Johnson Controls International plc (JCI) Earnings Call Transcript & Summary

Good morning, and welcome to the Johnson Controls First Quarter 2024 Earnings Conference Call. [Operator Instructions] 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.

Good morning, and thank you for joining our conference call to discuss Johnson Controls' first quarter fiscal 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. Joining me on the call today are Johnson Controls' Chairman and Chief Executive Officer, George Oliver; Chief Financial Officer, Olivier Leonetti, and newly appointed 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 forward-looking statements due to a variety of risks and uncertainties. Please note that we assume no obligation to update these forward-looking statements even if actual results or future expectations change materially. 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.

Thanks, Jim, and good morning, everyone. Thank you for joining us on the call today. Now let's begin with Slide 3. We are gaining momentum as we exit the first quarter. Our team has been unbelievable in managing through the recent cyber disruption, which occurred early in the quarter. While it is challenging to comprehensively quantify the overall business impact as we recovered from the incident, we are back on track. In fact, over the course of the last 120 days since the cyber incident, we have connected with many of our key customers, solidifying already strong relationships and strengthening their trust and confidence in Johnson Controls. It is clear from their feedback that our value proposition continues to resonate, and customers believe in our products and services. As we enter the new calendar year, we are seeing positive signs. During the quarter, we delivered solid first quarter results generally in line with our forecast. The fundamentals of our business are strong as we met expectations for sales, margins and adjusted EPS in the face of headwinds from the cyber disruption, ongoing weakness in global Residential HVAC and significant slowing in China. Olivier will discuss the details of our financials more specifically later in the call. Looking forward, we expect fiscal 2024 to return to more normalized seasonality in our businesses and the operating environment to be more in line with what we saw prior to the pandemic and recent supply chain disruptions. Our position of building a leading digital building solutions platform continues to be core to our strategy, and we are pleased with the strength of our Applied HVAC business especially as we serve the fast-growing data center market. We are updating our fiscal 2024 guidance today reducing the full year adjusted EPS range by $0.05, reflecting growing headwinds in China. Our commercially focused portfolio and long-cycle backlog-driven businesses, in addition to our record backlog, gives us more clarity of improvement as fiscal 2024 progresses. Before we continue, I would like to take the time to thank Olivier for his partnership over the last few years and wish him the best of luck in the next chapter of his career. When Olivier informed me that he was taking a role outside the company, we implemented our internal succession plan and I am very pleased that Marc Vandiepenbeeck is assuming the role of CFO. Marc has been with Johnson Controls for nearly 20 years with increasing responsibility in finance roles, including CFO of Building Solutions North America. Last year, we moved Marc into an operating role as President of EMEA/LA. Marc brings deep finance expertise and understanding of our customers, global markets and operational knowledge. I am confident that we will continue to build on the foundations already in place, and I look forward to partnering with Marc in his new role. Now turning to Slide 4. I'd like to highlight the strong foundation of operational excellence at Johnson Controls and our value-creation framework. We are capturing the secular trends across sustainable and healthy buildings. We have the right strategy and operating system in place to create value for our shareholders. And as part of our commitment to disciplined capital allocation, we remain focused on deploying resources to the right opportunities. Our team has made great progress in the last 2 years, creating a digital services model and our investments have been a key enabler. The addition of FM:Systems gave us increased capabilities to serve our customers as they improve their workplace environment. Digital is a strong enabler to creating recurring revenue, retaining customers and supporting higher, sustainable service growth rates. Within Service, we are changing the game from deploying a mechanical contractor to creating multiple options for our customers. We are increasing job size, improving margins and creating scalable solutions. In addition, we are maximizing value creation through digitally enabled offerings and accelerating our life cycle solutions entitlements across all of our domains. Our team's model has a strong foundation, and we will continue to accelerate the pace of change. At the same time, we have successfully removed many layers of cost across the organization, but we know there is more work to be done. We serve an incredible market, and it is on us to capitalize on the opportunities in front of us. We will continue to simplify and standardize across our portfolio. As we continue to focus on simplifying the company, we are always assessing opportunities to advance our transformation into a comprehensive solutions provider for commercial buildings. As part of the continuous evaluation of our portfolio, we are in the early stages of pursuing strategic alternatives of our noncommercial product lines in line with our objective to maximize value to our shareholders. We are very excited about our future and are confident we are on the right path to simplify our portfolio, drive margin expansion, deliver consistent cash flow while serving our customers in the best possible way. I will now turn the call over to Olivier to go through the financial details of the quarter. Olivier?

