance of 17%.

George R. Oliver: We are also proud of our free cash flow generation during the quarter, which was more than $500 million higher than the comparable period one year ago.

George R. Oliver: Service led the way once again with 9% growth, which continues to validate our transformation efforts. It is encouraging as we continue to build momentum toward meeting our full-year financial objectives. Orders grew 5% during the quarter.

George R. Oliver: Service led the way once again with 9% growth which continues to validate our transformation efforts. It is encouraging as we continue to build momentum toward meeting our full year financial objectives.

George Oliver: It is encouraging as we continue to build momentum toward meeting our full-year financial objectives. Orders grew 5% during the quarter. We expect some quarterly fluctuation in our order of patent, given the strong demand for our data center solutions. With the investments we have made over the last few years in technologies for data centers, the launch of a dedicated organization and our one-of-a-kind offerings, we remain well positioned in this fast growing segment with solutions that are clearly resonating with customers. We have built a leading position in data centers in North America due to a unique and compelling customer value proposition.

George R. Oliver: We expect some quarterly fluctuation in our patent order, given the strong demand for our data center solution. With the investments we have made over the last few years in technologies for data centers, the launch of a dedicated organization, and our one-of-a-kind offerings, we remain well-positioned in this fast-growing segment with solutions that are clearly responding with customers. We have built a leading position in data centers in North America due to a unique and compelling customer value proposition.

George R. Oliver: Orders grew 5% during the quarter. We expect some quarterly fluctuation in our order pattern given the strong demand for our data center solutions.

George R. Oliver: With the investments we have made over the last few years in technologies for data centers, the launch of a dedicated organization, and our one-of-a-kind offerings, we remain well-positioned in this fast-growing segment with solutions that are clearly resonating with customers.

George R. Oliver: We have built a leading position in data centers in North America due to a unique and compelling customer value proposition.

George R. Oliver: As our customers expand internationally to meet the rapidly growing demand for data centers, we grow alongside them as they choose to partner with Johnson Controls around the world. Our backlog grew 10% in the quarter as we continue to see demand for our solutions, both systems and services.

George Oliver: As our customers expand internationally to meet the rapidly growing demand for data centers, we grow alongside them as they choose to partner with Johns Controls around the world. Our backlog grew 10% in the quarter as we continue to see demand for our solutions, both systems and services. The growth in orders and backlog give us increased confidence in our ability to continue delivering sustainable long-term growth.

George R. Oliver: As our customers expand internationally to meet the rapidly growing demand for data centers, we grow alongside them as they choose to partner with Johnson Controls around the world.

George R. Oliver: Our backlog grew 10% in the quarter as we continue to see demand for our solutions, both systems and services.

George R. Oliver: The growth in orders and backlog gives us increased confidence in our ability to continue delivering sustainable long-term growth. As part of our ongoing business transformation, we announced two divestitures, our residential and light commercial HVAC business and our air distribution technologies business. These two transactions represent roughly 20% of current sales. At the same time as our earnings results, we announced this morning that I informed the board it was time to initiate our CEO succession plan, following recent significant milestones in our portfolio transformation.

George R. Oliver: The growth in orders and backlog give us increased confidence in our ability to continue delivering sustainable long-term growth.

George Oliver: As part of our ongoing business transformation, we announced two divestitures: our residential and light commercial HVAC business in our eared distribution technology business. These two transactions represent roughly 20% of current sales.

George R. Oliver: As part of our ongoing business transformation, we announced two divestitures, our residential and light commercial HVAC business and our air distribution technologies business.

George R. Oliver: These two transactions represent roughly 20% of current sales.

George Oliver: At the same time as our earnings results, we announced this morning that I informed the board it is time to initiate our CEO succession plan. Following recent significant milestones in our portfolio transformation, and as we move to the next phase of growth, I believe that now is the right time to begin the process of identifying the next leader of the new Johnson Controls. Accordingly, the board has engaged a nationally recognized search firm and begun a comprehensive search for the company's next CEO. Once my successor has been named, I will remain chair of the board to help facilitate a smooth transition.

Speaker Change: At the same time as our earnings results, we announced this morning that I informed the board it is time to initiate our CEO succession plan.

George R. Oliver: And as we move to the next phase of growth, I believe that now is the right time to begin the process of identifying the next leader of the new Johnson Controls. Accordingly, the board has engaged a nationally recognized search firm and begun a comprehensive search for the company's next CEO. Once my successor has been named, I will remain chair of the board to help facilitate a smooth transition.

Speaker Change: following recent significant milestones in our portfolio transformation. And as we move to the next phase of growth, I believe that now is the right time to begin the process of identifying the next leader of the new Johnson Controls.

Speaker Change: Accordingly, the board has engaged a nationally recognized search firm and begun a comprehensive search for the company's next CEO .

Speaker Change: Once my successor has been named, I will remain chair of the board to help facilitate a smooth transition.

George Oliver: I am confident in our position as Johnson Controls enters its next chapter, and I remain committed to supporting the full team as we work to ensure Johnson Controls realizes its full potential.

George R. Oliver: I am confident in our position as Johnson Controls enters its next chapter, and I remain committed to supporting the full team as we work to ensure Johnson Controls realizes its full potential. Along with the initiation of the company's succession plan, we also announced that, as part of our ongoing board refreshment efforts and following a constructive dialogue with Elliott Management, Patrick Decker has been appointed to our company's board of directors, effective immediately.

Speaker Change: I am confident in our position as Johnson Controls enters its next chapter and I remain committed to supporting the full team as we work to ensure Johnson Controls realizes its full potential.

George Oliver: Along with the initiation of the company's succession plan, we also announced that, as part of our ongoing board refreshment efforts, in following a constructive dialogue with Elliott Management, Patrick Decker has been appointed to our company's board of directors, effective immediately. Patrick brings experience to our board, and having led a transformation of his prior company, his employment reflects our commitment to continuously refreshing our board to ensure the skills and experiences of our directors appropriately reflect our ongoing transformation.

Speaker Change: Along with the initiation of the company's succession plan, we also announced that as part of our ongoing board refreshment efforts and following a constructive dialogue with Elliott Management, Patrick Decker has been appointed to our company's board of directors, effective immediately.

George R. Oliver: Patrick brings experience to our board in having led a transformation of his prior company, and his appointment reflects our commitment to continuously refreshing our board to ensure the skills and experiences of our directors appropriately reflect our ongoing transformation. Lastly, before moving to the next slide, we are tightening our full year adjusted EPS guidance to a range of $3.66 to $3.69 from a range of $3.60 to $3.75. Marc will give additional details later in the call. We have made tremendous progress on our business transformation into a simpler, higher growth company positioned to deliver more consistent, predictable results. Turning to slide four.

George Oliver: Lastly, before moving to the next slide, we are tightening our full-year adjusted EPS guidance to a range of $3.66 to $3.69, from a range of $3.60 to $3.75. Mark will give additional details later in the call. We have made tremendous progress on our business transformation into a simpler, higher-growth company, positioned to deliver more consistent, predictable results.

Speaker Change: Lastly, before moving to the next slide, we are tightening our full year adjusted EPS guidance to a range of $3.66 to $3.69, from a range of $3.60 to $3.75.

Speaker Change: Marc will give additional details later in the call.

Marc Vandiepenbeeck: We have made tremendous progress on our business transformation into a simpler, higher growth company positioned to deliver more consistent, predictable results.

George Oliver: Turning to slide 4, we have made good progress on simplifying our portfolio. Most recently, on July 23rd, we reached an agreement to sell our residential and light commercial HVAC business to the Bosch Group in an all-cash transaction. The transaction includes 100% of our North American inductive business and our 60% interest in our global residential joint venture with Hitachi. The total transaction is valued at approximately $8.1 billion, which results in approximately $6.7 billion of consideration to Johnson Controls. We are expecting net proceeds of approximately $5 billion after tax and transaction expenses, the majority of which will be used to accelerate returning capital to shareholders and also address leverage.

George R. Oliver: We have made good progress on simplifying our portfolio. Most recently, on July 23rd, we reached an agreement to sell our residential and light commercial HVAC business to the Bosch Group in an all-cash transaction. The transaction includes 100% of our North America ducted business and our 60% interest in our global residential joint venture with Hitachi. The total transaction is valued at approximately $8.1 billion, which results in approximately $6.7 billion of consideration to Johnson Controls.

Marc Vandiepenbeeck: The transaction includes 100% of our North America-inducted business and our 60% interest in our global residential joint venture with Hitachi.

Marc Vandiepenbeeck: The total transaction is valued at approximately $8.1 billion, which results in approximately $6.7 billion of consideration to Johnson Controls.

George R. Oliver: We are expecting net proceeds of approximately $5 billion after tax in transaction expenses, the majority of which will be used to accelerate returning capital to shareholders and also address leverage. The residential and light commercial HVAC transaction is expected to close in approximately 12 months, subject to required regulatory approvals and other customary closing conditions. We expect to report the operating results of the business in discontinued operations beginning in the fiscal fourth quarter of 2024. In addition, on June 18, we agreed to sell our Air Distribution Technologies business to TruLink Capital.

Marc Vandiepenbeeck: We are expecting net proceeds of approximately $5 billion after tax in transaction expenses, the majority of which will be used to accelerate returning capital to shareholders and also address leverage.

George Oliver: The residential and light commercial HVAC transaction is expected to close in approximately 12 months, subject to required regulatory approvals and other customary closing conditions. We expect to report the operating results of the business and discontinued operations beginning in the fiscal 4th quarter of 2024.

Marc Vandiepenbeeck: The residential and light commercial HVAC transaction is expected to close in approximately 12 months, subject to required regulatory approvals and other customary closing conditions.

Marc Vandiepenbeeck: We expect to report the operating results of the business in discontinued operations beginning in the fiscal fourth quarter of 2024.

George Oliver: In addition, on June 18th, we agreed to sell our air distribution technologies business to TruLink Capital. The sale of air distribution technologies is also an important step in simplifying our manufacturing footprint, with the elimination of nearly 30% of our manufacturing facilities. Taken together, these two transactions represent significant milestones in our portfolio transformation. We are now even better positioned going forward as a pureplay provider of comprehensive solutions for commercial buildings. Our efforts at turning into results in the value of our transformation is coming into focus.

Marc Vandiepenbeeck: In addition, on June 18th, we agreed to sell our Air Distribution Technologies business to TruLink Capital.

George R. Oliver: The sale of air distribution technologies is also an important step in simplifying our manufacturing footprint with the elimination of nearly 30% of our manufacturing facilities. Taken together, these two transactions represent significant milestones in our portfolio transformation. We are now in an even better position going forward as a pure play provider of comprehensive solutions for commercial buildings. Our efforts are turning into results, and the value of our transformation is coming into focus.

Marc Vandiepenbeeck: The sale of air distribution technologies is also an important step in simplifying our manufacturing footprint with the elimination of nearly 30% of our manufacturing facilities.

Marc Vandiepenbeeck: Taken together, these two transactions represent significant milestones in our portfolio transformation.

Marc Vandiepenbeeck: Our efforts are turning into results, and the value of our transformation is coming into focus.

George Oliver: Slide five presents a pro-formal look at the new Johnson Controls, representing the composition of our company going forward. Following completion of the two debastitures described earlier, we will be a simpler, higher-growth company focused almost exclusively on our engineered solutions offerings. These solutions include commercial HVAC, fire, controls, security, and services, forming the smart building trifecta of energy-efficient equipment, clean electrification, and digitalization. The benefits of our transform portfolio include an enhanced margin profile, less complexity, and a more focused operating model. In addition, these debastitures further increase our exposure to the fast-growing data center vertical to nearly 10% of sales from 7% as of fiscal year 2023.

George R. Oliver: Slide five presents a pro forma look at the new Johnson Controls, representing the composition of our company going forward. Following completion of the two divestitures described earlier, we will be a simpler, higher growth company focused almost exclusively on our engineered solutions offering. These solutions include commercial HVAC, fire, controls, security, and services, forming the smart building trifecta of energy-efficient equipment, clean electrification, and digitalization.

Marc Vandiepenbeeck: Slide 5 presents a pro forma look at the new Johnson Controls, representing the composition of our company going forward.

Marc Vandiepenbeeck: Following completion of the two divestitures described earlier, we will be a simpler, higher growth company focused almost exclusively on our engineered solutions offerings.

Marc Vandiepenbeeck: These solutions include commercial HVAC, fire, controls, security, and services, forming the smart building trifecta of energy-efficient equipment, clean electrification, and digitalization.

George R. Oliver: The benefits of our transformation portfolio include an enhanced margin profile, less complexity, and a more focused operating model. In addition, these divestitures further increase our exposure to the fast-growing data center vertical to nearly 10% of sales from 7% as of fiscal year 2023. We expect this percentage to further increase over time, given the robust demand we are seeing in this key vertical. While we will continue to look at opportunities to further enhance the portfolio, we believe that the largest elements of the portfolio transformation are now complete.

Marc Vandiepenbeeck: The benefits of our transformed portfolio include an enhanced margin profile, less complexity, and a more focused operating model.

Marc Vandiepenbeeck: In addition, these divestitures further increase our exposure to the fast-growing data center vertical to nearly 10% of sales from 7% as of fiscal year 2023.

George Oliver: We expect this percentage to further increase over time, given the robust demand we are seeing in this key vertical. While we will continue to look at opportunities to further enhance the portfolio, we believe that the largest elements of the portfolio transformation are now complete.

Marc Vandiepenbeeck: We expect this percentage to further increase over time given the robust demand we are seeing in this key vertical.

George Oliver: Turning to slide six to discuss our focus business model and how we plan to deliver more consistent, predictable outcomes for our customers and maximize value for shareholders over the life cycle of buildings. Donk control has a unique value proposition for our customers that directly translates to shareholder value creation. Our ability to serve our customers over the life cycle of the building allows us to deliver safe, healthy, and sustainable buildings. As a simpler and more streamlined company, we are now better positioned to leverage our integrated domain expertise coupled with our extensive branch network to significantly expand margins.

George R. Oliver: Turning to slide six, to discuss our focused business model and how we plan to deliver more consistent, predictable outcomes for our customers and maximize value for shareholders over the life cycle of the building. Johnson Controls has a unique value proposition for our customers that directly translates to shareholder value creation.

George R. Oliver: Our ability to serve our customers over the life cycle of the building allows us to deliver a safe, healthy, and sustainable building. As a simpler and more streamlined company, we are now better positioned to leverage our integrated domain expertise, coupled with our extensive branch network, to significantly expand our market. Our journey with the customer provides system and service solutions that maximize opportunities around the life cycle of the asset, delivering outcomes to the customer that save energy, reduce emissions, and optimize building life cycle costs, all while improving the overall Octopin experience.

