Operator: Our next question comes from Scott Davis from Melius Research. Scott, your line is open.
Scott Davis: Hi, good morning, George and Olivier, and welcome Jim to the call in our world again here. But guys, I think that the story really this cycle has been about pricing power. And I’m kind of curious to see as demand kind of flattens out here and maybe some of the big COVID drivers kind of anniversary. How €“ what’s your confidence that price is something that you can continue to capture? And I don’t really mean in your backlog. What’s in the backlog is in the backlog, I suppose, but in forward contracts, you start to think about back half of 2023 and into 2024.
George Oliver: Scott, as we look at what we’ve done as we’ve been executing on the strategy that we outlined a couple of years back and where we are in that journey, it’s really now capitalizing on a much bigger value proposition as we focused on our vectors of growth. And that’s not only in how we pulled together our combined capabilities within our products. But now with OpenBlue and ultimately are creating solutions that deliver on an outcome for our customers. And the outcome is typically focused on energy reduction, obviously heightened indoor environmental quality and then ultimately leading to an autonomous building. And as we focused on our core and then when you look at the contribution that our HVAC business has to being able to achieve those outcomes, it is significant.
And so the value proposition comes with being able to create a solution that’s very different than what historically has been provided leveraging our technology and then being able to really leverage the core in how we ultimately deliver on that with the technology that we have in our products. And so we’re confident that when you look at how we’re pricing today, the value proposition we bring and the new products that we’re bringing to market, our new product investment is up about 25%, 28% year-on-year. We’ve got the leading portfolio in heat pumps. Heat pumps now today are going to be a big part of the solution and being able to reduce energy while we’re continuing to enhance the indoor air quality. And we have new heat pumps pretty much across the board where that technology is being applied across our entire portfolio from the most complex industrial applications with our chillers and industrial refrigeration across all of our commercial products rooftops as well as our applied air-cooled chillers going into data centers and then across our residential portfolio.
So I’m confident that with the technology, the value proposition and then our ability to fundamentally change how we serve our customers with solutions that focus on outputs delivering for them, we’re seeing significant momentum on that.
Scott Davis: That’s helpful, George. And when you break €“ I mean, it certainly makes a ton of sense in HVAC. When you think about Fire & Security, how has that sales pitch kind of changed over the last few years? I mean, I certainly understand the connected building, but how specifically has that value proposition, I guess, which is so tangible in HVAC, but perhaps less so in Fire & Security. Maybe you can update us there. Thanks.
George Oliver: Yes. The way that we’ve leveraged our Fire & Security portfolio today, it’s still very attractive. It’s still 40% of our revenues. It’s quarter building systems. On the digital side, they are critical systems that do integrate with an overall smart building. And because of the sensors that these systems bring into the building, very important for the data that we collect within OpenBlue and how we ultimately create a smart building. So it starts there. Now you would argue that there’s more around the security systems. So whether it be access control, intrusion or video, those are very important sensors and systems that historically have been separate and apart but then ultimately converge with our building controls and the other digital systems within the building that with now €“ with OpenBlue, we can bridge all of those systems into one solution, into one data set.
So it starts there. And then from a fire standpoint that when we install a fire system, that the value proposition that we bring through service is significant in our ability to be able to connect and monitor and ultimately be very proactive in how we support our customers through service. So those are the two €“ when you think about Fire & Security, the value proposition that it has into the solution set that we’re building and ultimately differentiating the outputs that we can create for the customers that we serve, Scott.
Scott Davis: Okay. Make sense. Best of luck, guys for 2023. I’ll pass it on.
George Oliver: Thank you, Scott.
Operator: Our next question comes from Noah Kaye from Oppenheimer. Noah, your line is open.
Noah Kaye: Good morning. Thanks. Circling back to supply chain health. Can you give us a little bit of a better sense of what you saw across the business lines during the quarter, particularly in Global Products. Maybe quantify any impact on how much revenue was pushed and then just your line of sight on the supply chain helping that improving pace of backlog conversion.
George Oliver: Yes. Looking at our Global Products, when you look at the impact that we had, and I think the other point to make here on our Global Products volume, we had a fire in a warehouse within our fire suppression business. It impacted the finished goods that we had stored. And although we work to try to recover that in the quarter, that impacted our growth rate at the product level about 2% or 3%. So that is a big factor. We’re going to recover that volume here in the second quarter and most of it in the second quarter, but maybe into the third quarter. So it’s worthy to mention that. The resi demand hit us for another roughly 1% to 2%. And then when we look at China and then the ability to be able to €“ we’re significantly ramping up our applied businesses.
So when you look at our applied mix, we’re up double-digit across the board. And so we’re confident that with the capacity expansion, with the work that we’ve done with our supply base and making sure we have visibility to the volumes as we ramp, like I said earlier, in some cases, we’re doubling or tripling our volumes in our applied space. So I’m confident that although €“ and then when you look at our total product units, we’re relatively flat because some of the units do go into our direct channel solutions. So we’re going to be ramping here. We’re going to deliver unit growth here as we position for Q2. That will continue to expand as we go through Q3 and Q4. Those are the key factors, Noah, that have been impacting our ability to be able to turn.
Noah Kaye: Okay. Very helpful. And then just wanted to circle back to orders timing. Maybe we can focus particularly on sustainability. We look at the pipeline growing, was it 26%, versus the orders growth in the quarter. We’ve obviously had a lot of significant relevant legislation and policy. How much of this is that playing into the actual timing as clients figure out the implications? And are we waiting for things like treasury guidance before more folks sign? Is there any kind of an expected air pocket here? Or do you expect that conversion to significantly increase in the next quarter or two?
George Oliver: We’re expecting that this is going to continue to significantly increase. When you look at the IRA, there’s $369 billion in incentives over the next 10 years. We believe €“ and it’s all focused on electrification, which we deliver through heat pumps. It’s focused on impact on grid capacity and generation, which we do incorporate renewable supply into our solutions and then just overall energy efficiency. This is right in our sweet spot. And so we think the $369 billion actually multiplied by 5 to 10 times given the amount of resource that will be put to work in being able to deliver on our customers’ sustainability goals. And so when you look at the pipeline that we’re working to convert, it’s well over $7 billion.
We had €“ last year, that had ramped up to about $1 billion, last year, we see that accelerating over the course of the year. These are larger projects, so it’s hard to predict the timing of conversion. But our teams, we’ve got the team on the field that with the depth and expertise, I think that fundamentally changes how we can go about serving our customers with the type of solutions that we’re developing. And all of that is delivered €“ when you think about the optimal solution, it’s not just the equipment because we have leadership equipment. We’re developing a leadership portfolio of heat pumps, but its how the equipment comes together with our digital platform that ultimately delivers on our customers’ expectations. And that’s what’s going to, I think differentiate us as we build not only build the pipeline, but begin to convert and capitalize on the opportunity ahead.
And just one last note in Europe. It’s similar in Europe. I mean we talked about the IRA. But we’ve been working very closely with the EU with a number of their strategies, the green deal, net zero by 2050. They’ve got the EU level legislation around. They got climate law. They got an energy performance of buildings initiative. And then more recently, it was the REPowerEU focusing on the independent firm Russian fossil fuels. All of these activities, we’ve been aligned working and making sure we’re aligned so that we’re going to be positioned to ultimately achieve the goals that they’re setting out to achieve.
Noah Kaye: That’s very helpful color, and I’ll correct myself, that Healthy Buildings pipeline was out 26% and sustainability up 20%. So thank you for the color.
George Oliver: Thank you, Noah.
