Otis Worldwide Corporation

Good morning and welcome to OTIS second quarter 2021 earnings conference call. This 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'll now turn the call over to Michael Redner, Senior Director of Investor Relations.

Thank you, Angie. Welcome to Otis's second quarter 2021 earnings conference call. On the call with me today are Judy Marks, President and Chief Executive Officer, and Raul Guy, 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-K and quarterly reports on Form 10-Q, provide details on important factors that could cause actual results to differ materially. With that, I'd like to turn the call over to Judy.

Thank you, Mike, and thank you, everyone, for joining us. We hope that everyone listening is safe and well. Before we get into the quarter, I'd like to congratulate Mike on his new role leading investor relations, and thank Stacy for all the great work getting us to this point. We look forward to seeing you both excel in your new positions. Otis delivered an excellent second quarter, closing out a strong first half. This included mid-teens organic sales growth, demonstrating the resiliency of our colleagues in business, and our ability to execute on our long-term strategy. Overall, demand in the new equipment segment was strong. We gained about a point of new equipment share with orders up approximately 24 percent in a market that was up low teens. New equipment orders grew in all regions and were particularly strong in the Americas, up nearly 50 percent with an over four times increase in major project bookings versus the prior year. These orders will support customer projects throughout North America. For example, in Canada, Otis secured an order to outfit a luxury high-rise condominium building in the M-City community with several elevators, including custom cab interiors that fit the building's upscale design. Moving to service, we grew sales in all lines of business, including repair and modernization. Modernization demand was strong. with orders up mid-teens versus the prior year. This includes another Otis partnership with Silverstein Properties in the Americas, where we will modernize more than 40 elevators in the U.S. Bank Tower in Los Angeles and integrate Compass 360 and Otis' eCall app to allow for more seamless customer and tenant access to the building's services. The demonstrated strength of the maintenance business continues. and we achieved 3% growth year-over-year on our industry-leading service portfolio, a key goal we set for ourselves entering this year. We drove profit growth and margin expansion in both segments, largely from the benefit of higher volume, as new equipment and service organic sales grew about 25% and 8% respectively. Since SPIN, our consistent performance reflects the power of our strategy and its implementation. I hope many of you were able to join us for Welcome to Tomorrow, where we shared our Gen 3 and Gen 360 highly innovative platforms that meet the current and future needs of our customers in an increasingly connected world. Gen 3 builds upon the proven flat-belt technology of Otis' best-selling Gen 2 platform, while adding built-in Otis One IoT connectivity and a variety of options such as eCall, eView, compass dispatching systems, health solutions, and updated aesthetics. APIs allow us to access and leverage data with analytics that drive value for our customers. Upon release, Otis secured an order for more than 100 Gen 3 elevators for a new residential project in the Jilin Province in northeast China. In EMEA, after successful pilots in several countries, Otis officially launched Gen 360, a next-generation digitally native platform that includes all the features of the Gen 3 elevator built around an all-new electronic architecture in a more compact design. Gen 360 is enabled with IoT capabilities and online tools, a connected passenger experience, and additional safety features to help limit entrapments and enable maintenance from inside the elevator cab. In France, OTIS was selected to outfit a future aquatic center in the Paris suburbs with the Gen360 ecosystem. In addition to its many digital, safety, and passenger benefits, this platform has a decisive advantage. For the first time, we can eliminate the need to accommodate hoistway projection onto the roof, avoiding interfering with the building's architectural lines, a feature desirable to architects and building owners. All of this strong first-half performance, including robust free cash flow generation in excess of 150% of net income, enables us to return additional cash to shareholders. In the second quarter, we completed the previously planned half a billion dollars in share repurchases ahead of schedule and are now in a position to increase our 2021 target to $750 million. In parallel with this strong financial performance, We continue to make progress on our ESG initiatives that are integral to bringing our vision to life. In May, we released additional long-term ESG goals aligning with our four ESG commitments, health and safety, people and communities, environment and impact, and governance and accountability. During the quarter, we made progress on our goal to meet ISO 14001 certification standards in all of our factories. Otis's manufacturing facility in Brazil became the latest to achieve this certification, meaning nearly 90% of our factories are now ISO 14001 certified. This is part of our ongoing work to operate more sustainably. Initiatives in the factory include implementation of rainwater and water reuse systems, LED lighting to reduce energy consumption by more than two-thirds, and improvements to shipping and packaging materials, to reduce waste by approximately 800 tons annually. In Paris, we introduced electric vehicles into our fleet and will be expanding this pilot over the coming months. Early feedback from our field professionals has been positive, and the program will continue to contribute to our CO2 emission reduction targets. Moving to social. One year ago, in response to the urgent problems of social unrest and entrenched racism, we announced our commitment to change, a framework to ensure all colleagues feel safe, welcome, and heard. While there's still work to be done, I'm proud of the progress we've made on this initiative over the past year. Actions taken include engaging all supervisors worldwide in a training program designed to help them mitigate unconscious bias, increasing access to employee assistance and wellness programs globally, launching our Made to Move Communities signature STEM education program, and awarding not-for-profit grants to communities in each region that support diversity, equity, and inclusion programs. And in June, we began our second annual Season of Safety, reinforcing Otis's strong safety culture, recommitting to our life-saving cardinal rules and prioritizing ongoing training on safety procedures and protocols. We remain committed to a zero-harm workplace. Now turning to slide four, second quarter results in 2021 Outlook. In addition to record new equipment bookings in the second quarter, total disorders were up 9.4 percent on a rolling 12-month basis. Organic sales were up 15.4 percent in the second quarter with 25.4% organic growth in the new equipment segment and 7.8% organic growth in the service segment. Adjusted operating profit was up $115 million and margin expanded 40 basis points, despite a 60 basis point impact from segment mix as the new equipment business grew faster than the higher margin service business. Free cash flow was robust at $493 million with 151% conversion of GAAP net income. This positive momentum, our continued progress on our long-term strategy, and the pace of recovery in our end markets gives us confidence to improve our 2021 outlook across all key metrics. We now expect sales to be in a range of $14.1 to $14.2 billion, up 10.5% to 11% versus the prior year, and up 7.5% to 8% organically. Adjusted operating profit is expected to be in a range of $2.16 to $2.18 billion, up $240 to $260 million at actual currency, and up $170 to $190 million at constant currency. We're improving adjusted EPS by 10 cents at the midpoint versus the prior outlook, and now expected to be in a range of $2.89 to $2.93, a 15 to 16 percent increase versus the prior year. Lastly, we're improving our free cash flow outlook to a range of $1.45 to $1.5 billion with about 120 percent conversion of GAAP net income. With that, I'll turn it over to Raul to walk through our Q2 results in 2021 outlook in more detail.