Q1 2024 Otis Worldwide Corp Earnings Call

Operator: Good morning, and welcome to Otis's first quarter 2024 earnings conference call. This call is being carried live on the internet and recorded for replay.

Good morning, and welcome to Otis is first quarter 'twenty 'twenty four 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 Otis dotcom.

Operator: Presentation materials are available for download from Otis's website at www.otis.com. I'll now turn it over to Michael Rednor, Vice President of Investor Relations. Please go ahead. Thank you.

I'll now turn it over to Michael Radnor, Vice President of Investor Relations. Please go ahead.

Michael S. Rednor: Thank you Sarah and welcome to <unk> first quarter 2024 earnings conference call on the call with me today are Judy marks chair, CEO, and President and a rug Maheshwari executive Vice President and CFO.

Michael S. Rednor: Thank you, Sarah. Welcome to Otis's first quarter 2024 earnings conference. On the call with me today are Judy Marks, Chair, CEO, and President, and Anurag Maheshwari, Executive Vice President and CFO. Please note, except for otherwise noted, the company will speak to results from continuing operations, excluding restructuring and significant non-recurring 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. Otis' 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.

Please note, except where otherwise noted the company will speak to results from continuing operations, excluding restructuring and significant nonrecurring items.

Michael S. Rednor: A reconciliation of these measures can be found in the appendix of the webcast.

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

Michael S. Rednor: <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 now I would like to turn the call over to Judy. Thanks.

Michael S. Rednor: Now, I'd like to turn the call over to Judith. Thank you.

Judith F. Marks: Thank you, Mike, and good morning, afternoon, and evening, everyone. Thank you for joining us.

Judith F. Marks: Thank you, Mike and good morning afternoon, and evening, everyone. Thank you for joining us.

Judith F. Marks: Starting on slide three, Otis started the year off with a solid first quarter, again confirming and demonstrating the continued strength of our service-driven business model as we outlined during our Investor Day in February. Through the hard work and commitment of our colleagues across the globe, we achieved mid-single-digit organic sales growth driven by our service business. We expanded adjusting operating margins by 80 basis points, with both service and new equipment operating profit margins expanding 70 and 20 basis points, respectively. With another quarter of maintenance portfolio growth above 4% and solid modernization sales, we delivered 6.5% service organic sales. MOD orders increased 12.9% in the first quarter, with growth across all regions.

Judith F. Marks: On slide three we just started the year off with a solid first quarter again, confirming and demonstrating the continued strength of our service driven business model as we outlined during our Investor day in February through the hard work and commitment of our colleagues across the globe. We achieved mid single digit organic sales grew.

Judith F. Marks: Driven by our service business.

Judith F. Marks: We expanded adjusting operating margins by 80 basis points with both service and new equipment operating profit margins, expanding 70, and 20 basis points respectively.

Judith F. Marks: With another quarter of maintenance portfolio growth above, 4% and solid modernization sales, we delivered six 5% service organic sales growth.

Judith F. Marks: Mod orders increased 12, 9% in the first quarter with growth across all regions, while challenging market conditions in new equipment continue.

Judith F. Marks: While challenging market conditions in new equipment continue, delivering operational excellence across the organization through a 10% adjusted EPS group. This quarter, we executed our capital strategy with Exxon. We continue to work to repatriate cash from overseas and use it for the benefit of our shareholders. As such, we were able to repurchase $300 million of shares in the quarter.

Judith F. Marks: Delivering operational excellence across the organization drove 10% adjusted EPS growth.

Judith F. Marks: This quarter, we executed our capital strategy with excellence, we continue to work to repatriate cash from overseas and use it for the benefit of our shareholders as such we were able to repurchase $300 million of shares in the quarter. Additionally.

Judith F. Marks: Additionally, yesterday, we announced a 14.7% increase in our quarterly dividend. We have nearly doubled our dividends since then, emphasizing the importance we place on delivering shareholder value. We also made important progress toward our environmental goals. Earlier this month, the Science-Based Targets Initiative approved our near-term science-based greenhouse gas emissions reduction target.

Judith F. Marks: Additionally, yesterday, we announced a 14, 7% increase to our quarterly dividend, we have nearly doubled our dividend since spin emphasizing the importance we place on delivering shareholder value.

Judith F. Marks: We also made important progress towards our environmental goals earlier. This month, the science based targets initiative improved our near term science base greenhouse gas emissions reduction targets.

Judith F. Marks: This is a meaningful step on our sustainability journey, and our steady progress meeting our commitments will be shared in our next ESG report, expected to be published later this year. Turning to our orders performance on slide four, new equipment orders were down 10% in the first quarter, as anticipated, due to the tough comparison versus the prior year.

Judith F. Marks: This is a meaningful step on our sustainability journey and our steady progress meeting our commitments will be shared in our next ESG report expected to be published later this year.

Judith F. Marks: Turning to our orders performance on slide four.

Judith F. Marks: New equipment orders were down 10% in the first quarter as anticipated due to the tough compare versus the prior year.

Judith F. Marks: Double-digit growth in EMEA and mid-single-digit growth in Asia-Pacific were more than offset by a double-digit decline in the Americas and high teens decline in China. Nevertheless, our new equipment backlog at constant currency was roughly flat versus the prior year and up slightly versus the prior quarter. In the Service Segment, we continue to deliver consistent, solid performance, with another quarter of portfolio growth above 4% and demonstrating the value of modernization as a new strategic imperative, 13% orders growth and 15% backlog growth at constant currency, setting us up well for modernization sales through the rest of the year and into 2025.

Judith F. Marks: Double digit growth in EMEA and mid single digit growth in Asia Pacific were more than offset by a double digit decline in the Americas and high teens decline in China.

Judith F. Marks: Nevertheless, our new equipment backlog at constant currency was roughly flat versus the prior year and up slightly versus the prior quarter.

Judith F. Marks: Service segment, we continued to deliver consistent solid performance with another quarter of portfolio growth above 4%.

Judith F. Marks: And demonstrating the value of modernization as a new strategic imperative, 13% orders growth and 15% backlog growth at constant currency setting us up well for modernization sales through the rest of the year and into 2025.

Judith F. Marks: Reflecting the hard work of our colleagues around the World. Let me highlight a few orders we received during the quarter.

Judith F. Marks: Reflecting the hard work of our colleagues around the world, let me highlight a few orders we received during the quarter. In China, Otis Electric will provide 46 escalators and 9 elevators for an expansion of the Shenzhen Metro Line 5. The elevators and escalators will be installed at three new stations connecting to the city's Grand Theater, where passengers can transfer to two other Metro lines. In Canada, Otis will provide 19 elevators at the South Niagara Hospital, a 12-story facility that will consolidate and expand acute care services in the region.

Judith F. Marks: In China, Otis Electric will provide 46 escalators and nine elevators for an expansion of the Shenzhen Metro line five the elevators and escalators will be installed at three new stations connecting to the city's Grand theater, where passengers can transfer to other metro lines.

Judith F. Marks: In Canada.

Judith F. Marks: This will provide 19 elevators at the South Niagara Hospital, a 12 storey facility that will consolidate and expand acute care services in the region. It's.

Judith F. Marks: It's designed to meet the Canada Green Building Council's LEED Silver Standard and is an important step towards becoming the first well-certified hospital in Canada. These elevators will be equipped with Otis One, EMS Panorama, and autonomous mobile robot system integration. In Japan, Otis is modernizing six elevators and six escalators at the Hamamatsu Act Tower in Hamamatsu City. We look forward to continuing to service the 212-meter-tall tower as we've done for nearly three decades.

Judith F. Marks: It's designed to meet the Canada Green building Council's LEED silver standards and is an important step towards becoming the first well certified hospital in Canada. These elevators will be equipped with altice one.

Judith F. Marks: Ms Panorama and autonomous mobile robot system integration.

Judith F. Marks: In Japan, <unk> is modernizing six elevators and six escalators at the Hamamatsu Act tower and Hamamatsu City.

Judith F. Marks: We look forward to continuing to service the 212 meter tall tower as we've done for nearly three decades.

Judith F. Marks: And in the United Kingdom, the National Health Service of Wales has been an Otis customer since 2018 and has recently renewed their service contract, covering 450 elevators across many health facilities in the country for an additional five years. Building upon our trusted relationship, we will now modernize 19 elevators at the University Hospital of Wales in Cardiff.

Judith F. Marks: And in the United Kingdom, the National Health service of Wells has been a <unk> customer since 2018 and has recently renewed their service contract covering 450 elevators across many health facilities in the country for an additional five years.

Judith F. Marks: Building upon our trusted relationship we will now modernized 19 elevators at the University Hospital Wales in Cardiff.

Judith F. Marks: Turning to Q1 results on slide 5, we delivered net sales of $3.4 billion in the first quarter, with organic sales up 3.8%. Despite dynamic market conditions, we have delivered organic growth every quarter since the end of 2020. Adjusted operating profit, excluding a $7 million foreign exchange headwind, was up $50 million, with both segments contributing. Adjusted EPS grew 10% or $0.08 in the quarter, driven by strong operational performance. Improvement in the tax rate, early results from uplift, and the benefit of a lower share count offset headwinds from foreign exchange translation and increased interest exchange. With that, I'll turn it over to Anurag to walk through our results in more detail.