Thanks, George, and good morning, everyone. Let me start with the summary on Slide 5. As George discussed at the beginning of the call, our team did an incredible job responding to the cyber incident. The disruptions we experienced during the quarter were factored into the guidance we provided last month. Total revenue of $6.1 billion was flat year-over-year, while organic sales were down 1% as continued declines in global Residential HVAC and accelerated weakness in China's in-store business more than offset mid-single-digit growth in Service and continued growth in Applied HVAC. Segment margins declined 90 basis points to 12.8%, impacted by tough comps in our shorter-cycle Global Products business, coupled with ongoing weakness in China's macro environment. Adjusted EPS of $0.51 exceeded our guidance of $0.48 to $0.50 as we return to more normalized seasonality. The quarter was impacted by lost momentum from the cyber incident, accelerated weakness in China and tough comps in our Global Products business. Below the line, we saw headwinds from net financing charges due to higher interest rates and increased debt levels, in line with historical trends. On the balance sheet, we ended the first quarter with approximately $1.8 billion in available cash and net debt increased to 2.2x, which is within our long-term target range of 2 to 2.5x. The elevated cash position was a direct result of proactive action to mitigate the potential impacts of the cyber incident on cash flow. Adjusted free cash flow improved $180 million year-over-year, and we anticipate further improvement as we progress through the fiscal year. Let's now discuss our segment results in more detail in Slide 6 through 8. Beginning on Slide 6, organic sales in our Global Products business declined 1% year-over-year with volume declines offsetting price. Global Products saw continued strength in Commercial HVAC, which grew low single digits after growing low double digits in the comparable period 1 year ago. We have been investing in our Applied HVAC business for the last couple of years, deploying resources to align to more attractive opportunities, resulting in further share gains in calendar 2023. Fire & Security declined low single digits. We believe that the majority of the tough year-over-year comparisons in the shorter-cycle and direct business have bottomed out, and we should see a return to growth in calendar 2024. Industrial Refrigeration had another strong quarter, growing over 35%, driven by EMEA/LA. Global Residential declined high single digits, driven by a greater than 20% decline in North America, which more than offset low single-digit growth in Rest of World. North America continues to face market softness, and we believe we have 1 more quarter with these challenges before the industry begins to see growth in the second half of the year. We're improving our North America market share and see momentum building. Despite ongoing weaknesses in the European heat pump market, Rest of World benefited from strong growth in Japan. Our book-to-bill business continues to normalize with improved lead times, and our Global Products third-party backlog decreased 10% from the prior year to $2.3 billion. Adjusted segment EBITA margins declined 240 basis points to 17.9% as we benefited from insurance proceeds from a warehouse fire in the comparable period last year. We are beginning to see better cost absorption in our factory and expect Global Products margins to improve throughout the rest of the fiscal year. Moving to Slide 7 to discuss Building Solutions performance. Orders increased 1% as mid-single-digit order growth in North America and EMEA/LA was more than offset by a greater than 30% decline in APAC, which was primarily the result of further deterioration of the China installed business. As the China real estate market continues to weaken and the outlook remains mixed, we have begun to optimize our go-to-market strategy and have become more selective in the business we pursue. Organic sales were flat in the quarter against a tougher comparison of low double-digit growth in the prior year quarter. Install declined mid-single digits and more than offset mid-single-digit growth in Service. Segment margins declined 10 basis points as accelerated weakness in China offset positive mix in the quarter. Building Solutions backlog remains at record levels, growing 7% to $12.1 billion. Service backlog is flat and install backlog grew 8% year-over-year. Let's discuss the Building Solutions performance by region on Slide 8. Orders in North America increased 6% as we continued to see strong demand across our HVAC & Controls platform, growing high single digits following heightened growth in the comparative period a year ago. Overall, there was broad-based demand in our health care, data center, government and education sectors. Install orders increased 9% year-over-year with solid growth in both new construction and retrofit. Sales in North America were up 4% organically with strong growth across our HVAC & Controls platform, up low teens year-over-year. Our Install business grew 4% with continued momentum in new construction up over 25% year-over-year. Organic sales in Service grew 4% in the quarter, benefiting from high single-digit growth in our recurring revenue contracts. Segment margins expanded 20 basis points year-over-year to 11.5%, driven by the continued execution of higher-margin backlog and strength in our higher-margin Service business. Total backlog ended the quarter at $8.4 billion, up 11% year-over-year. In EMEA/LA, orders were up 5% with continued strength in Service, up 12%. Demand in institutional gained momentum in the quarter, growing 50% year-over-year, driven by public projects in Europe. Industrial Refrigeration had another strong quarter with greater than 45% growth. Sales in EMEA/LA grew 2% organically, led by high single-digit growth in Service with high single-digit growth from our recurring contracts and strong double-digit growth in our shorter-cycle transactional business. Applied Commercial HVAC and Fire & Security grew low single digits within the quarter. Segment EBITA margins of 7.7% remained flat as the growth in Service was offset by the conversion of lower-margin install backlog. We anticipate strong margin expansion in EMEA/LA through the remainder of the fiscal year. Backlog was up 10% year-over-year to $2.4 billion. In Asia Pacific, as I mentioned earlier, orders declined 31% due to further deterioration of the China install business, and we are being more strategic in the deals we select. Overall, APAC set of orders grew low single digits, driven by high single-digit growth in our shorter-term transactional business. Sales in the Asia Pacific declined 21% as the installation business was impacted primarily by accelerated weakness in China. Our Service business grew 5% in the quarter. The weakness in China's install business was broad-based across the overall portfolio with HVAC & Controls down high-teens and Fire & Security down 20%. Segment EBITA margins declined 140 basis points to 9.1% as weakness in China offset positive mix in our Service business. Backlog of $1.3 billion declined 21% year-over-year. I would now like to turn the call over to Marc to discuss our second quarter and fiscal year 2024 guidance. Marc?

