Welcome to day two of the Wolfe Industrials International Conference. My name is Nigel Koh, and I cover the multi-industry sector here at Wolfe Research. Today is unusually—normally, the first day is the busiest day. Today is actually the busiest day. We've got, I think, 40 companies across the spectrum, and we've got 18 multi-industrials. It is going to be pretty hot and heavy today. It is going to be a bit busier around the floor. Obviously, the priority is to make sure the coffee does not run dry. That is the big priority today. Look, it is early days, but I think the feedback I am getting is it does not feel like demand is falling off a cliff. It feels like things are hanging in pretty well. Also, pricing seems to be kind of going through, despite the rollback in China tariffs. It might be setting up for a decent second quarter, second half, too early to tell, but that's the feedback that we're getting so far. My coverage has round-tripped back to the pre-liberation day highs. The three best-performing stocks due to the data are GE Vernova, JCI, and 3M. You probably wouldn't have made that call 12 months ago, by the way, but I think it does speak to the power of self-help. In my experience of covering the sector for 20 years, the genuine self-help stories tend to be the best within the multis. Companies that go from average to good, good to great, tend to be the best. When you have a CEO change, that becomes a potentially very powerful multi-year story. Maybe we can start the webcast. I certainly think that JCI ticks that box. The benefits of webcast. Just want to say welcome to day two of the Wolf Transport Industries Conference. We're going to kick off the day with the JCI team. Very happy to welcome to the stage Joakim Weidemanis. Weidemaniss. Joakim Weidemanis. And Marc Vandiepenbeeck. And I'm sorry. I'm winning the prize on the most participated name. I'm so sorry for hacking. Well done, Nigel. I was not practicing all night for that, by the way. Thank you very much, gentlemen. Maybe we can kick off the firesides. Joakim, maybe some open remarks, and yeah, we will get into the Q&A. Yep, sure. Three Europeans on stage. Yes. Yes. Yeah. As we were chatting, we've both lived here for decades, so. Yeah. Yeah. I joined nine weeks ago from a company called Danaher. Maybe some of you are familiar with Danaher. I joined the company for a number of different reasons. I looked at a lot of different things. What impressed me was the market-leading franchises that we have, not only on the high-performance York Chiller HVAC product lines and the Metasys Controls platforms, but also our, what I would call, enviable field position. We have 40,000 people in the field and built over decades. These are not high school grads who joined us yesterday. These are highly technically skilled individuals who are also, from a human point of view, skilled at dealing with customers and complex situations. When you have that kind of capability, both strong technology capabilities as well as an enviable field position that takes, like I said, decades to build, you really have something very compelling to work with. We can discuss how well we've productized our technological capabilities and how much leverage we're getting out of our field teams at this point in time. I saw that as really compelling advantages of this company. Of course, the mission. I should have started with the mission, but the mission, what we do, when you think about it, when human society advances, it really happens in buildings and not any kind of buildings, but where more intellectual, more sophisticated work is done. Of course, the latest and biggest growth vector in this space, needless to say, are the manufacturing sites of intelligence, a.k.a. data centers, right? You also have medical advances that take place in buildings, advanced healthcare, advanced manufacturing of pharmaceuticals or based on biologics. All of those buildings require mission-critical indoor climates. That is really something that plays to some of the strengths of our franchises here. I think all of those things were really compelling reasons for me to join. The fact that I have spent most of my career improving businesses, and we can chat a little bit about my Danaher background. Of course, here I saw an opportunity to join a team and leverage all the things I have learned over the years. One plus one equals much more than two over time. Those are some of the reasons, Nigel. That's great. I was going to kick off with the question about why JCI, because I'm sure during your career, you've had plenty of opportunities to move and see other companies. You talked about some of the great things about JCI, but in your first two months on the job, what would you say are the areas to add muscle or maybe areas for improvement? Yeah. Yeah. In addition to being excited about the strengths, I'm also equally excited about the work ahead here. I talked about it in the investor call, and you were with us, Nigel, about in terms of how we overall, as a company, just simply need to become much more oriented towards customers and competitors versus internally oriented. That sort of sounds like a nice theoretical thing to say. When you break that down in practical things and you look at, and I've spent a lot of time in the field. As I said, I'm still fairly new, so nine weeks in. I have been in nine countries, I