Judith F. Marks: Turning to Q1 results on slide five we.

Judith F. Marks: We delivered net sales of $3 $4 billion in the first quarter with organic sales up three 8%.

Judith F. Marks: Despite dynamic market conditions, we have delivered organic growth every quarter since the end of 2020.

Judith F. Marks: Adjusted operating profit, excluding a $7 million foreign exchange headwind was up $50 million with both segments contributing.

Judith F. Marks: Adjusted EPS grew 10% or eight cents in the quarter driven by strong operational performance.

Judith F. Marks: Improvement in the tax rate early results from uplift and the benefit of a lower share count offset headwinds from foreign exchange translation and increased interest expense.

Speaker Change: With that I'll turn it over to <unk> to walk through our results in more detail.

Speaker Change: Thank you Judy starting with segment sales performance on slide six.

Anurag Maheshwari: Thank you, Judy. I'm starting with segment sales performance on slide six. Otis new equipment organic sales were roughly flat in the first quarter when compared to the prior year, but America has grown mid-teens on solid backlog conversion. EMEA and Asia-Pacific both grew by low single digits, driven by growth in key markets, and China experienced a double-digit decline due to the lower backlog and weaker market conditions that Judy mentioned. However, new equipment pricing was strong in the Americas, EMEA, and Asia-Pacific in the first quarter, up low to mid-single digits. In China, while the pricing environment remains challenging, we continue to drive productivity and capitalize on lower commodity prices.

Speaker Change: Otis new equipment organic sales were roughly flat in the first quarter when compared to the prior year.

Speaker Change: Americas grew mid teens and solid backlog conversion.

Speaker Change: EMEA and Asia Pacific both grew low single digits, driven by growth in key markets and China experienced a double digit decline due to the lower backlog and weaker market conditions that Judy mentioned.

Speaker Change: New equipment pricing was strong in the Americas, EMEA and Asia Pacific in the first quarter up low to mid single digits.

Speaker Change: In China, while the pricing environment remains challenging we continue to drive productivity and capitalize on lower commodity prices.

Speaker Change: Service sales with $2 2 billion in the first quarter, we had organic sales growth of six 5% reflecting growth across all regions and in all lines of business and marking the 12th consecutive quarter of mid single digit or greater organic sales growth.

Anurag Maheshwari: Service sales were $2.2 billion in the first quarter, with organic sales growth of 6.5%, reflecting growth across all regions and in all lines of business and marking the twelfth consecutive quarter of mid-single-digit or greater organic sales growth. Maintenance and repair continues to perform well, up 5.8% from portfolio growth, robust repair volumes, and maintenance pricing, which was up more than three points, excluding the impact of mix and show. On modernization, double-digit growth in China and Asia-Pacific drove organic sales up approximately 10% in the quarter.

Speaker Change: Maintenance and repair continues to perform well up five 8% from portfolio growth robust repair volumes and maintained its pricing, which was up more than three points, excluding the impact of mix and children.

Speaker Change: On modernization double digit growth in China, and Asia Pacific drove organic sales up approximately 10% in the quarter.

Speaker Change: Turning to segment operating performance on slide seven.

Anurag Maheshwari: Turning to segment operating performance on slide 7, first quarter new equipment operating profit of $71 million was up $6 million at constant currency; favorable pricing, productivity, and commodity tailwinds more than offset mixed headwinds and drove 20 basis points of margin expansion. Service operating profit of $523 million was up $47 million at constant currency as lower volume, favorable pricing, and productivity more than offset annual wage inflation. This led to a margin expansion of 70 basis points for the segment.

Speaker Change: First quarter, new equipment operating profit of $71 million was.

Speaker Change: It was up $6 million at constant currency.

Speaker Change: Favorable pricing productivity and commodity tailwind more than offset mix headwinds and drove 20 basis points of margin expansion.

Speaker Change: Service operating profit of $523 million was.

Speaker Change: It was up $47 million at constant currency as drop through on higher volume favorable pricing and productivity more than offset annual wage inflation.

Speaker Change: This led to margin expansion of 70 basis points for the segment.

Anurag Maheshwari: Additionally, the ramp of uplift initiatives alongside cost controls improved our SG&A as a percent of sales by 50 basis points year over year. All in all, we expanded overall adjusted margins by 80 basis points and grew EPS by 10%. Shifting to cash, we generated $155 million of adjusted free cash flow in the first quarter, reflecting a build in working capital following a snapback from a strong Q4 and the timing of billings in the quarter.

Speaker Change: Additionally, the ramp of uplift initiatives alongside cost controls improved SG&A as a percent of sales by 50 basis points year over year.

Speaker Change: All in all we expanded overall adjusted op margins by 80 basis points and grew EPS, 10%.

Speaker Change: Shifting to cash we generated $155 million of adjusted free cash flow in the first quarter, reflecting a build in working capital following a snapback from a strong Q4 and the timing of billings in the quarter.

We are off to a good start there.

Anurag Maheshwari: We are off to a good start. The strength of the service business, including the execution of a modernization strategy, combined with productivity efforts and the uplift program, more than offset the subdued new equipment mark. As a result, and with good line of sight through the rest of the year, we are raising our profit guidance. I'll turn it back to Judy to discuss our 2024.

Speaker Change: The strength of our service business, including the execution of our modernization strategy combined with productivity efforts and the uplift program more than offset the subdued new equipment markets.

Speaker Change: As a result, and with good line of sight to the rest of the year, we are raising our profit guidance.

Speaker Change: I'll turn it back to Judy to discuss our 2020 for outlook.

Judith F. Marks: Now on slide eight before I discuss our updated 2024 financial outlook, Let me briefly update you on our global market outlook.

Judith F. Marks: Now on slide 8. Before I discuss our updated 2024 financial outlook, let me briefly update you on our global market outlook. For the new equipment market, our expectations for the Americas and EMEA remain unchanged. Download single-digit units.

Judith F. Marks: For the new equipment market, our expectations for the Americas, and EMEA remain unchanged down low single digits and units. We now expect Asia to be down mid single digits and units versus the prior outlook of down low to mid single digits due to weakness in China.

Judith F. Marks: We now expect Asia to be down mid-single digits in units versus the prior outlook of down low to mid-single digits due to weakness in China. However, there is no change to our outlook for Asia-Pacific, as India, Southeast Asia, and the major infrastructure pipeline remain strong. We're revising China to be down high single digits to down 10% as activity remains sluggish. However, although new equipment markets remain challenging, service market strength continues. With low single-digit growth in the Americas and EMEA and mid-single-digit growth in Asia, driven by China, installed base growth is driven by units that were booked roughly two years ago, installed over the past year or so, and are now starting to roll off their warranty period. Therefore, we still anticipate the global installed base to add roughly a million units, a growth rate of mid-single digits.

Judith F. Marks: There is no change to our outlook for Asia Pacific as India, Southeast Asia, and the major infrastructure pipeline remains strong we.

We are revising China to be down high single digits to down 10% as activity remained sluggish.

Judith F. Marks: Although new equipment markets remain challenging service market strength continues with low single digit growth in the Americas, and EMEA and mid single digit growth in Asia, driven by China.

Judith F. Marks: Installed base growth is driven by units that were booked roughly two years ago installed over the past year or so and are now starting to roll off their warranty period.

Judith F. Marks: Therefore, we still anticipate the global installed base to add roughly 1 million units a growth rate of mid single digits.

Judith F. Marks: Turning to Otis's 2024 financial outlook, we expect net sales in the range of $14.5 to $14.8 billion, with organic sales growth of 3% to 5%, overall unchanged versus the prior outlook, although we made some modest changes within the segments, which Anurag will discuss in a moment. Adjusted operating profit is expected to be up $135 to $175 million at actual currency and up $160 to $190 million at constant currency, up $10 million from the low end of the prior output.

Judith F. Marks: Turning to Otis is 2024 financial outlook we.

Judith F. Marks: We expect net sales in the range of 14, five to $14 8 billion with organic sales growth of 3% to 5% overall unchanged versus the prior outlook. Although we made some modest changes within the segments, which entourage will discuss in a moment.

Judith F. Marks: Adjusted operating profit is expected to be up $135 million to $175 million at actual currency and up $160 million to $190 million at constant currency up $10 million on the low end of the prior outlook.

Judith F. Marks: Adjusted EPS is now expected in the range of $3 83 to.

Judith F. Marks: Adjusted EPS is now expected in the range of $3.83 to $3.90, up 8% to 10%, with 3 cents of improvement versus the low end of the prior guide. We anticipate adjusted free cash flow to come in at approximately $1.6 billion. In addition to returning nearly all free cash flow generated to shareholders, we're also performing well on our cash repatriation program, and we are raising our target share repurchases to approximately $1 billion for 2024.

Judith F. Marks: The $3 90.

Judith F. Marks: 8% to 10% with <unk> improvement versus the low end of the prior guide.

Judith F. Marks: We anticipate adjusted free cash flow to come in at approximately $1 6 billion.

Judith F. Marks: In addition to returning nearly all free cash flow generated to shareholders. We're also performing well on our cash repatriation programs and we are raising our target share repurchases to approximately $1 billion for 2024.

Judith F. Marks: In addition, we are acquiring the remaining minority interest in Nippon Edison, Japan for approximately $70 million with cash this will be about one cents accretive to EPS in 2024 and another one in 2025 with that let me hand, it back to Iraq to outline the 2024 segment outlook.