Thank you, Olivier, and good morning, everyone. Before I discuss our guidance on Slide 9, I want to say how excited I am for the opportunity to partner with George as we simplify and transform Johnson Controls into a comprehensive solution provider for commercial buildings. We exited our first quarter with the cyber incident behind us, and the momentum we lost at the start of the year has recovered. We entered the second quarter with a backlog that remains at historical levels, a healthy pipeline of opportunities and strong momentum in our industry-leading Service business. We are introducing second quarter sales guidance of approximately flat year-on-year, which assume continued weakness in China and global Residential HVAC. We expect strong contribution from North America and EMEA/LA that, once again, by our resilient Service business. As we return to seasonality more in line with historical patterns, Global Product has one more challenging quarter before stabilizing in the second half. For the second quarter, we expect segment EBITA margin to be approximately 14.5% and adjusted EPS to be in the range of $0.74 to $0.78. For the full year, we continue to expect the top line growth of mid-single digit led by stronger performance in North America, further improvement in EMEA/LA, stabilization in Global Products and a cautious outlook on China. We expect segment EBITA margin to expand approximately 50 to 75 basis for the full year as price/cost remain positive and mix continue to improve throughout the year. As George mentioned earlier in the call, given the weakening macro outlook in China, we are updating our adjusted EPS guidance range to approximately $3.60 to $3.75. The overall guide assume a return to normal seasonality, second half stabilization of Global Products and a conversion of higher-margin backlog in Building Solutions. We continue to expect adjusted free cash flow conversion of approximately 85% for the full year. The improvement we saw in cash flow for the start of the year demonstrate that our working capital improvement are gaining momentum. With that, operator, please open up the lines for questions.

[Operator Instructions] And today's first question comes from Scott Davis with Melius Research.

George, I think it's been a tough couple of quarters, maybe if we take a step backwards. What do you think long term this portfolio, the growth rate and margin levels and the cash generation, what is kind of your -- I don't want to call it dare to dream, but what is the vision of where you think you can get 2, 3, 4 years down the road when -- in a more normalized environment?