George Oliver: Our journey with the customer provides system and service solutions that maximize the opportunities around the life cycle of the asset, delivering outcomes to the customer that save energy, reduce emissions, and optimize building life cycle costs, all while improving the overall occupant experience. Most importantly, our ability to drive direct outcomes ensures that we have long-term customers that use several of our services, which creates a compounded impact for the customer and for our shareholders. In fact, the dollar of systems revenue has a potential to generate up to 10 times the revenue over the life cycle of the solution.

George R. Oliver: Most importantly, our ability to drive direct outcomes ensures that we have long-term customers that use several of our services, which creates a compounded impact for the customer and for our shareholders. In fact, a dollar of systems revenue has the potential to generate up to 10 times the revenue over the life cycle of the solution. It all starts with our local teams supported by our centralized engineering teams to provide operational excellence throughout the construction of the new building, starting with product and technology development through the installation of the new system. This grows the installed base.

George Oliver: It all starts with our local teams supported by our centralized engineering teams to provide operational excellence throughout the construction of the new building, starting with the product and technology development through the installation of the new systems. This grows the installed base. Throughout system deployment, our teams are building customer intimacy and confidence in our team to ensure we are creating linkage with our service offering. We have redoubled our focus to build this initial relationship and greatly improved our operational execution over the past few years to drive and enhance margin profile and grow service. Template put service and maintenance delivers recurring revenue for us, and this provides resilient revenue throughout economic cycles.

George R. Oliver: Throughout system deployment, our teams are building customer intimacy and confidence in our team to ensure we are creating linkage with our service offering. We have redoubled our focus on building this initial relationship and greatly improved our operational execution over the past few years to drive an enhanced margin profile and grow service. Simply put, service and maintenance delivers recurring revenue for us, and this provides resilient revenue throughout economic cycles. Moving to parts and repairs, our service organization is digitally enabled and unlocks additional value by collecting data from the connected equipment within the building.

Marc Vandiepenbeeck: <unk> system deployment, our teams are building customer intimacy and confidence in our team to ensure we are creating linkage with our service offering.

Marc Vandiepenbeeck: We have redoubled our focus to build this initial relationship and greatly improved our operational execution over the past few years to drive an enhanced margin profile and grow service.

Marc Vandiepenbeeck: Simply put service and maintenance delivers recurring revenue for us and this provides resilient revenue throughout economic cycles.

George Oliver: Moving to parts and repairs, our service organization is digitally enabled and unlocks additional value by collecting data from the connected equipment within the building. Leveraging this data lets us detect issues before they occur, leading to reduced downtime and cost savings for the customer. The last part of the cycle is the building retrofit, including the modernization and technology refresh of existing systems. We work closely with the building owner to discuss life cycle planning and the prioritization of the building needs. We have found this to be the perfect opportunity for John's controls to sell additional domains. By compounding the effects of this cycle, we are able to deliver solutions to our customers, leading to significant margin expansion.

Marc Vandiepenbeeck: Moving to parts and repairs our service organization is digitally enabled and unlock additional value by collecting data from the connected equipment within the building.

George R. Oliver: Leveraging this data lets us detect issues before they occur, leading to reduced downtime and cost savings for the customer. The last part of the cycle is the building retrofit, including the modernization and technology refresh of existing systems. We work closely with the building owner to discuss life cycle planning and the prioritization of building needs.

Marc Vandiepenbeeck: Leveraging this data, let's just detect the issues before they occur leading to reduced downtime and cost savings for the customer.

Marc Vandiepenbeeck: The last part of the cycle is the building retrofit, including the modernization and technology refresh of existing systems. We work closely with the building owner to discuss lifecycle planning and the prioritization of the building needs.

George R. Oliver: We have found this to be the perfect opportunity for Johnson Controls to sell additional domains. By compounding the effects of this cycle, we are able to deliver solutions to our customers, leading to significant margin expansion. The ongoing transformation of our portfolio into a quality pure play provider of comprehensive solutions for commercial buildings means that we can service these buildings to deliver outcomes that matter. Accordingly, we are extending our journey with our customers while capitalizing on attractive opportunities in the market. Together, this delivers value across our stakeholder base for customers, employees, and shareholders. With that, I'll turn it over to Marc. Thanks George and good morning everyone.

Speaker Change: We have found this to be the perfect opportunity for Johnson controls to sell additional domains.

Speaker Change: Compounding the effects of this cycle, we are able to deliver solutions to our customers leading to significant margin expansion.

George Oliver: The ongoing transformation of our portfolio into a quality peer play provider of comprehensive solutions for commercial buildings means that we can service these buildings to deliver outcomes that matter. Accordingly, we are extending our journey with our customers while capitalizing on attractive opportunities in the market. Together, this delivers value across our stakeholder base for customers, employees, and for our shareholders.

Speaker Change: The ongoing transformation of our portfolio into a quality pure play provider of comprehensive solutions for commercial buildings means that we can service these buildings to deliver outcomes that matter.

Speaker Change: Accordingly, we are extending our journey with our customers, while capitalizing on attractive opportunities in the market.

Speaker Change: Together this delivers value across our stakeholder base for customers employees and for our shareholders.

Mark Vandiepenbeeck: With that, I'll turn it over to Mark. Thanks, Georgian. Good morning, everyone.

Speaker Change: With that I'll turn it over to Mark.

Marc Vandiepenbeeck: Let me start with a summary on slide 7. Total revenue of $7.2 billion grew 3% organically as strong high single-digit cervix growth more than offset continued weakness in China's system base. Segment margin expanded by a robust 150 basis points to 17.9% as we delivered another strong quarter of productivity and converted a higher margin back. Adjusted EVS of $1.14 was up 11% year-over-year and exceeded the high end of our guidance range by 4%.

Mark: Thanks, George and good morning, everyone. Let me start with a summary on slide seven.

Mark Vandiepenbeeck: Let me start with a summary on slide 7. Total 3% organically, as strong, high single-digit service growth, more than offset continued weakness in China's system business. Segment margin expanded a robust 150 basis points to 17.9%, as we delivered another strong quarter of productivity and converted our higher margin backlog. Adjust the TBS of $1.14; was an 11% year over year and exceeded the high end of our guidance range by four cents. Operations contributed 18 cents of the growth in the quarter, as improved productivity and the conversion of higher margin backlog more than offset higher corporate costs related to additional IT investment, cyber security and enhancement costs, and increased centralization of functional costs.

Mark: Total revenue of $7 2 billion grew 3% organically a strong high single digit services growth more than offset continued weakness in China's system business.

Mark: Segment margin expanded a robust hundred 50 basis points to 17, 9% as we delivered another strong quarter of productivity and converted Ohio margin backlog.

Mark: Adjusted EPS of $1 14.

Mark: Was up 11% year will go year and exceeded the high end of our guidance range by <unk> <unk>.

Marc Vandiepenbeeck: Operations contributed 18 cents of the growth in the quarter as improved productivity and the conversion of higher margin backlog more than offset higher corporate costs related to additional IT investment, cybersecurity enhancement costs, and increased centralization of functional costs. Below the line, we saw favorability from a lower share count.

Mark: Operations contributed 18 sense of the growth in the quarter as improved productivity and the conversion of higher margin backlog more than offset higher corporate costs related to additional investment in cyber security and incident costs and increased centralization of functional costs.

Mark Vandiepenbeeck: Below the line, we saw favorability from a lower share count. As we continue to build a more consistent and predictable business, we are pleased with the strong adjusted EPS performance in the quarter.

Mark: Below the line, we saw favorability on a lower share count.

Marc Vandiepenbeeck: As we continue to build a more consistent and predictable business, we are pleased with the strong adjusted EPS performance in the quarter. On the balance sheet, we ended the third quarter with approximately $900 million in available cash, and net debt decreased to 2.3 times, which is within our long-term target range of two to two and a half times. Year-to-date, adjusted free cash flow improved approximately $700 million year-over-year to $1.3 billion.

Mark: As we continue to build a more consistent and predictable business. We are pleased with the strong adjusted EPS performance in the quarter.

Mark Vandiepenbeeck: On the balance sheet, we ended up the third quarter with approximately 900 million in available cash and net debt decrease to 2.3 times, which is within our long-term target range of 2 to 2.5 times. Lucas, our segment result in more details on slide 8 through 10. Beginning on slide 8, organic sales in our global product business grew 3% over a year, with price offsetting a modest volume decline. Commercial age back came into bright spot for the business going mid-single digit against a tough comp of mid-teens growth a year ago. Fire and security declined low single digit as a decline in fire suppression more than offset growth in fire detection and security video surveillance.

Mark: On the balance sheet, we ended up the third quarter was approximately $900 million in available cash and net debt decreased to two three times, which is within our long term target range of two to two and a hostile.

Mark: Year to date adjusted free cash flow improved by approximately 700 million year over year to one 3 billion.

Marc Vandiepenbeeck: We remain on the path to driving higher free cash flow conversion, more consumer... Let's now discuss our segment results in more detail on slides 8 through 10, beginning on slide 8. Organic sales in our global product business grew 3% year-over-year, with price offsetting a modest volume decline. Commercial HVAC remained a bright spot for the business, growing mid-single digits against a tough comp of mid-teens growth a year ago. However, fire and security declined low single digits as a decline in fire suppression more than offset growth in fire detection and security video surveillance.

Mark: We remain on the path to driving higher free cash flow conversion more consistently.

Mark: Let's now discuss our segment results in more detail on slides eight through 10.

Mark: Beginning on slide eight.

Mark: Sales in our global product business grew 3% year over year with price offsetting a modest volume decline.

Mark: Commercial HVAC came into bright spot for the business growing mid single digits against the tough comp of mid teens growth a year ago.

Mark: Fire and security declined low single digits as a declining <unk> depression more than offset growth in fire detection and security video surveillance.

Marc Vandiepenbeeck: Industrial refrigeration grew approximately 20%, with strong double-digit growth in both North America and Emila. Overall, global residential grew mid-single digits in the quarter. Global ductless residential grew low single digits, a strong double-digit growth in APAC more than offset continued declines in Europe, in conjunction with improvement in North America's residential markets. Global docket residential business grew 10% with strong double-digit growth in both North America and EMILA.

Mark Vandiepenbeeck: Industrial refrigeration grew approximately 20% with strong double-digit growth in both North America and Emila. Overall, global residential grew mid-single digits in the quarter. Global Douglas residential grew low single digit, as strong double digit growth in impact more than offset continued decline in Europe. In conjunction with improvement in North America as in the actual market of global ducted residential business grew 10% with strong double digit growth in both North America and Emila. Adjusted segment EBDA margin expanded 240 basis points to 24.5% as positive price cost and improved productivity more than offset mixed headwinds, common going weakness in China.

Mark: Industrial appreciation grew approximately 20% with strong double digit growth in both North America and immuno.

Mark: Overall global residential grew mid single digits in the quarter Global Douglas residential grew low single digits, a strong double digit growth in APAC more than offset continued declines in Europe.

Mark: In conjunction with improvement in North America, as industrial markets of global residential business grew 10% with strong double digit growth in both North America and EMEA.

Marc Vandiepenbeeck: Adjusted segment EBITDA margin expanded 240 basis points to 24.5% as positive price cost and improved productivity more than offset mixed headwinds from ongoing weakness in China. Now moving to slide nine to discuss our building solutions performance. Order momentum remained healthy with 5% growth in the quarter.

Mark: Adjusted segment EBITDA margin expanded 240 basis points to 24, 5% as positive price cost and improved productivity more than offset mix headwinds from ongoing weakness in China.

Mark Vandiepenbeeck: Now moving to slide 9 to discuss of building solutions performance. Although momentum remain healthy with 5% growth in the quarter, overall service older grew 12% with a broad base growth across the region. Systems older grew 2% at North America outside decline in impact. Organic sales increased 4% in the quarter, led by service growth of 9%. Systems revenue grew 1% as decline in impact more than offset growth in North America and Emila. The resolution backlog continues to be made at record levels, growing 10% to 12.9 billion dollars. Service backlog grew 7%, and system backlog grew 10% year over year.

Mark: Now moving to slide nine to discuss our building solutions performance.

Mark: Although momentum remained healthy with 5% growth in the quarter. Overall, so result of grew 12% with broad based growth across the region.

Marc Vandiepenbeeck: Overall, service order grew 12% with broad-based growth across the region. Systems order grew 2% as North America offset a decline in AIPAC. Organic sales increased 4% in the quarter, led by service growth of 9%.

Mark: Systems, Although grew 2% North America offset declines in APAC.

Mark: Organic sales increased 4% in the quarter led by service growth of 9%.

Marc Vandiepenbeeck: Systems revenue grew 1% as a decline in AIPAC more than offset growth in North America and Emina. The solution backlog continues to remain at record levels, growing 10% to $12.9 billion. Service backlog grew 7%, and system backlog grew 10% year over year. Let's discuss the building solutions performance by region on slide 10. Orders in North America increased 5% in the quarter, with mid-single-digit growth in both systems and

Mark: Systems revenue grew 1% as declining APAC more than offset growth in North America and EMEA.

Mark: Really solution backlog continues to remain at record levels growing 10% to $12 9 billion.

Mark: Service backlog grew 7% and system backlog grew 10% year over year.

Mark Vandiepenbeeck: Let's discuss the building solutions performance by region on slide 10. All those in North America increased 5% in the quarter, with mid single digit growth in both systems and services. As a reminder, quarterly older growth can fluctuate based on the timing of certain large projects, particularly in the data center vertical. Remain confident in our competitive positioning in the data center. And our pipeline means quite robust sales in North America were up 8% organically, with continuing strain across HVAC and controls above a 20% year over year. Overall, our system business grew 9% while service grew 6%.

Mark: Let's discuss the building solutions performance by region on Slide 10.

Mark: All those in North America increased 5% in the quarter with mid single digit growth in both systems and services.

Marc Vandiepenbeeck: As a reminder, quarterly order growth can fluctuate based on the timing of certain large projects, particularly in the data center vertical. We remain confident in our competitive positioning in the data center, and our pipeline remains quite robust. Sales in North America were up 8% organically, with continued strength across HVAC and controls, up over 20% year over year. Overall, our system business grew 9%, while service grew 6%. Segment margin expanded 150 basis points year over year to 15.9%, driven by the continued execution of higher margin backlog, improved productivity, and solid service contribution. Total backlog ended the quarter at $9 billion, up 14% year-over-year.

Mark: As a reminder, quarterly although growth can fluctuate based on the timing of certain large projects, particularly in the data center vertical well.

Mark Vandiepenbeeck: Segment margin expanded 150 basis points year over year to 15.9%. driven by the continued execution of higher margin backlog, improved productivity, and solid service contribution. Total backlog ended the quarter at 9 billion, up 14% year over year. In Emila, others were up 11%, with over 25% growth in service. Systems order were flat as we continue to even focus on driving higher quality growth with higher margin and improved cash flow conversion. Across the portfolio, we saw strong double-digit growth in controls, fire, and security. Sales in Emila drew 8% organically, with broad base growth across the portfolio.