Judith F. Marks: In addition, we are acquiring the remaining minority interest in Nippon Otis in Japan for approximately $70 million in cash. This will be about one cent accretive to EPS in 2024 and another one cent in 2025. With that, let me hand it back to Anurag to outline the 2024 segment outlook in more detail.

Iraq: In more detail.

Iraq: Taking a more detailed look at our outlook and starting with sales on slide nine.

Anurag Maheshwari: Taking a more detailed look at our outlook and starting with sales on slide 9, we expect Total Organics sales to remain consistent with our prior outcomes. For new equipment organic sales, we still expect to be roughly flat, with no change to our outlook in EMEA for up to a low single digit. However, driven by a weaker market, we now expect Chinese new equipment sales to be down approximately 10%, offset by better-than-expected backlog conversion in the Americas and Asia Pacific.

Iraq: We expect total organic sales to remain consistent with our prior outlook.

Iraq: Our new equipment organic sales, we still expect to be roughly flat. We've made no change to our outlook in EMEA up low single digits.

Iraq: However, driven by a weaker market, we now expect China, new equipment sales to be down approximately 10%.

Iraq: Offset by better than expected backlog conversion in the Americas and Asia Pacific.

Iraq: Our service in line with our prior guide overall organic sales are anticipated to grow 6% to 7%, including maintaining and repair within a range of five 5% to six 5%.

Anurag Maheshwari: For service, in line with our prior guide, overall organic sales are anticipated to grow 6% to 7%, including maintenance and repair within a range of 5.5% to 6.5%. For modernization, we anticipate organic sales growth of 8% to 9% and an increase versus the prior outlook of approximately 8% as we continue to execute on the expanding backlog. Turning to slide 10.

Iraq: While modernization, we anticipate organic sales growth of 8% to 9% an increase versus the prior outlook of approximately 8% as we continued to execute on the expanding backlog.

Iraq: Turning to slide 10.

Anurag Maheshwari: At constant currency, operating profits should grow $160 million to $190 million, an increase of $5 million at the midpoint versus prior expectations due to continued strong contributions from service. On service, we now expect operating profit margin at the high end of the prior guide, up approximately 50 basis points for the year due to solid first quarter performance. For new equipment, net of the previously noted puts and takes, we still anticipate adjusted operating profit margin to be flat to up 10 basis points. Better flow-through of pricing from the backlog is offsetting the added mixed impact from the weaker China outcome.

Iraq: Constant currency operating profit should grow $160 million to $190 million, an increase of $5 million at the midpoint versus prior expectations due to continued strong contributions from service.

Iraq: On service, we now expect operating profit margin at the high end of the prior guide up approximately 50 basis points for the year due to solid first quarter performance.

Iraq: While new equipment net of the previously noted puts and takes we still anticipate adjusted operating profit margin to be flat to up 10 basis points.

Iraq: Better flow through of pricing from the backlog is offsetting the added mix impact from the weaker China outlook.

Iraq: We expect overall adjusted operating profit margin expansion of 50 basis points as a result of service volume productivity and pricing tailwind alongside ramping uplift benefits.

Anurag Maheshwari: We expect overall adjusted operating profit margin expansion of 50 basis points as a result of service volume, productivity, and pricing tailwinds alongside ramping uplift benefits. Turning to cash flow, there is no change to our outlook, and we expect to achieve adjusted free cash flow of $1.6 billion, largely driven by net income growth. In addition, our continued efforts in cash repatriation gives us confidence to repurchase a billion dollars in shares, up from $800 million previously.

Iraq: Turning to cash flow there was no change to our outlook and we expect to achieve adjusted free cash flow of $1 6 billion.

Iraq: Largely driven by net income growth.

Iraq: In addition, our continued efforts in cash repatriation gives us confidence to repurchase $1 billion in shares up from $800 million previously.

Anurag Maheshwari: This, combined with the recently announced increase in our dividend, will allow us to return approximately $1.6 billion of cash to shareholders, up from $1.35 billion in our prior allocation. Moving to the 2024 EPS bridge on slide 11.

Iraq: This combined with the recently announced increase in our dividend allow us to return approximately $1 $6 billion of cash to shareholders up from $135 billion in our prior outlook.

Iraq: Moving to the 2024 EPS bridge on slide 11.

Anurag Maheshwari: We have raised the low end of our guidance for adjusted EPS by three cents to a range of $3.83 to $3.90. That is over 30 cents of EPS growth at the midpoint, driven almost entirely by growth in operating profits. Before we turn to questions, let me provide some more color on the second quarter.

Iraq: We have raised the low end of our guidance for adjusted EPS by <unk> <unk> to a range of $3 83 to $3 90.

Iraq: That is over 30 of EPS growth at the midpoint driven almost entirely by growth in operating profit.

Iraq: Before we turn to questions. Let me provide some more color on the second quarter.

Anurag Maheshwari: Starting with Otis, we expect new equipment to be down mid to high single digits, reflecting the more challenged market conditions, though with backlog holding steady sequentially. Within service, maintenance portfolio growth should remain above 4%, and modernization growth or orders growth should remain above 10%. For sales, we expect new equipment to be down roughly mid-single digits organically due to China headwinds and a tough compare with approximately 10% growth in the prior

Iraq: Starting with orders, we expect new equipment to be down mid to high single digits, reflecting the more challenged market conditions.

Iraq: <unk> backlog holding steady sequentially.

Iraq: Within service maintain as portfolio growth should remain above 4% and modernization growth orders growth should remain above 10%.

Iraq: For sales, we expect new equipment to be down roughly mid single digits organically due to China headwinds and a tough compare with approximately 10% growth in the prior year.

Iraq: Service should continue at roughly the same organic growth rate as Q1, netting to low single digit overall organic growth for the quarter.

Anurag Maheshwari: Service should continue at roughly the same organic growth rate as Q1, netting to low single-digit overall organic growth for the quarter. However, based on the recent deterioration in FX rates, we anticipate a headwind when compared to the prior quarter, netting to roughly flat sales versus the prior year. Turning to profit, new equipment margins are anticipated to come in right around 7%, while service margins are anticipated to be roughly the same as Q1 or slightly higher.

Iraq: Based on the recent deterioration in FX rates, we anticipate a headwind when compared to the prior quarter netting to roughly flat sales versus the prior year.

Iraq: Turning to profit new equipment margins anticipated to come in right around 7% while service margins are anticipated to be roughly the same as Q1 or slightly higher.

Iraq: Below the line due to the timing of certain tax benefits. The tax rate is expected to come in around 20% and this benefit in combination with a lower share count will more than offset the headwind from higher interest costs.

Anurag Maheshwari: Below the line, due to the timing of certain tax benefits, the tax rate is expected to come in around 20%, and this benefit, in combination with a slower share count, will more than offset the headwind from higher interest costs. Absent further forex volatility, this should lead to approximately 10 cents of EPS growth or another quarter up 10% or greater. This implies first-half EPS growth of roughly $0.20. And when adjusted for the tax rate impact, EPS growth should be fairly level-loaded between the first and second halves of the year, largely driven by operating profit growth.

Iraq: Absent further forex volatility this should lead to approximately 10 cents of EPS growth for another quarter up 10% or greater.

This implies first half EPS growth of roughly 20.

Iraq: And when adjusted for the tax rate impact EPS growth should be fairly level loaded between the first and second halves of the year largely driven by operating profit growth.

Iraq: In closing first quarter results further demonstrate our ability to execute our strategy to create momentum to perform for the remainder of the year.

Anurag Maheshwari: In closing, first-quality results further demonstrate our ability to execute a strategy to create momentum to perform for the remainder of the year. Growing our portfolio, leveraging our steady new equipment and expanding mod backlog, and ramping on the uplift program alongside continued operational performance set us up well to achieve our financial outlook and return $1.6 billion cash back to shareholders. With that, Sarah, please open the line for questions.

Iraq: Growing our portfolio, leveraging our steady new equipment, and expanding more backlog and ramping on the uplift program alongside continued operational performance set us up well to achieve our financial outlook and returned $1 6 billion cash back to shareholders.

Iraq: With that Sarah Please open the line for questions.

Operator: Thank you. The floor is now open to questions. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Your first question comes from the line of Rob Orthimer with Melius Research. Your line is open.

Sarah: Thank you the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad. If you would like to withdraw your question simply press Star one again.

Sarah: Your first question comes from the line of Rob Wertheimer with Melius Research. Your line is open.

Robert Cameron Wertheimer: Thank you. Good morning, everybody. I'm happy to be here. Good morning, everyone.

Rob Wertheimer: Thank you and good morning, everybody happy to be here.

Rob Wertheimer: Good morning, Rob.

Rob Wertheimer: So my question is just around Mas were sales and orders are showing obviously healthy double digit growth.

Robert Cameron Wertheimer: So my question is just around mods, where sales and orders are showing, you know, obviously healthy, double-digit-ish growth. Would you talk a little bit about margin on those orders, and the backlogs, and the drivers of it? I know you're working on standardizing production on, you know, the product and a bunch of stuff. But I don't know if price is a positive driver in the backlog as well, as you kind of continue on that journey to bring margins up and above.

