Q1 2023 Otis Worldwide Corp Earnings Call

April 26, 2023

Mhm.

Good morning, and welcome to <unk> first quarter 2023 earnings Conference call.

This call is being carried live on the Internet and recorded for replay.

Presentation materials are available for download from <unk> website at Www Dot Dot com.

I'll now turn it over to Michael Redner Senior director of Investor Relations.

Thank you Jamie welcome to <unk> first quarter 2023 earnings conference call on the call with me today are Judy marks chair CEO , and President and Anorak March why executive Vice President and CFO .

Please note, except where otherwise noted the company will speak to results from continuing operations, excluding restructuring and significant nonrecurring items. A reconciliation of these measures can be found in the appendix of the webcast.

We also remind listeners that the presentation contains forward looking statements, which are subject to risks and uncertainties.

Thank you Mike and thank you everyone for joining us we hope everyone listening is safe and well.

Starting with first quarter highlights on slide three.

Otis delivered a solid first quarter to start 2023, driving strong financial performance and executing on our capital allocation strategy. Despite continued market uncertainty, we achieved organic sales growth driven by our service business and expanded adjusted service operating profit margins by far.

40 basis points, leading to mid single digit adjusted EPS growth.

Our service segment performance in addition to our maintenance portfolio growth of more than 4% reinforces the strength of our business model.

We continue to execute our balanced capital allocation strategy with $175 million of share repurchases in the first quarter yesterday, we announced a 17, 2% increase to our quarterly dividend.

Since spin we have increased our dividend, 70% emphasizing the importance, we place on disciplined capital management and delivering value to our shareholders.

In the Americas building on our strong track record of major project execution and service across Canada.

It was selected by the Montreal Metro system to replace escalators at 17 stations, while providing units for five new Blue line stations in total 97, Otis escalators will keep metro passengers on the move daily.

In China, Hefei Metro placed a new water of 250, Otis one connected escalators and elevators across three new lines.

Real time data insights remote monitoring and predictive maintenance will all help bring the hefei metro into the future and add to our growing infrastructure installed base.

In Germany <unk>.

Been selected by Sigma group to modernize the iconic Dusseldorf Department store cards house as part of a larger renovation artists will provide 17 units, including our energy efficient linked escalators and Gen. Two stream elevators with reach and drives the elevators will also feature Ive you in car displays.

After the modernization is completed in 2020 for Otis will service the units as part of our long standing framework contract with the <unk> Group, which operates Karsh house and other leading department stores in Germany.

In South Korea, we're providing 51 of our signature signature Gen. Two elevators for the Sunshine churn much a luxury apartment complex. The campus includes more than 2000 units in buildings up to 29 stories.

And we continue to drive progress toward our ESG goals as shared in our 2022 ESG report published earlier in April just this month, we announced the installation of solar panels at our Nip are noticed logistics and engineering center in Japan.

This upgrade is expected to reduce greenhouse gas emissions at the facility by 27% compare compared to 2022 and represents our eighth manufacturing site globally with solar panel arrays.

Moving to slide four Q1 results and 2023 outlook.

New equipment orders were up seven 4% driven by strong growth in the Americas, and Asia Pacific and we ended the quarter with adjusted backlog up 10% at constant currency.

We continue to drive share gains and new equipment with 70 basis points of improvement in the quarter led by our outperformance in China, where our orders were down modestly in a market, where we estimate was down approximately 10%.

We continue to perform well across all other regions.

We're especially encouraged by our modernization performance in the quarter with nearly 30% orders growth driven by strong performance in the Americas and Asia.

This growth is driven by our continued rollout of standardized packages for our mod offerings, coupled with improvements in our sales force coverage.

Our map our mod backlog is up double digits in all regions as Mod demand continues to remain robust.

Organic sales were up three 6% and adjusted operating profit was up $7 million at constant currency driven by performance in the service segment.

Before I discuss our 2023 financial outlook, let me briefly update you on our global market outlook, which largely remains unchanged.

Entering the year, we expected global new equipment to be down mid single digits to approximately 900000 units largely due to China, which we expect it to be down 5% to 10%.

And our outlook in that key region remains the same.

We also expected Asia Pac to be up mid single digits or better and both the Americas and EMEA to be flat.

With the first quarter in the books, we now expect Asia Pac to come in closer to high single digits offsetting a reduction in our EMEA outlook, which we now expect to be down low to mid single digits.

Our outlook for global install base growth remains unchanged at roughly 5%, which will add close to a million maintenance units, bringing the install base to roughly 21 million units with high single digit growth in Asia, and low single digit growth in the Americas and EMEA.

Turning to Otis is 2023 financial outlook, we now expect net sales to be in the range of $13 9 billion to $14 $2 billion up two and a half to four 5% versus the prior year, which is a 75 basis point improvement from the prior outlook at the midpoint driven by F.

Sex.

We still expect organic sales to be up 4% to 6% with new equipment up 3% to 5% and service up 5% to 7%.

Adjusted operating profit is expected to be up $90 million to $150 million at actual currency and up $130 million to $175 million at constant currency with adjusted EPS in a range of $3 40.

The $3 50.

7% to 10% increase versus the prior year and an approximately 3% improvement from the prior outlook at the midpoint we.

We expect free cash flow to come in as we guided in February in a range of $1 5 billion to $1 five 5 billion with 105% to 115% conversion of GAAP net income.

We remain disciplined in our capital allocation strategy and will continue to return the vast majority of our cash generation to shareholders through dividends and share repurchases.

We will also continue advancing our bolt on M&A strategy to add density to our growing maintenance portfolio.

With that I'll turn it over to Iraq to walk through our Q1 results and full year outlook in more detail.

Thank you Judy starting with first quarter results on slide five we delivered net sales of $3 3 billion with organic sales up three 6%.

This represents our 10th consecutive quarter of organic growth with better than expected performance in both segments.

Adjusted operating profit was down $19 million at actual FX and up $7 million at constant currency.

Drop through on higher service volume favorable service pricing and traction with productivity in both segments were partially offset by inflationary pressures, including annual wage increases new equipment mix and higher corporate costs.

Adjusted EPS growth of <unk> in the quarter was driven by stronger operational performance continued tax rate improvement and a lower share count.

Accretion from the <unk> transaction offset the false sense of foreign exchange headwinds.

Moving to slide six.

Q1, new equipment orders were up seven 4% led by Asia Pacific and the Americas up, 27% and 15%, respectively with modest growth of appointed and EMEA more than offsetting a 3% decline in orders in China.