think, by now. I have visited, I think, well beyond 100 customers. I've sat with hundreds of our frontline colleagues, frontline as in sales, service, R&D, as well as manufacturing. I've walked 18 plants, heading to my 20th, will be 20 plants by the end of this week. I'm really getting a flavor for what's needed here. In terms of the customer orientation, what I mean is when you look at your field team and you see how much time they're spending on things that are really non-value-added things. Of course, everybody in every company needs to do their expense report. That's not what I'm talking about. Yes, unfortunately, me too. There are just internal processes that are not optimized yet that would enable us to free up time for the people to build capacity in the field without hiring more people. That's not going to happen without leadership at different levels being customer-oriented and being obsessed with trying to help our frontline people with serving customers and giving them back more capacity. It is just a very practical example of when I say we need to be more customer and more competitor-oriented, right? I see that as an opportunity. I alluded to it here before with some of the unique technological capabilities we have. Like I said, not only, but in particular on the high-performance chiller HVAC product lines, we have unique skills. A chiller is really five subsystems. For those of you who follow automotive, I am sure you have heard automotive companies talk about a car as being a number of subsystems, and then there is the overall subsystem. We have unique capabilities in all of the five subsystems that make up an HVAC chiller. I do believe, humbly, that we have more skills in a number of the subsystems that some of our competitors do not. We have degrees of freedom and innovation in how we can turn those into more differentiated products, typically more vertically differentiated products. I'm super excited about bringing that into how we plan future product portfolios. Those are just a couple of examples about how you would turn this notion of being more customer-oriented into something that both creates more growth and leverage from the assets you have in place and the field teams that I started with here. Great. Thanks. You're definitely doing the gamble, that's for sure. Yes. The question we get a lot is how applicable, I mean, I think we've all heard of Danaher. I think we've got a lot of admirers of the Danaher Business System here. How applicable do you think the Danaher Business System is to JCI? I'm thinking not just in the manufacturing side, but also on the service side as well. Yeah, 100%. I mean, I could have said 200, but that's not possible, right? Yeah. Let me just walk you back. I started at Danaher 14 years ago. I met the individual who ran Danaher at the time before that. We connected on the topic of how you build unbeatable execution engines. I had done a lot of work in a prior company that maybe some of you know called Mettler-Toledo. Our business system was called Spinnaker. I spent six years there building out Spinnaker on the commercial side of things. We were really trying to accelerate organic growth. The way we did it, there are some fundamentals for how you drive continuous improvement, how we captured and defined best practices so that you can train people all over the world. 1.0 in year one. Next year, you do 2.0, and then you do 3.0. The unique skill we really built was deploying capability at scale to the frontlines. The notion was whoever has the most capable frontlines wins. That proved, I mean, I learned, I mean, that was a little while ago, right? One or two of you in here, I think, followed that company at that point in time too. That has played out year over year over year in Mettler-Toledo, as you know. The fundamentals were built at that point in time. I met the gentleman who ran Danaher at the time. Danaher was very strong at lean, more in the factories, a little less so elsewhere. We sort of aligned on the simple truth that you can apply the lean principles in commercial as well. Some of the approaches I had learned at Mettler-Toledo in the commercial could be brought to Danaher. I joined Danaher, and with the team there, we evolved the Danaher Business System to be far beyond factories. Over the last 14 years in Danaher, and I'm sure you've seen that in investor presentations, how much we at the time, they now talk about what we did on sales, on marketing, on service, on how to accelerate innovation, and so on. All of those things are 100% applicable at Johnson Controls. Think about it this way. We have about 35,000 people in our factories, maybe just a little bit more than that. We have 40,000 or more people in the field. It's not really about the cost, although, of course, we always look after the cost. It's what leverage can you get out of these capable people? The lean principle, what's lean, for those of you who don't know it, it's really a way of running companies. What you do, it's not a manufacturing thing. It used to be in the 1970s and so on. It is a way to align an entire organization around your customers. You engage all of your employees over time, of course, not day one, in hunting for waste and thereby improving processes, creating flow, being able to do things faster because you get rid of obstacles, quality, rework, waiting time, things like that. By being able to do things faster at better quality, you're able to be much more competitive. Whether that's on-time delivery or lead times from factories, or whether that's response time from your service team, that you can be there in three hours or six hours versus your competitor who can be there in 18 hours. The principles all apply in all these functions. That's a little bit probably more context than you wanted, but that's why. No, that's great. By the way, we can go with 200%. 