Rob Wertheimer: Would you talk a little bit about margin in those orders in the backlogs and the drivers are and I know youre working on standardizing production on product and a bunch of stuff I don't know if price is a positive driver there in the backlog as well as you kind of continue on that journey to bring margins up and above.

Judith F. Marks: And I wonder if you could just talk a little bit about what the environment is out there for that product. Is there a lot of customer pull on it? Do you have, you know, solid demand where you can kind of embrace pricing? You know, maybe just the demand environment around that. Thank you.

Rob Wertheimer: Okay.

Rob Wertheimer: I was wondering if you could just talk a little bit about what the environment is out there for that product is there are a lot of customer pull on it you have.

Rob Wertheimer: Solid demand, we can kind of embraced pricing.

Rob Wertheimer: Maybe just.

Rob Wertheimer: The demand environment.

Thank you.

Speaker Change: Sure. Thanks, Rob listen Mod was up nicely in all regions I think our strategy is on track. Our team is executing that strategy and these are still early days in what will be probably more than a decade long.

Judith F. Marks: Sure, thanks Rob. Listen, MoD was up nicely in all regions. I think our strategy is on track, our team is executing that strategy, and these are still early days in what will probably be more than a decade-long MoD growth market. So we're really encouraged by what we're seeing. Orders up almost 13 percent in the quarter, backlog up 15 percent, so now we're just building on quarter after quarter of double-digit growth. The standouts we really saw in the quarter from the demand side, Asia-Pacific and Americas were up really nicely, but Asia-Pacific was the standout, and China did well too, double-digit growth. So everyone, again, all regions are up.

Speaker Change: Rod growth market. So we're really encouraged by what we're seeing.

Speaker Change: Orders up almost 13% in the quarter backlog up 15%. So now we're just building on quarter after quarter of double digit growth.

Standouts, we really saw in the quarter from the demand side Asia Pacific.

Speaker Change: In Americas were up really nicely, but Asia Pacific was a standout and China did well to double digit so.

Speaker Change: Everyone again, all regions are up we're seeing a mix of major projects and just really good volume package dim.

Judith F. Marks: We're seeing a mix of major projects and just really good volume package demand by customers, and we're performing well. In terms of the margin, I'll turn it over to Anurag for help with the backlog, but what I think is important, what we shared at Investor Day was that we would, you know, shortly be surpassing MoD margins would be surpassing new equipment margins. I'm really pleased to share that in Q1, we saw that inflection point, and MoD margins are now higher than new equipment margins.

Speaker Change: Manned by customers and we're performing well in terms of the margin I'll turn it over to entourage for help with the backlog, but what I think is important and what we shared at Investor day was that we would shortly be surpassing mod margins would be surpassing new equipment margins I'm really.

Entourage: As to share that in Q1, we saw that inflection point and Mod margins are now higher than new equipment margins on our argument, let you add some color, yes, just to add to that so in a few quarters ago. We said that we should be higher than the new group in margin. We are here right now modestly higher as Judy said, one quarter does not make a trend but.

Anurag Maheshwari: Anurag, I'll let you add some color.

Anurag Maheshwari: So, a few quarters ago, we said that it should be higher than the new quip and margin. And we are here right now, modestly higher, as Judy said.

Anurag Maheshwari: One quarter does not make a trend, but we are very encouraged by what we are seeing in terms of mod margins. And as the year goes by, we should see more of the expansion in mod margin and more differential between that and new equipment. What's driving the mod margin expansion is more of us becoming more productive on the cost side. The initiatives that we mentioned around standardization, be it across the supply chain, be it the factory, be it the product, and doing field installation at a lower cost, all of this is helping out and is really driving the mod margin expansion.

Speaker Change: We are very encouraged by what we're seeing in terms of margins and as the year goes by we should see more of the expansion on margin and more differentiate between that and new equipment, what's driving the margin expansion is more of us becoming more productive on the cost side right.

Speaker Change: The initiatives that we mentioned around standardization being across the supply chain be it the factory view the product and doing field installation at a lower cost all of this is helping us and is really driving the margin expansion. So it's more on the productivity side that we control.

Anurag Maheshwari: So, it's more on the productivity side that we control. But we've got to do a lot more than that, and let's see how the year plays out. But I'm very encouraged. And the last thing I'll add, Rob, is that...

Speaker Change: Got to do a lot more than that and let's see how the year plays out but very encouraged yeah. The last thing I'll add Rob is it not market has potential of several million units in every one of our regions. So this won't be lopsided growth, we anticipate significant growth by all regions.

Judith F. Marks: And the last thing I'll add, Rob, is that the MoD market has the potential for several million units in every one of our regions. So this won't be lopsided growth. We anticipate significant growth by all means.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Julian Mitchell with Barclays Capital. Your line is open.

Julian Mitchell: Your next question comes from the line of Julian Mitchell with Barclays Capital. Your line is open.

Julian Mitchell: Hi, good morning.

Julian Mitchell: Hi, good morning. Just wondered when you're looking at the overall sort of global picture on new equipment, the backlog was flat, a constant currency year on year with TTM orders down. It seems like TTM orders should be down again in the second quarter. Just wondered how you're thinking about the year as a whole, if you could frame up sort of any expectations for new equipment around, say, book to bill and how we should think about the confidence in the new equipment backlog not shrinking year on year over the balance of the year.

Julian Mitchell: Just wondered when you're looking at the overall sort of global picture on new equipment.

Julian Mitchell: <unk> was flat.

Julian Mitchell: Scent currency year on year.

Julian Mitchell: Smith TTM orders down it seems like TTM orders should be down.

Julian Mitchell: Again in the second quarter.

Julian Mitchell: Just wondering how youre thinking about the year as a whole if you could frame up sort of any expectations in new equipment around say book to Bill and how we should think about the confidence in the new equipment backlog.

Julian Mitchell: Not shrinking year on year over the balance of the year.

Julian Mitchell: Yes.

Judith F. Marks: Thanks, Julian, for the question. Listen, as we said, you know, Maude... was down about 10% in the first quarter, second quarter, sorry, new equipment was down 10% in the first quarter, expected to be down mid to high single digits in the second quarter. So as the year kind of progresses, you know, the comparisons do get better in the second half of the year because we started seeing the slowdown on the new equipment side, especially in Americas and EMEA, more towards starting from 2Q of last year. So you know, let's see how that progresses.

Julian Mitchell: Thanks, Julien for the question.

Speaker Change: Listen as we said in our model.

Julien: Was down about 10% in the first quarter second quarter, we saw new equipment was down 10% in the first quarter expected to be down mid to high single digit in the second quarter. So as the year kind of progresses. The compares do get better in the second half of the year, because we started seeing the slowdown on the new equipment side, especially in Americas and EMEA.

Julien: Awards, starting from <unk> of last year, so, let's see how that progresses. If we perform in line with what the market does the backlog of new equipment could be down a couple of points, if we do better than the market and it could be flattish. So there is a possibility that the new equipment backlog as we end this year could be flattish to down low single digit.

Anurag Maheshwari: If we perform in line with what the market does, the backlog on new equipment could be down a couple of points. If we do better than the market, then it could be flattish. So there is a possibility that the new equipment backlog as we end this year could be flattish to down low single digits. And as we kind of mentioned throughout the rest of the day, if you look forward to the next few years, clearly, we're expecting new equipment to be flattish, but where we see a lot of growth coming in is on the mod side.

Julien: And as we kind of mentioned in Investor day.

Julien: If you look forward for the next few years, clearly, we expecting new equipment to be flattish, but where we see a lot of growth coming in is on the <unk> side and the more backlog is up 15% as we continue to perform well in the month.

Anurag Maheshwari: And the mod backlog is up 15%. If we continue to perform well in the mod, new equipment, and mod as we end the year, that backlog should be down low single digits as we enter into 2020.

Julien: Well, new equipment and more as we end the year that backlog should be up low single digits as we enter into 2025.

Julian Mitchell: That's helpful. Thank you. And then, just maybe.

Speaker Change: That's helpful. Thank you and then just maybe.

Judith F. Marks: You know, my second question on the service margins, very good performance in the first quarter, up 70 bps year-on-year. Based on what you said about the second quarter, it could be up similarly year-on-year, sort of 60-70 bps in Q2 and the first half. So that guide of plus 50 bps of margin for the year, is that just reflecting sort of, you know, is it still only April, a long way to go? Or is there anything specific happening with the costs of technician wages or something in the back half? Maybe just any update around that wage inflation headway. Yeah, let me, let me unpack it.

Speaker Change: And then my second question on the service.

Speaker Change: Our genes.

Speaker Change: Very good performance in the first quarter up 70 bps year on year.

Speaker Change: Based on what you said about the second quarter could be up similarly year on year sort of 60 70 bps in Q2 in the first half.

Speaker Change: So that guide of plus 50 bps of margin for the year is that just reflecting sort of still only April but a long way to go.

Speaker Change: Or is there anything specific happening with costs of a technician wages or something in the back half, maybe just any update around that wage inflation headwind.

Yeah, Let me, let me unpack a few of those questions Julien and start with.

Judith F. Marks: Yeah, let me unpack a few of those questions, Julian, and start with service margins. It is early in the year, but what we're seeing, again, with the portfolio growth of four-plus, what we're getting in service pricing, like-for-like, over three points, we're feeling good there. We do have a mix coming into play a little bit as mod revenue grows, and it grows a little faster than maintenance and repair. There's a little bit of a mix there that we've kind of factored into that margin outlook.