Strong orders growth has contributed to our adjusted new equipment backlog, increasing 10% at constant currency with growth in Americas, APAC and EMEA.

China backlog was roughly flat.

Strong backlog provides new equipment sales visibility for the balance of the year as well as over the medium term.

Globally pricing of new equipment orders was up mid single digits, leading to sequential backlog margin improvement in all regions.

We benefited from pricing increases of approximately 10% of the Americas and mid single digit in both EMEA and APAC.

While pricing in China remains competitive down low single digits, we are driving material productivity to achieve slight price cost favorability in the region, while continuing to increase our share.

New equipment organic sales were roughly flat in the quarter with 22% growth in Asia Pacific driven by strong performance in India, and Korea and high single digit growth in EMEA largely from southern Europe .

This growth was offset by a mid single digit decline in the Americas due to job site delays and supply chain impacts and a 10% decline in China as expected driven by the lower demand environment.

Adjusted operating profit declined $24 million at actual FX and $19 million at constant currency as strong material productivity was more than offset by the impact of unfavorable regional and product mix.

Turning to service segment results on slide seven.

Maintain its portfolio units were up four 2% with recaptured units more than offsetting cancellations.

This was the sixth consecutive quarter of accelerating portfolio growth, where China, delivering another quarter of it teens portfolio growth.

Modernization orders grew nearly 30% our third consecutive quarter of more than 10% growth driven by several major project wins. The continued success of our more packages and good momentum in proposal activity from improved sales coverage.

Our modernization business continues to perform well across all regions with backlog up 13% at constant currency.

Service organic sales of six 3% was modestly ahead of expectations.

Maintenance and repair grew 7% driven by solid repair volume strong portfolio growth and three five points of maintaining pricing improvement on a like for like basis.

Organic modernization sales were up three 3% in the quarter driven by EMEA and Asia, partially offset by the timing of major project execution in the Americas.

Service operating profit at constant currency was up $40 million and margins expanded 40 basis points.

Drop through on higher volume favorable pricing and productivity more than offset the headwinds from annual wage increases and higher material costs.

Moving to slide eight and the revised outlook.

Overall, we are off to a solid start in 2023, delivering strong orders sales and portfolio growth, while expanding service margins to drive mid single digit EPS growth in the quarter. Despite continued macro economic uncertainty.

This strong start gives us confidence to reiterate our February outlook organic sales growth adjusted operating profit at constant currency and adjusted profit margins at both the <unk> and the segment level.

We are improving our adjusted operating profit outlook by $20 million versus the prior guide now expected to be up $90 million $150 million from a smaller foreign exchange headwind.

This FX change resulted in an approximately <unk> <unk> increase in adjusted EPS at the midpoint.

Our free cash flow outlook remains unchanged at $1 5 billion to $1 55 billion for the full year.

In the first quarter free cash flow came in at $253 million with working capital or use of cash of roughly $125 million.

Largely due to payables.

We expect this to unwind as we execute on our new equipment backlog throughout the year.

Taking a further look at the organic sales outlook on slide nine.

Our outlook remains consistent with our prior guide across all regions and segments with new equipment up 3% to 5% and services up 5% to 7% driving total Otis organic sales growth of 4% to 6% for the year.

New equipment organic sales growth will be driven by the Americas, APAC and EMEA as we execute on the strong backlog built over the past few years.

We still expect to achieve roughly flat new equipment sales in China, given the quarter ending backlog and favorable compares into year end.

On the service side, we expect to build on our performance in the first quarter with growth in repair work moderating and modernization accelerating.

Overall, we would expect to see consistent growth at around the midpoint of our guide each quarter.

Moving to our adjusted EPS outlook on Slide 10, we now expect 7% to 10% growth, reflecting an approximately <unk> <unk> increase from the prior guide at the midpoint.

We anticipate second quarter EPS to be flattish year over year and strong operational performance is offset by last year's low tax rate.

The continued strong growth in our service segment, coupled with pricing and commodity tailwind in new equipment will drive the acceleration in our second half EPS growth.

For FX, we're now assuming full year rates of $1, <unk> and $6 93 for the Euro and <unk> respectively.

Overall, we are encouraged by our first quarter results and well positioned to deliver solid financial performance for the balance of the year by executing on our new equipment backlog accelerating our service portfolio growth and focusing on operational execution to offset macro headwinds.

With that please open the line for questions.

Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Please standby, while we compile the Q&A roster.

And our first question comes from Jeffrey Sprague of vertical research partners.

Thank you and good morning, everyone.

And just a couple quick ones here for me.

First just on mods.

Interestingly Schindler pointed the soft Mas.

Last week and you're on culinary are saying Theyre strong boy slot of a little bit more of a discretionary aspect kind of mod work.

So maybe you could just.

Give a little bit of color on whats.

There anything in particular driving the strength there your visibility beyond kind of the current orders you've booked and.

Is there a sort of.

Kind of pent up demand to catch up on Mod still from the delays we had back in Covid.

Hey, Jeff Good morning, it's Judy.

Listen the Mod business itself, I think youre going to see sustained.

And accelerating opportunities it comes from macro a $7 million of the 20 million units or 20 years or older in the world. It comes slightly from things that didn't happened during COVID-19, which you call. It pent up demand, but it's really now coming from a realization that elevators are.

Aging.

Repairs as you've seen we've had a really strong repair book.

People have been putting off modernization and now they are coming to those important decisions. So at the macro level globally. We saw mod up in all four regions strong order book this quarter, 29% backlog up 13% I think you can youre going to continue to see that not just quarter.

Over quarter, but year over year as the mod opportunity becomes larger.

At a micro level I'll just share a short story with you because part of Mod is discretionary but part of it as a rational decision and our customers are making I'll give you. An example, and in North America, where we have almost 25 year old two to six storey hydraulic units installed throughout the country, we have a circuit.

For there where the parts have become end of life and obsolete. So we went out to all of our customers because so many of these customers. They only have one unit and they can't afford for it to shut down and not have access to an obsolete part so for our customers. We went out with digital marketing campaign, and just said listen for a few hours will preplanned.

Reschedule this turnkey one fixed price, let us come and make sure you avoid any shutdowns and extend the life of your elevator response has been fantastic. So part of Mod is aging part of it is opportunity creation, but youre going to see it continue to pick up over time.

Great.

Just on the growth in service units.

