Otis Worldwide Corporation

Good morning and welcome to OTIS third quarter 2023 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 would now like to turn the conference over to Michael Redner, Senior Director of Investor Relations. Please go ahead.

Thank you, Michelle. Welcome to OTIS's third quarter 2023 earnings conference call. On the call with me today are Judy Marks, Chair, CEO, and President, and Anurag Maheshwari, 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. Now, 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. Starting with Q3 highlights on slide three, Otis achieved strong results in the third quarter, marking nine months of solid execution in 2023. We grew organic sales 5.2% with growth in both segments, expanded operating profit margin 60 basis points, and achieved 19% adjusted EPS growth. This marks the 11th consecutive quarter of service organic sales growth and the 15th quarter where our service operating profit margin has expanded. demonstrating the consistency in our execution and the strength of our strategy. With our fourth consecutive quarter of maintenance portfolio growth above 4% and backlog growth in both new equipment and modernization, we have set ourselves up nicely for the future. Last quarter, we announced the launch of our Gen 3 core elevator in North America, and in the third quarter, we sold our first units. This new product addresses the needs of our customers in the two- to six-story building segment, the largest by volume in North America. We also continue to drive progress toward our ESG commitments. For the second year in a row, we achieved a gold rating from Echovatus, ranking us within the top 5% of all assessed companies. We're also proud to have been named by Newsweek as one of the world's most trustworthy companies and one of America's greenest companies. Let me share a few customer highlights from the third quarter. In British Columbia, Otis is providing seven Skyrise and eight Gen 3 Edge elevators for South Yards, a mixed-use development by Anthem Properties. South Yards will include more than 2,500 residential units and over 60,000 square feet of retail and office space surrounding a one-acre community park. In Hong Kong SAR, we're supplying 47 Gen 3 units to enhance access to more than 30 elevated walkways. These elevators will provide improved accessibility for the aging population and people with disabilities, a key part of Hong Kong's Universal Accessibility Initiative. Construction is expected to be complete in July of 2026. In Saudi Arabia, we secured a contract to modernize 18 elevators at the Saudi National Bank headquarters in Riyadh. As part of the modernization, We'll upgrade the controllers and the high-rise units while adding our OTIS-1 IoT solution. This new project builds on our existing relationship with the Saudi National Bank headquarters, which has 47 OTIS units in total. And in China, we received a contract to maintain 351 units at Shanghai's Pudong Airport, with 271 of these returning to the OTIS portfolio as a recapture. Pudong Airport is a critical cargo access point in East Asia, while also serving roughly 80 million passengers each year, we're proud to say we now maintain all OTIS units at the airport. We announced our Uplift program last quarter, and in Q3, we began executing initiatives focused on three essential areas, gaining scale across our global organization to unlock synergies, standardizing our processes to generate efficiencies, and driving supplier and indirect spend optimization. We are on track to meet our stated expected run rate savings of $150 million by mid-year 2025. Taken together, these initiatives drive further value for our customers, organizational effectiveness, and sustainable profitable growth. Moving to slide four, Q3 results and 2023 outlook. Organic sales in the quarter grew 5.2%. service was up 8.4% with all lines of business contributing, and new equipment up 1% with growth in the Americas, EMEA, and Asia Pacific. Although new equipment orders declined 10% versus the prior year, backlog was up at 2% at constant currency. Our share in the quarter remained relatively flat, leaving us at approximately 50 basis points of share gain year-to-date. Order growth in EMEA and Asia Pacific was more than offset by declines in the Americas and China. In service, modernization orders remained strong, up 13% in Q3, the fifth consecutive quarter of mod orders growth above 10%, driven by strong performance in EMEA, China, and Asia Pacific. Mod backlog was up 15%, giving us line of sight to sales over the next several quarters. With adjusted operating profit growth of $47 million in the quarter, We expanded margins by 60 basis points, driven by 90 basis points of service adjusted operating profit margin expansion. We generated $272 million of free cash flow, driven by higher net income. To summarize, we executed our strategy, growing the portfolio above 4%, increasing our new equipment and mod backlogs, giving us a strong base to execute on for the next several quarters. while expanding operating profit margins as we drive a consistent operating cadence in the business, ultimately leading to just under 20% EPS growth. Ultimately, we believe we're set up well, despite the relatively weaker macro picture we're facing, which I'll discuss next. For global new equipment unit bookings, Asia Pacific continues to grow, although we now expect it to be up low to mid-single digits, a step down from our prior expectations. We anticipate that EMEA will decline high single digits, in line with our expectations for last quarter, while Americas we now expect to decline mid-teens and China to decline north of 10 percent, both worse than we were anticipating just a few months ago, as the macro environment remains challenging. In total, this would leave global new equipment bookings somewhere around 850,000 units. down approximately 10% versus 2022. In service, although global new equipment unit bookings are smaller than we anticipated, we still expect the service install base to grow nearly 5% this year, as units that were booked two to three years ago and installed one to two years ago roll off their warranty periods. This will put the global service install base somewhere between 21 to 22 million units by year end of which we currently maintain approximately 2.2 million, and expect to end the year around 2.3 million units in our maintenance portfolio. With that as the global backdrop, let me now update you on OTIS's financial outlook. We expect organic sales growth of approximately 5.5%, with net sales of about $14.1 billion. Adjusted operating profit is expected to be approximately $2.265 billion, up $170 million at constant currency. At actual currency, adjusted operating profit is expected to be up $140 million, including a foreign exchange headwind of $30 million. We're raising our outlook for adjusted EPS, now expected to be $3.52, up 11% versus the prior year. We now expect free cash flow of about $1.5 billion, or approximately 105% conversion of GAAP net income. we still expect share repurchases of $800 million. With that, I'll turn it over to Anurag to walk through our Q3 results in more detail.