Marc Vandiepenbeeck: In Emila, orders were up 11% with over 25% growth in service. Systems orders were flat as we continue to remain focused on driving higher quality growth with higher margins and improved cash flow conversion. Across the portfolio, we saw strong double-digit growth in controls, fire, and security. Sales in Emila grew 8% organically, with broad-based growth across the portfolio. Momentum continues to build within our service business, up 15% year-over-year, driven by strong double-digit growth from both our recurring and shorter-cycle transactional businesses. Our system business grew low single digits, led by Strength in Control.

Mark: Both across the portfolio.

Mark Vandiepenbeeck: Momentum continues to build within our service business, up 15% year over year, driven by strong double-digit growth from both recurring and short-of-cycle transactional businesses. Our system business grew low single digits, led by strength in controls. Segment EB Damargin expanded 170 basis points to 10.3%, driven by the positive mix from the growth in service and the conversion of higher margin system backlog. We've made tremendous progress in improving the profitability in Emila, as well as the mix of higher-margin service. A more disciplined funnel in systems gives us further confidence in continued momentum in margin improvements. backlog was up 12% year over year to $2.5 billion.

Mark: Momentum continues to build within our service business.

Mark: <unk> percent year over year, driven by strong double digit growth from both our recurring and shorter cycle transactional businesses.

Mark: Our system business grew low single digits led by strength in controls <unk>.

Marc Vandiepenbeeck: Segmented EBDA margin expanded 170 basis points to 10.3%, driven by the positive mix from the growth in service and the conversion of higher margin system backlog. We've made tremendous progress in improving the profitability of EMILA, as well as the mix of higher margin services. A more disciplined funnel in systems gives us further confidence in continued momentum in margin improvement. Backlog was up 12% year-over-year to $2.5 billion. In Asia-Pacific, orders declined 2% as we focused on deploying resources to the most attractive parts of the market and remained selective on the jobs we caught and ultimately booked.

Mark: Segment, EBITDA margin expanded 170 basis points to 10, 3% driven by the positive mix from the growth in service and the conversion of higher margin system backlog.

Mark: We've made tremendous progress in improving the profitability in EMEA as well as the mix of higher margin service and more disciplined funnel in systems gives us further confidence in continued momentum in margin improvement.

Mark: Backlog was up 12% year over year to $2 5 billion.

Mark Vandiepenbeeck: In Asia Pacific, others declined 2%, as we have focused on deploying resources to the most attractive part of the market and remain selective on the jobs we quote and ultimately book. Given our strong install base in the region and our continued focus, we saw high single-digit growth in service. Sales in Asia Pacific declined 19%, as the systems business continued to be impacted by ongoing weaknesses in China. Of service business grew 8% in the quarter with strong double-digit growth in recurring revenue contracts. Segment EB Damargin declined 220 basis points to 11.7%. As weakness in China offset positive mix from our service business.

Mark: In Asia Pacific orders declined 2% and we are focused on deploying resources to the most attractive part of the market and remain selective on the jobs, we quote and ultimately book.

Marc Vandiepenbeeck: Given our strong installed base in the region and our continued focus, we saw high single-digit growth in service. However, sales in Asia Pacific declined 19% as the systems business continued to be impacted by ongoing weaknesses in China.

Mark: Given our strong installed base in the region and our continued focus we saw high single digit growth in service sale.

Mark: Sales in Asia Pacific declined 19% of the systems business continued to be impacted by ongoing weaknesses in China.

Marc Vandiepenbeeck: Our service business grew 8% in the quarter with strong double-digit growth in our recurring revenue contracts. Segmented mid-arm arching declined 220 basis points to 11.7%, as weakness in China offset positive mix from our service business. Backlog of 1.4 billion declined 12% year-over-year. Now, let's discuss the fourth quarter and fiscal year 2024 guidance on slide 11. We enter the fourth quarter with solid momentum, led by our resilient service business and continued demand in our North America system business.

Mark: Our service business grew 8% in the quarter with strong double digit growth in our recurring revenue contracts.

Mark: Segment, EBITDA margin declined 220 basis points to 11, 7% as weakness in China offset positive mix from our service business.

Mark Vandiepenbeeck: backlog of 1.4 billion declined 12% year over year.

Mark: Backlog of $1 4 billion declined 12% year over year.

Mark Vandiepenbeeck: Now let's discuss our fourth quarter and fiscal year of 2024 guidance on slide 11. We enter the fourth quarter with solid momentum led by our resilient service business and continued demand in our North American system business. Our margin rich backlog remains at historical level, and our global products book to build business and stabilize and return to growth. We are introducing fourth quarter sales guidance of approximately 7% growth as strong demand in North American Emila is somewhat muted by one more quarter of slower recovery in the system business in China. Global products momentum is expected to continue as a book to build all those remain positive throughout the third quarter and the third companies and in China base.

Mark: Now, let's discuss our fourth quarter and fiscal year 2020 full guidance on slide 11.

Omar: We enter the fourth quarter with solid momentum led by our resilient service business and continued demand in our North America system business Omar.

Marc Vandiepenbeeck: Our margin-rich backlog remains at a historical level, and our global products, booked to build business, have stabilized and returned to growth. We are introducing fourth quarter sales guidance of approximately 7% growth, as strong demand in North America and Imila is somewhat muted by one more quarter of slower recovery in the system business in China. Global product momentum is expected to continue, as book-to-bid orders remain positive throughout the third quarter, and the tough comparison in China abates.

Omar: Our margin rich backlog remains at historical level and our global products book to Bill business is stabilized and returned to growth.

Omar: We are introducing fourth quarter sales guidance of approximately 7% growth a strong demand in North America, and EMEA is somewhat muted by one more quarter of slower recovery in the system business in China.

Omar: Global products momentum is expected to continue as our book to Bill does remain positive throughout the third quarter and the tough comparison in China base.

Mark Vandiepenbeeck: For the fourth quarter, we expand segment EB Damargin to be approximately 19% and adjust the DPS to be in the range of $1.23 to $1.26. For the full year, we are tightening adjusted DPS guidance to a range of $3.66 Alliance. We know expect organic sales to grow approximately 3% and segment Amy Damaging to expand approximately 110 basic points. Our working capital metrics continue to improve, and our free cash flow performance here today has been strong. We continue to invest capital in attractive areas, including data center manufacturing expansion and ongoing ERP consolidation. While this will be a slight handling, we expect adjusted free cash flow conversion of approximately 85% or better for the full year.

Marc Vandiepenbeeck: For the fourth quarter, we expect segmented-immediate margin to be approximately 19% and adjusted EPS to be in the range of $1.23 to $1.26. For the full year, we are tightening adjusted EPS guidance to a range of $3.66 and $3.69.

Omar: For the fourth quarter, we expect segment EBITDA margin to be approximately 19% and adjusted EPS to be in the range of $1 23.

Omar: <unk> to $1 26.

Omar: For the full year, we are tightening adjusted EPS guidance to a range of $3 66, and $3 69.

Marc Vandiepenbeeck: We now expect organic sales to grow approximately 3%. Our working capital metrics continue to improve, and our free cash flow performance year to date has been strong. We continue to invest capital in attractive areas, including data center manufacturing expansion and ongoing ERP consolidation. While this will be a slight hand-win, we expect adjusted free cash flow conversions of approximately 85% or better for the full year. With our recent announced plan divestiture, I want to highlight some financial details and future reporting on slide 12. As George mentioned at the beginning of the call, we were extremely pleased with our announced sale of the residential and light commercial HVAC.

Omar: We now expect organic sales to grow approximately 3% and segment EBITDA margin to expand approximately 110 basis points.

Omar: Our working capital metrics continue to improve and our free cash flow performance year to date has been strong.

Omar: We continue to invest capital in attractive areas, including data center manufacturing expansion and ongoing ERP consolidation.

Omar: While this will be a slight headwind, we expect adjusted free cash flow conversion of approximately 85% or better for the full year.

Mark Vandiepenbeeck: With our recently announced plan divestiture, I want to highlight some financial details and future reporting on slide 12. As George mentioned at the beginning of the call, we were extremely pleased with our announcement of the residential and life commercial aid business. This came just a few weeks after we announced we tend to sell air distribution technologies business. Together, these two transactions represent hopefully 20% of the sale and the majority of the portfolio we have previously highlighted as non-core. We expect to report the residential and life commercial business as discontinued operation with our fiscal false quarter results and will provide our official fiscal year 2025 guidance on a continuing operation basis.

Omar: With our recent announced planned divestiture I want to highlight some financial details and future reporting on slide 12.

Omar: As George mentioned at the beginning of the call. We were extremely pleased with our announced sale of the residential and light commercial HVAC business.

Marc Vandiepenbeeck: This came just a few weeks after we announced that we intend to sell our air distribution technology. Together, these two transactions represent hopefully 20% of the sales and the majority of the portfolio we have previously highlighted as non-core. We expect to report the residential and light commercial business as discontinued operations with our fiscal first quarter results, and we'll provide our official fiscal year 2020 FAR guidance on a continuing operations page.

Speaker Change: These games just a few weeks after we announced that we tend to sell air distribution technologies business. Together. These two transactions represent hopefully 20% of the sale and the majority of the portfolio. We have previously highlighted as non core.

Mark Vandiepenbeeck: While the two transactions would be dilutive to EPS prior to any cost offset, we have actions in place to address the stranded cost, and we are working on accelerating some of these actions prior to closing. Through the combination of sharey purchase, dead paydown and restructuring, we have a plan in place to fully offset the stranded costs.

Marc Vandiepenbeeck: While the two transactions would be dilutive to EPS prior to any cost offset, we have actions in place to address the stranded costs, and we are working on accelerating some of these actions prior to closing. Through the combination of shared repurchase, debt pay-down, and restructuring, we have a plan in place to fully offset the stranded costs. We will provide more details when we report our fiscal fourth-quarter results. Before we open up the lines for questions, I want to conclude with a summary of our recent transformation on slide 13.

Mark Vandiepenbeeck: We will provide more details when we report of fiscal false quarter results.

Mark Vandiepenbeeck: Before we open up the line for questions, I want to conclude with a summary of our recent transformation on slide 13. We have spent the last few years transforming the company into a comprehensive solution provider for commercial buildings and discontinues to be a differentiator for Johnson Controls. We took a major step in simplifying the portfolio without too recently announced our vestiture, and we believe of one operating model will enable us to deliver more consistent predictable results. We operate in many attractive markets, which allows us to build our backlog with margin rates jobs that have a service still throughout the life cycle of building.

Marc Vandiepenbeeck: We have spent the last few years transforming the company into a comprehensive solution provider for commercial buildings, and this continues to be a differentiator for Johnson. We took a major step in simplifying the portfolio with our two recently announced divestitures, and we believe our one operating model will enable us to deliver more consistent, predictable results.

Marc Vandiepenbeeck: We operate in many attractive markets, which allows us to build our backlog with margin-risk jobs that have a service life cycle throughout the life cycle of the building. Our systems backlog, coupled with our resilient service business, positions us for sustainable and continued margin expansion. As our margins continue to improve, coupled with our commitment to disciplined capital allocation, we would expect double-digit EPS growth. As George mentioned earlier, the result of our portfolio transformation is now a faster growing, more profitable, less complex, and more operationally focused Johnson Controls, and we are excited for the next chapter. With that, Operator, please open the line for questions.

Mark Vandiepenbeeck: Our systems backlog coupled with our resilient service business positions us for sustainable and continued margin expansion. As our margins continue to improve, coupled with our commitment to disciplined capital allocation, we would expect double DGTPS growth. As George mentioned earlier, the result of our portfolio transformation is not a faster growing, more profitable, less complex, and more operationally focused Johnson Controls, and we are excited for the next chapter.

Omar: Throwing more profitable less complex and mobile Petitionary focus Johnson controls and we are excited for the next chapter.

Operator: With that, operator, please open the line for questions. Thank you. We will now begin the question and answer session. To ask a question, you may pass star, then one on your telephone keypad. If you are using a speaker phone, we ask you to please pick up your handset before pressing the keys. To withdraw your question, please press star, then two.

Speaker Change: With that operator, please open the lines for questions.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad.

Speaker Change: Thank you we will now begin the question and answer session.

Speaker Change: To ask a question you May press Star then one on your telephone keypad.

Operator: If you are using a speakerphone, we ask that you please pick up your handset before pressing the key. To withdraw your question, please press star then 2. In respect of time, we ask that you limit yourself to one question and one follow-up question. Today's first question comes from Scott Davis at Melius Research. Please go ahead. Hey, good morning, George, Marc, and Jim. And congrats, George, on the... Thanks, Scott. Good morning

Speaker Change: If you are using a speaker phone we ask you. Please pick up your handset before pressing the keys.

Speaker Change: To withdraw your question. Please press Star then two.

Operator: In respect to time, we ask you to learn yourself to one question and one follow-up question.

Speaker Change: In respect of time, we ask that you limit yourself to one question and one follow up question.

Gaut Davis: Today's first question comes from Gaut Davis at Melius Research. Please go ahead.

Speaker Change: Today's first question comes from Scott Davis Melius Research. Please go ahead.

George Oliver: Good morning, George, Marc, and Jim, and congrats, George, on the announcement. Thanks, Scott. Morning, Scott.

Scott Reed Davis: Hey, good morning, George and Marc and Jim and Congrats George on the announcement.

George R. Oliver: Thanks, Scott Good morning, Scott.

George R. Oliver: I want to just.., dig in on the data center kind of impact and backlog a bit. I would assume that a big chunk of that backlog growth is data center, but..., to give us some color on the impact and materiality of that. Yeah, let me give you a framework, and then Marc can talk a little bit more about the, you know, how it's being built in backlog and converting. We're already, we said in the prepared remarks that were about 7% a year ago. When we look at the business today, it's about 10% of sales on a pro forma basis, and continues to be very strong. We're working across all of the hyperscalers, COLOs.

George Oliver: I want to just to dig in on the data center kind of impact on backlog of bidders. I would assume that a big chunk of that backlog growth is data center, but maybe you could give us some color on the impact materiality of that growth and that vertical. Thanks.

Scott Reed Davis: I wanted to just.

Speaker Change: Dig in on the data center kind of impact on our.

Speaker Change: Backlog a bit is I would assume that a big chunk of that backlog growth is data center, but.

Speaker Change: Maybe you could give us some color on the.

Speaker Change: The impact of materiality on top.

Speaker Change: Of that growth in that vertical.

George Oliver: Yeah, let me give you a framework, and then Marc can talk a little bit more about how it's being built in backlog and converting. We're already now; we said in the prepared remarks that were about 7% a year ago. When we look at the business today, it's about 10% of sales on a propoma basis continues to be very strong. We're working across all of the hyperscale as co-lows. We've got a global team now making sure that with our leadership technology and all of our domains that we're positioned now to be able to provide the best solutions globally.