To see in your kind of checking the box there on the strategic plan it sounds like.

I just missed unless you didn't say.

The growth in service and maintenance units in China, specifically and any other just kind of regional color that you might have on that.

Yes, we had growth across the board to all four regions grew China had its seventh straight quarter. They grew high teens, but seventh straight quarter of mid or high teens growth, So Asia Pac and China up.

More significantly than the mature markets, which we would say is probably low single.

Great. Thank you appreciate it.

Thank you one moment for our next question.

And our next question comes from Steve Tusa of Morgan Stanley .

Mr. Tuesday your line is open.

I'm sorry.

Yes, Ron Morgan, but.

Maybe someday.

Can you guys, maybe just talk about how you're looking at the China market now and maybe just the sequential trends on on earnings.

Into the second half of the year I know anything moving around at all on you guys.

Yeah, Thanks, Steven and we fully recognize J P. Morgan So let me let.

To be clear there.

So Steve I had.

Now I'm going to say honor of finally being on the ground again in China. So what I'm going to share is a little personal having spent 10 days. There earlier late last month early this month and just really getting a sense of the economy and I can tell you you can feel it in the four cities I was in and with our colleagues at in a state of recovery.

And my view is primed for economic development no matter, whether it's a government official I met with our customers. We do believe the second half recovery will come and will come strongly the governments being very supportive and our policies, whether it's mortgage rates or other things so kind of where we started the year.

This is what we're still seeing we thought the market would be down 10%, we were down 3% and orders so clear market share gain by Sally and the team in China.

But the strengths in the market in the first quarter just seen are the segments.

Infrastructure and industrials were up industrial buildings, there was weakness in <unk> in the commercial market.

But we are still expecting the market recovery and I'm feeling good about the health of our business to be able to see the progress. Our team has made throughout the COVID-19 years, whether it's in the automation and industry four <unk> and our factories the acceptance by our customers of our new product introductions the.

<unk> ships I got to meet our agents and distributors I'm very positive on the China recovery in the second half.

Obviously, we want to see what the second quarter holds and when that inflection point is going to happen, but all signals look positive for China recovery second half and then obviously that continuing into the out years.

And then just does that change at all I guess I missed the first part of the call, but any of the market outlook.

Any of the market outlook, you gave on the fourth quarter call any of those change.

Yeah. So as we shared last quarter, we said, China would be down 10% the market Americas would be flattish, we're seeing Asia Pac continuing to grow more to high single digit and we think that offsets maybe a little more negative now with EMEA download a mid single digit.

Okay, great. Thanks, a lot good luck.

And <unk> I'll, let you answer the second part, yes, Hey, good morning, Steve just on the sequential earnings into the second half of the year. So second half we have to grow EPS off to about 25.

<unk> of that will come from tax with because we do face that had been a <unk> sensor.

Quarter, two because we had a big benefit in quarter two of last year that unwind in the second half of the year. So that will give us <unk>. So the 20 that we have to grow.

$120 million operationally, we are growing service at about in the first quarter $40 million. So that run rate kind of continues into the second half of the year at a mid single digit growth. So that's about $80 million and the remaining $40 million will come from new equipment in the second half I mean quarter, one new equipment was kind of.

Flattish quarter, two is returning back to growth in the second half we expect mid.

Single digit growth of about five 6% on the new equipment side with volume and some of the price increases that we booked last year will flow through to the bottom line about 20 ish million dollars from their commodity tailwind of $20 million in the second half. So you add that new equipment should be up about $40 million. So thats our sequential road.

Matt by about 80 million from <unk> 40 million from your equipment.

Great Great details as always thanks, guys.

Thanks.

Thank you one moment for our next question.

And our next question comes from Nigel Coe of Wolfe Research.

Correct.

Good morning.

Jeff.

So obviously nice job on orders.

The Americas was surprisingly strong and can.

Some of your competitors behind I think weakness in the Americas. So maybe just talk about.

Kind of what drove the growth.

Are you seeing right now in multifamily and maybe commercial.

Yes, so kudos to Jim and the team I have in the Americas.

There are really strong 'twenty two to come in up 15%.

This quarter and rolling 12 month being strong as well over 18% just really highlights we got we got a big backlog to work off in the Americas and our team knows it.

Listen we saw the Americas itself, the year's playing out as we thought it would.

Non resi is actually better this first quarter infrastructure and commercial were up and multifamily was down.

Coming off some really tough compares if you think about where multifamily has been in the past past few years I will tell you Nigel that we got a real tough compare in the Americas coming up in the second quarter, because last year's second quarter, we were up 54% in the Americas. So we're going to do the best we can to try to match that but it's going to be a tough compare.

Still expect a flattish market through year end, we think we're in a really good position you saw the Montreal program, We won which was a major project in the first quarter and that will take US a few years to perform on both the volume business and the major projects did really well in the Americas, both Latin and North America for the first quarter.

Okay, Great. That's great color. Thanks, Judy and then turn to China Your comments on China founded.

Constructive.

Pricing down low single digits I think it was trending pretty flat through Q2. So just what gives you confidence that we're not going to see the bottom fuller pricing in China.

And then when you talk about the inflection in the second half of the year. How are we talking about a break back into positive year over year growth in orders or are we talking about getting less bad.

In the second half.

Let me take the pricing question, we are seeing rational pricing.

We've shared that about 90% of the new equipment orders that happened in China now happen with the top 10, Oems and they're all being rational and we get to see that especially on public infrastructure beds. So not to say there is not a bidder to someone really wants because of density will do something.

We're seeing rational pricing in China is always the most competitive there in pricing of anywhere in the world and which means we've got to continue to drive our costs down and that's where so far we've seen the material productivity far better in China than we have everywhere else in the world part of that is commodities coming down but part of that is through great.

Supply chain management negotiation and our engineering team continuing to take cost out with our manufacturing team. So we're seeing rational we don't anticipate that changing but obviously, we're keeping an eye on that.

Yes.

I mean, the truth leavers as Judy mentioned that we take a look at is definitely price cost and the share of segment. So far rebalancing of quite well the market is discipline and we'll continue to look into that and make sure that that is the total that we are putting against now in terms of orders. If you look at the market.

The market was down in the first quarter, we are guiding to be down 5%, 10% for the year. So clearly the market is going to pick up front in the second half of the year offer offer a low compare as well from last year and even if the market <unk>.