Speaker Change: With service margins. It is early in the year, but what were seeing again with the portfolio growth of four plus what we're getting in service pricing like for like over three points.

Speaker Change: We're feeling good there we do have a mix.

Speaker Change: Coming into play a little bit as Mod revenue grows and it grows a little faster than maintenance and repair theres a little bit of a mixed there that we've kind of factored into that to that margin outlook.

Judith F. Marks: But we've done, you know, our team has done a fantastic job on the productivity side, especially in the field and on driving repairs and the repair backlog as well, especially in the Americas. So, you know, right now, we'll continue to watch it. We feel comfortable at the 50 basis points. You know, this is our 17th straight quarter of service-adjusted operating profit increasing, and it is the engine, as you know, for our model and our service-driven business model. Wage inflation: we're not seeing anything unusual, and obviously, we focus on productivity to offset that.

Speaker Change: But we've done our team has done a fantastic job on the productivity side, especially in the field and on driving driving repairs in their repair backlog as well, especially in the Americas. So right now we'll continue to watch it we feel comfortable at the 50 basis points.

Speaker Change: This is our 17th straight quarter of service adjusted operating profit increasing.

Speaker Change: And it is it is the engine and as you know to our to our model and our service driven business model.

Speaker Change: Wage inflation, we're not seeing anything unusual.

Speaker Change: And obviously, we focus on productivity.

Speaker Change: Offset that.

Speaker Change: Great. Thank you.

Nigel Coe: Your next question comes from the line of Nigel Coe with Wolf Research.

Speaker Change: Your next question comes from the line of Nigel Kelly with Wolfe Research. Your line is open.

Nigel Coe: So, as a proud Welshman, I was very pleased to hear Wales getting called out a couple of times, so thanks for that, Judy. It's not, it doesn't happen very often on these calls, so, um...

Nigel Coe: Thanks, Good morning, everyone.

So as a proud Washington is very pleased to hear way often called a couple of times that sort of thing.

Nigel Coe: So that JV.

Nigel Coe: [laughter].

Nigel Coe: So it's not it doesn't happen very often on these calls so I know, it's fun selecting them Nigel.

Anurag Maheshwari: I know. It's fun selecting them, Nigel. Yeah. Wow. I appreciate that. The 2Q color, it's quite unusual for you guys to give so much color in the quarter. So just wondering, is this like a new world we're in here, where you're going to give us a bit more kind of quarterly color, or is there just some unusual stuff happening in the second quarter, Anurag, that you wanted to call out? And then maybe, you know, just in the spirit of maybe helping us to fill out the model perhaps, you know, below the segment line, I mean, tax rates seem to be coming in a

Nigel Coe: Yeah.

Speaker Change: I appreciate that.

Speaker Change: <unk> kind of unusual for you guys to give some color on the quarter. So I'm just wondering.

Speaker Change: The second new will remain here, we kind of give us a bit more kind of quarterly color or is there just some unusual stuff happening in the second quarter and Ravi you wanted to call out.

Speaker Change: Then maybe just in the spirit of maybe helping us to set up the model perhaps.

Ravi: Below the segment line.

Ravi: I mean tax rate seems is coming a bit lower but anything on corporate expenses that we should bear in mind as well.

Anurag Maheshwari: I imagine we'll give a little bit, we typically give quite good color on the new equipment and service, how it's trending for the quarter, give a little bit more color, this time it was exactly the question you asked, the tax rate, which was much lower in the quarter, coming in at 20%. For the full year, the guide is roughly the same at 25 and a half, but because of planning and discrete items, they shift quarter to quarter, so I wanted to kind of highlight the fact that tax was coming in for the quarter, and obviously the team is doing a really good job in terms of managing it through the year and bringing it down in years to come.

Ravi: Yes.

Ravi: Thanks for the question on <unk>. The reason, we gave a little bit we typically give good color on the new equipment and service out screening for the quarter give a little bit more color. This time was executive question. You asked was on the tax rate, which was much lower in the quarter coming in at 20% for the full year the guidance roughly the same at 25, and a half, but because of planning and discrete items.

Ravi: Shift quarter to quarter, so wanted to kind of.

Ravi: Highlight the fact that when taxes coming in for the quarter and obviously the team is doing a really good job in terms of managing it through the course, and bringing them down and used to come on the corporate expense, yes, it's going to be a few million dollars in the quarter will be <unk>, 9% to 1% of revenue.

Anurag Maheshwari: On the corporate expense, yes, it's going to be a few million dollars high in the quarter, probably 0.9 to 1% of revenue, as we look at this year, nothing unusual there except for Forex, where we do have some Forex headwinds, and that does get reflected in our corporate expense, so that probably increases by 5 to 10 basis points.

Ravi: As we look at this year nothing unusual there except for Forex, where we do have some forex headwinds and that does get reflected in our corporate expense. So that will be increased by 5% to 10 basis points.

Nigel Coe: Okay, that's really helpful. Thanks for that. And then on the free cash flow, I understand it's mainly AR timing, but is there anything in the mix of business, I don't know, mod mix or anything else that's maybe leading to a lengthening in the billing cycles there? Just curious, you know, seeing AR increasing from 4Q to 1Q. Anything to call out there, or is it just timing? Oh, it's essentially Taimi.

Speaker Change: Okay. That's really helpful. Thanks, Thanks for that and then on the free cash flow and understand it's mainly a.

Speaker Change: Timing, but is there anything in the mix of business set in a month.

Speaker Change: Mix, so anything else that may be leading to a lengthening in the bidding cycles there with <unk>.

Speaker Change: Yes.

Speaker Change: <unk>, increasing from <unk> to <unk>.

Speaker Change: Thing to call out there or was it just timing.

Speaker Change: It is essentially timing.

Anurag Maheshwari: It's essentially timing. I mean, if you look back at the past few years, we have made more than 100% conversion. We are confident that we will get to 100% conversion this year. We have built up a couple of hundred million dollars of working capital. A little bit of it was because of lower down payments due to lower new equipment orders, but a larger part of it was just the timing of billings through the course of the quarter, where a lot happened in the month of March. We've already started unwinding that in the second quarter.

Speaker Change: If you look back at the past few years, we have more than 100% conversion. We are confident we will get to a 100% conversion. This year, we built up a couple of hundred million dollars of working capital.

Speaker Change: A little bit of it was because of lower down payments due to lower new equipment orders.

Speaker Change: A larger part of it was just the timing of billings through the course of the quarter. We had not happened in the month of March we have already started unwinding that in the second quarter, we will get to the $1 6 billion and our confidence is reflected in the dividend and us increasing our share repurchases from 802 <unk>.

Anurag Maheshwari: We'll get to $1.6 billion, and the confidence is reflected in the dividend and us increasing our share repurchase. We made 100 to a billion dollars. So, no real structural change in terms of collection or in terms of cash flow generation. Your next question comes from the line of Steve Tusa with JPMorgan.

Speaker Change: Julien.

Speaker Change: No real structural change in terms of collection or in terms of cash flow generation.

Speaker Change: That's great. Thank you.

Speaker Change: Your next question comes from the line of Steve Tusa with Jpmorgan. Your line is open.

Okay.

Charles Stephen Tusa: Your next question comes from the line of Steve Tusa with J.P. Morgan. Your line is open. Well, hi. Good morning. Bye. Bye.

Charles Stephen Tusa: Hi, good morning.

Charles Stephen Tusa: Okay.

Charles Stephen Tusa: I think that there has been from your peers, a little bit of chatter around China and pricing. There can you maybe just clarify what youre seeing on the ground.

Judith F. Marks: Yeah, let me break it down into new equipment and service pricing. China is by far the most competitive pricing market we are in anywhere in the globe, and it's the only region where we are not getting priced for new equipment. Now, we've offset that with both productivity and a great job on commodities, where we've seen, you know, we've locked in, and we've seen steel prices, which are, you know, 80% of our commodity purchases come down, but it is extremely competitive.

Charles Stephen Tusa: Yes, let me break it into new equipment and service pricing.

Charles Stephen Tusa: China is by far the most competitive pricing market, we are in anywhere in the globe and it's the only region, where we're not getting price for new equipment now, we've offset that with both productivity and great job on on commodities are.

Charles Stephen Tusa: Where we've seen we've locked in and we've seen steel prices, which are 80% of our of our of our commodity purchases come down but it is extremely competitive and we see that through the public bids we see that through the volume beds and we just see that through the segment I mean, the segment itself the new equipment market is.

Judith F. Marks: And, you know, we see that through the public bids, we see that through the volume bids, and we just see that through the segment. I mean, the segment itself, the new equipment market, is weak. It's down 10% in the quarter, and we're calling it down high single digits to 10 for the year, and that's after really two years of it already being down.

Charles Stephen Tusa: Weak, it's down 10% in the quarter and we're calling it down high single digit to 10 for the year and that's after you really two years of it already being down. So if you ask US Steve We would tell you that the China segment for 2024 will be at about 450000 units and we expect new.

