Q1 2025 Otis Worldwide Corp Earnings Call

and Anurag Maheshwari.

Speaker Change: Good morning, a look and welcome to Otis's first quarter of 2025 earnings conference call. This call is being carried live on the internet and recorded for replay. Presentation materials are available for download from Otis's website at www.otis.com. I'll now turn the call over to Rob Kotaro, Vice President and Investor Relations.

Please go ahead.

Thank you, Jail.

Speaker Change: Welcome to Otis' first quarter 2025 earnings conference call. On the call with me today are Judy Marks, Chair, CEO , and President, and Cristina Mendez, Executive Vice President, and CFO .

Speaker Change: Please note, except what 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.

Speaker Change: Otis's SEC filings, including our Form 10K and quarterly reports on Form 10Q, provide details on important factors that could cause actual results to differ materially.

Speaker Change: Now, I'd like to turn the call over to Judy. Thank you, Rob. Good morning, afternoon and evening everyone. Thank you for joining us. We hope everyone listening is safe and well.

Judy Marks: Before discussing our results, I'd like to take a moment to recognize an important milestone. Earlier this month, Otis celebrated our fifth anniversary since returning as an independent public company.

Judy Marks: The last five years have been challenging and rewarding and I'm proud of our colleagues and our many accomplishments.

Judy Marks: Five years ago, when we were completing our spin-off, the world was in the midst of a global pandemic.

Judy Marks: While the pandemic posed many challenges, it also provided an opportunity to demonstrate the impact of our strategy, the resilience of our business, and the commitment of our colleagues to serving our customers and continuous improvement.

Judy Marks: We have made tremendous progress since those early days, and our shareholders have been rewarded. Since 2019, we've expanded adjusted operating profit margins by 220 basis points, and grown adjusted EPS over 70%.

Judy Marks: I'm proud of our achievements over the last five years and thankful for our 72,000 colleagues to demonstrate our absolutes each and every day. We've laid a strong foundation and I couldn't be more excited about the future opportunities ahead of us.

Judy Marks: Turning to Q1 highlights on slide 3. Otis started the year with a solid first quarter driven by the resilience and strength of our service-driven business model. First quarter organic sales were flat as strength and service was offset by a decline in new equipment.

Judy Marks: Service Organic Sales grew 4% with growth across all business lines.

Judy Marks: Modernization orders increased 12%, and we ended the quarter with a backlog of 14% at constant currency.

Judy Marks: Solid Growth and Service, coupled with margin expansion, enabled us to grow adjusted EPS 5% in the quarter.

Judy Marks: We generated $186 million in adjusted free cash flow and completed approximately $250 million in share repurchases.

Judy Marks: And yesterday, we announced an 8% increase in our dividend, which brings our cumulative dividend increase in spin to approximately 110%.

Judy Marks: During the quarter, we were honored to be recognized by Fortune as one of the world's most admired companies and to be named to Wall Street Journal's best managed companies list.

Judy Marks: These prestigious recognitions reflect our colleagues' commitment to serving our customers and living our absolutes every day.

Judy Marks: New equipment and modernization combined orders grew 2% driven by strength and modernization.

Judy Marks: The combined backlog was relatively flat, a sequential improvement from the fourth quarter.

Judy Marks: Our total backlog, including maintenance and repair, remains at historically high levels and positions us well for future quarters.

New equipment orders declined 1% in the quarter.

Judy Marks: Demand in Asia Pacific also remains robust, with orders growth greater than 20%, primarily driven by India and Southeast Asia.

Judy Marks: This strength was offset by continued weakness in China for orders to climb greater than 20 percent.

Judy Marks: This was in line with our expectations, and we continue to expect the new equipment market to stabilize later this year.

Judy Marks: New equipment orders in EMEA were down mid-single digits partially due to a tough compare with declines in Europe offsetting strength in the Middle East.

Judy Marks: Our new equipment backlog at constant currency with down 3% versus the prior year, although excluding China, it was up mid-single digits.

and Anurag Maheshwari.

Modernization orders grew 12% [inaudible]

Judy Marks: driven by aging of the 22 million global unit install base.

Judy Marks: With 8 million units already in the prime modernization age, and that number forecasted to grow mid to high single digits for several years, we see a significant opportunity ahead in all four regions.

Judy Marks: Our service portfolio grew 4% with growth across all of our regions.

Judy Marks: China Grullo Teens, Asia-Pacific Group Mid-Single Digits, and EMEA in America's Grullo Single Digits.

Judy Marks: Before moving to financial results, I'd like to highlight several exciting projects from the first quarter.

Judy Marks: In the Americas, one of our standout projects is the modernization of the three elevators that are expected to provide safer and more reliable transportation to over 600,000 annual visitors to the iconic Christ the Redeemer in Rio de Janeiro, Brazil.

Judy Marks: Our commitment to safety and excellence will enhance the visitor experience while preserving the monument's legacy.

Judy Marks: In Stockholm, Sweden, Otis is embarking on an exciting project to modernize 29 escalators for A-Train, the operator of the Arlanda Express Rail link.

The vital connection links Stockholm City Center to Arlanda Airport.

Judy Marks: The project will revitalize escalators initially installed by Otis in the late 1990s, bringing them to modern standards.

Judy Marks: Modernization was both an efficient and sustainable choice for this customer as Otis can enhance performance while minimizing disruption for passengers in this essential link for the Swedish capital.