<unk> share growth in the second half of the year, you should see orders in China picking up in the second half of the year, because we couldnt continue executing the strategy that we are doing right now and feel pretty good about the China orders in the second half of the year.

Okay. Thanks, guys.

Yes, Nigel the only the only thing I'll add is our relationships and our length of those relationships with our 2200 agents and distributors continues.

Continues to mature and we do expect those to yield as.

As we continue to go on for both our brands, we're going to continue to ensure that we have the best products, we introduced a new product in China, our new rope to connected product in the first quarter thats picking up nicely in the market. So our team they've got sales coverage, we know where we need to be on price, we've got the right products and all that.

We really expect to happen in the second half to show those results.

Alright, thank you.

Thank you one moment for our next question.

And our next question comes from Julian Mitchell of Barclays.

Hi, good morning.

Just wanted to start with EMEA.

Market outlook, so yes, you're in some of your peers sort of lowering.

The market outlook this year.

Just wondered any specific verticals.

The regions within Europe does that's driving that on the new equipment side.

How should we think about those EMEA orders playing out over the balance of this year.

Suppose the last time, we had a sort of a <unk>.

Soft construction market there for any prolonged period, we saw the bleed through into service pricing at some point, just maybe remind us kind of your confidence this time, why even with a softer new equipment market the service price should holdup.

Thanks, Julian so yeah, we're saying EMEA now is going to be down low to mid single digit.

Obviously, we're watching rates and impact on building permits and starts.

First quarter, our team and in southern Europe performed incredibly well, Spain, Italy extremely resilient, where we saw some of the weakness was really Germany and the UK and then the middle East was up probably low single digits. So it's really a mix.

We're going to continue to monitor and watch that.

When we think back in time I look at two key metrics, one is pricing and service pricing like for like last quarter, we were up three five points and.

Our Europe business was up mid single digits.

Bernardo and the team have been passing price through we've had those inflationary clauses in and the teams and passing service price through which is really good to see because the majority of our European contracts do come due service contracts come due in the first half of the year with most in the first quarter.

Other part would be all.

All the constructors from from 15 years ago, who moved into service and became independent service providers. We don't see that labor. If you look at even unemployment is at fairly low levels.

In Spain and in other locations in Western Europe . So we don't see those that that available workforce, starting up as independent service providers and the other difference now is what we call over this one and the fact that when you have a connected elevator. It is not easy to start up as an independent right now or the or to grow your share. So I think all of that.

<unk> to set us up to a very different Europe , but again, we think we're being responsible looking at the market at low to mid single.

Potentially down for the year.

Okay.

Thank you and then just my follow up would be around the slide 10.

That helps.

Helpful. EPS bridge, so just if I look at the operational.

Portion within that.

You highlight the kind of wage and material inflation, and then mix and churn is.

Headwinds that were not there.

On the bridge that you had given back in January for the year ahead.

So just wondering if that shifts some extra detail did you see something change in your outlook for those two items for 2023.

And how we are thinking about those two items as he goes through the year.

Hey, Julien Thanks for the question.

No.

In February when we gave guidance we had a page on each of the segments and new equipment and service and at that point in time, we had highlighted mix in June I was one of the headwinds and we've just collapse. It into this chart right now theres been no change in our thinking since the beginning of the year. When we talk about mix in June we essentially in the new equipment.

Side, the mix was coming from as you know China is our most profitable new equipment margin market. So other markets are growing faster. So on the equipment side that is the mix.

From a regional perspective, and obviously built a very good backlog, we won a lot of share, but it's a combination of volume and major projects and these major projects that will be coming in a very good portfolio stickiness there.

New equipment margin so on the mix that I would say on new equipment, it's more region and projects similar to what we had called out in the last call and nothing has changed from there and services.

Same thing that you've seen in the past couple of years, China growing faster and obviously churn is more around the cancellation units, which come with a little bit higher margin. So nothing really changed over there same thing for labor and wage inflation right.

So far our labor negotiations are trending really really well, we thought it would be low to mid single digit in most of the European markets, It's playing out that way and same on the material. So if I kind of take a step back if you look at price over gross cost and mix. It in June .

We should be about $75 million positive for the year that that would contribute to half of the operating profit that you see in the bar so price minus gross cost of material labor inflation and adjusting for mix in China.

That's really helpful. Thank you.

Thank you one moment for our next question.

Okay.

And our next question comes from Jack <unk> of Cowen.

Hi, guys. Good morning. This is Jack on for Gautam.

I wanted to dig into service.

Apologies I joined the call.

Fairly wait here, but if you could kind of just touch on.

The monetization orders up 29% seems extremely strong.

Which is which is encouraging and then just.

Piggybacking off that last comment just to sort of the maintenance units up four 2%.

Really really strong again kind of just what's happening there.

This quarter like a retention conversion mix sort of churn perspective, just any color there around service would be really helpful. Thanks.

Hey, Jack Yes modernization.

Let me just reinforce what I said, which is.

It's going to continue to be a contributor to our business and the market itself is going to continue to grow not just quarter over quarter, but the market itself will be growing year over year as more and more units age.

Based on when they were put into service, we got $7 million of the 20 million units are over 20 years old. So I think you can look for the modernization market to.

To remain and actually become more attractive and obviously, we're very focused on performing that in a more.

A way that allows us to approach customers with kits that gives us productivity and that gives them their modernization in a quicker time period, so youre going to see modernization be talked about more but also take the best of what we've learned since spin in terms of our new equipment strategy and growing.

Sure, there and being able to do things at scale merging that with our service excellence and our productivity. We've gained there and when we put those two together and attack the mat Mod market with a growing market. We think that's going to be a positive contributor.

For many for much time to come.

Thanks, Terry I'll leave it there thanks guys.

Thank you.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again one moment for our next question.

And our next question comes from Nick Hoffman of RBC.

Yes, hi, everyone. Thanks for taking the questions.

Thank you Min Chen maintenance pricing was it about 3.5% like for like.

Just wondering if that rates should accelerate as we move through the year just on the basis that you've been implementing to service escalation clauses. In Q1, then yes, maybe that three 5% as a reflection at the agreements that you had last year. So if you could provide some color on that that would be helpful.

Yes. Nick go ahead go ahead, yes, thanks for the question.

First we are extremely encouraged with the way we started off in quarter. One on the three 5% like to like as Judy mentioned Europe is mid single digits is probably one of the higher price increases we've seen in Europe for a while and it's taking because everyone else is kind of driving the price over there. If you move into Q2, obviously more units get converted.