Speaker Change: Yeah, Let me give you a framework and then Mark can talk a little bit more about the.

Mark: How is being built in backlog and converting.

Mark: We're already now we said in the prepared remarks, there were about 7% a year ago.

Mark: We look at the business today, it's about 10% of sales on a pro forma basis.

Mark: To be very strong and we're working across all of the Hyperscale is co lows, we've got a global team now making sure that our leadership technology in all of our domains that we're positioned now to be able to provide the best solutions globally. So that pipelines continue to build.

George R. Oliver: We've got a global team now making sure that with our leadership technology and all of our domains, we're positioned now to be able to provide the best solutions globally. So that pipeline's continuing to build. And I think as we think about our orders and backlog, certainly this is gonna be a higher mix of backlog playing out. In many cases, it is multi-year backlog.

Mark Vandiepenbeeck: So that pipelines continue to build. And I think, as we think about our orders and backlogs, certainly this is going to be a higher mix of backlog playing out. In many cases, it is a multi-year backlog, and for us, we look at the next 12 months as far as how we booked the backlog.

Mark: And I think as we as we think about our orders and backlog certainly this is going to be a higher mix.

Speaker Change: Backlog playing out in many cases, it is multi year backlog and for US we look at the next 12 months as far as how we book the backlog and then as we think about the growth Scott going forward. This is going to be strong double digit growth.

George R. Oliver: And for us, we look at the next 12 months as far as how we book the backlog. And then as we think about the growth score going forward, this is gonna be strong double-digit growth in 24. It's gonna be, for this year, a strong double-digit growth and continuing to accelerate over the next few years given the work that we're doing. You know, Marc, do you want to talk about the mix?

George Oliver: And then, as we think about the growth score going forward, this is going to be strong double-digit growth in 24, going to be for this year, strong double digits and continuing to accelerate over the next few years given the work that we're doing.

Scott Reed Davis: 24 could be for this year of strong double digits in and continuing to accelerate over the next few years given the work that we're doing.

Mark Vandiepenbeeck: You know, Marc, you want to talk about the next. Yeah, so Scott, if you look at that growth in backlog of 10%, almost 13 billion dollar in backlog, the mix remains consistent year over year because a lot of those data center, as George mentioned, are multi year. There is clearly more data center works in that work on 9 billion dollar, but that makes will continue to evolve more towards the data center as we shown that backlog. We will maintain our definition of backlog as what we see in revenue for the next 12 months. And with that consistency, you'll see a change over time, more tilted towards the higher growing segments of the market.

Mark: Mark do you want to talk about the mix.

Marc Vandiepenbeeck: Yeah, so... Scott, if you look at that growth in backlog of 10%, almost $13 billion in backlog, the mix remains consistent year over year because a lot of those data centers, as George mentioned, are multi-year. There is clearly more data center work in that $12.9 billion, but that mix will continue to evolve more towards the data center as we churn that backlog. We will maintain our definition of backlog as what we see in revenue for the next 12 months.

Scott Reed Davis: So.

Mark: Scott if you look at that growth in backlog of 10% almost $13 billion backlog the mix remains consistent year over year.

Scott Reed Davis: Because a lot of those data center as George mentioned.

Mark: A year.

Speaker Change: He's clearly more data center work in that $12 9 billion.

Speaker Change: But that mix will continue to evolve more towards the data center as we show them that backlog, we will maintain our definition of backlog is what we seen revenue for the next 12 months and with that consistency youll see a change overtime multistate towards the higher growing segments of the market.

Marc Vandiepenbeeck: And with that consistency, you'll see a change over time, more tilted towards the higher growing segments of the map. Okay, that's helpful. And, guys, I'm just looking at slide 6 and the 10 to 1 numbers on service and digital versus the OE side. I don't remember seeing that before; maybe you put it up, and I just missed it.

Gaut Davis: Okay, that's helpful. And guys, I'm just looking at this slide six in the 10 to 1 numbers on service and digital versus the OECI.

Speaker Change: Okay, that's helpful and you.

Speaker Change: So im just looking at slide six and the 10 10 to one <unk>.

Speaker Change: Number is on service and digital versus the OE side I don't remember seeing that before maybe maybe you've put it up and I just missed it but.

George Oliver: I don't remember seeing that before; maybe you've put it up and I just missed it. But is this kind of a theoretical number, or do you actually have expectation that these are achievable type ratios going forward? The algorithm that we've been working from all the years now is we've been building the service business depends on, you know, starts with the install base. Scott relative to not only what we're putting into the install base but going after the existing install base. When we can right out of the gate get connectivity and ultimately that first level service, and then now with Open Blue and with connectivity with the use of data and the significant value propositions we add, we add on to the what would be historical, historical maintenance and break fix.

George R. Oliver: Is this kind of a theoretical number, or do you actually have an expectation that... These are achievable type ratios? So the algorithm that we've been working for several years now, as we've been building the service business depends on, you know, starts with the install base, Scott, relative to not only what we're putting into the install base but going after the existing install base when we can, right out of the gate, get connectivity and ultimately that first level service.

Speaker Change: Is this kind of a theoretical number or are you actually have expectation that.

Speaker Change: That these are achievable type ratios going forward.

Speaker Change: It'll be algorithm that we've been working for multi years now as we've been building the service business depends on you know it starts with the installed base Scott relative to not only what we're putting into the installed base, but going after the existing installed base. When we can right out of the gate get connectivity and ultimately that first level of service and then now with.

George R. Oliver: And then now with Open Blue and with connectivity, and with the use of data, there are significant value propositions that we add to what would be historical maintenance and break-fix. So as we now are seeing, over the last couple of years, we're getting to that level of multiple relative to what we see on a run rate basis that, over the life cycle, can achieve that level of revenue. So that is real data with customers that we've had connectivity, we've had installed-based connectivity, we're using data, and we're now adding additional services. That is absolutely real.

Speaker Change: With open blue and with connectivity with the use of data.

Speaker Change: Significant value propositions that we add we add onto the what would be historically.

Speaker Change: Circle maintenance in break fix and so as we now are seeing that over the last couple of years, we're getting to that level of multiple relative to what we see on a run rate basis that over the lifecycle can achieve that level of revenue. So that is real data with customers that we've had connectivity we've had an installed base.

George Oliver: And so, as we now are seeing that over the last couple of years, we're getting to that level of multiple relative to what we see on a run rate basis that over the lifecycle can achieve that level of revenue. So that is real data with customers that we've had connectivity, we've had an install base connectivity, we're using data and we're now adding on additional services. That is absolutely real. and in that revenue multiplier evolves based on market vertical and product lines. So, and we try to lay that out on that chart. Each vac is a multiplier that's a little lower than 10 turn while you go to security controls and then fire provides the higher level of multiplier over the lifecycle of the product.

Speaker Change: We're using data and we're now adding on additional services that is absolutely real.

George R. Oliver: And that revenue multiplier evolves based on market vertical and product lines. So, and we've tried to lay that out on that chart. HVAC is a multiplier that's a little lower than 10 turns while you go to security controls.

Speaker Change: And that revenue multiplier.

Speaker Change: Evolves based on market and.

Speaker Change: In product lines. So so so and we've tried to laid out on that shop HVAC is a multiplier that's.

Speaker Change: A little lower than 10 term, while you go through security controls and then fire provides.

George R. Oliver: And then FHIR provides a higher level of multiplier over the lifecycle of the product. So, depending on the market vertical, depending on the product, that multiplier expands. But this is real experience data that we've looked through over the past few years, and we believe we can continue to lead in that through that operating model. I think it's important, Scott, that it's really tied to outcomes versus just the traditional buy-the-drink service.

Speaker Change: Higher level of multi play over the lifecycle of the product so depending on the market vertical depending on the products that multiplier of expense, but this is really experience data that we've looked through.

George Oliver: So, depending on the market vertical, depending on the product, that multiplier expands. But this is a real experience data that we've looked through over the past few years, and we believe we can continue to believe of that through that operating model with no implemented.

Speaker Change: Over the past few years and we believe we can continue to deliver that through that operating model. We've now implemented.

George Oliver: I think it's important, Scott, that we're it's really tight outcomes versus just the traditional by the drink type service. And so, as we're now converting the not only the technology and the product, but with our open blue and data. That that really changes the game, and then from a attrition standpoint, it significantly reduces the attrition, which continues to build our base on going forward for service going forward.

Speaker Change: Scott, it's really tied to outcomes versus just the traditional by the drink type service and so as we're now converting the not only the technology and the product, but with our open blue and data.

George R. Oliver: And so as we're now converting not only the technology and the product but also our open blue and data, that really changes the game. And then from an attrition standpoint, it significantly reduces attrition, which continues to build our base going forward for service. Thank you. And our next question today comes from Julian Mitchell at Barclays. Please go ahead.

Scott Reed Davis: That really changes the game and then from a attrition standpoint, it significantly reduces the attrition which continues to build our base going forward for service going forward.

Julian Mitchell: Thank you. And our next question today comes from Julian Mitchell, Barclays.

Speaker Change: Thank you and our next question today comes from Julian Mitchell of Barclays. Please go ahead.

Julian Mitchell: Please go ahead. Thanks.

George R. Oliver: Thanks, good morning, and congratulations, George, on a very good run. In terms of, you know, I suppose just first off, I wanted to start with the overall kind of top line growth outlook and sort of two elements of that. I think one is the total company this year is growing about 3%. [Inaudible] You know, when we look at the sort of the go forward business, the $22 billion revenue base or so, is that sort of 3% rate abnormal in any respects when you're looking at the backlog and assuming no big changes in interest rates or US policy kind of as we're looking ahead?

Julian Mitchell: Good morning and congrats, George, on a very good run in terms of, you know, I suppose just first off, wanted to start with the overall kind of top line growth outlook and sort of two elements of that. I think one is the total company this year is growing about 3%. You know, when we look at the sort of the go forward business that the 22 billion revenue base or so is, that sort of 3% rate abnormal in any respects when you're looking at the backlog and assuming no big changes in interest rates or US policy, kind of as we're looking ahead.

Julian C.H. Mitchell: Thanks, Good morning, and congrats George on a very good run.

George R. Oliver: And related to that, the foreign security business is something that you've known for a long time. It looks like sales are flat there this year, and that will be about 45% of the go forward revenue, I think. What do you think foreign security can grow at, sort of, the medium term? Oh, great, great question.

Julian Mitchell: And related to that, the foreign security business is something that you've known for a long time. It looks like sales are flat there this year. And that will be about 45% of the go forward revenue, I think.

George Oliver: What do you think foreign security can grow at sort of medium term? Oh, great, great question. So, so let's start first with the 3% for the year. Really, we had a lot of cyberheadwing in the first quarter that have muted somewhat that overall growth rate year on year. So I'll tell you for a longer algorithm, 3% is absolutely what, absolutely not what our expectation would be. It'd be closer to mid single digits, and that's really on the basis of a mid to high single digit growth in our service business and a mid single digit growth into our systems business overall.

George R. Oliver: So, let's start first with the 3% for the school year. Really, we had a lot of cyber headwinds in the first quarter that muted somewhat that overall growth rate year on year. So I'll tell you for a longer-term algorithm, 3% is absolutely not what our expectation would be. It'd be closer to mid single digits.

George R. Oliver: And that's really on the basis of mid to high single-digit growth in our service business and mid single-digit growth in our systems business overall. And so those fundamentals driving a better mix overall are different, depending on the different product lines, and right now each package benefits from a lot of tailwind coming from decarbonization, data center, and other market verticals that have really propped up the growth there. And you're right; we've seen a little bit of softness overall in the market for fire and security this year.

George Oliver: And so those fundamental driving a better mix overall are different depending on the different product line and write knowledge back is benefiting from a lot of tailwind coming from the carbonization data center and other market verticals that are really pop up the growth there. And you're right, we've seen a little bit of softness overall in the market on five and security this year. We're seeing a particular in a book and their business some sign of recovery, and we think we can maintain that mid single digit growth over time for that business as the service and recurring component aspect of that business will continue to be higher than the digital.

Julian C.H. Mitchell: Being on the different.

Speaker Change: Product line and right now <unk> is benefiting from a lot of tailwind coming from the Carbonization data center and auto market verticals that they've really propped up the growth there and you're right we've seen a little bit of softness overall in the market on fire and security this year.

George R. Oliver: We're seeing, particularly in the book and bill business, some signs of recovery, and we think we can maintain that mean single-digit growth over time for that business as the service and recurring component aspects of that business will continue to be higher than the single-digit target. Thank you. And our next question today comes from Nigel Coe at Wolf Research. Please go ahead.

Speaker Change: We are seeing a particular doing a book and bill business as some sign of recovery and we think we can maintain that mid single digit growth over time for that business.

Speaker Change: As the service and the recurring component of aspect of that business will continue to be high yield at that mid single digit target.

Operator: Thank you.

Speaker Change: Thank you and our next question today comes from Nigel Coe Wolfe Research. Please go ahead.

Nigel Coe: And our next question today comes from Nigel Coe at Wolf Research.

Nigel Coe: Please go ahead.

George R. Oliver: Thanks, good morning, and George, you've had one hell of a career, so congratulations and good luck with your next step. Um... Yeah, so just on that topic, do you have a timeframe in mind for the succession? I know you obviously want to find the right person to do a very thorough search, but any timeline? And then maybe just touch on Patrick's appointment to the board. Obviously, you know Patrick very well.

George Oliver: Thanks, good morning, and George, you had one hell of a career, so congratulations and good luck with the next steps. Yeah, so just on that topic, do you have a time frame in mind for the succession? I know you obviously want to find the right person to do very, very, very, very search for any timeline. And then maybe just touch on, you know, Patrick's appointment to the board. Obviously, you know Patrick very well. You know, what sort of skills, you know, kind of made him the right person for the board. And I wonder, maybe he's under consideration for the next year.

Nigel Edward Coe: Thanks, Good morning.

Nigel Edward Coe: George you had one hell of a Korea so congratulations.

Speaker Change: Good luck with your next steps.

Speaker Change:

Speaker Change: Yes, so just on that topic.

Speaker Change: Do you have a timeframe in mind for the for their succession I know you obviously want to find the right person to do it right there.

Speaker Change: Our research, but any timeline and then maybe just touch on you know Pat.

Speaker Change: Patrick's appointment to the board, obviously, you know Patrick very well what sort of skills.

George R. Oliver: What sort of skills made him the right person for the board? And I wonder if maybe he's under consideration for the next CEO. The timing of this, I mean, we've made great progress on our portfolio with the moves we've recently made. I think it's clear we have a lot of confidence now in the strategy playing out, and we're starting to see the results from that. And we've also put in place a strong leadership and team, and I'm very confident of their capabilities and the work that they're doing that's going to position the company to continue to be successful.