Judy Marks: We continue to excel in the new equipment business by demonstrating our strong performance in reliability.

Judy Marks: Otis has once again been selected by China's Hangzhou Metro to supply 145 escalators and 26 IOT-connected elevators for the new line 3.

Judy Marks: This edition brings the total number of Otis units in the city's metro network to over 1,700 across nine subway lines.

Judy Marks: And in India, Otis has proudly secured a landmark contract to supply over 470 elevators and escalators to the prestige group, spanning five major cities.

Judy Marks: The project includes 28 double deck elevators and high speed elevators designed for what will be India's tallest commercial tower.

Turning to our first quarter results on slide 5.

Judy Marks: Otis delivered net sales of $3.3 billion with organic sales flat year-over-year, adjusted operating profit, excluding a $16 million foreign exchange headwind increased 3% with growth and service offset by the client and new equipment.

Adjusted Operating Profit Margin, Expanded 40 Basis Points to 16.7%

Judy Marks: adjusted EPS, grew 5% or 4% in the quarter with solid operational performance and the benefit of a lower share count.

Judy Marks: With that, I'll turn it over to Cristina to walk through our results in more detail.

Thank you, Judy. Starting with service on the slide 6.

Cristina Mendez: Service Organic sales grew 4% with growth in all lines of business.

Cristina Mendez: Repair Grove was muted in the first quarter, a blow single day yet, due to timing of backlog execution.

Cristina Mendez: for the United States Organic Sales Group 10% as we execute it on our backlog.

Cristina Mendez: Road was brought based across all regions including high-teens growth in China and approximately 10% growth in Americas.

Cristina Mendez: Service Operating Profit of $537 million, increased $29 million dollars at constant currency.

Cristina Mendez: with higher volume, favorable pricing and productivity, including the benefits from uplift, more than offset in higher labor and material costs and make sunshine.

Cristina Mendez: Operating profit margins expanded for three basis points to 24.6% in the quarter.

Turn in to new equipment on slide 7.

Cristina Mendez: New equipment organic cells declined seven percent in the quarter, as a strength in EMEA and APAC were more than upset by the clients in China and America.

Cristina Mendez: MEA cells grew mid-single digits, primarily viewed to strengthen the Middle East, which grew greater than 20% while Europe was up low single digits.

Cristina Mendez: APEC grew approximately 10% with a strength across most of the region.

Cristina Mendez: America declined high single day yet as we worked through last year's backlog.

Cristina Mendez: And lastly, we are continuing to work through China's lower backlog with organic cells down greater than 20% in the quarter due to market conditions and

Judy Marks: However, as you mentioned, we continue to expect the market to stabilize later this year with self-estabilization to follow in 2026.

Judy Marks: New equipment operating profit of $66 million, declined $5 million at actual currency, and $4 million at constant currency, driven by the headwinds of lower volume and regional mix that were partially upset by productivity, including the benefits from uplift and our China transformation and lower commodity cost.

Pricing Wash Relatively Flat [inaudible]

Judy Marks: Operating profit margins increased 20 basis points to 5.7%. I will now turn it back to Julie to discuss our 2025 outlook.

Starting on Slide 8 with the Market Outlook. [inaudible]

Judy Marks: Before discussing our updated 2025 outlook, I'd like to briefly discuss our global market expectations.

An aggregate, our view is unchanged. [inaudible]

Judy Marks: We continue to expect global new equipment units to decline mid-single digits for the year.

Judy Marks: We have reduced our expectations for the Americas to download single digits as uncertainty around global trade policies may cause project delays.

Judy Marks: Asia is expected to decline mid-to-high single digits, driven by mid-single-digit growth in Asia-Pacific, and an approximately 10% decline in China.

Judy Marks: As we previously mentioned, we continue to expect stabilization in late 2025.

Turning to service [inaudible]

Judy Marks: Last year, the Global Install Base Group mid-single digits reaching approximately 22 million units at year end.

Judy Marks: We anticipate this trend will continue with mid-single-digit growth and install base this year.

Judy Marks: We have good visibility into this growth, given the install base is driven by units sold approximately two years ago.

Judy Marks: By region, we expect America's and EMEA to grow low single digits and Asia to grow mid single digits.

Judy Marks: Taken together, we expect the global install base to reach approximately 23 million units at the end of 2025.

Turning to our financial outlook for 2025.

Judy Marks: We expect net sales of $14.6 to $14.8 billion, which is an increase of approximately $450 million at the midpoint from our original guide driven by favorable exchange rates.

Judy Marks: Adjusted Operating Profit is anticipated to remain between $2.4 and $2.5 billion, up $105 to $135 million on a constant currency basis, excluding the impact of incremental US tariffs imposed in 2025.

Judy Marks: The majority of this impact is due to tariffs on products and components imported from China.

It's important to highlight that our service business.

Judy Marks: which represents approximately 90% of our segment operating income is largely insulated from the impact of tariffs. However, given the current tariff rates, we anticipate that our new equipment business will be adversely impacted.

Judy Marks: As you know, Otis primarily sources and manufactures locally through our 17 factories around the world.

Judy Marks: Our factory in Florence, South Carolina primarily serves our operations in the U.S. and Canada.

Judy Marks: For some components, however, there are no local suppliers, and we source parts from suppliers based in China.

Judy Marks: In addition, we import some lower-volume products to the US.