200% is a thing. We'll go with that. Just want to. I'm quite quantitative, but. Look, you've said you're not ready to come out with sort of a strategy update on JCI in two months' time. I'm not going to press on that. Yeah. I do wonder on pricing. Yes. Now, under Marc's leadership, you've made some great strides on sort of pricing, especially in Europe and Latin America. I'm just wondering, especially on the solution side, because there's no single product to price there. I'm just wondering, any conclusions you've made so far on the ability to optimize price and price better for value? Yeah, you want to take that one? Yeah, sure. First of all, the dynamic of pricing the solutions business, as you alluded to, is a little bit more complicated than a pure product, right? You can compare a product one year and the next, and you can easily say, "I've improved price X% year on year." On the solutions, because the scope of the job and the different things becomes a little bit more complicated. I'll tell you two things. The first one is we do a whole lot less install than what people really believe. As part of our portfolio of systems, there's a big component of products, and we've been able dynamically to really improve our pricing processes to be able to command more price and sell more value. How you do that is you orient the commercial teams, and Europe's a great example, towards the parts of the market that are more attractive. One of the benefits JCI has is we operate in extremely broad and wide markets with a ton of opportunity. When that happens, you have a tendency to have a commercial team, if you let them go the way they want, to focus on everything and anything instead of laser-focusing on parts of the market where you have a higher service attached. It's easier to sell value. Your product can actually become differentiated, and you can actually command price on the differentiated technology we provide instead of chasing the more transactional parts of the market. Our ability to command price in those markets has been around focusing the teams, again, the subsegments of the market that are operating better. Now, there's a whole lot more work to do. Europe is in the early stage of that improvement, and there's more improvement to come. We got to continue to look at where and how we find the teams on system and how do we improve our entitlement on attachment rate. That will get that flywheel of pricing accelerating much faster. The days that you're alluding to where we had more challenges on commanding price and managing price are far behind us. We are able to now have a clear visibility on our cost of pricing and our ability to attain our full pricing demand and margin demand on most of the market we address. Okay. That's great. Maybe just think about the reorganization that's underway right now, the new segmentation. I do not want to talk about segmentation as it sounds like it's very dry, but you are moving from four segments to three segments. It does feel like more of a commercial realignment than just a simple rejigging of the reporting. I'm just wondering how this changes the customer-facing part of the organization and making just more efficient decisions and streamlining the organization. Yeah. Yeah, I mean, first of all, it's super logical. And quite frankly, most companies have had that org model for quite some time. So it's good that we did that. I mean, this work was all done before I joined, or the preparation for it was all done when I joined. And I had the pleasure of three days in to announce it to the organization. You could say, "Wow, how about that?" You know what? It was just logical. It's a model I'm super familiar with. I mean, so what was it about? In the past, we had a separate team, commercial team, that covered all of our indirect sales channels. They were separate from the people who, the 40,000 people in the field were separate. It does not matter what the logic of that was, but of course, there was some at the time. What we simply did was to say, "Hey, look, whoever is responsible for Germany or whoever is responsible for the Midwest in the United States, that individual, that team should be responsible for the whole market and for the entire customer journey and experience," meaning all channels, all work done. Of course, as you can imagine, when you move from two silos to one team, you do look at the market more holistically, right? It makes sense. Some of the side benefits of that, a little anecdote, and this is work that was started quite some time ago, and it is continuing. When you start to look at the market not in silos like that, of course, you see that, oh, combined, maybe we do not have the market share that we aspire to. And you know what? Different customer segments prefer to buy in different ways that maybe depending on where they are at in their journey. So it is not necessarily