Speaker Change: Made him the right person.

Speaker Change: And I wonder if maybe he's under consideration for the next CEO.

George Oliver: The timing of this, I mean, we've made great progress on our portfolio with the moves we've recently made. I think it's clear we have a lot of confidence now in the strategy playing out. We've started to see that the results from that. And we've also put a strong leadership in team. And I'm very confident of their capabilities and the work that they're doing that's going to position the company to continue to be successful. Now, the board, you know, working with the board, we've had succession plans that we've been building over time. So that's well underway.

Speaker Change: The timing of this I mean, we've made great progress on our portfolio with the moves we've recently made.

Speaker Change: I think it was clear we have a lot of confidence around the strategy playing out I'm sorry.

Speaker Change: To see that the results from that and we've also put a strong leadership team and I'm very confident of their capabilities and the work that they're doing that's going to position the company to continue to be successful.

George R. Oliver: Now, the board, you know, working with the board, we've had succession plans that we've been building over time, so that's well underway, and we're looking at both internal and external candidates. The board is engaged directly with a nationally recognized search firm and making sure we're also, you know, looking for and developing our internal candidates.

Speaker Change: The board is working with the board we've had succession plans that we've been building over time, so that's well underway and now we're looking at both internal and external candidates.

George Oliver: And now we're looking at both internal and external candidates. You know, the board is engaged directly with the nationally recognized search firm and making sure we're also, you know, looking and developing at our internal candidates. So it's hard to define the timeline, but we are moving forward. And as far as myself, I couldn't be more committed and more passionate and energized relative to where we are committed to make sure that we. I see through a very smooth transition to my successor. And then I'll continue on as Chairman of the Board. So that's kind of what we are.

Speaker Change: The board has engaged directly with a nationally recognized search firm and in making sure. We're also looking and developing our internal candidates. So it's hard to define the timeline, but we are moving forward.

George R. Oliver: So it's hard to find the timeline, but we are moving forward. And as far as myself, I couldn't be more committed and more passionate and energized relative to where we are, committed to make sure that we see through a very smooth transition to my successor, and then I'll continue on as Chairman of the Board. So that's kind of where we are. We'll keep you up to date as we make progress through the year and, you know, through the remainder of the year. And we'll keep you updated. Thank you. And our next question today comes from Steve Tusa with J.P. Morgan. Please go ahead. Hey, good morning.

Speaker Change: As far as myself I couldnt be more committed and poor pet more passionate and energized relative to where we are committed.

Speaker Change: Committed to make sure that we see through a very smooth transition to my.

Speaker Change: My successor, and then I'll continue on as chairman of the board. So that's kind of where we are we'll keep we'll keep you up to date as we make progress through.

George Oliver: We'll keep you up to date as we make progress through the year and, you know, through the remainder of the year, and keep you updated.

Speaker Change: Through the year and and you know through the remainder of the year and keep you updated.

Operator: Thank you.

Speaker Change: Thank you and our next question today comes from Steve Tusa with Jpmorgan. Please go ahead.

Steve Tusa: And our next question today comes from Steve to, so would say.

Operator: If you're more again, please select.

Steve Tusa: Hey, good morning, and congrats, George. The free cash flow in the quarter was pretty good. How do you see that playing out in the fourth? I know 85% conversion would suggest. I think somewhat of a step down in the fourth. And you're already on a trailing basis; you look like you're already, you know, very close to 100% conversion. So just curious as to how sustainable, you know, this good result is.

George R. Oliver: And congrats, George. The free cash flow in the quarter was pretty good. How do you see that playing out in the fourth?

Charles Stephen Tusa: Hi, good morning, and congrats George.

Speaker Change: Hum.

Speaker Change: The free cash flow in the quarter was pretty good.

Charles Stephen Tusa: How do you see that playing out in the in the fourth I know, 85% conversion would suggest I think somewhat.

Marc Vandiepenbeeck: I know 85% conversion would suggest, I think, somewhat of a step down in the fourth. And you're already, on a trailing basis, you look like you're already very close to 100% conversion. So just curious as to how sustainable this good result is. Oh, great question, Steve.

Speaker Change: Somewhat of a step down in the fourth and you're already on a trailing basis you have like youre already very close to a 100% conversion so.

Speaker Change: Just curious as to how sustainable this.

Speaker Change: This good result is.

Mark Vandiepenbeeck: A great question, Steve. So you're right. We saw really solid improvement year on year. And the momentum here today has been has been quite strong. We're seeing working capital fundamentals continuously improving and continue to training very positively. The work we've done on lowering inventory and improving our SNO PSN OE process. Eval others to really drive overall more predictability to the working capital. As far as that 85 plus conversion for the year. We continue to invest aggressively in parts of the market that are attractive to us, particularly increasing the capacity in our data center as we expand.

Marc Vandiepenbeeck: So you're right, we saw a really solid improvement year on year, and the momentum year to date has been quite strong. We're seeing working capital fundamentals continuously improving, and they continue to trend very positively. The work we've done on lowering inventory and improving our S&OP, and S&OE processes has allowed us to really drive more predictability into the working capital. As far as that 85-plus conversion for the year, we continue to invest aggressively in parts of the market that are attractive to us, particularly increasing the capacity in our data center as we expand more lines in our factory in North America and elsewhere, as well as continuing both the investment in our ERP landscape.

Speaker Change: Great question, Steve. So you are right, we saw a really solid improvement year on year and the momentum year to date has been has been quite strong.

Speaker Change: We have seen working capital fundamentals continuously improving and continue to trending very positively.

Speaker Change: Work, we've done on lowering inventory and improving our <unk> process, if allowed us to really drive overall more predictability to the working capital.

Speaker Change: That 85, plus conversion for the year.

Speaker Change: We continue to invest aggressively in parts of the market.

Speaker Change: Attractive towards particularly increasing the capacity genome data center as we expand.

Mark Vandiepenbeeck: More lines, you know, you know, factor in North America and elsewhere as well as continue to involve the investment in our European landscape. We do believe that the momentum allows us to probably do better than 85. And structurally and over term, we'll be able to continue to improve on that. But as of today, I tell you, in five process is where we come.

Speaker Change: More lines, you know factor in North America, and elsewhere as well as continued in both the investment you know ERP landscape.

Marc Vandiepenbeeck: We do believe that the momentum allows us to probably do better than 85, and structurally and over time, we'll be able to continue to improve on that. But as of today, I'll tell you 85-plus is where we've come.

Speaker Change: We do believe that the momentum models is to probably do better than 85, and structurally and overtime, we'll be able to continue to improve on that but.

Speaker Change: As of today I would tell you 85 process is where we're comfortable.

Mark Vandiepenbeeck: and then just as far as the guide is concerned next year, anything, you know, details that you can give as far as your strategy. There's obviously going to be a bit of a dislocation moving these things to Discops with a lag in the capital deployment. How do you plan to, you know, address that on earnings?

Marc Vandiepenbeeck: And then just as far as the guide is concerned, next year, anything, any details that you can give as far as your strategy, there's obviously going to be a bit of a dislocation, moving these things to disk ops with a lag in the capital deployment. How do you plan to address that in earnings? Yeah, we'll start providing guidance next quarter on continued operations. And you're right, there's going to be a little bit of noise, but we are very comfortable that the overall strategy we've committed to for next year will hold true as we navigate to that continued operation.

Speaker Change: And then just as far as the guide is concerned next year.

Speaker Change: Anything any details.

Speaker Change: That you can give as far as your strategy. There is obviously going to be a bit of a dislocation in moving these things to disc ops.

Speaker Change: There is a lag in the capital deployment.

Speaker Change: How do you plan to.

Speaker Change: Address that on an earnings.

Mark Vandiepenbeeck: Yeah, we'll stop providing guidance next quarter on continues operation. And you're right; there's going to be a little bit of noise, but we are very comfortable that the overall algorithm is committed to for next year. We'll hold through as we as we navigate to that continued operation. As you know, some of that presidential-like commercial business had solid cash flow, but the momentum that we see in our core business, thanks to that singular operating model, is really providing strong gain wins that will allow you to continue to improve on our free cash flow conversion and overall free cash flow performance.

Speaker Change: Yes, we will.

Speaker Change: Stop providing guidance next quarter on continued operation and Youre right. There is going to be a little bit of noise, but we are very comfortable that the overall algorithm that we've committed to for next year.

Speaker Change: We'll hold true as we as we navigate through the continued operation.

Marc Vandiepenbeeck: As you know, some of that residential and commercial business had solid cash flow, but the momentum that we see in our core business thanks to that singular operating model is really providing strong tailwinds that will allow you to continue to improve on our free cash flow conversion and our overall free cash flow performance. Thank you. And our next question today comes from Noah Kaye with Oppenheimer. Please go ahead.

Speaker Change: You know some of that residential and light commercial business.

Speaker Change: Solid cash flow, but the momentum that we see in our core business thanks to that.

Speaker Change: Singular operating model is really providing strong <unk> wins that will allow you to continue to improve on our free cash flow conversion and overall free cash flow performance.

Speaker Change: Thank you and our next question today comes from Noah Kaye with Oppenheimer. Please go ahead.

George R. Oliver: Thanks. In the release, there's a call out of the gain, the significant gain, on some of the insurance recoveries from that AFF settlement. Can you just walk us through, you know, where your expectations are in terms of, you know, actual cash outflows relative to the $750 million settlement that was previously disclosed? Now that you've gotten some benefit from insurance, and maybe talk through the timing of those outflows? Let me just frame this up here.

Noah Duke Kaye: Thanks, So in the release there was a call out of of the gain a significant gain.

Mark Vandiepenbeeck: Thank you. There's a cloud of the gain, the significant gain on some of the insurance recoveries from that AFF settlement.

Noah Duke Kaye: So on the insurance recoveries from that if a settlement can you just walk us through what your expectations are in terms of.

Mark Vandiepenbeeck: Can you just walk us through, you know, where expectations are in terms of, you know, actual cash outflows relative to the 750 million settlement that was previously disclosed, now that you've gotten some benefit from insurance, and maybe talk through the timing of those outflows. Let me just frame this up here. We did just going back. We reached a settlement with the plaintiffs relating to the fee fast liability. The settlement obviously resolved a significant amount of our fee fast liability. Just also, you might recall that we, in July 23, that we're going to discontinue the production of the sale of our foreignated firefighting phones by June of 2024, which is what we've done.

Speaker Change: The actual cash outflows relative to the 750 million settlement that was previously disclosed.

Speaker Change: Now that you've gotten some benefit from insurance and maybe talk through the timing of those outflows.

Speaker Change: Let me just.

George R. Oliver: We did, just going back; we reached a settlement with the plaintiffs relating to the PFAS liability. This settlement obviously resolved a significant amount of our PFAS liability. Just also, you might recall that we announced on July 23, that we're going to discontinue the production and sale of our fluorinated firefighting foams by June of 2024, which is what we did. So that's behind us. And we have a significant amount of insurance through more than 20 insurers that is applicable to these claims.

Ramius: Ramius up here, we did just going back we reached a settlement with the plaintiffs relating to the PFS liability.

Speaker Change:

Speaker Change: Settlement, obviously resolved a significant amount of our P pause liability.

Speaker Change: Also you might recall that we have.

Speaker Change: 23 that were going to discontinue the production of the sale of our Fluorinated are a part of finding phones by June of 'twenty 'twenty, four which is what we've done so that's behind us and we.

Mark Vandiepenbeeck: So that's behind us. And we have a significant amount of insurance through more than 20 insurers that is applicable to these claims. And so that's the framework, and you've seen that we did receive 351 from our insurers.

Speaker Change: We have a significant amount of insurance through more than 20 insurers that is applicable to these claims.

Marc Vandiepenbeeck: So that's the framework, and you've seen that we did receive $351 million from our insurers. Maybe, Marc, you can talk about what we expect to unfold. Yeah, so from a timeline, Noah, we took the charge in Q2 for $750 million. That's part of the settlement.

Speaker Change: So that's the framework and you've seen that we did.

Speaker Change: We see 351 from our insurers and maybe Mark you can talk about as we what we expect going forward.

Mark Vandiepenbeeck: And maybe Mark, you can talk about as we expect going forward. Yeah, it's also from a timeline. No, we took the charging Q2 for 750 million dollars part of the settlement. And in the third quarter, we had received from the first few agreements with our insurers of about 351 million. So we recovered almost half right off the bat, and those payments will go back to the water provider according to our agreement. There's more payments that are going to come and come in over the next few quarters. And we believe that we are well covered from an insurance standpoint.

Speaker Change: Timeline.

Speaker Change: We took the charge in Q2 for $750 million, that's part of the settlement in the third quarter, we add receipts from.

Marc Vandiepenbeeck: And in the third quarter, we had receipts from the first few agreements with our insurers of about $351 million. So we recovered almost half right off the bat, and those payments will go back to the water provider according to our agreement. There's more payments that are gonna come in over the next few quarters, and we believe that we're well covered from an insurance standpoint, and the net effect overall will be the minimus.

Mark: The first few.

Mark: Agreements, we though.

Mark: Show of about $351 million.

Mark: So we recovered almost half right off the bat and those payments will go back.

Mark: To the water provider according to a wall agreements, they're small payments that are going to come.

Mark: And come in over the next few quarter and we believe that.

Mark: We will cover from an insurance standpoint, and the net effect overall.

Mark Vandiepenbeeck: And the net effect overall will be the minimum. The timing between the recoveries and we see and payments may slip from one quarter to the other, but overall, we think we're going to trade there.

Mark: We will be de Minimis, the timing between the recoveries and we see in our payments may slip from one quarter to the other.

Marc Vandiepenbeeck: The timing between recoveries and payments may slip from one quarter to the next, but overall, we think we're in good shape. Thank you. And our next question today comes from Joe Ritchie at Goldman Sachs. Please go ahead.

Mark: But overall, we think we're in good shape there.

Operator: Thank you.

Speaker Change: Thank you and our next question today comes from Joe Ritchie of Goldman Sachs. Please go ahead.

Joe Richie: Our next question today comes from Joe Richie at Goldman Sachs. Please go ahead. Thanks, and good morning, everybody.

Marc Vandiepenbeeck: Thanks and good morning, everybody. Congratulations, George, on the success of the announcement. Marc, I want to just one quick clarification on the 4Q guide. Is discontinued operations out of the 4Q guide, and if so, what is the impact of that?

Joseph Alfred Ritchie: Thanks, and good morning, everybody congratulations George on the testing nothing.

Joe Richie: Congratulations, George, on the success of Nothing. Marc, I want to just one quick clarification on the 4Q guide. So it's discontinued off out of the 4Q guide, and if so, what is the impact of that? And then going forward into fiscal year 25, how should we think about GP margins at this point? I think you guys put up a great number of this quarter to try and understand kind of like the puts and takes of the moving pieces with some of that portfolio to that stress. Thanks, George. The 4Q guide, we just gave it for the full payment of the company.