Judy Marks: These lower volume products represented well below 1% of our total units sold in 2024.

Judy Marks: That said, if tariffs on our Chinese imports continue at current levels for the remainder of the year, we expect a negative impact of approximately $45 to $75 million to our operating profit in 2025, inclusive of our mitigation efforts.

Judy Marks: These mitigation efforts include customer and supply chain negotiations, as well as supply chain shifts to more favorable sources.

Judy Marks: It's important to note that we expect this impact to be temporary as our exposure is primarily through our existing backlog.

Judy Marks: For our new orders, we have adjusted contract terms and pricing.

Judy Marks: Furthermore, our global manufacturing footprint and standard product platforms give us the flexibility to shift production and adapt to the most cost effective model going forward.

Judy Marks: Please refer to slide 15 in the appendix for additional details on tariffs.

Judy Marks: Turning back to our outlook, we continue to expect adjusted free cash flow of approximately $1.6 billion, which we will primarily return to our shareholders through dividends and sherry purchases.

Judy Marks: As a reminder, yesterday we announced an 8% increase in our dividend, bringing our cumulative dividend increases since spin to approximately 110%.

Judy Marks: Our Sherry Purchase Target for 2025 is unchanged at $800 million.

Judy Marks: Note that we completed approximately 250 million of sharey purchases in the first quarter and we may continue to frontload our repurchases earlier in the year.

Cristina Mendez: I will now pass it back to Cristina to review the 2025 Outlook in more detail.

Cristina Mendez: Thank you, Julian. Moving to our organic health look on slide 9, we continue to expect organic health growth of 2 to 4% given by a strong performance in our service segment.

Cristina Mendez: Our new agreement organic says growth outlook remains down 1 to 4%. However, we have refined our outlook by region. We now expect America's to decline mid-single digits as we see project delays due to uncertainty around global trade policies.

Cristina Mendez: EMEA is expected to grow mid-single digits on the back of a strong quarters and ending backlog in 2024.

Cristina Mendez: Asia is suspected to decline mid-single digits, and within Asia we continue to anticipate a strong growth in Asia-Pacific observed by declines in China.

Cristina Mendez: Service Organic sales are expected to increase 5 to 7% for the year.

However, we expect repair to re-accelerate later in the year.

Cristina Mendez: We continue to target meet single-digit growth in maintenance and repair, given by portfolio growth and pricing, partially observed by mixed action.

Cristina Mendez: And we have increased our expectations for modernization organic sales, which are now expected to roll low teams driven by backlog executions through the year. Moving to slide 10.

Cristina Mendez: We have been transforming the way we've worked for nearly two years, beginning with tablet, which we announced in 2023.

Cristina Mendez: We made this bold decision from a position of a strength as we saw an opportunity to unlock

Cristina Mendez: And earlier this year, we began our China Transformation Program. We have made significant progress with both projects, and we remain well on track.

Cristina Mendez: Through these initiatives, we are thriving process efficiencies and enabling our field organisation to better focus on serving our customers.

Cristina Mendez: In China, our transformation is positioned in us to capture the large service and modernization opportunities.

Cristina Mendez: while Wright has seen our new equipment operations from the current environment.

Cristina Mendez: Taking together, we expect Abdelift and our China transformation to provide a competitive course

Cristina Mendez: We continue to target $90 million of in-year savings in 2025 and $213 million of annual run rate savings by the end of the year.

Turning to Slide 11

Cristina Mendez: Despite of macroeconomic uncertainty, we expect another year of solid profit and adjusted the P.S. growth, which is unchanged from our prior guide.

Cristina Mendez: driven by the strength and the resiliency of our service-driven business.

Cristina Mendez: On a constant currency basis, and excluding the impact of tariffs, we expect adjusted operating profits to grow $105 to $135 million, fueled by our service business.

Cristina Mendez: on an organic, on an actual currency basis, including the impact of that is.

Cristina Mendez: We expected the asset operating profit to grow 55 to 105 million dollars and change from our prior guide as the impact from tariffs is fully mitigated by foreign exchange rates.

Cristina Mendez: Marguine Spansion is expected to be 50 days' point, excluding the impact of incremental 2025

Cristina Mendez: including Tavis. We expect Maillain Expansion to be more muted, up 10 basis points due to contraction in Niekulmer Maillain.

Cristina Mendez: On the other side, we expect service margins to continue expanding, as this segment is largely

Moving to 2025, EPS Bridge on the slide 12.

Cristina Mendez: Our Adjusted EPS Outlook for the Year is $4.10 per share.

At the midpoint, this includes approximately 24 cents from operational growth.

Five cents of tailwind from foreign exchange rate.

Cristina Mendez: and a net five cents benefit from lower share count and higher interest.

Cristina Mendez: These are partially observed by a negative $0.12 from the incremental 2025 parties at currently in place.

Cristina Mendez: While our overall financial metrics for the year remain generally consistent with our prior outlook.

Cristina Mendez: He acknowledged that the economic conditions remain uncertain, including the impact of foreign exchange rates and tariffs.

Cristina Mendez: On the operational side, we have delivered the strong first quarter and our outlook remains positive.

mainly driven by the service business.

Cristina Mendez: We remain confident in our service flywheel model, and as we have previously said, we are investing savings from have lived into the business to drive service excellence and to accelerate growth.

Cristina Mendez: Regarding our adjusted DPS guidance through the year, we continue to expect the first half to be flat year over year with a stronger growth in the second half.