Judith F. Marks: So, if you ask us, Steve, we would tell you that the China segment for 2024 will be at about 450,000 units, and we expect new equipment pricing to remain competitive. Again, focusing, we focused, we brought in some new product innovations in the quarter, and we'll continue to focus on and work with our dealers and our agents and distributors and increase our sales channel and continue to grow share. On service pricing, service pricing, again, in China, is kind of flattish, but the drivers are less price in service and more on productivity, volume, density, and Otis One. And Otis One is really a nice contributor for us.

Charles Stephen Tusa: Shipment pricing to remain competitive again, focusing we focus we brought in some new product innovations in the quarter and will continue to exercise and work with our dealers in our agents and distributors and increase our sales channel and continue to grow share on service pricing server.

Charles Stephen Tusa: Pricing again in China is kind of flattish.

Charles Stephen Tusa: And but the drivers are less price in service and more on on productivity volume density and Otis one and notice one is really a nice contributor for US we grew our portfolio in China. We're now at 400000 units and more than half covered with Otis one and thats driving some significant productivity challenges but.

Judith F. Marks: We grew our portfolio in China. We're now at 400,000 units and more than half covered with Otis One, and that's driving some significant productivity challenges. But we are, you know, the price in China is challenging. When you say challenging, I mean, can you give us a little bit of magnitude around that? I mean, is that down 5, down 10, like, any kind of magnitude on a year-over-year basis? No, I mean it's been challenging.

Charles Stephen Tusa: Yes price in China is challenging.

Speaker Change: When you say challenging I mean can you give us a little bit of magnitude around that I mean is that down five down 10, like just any kind of magnitude on a year over year basis.

Speaker Change: No I mean, it's been challenging this is year three of challenging pricing there.

Judith F. Marks: This is year three of challenging pricing there. Again, Sally and the team are just focused on productivity, on commodities, on everything we can in terms of getting cost out of our products, even from an engineering perspective, and, you know, and installation. So I think we've done a really good job there staying as neutral as we can in terms of price costs. Okay, great. And just to add to that, right,

Speaker Change: Again, Sally and the team are just focused on productivity on commodities on everything we can.

Speaker Change: In terms of getting cost out of our products, even even from an engineering perspective, and and installation. So I think we've done a really good job, they're staying as neutral as we can in terms of price cost, yes, okay, great alright.

Speaker Change: Just to add to that right. So because its a deflationary economy has been put cost are coming down, but if you look at the overall new equipment backlog for us even after having about $20 million of pricing.

Anurag Maheshwari: I'd like to add to that, right, so because it's a deflationary economy, spin-put costs are coming down, but if you look at the overall new equipment backlog for us, even after having about $20 million of pricing tailwind in the quarter, flushing through the P&L, our backlog margin for new equipment is still higher relative to last year. I mean, America's EMEA at mid-single digit price increases, Asia-Pacific low, so really, really good progress in terms of backlog margin, building it up and flushing it through the P&L. Okay, yeah, that's-

Speaker Change: To win in the quarter Flushing through the P&L, our backlog margin for new equipment is too high relative to last year.

Speaker Change: Americas, EMEA and mid single digit price increases Asia Pacific low so really really good progress in terms of backlog margin building, it up and flushing through the P&L as well.

Speaker Change: Okay, Yes that makes a lot of sense alright, thanks, guys.

Speaker Change: Your next question comes from the line of Joe O'dea with Wells Fargo. Your line is open.

Charles Stephen Tusa: Your next question comes from the line of Joe O'Day with Wells Fargo. Your line is open.

Joe O'dea: Hi, good morning.

Joe O'Day: I wanted to just start on your observations of ABI and Dodge Momentum, most recent prints, how that aligns with what you're seeing in the market, clearly some softening in those lead indexes, while at the same time your America's New Equipment Outlook actually improving a little bit since prior, and so whether this is the result of just kind of long lead times on projects or if there's any kind of incremental softening that you're seeing on the ground out there in North America.

Joe O'dea: Wanted to just start on your observations of Abi and Dodge momentum most recent prints how that aligns with what youre seeing in the market clearly some softening in those lead indexes. While at the same time, you are America's new equipment outlook actually improving a little bit.

Since prior and so whether this is the result of.

Joe O'dea: And just kind of long lead times on projects or if there's any kind of incremental softening that youre seeing on the ground out there and.

Judith F. Marks: Yeah, so in North America, I would tell you that the new equipment market segment that we saw in Q1, it remained weak, but it was at a lesser pace than the weakness we saw in the second half of 23. And you saw we delivered, we increased prices, and we delivered on the backlog significantly because our revenue was up 15%. Our orders challenge in the first quarter was a really tough compare. North America versus Canada and the U.S.; we had several major infrastructure orders in Canada in the first quarter last year. So I would tell you it's more of a comparison.

Joe O'dea: In North America.

Joe O'dea: Yes, so in North America, I would tell you that the new equipment market segment that we saw in Q1. It remained weak, but it was at a lesser pace than the weakness we saw in the second half of 'twenty three and you saw we delivered we increased price and we delivered on the backlog significantly because our revenue was up 15.

Joe O'dea: 10%.

Joe O'dea: Our orders challenge in the first quarter was a really tough compare North America to US is Canada and the U S. We had several major major infrastructure orders in Canada first quarter last year. So I would tell you. It's more of a compare we are expecting more new equipment stability in 24, then in 'twenty three.

Judith F. Marks: We are expecting more new equipment stability in 24 than in 23, but the latest ABI data at 43.6, I mean, this is the lowest since December of 2020, and now another quarter of less below 50, which means things are contracting. Similar dodge is down. So we're watching it carefully, Joe. What I would tell you is that all verticals this quarter in North America were down. Commercial was down more than Resi. Resi is becoming more stable, and for the part of infrastructure where we compete,

Joe O'dea: But the latest Abi data at 43, six I mean this is the lowest since December of 2020, and now a another another quarter of <unk>.

Joe O'dea: Less than less below 50, which means things are contracting similar.

Joe O'dea: Similar Dodge is down so we're watching it carefully Joe.

Joe O'dea: What I would tell you is all verticals this quarter in North America were down commercial was down more than Razee resi is becoming more stable and for the part of infrastructure, where we compete and where we are successful that has been that has been more stable as well.

Speaker Change: That's helpful.

Joe O'Day: That's helpful. And then just on capital deployment and increasing the share repurchase for the year, sounds like there are some opportunities there related to repatriation. My question is just related to the M&A side of things, what you're seeing on opportunities there, the pipeline, just expectations for being able to execute on any bolt-on opportunities this year.

Speaker Change: And then just on on capital deployment and increasing the share repurchase for the year. It sounds like some opportunities there related to repatriation.

Speaker Change: My question is just related to the M&A side of things. What you are seeing on opportunities there the pipeline just expectations for being able to execute.

Judith F. Marks: Yeah, well, it's Anurag's show.

Speaker Change: On the on any bolt on opportunities this year.

Judith F. Marks: Yeah, well, as Anurag shared on the cash repatriation, kudos to our team, this is the first time I think we've made a significant decrease in our cash balance, bringing it down from a billion to nine hundred million and continuing to focus on how we can do that since SPIN. So that's allowed us to repatriate three hundred million and gave us the confidence between the cash and the repatriation This is the first time we've done, we've announced a share repurchase that starts with a billion since SPIN, so it's our fourth year of cash buybacks and stock buybacks, but you know we're feeling confident there.

Speaker Change: Yeah, well as entourage shared on the cash repatriation kudos to our team. This is the first time I think we've made a significant decrease in our cash balance, bringing it down from $1 billion to $900 million and continuing to focus on how we can do that since spin. So that's that's allowed us to repatriate 300.

Speaker Change: And gave us the confidence between the cash and the repatriation to increase this is the first time, we're doing we've announced the share repurchase.

Speaker Change: <unk> with 1 billion since spin so it's our fourth year repatriate.

Speaker Change: Cash buybacks of stock buybacks, but yes.

Speaker Change: We're feeling confident there.

Judith F. Marks: In terms of M&A, the bolt-on business is still healthy, we've got a good book of business, it's just kind of timing when those get closed. We expect every year about fifty to a hundred million dollars of bolt-ons for us. They have to, you know, eventually be accretive; they have to give us the density and be in the right locations and have one of our teams that knows how to integrate them well, and I think we've proven that year after year and decade after decade.

Speaker Change: In terms of M&A the bolt on business is still healthy.

Speaker Change: Got a good book of business, it's just kind of timing when those get closed.

Speaker Change: We outlook every year about $50 million to $100 million of bolt ons for us they have to eventually they have to be accretive.

Speaker Change: They have to as well be it give us the density and be in the right locations and have one of our teams that knows how to integrate them well and I think we've proven that year after year and decade after decade.

Judith F. Marks: In terms of anything else generational, obviously we've got a strong balance sheet, these opportunities don't come up frequently in this in the elevator and escalator market, and we will continue to evaluate anything that comes to market, but I, you know, again being the leading provider, our service strategy is working, our capital strategy is working, our operational strategy is working, so you know we don't feel the need to have to do our generational M&A, but of course we'll take a look.

In terms of anything else generational, obviously, we've got a strong balance sheet and these opportunities don't come up frequently in this in the elevator and escalator market and we will continue to evaluate anything that comes to market but.