Mark: Mark I wanted to just one quick clarification on the <unk> guide.

Joseph Alfred Ritchie: So as discontinued ops out of the <unk> guide and if so what is the impact of that and then going forward into fiscal year 'twenty five.

Marc Vandiepenbeeck: And then going forward into fiscal year 25, how should we think about GP margins at this point? You guys put up a great number this quarter. Just trying to understand kind of like the puts and takes of the moving pieces with some of that portfolio divestiture. Thanks, Joe.

Speaker Change: How should we think about.

Speaker Change: GP margin.

Speaker Change: At this point you guys put up a great number this quarter just trying to understand kind of like the puts and takes of the moving pieces with some of that portfolio divestitures.

Marc Vandiepenbeeck: The full quarter guide we just gave is for the full payment of the company. We'll start breaking it down at the next quarter. So that guy really holds together with the perspective that we are going to continue to see sequential improvement, both for the business that we are contemplating divesting, as well as the core of our business. Now, if you look at the global product margin, and if you reflect on the year, global product really has benefited from improved processes from an SNOE, SNOP process that really drove massive improvement in our material handling and our inventory. And that improved inventory management created a massive absorption benefit, as well as productivity and net-net better conversion costs.

Speaker Change: Thanks, Joe in the fourth quarter Guide, we just gave it for the full payment of the company.

Mark Vandiepenbeeck: We'll start breaking it down at the next quarter. So that guy really holds together with the perspective that we are going to continue to see sequential improvement, both for the business that we have contemplating to divest, as well as the core of our businesses. Now, if you look at the global product margin, and if you reflect on the year, global product really has benefited from improved processes from an SNOE, SNOE process, that really proved massive improvement in our material handling and our inventory, and that improved inventory management created massive absorption benefit, as well as productivity and net net better conversion costs.

Speaker Change: We'll start breaking it down at the next quarter or so.

Speaker Change: That guy really holds together.

Speaker Change: The perspective that we are going to continue to see sequential improvement both for the business that we are contemplating to divest as well as the COO businesses now if you look at the global product margin and you should reflect on the year.

Speaker Change: Global product really has benefited from.

Speaker Change: Improved.

Speaker Change: Processes for munis in OAS and Ob process, that's not really true massive improvement a material handling and ore of inventory and improve inventory management created massive absorption benefits as well as productivity and net net better conversion costs, that's meant that any increment.

Joe Diaz: That meant that any incremental volume use so created good leverage and solid leverage in that business. Now that performance in Q3 that we see continuing improving in Q4, as you look into 25, we'll go back to a more regular seasonality, right? So you'll see the first half of the year performance more in the mid-teens, given the volume that businesses in the first six months of the year. And then I think we are now very comfortable seeing that business clocking in the 20s in the second half of the year, as natural seasonality and volume ramp in the second half.

Marc Vandiepenbeeck: That meant that any incremental volume you saw created good leverage and solid leverage in that business. Now, that performance in Q3 that we see continuing to improve in Q4, as you look into 25, we'll go back to more regular seasonality, right? So you'll see the first half of the year performance more in the mid-teens, given the volume that the business sees in the first six months of the year.

Speaker Change: <unk> volume you so created good leverage and solid leverage.

Speaker Change: In that business.

Speaker Change: Performance in Q3 that we see continuing improving in Q4 as you look into 'twenty five we'll go back to a more regular seasonality right. So you will see the first half of the year.

Speaker Change: Our performance more in the mid teens, given the volume that business sees in the first six months of the year and then I think we all know.

Marc Vandiepenbeeck: And then I think we are now very comfortable seeing that business clocking in the 20s in the second half of the year as a natural seasonality and volume ramp up in the 20s. Thank you. And our next question today comes from Joe Dio with Wells Fargo. Please go ahead. Hi, good morning.

Speaker Change: Very comfortable seeing that business.

Speaker Change: Clocking in the <unk> in the second half of the year.

Speaker Change: Natural seasonality and volume ramp up in the second half.

Joe Diaz: Thank you. And our next question today comes from Joe Diaz with Wells Fargo.

Joseph Alfred Ritchie: Thank you and our next question today comes from Joe <unk> with Wells Fargo. Please go ahead.

Dean Dray: Please go ahead. Hi, good morning. Congrats, George, and congrats to all of you on the portfolio announcements over the course of the quarter.

Marc Vandiepenbeeck: Congratulations, George, and congratulations to all of you on the portfolio announcements over the course of the quarter. Just curious if you can outline for ADT the anticipated proceeds, as well as any revenue margin, or any kind of EPS related to that exit. And then separately, just wanted any clarity on DSTOC this year, what you saw during the quarter, confidence that you think that's behind you, and any sizing of the overall headwind to global products in 2024 from some of those DSTOC pressures.

Joseph Alfred Ritchie: Hi, Good morning, Congrats George and congrats to all of you on the portfolio announcements over the course of the quarter.

Dean Dray: Just curious if you can outline on ADT, the anticipated proceeds, as well as any revenue margin kind of EPS related to that exit, and then separately just wanted any clarity on D-stock this year. What you saw during the quarter confidence that you think that's behind you and any sizing of the overall headwind global products in 2024 from some of those D-stock pressures. Yeah, let me start with ADT, and then I'll give some current D-stock with you can add some more. So that business, you know, we sign on June 18; we expect to close the transaction actually this quarter.

Joseph Alfred Ritchie: Alright, just curious if you can outline on ADT.

Speaker Change: The anticipated proceeds as well as any revenue margin kind of EPS related to that exit and then separately just wanted any clarity on that.

Speaker Change: <unk> stock this year.

Speaker Change: What you saw during the quarter.

Speaker Change: Confidence that you think that that's behind you and and any sizing of the overall headwind global products in 2024 from some of those destock pressures yes.

Marc Vandiepenbeeck: Yeah, let me start with ADT and then I'll give some color on this talk, but George, you can add some more. So that business, you know, we signed on June 18; we expect to close the transaction actually this quarter. We've not disclosed the financial terms of the business because it is a smaller transaction and really not that material.

Speaker Change: Yeah, Let me start with ADT and then.

Speaker Change: I'll give some color on the stock with Joe you can add some malls so that business.

Speaker Change: We signed on June 18, we expect to close the transaction actually this quarter, we have not disclosed the financial terms of.

George Oliver: We've not disclosed the financial terms of the business because it is a smaller transaction and really not that material. I think what's important to remember, this is really part of our simplification journey. We really ameliminating, I'm sorry, about 30% of our manufacturing footprint, but we also ameliminating a whole series of skew and complexity. This is a very commodity business, an accessory business, and it's evolved a lot over the past decade since we acquired that business. But it's an important step in our journey as a pre-private provider, and the net effect of that divestiture, after we buy back some shares, is immaterial to you.

Speaker Change: Of the business because it is it is a smaller columns action and really not that material.

Marc Vandiepenbeeck: I think what's important to remember is that this is really part of our simplification journey. We're eliminating, I'm sorry, about 30 percent of our manufacturing footprint, but we're also eliminating a whole series of skew and complexity. This is a commodity business, an accessory business, and it's evolved a lot over the past decade since we acquired that business. But it's an important step in our journey as a prepaid provider, and is immaterial to the Oval Office. No, I'm restarting it.

Speaker Change: I think what's important to remember that this is really possible simplification, Germany really eliminating them. So you're about 30% of all manufacturing footprint, but we also really managing a whole series of SKU and complexity. This is a very.

Speaker Change: Commodity business.

Speaker Change: <unk> business.

Speaker Change: And it's evolved a lot over the past decade, since we acquired that business.

Speaker Change: But it's an important.

Speaker Change: Step you know, Germany has a PPA provider and the net effect of that divestiture after we.

Speaker Change: We buy back some shares.

Speaker Change: He is immaterial to the yoga whole company.

Mark Vandiepenbeeck: of the whole company. No, on this start thing. Yeah, no, on this stocking, I think we've seen stock level getting back awfully to normalization. There's some pockets of the market that are still simplifying a little bit their stock level, but overall, I think that for the most part, that largely stocking is behind us. And we feel very confident, particularly when a product has been refreshed that we have a new norm and a new standout on our stock levels, and the distribution seems to be holding up pretty good. Yeah, being very familiar with these businesses, when you look at what we've done around, Marc mentioned it as related to productivity with material planning and the like.

Speaker Change: No on Destocking.

George R. Oliver: Apologies, please proceed. On the stocking issue, I think we've seen a stock level getting back, hopefully, to normalization. There are some pockets of the market that are still simplifying a little bit their stock levels. But overall, I think that for the most part, that largely stocking is behind us. And we feel very confident, particularly when products have been refreshed, that we have a new norm and a new standout in our stock levels, and the distribution seems to be holding up pretty well.

Speaker Change: Yes apologies. Please proceed.

Speaker Change: Now on Destocking, I think we see stock level getting back hopefully to normalization.

Speaker Change: There is some pockets of the market that are still.

Speaker Change: Uh huh.

Speaker Change: Simplifying a little bit their stock level, but overall I think for the most part that large destocking is behind us and we feel very confident particularly when.

Speaker Change: They've been refreshed that we have.

Speaker Change: You know me and you send out on all stock levels in the distribution.

George R. Oliver: Yeah, being very familiar with these businesses, when you look at what we've done around here, Marc mentioned it as it related to productivity with material planning and the like, and then the work that our team has done really simplifying our SKU base. We've done a really nice job now, not only reducing our inventory, but really decreasing our lead time.

Speaker Change: To be holding up pretty good being.

Speaker Change: Being very familiar with these businesses.

Speaker Change: Look at what we've done around Mark mentioned it is it really.

Speaker Change: To productivity with material planning and the like and then the work that our team has done really simplifying our SKU base.

Mark Vandiepenbeeck: And then the work that our team has done really simplifying our skew base, we've done a really nice job now, not only reducing the inventory, but really decreasing our lead times. And so I think we're well positioned now from a commercial standpoint to be able to pick up volume because of our short lead times, while we're continuing to reduce inventory. So we're back to where we were prior to this ramp up because of all of the disruption in the supply chain. And I feel confident that now, on our run rate basis from a growth standpoint, we're starting to see the growth come back, and we're doing it with less inventory.

Speaker Change: We've done a really nice job now.

Speaker Change: Reducing the inventory, but really decreasing our lead times and so I think we're well positioned now from a from a commercial standpoint to be able to pick up volume because of our short lead times, while we're continuing to reduce inventories. So we're back to where we were prior to this ramp up because of all of the disruption in the supply chain.

George R. Oliver: And so I think we're well positioned now from a commercial standpoint to be able to pick up volume because of our short lead times while we're continuing to reduce inventory. And so we're back to where we were prior to this ramp-up because of all of the disruption in the supply chain. And I feel confident that now, on a run rate basis from a growth standpoint, we're starting to see growth come back, and we're doing it with less inventory. Thank you. And our next question today comes from Jeff Sprague at Vertical Research. Please go ahead.

Speaker Change: And I feel confident that now on a run rate basis from a growth standpoint, we're starting to see the growth come back and we're doing it doing it with less inventory.

Operator: Thank you.

Speaker Change: Thank you and our next question today comes from Jeff Sprague of vertical research. Please go ahead.

Jeff Sprague: And our next question today comes from Jeff Sprag, Advertical Research. Please go ahead. Good morning, everyone.

Marc Vandiepenbeeck: Good morning, everyone, and George, good luck on whatever's next. Um, I just want to come back to the portfolio changes. You know, obviously you're not going to report Q4 or 2024 on the basis with which you guided, given things going to disk ops. So maybe you could just actually share with us, given where your guidance stands today and what you're doing on stranded and other costs, what the reset 2024 base looks like on an equivalent basis relative to your current guide.

Jeffrey Todd Sprague: Good morning, everyone and George Good luck on whatever is next.

Jeff Sprague: And George, good luck on whatever's next. I just want to come back to the portfolio changes. Obviously, you're not going to report Q4 or 2024 on the basis with which you guided, given things going to Discops. So maybe you could just actually share with us given where your guidance stands today and what you're doing on stranded another cost, what the reset 2024 base looks like on an equivalent basis relative to your current guide.

Speaker Change:

Speaker Change: Just wanted to come back to the portfolio changes.

Jeffrey Todd Sprague: Obviously, youre not going to report Q4, or 2024 on the basis with which you guided given things going to disc ops.

Speaker Change: Maybe you could just actually share with us given where your guidance stands today.

Speaker Change: And what Youre doing on stranded and other costs, what the reset 2024 base looks like on an equivalent basis relative to your current guide.

Marc Vandiepenbeeck: And then when you do have the proceeds to deploy, should we expect you to kind of return to your same leverage ratios that we see today, a kind of split between share of purchase and debt reduction to kind of maintain the same leverage?

Mark Vandiepenbeeck: And then when you do have the proceeds to deploy, should we expect you to kind of solve to your same leverage ratios that we see today, kind of split between share repurchase and debt reduction to kind of maintain the same leverage, or will you do something different with how you structure the balance sheet. Thank you. Thank you, Jeff. So on Discops, this is not changing any of our commitment, and is actually we feel very comfortable with where we've guided from full portfolio, as well as where we think the continued operating business will go. As far as the use of proceeds and what we plan on doing, so we expect the transaction to close in the next 12 months, and we plan to return most of the net proceeds to shareholders through a share repurchase program, very similarly to what we did a few years ago when we divested our battery power solutions business.

Speaker Change: And then when you do have the proceeds to deploy <unk>.

Speaker Change: Should we expect you to kind of solve to your same leverage.

Speaker Change: Ratios that we see today kind of split between share repurchase and debt reduction to kind of maintain the same leverage or would you do something different with.

Marc Vandiepenbeeck: Or will you do something different with, you know, how you structure the balance sheet? Thank you. I've got you, Jeff.

Speaker Change: How you structure the balance sheet. Thank you.

Marc Vandiepenbeeck: So on disk ops, this is not changing any of our commitment, and we actually feel very comfortable with where we've guided from the full portfolio as well as where we think the continued operating business will go. As far as the use of proceeds and what we plan on doing, we expect the transaction to close in the next 12 months, and we plan to return most of the net proceeds to shareholders through a share repurchase program, very similarly to what we did a few years ago when we divested our battery power solution. As far as addressing our leverage, it will very much depend on the timing of the closing. We're thinking 12 months, but it could go three months either way.

Speaker Change #105: Got you, Jeff so on disc ops.

Speaker Change: This is not changing.

Speaker Change: Any of our commitment and he's actually.

Speaker Change #104: We feel very comfortable with where we've guided for improved portfolio as well as where we think the continued operating business will go.

Speaker Change: As far as the.

Speaker Change: The use of seed and what we plan on doing.

Speaker Change: So we expect the transaction to close in the next 12 months.

Speaker Change: And we plan to return most of the net proceeds to shareholder.