Cristina Mendez: Maintenance results should remain relatively consistent through the year, including improved

Cristina Mendez: At yesterday, P.S. growth should step up in the second half due to execution of our modernization backlog. Realization of cost savings from ablif and China transformation initiatives.

and Improving Trends in China and America's New Agreement.

Speaker Change: With that, I will ask J.L. to please open the line for questions. Thank you.

Speaker Change: Thank you. 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.

Speaker Change: Please ensure that you're not on mute. And if you're on speakerphone, that you're please pick up your handset when asked for your question. Thank you.

Speaker Change: Your first question comes from a line of Jeff Sprague of vertical research. Your line is open.

Jeff Sprague: Thank you. Good morning, everyone. Good morning, Jeff. Well, while Judy five years already. Can't believe it. I'm flying.

Jeff Sprague: Good work here. Just going back on the on the tariffs, I'm sorry is that a growth or it sounds like you're giving us a net number net of your kind of counter actions. Can you give us a sense of what the what the gross headwind is that you're working against?

Cristina Mendez: Yeah, so yes, this is Cristina. I can give you some color on that. That is impacts we are considering in the guide.

Jeff Sprague: So, on a broadly speaking, studies are not impacting our service business because the impact is coming from material purchases. So, when we look into US, US buys 550 million is of material purchases per annum, this is approximately 12% of the material purchases in the group.

Jeff Sprague: Out of that figure, 100 million cash on China purchases, another 100 million from rest of the world, and the remaining needs domestic purchases.

Jeff Sprague: and Section 232, that is 25% for still an aluminum on top of the 20%.

Jeff Sprague: So, we calculate the annualized impact of China-Tares to be around $90 million.

Jeff Sprague: and rest of the world at the moment is 2% Canada and Mexico are mostly under US and CA and this is around $10 million impact for us, so 100 annualized.

Jeff Sprague: In terms of mitigation, we are working on many levers, we are working on supply chain, alternative searching. We are also introducing commercial languages in our contracts in order to protect for the new orders that we are taking. So it's more the time of executing the backlog.

Jeff Sprague: So out of 100 million, excluding commercial, we expect to mitigate health and the other health will be mitigated to commercial.

Jeff Sprague: Jeff, let me just add a little more color on that just so you understand.

Jeff Sprague: We really experienced almost de minimis tariffs in the first quarter.

Jeff Sprague: when to expect things to enter the port. We're managing this job by job, so...

Jeff Sprague: So it's a really disciplined approach because it's not a lot of supply that's coming in from China and we're monitoring it job by job.

Speaker Change: And are you just assuming you can't or by contractually you can't reprice backlog or are there some counter actions that you are taking there that maybe you're not counting on yet in the guidance? So just what your degrees of freedom on the adjusting the backlog?

Thank you very much. Have a great night.

Speaker Change: Listen, I think commercially we're having discussions as you can imagine with many of our major customers and our key accounts who understand the costs going up for us.

Speaker Change: and we've seen some flexibility in scheduling and some early gains but it's too early to count on any of that so we wanted to be able to provide what we think is the most realistic estimate with the tariffs we know today. Again, as Cristina said, they're covered in our outlook.

Speaker Change: and if any of them can be reduced, that will drop through.

Great. Thank you. Good luck with that.

Thanks.

Speaker Change: Your next question comes from the line of Amit Mehroka of UBS. Your line is open.

Amit Mehrotra: Thanks operator, morning everybody, just just a quick follow up on on Tara some of the

Amit Mehrotra: Retaliation against U.S. companies, any negative impact or any targeting of U.S. companies given the century.

Judy Marks: Let me answer the second one first, the meet. Thanks for the questions and the answer is we are not seeing any overt targeting certainly of Otis at this point in time. And we watch that closely. We continue to watch that closely and develop continued developments at all levels of the government. And I was over there in March and actually was part of the meeting with President Xi and the China development forum as well as many party secretaries. So they understand how local we are and we are local for local. Thank you very much. Thank you very much.

Amit Mehrotra: in terms of the commercial actions we have increased our prices.

and you know, we do that.

Amit Mehrotra: Regularly, as we watch economic factors, where tariff is just one of those.

Amit Mehrotra: So we've increased our prices not just in new equipment but on our spare parts that are part of our maintenance and repair line of business as well as modernization.

So there's not a specific...

Amit Mehrotra: So that's all going forward. It's what Jeff asked about the backlog that we're working to mitigate right now.

Speaker Change: Right, okay, very helpful. And then just a follow-up for me, so China Warders, I guess in the quarter, are kind of doing what?

Jeff Sprague: You guys expected them to do. There was an expectation that, you know, they would, you know, they would stabilize on your copper. You still...

Speaker Change: Expect that or you see any incremental weakness and one of the things we noticed also is maintenance and repair. Is there anything on the pricing side that we should be watching because the notice organic growth was

Jeff Sprague: You know, I think like 3% but maybe units were running a little bit above that so maybe what the implication is for underlying pricing and maintenance and repair.

Speaker Change: Let me take the China question and Cristina will take the pricing question.

Speaker Change: We believe the China market was down 15% in the first quarter, which is actually sequentially better than the 20% it was down in the fourth quarter last year. We expect it to continue to be down 15% in the second quarter. This is playing out really how we thought the year would play out.