Come up for renegotiation as well, so we should see that kind of stepping up a little bit as we go there on the three 5%. So overall, what we said in there. When you gave the full year guide was that we expect it to be up 354% mix, ensuring we take about 200 250 basis points.

So about one 5% net as of now where we stand we feel pretty good about.

150 basis points of pricing adjusting for mix instrument for the rest of the year and Nick in China. The margin drivers are less about price, they're really more about productivity volume density I noticed one in all of those are good contributors for us.

Alright, that's very helpful. Then.

My second question sticking with service great.

Great to see that you are up to four 2% unit growth. So that's been accelerating.

Pretty much yes, three years at this point.

Yes, you mentioned that the market is growing at about 5%.

<unk> units on its 20 million installed base, if I look at that full 0.2% you could still argue that that might be slightly underperforming do you think that you can actually clay Gaspar or is that maybe a mix effect that means that.

<unk> is the.

The largest OEM in terms of service units should maybe underperforming a bit.

I think we can and we should close that gap.

That's the challenge we have given to our team and that's why you see the much higher growth rates in Asia, especially China for our service portfolio now creates a mix, but we will deal with that mix challenge as we get it but yes, we can and should be closing that gap.

And just to add to that right I mean, it does not too long ago, we were growing at 1%. The team is kind of.

Call for action teams focused on it we have to start a journey with us.

So $4 one up $4 two we should close the gap and the gap is we won some good new equipment share that we will get that will come into the conversion cycle. Our conversion rates are going up and we're going to keep looking at.

Deploying Iot to ensure that our retention rates ti. So it's using conversion as a lever we're using retention as a lever to get us up to the.

The mid single digit.

Growth and while doing that we want to ensure that we also maintain the profitability for it right. So at some point in time.

We will see for margins it does come back to absolute profit growth, but thats, where we want to take it to.

That's great. Thank you very much.

Thank you I would now like to turn the conference back to Judy marks for closing remarks.

Thank you Didi and thank you all for joining us and let me also at a thanks to all of our colleagues for your continued excellent performance in quarter, one and for serving our customers. So well our solid first quarter results demonstrate the continued power of our business model and set us up well for the future we will remain.

<unk> focused on executing throughout the remainder of the year in order to capitalize on our first quarter successes and continue to drive shareholder value. Thank you for joining us everyone stays safe and well.

This concludes today's.

Thank you for participating and you may now disconnect.

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Good morning, and welcome to Otis first quarter 2023 earnings Conference call.

Call is being carried live on the Internet and recorded for replay presentation materials are available for download from <unk> website at Www Dot Otis Dot com.

I'll now turn it over to Michael Radnor, Senior director of Investor Relations.

Thank you Didi welcome to <unk> first quarter 2023 earnings conference call on the call with me today are Judy marks chair, CEO , and President and entourage Monitory Executive Vice President and CFO .

We also remind listeners that the presentation contains forward looking statements, which are subject to risks and uncertainties.

<unk> SEC filings, including our Form 10-K, and quarterly reports on Form 10-Q provide details on important factors that could cause actual results to differ materially with that I'd like to turn the call over to Judy. Thank you, Mike and thank you everyone for joining us we hope everyone listening is safe and well.

Starting with first quarter highlights on slide three.

40 basis points, leading to mid single digit adjusted EPS growth.

Our service segment performance in addition to our maintenance portfolio growth of more than 4% reinforces the strength of our business model.

We continued to execute our balanced capital allocation strategy with $175 million of share repurchases in the first quarter yesterday, we announced a 17, 2% increase to our quarterly dividend since spin we have increased our dividend 70% emphasizing.

The importance, we place on disciplined capital management and delivering value to our shareholders.

In the Americas building on our strong track record of major project execution and service across Canada. Otis was selected by the Montreal Metro system to replace escalators at 17 stations, while providing units for five new Blue line stations in total 97, Otis escalators will keep metro <unk>.

<unk> on the move daily.

In China, Hefei Metro placed a new order of 250, <unk>, one connected escalators and elevators across three new lines.

Real time data insights remote monitoring and predictive maintenance will all help bring the hefei metro into the future and add to our growing infrastructure installed base.

In Germany, <unk> has been selected by Sigma group to modernize the iconic Dusseldorf Department store cards house as part of a larger renovation Otis will provide 17 units, including our energy efficient linked escalators and Gen. Two stream elevators with region drives the elevators will also feature.

<unk> in car displays.

After the modernization is completed in 2020 for Otis will service the units as part of our long standing framework contract with <unk> Group, which operates Karsh house and other leading department stores in Germany.

In South Korea, we're providing 51 of our signature signature Gen. Two elevators for the Sunshine churn much a luxury apartment complex.

Campus includes more than 2000 units in buildings up to 29 stories.

And we continue to drive progress toward our ESG goals as shared in our 2022 ESG report published earlier in April just this month, we announced the installation of solar panels at our Nippon Otis Logistics and Engineering Center in Japan.

Upgrade is expected to reduce greenhouse gas emissions at the facility by 27% compared to <unk>.

<unk> 2022, and represents our eighth manufacturing site globally with solar panel arrays.

Moving to slide four Q1 results and 2023 outlook.

New equipment orders were up seven 4% driven by strong growth in the Americas, and Asia Pacific and we ended the quarter with adjusted backlog up 10% at constant currency.

Continued to drive share gains and new equipment with 70 basis points of improvement in the quarter led by our outperformance in China, where our orders were down modestly in a market, where we estimate was down approximately 10%.

We continue to perform well across all other regions.

We're especially encouraged by our modernization performance in the quarter with nearly 30% orders growth driven by strong performance in the Americas and Asia.

This growth is driven by our continued rollout of standardized packages for Ahmad offerings, coupled with improvements in our sales force coverage.

Our Matt our Mod backlog is up double digits in all regions as Mod demand continues to remain robust.

Organic sales were up three 6% and adjusted operating profit was up $7 million at constant currency driven by performance in the service segment.

Before I discuss our 2023 financial outlook, let me briefly update you on our global market outlook, which largely remains unchanged.

Entering the year, we expected global new equipment to be down mid single digits to approximately 900000 units largely due to China, which we expected to be down 5% to 10% and.

And our outlook in that key region remains the same we.

We also expected Asia Pac to be up mid single digits or better and both the Americas and EMEA to be flat.

With the first quarter in the books, we now expect Asia Pac to come in closer to high single digits offsetting a reduction in our EMEA the outlook, which we now expect to be down low to mid single digits.