Speaker Change: Chevy purchase.

Speaker Change: Hum very similarly to what we did a few years ago, when we divested or battery power solutions business as far as addressing our leverage.

Mark Vandiepenbeeck: As far as addressing our leverage, it will very much depend on the timing of the closing. We're thinking 12 months, but it could go three months either way. And so we could easily see yourself growing into existing debt level and not have to redeploy much, or we could see yourself in the transaction close much, much quicker than we anticipated having to address some leverage at that point. So goal is to remain committed to investment grade rating, and we'll work with the agency depending on the time now as to what's most appropriate to be able to meet that commitment.

Speaker Change: It will very much depend on the timing of the closing.

Speaker Change: We're thinking 12 months, but he could go three months either way.

Marc Vandiepenbeeck: And so, we could easily see ourselves growing into our existing debt level and not have to redeploy much. Or we could see ourselves in the transaction close much, much quicker than we're anticipating, having to address some leverage at that point. So, our goal is to remain committed to our investment-grade rating, and we'll work with the agency, depending on the timeline, as to what's most appropriate to be able to meet that commitment. And I'll leave it at that. Thank you. And our next question today comes from Andy Kaplowitz of Citigroup. Please go ahead.

Speaker Change: And so we could easily see ourselves growing into.

Speaker Change: Existing.

Speaker Change: Debt level and not have to redeploy a.

Speaker Change: Much Oh, we could see ourself in the transaction closed much much quicker than we anticipating having to address.

Speaker Change: Some leverage.

Speaker Change: At that point, our goal is to remain committed.

Speaker Change: To invest.

Speaker Change: Investment grade rating and we will work with the agency depending on the timeline as to what's most appropriate to be able to meet that commitment.

Mark Vandiepenbeeck: And I'll leave it on.

Speaker Change: And and I'll leave it at that.

Andy Kaplowitz: Thank you. And our next question today comes from Andy Kaplowitz of Citigroup. Please go ahead. Good morning, everyone. George, congratulations. Thanks, Andy.

George R. Oliver: Good morning, everyone. George, congratulations. Thanks, Andy. Could you update us on what you think regarding the ability to start growing backlog and earnings in Asia-Pacific and what your expectations are for Q4 bookings and backlogs? Backlog was up slightly sequentially in Q3, and I know you've talked about expecting a bigger uptick by the end of the year, while telling us today that China's still muted. So do you still see bookings beginning to accelerate in Q4, and do you still see recovery in that region in FY20? Now, that was a great question, and you partially answered it.

Speaker Change: Thank you and our next question today comes from Andy Kaplowitz of Citigroup. Please go ahead.

Andrew Alec Kaplowitz: Good morning, everyone. Congratulations.

Andrew Alec Kaplowitz: Andy.

George Oliver: Could you update us on what you're thinking regarding the ability to start growing backlog and earnings in age of pack? And what your expectations are for Q4 bookings and backlog was slightly sequentially in Q3. And I know you've talked about expecting a bigger uptake by the end of the year while telling us that China is still muted. So do you still see bookings beginning to accelerate Q4 and you still see recovery in that region in FY25? Now, great question. And you've partially answered it. Yeah, we continue to see the question improvement. There is a slower recovery than we had initially anticipated.

Andrew Alec Kaplowitz: Could you update us on what your thinking regarding the ability to start growing backlog and earnings in Asia Pac and what your expectations are for Q4 bookings and backlog backlog was up slightly sequentially in Q3, and I know you've talked about expecting a bigger uptake by the end of the year, while I'm trying to say that China is still muted. So do you still see bookings begin.

Speaker Change #101: To accelerating in Q4, and do you still see recovery in that region in FY 'twenty five.

Speaker Change: No great question and you partially answered it yet yes, we continue to see question any improvement there is a slower recovery than we had initially anticipated.

Marc Vandiepenbeeck: Yeah, we continue to see some question improvement, but there is a slower recovery than we had initially anticipated. It's one of the reasons we tightened the guide for the year and why you see revenue growth a little lower than we anticipated. But that momentum is continuing to build. And the other intake we saw in Q3 was sequentially a good improvement from Q2, and we see that sequential improvement continue in Q4. You know, while we expect one more challenging quarter in the fourth quarter here, we're still probably declining revenue year-on-year in the low single-digits.

George Oliver: So one of the reasons we tighten the guide for the year and why you see a revenue growth a little lower than we anticipated. But that momentum is continued to build, and the other intake we saw in Q3 was sequentially a good improvement from Q2. And we see that sequential improvement continuing Q4. You know, while we expect one more challenging quarter in the fourth quarter here, we're still probably declining revenue year on year in the low single digits. That of the momentum is going to turn positive positioning as well as we enter 2025. So we absolutely see that business recovering in 2025, particularly on a year-on-year compared, the coms are going to become easier given the challenging year we just went through.

Speaker Change #108: So one of the reason we tightened.

Speaker Change: The guide for the year and why you see our revenue growth a little lower than we are.

Speaker Change: Anticipated, but that momentum has continued to build.

Speaker Change: And the older intake we saw in Q3 was.

Speaker Change: Sequentially, a good improvement from Q2, and we see that sequential improvement continue in Q4.

Speaker Change: While we expect.

Speaker Change: One more challenging quarter in the fourth quarter here, we still probably declining revenue year on year in the low single digits.

Marc Vandiepenbeeck: That momentum is going to turn positive positioning as well as we enter 2025. So we absolutely see that business recovering in 2025, particularly on a year-on-year comparison. The comps are going to become easier given the challenging year we just went through.

Speaker Change: That will build momentum is going to turn positive.

Speaker Change: <unk> as well as we enter 2025, so we absolutely see that business recovering in 2025, particularly on a year on year compare the comstock going to become easier given the challenging year. We just went through.

Marc Vandiepenbeeck: And the backlog, as you mentioned, has been sequentially improving over the last few quarters, and we continue to redeploy resources in this most attractive part of the market, but we continue to remain very disciplined in the type of work and the counterparty we deal with in the market in China, as that market continues to be predicated on. Thank you. And our next question comes from Andrew Obin with Bank of America. Ah yes, good morning, George, congratulations.

Andrew Obin: The backlog, as you mentioned, has been sequentially improving over last year's quarter. And we continue to redeploy the resource in this most attractive part of the market. But we continue to remain very disciplined in the type of job in the counterparty we deal with in the market in China, but the market continues to be pretty challenging. Thank you.

Speaker Change #100: The backlog as you mentioned has been sequentially improving over the last few quarter and we continue to redeploy the resource in the most attractive part of the market, but we continue to remain very disciplined in the type of job in the counterparty we deal with in the market in China as that market continues to be pretty tonnage.

Speaker Change #107: Thank you and our next question comes from Andrew Ruben with Bank of America.

Andrew Obin: Then our next question comes from Andrew Oben with Bank of America. Thank you.

Andrew Obin: I ask a morning and George, congratulations. Andrew. Just a question. Just maybe a little bit more detail. You highlighted a more disciplined approach in AMIA systems. What did you do? And, you know, what's your ability to apply this approach elsewhere in the portfolio? Great question. So the discipline that we've put in place is really part of overall operating model. And that operating model really started as we refined it in North America a couple of years back. And you can see North America really benefiting from that discipline over time and that focus. There's really two things that are happening.

Speaker Change #110: All right.

Speaker Change #110: Hi, guys. Good morning, George Congratulations Andrew.

Marc Vandiepenbeeck: Just a question, just maybe a little bit more detail. You highlighted a more disciplined approach in EMEA systems. What did you do, and you know, what's your ability to apply this approach elsewhere in the portfolio? Great question.

Andrew Alec Kaplowitz: Just a question.

Speaker Change #105: Just maybe a little bit more detail you highlighted more disciplined approach in EMEA.

Speaker Change: Systems.

Speaker Change #113: What did you do.

Speaker Change #114: You know, what's your ability to apply this approach elsewhere in the portfolio.

George R. Oliver: So, the discipline that we've put in place is really part of our overall operating model, and that operating model really started as we refined it in North America a couple of years ago, and you can see North America really benefiting from that discipline over time and that focus. There are really two things that are happening. We centralize the decision-making process more as to which vertical and which markets we really approach, and we really refocus that commercial organization towards those parts of the market where we see a very attractive margin as we can sell value, and we have customers that are interested in our product and see value over the life cycle. And when you do that, you're able to actually drive modest growth in the system business, but a much larger growth in our service business as that That's probably where their maturity is at the highest. Emila is still going through that.

Speaker Change: No great question so.

Speaker Change: The discipline that we've put in place is really part of overall operating model and that operating model really started as we refined it <unk> a couple of years back and you can see now SMA are really benefiting from that discipline over time and that focus.

Speaker Change: Theres really two things that are happening.

George Oliver: We centralize more the decision-making process as which vertical and wage markets we really approach. And we really focus that organization towards those parts of the market where we see a very much attractive margin as we can sell value. And we have customers that are interested in our product and see value over the last cycle, but also parts of the market where you see a stronger service attached. And when you do that, you're able to actually drive modest growth in the system business, but a much larger growth in our service business as that service attached yields better outcome overall.

Speaker Change: <unk>.

Speaker Change: Centralize more of the decision, making process is which vertical and which markets. We really approach and we really focus that all that commercial organization towards those parts of the market, where we see it.

Speaker Change #102: A very more much attractive marching as we can sell value and we have customers that are of.

Speaker Change #102: Interested in our product and see value over the last cycle, but also parts of the markets, where you see a stronger service attach.

Speaker Change: And when you do that you'll able to actually drive modest growth in the system business, but a much larger growth in our service business such that service attach yields better outcome overall so.

George Oliver: So that operating system has been really fully deployed in North America. That's probably where the maturity is at the highest. Emila is still going through that. I see Emila closing the gap with its regional peers. Asia had a strong operating model. I think the market moved on us very fast. And then we are repivoting as quick as we can. But you'll see, as I mentioned on the prior question, you see a pack repivoting very quickly and that operating model maturing across the board outside of North America, including it. Thank you.

Speaker Change: That that operating system has been really fully deployed in North America, that's probably where the maturity is at the highest immunize still going through that.

Speaker Change #111: I see <unk> closing the gap with each regional peers in Asia.

Speaker Change #111: <unk> had a strong operating model I think the market moved on us very fast and we our VP voting as quick as we can but youll see youll see as I mentioned on the prior question Youll see APAC VP voting very quickly and that's our basic model maturing across the board outside of North America, including in India.

Speaker Change: Okay.

Marc Vandiepenbeeck: I see Emila closing the gap with its regional peers. Asia had a strong operating model. I think the market moved on us very fast, and then we are pivoting as quick as we can. But you'll see, as I mentioned in the prior question, you'll see APAC pivoting very quickly and that operating model maturing across the board outside of North America, including in Asia. Thank you. And our next question today comes from Deane Dray at RBC Capital Markets. Please go ahead. Thank you, good morning everyone, and my congratulations to George. Hey, Uh...

Dean Dray: And our next question today comes from Dean Dray at RBC Capital Markets. Please go ahead. Thank you.

Speaker Change: Thank you and our next question today comes from Deane Dray at RBC capital markets. Please go ahead.

Dean Dray: Good morning, everyone, and add my congrats to George. Hey, I don't think you've given much detail here, but could you share with us any of the economics of the divestiture of air distribution technologies? Yeah, as I mentioned, Dean. Well, while this is a critical step in all simplification, Jeremy, the financial terms are not disclosed because they're really, it's really a smaller transaction and not very material for the overall value of the enterprise. We, we, we, we struck what we feel is a very attractive deal for, for, for, for the enterprise, we've thrown in capital. We're hoping to close that business very, very quickly and hopefully within the next few weeks.

Deane Michael Dray: Thank you good morning, everyone and add my congrats to George and his team.

Speaker Change: Hey.

Marc Vandiepenbeeck: I don't think you've given much detail here, but could you share with us any of the economics of the divestiture of air distribution technology? Yeah, as I mentioned, Dean, while this is a critical step in our simplification journey, the financial terms are not disclosed because they're really, it's really a smaller transaction and not very material for the overall value of the enterprise. We struck what we feel is a very attractive deal for the enterprise with trolling capital. We're hoping to close that business very, very quickly, and hopefully within the next few weeks. I got it.

Speaker Change #112: I don't think you've given much detail here, but could you share us with any of the economics of the dive.

Speaker Change #115: Divestiture of air distribution technologies.

Speaker Change #116: Yeah, as I mentioned Dean.

Speaker Change #120: While this is a critical step simplification journey.

Speaker Change #103: The financial terms are not disclosed because they are really it's free of smaller transaction and not very material for the overall value oriented price. We we struck what we feel is a very attractive deal for thoughtful for the enterprise suite touring capital, we hoping to Clos.

Speaker Change #103: Was that business very very quickly and hopefully within the within the next few weeks.

George Oliver: Got it. Thank you.

George R. Oliver: Thank you. And then, second question, George, there's been a lot of interest among your peers regarding not just data centers but liquid cooling technologies and data centers. Your peers make direct investments in technologies and businesses.

George R. Oliver: Got it. Thank you and then second question George Theres been a lot of interest in your peers are regarding matches datacenter, but liquid cooling technologies and data center, you've seen your peers make direct investments and technologies businesses.

George Oliver: And then second question, George, there's been a lot of interest in your peers regarding matches data center, but liquid cooling technologies and data center. You've seen your peers make direct investments in technologies, businesses. Is this something that you all are looking at as well? You've got certainly components that are part of these technologies, but there's a big developing opportunity, high growth, and it seemed like it would be a good fit. Absolutely. We're incredibly well positioned with all of our hyperscaler and colos customers, and from an R&D standpoint, understanding what their next generation is, how do we leverage our, you know, what we would say is a leadership portfolio with a lot of IP.

George R. Oliver: Is this something that you all are looking at as well? You've got components that are part of these technologies, but there's a big developing opportunity, high growth, and it seemed like, Absolutely. We're incredibly well positioned with all of our hyperscaler and colos customers, and from an R&D standpoint, understanding what their next generation is, how do we leverage our, you know, what we would say is a leadership portfolio with a lot of IP.

George R. Oliver: Is this something that you all are looking at as well you've got certainly components that are part of these technologies, but.

George R. Oliver: There's a big developing opportunity high growth and it seemed like it would be a good fit.

George R. Oliver: Absolutely we are.

Speaker Change #109: Incredibly incredibly well positioned with all of our hyperscale or and Colo customers and from an R&D standpoint understanding what their next generation is how do we leverage our what we would say is our leadership portfolio with a lot of IP and then as we go to liquid cooling.

George Oliver: And then as we go to liquid cooling, you know, with the cooling distribution unit at the end of it's still going to require a lot of the cooling technology that we deploy, but making sure that we're going to be positioned either either producing those units and or partnering to make sure that we have the full solution and how we position with our with our hyperscalers and colos. And so, you know, we see this playing out as an incredible opportunity for us and one that we've been investing in not only in our core technology, but our application of that technology with overall liquid cooling.