Down 10%

Speaker Change: So, this is what we're seeing on the ground for new equipment. We are now saying that we believe the segment itself for 2025 will be approximately 375,000 units in China.

Speaker Change: But our team again is balancing value, price, and new equipment units for service stickiness.

Speaker Change: So, you know, it's all part of our service strategy to do that and now turn over to Cristina on pricing.

Cristina Mendez: But inflation this year is softer than last year, so our price effect is around two points positive.

versus three to four points positive last year. Thank you very much.

What you see probably in the way you are calculating.

Maintenance and repair are growing 3% versus portfolio growing 4%

Cristina Mendez: So there is one point of mixed effect from price into maintenance.

Cristina Mendez: and Ripper was relatively muted in the quarter. Ripper was growing low single digit.

and Anurag Maheshwari.

Cristina Mendez: Let me just finish that one off with that the repair backlog is up 5%. So we have really good line of sight, there's work to be done and it's on us to convert that.

Speaker Change: Very good. Okay. Thank you very much for answering my questions. We appreciate it.

Speaker Change: Your next question comes from one of Nigel Coe of Wolf Research. Your line is open.

Anurag Maheshwari.

Thanks for the morning, thanks for the question.

Speaker Change: I think Amit got four questions in there, so that was a good job. That's what I counted, Nigel. There was like one and three follow-ups.

Speaker Change: You got it through pretty quickly, so I'll keep this to two questions. Just Cristina, can I go back to the terrace math because I'm a little bit confused, so apologize for maybe just...

Cristina Mendez: You know, retreading, the $19 million from China, I think you said $100 million of imports from China into the US.

Speaker Change: So with the reset, I get 145 Analyze Impact, plus whatever the 2-3-2 is. So with the 90 on slide 13, is that the pro-rata for this year, without net obligations?

and Anurag Maheshwari.

Anurag Maheshwari: Full year will be 100. Our point estimate for India 2025 is 60 million. There is three quarters of a full year plus mitigation actions that of course these years are more muted because time of execution and time of moving through the backlog. Once we go to the backlog and we start converting the new orders, the impact will be much smaller. This is one of the three quarters of a full year and the impact will be much smaller.

Speaker Change: Okay, no, I think that's clear. And then just my follow-on is on the 10-bis points of all in, you know, OMX for this year. I just want to make sure that we're doing the math criteria. So it looks like new equipment margins, maybe down to about 4% or so, 4, 4, not percent.

Speaker Change: Service, segment margin, expansion of about 40-50 basic points of the year. Is that about the right math?

Speaker Change: Yeah, so in our new outlook, we have reduced the beef expansion to 10 points.

Speaker Change: Versus 60 points before. There is a component of studies, so that is our 50 basis point studies will be an increase, so that is our 40 basis points of the reduction.

Speaker Change: On the other side, we are doing very well in the equipment cost-out. You have seen a strong Q1 where the margins were 5.7% sequentially 100 basis point up.

Speaker Change: Pesos, the Magins, we had any equipment in Q4. So we are confident we'll be able to compensate part of the tariff impact in the loss of new equipment thanks to our transformation and cost out actions.

Speaker Change: On the service side, we'll have the remaining 10 basis points reduction of Ross.

Service is growing.

Speaker Change: He's continually growing, probably a little bit lighter compared to last year because of two effects, one is...

Speaker Change: The mixing cells, so repair will grow mid to high single digit, that was high single digit last year, and we are accelerating mode.

Speaker Change: And on the other side, we are also investing in service. This is an intentional investment on service excellence in order to accelerate portfolio growth and to improve retention rate in the midterm.

Speaker Change: Okay, so sorry, when you say 10-based introduction to service, you mean 10-based points relative to the previous forecast? Correct, all right. Okay, okay, great, thank you.

You're next.

Speaker Change: This question comes from the line of Steve Tusa of JP Morgan. The line is open.

and Anurag Maheshwari. Thank you. Thank you.

Hi, good morning.

and Anurag Maheshwari. Thank you. Thank you.

Lawrence Seat, Congrats on the milestones.

Speaker Change: Been through a lot over that time period, but very consistent performance. Just on the on the services.

side, the revenue growth there was...

Speaker Change: You know, I think 4% in the organically in the quarter and your portfolio units obviously are still trending pretty nicely in that range. So, like, was that the impact of repair, the repair business, what we would draw that because I seem to get a little bit of price as well.

Cristina Mendez: Yeah, we did get a little bit of price, Steve, but it was absolutely all repair. As Cristina mentioned...

Cristina Mendez: and we weren't satisfied with that. We know that the importance of this flywheel is growing the portfolio, and the most important part of that is retaining our current customers. There are best profit sources, but more importantly they are our annuity business, and that's what we're in business for.

Cristina Mendez: So we've actually refocused in this quarter for what we call service excellence and that will continue through the year to drive improved retention rates.

Cristina Mendez: That was some investment we made consciously and we also were rolling out some of the uplift organizational changes simultaneously. So the backlog is there. As I said, it's up 5%. You're going to see revenue on repair and the backlog conversion step up every quarter to where we should have while we won't be exactly the same as last year. We'll see better repair growth rates in revenue. Thank you.

Cristina Mendez: Quarter after quarter as we go through the rest of 25 but that that was the reason [inaudible]

Speaker Change: Okay, and that's kind of how you accelerate that number.

Speaker Change: Going forward, it really is and you know it's if you recall on the the last call I talked about us adding

You know, so many more field professionals.