Again being the leading provider our service strategy is working our capital strategy is working our operational strategy is working so we don't feel the need to have to do inter generational M&A, but of course, we'll take a look at it.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Nick Hoffman with RBC capital markets. Your line is open.

Nicholas Housden: Your next question comes from the line of Nick Housden with RBC Capital Markets. Your line is open.

Nicholas Housden: Yes, hi, Judy, Anurag, and Mike. Just on the outlook for modernization, the sales growth guidance was tweaked up to 8 to 9 percent growth, but that's against a backlog that's up 15 percent. So, I mean, I'm just trying to understand what the relationship is between backlog growth and maybe the next 12 months of sales growth that we can expect to see there. Is it just to do with conversion times? Why wouldn't it be a little bit higher than that?

Nicholas Housden: Yes, Hi, Judy on Iraq, Mike.

Nicholas Housden: On the outlook for modernization is the sales growth guidance was tweaked up to 8% to 9% growth, but that's against a backlog that's up 15%. So I'm just trying to understand what the relationship is between backlog growth and maybe the next 12 months of sales.

Nicholas Housden: Growth that we can expect to see that is it just to do with conversion times why it wouldn't be a little bit higher than that.

Anurag Maheshwari: Yeah, you got it. It's more around the conversion time, right? So if you look at our modernization sales growth, it's actually been picking up every quarter. There's no reason why it should not be going up double digits in the next, you know, three to four quarters. And as the sales conversion catches up with our backlog, and part of it is the same thing, which is driving a margin increase, Nick, it's more around standardizing products, reaching the lead time from the factory, and releasing the lead time to install them.

Nicholas Housden: Yes, you got it it's more around the conversion time right. So if you look at our modernization sales growth its actually been picking up every quarter. There is no reason why it should not be going up double digit in the next three to four quarters and as the sales conversion catches up with our backlog.

Nicholas Housden: And part of it is the same thing, which is driving our margin increase it's more around standardization of products, reaching the lead time from the factory, reducing the lead time to install it I think those are drivers, which will help us get there. So it's picking up in the right direction, but where it should kind of mirror is where the backlog grows that and we should be there in the next few quarters, yes.

Anurag Maheshwari: I think those are drivers that will help us get there. So it's sticking up in the right direction. But where it should kind of mirror is where the backlog grows. And we should be there in the next one, and Nicole.

Judith F. Marks: Yeah, Nick, what we've done is we've taken everything we've learned in new equipment service over four years, whether that's a go-to-market strategy, whether that's sales specialization, driving common installation beyond industrializing the packages, the supply chain, and everything else. So we're really encouraged by the continued MOD trajectory, and as we said, we're going to continue to expand margins there and focus on Backlook.

Nicholas Housden: Nick what we've done is we've taken everything we've learned in new equipment service over four years, whether that's go to market strategy, whether that's sales specialization driving common installation beyond industrializing the packages the supply chain and everything else. So.

Nicholas Housden: Really encouraged by the continued margin trajectory and as we said we're going to continue to expand margins there and focus on backlog conversion.

Nicholas Housden: Great. And then just on the service pricing, I think you said a couple of times that it was three points in the quarter net. Maybe I'm misremembering, but I think previously you'd commented saying that you were expecting 100 basis points of net pricing for 2024. So I'm just wondering where the extra two points have come from.

Nicholas Housden: That's great and then just on the service pricing I think you said a couple of times that it was three points in the quarter net.

Speaker Change: Maybe I'm misremembering, but I think previously you'd commented that you were expecting 100 basis points of net pricing for 2024. So I'm just wondering what the extra two points that come from.

Speaker Change: Just to clarify the 300 basis points that we spoke excludes missing a mixed insurance so it's a gross pricing.

Anurag Maheshwari: Just to clarify, the 300 basis points that we spoke about excludes mixed insurance, so it's a gross profit. The net for the quarter was a little bit higher than being flattish over there, but it's consistent with what we are seeing in pricing in the service business. So EME is seeing mid-single-digit price increases, America is close to that, and Asia Pacific has always been on the lower side. So from a pricing perspective, it's sticking well in the market, and we've seen good traction over there. What's really helping our service margins to grow besides that is clearly more on the productivity side. And with productivity, because of that, we kind of increase the profit on the service business for the year.

Speaker Change: Net for the quarter was what was I was a little bit higher than being flattish over there, but it's consistent to what we are seeing in pricing in the service business. So <unk> see mid single digit price increases Americas close to that Asia Pacific has always been on the lower side, so from a pricing perspective.

Speaker Change: Sticking well in the market and we've seen good traction over there, what's really helping our service margins to grow besides that is clearly more on the productivity side.

Speaker Change: And with the productivity.

Speaker Change: Or that we kind of increase the profit on the service business for the year.

Speaker Change: Great. Thank you very much.

Miguel Nabeiro Ensinas Serra Borrega: Your next question comes from the line of Miguel Borrega with BNP Paribas. Your line is open.

Speaker Change: Your next question comes from the line of Miguel <unk> with BNP Paribas. Your line is open.

Judith F. Marks: Hi, good morning, everyone. I've got two questions. The first one is just on China. For several quarters now, you mentioned three years in a row that you're seeing price pressure. I know you're offsetting with lower product costs, but where do you think the floor of pricing is? When you look at your competitors that are putting pressure on pricing, how long will this keep going? And then, long term, where do you think margins on new equipment in China will ultimately converge to if you think they will end up at Western levels? That's my first question.

Miguel: Hi, Good morning, everyone Ive got two questions. The first one is just on China.

Miguel: For several quarters now you mentioned three years in a row that youre seeing price pressure I know, you're offsetting with lower product costs, but where do you think the price the floor of pricing. When you look at your competitors are putting pressure on pricing how long do you think this will keep going.

Miguel: And then long term.

Miguel:

Miguel: Where do you think margins in China, new equipment will ultimately converge to if you think they will end up at western levels that that's my first question.

Anurag Maheshwari: Yeah, let me start, and Anurag will add on the margin side, but Miguel, we listen. I'm not here to declare a trough. As soon as we see that in terms of competitive pricing and the segment, we will share that, but we're not predicting it this year, as you can tell from our outlook. Again, though, having been in China in March and meeting with multiple government officials as part of the China Development Forum, there are efforts underway.

Speaker Change: Yeah, Let me, let me start and entourage will add on the margin side, but Miguel.

Miguel: Listen I'm not I'm not here to declare a trough.

Miguel: As soon as we see that in terms of the competitive pricing and the segment.

Miguel: We will share that but but we're not predicting it this year as you can tell with our outlook.

Speaker Change: No I can say, having been in China in March and meeting with multiple government officials as part of the China Development Forum.

Speaker Change: There is there are efforts underway. The government is actually is taking action. It has not changed sentiment or the liquidity easing yet, but as that happens obviously, our team will respond they'll respond quickly and where we have the ability to see price inflect.

Anurag Maheshwari: The government is taking action. It has not changed sentiment or the liquidity easing yet, but as that happens, obviously, our team will respond. They'll respond quickly, and where we have the ability to see price inflect, I believe you will see us do that as we have led in pricing in China many times.

Speaker Change: I believe you will see us do that as we have led in pricing in China Many times margins.

Judith F. Marks: It's a balance between the pricing and the share segment, and I think we look at both. In terms of margins for us, if pricing is coming down in China, as we earlier mentioned, it's also commodity prices, we're seeing tailwinds over there, and we're taking cost out and seeing more supply chain efficiencies. So we are maintaining a margin rate in China, and as we go forward, between price, between share, and between margin, we're going to find a balance between all three of that, so we can continue to grow our profitability as we move along.

Speaker Change: Margins.

Speaker Change: Exactly it's a balance between the pricing and the share of segment and I think we look at both in terms of margins for us.

Speaker Change: Rising is coming down in China as we earlier mentioned, it's also commodity prices, we're seeing tailwind over there and we're taking cost out and seamless supply chain efficiencies. So we are maintaining our margin rates in China.

Speaker Change: As we go forward between price between shared between margin, we're going to find a balance between all three of that so we can continue to grow our profitability as we move along yeah, and Thats really what youre seeing Mcgill with a switch really now service now being 25% of our revenue in China and growing the mod element of that.

Miguel Nabeiro Ensinas Serra Borrega: And that's really what you're seeing, Miguel, with us really now, service now being 25% of our revenue in China and growing. The mod element of that grew double digits last quarter. That's going to continue to grow and continue. So you'll see this trade we normally do between volume, price, and in every market. But in China explicitly, we see it moving to becoming more of a mature market and reflecting that, especially in service.

Speaker Change: Grew double digit last quarter, that's going to continue to grow and continue so youll see this.

Trade, we normally do between volume price.

Speaker Change: And in every market.

Speaker Change: But in China explicitly we see it moving to becoming more of a mature market and reflecting that especially in service.

Judith F. Marks: That's great, thank you. And then, just a follow-up on capital allocation. So after you increased the dividend and buyback, I know you're buying minority interests in Japan. So does that mean there's not much out there? I know you talked about bolt-ons, but how would you think about potential targets in Southeast Asia and Japan also? What would be the rationale for buying more companies in Southeast Asia versus the rest of the world? Thank you very much. Yeah, well, ours.

That's great. Thank you and then.

Just a follow up on capital allocation. So after you upped the dividend and buyback I know you are buying the minorities in Japan.

