Otis Worldwide Corporation

Thank you, Sarah. Welcome to Otis's first quarter 2024 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 good morning, afternoon, and evening, everyone. Thank you for joining us. Starting on slide three, Otis started the year off with a solid first quarter, again confirming and demonstrating the continued strength of our service-driven business model as we outlined during our investor day in February. Through the hard work and commitment of our colleagues across the globe, we achieved mid-single-digit organic sales growth driven by our service business. We expanded adjusting operating margins by 80 basis points with both service and new equipment operating profit margins expanding 70 and 20 basis points, respectively. With another quarter of maintenance portfolio growth above 4% and solid modernization sales, we delivered 6.5% service organic sales growth. Mod orders increased 12.9% in the first quarter, with growth across all regions, while challenging market conditions and new equipment continued. Delivering operational excellence across the organization drove 10% adjusted EPS growth. This quarter, we executed our capital strategy with excellence. We continued to work to repatriate cash from overseas and use it for the benefit of our shareholders. As such, we were able to repurchase $300 million of shares in the quarter. Additionally, yesterday, we announced a 14.7% increase to our quarterly dividend. We have nearly doubled our dividends since spin, emphasizing the importance we place on delivering shareholder value. We also made important progress towards our environmental goals. Earlier this month, the Science-Based Targets Initiative approved our near-term science-based greenhouse gas emissions reduction targets. This is a meaningful step on our sustainability journey, and our steady progress meeting our commitments will be shared in our next ESG report, expected to be published later this year. Turning to our orders performance on slide four. New equipment orders were down 10% in the first quarter, as anticipated, due to the tough compare versus the prior year. Double-digit growth in EMEA and mid-single-digit growth in Asia Pacific were more than offset by a double-digit decline in the Americas and high teens decline in China. Nevertheless, our new equipment backlog at constant currency was roughly flat versus the prior year and up slightly versus the prior quarter. Service segment, we continue to deliver consistent solid performance with another quarter portfolio growth above 4% and demonstrating the value of modernization as a new strategic imperative, 13% orders growth and 15% backlog growth at constant currency, setting us up well for modernization sales through the rest of the year and into 2025. Reflecting the hard work of our colleagues around the world, let me highlight a few orders we received during the quarter. In China, Otis Electric will provide 46 escalators and 9 elevators for an expansion of the Shenzhen Metro Line 5. The elevators and escalators will be installed at three new stations connecting to the city's Grand Theatre, where passengers can transfer to two other metro lines. In Canada, Otis will provide 19 elevators at the South Niagara Hospital, a 12-story facility that will consolidate and expand acute care services in the region. It's designed to meet the Canada Green Building Council's LEED Silver Standards and is an important step towards becoming the first well-certified hospital in Canada. These elevators will be equipped with OTIS I, EMS Panorama, and autonomous mobile robot system integration. In Japan, OTIS is modernizing six elevators and six escalators at the Hamamatsu Act Tower in Hamamatsu City. We look forward to continuing to service the 212-meter-tall tower as we've done for nearly three decades. And in the United Kingdom, the National Health Service of Wales has been an Otis customer since 2018 and has recently renewed their service contract, covering 450 elevators across many health facilities in the country for an additional five years, building upon our trusted relationship We will now modernize 19 elevators at the University Hospital of Wales in Cardiff. Turning to Q1 results on slide five. We delivered net sales of $3.4 billion in the first quarter with organic sales up 3.8%. Despite dynamic market conditions, we have delivered organic growth every quarter since the end of 2020. Adjusted operating profit, excluding a $7 million foreign exchange headwind, was up $50 million with both segments contributing. Adjusted EPS grew 10% or 8 cents in the quarter, driven by strong operational performance. Improvement in the tax rate, early results from uplift, and the benefit of a lower share count offset headwinds from foreign exchange translation and increased interest expense. With that, I'll turn it over to Anurag to walk through our results in more detail.

Thank you, Judy. Starting with segment sales performance on slide six. Otis new equipment organic sales were roughly flat in the first quarter when compared to the prior year. Americas grew mid-teens on solid backlog conversion. EMEA and Asia Pacific both grew low single digits driven by growth in key markets, and China experienced a double-digit decline due to the lower backlog and weaker market conditions that Judy mentioned. New equipment pricing was strong in the Americas, EMEA, and Asia Pacific in the first quarter, up low to mid single digits. In China, while the pricing environment remains challenging, we continue to drive productivity and capitalize on lower commodity prices. Service sales were $2.2 billion in the first quarter, with organic sales growth of 6.5%, reflecting growth across all regions and in all lines of business and marking the 12th consecutive quarter of mid-single-digit or greater organic sales growth. Maintenance and repair continues to perform well, up 5.8% from portfolio growth, robust repair volumes, and maintenance pricing, which was up more than three points, excluding the impact of mixed insurance. On modernization, double-digit growth in China and Asia-Pacific, drove organic sales up approximately 10% in the quarter. Turning to segment operating performance on slide 7. First quarter new equipment operating profit of $71 million was up $6 million at constant currency. Favorable pricing, productivity, and commodity tailwinds more than offset mixed headwinds and drove 20 basis points of margin expansion. Service operating profit of $523 million was up $47 million at constant currency as dropped through on higher volume, favorable pricing, and productivity more than offset annual wage inflation. This led to margin expansion of 70 basis points for the segment. Additionally, the ramp of uplift initiatives alongside cost controls improved our SG&A as a percent of sales by 50 basis points year over year. All in all, we expanded overall adjusted margins by 80 basis points and grew EPS 10%. Shifting to cash, we generated $155 million of adjusted free cash flow in the first quarter, reflecting a build in working capital following a snapback from a strong Q4 and the timing of billings in the quarter. We are off to a good start. The strength of a service business, including the execution of a modernization strategy, combined with productivity efforts and the Uplift program, more than offset the subdued new equipment markets. As a result, and with good line of sight through the rest of the year, we are raising our profit guidance. I'll turn it back to Judy to discuss our 2024 outlook.