Our outlook for global install base growth remains unchanged at roughly 5%, which will add close to 1 million maintenance units, bringing the install base to roughly 21 million units with high single digit growth in Asia, and low single digit growth in the Americas and EMEA.

Turning to Otis is 2023 financial outlook, we now expect net sales to be in the range of $13 9 billion to $14 2 billion.

Up to five to four 5% versus the prior year, which is a 75 basis point improvement from the prior outlook at the midpoint driven by FX.

Still expect organic sales to be up 4% to 6% with new equipment up 3% to 5% and service up 5% to 7%.

Adjusted operating profit is expected to be up $90 million to $150 million at actual currency and up $130 million to $175 million at constant currency with adjusted EPS in a range of $3 42.

To $3 50.

7% to 10% increase versus the prior year and an approximately <unk> <unk> improvement from the prior outlook at the midpoint.

We expect free cash flow to come in as we guided in February and a range of $1 5 billion to $1 55 billion with 105% to 115% conversion of GAAP net income.

We remain disciplined in our capital allocation strategy and will continue to return the vast majority of our cash generation to shareholders through dividends and share repurchases.

We'll also continue advancing our bolt on M&A strategy to add density to our growing maintenance portfolio.

With that I'll turn it over to Iraq to walk through our Q1 results and full year outlook in more detail.

Thank you Judy starting with first quarter results on slide five we delivered net sales of $3 3 billion.

Organic sales up three 6%.

This represents our 10th consecutive quarter of organic growth with better than expected performance in both segments.

Adjusted operating profit was down $19 million at actual FX and up $7 million at constant currency.

Adjusted EPS growth of <unk> in the quarter was driven by stronger operational performance continued tax rate improvement and a lower share count.

Accretion from the <unk> transaction offset the full sense of foreign exchange headwinds.

Moving to slide six.

Q1, new equipment orders were up seven 4% led by Asia Pacific and the Americas up, 27% and 15%, respectively with modest growth of one point and EMEA more than offsetting a 3% decline in orders in China.

Strong orders growth as contributors to our adjusted new equipment backlog, increasing 10% at constant currency with growth in Americas, APAC and EMEA.

China backlog was roughly flat.

Strong backlog provides new equipment sales visibility for the balance of the year as well as over the medium term.

Globally pricing of new equipment orders was up mid single digits, leading to sequential backlog margin improvement in all regions.

We benefited from pricing increases of approximately 10% of the Americas and mid single digits in both EMEA and APAC.

This growth was offset by a mid single digit decline in the Americas due to job site delays and supply chain impacts and a 10% decline in China as expected driven by the lower demand environment.

Turning to service segment results on slide seven.

Maintenance portfolio units were up four 2% with recaptured units more than offsetting cancellations.

This was the sixth consecutive quarter of accelerating portfolio growth with China, delivering another quarter of teens portfolio growth.

Our modernization business continues to perform well across all regions with backlog up 13% at constant currency.

Service organic sales of six 3% was modestly ahead of expectations.

Maintenance and repair grew 7% driven by solid repair volume strong portfolio growth and three five points of maintaining pricing improvement on a like for like basis.

Organic modernization sales were up three 3% in the quarter driven by EMEA and Asia, partially offset by the timing of major project execution in the Americas.

Service operating profit at constant currency was up $40 million and margins expanded 40 basis points.

Drop through on higher volume favorable pricing and productivity more than offset the headwinds from annual wage increases and higher material costs.

Moving to slide eight and the revised outlook.

We are improving our adjusted operating profit outlook by $20 million versus the prior guide now expected to be up $90 million $150 million from a smaller foreign exchange headwind.

This FX change resulted in an approximately 3% increase in adjusted EPS at the midpoint.

Our free cash flow outlook remains unchanged at $1 5 billion to $1 55 billion for the full year.

In the first quarter free cash flow came in at $253 million with working capital or use of cash of roughly $125 million largely due to payables.

We expect this to unwind as we execute on our new equipment backlog throughout the year.

Taking a further look at the organic sales outlook on slide nine our outlook remains consistent with our prior guide across all regions and segments with new equipment up 3% to 5% and services up 5% to 7% driving total orders organic sales growth of 4% to 6% for the year.

New equipment organic sales growth will be driven by the Americas, APAC and EMEA as we execute on the strong backlog built over the past few years.

We still expect to achieve roughly flat new equipment sales in China, given the quarter ending backlog and favorable compares into year end.

On the service side, we expect to build on our performance in the first quarter with growth in repair work moderating and modernization accelerating.

Overall, we would expect to see consistent growth at around the mid point of our guidance each quarter.

Moving to our adjusted EPS outlook on Slide 10, we now expect 7% to 10% growth, reflecting an approximately <unk> <unk> increase from the prior guide at the midpoint.

We anticipate second quarter EPS to be flattish year over year and strong operational performance is offset by last year's low tax rate.

The continued strong growth in our service segment, coupled with pricing and commodity tailwind in new equipment will drive the acceleration in our second half EPS growth.

For FX, we're now assuming full year rates of $1, six and $6 93 for the euro and <unk> respectively.

With that Didi. Please open the line for questions.

Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.

And our first question comes from Jeffrey Sprague of vertical research partners.

Thank you good morning, everyone.

And just a couple of quick ones here from me.

First just on mods.

Interestingly Schindler pointed the soft model this.

Last week and UN culinary are saying Theyre strong boy slot of a little bit more of a discretionary aspect.

Kind of Mod work.

So maybe you could just give a little bit of color on whats.

Is there anything in particular driving the strength there your visibility beyond kind of the current orders you booked and.

Is there a sort of.

Kind of pent up demand to catch up on Mod still from the delays we had back in Covid.

Hey, Jeff Good morning, it's Judy.

Listen the Mod business itself, I think youre going to see sustained in.

Aging.

Repairs as you've seen we've had a really strong repair book so people have been putting off modernization and now they are coming to those important decisions. So at the macro level globally. We saw mod up in all four regions strong order book this quarter, 29% backlog up 13%.

I think you can youre going to continue to see that not just quarter over quarter, but year over year as the mod opportunity becomes larger.

Board, there, where the parts had become end of life and obsolete. So we went out to all of our customers because so many of these customers. They only have one unit and they can't afford for it to shut down and not have access to an obsolete part so for our customers. We went out with digital marketing campaign, and just said listen for a few hours will preplanned pre.