George R. Oliver: And then as we go to liquid cooling, you know, with the cooling distribution unit at the end, it's still going to require a lot of the cooling technology that we deploy, but making sure that we're going to be positioned either producing those units or partnering to make sure that we have the full solution and how we position ourselves with our hyperscalers and colos.

Speaker Change #109: Cooling distribution unit at the end of its still going to require a lot of the cooling technology that we deploy when making sure that we're going to be positioned.

Speaker Change #109: Either either producing those units indoor partnering to make sure that we have the full solution and how we position with our with our Hyperscale is in Colo and so we.

George R. Oliver: And so, you know, we see this playing out as an incredible opportunity for us and one that we've been investing in not only in our core technology but our application of that technology with overall liquid cooling. Thank you. And our next question today comes from Gautam Khanna with TD Collins. Please go ahead.

Speaker Change #109: We see this playing out as an incredible opportunity for us and one that we've been investing in not only in our core technology, but our our application of that technology with the overall liquid cooling.

Speaker Change #109: Thank you and our next question today comes from Gautam Khanna with Cowen. Please go ahead.

George R. Oliver: Hey, thanks. Good morning, and congrats, George. Moringa.

Gautam J. Khanna: Hey, Thanks, good morning, and congrats George.

George R. Oliver: Good morning Gautam.

George R. Oliver: I wanted to ask about that CEO search, you know, what George, from your perspective, what kind of attributes are you looking for from whoever succeeds you? What do you think they need to bring? Well, I mean, as we think about the company and the simplification of the company, it's important that we bring a lot of domain expertise and industrial expertise. We're a company that is a product technology company. We're a service company in how we deploy that technology, and certainly, we're solutions in how we actually go to market. So there are a lot of experiences there that we'd be looking for to complement.

Speaker Change #128: I wanted to ask on the CEO search what George from your perspective, like what kind of a attributes are you looking for from whoever succeeds what do you think they need to.

George Oliver: And that CEO search, you know, what George, from your perspective, what kind of attributes are you looking for from whoever succeeds you? What do you think they need to bring? Well, as we think about the company and the simplification of the company, it is important that we bring a lot of a lot of domain expertise and industrial expertise. We're a company that is a product technology company, we're a service company and how we deploy that technology. Certainly we're solutions and how we actually go to market. So there's a lot of experiences there that we'd be looking for to complement.

Speaker Change #117: To bring.

George R. Oliver: Well I mean, as we think about the company and the simplification of the company. It's important that we bring a lot of lot of domain expertise in industrial expertise.

George R. Oliver: Company that has a product technology company, we're a service company and how we deploy that technology.

George R. Oliver: Certainly were solutions and how we actually go to market. So there's a lot of experiences there that we'd be looking for to complement.

George Oliver: You know, as we did the board refreshment with Patrick to talk to that a little bit, you know, we constantly looking for qualified board candidates and how we, you know, think about refreshing succession, and Patrick is a fantastic addition. And, you know, a world-class executive with experience transforming Xylem and similar experience going from an industrial product company into an advanced technology service solution enterprise. So as we think about, you know, CEO succession and the like, obviously strong operating experience, strong domain experience, and the ability to be able to take the incredible foundation that we built here to the next level leading the new, new Johnson Control.

George R. Oliver: As we did the board refreshment with Patrick, just to talk about that a little bit, we are constantly looking for qualified board candidates as we think about refresh and succession. Patrick is a fantastic addition, a world-class executive with experience transforming Xylem and similar experience going from an industrial products company into an advanced technology service solution enterprise. So as we think about CEO succession and the like, obviously, strong operating experience, strong domain experience, and the ability to be able to take the incredible foundation that we've built here to the next level, leading the new Johnson Controls.

Speaker Change #109:

Speaker Change #109: We did the board refreshment with Patrick just to talk about a little bit.

Speaker Change #109: We are constantly looking for qualified board candidates and how we think about refresh in succession and Patrick.

Speaker Change #119: Fantastic condition.

Speaker Change #119: World Class executive with experience transforming xylem and similar experience going from an industrial products company into an advanced technology service solution enterprise. So as we think about you know.

Speaker Change #119: CEO succession, and the like obviously strong operating experience strong domain experience and the ability to be able to take incredible foundation that we built here to the next level, leading the new new Johnson controls.

George Oliver: Thank you.

George R. Oliver: Thank you. And our next question today comes from Nicole DeBlase with Vulture Bank. Yeah, thanks. Good morning, guys.

Speaker Change #121: Thank you and our next question today comes from Nicole <unk> with Deutsche Bank. Please go ahead.

Nicole DeBlase: And our next question today comes from Nicole DeBlase with Butcher Bank. Who's going? Yeah, thanks.

George R. Oliver: And I'll add my congratulations to George on the announcement today. I just wanted to ask about orders. So you guys mentioned, you know, lumpiness around data centers maybe contributing to the 5% organic growth this quarter. I guess, how do you think about the potential opportunity for order acceleration from here based on what you're seeing in the pipeline today as we try to calibrate expectations for the next few quarters? Thanks. As you know, we try to shy away from providing guidance on all those.

Nicole: Yeah. Thanks, Good morning, guys and I'll add my congrats to George on the announcement today.

Nicole DeBlase: Good morning, guys, and my congrats to George on the announcement today. I just wanted to ask about orders. So you guys mentioned, you know, lumpiness around data center, maybe contributing to the 5% organic growth this quarter. I guess, how do you think about the potential opportunities for order acceleration from here? We're based on what you're seeing in the pipeline today as we try to calibrate expectations for the next few quarters. Thanks. Yes, you know, we tried to shy away from providing guidance on all those. But what I can tell you is you're absolutely right. We see lumpiness in the others, particularly coming from the data center of vertical.

Nicole: Just wanted to ask about order. So you guys mentioned you know lumpiness around data center may be contributing to the 5% organic growth. This quarter I guess, how do you think about the potential opportunity for order acceleration from here based on what Youre seeing in the pipeline today as we try to calibrate expectations for the next few quarters. Thanks.

Speaker Change #124: Yeah as you know we tried to shy away from providing guidance on all of those but what I can tell you as you're absolutely right, we see lumpiness <unk>, particularly coming from the data center vertical that that also means that there's going to be quarter, where youre going to see very large holder and we continue to see.

George R. Oliver: But what I can tell you is you're absolutely right. We see lumpiness in the others, particularly coming from the data center vertical. That also means that there's going to be a quarter where you're going to see very large orders, and we continue to have an increased pipeline in that particular vertical that gives us confidence that you will see pretty large order quarters over the next few quarters. In this particular quarter, we have a tough compare year on year. We had very solid orders, particularly in the data center vertical, in the third quarter of last year. But again, that pipeline remains healthy, and that lumpiness will probably not go away anytime soon.

George Oliver: That also mean that there's going to be a quarter where you're going to see very large order, and we continue to see an increased pipeline in that particular vertical. That gives us confidence that you will see a pretty large all the quarters over the next few few coming quarters. This particular quarter, we have a tough comparison here. We have very solid orders, particularly in the data center vertical in the third quarter of last year, but again, that pipeline remains self. The end at lumpiness will probably not go away anytime soon. And I think just add on to that when you look at the value proposition that we bring to data centers with our portfolio multi technologies in the way that we've been building out capacity to be able to serve our customers as they achieve their growth.

Speaker Change #121: And increased pipeline in that particular vertical that gives us confidence that you will see a pretty large all the quarters.

Speaker Change #121: Over the next few few coming quarters. These particular last quarter, we have a tough compare year on year, we've got very solid all those particular data center vertical.

Speaker Change #121: Third quarter of last year, but again the pipeline remains healthy.

Speaker Change #119: And that Lumpiness will will probably not go away anytime soon.

George R. Oliver: I think just to add to that, when you look at the value proposition that we bring to DataCenters with our portfolio of multi-technologies and the way that we've been building our capacity to be able to serve our customers as they achieve their growth, these become multi-year agreements. And so as we're positioning ourselves, you can get very large orders for multi-year. And that's what we're seeing as we partner and make sure that we're positioned to get more than our fair share, bringing our technologies and capabilities with the full solution to our customers globally. Thank you. And our final question today comes from Brett Linze with Mizzouho. Please go ahead.

Speaker Change #131: Just to add onto that when you look at the value proposition that we bring to data centers with our portfolio of multi technologies and the way that we've been building out capacity to be able to serve our customers as they achieved their growth.

George Oliver: These become multi-year agreements, and so, as we're positioning, you can get very large orders multi-year. And that's what we're seeing as we're partnering and making sure that we're positioned to get more than our fair share, bring in our technologies and capabilities with the full solution to our customers globally.

Speaker Change #131: These become multi year agreements and so as we're positioning you can get very large orders multi year and that's what we're seeing as we're partnering in making sure that we're positioned to get more than our fair share on bringing our technologies and capabilities with a full solution to our customers globally.

Speaker Change #119: Okay.

Speaker Change #119: Thank you and our final question today comes from Brett Linzey with Mizuho. Please go ahead.

Operator: Thank you. Hey, good morning, and congrats to George.

Marc Vandiepenbeeck: Hey, good morning, and congratulations to George. Just wanted to come back to the fourth quarter guide. So the 19% EBITDA margin, wanted to understand your level of visibility there. Is this something that you're converting out of backlog and you have line of sight to? Any color towards that 60% incremental margin. Yeah, no; we absolutely have strong visibility to it.

Brett Logan Linzey: Hey, good morning, and congrats to George.

Operator: Just want to come back to the fourth quarter guide. So the 19% even a margin wanted to understand your level of visibility there. Is this something that you're converting out of backlog, and you have line of sight to just any color towards that 60% incremental margin. Yeah, you know, we absolutely have some visibility to it, and if you look year on year, for sure that 19% looks pretty heavy, with 250 to 300 basis points year on year improvement. But now, if you look at it sequentially, when we went from Q2 to Q3 and Q3 to Q4, jumping from almost 18% to 19% is absolutely part of that sequential run rate.

Brett Logan Linzey: Just wanted to come back to the fourth quarter guide. So the 19% EBITDA margin wanted to understand your level of visibility. There is this something that youre converting out of backlog and you have line of sight to just just any color towards that 60% incremental margin.

Marc Vandiepenbeeck: And if you look year on year, for sure, that 19% looks pretty heavy with 250 to 300 basis points of year-on-year improvement. But now if you look at it sequentially, when we went from Q2 to Q3 and Q3 to Q4, jumping from almost 18% to 19% is absolutely part of that sequential run rate. The same fundamentals we saw from Q2 to Q3, having a strong backlog, having really a book to build business, both in the field and at global product, and continuing to drive more volume.

Speaker Change #133: Yeah, no we absolutely have strong visibility to it and if you look at.

Speaker Change #125: Year on year.

Luke: For sure that 19% Lukes.

Speaker Change #132: Pretty heavy.

Speaker Change #125: Heavy.

Speaker Change #125: <unk> hundred 50 to 300 basis points year on year improvement, but now if you look at it sequentially.

Speaker Change #125: When we went from Q2 to Q3 and Q3 to Q4.

Speaker Change #125: Jumping from almost 18% to 19% is absolutely part of that sequential run rates. The same fundamental we sold up from Q2 to Q3, having a strong backlog, having really a book to bill business, both in the field and our global pulling continuing to driving more volume and the comments I've made on.

Mark Vandiepenbeeck: The same fundamental we saw the from Q2 to Q3 having a strong backlog, having really a book to build business, both in the field and at global pattern, continuing to driving more volume. And the comments I've made on global products and incredible work that's been done there to take care of the base cost and conversion cost, allowing us to really drive a lot of bottom line benefit for small volume increment, gives us very strong confidence that we can achieve that margin rate in the fourth quarter. Thank you.

Marc Vandiepenbeeck: And the comments I've made on global products and the incredible work that's been done there to take care of the base cost and conversion cost, allowing us to really drive a lot of bottom-line benefits for a small volume increment gives us very strong confidence that we can achieve that margin rate in the fourth quarter. Thank you. And that concludes our question and answer session. I'd like to turn the conference back over to George Oliver for any closing remarks.

Speaker Change #125: Global products and incredible work that's been done there to take care of the base cost and conversion cost, allowing us to really drive a lot of bottom line benefit for small volume increment gives us very strong confidence that we can.

Speaker Change #125: We can achieve that mall generated in the fourth quarter.

Speaker Change #129: Thank you.

George Oliver: And this includes our question and answer session.

Speaker Change #126: A question and answer session I would like to turn the conference back over to tours all over for any closing remarks. Thank.

George Oliver: I'd like to turn the conference back over to Towards Oliver for any closing remarks. Thank you, operator, and I'd like to thank the entire Johnson Controls team for their incredibly hard work and dedication in getting us to where we are today. Our transformation into a pureplay provider or comprehensive solutions for commercial buildings is substantially complete, and we're well positioned to now deliver long-term sustainable value for our shareholders as a simpler, higher growth company. We know we're on the right path as our strategies are already delivering results, and we are looking forward to this next chapter for our company.

George R. Oliver: Thank you, Operator, and I'd like to thank the entire Johnson Controls team for their incredibly hard work and dedication in getting us to where we are today. Our transformation into a pure-play provider of comprehensive solutions for commercial buildings is substantially complete, and we're well-positioned to now deliver long-term sustainable value for our shareholders as a simpler, higher-growth company. We know we're on the right path as our strategy is already delivering results, and we are looking forward to this next chapter for our company.

Speaker Change #134: Thank you operator, and I'd like to thank the entire Johnson controls team for their incredibly hard work and dedication in getting us to where we are today, our transformation into a pure play provider of comprehensive solutions for commercial buildings is substantially complete and we're well positioned to now deliver long term sustainable value for.

George R. Oliver: I am proud of the growth Johnson Controls has been able to achieve and couldn't be more excited about where we go next. So, with that, Operator, that concludes our call today. Thank you, sir. Ladies and gentlemen, this concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful rest of the day. BF-WATCH TV 2021

Speaker Change #126: Our shareholders as a simpler higher growth company. We know we're on the right path as our strategy is already delivering results and we are looking forward to this next chapter for our company.

George Oliver: I am proud of the growth Johnson Controls has been able to achieve and couldn't be more excited about where we go next.

Speaker Change #126: Out of the growth Johnson controls has been able to achieve and couldn't be more excited about where we go next so with that operator that concludes our call today.

Operator: So, with that operator, that concludes our call today. Thank you, sir.

Speaker Change #135: Thank you, Sir ladies and gentlemen. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful rest of the day.

Operator: Ladies and gentlemen, this includes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful rest of the day. Thank you.

Speaker Change #126: Yeah.

Brett Logan Linzey: [music].