Yes. So let me start, Scott, by just saying that, as you know, we've been through a significant transformation here into becoming a comprehensive solutions provider for commercial buildings. And then as part of that, continuing to focus on how do we transform the business model and how we bring our differentiated solutions to our customers in the commercial space. And so as you look at what we've been doing, we are well positioned to invest and lead in the overall building solutions space, capitalizing on significant secular trends, sustainable buildings, smart healthy buildings and we've been allocating our resources and building out the capabilities. When you look at the content of how we differentiate the solutions, it's not only through the leadership of the product, the applied product, and continued investment that we're making in product, but also now deploying those products with a leadership platform with OpenBlue that we believe is going to now lead the industry. And that all is converting into how we change the outcomes for the customers that we serve, and that's through our engineered commercial solutions and converting what we do within Building Solutions to a digitally enabled service. So when you look at the margin structure, as we go forward, not only are we getting a more focused approach to the differentiation with the value proposition right from engineering through install to then ultimately getting the life cycle services, when you project the overall performance going forward, we believe that from a growth standpoint, we'll be well above market on capitalizing on the secular trends with the differentiation. And from a margin profile, we'll have a much higher recurring revenue within our services, demanding a much higher margin with the content of these software-enabled services. And then from an overall return, when you look at the conversion to cash, we're getting now -- for the value proposition we bring, we're getting much more on cash upfront relative to that value proposition and ultimately being able to deliver very strong free cash flow. So I would say well above market growth, continued expansion of margins to what we believe is kind of mid- to higher teens and then very predictable cash flow with the mix of the content of what we do for our customers.

That's helpful, George. And when you think about asset sales and there's some nuance here, clearly, but is it more a function of simplifying the portfolios so you can execute on those KPIs that you just mentioned? Or is it -- or do the asset sales themselves kind of change the growth and margin profile of the company?

Let me reflect on the transformation that we've been going through. We've been continuously evaluating the portfolio kind of where we are with the transformation of a comprehensive solutions provider in commercial buildings, and then making sure that our resources are being deployed to the highest priorities. When you look at the noncommercial product lines, they are excellent businesses, but they do not necessarily -- are they consistent with the go-forward strategy over the longer term? And that's now why, as we are now pursuing the alternatives here because these are good businesses, and there's an opportunity with these businesses now to be able to create even more value for our shareholders as we look at the alternatives. We're very excited about the future with the prospects that we have and the opportunities that we're driving towards. We believe that we're on the right path now to simplify the portfolio, continue to drive margin expansion, deliver much more consistent cash flow, while most important, is really differentiating the value proposition that we can bring to our customers, which is going to be fundamental to the growth.

And our next question today comes from Steve Tusa with JPMorgan.

It would be great if Marc can answer this question. But for the second quarter, could you just talk about the various segments and how you get to this 14.5% operating margin target maybe on a year-over-year and sequential basis? And what do you expect out of them? And then I have a follow-up.

Yes. Thanks, Steve. So first, I want to address the change in guidance, right? Since we issued our guidance in December, the impact of the economic environment in China on our business has deteriorated. And we have factored originally a fairly cautious outlook in China in the initial guide. However, that outlook has further worsened. We refocused the organization going through that tumultuous environment in China. We see a path of recovery to that volume and recovery of the backlog as well in the second half of the year, but it started to bottom out in Q2. We have more clarity on some of the actions we've taken around productivity and cost structure, and that support the recovery in that backlog. Now focusing on Q2 on the different business. If you look at our field-based business, Building Solutions, the cyber disruption is really behind us. And the loss momentum that we had in Q1 is now recovering and supporting the shorter-cycle businesses, particularly our Service mix. If you look at North America and EMEA/LA, particularly, the margin we have put in the backlog over the last 6 months, but particularly during the first quarter, gives us confidence that we're going to be able to deliver on the margin rate for those businesses. There's a lot of benefit of cost actions we've taken early on in the year and later last year, but there's also more return to seasonality in our Global Products business as we see the volume providing marginally in those operations. If you combine all of that, I think we see with confidence that margin being attainable, Steve.

Okay. And then just, George, for you, I guess. It's kind of hard to reconcile the commentary on momentum in your strategy with basically negative organic growth this quarter. Do you consider that positive momentum? And then, secondly, what was the -- what drove the timing on this announcement of evaluating strategic alternatives? I mean it's not like you have anything really lined up here official to announce. So why are we kind of just throwing this out there today versus maybe over the last couple of years where you've been kind of pursuing the same strategy? Just curious on kind of a straightforward answer on both of those. We don't need a lot of verbiage.