so that one business is only direct or it is only indirect, right? You need to look at the customer's buying journey. We are seeing already some of the early benefits of this where we have teams saying, "Hey, you know what? We probably could add a little bit more indirect channel here." Or, "You know what? We probably should not go indirect for these and these kinds of solutions because for a number of different reasons, the life cycle opportunity is much bigger here. We want to be much closer to that opportunity upfront. From a commercial point of view, it just made total sense. Other than the three geographical segments, Americas, EMEA, APAC, we have two groups of teams. One group is basically the group that's, let's call them, responsible for the products and the solutions. These are the innovation, we start with product management, product strategy, planning, things like that. They're leveraging the innovation centers, the innovation capabilities that we have. They turn that into products that we then manufacture. Of course, some of our products are standardized, and some are more configured to order. When you're in a little bit of a configured-to-order business, it's not bad to have innovation or some parts of R&D have good ties to manufacturing, right? It makes a lot of sense to have that kind of grouping. What was created was what will be the foundational group for whatever we choose to call it over time, but our operating system, our business system. That is a group that is really responsible for very much akin to what I did at Mettler-Toledo at Danaher, basically defining and developing best practices, having some continuous improvement capabilities, and then deployment capabilities to help the regions become more capable, but also in the factories, of course. Now, that is nascent, but we have created a group like that. Very exciting. I am very excited about that, to not have to start from scratch on that coming in. Great. Thanks, everyone. I'm going to take two more questions, and then I'm going to throw it open to the audience. I want to sort of maybe address two urban myths about JCI. One would be that pharma security is a solid business, but maybe not the highest multiple, highest growth. There's a perception that it's lower margin. It's down your margin. Maybe just take a crack at that one. Also, if I can just throw in as well, you do too much installation. There's too much labor. Yeah. Is there an opportunity to optimize that part of the business? Maybe just those two. Sure. Let's cover installation first. Like Marc said, we do not do installation of everything we do. Let's take that out of the equation right away. Now, for the installation that we do today, should we be doing all of that? I do not know. Probably not. I am a practical guy. I grew up in the field. I am not some ex-consultant. I have been a general manager since I was 28 years old. I have had full-scope businesses since I was 28 years old. The way you approach such a problem is you look at, for example, the last 300 projects that you did, and then you see, did we do installation or not? Then you ask yourself the question, did that improve our win rate? Yes or no? Of course, you look at the scope of installation. You develop an opinion on whether it helped you improve your win rate. You look at your margins. You look at what you assumed when you quoted, and then you look at how you were able to execute. You can answer the question, were those margins good enough for us? When you see if there is a delta to execute it, it could be up or down, by the way. You typically study the ones where you are down versus what you quoted. You say, "Why is that?" or, "Why is it not down in certain cases?" You will develop an understanding for what we are capable of doing and where. By the way, our capabilities are not uniform everywhere for every business line or in every country or every region for that matter, right? You look at, because in this business, as you know, the life cycle services business, what happens after the initial installation is an important part, not just of our revenue profile, but our margin profile and later on to earn the repeat business. You look at what's the service contract attached. Is there a correlation between if you did installation or not? You know what? We're doing that work right now. My hypothesis is that our conclusion is going to be that under these and these circumstances, we absolutely want to do the installation because it makes sense along the parameters I talked about. We're only capable of doing this kind of work, this level of complexity in certain parts of the organization. This kind of goes back to lean principles. Develop standard work and be clear on where you have the capabilities, give people the tools, and so on. We will also conclude that under these circumstances, we will no longer do installation. To preempt that question, I do not think that is going to be like a revolution that suddenly we are going to have a downtick in sales that you are going to notice. Really not. This is kind of a gradual thing. That is the answer on the installation side. We are doing that work right now. By the way, little reminder, our gross margins, that is the installation cost is in the gross margin, right? If you compare our gross margins to our competitors, it is actually better than most of our peers, right? Not