Otis Worldwide Corporation

Good morning and welcome to Otis' second quarter 2020 earnings conference call. Today's call is being carried live on the Internet and recorded for replay. Presentation materials are available for download from Otis' website at www.otis.com. I will now turn the call over to Stacey Lozeski, Vice President of FD&A and Investor Relations.

Thank you, Chris, and good morning, everyone. Welcome to Otis' second quarter 2020 earnings conference call. On the call with me today are Judy Marks, President and Chief Executive Officer, and Rahul Gai, Executive Vice President and Chief Financial Officer. Please note, except where otherwise noted, the company will speak to results from continuing operations, excluding restructuring and significant non-recurring items. The company will also refer to adjusted results where adjustments were made, as though Otis was a standalone company in the current period and prior year. 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's SEC filings, including our Form 10 and quarterly reports on Form 10Q, provide details on important factors that could cause actual results to differ materially. With that, I'd like to turn the call over to Judy. Thank you, Stacey, and good morning, everyone.

We're glad that you could join us today and hope that everyone listening is safe and well. I'm very pleased with our results and grateful for the dedication of our colleagues who provided essential services and supported our customers in efforts to safely reopen job sites and buildings during these unprecedented times. To briefly update you on the status of operations in this environment, today all Otis factories are operating and approximately 90% of new equipment job sites are open, up from a low point of about 65%. In the quarter, Otis field professionals provided essential services and our maintenance business remained resilient. However, the shutdown of buildings put understandable pressure on our repair and modernization business. By June, we saw encouraging signs of improvement in many regions. In the new equipment business, we experienced substantial recovery in China during the second quarter, while North America, EMEA, and Asia Pacific continued to experience job site closures in certain areas. Our management team has done an excellent job to proactively contain costs and mitigate the impact from COVID-19. That was reflected in our results reported this morning, especially encouraging in our service business. In terms of liquidity, we ended Q2 with $1.9 billion of cash on hand and have a $1.5 billion undrawn revolving credit facility, a strong position for us to run the business. This environment has not slowed our progress in executing on our strategies, We continue to introduce new and innovative products with our touchless elevator technologies, traffic flow solutions, purification products, or remote monitoring and predictive maintenance services. We are partnering and bringing solutions to our customers to promote and support the health and safety of their tenants and passengers. We continue to expand our product offerings, launching the Gen 2 Prime in India, a low-rise, entry-level elevator. This product brings a combination of safety, performance, themed aesthetics, and price competitiveness to our India low-rise market with applicability to other developing markets. We continue to build momentum on the deployment of IoT, and we recently launched a new release that added several new features for our customers and to drive productivity in our organization. This new release also improves the scalability of our solution. We have a clear roadmap to continue to enhance the capability of our IoT solution over the next several months. Despite the challenges introduced by the pandemic, we continue to deploy units in U.S., Europe, and China in the first half and expect the pace of IoT deployment to increase substantially in the second half. And we've driven both service and material productivity through our continued IoT technology, our suite of mobility tools via iPhone apps for our field professionals, and our global supply chain activities this quarter. These are just a handful of examples that led to 90 basis points of new equipment share gain during the first half. This progress shows the strength of our strategy. As leaders here at Otis, we're proud of our company's long commitment to diversity and inclusion, yet we also know there's more to be done if we are to become the company we want to be, an equal opportunity employer of choice for people of all cultures, genders, races, and generations. To ensure we live up to these aspirations, our leadership team and I launched our Commitment to Change, which is a framework to help us identify and prioritize the actions we need to take. We continue to demonstrate our commitment as Otis joined the Paradigm for Parity Coalition and committed to closing our global leadership gender gap by 2030. People are at the heart of everything we do at Otis, and I'm proud of these important steps. Otis will lead our industry for inclusion and diversity. Turning to slide four, Q2 results in 2020 outlook. New equipment orders were down 6.8% at constant currency, with double-digit declines in the Americas and EMEA, partially offset by growth in Asia as China recovers from COVID-19. China orders were up high single digits, including several infrastructure awards. On a rolling 12 months, total ODIS orders were flat, New equipment backlog was up 2% versus the prior year. In the second quarter, organic sales were down 6.5%, driven by double-digit decline in the new equipment segment and low single-digit decline in the service segment. Adjusted operating profit was down $24 million at constant currency, and margin expanded 30 basis points, driven by continued expansion in the service segment and the swift cost containment actions we implemented. Free cash flow was robust at $628 million with 280% conversion of net income, reflecting strong working capital performance in the quarter. These swift cost actions and our organization's commitment to serving customers allowed us to mitigate the bottom line impact from a year-over-year decline in sales. And I'm pleased with the second quarter and first half performance, despite the difficult environment we're operating in globally. We are encouraged by the recovery we've experienced in China and are revising our 2020 outlook to reflect the solid first half performance and anticipated pace of recovery for our business in the second half across the world. We are increasing the organic sales range, now expected to be down 2 to 4 percent. Adjusted operating profit is now expected in a range of flat to down $50 million at constant currency. a $75 million improvement versus the prior outlook at the midpoint, primarily from higher volume expectations. We now expect adjusted diluting earnings per share in a range of $2.20 to $2.30, up 20 cents at the midpoint versus prior expectations. This reflects our improved operating profit outlook, lower tax rate, and lower net interest costs. Lastly, we expect free cash flow to be robust, between $1.0 and $1.1 billion, with full-year free cash flow conversion levels between 130% and 140% of GAAP net income. With that, I'll turn it over to Rahul to walk through our results and the outlook in more detail.