Great.

Just on the growth in service units great great to see in your kind of checking the box there on the strategic plan it sounds like.

Just missed unless you didn't say that.

The growth in service and maintenance units in China, specifically and any other just kind of regional color that you might have on that.

Yes, we had growth across the board. So all four regions grew China had its seventh straight quarter. They grew high teens, but seventh straight quarter of mid or high teens growth, So Asia Pac and China up.

More significantly than the mature markets, which we would say is probably low single.

Great. Thank you appreciate it.

Thank you one moment for our next question.

And our next question comes from Steve Tusa of Morgan Stanley .

Mr. Tuesday your line is open.

I'm sorry.

Yes, Ron Morgan, but maybe.

Maybe someday.

No.

Can you guys, maybe just talk about how you are.

Looking at the China market now and maybe just the sequential trends on on earnings.

The second half of the year and anything moving around at all on you guys.

Yes, Thanks, Steven and we fully recognize JP Morgan So let me let.

Let me be clear there.

So Steve I had the.

And I am going to say honor of finally being on the ground again in China, So what I'm going to share is a little personal.

<unk> spent 10 days there earlier late last month early this month, and just really getting a sense of the economy and I can tell you you can feel it in the four cities I was in with our colleagues at tennis data recovery and my view is primed for economic development no matter, whether it's a government official I met with our customers.

We do believe the second half recovery will come and will come strongly the governments being very supportive and our policies, whether it's mortgage rates or other things so kind of where we started the year is what we're still seeing we thought the market would be down 10%, we were down 3% and orders so.

Clear market share gain by Sally and the team in China.

But the strengths in the market in the first quarter just seen are the segments infrastructure and industrials were up industrial buildings, there was weakness in <unk> on the commercial market.

But we are still expecting the market recovery I am feeling good about the health of our business to be able to see the progress. Our team has made throughout the COVID-19 years, whether it's in the automation and industry four <unk> and our factories the acceptance by our customers of our new product introductions the relation.

Ships I got to meet our agents and distributors.

I am very positive on the China recovery in the second half.

Just does that change at all I guess I missed the first part of the call, but any of the market outlook.

Any of the market outlook, you gave on the fourth quarter call any of those change.

So as we shared last quarter, we said, China would be down 10% the market Americas would be flattish, we're seeing Asia Pac continuing to grow more to high single digit and we think that offsets maybe a little more negative now with EMEA download a mid single digit.

Okay, great. Thanks, a lot good luck.

And on <unk> I'll, let you answer the second part, yes, Hey, good morning, Steve just on the sequential earnings into the second half of the year. So second half we have to grow EPS up to about 25 <unk>.

<unk> of that will come from tax rate, because we do face a had been a <unk>.

Quarter, two because we had a big benefit in quarter two of last year that unwind in the second half of the year. So that will give us five so the 20 that we have to grow.

$120 million operationally, we are growing service at about in the first quarter $40 million. So that run rate kind of continues into the second half of the year at that mid single digit growth. So that's about $80 million and the remaining $40 million will come from new equipment in the second half I mean quarter, one new equipment was kind of flat.

Flattish quarter, two is returning back to growth in the second half we expect mid.

But about 80 million from <unk> was $40 million from your equipment.

Great details as always thanks, guys.

Thanks.

Thank you one moment for our next question.

And our next question comes from Nigel Coe of Wolfe Research.

Correct.

Good morning.

Jeff.

[laughter].

So obviously nice job on orders.

The Americas was surprisingly strong and.

Some of your competitors behind I think weakness in the Americas. So maybe just talk about.

Kind of what drove the growth.

Are you seeing right now in multifamily and maybe commercial.

Yes, so kudos to Jim and the team I have in the Americas.

There are really strong 'twenty two to come in up 15%.

This quarter and rolling 12 month being strong as well over 18% just really highlights we've got we've got a big backlog to work off in the Americas and our team knows it.

Listen we saw the Americas itself, the year's playing out as we thought it would.

Non resi is actually better this first quarter infrastructure and commercial were up and multifamily was down.

We still expect a flattish market through year end, we think we're in a really good position you saw the Montreal program, We won which was a major project in the first quarter and that will take US a few years to perform on both the volume business and the major projects did really well in the Americas, both Latin and North America for the first quarter.

Okay, Great that's great color. Thanks, Judy and then turning to China Your comments on China founded.

Constructive.

Pricing down low single digits. So I think it was trending pretty flat through Q2. So just what gives you confidence that we're not going to see the potent product pricing in China.

In the second half.

Let me take the pricing question, we are seeing rational pricing.

We've shared that about 90% of the new equipment orders that happened in China now happen with the top 10, Oems and they're all being rational and we get to see that especially on public infrastructure bids. So not to say there is not a bidder to someone really wants because of density will do something.

Supply chain management negotiation and our engineering team continuing to take cost out with our manufacturing team. So we're seeing rational we derrick anticipate that changing but obviously, we're keeping an eye on it.

Yes.

I mean, the truth leavers as Judy mentioned that we take a look at is definitely price cost and the share of segment. So far rebalancing it quite well the market is discipline and we'll continue to look into that and make sure that that that is going to toggle that we're putting against now in terms of orders. If you look at the market.

The market was was down in the first quarter, we are guiding to be down 5%, 10% for the year. So clearly the market is going to pick up front in the second half of the year offer offer low compare as well from last year and even if the market <unk>.

No share growth in the second half of the year, you should see orders in China picking up in the second half of the year, because we couldnt continue executing the strategy that we are doing right now and feel pretty good about the China orders in the second half of the year.

Okay. Thanks, guys.

Yes, Nigel the only the only thing I'll add is our relationships and our length of those relationships with our 2200 agents and distributors continues to mature and we do expect those to yield as.

We really expect to happen in the second half to show those results.

Alright, thank you.

Thank you one moment for our next question.

And our next question comes from Julian Mitchell of Barclays.

Hi, good morning.

Just wanted to start with EMEA.

Market outlook, so yes, you're in some of your peers sort of lowering.

The market outlook this year.

Just wondered any specific verticals.

All regions within Europe does that's driving that on the new equipment side.

How should we think about those EMEA orders playing out over the balance of this year.

The last time, we had a sort of a <unk>.

Soft construction market there for any prolonged period, we saw the the bleed through into service pricing at some point, just maybe remind us kind of your confidence this time, why even with a softer new equipment market the service price should hold up.