all of them, but the closest in peers. On the portfolio, and I promise I will not play this card anymore after this quarter, but I am nine weeks in. I will play it when I can because it is just simply the truth, right? It is too early. It would be presumptuous of me to start drawing conclusions on the portfolio. What I can tell you is that we are approaching this the way I was brought up to do it. You start with strategy. Then you get to portfolio. Whether that is acquisitions or exits, you have to start with a strategy. Strategy starts with markets, just good old-fashioned. I mean, most of you went to business school. Market segmentations. What are the customer segments? What do they need? How do they buy? Who are the competitors? Where are we positioned today? What does a winner look like? You say, "Okay, what's the gap? Where are we?" versus what a winner should look like. You look at the gap and you say, "Man, that's big," or, "No, it's not that big." You have to make capital allocation decisions on internal capital, right? Which gaps are the most worthwhile to go after? We're doing that work right now. That's not something you complete in a quarter. Obviously, not only my decision. We will have to go to the board. Over the next couple of quarters, we're going to be doing that work. At the appropriate time, we'll come back and tell you what the conclusion is. My hypothesis, I mean, there could be two scenarios. I'm really not drawing a conclusion now at all. There could be two scenarios. Scenario one, which does not mean I'm ranking these now, by the way. They're just simply two scenarios. Scenario one is we could choose to become a little bit more focused in our portfolio. I mean, you could imagine that possibly being HVAC and controls. In that scenario, the natural choice would be, you do not need to go to business school to come up with this, but is that you choose to become a little bit more vertically oriented, specialized, right? In particular, if you have these unique technological skills that I was talking about. You would double down on higher growth verticals, verticals with a higher life cycle services content, more pricing potential because of your degrees of innovation. When you choose such a strategy, you have many examples of that out in the market. That is the theory behind that one. Scenario two, and at this point, I think it's just as likely, is just simply that if you think about Danaher, when I left Danaher, we were broadly in healthcare tech or tools for biotech. The three groups of businesses in Danaher, there were very few synergies between those three groups. They were great businesses, all of them, serving the general or a part of the healthcare market that had good macro characteristics. Now, each one of those businesses were great businesses, but they did not all have the same growth potential short or medium term. They had different margin profiles, and they had different cash conversion profiles. If you take a step back, and if you look at the portfolio we have today, I mean, excluding the 10% that we're going to exit that I think Marc has talked to you about in the past, I mean, you could see that, look, these businesses were serving the same general macro or similar macro trends. If, and here comes the big if, if we develop conviction that we can just simply run these businesses much better, then we could lift the performance of this corporation. I think all of us would be quite pleased if we could, as a starting point, catch up to the types of margin levels, EBIT levels that some of our near-end competitors have and over time do a little bit better. We are validating all of that work right now. I'm sure you're going to ask me the margin questions. I'll park that one until you get to that one. I was going to. It's the logical one. Yeah. No, but of course. We're running short of time, but I want to make sure I offer up the mic to the room. Any questions? No. Okay, back to that margin question. Yes. Before we get there. It's the one I asked before I joined. I mean, that's clear. Before we get there, I just do want to touch on the sort of trade environments. We had a very weak ABI print overnight, 40, one of the weakest I've seen in a while. Just this disconnect between what you're seeing on solutions orders versus some of the macro data. Just want to make sure we're not missing sort of a wall here in terms of, are we going to see a negative number in terms soon? Yes. Our guide of mid-single digit in Q3 and arithmetically very close to that in Q4 embeds some pressure we are seeing in the back end. Very transparently, if you look at the shape of our pipeline, the pace of orders, and the health of our pipeline, we do not see yet very strong signal of softness in the market. Now, we are longer cycle than most, right? A lot of the time it takes for us between approaching something in the pipeline and booking it is longer because we approach customer very early on in the either decision-making process or construction phase, depending on the segments of the market you look at. We continuously see healthy enough momentum to be able to meet our commitment. If you look geographically at that mid-single digit, we still see much better growth than the rest. That is really on the basis of the fundamentals of the mega trends we have seen in Europe. Also, the repivoting of that commercial