Speaker Change: We've seen them pick up in terms of their learning curve and I think you see that really from our productivity reflected in the service margin being up 40 basis points at 24.6 is quarter. So we're confident it was the right move for the future. Now we've got to get it tuned more to repair and to work that backlog.

Speaker Change: Good question.

Speaker Change: On China pricing.

Speaker Change: What what is kind of the do you think is the prevailing.

Speaker Change: Price year over year, that's going on there in the market.

Speaker Change: And I assume you guys are staying more disciplined on that.

Speaker Change: Yeah, So Steve Unpriced prices moderating last year, you may recall that pricing in China was down 10% and we are very disciplined in our pricing is try to eat focusing our investment in those players that have higher conversion likelihood.

Speaker Change: China in the quarter was down 6% sequentially two points down only and this is a portion that we are very confident we can compensate with cost out so what would a strategy for China new equipment. These yard is price cost neutral.

Speaker Change: Great. Thanks, a lot.

Speaker Change: Yeah.

Speaker Change: Okay.

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

Joe O'dea: Hi, good morning.

Speaker Change: Hum.

Speaker Change: Can you touch on the Americas, new equipment outlook, a little bit more than just mid single or sit down low single and touching on some project delays.

Speaker Change: We think about it in normal course of business a lot of the activity for the year is in backlog to start the year and so if you are seeing some delays there just any color on verticals that that's happening maybe at the size of projects, we're seeing some of that happening.

Speaker Change: And and to what degree that's.

Speaker Change: Fluid dynamic and so the risk that we see more delays before we see fewer.

Speaker Change: Yeah, I like your term fluid dynamic I think that's pretty accurate as we as we came into 25 are our North America, new equipment market had had two really the market itself had had in second half of last year, two really good quarters.

Speaker Change: But in the first quarter the market itself and in North America was down 9%, mainly low and mid rise and commercial and infrastructure were down almost double digit U.

Speaker Change: You see our performance, though not.

Speaker Change: Not reflect that in terms of new equipment orders were up mid teens.

Speaker Change: For North America, So which means our team really did well on share in first quarter I think that's a combination of again customer centricity the right products.

Speaker Change: And and strong relationships and performance.

Joe O'dea: As you think about if you go back in time, Joe You know we were our orders were down before second half last year and that's what's flowing through our backlog right. Now we got we have about 18 months line of sight in in North America. So we're working through that backlog still from 'twenty three.

Joe O'dea: <unk> and first half of 'twenty four and so we think that will sequentially improve over time, because our late 'twenty four orders were strong and our first quarter 'twenty five was strong. So we're on the upside of the pendulum, but it hasn't rolled through our backlog yet or revenue yet in terms of the uncertainty.

Speaker Change: <unk> are you I think you're one of the people who publish the Abi This morning coming out again fairly low at 44.1 down from $45 five in February.

Speaker Change: So to the architects activity I think is reflecting this just uncertainty that we experienced a year ago because of of inflation rates and I think right now everyone's just really trying to understand what would construction costs look like beyond just otis in the elevator in terms of labor in terms.

Speaker Change: Any other supply lumber, but especially steel and aluminum.

Speaker Change: I think all of that is kind of weighing on decisions in the U S and Canada.

Speaker Change: But we are going to control, what we can control and stay focus we've got it we got a good backlog to execute as I said the past three quarters now counting first quarter twenty-five our orders were up and we're going to continue the strength you've seen in and I have high expectations for our team I will tell you you know them.

Speaker Change: Mod orders for Americas, I anticipate a strong second quarter, we had some major projects that got awarded but not yet booked and we're gonna see March sales for.

Speaker Change: For the Americas up low teens for the year, so youre going to see some strong offset there and theyre going to be working on their repair backlog just like everybody else.

Speaker Change: And maybe just to follow up on that last point, because it's kind of interesting.

Speaker Change: Maybe a little bit.

The ways that you could see on the new equipment side.

Speaker Change: <unk> side less so.

Speaker Change: We think that Theres still a discretionary element to the mod side and so how are you.

Speaker Change: How do you parse the difference there it's just a matter of the costs there a little bit better known and so it's not as much risk across labor and materials and all the unknowns that could affect new projects.

Speaker Change: Our efficiency gains, but why you could see a little bit more kind of strengthen them outside of the new equipment side.

Speaker Change: Yeah. So modest there there is an element of discretion to it until the until your elevator breaks down so much that your your tenants or your residents are so frustrated that they don't want continued shutdowns and repairs.

Speaker Change: I think thats still contributing to the repair backlog today, but it's just another steady quarter of Mod growth.

Speaker Change: We grew mod orders, 12%.

But the backlogs up 14, and the revenue was up 10, so we need to convert more mod. So we've got plenty of work there I'm not worried about that from a concern and then outside of North America, We're still seeing safety programs in Spain, and other places, which do not make my discretionary but.

Speaker Change: Require require building owners to bring their elevators up to the most current safety codes.

Speaker Change: Mod in China, It's early days, but again double digit growth in orders are significant.

Speaker Change: I shared we doubled the growth in fourth quarter, it's double digit this quarter, we're seeing sustained growth there and we're seeing.

Speaker Change: Sustained investment from the Chinese government for residential Mod and we expect that to continue not just through this year, but going forward.

Speaker Change: Thank you I appreciate all the color.

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

Julian Mitchell: Hi, good morning.