So let me just comment on the quarter as far as momentum. We did have a significant disruption, as Marc said, for about 6 weeks of the first quarter and part of that did have an impact on our momentum and our ability to be able to convert and the like. And so that was more of a short-term impact in Q1 in addition to the year-on-year adjustment that we've had in Global Products. As far as the timing, I'm sure you can appreciate, Steve, that the Board and the management team, we've had a very thoughtful approach to the strategy. We assess all avenues that will deliver value to our shareholders. Our strategy -- our transformation has been focused on really leveraging all of our combined strengths and our differentiated product, our digital platform. And then from a go-to-market standpoint, the depth and expertise that we have from an engineering standpoint to ultimately be a comprehensive solutions provider and our ability to be able to take the value proposition and be able to convert that to recurring revenue through services. We're seeing that momentum, which is beginning to convert. And as we look at the difference in the business models within the businesses when we talk about the noncommercial businesses, there is a different business model relative to how we serve the market. And I think this allows us to be able to position those businesses for continued growth while we're creating value, while we're focused on really now accelerating the progress we've made within our Building Solutions business.

And our next question today comes from Jeff Sprague with Vertical Research.

I wonder if we could just drill a little bit more, George, into kind of the portfolio review. And specifically, as you know, the business is complex day-to-day for you running it. It's even more complex for us on the outside looking in. So can you just size for us what we're talking in noncommercial assets? I think I put an estimate out there. I don't know if I'm in the ballpark or not, but just give us some sense of the total revenues that we're talking about that are under review and consideration and maybe kind of the average profitability across that basket.

Yes. When you look at the overall revenues of these businesses, it would be less than 25% of the portfolio.

And how did the margins stack up versus the average of JCI?

Overall, when you look at the mix of the margins, it would be in line with the overall JCI.

Okay. And then just kind of coming back to maybe a more granular point on this then. Even preceding you, I think, as you well know, there was always this debate about can you extract Resi from kind of legacy York, the Resi and then Light Commercial Applied are tied together. And maybe it undermines your larger commercial effort if you exit that business. I mean maybe you found a way to separate Resi and Light Commercial where you think you can, but can you provide any additional context on that? And how the Light Commercial business, in particular, might factor into your strategic thoughts on where the business goes from here?

Sure. So if you look at Resi, Light Commercial and the businesses now are really back on track. I mean, we've had a really nice quarter here picking up share, both in Resi as well as Light Commercial with our ducted business in North America was up double digit, which was supported with 40% growth in Commercial and with Resi being down about 7%. So the businesses now are performing -- positioning to perform going forward. On the ductless side, when you look at JCH, it's where we had strength in Japan offsetting some of the weakness we saw in Europe and India. So when you look at the go-to-market, I think it's important to understand that these noncommercial product lines are excellent businesses. But when you look at the go-to-market, they're not consistent with what we're doing as we build out our Building Solutions over the long term, and so we believe that when you look at the value proposition that we bring with our customers, that -- although there's an overlap with some of the applied rooftops, that can be managed with the structure that we put into place going forward. And so I think when you look at the -- it does not erode any value proposition in our comprehensive commercial solutions, but also positions the business to be able to take an incredible asset and create more value through growth.

And our next question today comes from Nigel Coe with Wolfe Research.

So another question on the portfolio review. So the press release on Friday highlighted Hitachi, but also talk about Residential, Light Commercial for York. And just wanted to make it very, very clear that we're talking here about just the U.S. Residential assets, but there's also a mention of the ADT business as well. So any more color in terms of the noncommercial assets because it does feel like there are some Commercial businesses here. And then on the Hitachi side, obviously, Hitachi still has 40% of that business. How much flexibility do you have to seek options for your majority control of the asset?

I think you'd appreciate, Nigel, at this stage, with the ongoing transformation, I would caution against making any assumptions at this stage and how we will affect it. I think the communication here today is that we are pursuing strategic alternatives. We're going to continue to simplify and standardize across the portfolio. But we're in the early stages. And at this stage, I'm not going to comment relative to any one of the potential assets that we would look to create value with.

Okay. Worth a try there, wasn't it? But if we do assume that you execute on some form of strategic realignment for the portfolio, if you had, let's say, $5 billion of cash coming in the door today, how would you look to deploy that, George?

Yes. As we look at -- I mean, we're, again, speculating on what would happen. I think as we look at what we do within our comprehensive commercial solutions business, we have been doing bolt-ons. We'll continue to be able to do bolt-ons in supporting the technology and our go-to-market as we strengthen that across the globe. And our intent would be to make it accretive as far as whether it'd be through bolt-ons and/or deployment back to our shareholders to offset the dilution that any divestiture might have.

And our next question today comes from Noah Kaye with Oppenheimer.

Great. First, a shorter-term one. You did mention signs of bottoming out in Fire & Security on the short cycle. Can you just give us some more indicators and confidence there?