Speaker Change:

Speaker Change: So does that mean, there's not much out there I know you talked about bolt ons, but how would you think about potential targeting southeast Asia, Japan also.

Speaker Change: What would be the rationale for buying more.

Speaker Change: Companies.

Speaker Change: In southeast Asia versus the.

Speaker Change: The rest of the world. Thank you very much.

Judith F. Marks: Well, our M&A approach for bolt-ons, no matter where it is, is a similar model. It's got to be, again, accretive to us. And it's got to be in a place where we know how to integrate it.

Speaker Change: Yeah, well, our our M&A approach for bolt ons, no matter, where it is a similar model.

Speaker Change: It's got to again be accretive to us it's got to be in a place where we know how to integrate it and it's got to happen in a location where it adds density to our routes now we're fortunate in most markets that that that works for people when they're when they're ready to sell.

Judith F. Marks: And it's got to happen in a location where it adds density to our routes. Now, we're fortunate in most markets that that works for people when they're ready to sell. But we're always interested in bolt-ons everywhere in the world. We ended up buying Schindler's portfolio in Japan in 2016. And that integration has gone extremely well, and our team has continued to grow our service business in Japan, where conversion rates are the highest in the world, and callback rates are the lowest in the world.

Speaker Change: But we were always interested in bolt ons everywhere in the world, we ended up buying schindler's portfolio.

Speaker Change: In Japan in 2016.

Speaker Change: And that integration has gone extremely well and our team has continued to grow our service business in Japan, where conversion rates are highest in the world call back rates allow us in the world. So it's a it's a high quality good margin business for us and.

Judith F. Marks: So it's a high quality, good margin business for us, and we thank our partners in Nippon Otis, but it was time, we felt, like we'd done with our disciplined capital everywhere else, for us to get our legal entities in order, as well as get our balance sheet in order. So you'll see that on the NCI line in the future. And it's just like we did Zardoya; it made sense to us. Other, as I said, other larger properties we'll evaluate.

Speaker Change: We thank our partners in the pawn noticed but it was time we felt.

Speaker Change: To like we've done with our disciplined capital everywhere else for us to get our legal entities in order as well as get our balance sheet and what are so youll see that in the NCI line in the future and it just like we did in our doi it made sense to us.

Speaker Change: As I said other larger properties, we will evaluate.

Judith F. Marks: But again, only where they make sense for Otis and for us serving our customers, as well as for our shareholders. Your next question comes from the line of Gautam Khanna with TD Cowan. Your line is open.

Speaker Change: But again, only where they make sense for Otis and for us for serving our customers as well as for our shareholders.

Speaker Change: Your next question comes from the line of Gautam Khanna with TD Cowen Your line is open.

Hey, good morning, guys.

Gautam J. Khanna: Hey, good morning, guys. Hey, Gautam. I wanted to ask...

Gautam J. Khanna: Hey, Gautam.

Gautam J. Khanna: Wanted to ask.

Gautam J. Khanna: About India, specifically and just what it sounds like that's a source of strength still if you could just talk about what the big drivers are there and if you could dimensionalize, how big that is relative to the rest of Asia Pac.

Judith F. Marks: Yeah, I mean, India, yeah, India, Gautam, thanks. India is the highest growth market anywhere in the world. It's the number two new equipment market globally after China. But it's got different attributes than China because the conversion rates look far more like mature markets, like the Americas, like EMEA.

Gautam J. Khanna: Yeah, I mean, India yeah.

India Golf and Thanks, India is the highest growth market.

Gautam J. Khanna: Where in the world, it's the number two new equipment market globally.

Gautam J. Khanna: Globally after China.

Gautam J. Khanna: But it's got different attributes in China, because the conversion rates look far more like mature markets like the Americas like EMEA, we have been doing we installed our first unit in India in the 18 nineties.

Judith F. Marks: You know, we've been doing this, we installed our first unit in India in the 1890s, so we've had an operating company in India for a long time. We've got a great presence there. I really like our position there. We've got a factory there, so we have made in India products across elevators and public and commercial escalators. The growth we're seeing is really in every area, but infrastructure is moving very rapidly. Obviously, the large population, that population, and the rising middle class are driving not just urbanization but demand for higher-end residential, especially multifamily. So and multi-purpose, you know, multi-use.

Gautam J. Khanna: So and we've had an operating company and <unk> in India for a long time, we've got a great presence there I really like our position there. We've got a factory. There. So we have made in India product across elevators and public and commercial escalators. The growth. We're seeing are in is really in every area, but infrastructure is.

Gautam J. Khanna: Moving very rapidly obviously large population that population the rising middle class is driving not just urbanization, but demand for.

Gautam J. Khanna: For higher end residential, especially multifamily so and multi multi use so every vertical in India is growing.

Judith F. Marks: So every vertical in India is growing double digits, and we see that market growing double digits, and we're investing in it. We're investing in it in terms of adding employees and field employees. We've got them all over, all over the country.

Gautam J. Khanna: And we see that market growing double digit and we are investing in it we're investing in it in terms of adding colleagues in field colleagues, we've got them all over all over the country.

Judith F. Marks: Obviously, our factory is driving significant production increases quarter over quarter. Our supply chain continues to focus on local and developing more of that local supply chain. It's very, it is competitive, and we have to hit some competitive cost points, but our team has managed through that extremely effectively. But think of it as more of a mature market where, you know, you don't have this, you know, thousands of ISPs; you have this ability to convert at the 90 plus level, like a mature market.

Gautam J. Khanna: Obviously, our factory is is driving significant production increases quarter over quarter, our supply chain continues to focus on local and developing more of that local supply chain.

Gautam J. Khanna: It is competitive.

Gautam J. Khanna: And we have to hit some competitive cost points, but our team has managed through that extremely effectively but think of it as more even though it's a high growth market more of a mature market, where you don't have this.

Gautam J. Khanna: <unk> of Isps you have this ability to convert at the 90 plus level like a mature market. So our service portfolio grows there as well and we have a really strong team under <unk> leadership in India.

Judith F. Marks: So our service portfolio grows there as well. And we have a really strong team under SEBI's leadership in India that understands how to do business in India, do it well, do it right, and has, quarter after quarter, just proven significant growth. We are very, very bullish on India, and we'll continue to invest there. Thank you.

Gautam J. Khanna: Understand how to do business in India do it well do it right and is it quarter. After quarter has just proven significant growth we are very very bullish on India.

And we will continue to invest there.

Speaker Change: Thank you that's helpful and I just wondered if you could also just talk about supply chain generally.

Gautam J. Khanna: And I just wondered if you could also just talk about the supply chain, where, if any, constraints still exist, and how your own lead times have changed. The good news is we've worked through the majority of our supply chain issues. From a comfort perspective for you on commodities, we expect this year, after last year, we drove about $44-45 million of savings on commodities. This year, we're looking at $15-20. We think we can get that on top of last year's.

Speaker Change: Where if any constraints still exist and how your own lead times have changed over the last three months.

Speaker Change: Yes.

Speaker Change: The good news is we've worked through the majority of any of our supply chain issues.

Speaker Change: From a comfort perspective for you on commodities.

We expect this year after last year, we drove about 44 $45 million of savings on commodities. This year. We're looking at 15 to 20, we think we can get that on top of last year's.

Judith F. Marks: And the only reason I say $15-20 instead of $20 is that we've seen steel prices increase in certain parts of the world. But we're locked in terms of our commodities for the rest of this year from a productivity and a cost standpoint fairly well. 60% locked, 80% on steel; our magnets are fully locked. So our supply chain team has done a great job through the challenges and is now optimizing. So it's not impacting deliveries at all, and really, there's no single call out.

Speaker Change: And the only reason I say 15 to 20 instead of 'twenty as we've seen steel increase.

Speaker Change: Increase in certain parts of the world, but we are locked in terms of our commodities for the rest of this year from a productivity and a cost standpoint fairly well, 60% locked 80% on steel are magnets are fully locked so our supply chain team has done a great job.

Speaker Change: Through the challenges and now is optimizing.

So it's not it's not impacting deliveries at all and really Theres No Theres no single call out are there still some people that are recovering some smaller suppliers. There are but we have continued to focus on dual sourcing resiliency in our supply chain and I got to tell you our factories on new equipment. This first quarter they delivered.

Judith F. Marks: Are there still some people that are recovering, some smaller suppliers? There are. But we have continued to focus on dual sourcing and resilience in our supply chain. And I've got to tell you our factories on new equipment delivered this first quarter.

Operator: This concludes the question and answer session. I will turn the call over to Judy for her closing remarks.

Speaker Change: Thank you.

Speaker Change: This concludes the question and answer session I will turn the call to Judy for closing remarks.

Judith F. Marks: Thank you, Sarah. We are quite pleased with our first quarter results as we make steady progress delivering value for our customers and shareholders throughout the remainder of the year and beyond. Everyone, thank you for joining us. Stay safe and well.

Judith F. Marks: Thank you Sara a we are quite pleased with our first quarter results as we make steady progress delivering value for our customers and shareholders throughout the remainder of the year and beyond everyone. Thank you for joining us stay safe and well goodbye.

Operator: This concludes today's conference call. Thank you for joining us. You may now disconnect.

Speaker Change: This concludes today's conference call. Thank you for joining you may now disconnect.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Okay.