Speaker Change: Maybe.

Speaker Change: Just a first question to try and understand kind of some of the the year on year dynamics a little bit.

Speaker Change: The answer in terms of the guidance for the rest of the year.

Speaker Change: <unk> sales in the quarter, you sort of see.

Speaker Change: Flattish.

Speaker Change: The year's guided up call it.

Speaker Change: Three so.

Speaker Change: Is that acceleration year on year, just kind of steady each quarter through the year and then on the margin front.

Speaker Change: You're up 40 bps in Q1 year on year.

Speaker Change: <unk> tariff seats.

Speaker Change: Barely up so is it sort of inclusive of tariffs that the framework is margins.

Speaker Change: Up 40, 50 bps in the first half and then down.

Speaker Change: Year on year in the second half is that sort of the rough framework, we should be thinking about.

Yeah, Let me, let me start with the revenue and then Kristina will take it will take you through the margins Julian but.

Speaker Change: Listen our whole business is based on our strategy of consistent resilient steady performance.

Speaker Change: And Thats, what youre going to see in the top line. The rest of the year you can expect it to be fairly steady two Q3, Q4, Q, but obviously better than <unk> as we accelerate conversion in repair as well as can accelerate conversion in mod, which is why we took up.

Speaker Change: Our sales outlook in modernization to be up low teens.

Speaker Change: Maintenance and repair it's still mid single, but it's a little better mid single is probably the best way to say it because we've got it we've got to again make up for this first quarter, but we're confident we've got the backlog in every line of business and and you should see it throat flow through relative relatively.

Speaker Change: Equitably each of the quarters.

Julian Mitchell: Yeah, and Julian on the margin I can give you a color by segment that is a better way to understand the main evolution. So on the new equipment side says will decline in the first half of the year because of the declining backlog at the end of the last year, but we have started growing orders in the second half in Americas.

Julian Mitchell: And the compare gets better from a SaaS perspective, as we execute with our backlog in the second half of the year.

Julian Mitchell: From an <unk> perspective, we had a new equipment at very strong margin in Q1, we expect additional axioms from cost out to help mining, but on the other side as we come out of the backlog from China that is lowered and with lower price.

Julian Mitchell: Ah study ski Keene, starting in Q2 this is going to create some headwinds in margin. That's why our full year guidance has been adjusted to 10 basis points, which would be 50 basis points expansion. Excluding studies. So of course studies has any impact.

Julian Mitchell: Now moving into service service is going to accelerate starting in Q2, we expect service topline to grow Q2 at the midpoint of our guide that is 6% and these will continue accelerating both in repair and modernization on in the second half of the year.

Julian Mitchell: <unk> will gradually expands.

Julian Mitchell: You need to consider that Q2 last year was a very difficult compare for us because my in suspended in toby's 110 basis points. So probably on Q2 will have a tougher compare.

Julian Mitchell: That means we'll get better V. P Y in the second half of the year. So in a nutshell poor operating profits Ross you will be around flattish margins first half of the year growing 10 basis points second half of the year.

Julian Mitchell: Okay.

Julian Mitchell: That's very helpful. Thank you.

Julian Mitchell: And then just a quick.

Julian Mitchell: Follow up.

Julian Mitchell: When we're thinking about that tariff.

Julian Mitchell: And obviously, it's been touched on a couple of times, but is the right way to think about it it's kind of $60 million.

Julian Mitchell: Dialed in.

Julian Mitchell: That does include some mitigation efforts.

Julian Mitchell: So in that sense, it's a net number but there is also kind of more more work that could be done.

Julian Mitchell: Price that could be pushed or are the mitigating.

Julian Mitchell: Efforts is that the right way to think about it so it's sort of a place and the initial place holder and then you can work to shrink it down.

Julian Mitchell: And that's really why we gave the range Julien as we we are not stopping whether it's by job whether it's by customer.

Julian Mitchell: Either it's even you know having some supply that we were receiving from China standing that up in the U S. So and that can happen later in the year, but this was the best most transparent estimate we had as of today and we wanted to make sure that we shared it.

Speaker Change: That's great. Thank you.

Julian Mitchell: Yes.

Chris Snyder: Your next question comes from the line of Chris Snyder of Morgan Stanley. Your line is open.

Julian Mitchell: Yeah.

Speaker Change: Thank you maybe just following up on that is there any way to think about the quarterly cadence of that I guess just take the midpoint.

Julian Mitchell: 60 million Paris.

Julian Mitchell: <unk>.

Julian Mitchell: I would assume that over time.

Julian Mitchell: Minimize that you guys are able to mitigate it and then just ultimately what does that mean as we're looking into 2026 could that be zero or should we expect still some level of headwind into next year. Thank you.

Julian Mitchell: Yeah, Chris our experienced in 2018 was about little over 10 million that we couldn't mitigate in the backlog and then as we worked through the backlog we were able to mitigate it and we are still paying section 232, and 301 tariffs from 2018 those have been in play and since then but they are incorporated in our price.

Julian Mitchell: And they have no impact on our bottom line I think you can expect the same here, except we still have to work through the backlog in part of 'twenty six assuming nothing else changes, we can put more mitigation in place, but you know our backlog in North America. It lasts about 18 months, obviously the longer out.

Julian Mitchell: <unk>.

Julian Mitchell: Further out we will continue to work to mitigate but I think it's fair to expect if nothing else changes well get back to you, but we think there could be an impact a small impact.

