Otis Worldwide Corporation

Good morning and welcome to the OTIS first quarter 2022 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 it over to Michael Redner, Senior Director of Investor Relations. You may begin.

Thank you, LaTanya. Welcome to OTIS's first quarter 2022 earnings conference call. On the call with me today are Judy Marks, Chair, CEO, and President, and Raul Guy, Executive Vice President and CFO. Please note, except where 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'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. We had a strong start to the year, reflected in our financial results and in the progress made on our balanced capital allocation strategy. We grew organic sales, expanded margins, and achieved high single-digit adjusted EPS growth while driving growth in all regions in new equipment orders and our maintenance portfolio. Our service business experienced favorable pricing and grew revenue, margins, and adjusted operating profit. In addition, we generated nearly half a billion dollars in free cash flow, while continuing to return the majority of our cash generated to shareholders. In Q1, we completed $200 million in share repurchases and received Board approval of a $1 billion share repurchase authorization. In April, we announced a 20.8% increase to our quarterly dividend while acquiring the remaining interest in Zardoja Otis. After settlement of the tender offer in mid-April, We now have over 95% ownership of Zardoja Otis and expect to automatically delist it in early May. Timing was better than our prior expectations and is expected to add another two cents of EPS accretion in 2022. This progress sets us up well for the remainder of 2022 and beyond. New equipment orders were up 8.8% in the quarter with growth in all regions, leading to approximately one point of new equipment share gain on top of close to two points of share gain since 2020. In Korea, Otis was selected to provide more than 70 Gen 2 units to the Yangnyeong Seacrest apartment complex in Incheon, Korea. Otis Gen 2 elevators, equipped with RegenDrive technology that can deliver substantial energy savings, will serve more than 2,200 apartment units. This is our latest project in the region with GS Engineering and Construction, and further strengthens our 20-year collaboration with them. In China, we received an order to support the next phase of the Shenzhen Metro Project, extending more than two decades of collaboration with the installation of nearly 1,000 units to date. In this phase, we'll provide more than 350 IoT-enabled elevators and escalators. This award marks another milestone in our digitalization journey in China, and allows us to continue delivering the benefits of Otis One's predictive maintenance to our customers. In addition to executing on our financial priorities, we remain committed to advancing our ESG initiatives and published our inaugural ESG report in Q1. This report reflects the focus we've placed and progress we've made on reducing our carbon footprint, creating a safe, equitable, and inclusive work environment, supporting the communities around us, and maintaining best-in-class governance practices. Moving to slide four, Q1 results and 2022 outlook. New equipment orders in the first quarter were up 8.8 percent at constant currency and up 10.9 percent on a rolling 12-month basis, contributing to backlog growth of 6 percent versus prior year. Organic sales were up 3.1 percent due to the strength in our service business, which was up 5.8 percent. Adjusted operating profit was up $29 million at constant currency and up $9 million at actual currency, with margin expansion of 30 basis points, driven by strong performance in the service business, as well as some benefit from segment mix. Free cash flow was robust at $474 million at 152% conversion of gap net income. A few additional updates before I begin our revised 2022 outlook. In April, the agreement between the National Elevator Bargaining Association and the International Union of Elevator Constructors was ratified. This collective bargaining agreement covers the majority of OTIS' U.S. field colleagues and will become effective this July, with wage increases taking effect in January of 2023. We believe this five-year agreement is fair and equitable to both parties, with the annual increases generally in line with historical trends. And like in private years, we expect to fully offset this cost through increased productivity as we upskill and continue to develop this essential workforce. In addition, we're disheartened to see the escalation of the crisis in Ukraine. We have growing concerns about the long-term sustainability of OTIS's operations in Russia, especially with mounting regulations and supply chain disruptions. As a result, we are motivated to find solutions and explore alternatives for our Russia business that are in the best interest of all of our stakeholders. We remain hopeful for return to peace and stability in the region, and we will continue to contribute to the ongoing relief and humanitarian efforts necessary for those most impacted by this crisis. Looking ahead to our 2022 outlook, given the wide range of outcomes and the process that we are undergoing, we have removed OTIS's Russian operations from the current outlook as well as in the prior year compares. This adjustment will largely impact the new equipment business. Raul will walk through this in more detail, and a reconciliation of OTIS's results excluding Russia for the last five quarters can be found in the appendix of this webcast. For the year excluding Russia, we expect organic sales growth of 3% to 4%, with net sales in a range of $14.1 to $14.3 billion. Adjusted operating profit is expected to be in a range of $2.2 to $2.25 billion, up $105 to $155 million, excluding the impacts from foreign exchange. At actual currency, adjusted operating profit is expected to be in the $40 to $90 million. Adjusted EPS is expected in the range of $3.22 to $3.27, up 9% to 11% versus the prior year. Lastly, we still expect free cash flow to be robust at approximately $1.6 billion, or approximately a 120% conversion of GAAP net income. We remain disciplined in our capital allocation strategy And in addition to increasing our ownership in Zardoya Otis, we will continue to return cash to shareholders through dividends and share repurchases and advance our bolt-on M&A strategy where it makes sense and adds to the density of our growing service portfolio. With that, I'll turn it over to Raul to walk through our Q1 results and 2022 outlook in more detail.