Yes. When you look at the business, whether it'd be at the product level or in the field, as far as the demand signals are coming through strong, we've gone through some adjustment relative to backlog as well as in the product business, the book-to-bill business. We see this really differentiating our overall commercial solutions and how we're utilizing these businesses and differentiating our solutions. On a go-forward basis, we have -- when you look at our pipeline of opportunities, it's pretty robust and we're working to continue now to execute that into backlog and ultimately then the conversion of revenues going forward. So I think it's more short term based on what we've seen here with some of the adjustments in the market, but we're confident that with the pipeline we have, we're going to be positioned to be able to continue to support the growth that we're committing to.

Okay. And I think I'd like to return to the why-now question that was asked earlier and maybe frame it slightly differently. Obviously, the U.S. market went through a tough year last year with volume trends. But certainly, there are some secular tailwinds as we look out in the next couple of years, refrigerant transition, ongoing price/mix benefits, easier comps. And then you have the transition, both in North America and globally towards heat pumps. So there seem to be some positive prospects, both North America and globally for Residential. And at the same time, there's, I think, overarching concern from any investors around non-res, right, commercial weakness. And so I guess in that context, why now is a particularly acute question because, I think, from a cycle perspective, the market doesn't necessarily see the same trends ahead that would seem to inform this decision. So maybe kind of talk to us about why this makes sense for you and why now?

Yes. So as I said earlier, we've come through a very disruptive period and there's been significant progress that has been made across these businesses, and these businesses are positioned to perform. And so as I said earlier, as you can appreciate, we're constantly reviewing the portfolio and understanding how we manage the assets to be able to deliver value for our shareholders. We've taken a very thoughtful approach to the strategy and this has been continuous and making sure that we're assessing all avenues on how we ultimately deliver value to our shareholders. And so that's what's been playing out. I think tied to -- as we think about our acceleration of becoming the leading comprehensive commercial solutions provider within commercial buildings, this is part of that path forward. And in line with -- consistent with how we continue to update our shareholders, we'll continue to provide those updates as we continue to make progress with these potential divestitures.

And our next question today comes from Joe Ritchie with Goldman Sachs.

Congratulations, Marc. And Olivier, we'll see you on the other side.

Thank you.

The -- let me just start with Asia because you referenced China a few times on your prepared comments. I'm just trying to understand like how much of the weakness that you saw this quarter was just the market deteriorating versus your own selectivity? And then as you kind of think about the next few quarters, should we be expecting material order declines to continue?

I'll take that, Joe. Last year, when you look at where we were last year, we were working to recover our backlog from the second wave of COVID shutdowns in China. As the economic environment in China has slowed, we continue to make sure that we're streamlined with our organization and aligning our resources to the market to be able to maximize what we believe is our entitlement and then make sure that we're executing with discipline to achieve what we see to be very strong life cycle value creation with our services. This is what we played out in North America and which has been very successful for us. We do have a very healthy pipeline as we assess the market, which we are converting. We are anticipating a slower recovery of the backlog, and ultimately, the projected revenue, which now has been pushed to the right. And so those are the factors really updating our guidance there, Joe, but confident that we have incredible product for the market, making sure we have the right go-to-market structure, and then ultimately, being able to execute on what we see still to be a very attractive market.

Okay. And I know that you don't want to provide a ton of specificity on what noncommercial means. Just maybe from my own edification and remembering the old Tyco assets, I mean, I think you still had some residential ADTs, international assets as well. Just correct me if I'm wrong if you don't. And then also just a point of clarification. The Light Commercial business is showing at roughly 6% of sales. I think the last several quarters, we've been seeing it closer to 9%. Did you guys shift a portion of the Light Commercial sales into Applied? Just want to understand that a little bit, too.

When you look at the mix within our ducted business, which is mainly what drives our Light Commercial, is we were up 40%. And like I said, in our ducted business, when you look at Resi being down slightly and then commercial being very strong, our whole ducted business was up 10%. And so this has been the differentiated product that we've been bringing into the market, getting -- we've increased share, Joe, by -- it's been roughly about 300 basis points over the last year with the recovery of the commercial market and we've invested in the capacity to be able to do so. So as far as -- that is the core of our Light Commercial business, and we've been performing extremely well.

So was there a re-class because it's showing like that business is lower as a percentage of your total sales than it was in the last few quarters?

It takes into account the VRF.