Julian Mitchell: In 2026.

Speaker Change: Makes sense and I appreciate that just maybe following up kind of bigger picture. There has been certainly more optimism around the European and China economy is.

Speaker Change: The first three four months this year relative to last year.

Speaker Change: New equipment orders in the regions.

Speaker Change: You guys are still under pressure.

Speaker Change: But are you seeing anything.

Speaker Change: Any green shoots or just you know kind of conversations with customers that gives you optimism that those regions are.

Speaker Change: Turning to <unk>.

Speaker Change: Better place of growth. Thank you.

Chris Snyder: Chris I think I was a contrarian a few quarters ago, where I've consistently.

Chris Snyder: Insistently been not just proud of our EMEA team, but seeing our ability to grow both in Europe and the middle East.

Chris Snyder: We do this by focusing on market segment, we do this by adding sales reps. We do this through a variety of our focused strategies that has allowed us to really have some strong both growth in Europe.

Chris Snyder: And backlog.

Chris Snyder: This quarter there, there's a onetime compare so even though EMEA is down 4% the team performed very well.

Chris Snyder: This was all before the German infrastructure projects were announced.

Chris Snyder: So we are we remain upbeat we think we have a great product offering in new equipment across Europe. Our Gen 360 is selling extremely well and is becoming a much larger impact in our in our broader product portfolio and we've now moved it to many other countries, but it was designed and started in <unk>.

Chris Snyder: We're up.

Chris Snyder: And in the quarter actually yeah, we did see strength on new equipment orders in in Western Europe, Central Europe, and especially in the Middle East.

Chris Snyder: Total sales EMEA was up mid single digits, and moderators where were in the teens again, so our team's performing well in Europe on China, I think it's really important for everyone to understand the strategy, we've been executing and what that means our China revenue for first.

Chris Snyder: Quarter, we ended last year, 13% of Otis total revenue was China first quarter, we're now down to 10% of Otis total revenue is in China, and we ended last year with about 30%, maybe a third of our China business being service. We ended the first quarter at 40% of our.

Chris Snyder: China revenue being service. So we have been going through this shift now service includes maintenance and repair in mind, we have been going through this paradigm shift where it's the reason we transformed our organization.

Chris Snyder: It's behind our strategy is to become a more service driven business in China, and treat China as a mature market and not have as much dependency on new equipment and again I think a 10% and 20 excuse me at 40% of service I think we've shown that on new equipment, China is now.

Speaker Change: 17% of our new equipment business, which was 24% at year end, so again executing our strategy Sally and the team are driving this it's a very tough environment. Its a competitive environment, but that's why we knew we needed to become more of a service driven company as we do that as we grow.

Speaker Change: So our service portfolio in China, which is now now up again with the 14th straight quarter of teens growth in China as we do that we'll get the density and we'll get more margin expansion overtime.

Speaker Change: Thank you Judy I appreciate the perspective.

Speaker Change: Yeah.

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

Nick Houston: Yes, hi, everyone. Thanks for taking the question I just have one last I was hoping you could just discuss some of the one off costs that you have an operating profit beyond the.

Speaker Change: Restructuring programs that you've previously communicated yet.

Speaker Change: I calculate over $18 million of extra cost in that so it's a pretty big number.

Speaker Change: Good to understand a little bit better what those what the cash impact is likely to be and whether we should bake anything in there for Q2. Thanks.

Speaker Change: Yes, and he can say is the Orion calculations. So in addition to the 18 billion Youll have calculated it will have approximately 66 million regular restructuring Annapolis transfer amazing on cost that is in the ballpark of our guide of $250 million. Yeah. So this is kind of one quarter of the 250 <unk>.

Speaker Change: Is your onto that with half up <unk> $80 million, one time ish about ads, yes that from our operating companies and you can see in GAAP operating profit. So the biggest one is 52 million related to a tax case in Germany. You may recall that in Q3, we recognized and we also wanted to ask them, but recognizing GAAP.

Speaker Change: At 200 million positive interest 118 million positive in tax receivables.

Speaker Change: And then I think for 194 above the line related to the indemnification to RPX because this is related to the pre separation time.

Speaker Change: And after that we have received additional information from <unk> and we have truth the amount by 52 million and this is the number that you see in gap in Q1, we continue discussing with FDA excess scope of indemnity and we don't expect any cost we receive from the German authorities and team.

Speaker Change: The second half of the year it will start rather late in the second half.

Speaker Change: On Additionally, we have 21 million and legal and settlement costs coming from a few large cases that have set them in the quarter from the past.

Speaker Change: And Additionally, we have 10 million of ice Unfortunately in impairment.

This also is linked to a provision we booked in Q3, when we put the assets on the liability. So one of our non U S subsidiaries classified as held for sale we.

Speaker Change: We are in the process of completing this transaction and that's why we have through the App and we expect the transaction to be closed in the next months.

Speaker Change: Great. Thank you very much.

Speaker Change: That concludes the Q&A session I'll now turn to Judy marks for closing remarks.

Speaker Change: Thank you J L. As we navigate economic uncertainty the <unk>.

Speaker Change: Length of our service driven business positions us well to continue deliver continue earnings growth in 2025.

Speaker Change: Longer term, we're confident that our strategy will continue to drive attractive returns for our shareholders. Thank you for joining us today stay safe and well.

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

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Okay.