Thanks, Julian so yeah, we're saying EMEA now is going to be down low to mid single digit.

Obviously, we're watching rates and impact on building permits and starts.

The first quarter our team in <unk>.

In southern Europe performed incredibly well, Spain, Italy extremely resilient, where we saw some of the weakness was really Germany and the U K and then the middle East was up probably low single digits.

So it's really a mix and we're going to continue to monitor and watch that.

When we think back in time I look at two key metrics, one is pricing and service pricing like for like last quarter, we were up three five points and our.

Our Europe business was up mid single digits.

So Bernardo and the team have been passing price through we've had those inflationary clauses in and the teams and passing service price through which is really good to see because the majority of our European contracts do come due service contracts come due in the first half of the year with most in the first quarter.

The other part would be.

All the constructors from from 15 years ago, who moved into service and became independent service providers. We don't see that labor. If you look at even unemployment is at fairly low levels.

In Spain and in other locations in Western Europe . So we don't see those that that available workforce, starting up as independent service providers and the other difference now is what we call Otis one and the fact that when you have a connected elevator. It is not easy to start up as an independent right now or the or to grow your share. So I think all of that.

<unk> to set us up to a very different Europe , but again, we think we're being responsible looking at the market at low to mid single.

Potentially down for the year.

Thank you and then just my follow up would be around the slide 10.

That helps.

Helpful. EPS bridge, so just if I look at the operational.

Portion within that.

You highlight the kind of wage and material inflation, and then mix and churn is.

Headwinds that were not there.

On the bridge that you had given back in January for the year ahead.

I was just wondering if that shifts some extra detail did you see something change in your outlook for those two items for 2023.

And how we are thinking about those two items as he goes through the year.

Yeah.

Hey, Julien Thanks for the question.

No.

In February when we gave guidance we had a page on each of the segments on new equipment and service and at that point in time, we had highlighted mix in tune as one of the headwinds and we've just collapse it into this.

Right now Theres been no change in our thinking since the beginning of the year. When we talk about mix in June we essentially in the new equipment side. The mix was coming from as you know China is our most profitable new equipment margin market. So the other markets are growing faster. So on the equipment side that is the mix.

New equipment margin so on the mix that I would say on new equipment, it's more region and projects similar to what we had called out in the last call and nothing has changed from there.

Services.

Same thing that <unk> seen in the past couple of years, China growing faster and obviously churn is more around the cancellation units, which come with a little bit higher margin. So nothing really changed over there same thing for labor and wage inflation right.

That is it that would contribute to half of the operating profit that you see in the bar so price minus gross cost of material labor inflation and adjusting for mix insurance.

That's really helpful. Thank you.

Thank you Juan.

One moment for our next question.

Okay.

And our next question comes from Jack <unk> of Cowen.

Hi, guys. Good morning, this is Jack up Adolfo.

I wanted to dig into service.

Apologies I joined the call fairly wait here, but if you could kind of just touch on.

The monetization orders up 29% seems extremely strong.

Which is which is encouraging and then just.

Piggybacking off that last comment just sort.

The maintenance units up four 2%, obviously really strong again kind of just what's happening there.

This quarter from like a retention conversion mix sort of churn perspective, just any color there around service that'd be really helpful. Thanks.

Hey, Jack Yes modernization.

Let me just reinforce what I said, which is it's.

Based on when they were put into service, we got $7 million of the 20 million units are over 20 years old. So I think you can look for the modernization market.

To remain and actually become more attractive and obviously, we're very focused on performing that in a more.

Mark a way that allows us to approach customers with kits that gives us productivity and that gives them their modernization in a quicker time period, so youre going to see modernization be talked about more but also take the best of what we've learned since spin in terms of our new equipment strategy and growth.

For many much time to come.

Thanks, Tony I'll leave it there thanks guys.

Thank you.

And our next question comes from Nick Hoffman of RBC.

Yes, hi, everyone. Thanks for taking the questions.

Thank you.

And maintenance pricing was it about 3.5% like for like I'm, just wondering if that rates should accelerate as we move through the year just on the basis that you've been implementing the service escalation clauses. In Q1, then yes, maybe that three 5% as a reflection at the agreements that you had.

Last year. So if you could provide some color on that that would be helpful.

Yes. Nick go ahead go ahead, yes, thanks for the question.

Come up for renegotiation as well, so we should see that kind of stepping up a little bit as we go there on the three 5%. So overall, what we said in the when we gave the full year guide was that we expect it to be up 354% mix, ensuring we take about 250 basis points.

So about one 5% net as of now where we stand we feel pretty good about.

150 basis points of pricing adjusting for mix issue and for the rest of the year and Nick in China. The margin drivers are less about price, they're really more about productivity volume density I noticed one in all of those are good contributors for us.

Alright, that's very helpful. Then.

My second question sticking with service great.

Great to see that you are up to four 2% unit growth that's been accelerating.

Pretty much five three years at this point.

Yes, you mentioned that the market is growing at about 5% about 1 million units on its 20 million installed base. If I look at that four 2% you could still argue that thats, maybe slightly underperforming do you think that you can actually clay Gaspar as that may be a mix effect that means that you as the law.

Just OEM anytime to service units.

Underperforming a bit.

I think we can and we should close that gap.

That's the challenge we have given to our team and Thats why you see the much higher growth rates in Asia, especially China for our service portfolio now creates a mix, but we will deal with that mix challenge as we get it but yes, we can and should be closing that gap.

And just to add to that right I mean, just not too long ago, we were growing at 1%. The team is kind of.

There was a call for action teams focused on it we have to start a journey.

So $4 one up $4 two we should close the gap and the gap is we've won some good new equipment share that we will get that will come into the conversion cycle. Our conversion rates are going up and we're going to keep looking at.

Deploying Iot to ensure that our retention rates AI. So it's using conversion is aleve, we're using retention as a lever to get us up to the mid single digit.

Growth and while doing that we want to ensure that we also maintain the profitability for it right. So at some point in time, you will see for margins. It does come back to absolute profit growth, but thats, where we want to take it to.

That's great. Thank you very much.

Thank you I would now like to turn the conference back to Judy marks for closing remarks.

We're focused on executing throughout the remainder of the year in order to capitalize on our first quarter successes and continue to drive shareholder value. Thank you for joining us everyone stay safe and well.

This.

<unk> today.

Thank you for participating and you may now disconnect.

Q1 2023 Otis Worldwide Corp Earnings Call

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