structure I talked about earlier is really starting to yield a lot of goodness. APAC is okay. It is within that company guidance of mid-single digit. North America is probably just there or right under there, depending on how you look at it. The core vertical markets that have driven our growth and continue to drive our growth remain very healthy. Of course, data center, but you have manufacturing remains pretty healthy. Healthcare, if you exclude life science from there, still pretty good. The commercial real estate, still pretty good. I mean, the Class A offices, it is still one of our greatest markets. Anything below that is very, very soft and probably not growing at all. Yes, we see the same data you see. We have the same angst. There is some concern more for us in 2026 and what it will do for demand more than what we see for the balance of 2025, to be honest. Mark, maybe another one for you would be on the sorry. Yeah. I wanted to understand, this is a multi-vertical business. I've lived in multi-vertical businesses my whole career. I'll give you a little more context than maybe you're looking for, but it's important. I think it's important for you when you look at different companies. When you're in businesses that cover multiple verticals, you always have this dilemma. You can't just choose too few verticals because then you can't get scale. If you choose too many, you spread yourself too thin, and you can't, I'll use the word productize. I don't only mean hardware products now. Productize your capabilities and make enough progress because you go too broad. I wanted to understand if there was a scenario where there are few, many, enough higher growth verticals, was there an opportunity to really focus a company to become a little bit more differentiated than might perceive that some of the players in this industry, not just us, perhaps have been today? That is about long-term growth opportunities. By the way, when you dig into verticals and so on, of course, you ask yourself questions not just about growth. You ask about how mission-critical is what we do for them, what kind of margin differentiation is there, what kind of life cycle service opportunities, and so on. I asked a series of questions around long-term growth fundamentals. Of course, as you can imagine, I asked a lot of questions around current capabilities, not just team, but also in terms of where are we on the journey of our execution journey. For example, the margin question. I'm trying to help you here, Nigel. What's the opportunity here? There, because what has been fun for me over my career has been many, many different things, but I really do enjoy helping make sure we all win, shareholders. I'm a shareholder as well. I was asking about what kind of shareholder value creation opportunity is there with those two big questions. We're a minute over budget. I do want to get this margin question because it's the elephant in the room. Maybe just, you've talked about gross margins being above peers, and that's certainly true to a Trane or a Carrier. Therefore, the closeness gap, is it primarily an SG&A productivity? Yeah, I do not think so. I think there are a number of buckets. At a later point in time, after I have worked here for more than nine weeks, I will be able to dimensionalize it more precisely. I will tell you a little bit so you can understand why I am still confident to say what I say. The margin buckets, I would say, number one is how we run our factories. Applying lean principles, we will be able to not just eliminate waste, speed up how we run the factories, but when you do that, invariably take out cost, and not just cost as in COGS, but also capital. With 40+ factories around the world, we are going to have some fun here. We have already gotten started. Then you have the 40,000 people in the field. Many of these people are conservatively spending 15% of their time doing stuff that over time they should not do. Is it easier to grow if you cut that in half? You are trying to grow, we grew 7% last quarter, right? What if you take the 15%, cut it in half, you give them back 7%? Is it easier to grow 7% if you get? I think so. That is what I have seen during my career. There it is more about leverage. That is both service, gross margin, as well as the S cost in SG&A. You have the installation example that we talked about. On G&A, with the exit of residential, of course, we have already announced the restructuring previously. There are just lean opportunities in G&A in general. There is also a restructuring opportunity beyond what we have talked about, which we are trying to dimensionalize at this point in time. All those things, I mean, there is enough to go at. That is why I am really excited to say that I think we can not just catch up to some of our direct competitors, but over time, and of course, they are very capable, so they will not stand still. Over time, we are going to be very competitive on margins here. That is not a one-year thing, but it is not a five-year thing either. I will just have to work here for a few more weeks to come back and be a little more specific. We'll call it three years. Okay, that's great. We better stop there. Otherwise, I'll get into trouble. But Joakim, Marc, thank you very much for the discussion. That was great. Thanks, Nigel. Appreciate it. Thank you. That was great. Thank you. That was great.