Otis Worldwide Corporation

Good morning and welcome to Otis's third quarter 2024 earnings conference call. This call is being carried live on the internet and recorded for replay. Presentation materials are available for download from Otis's website at www.otis.com. I'll now turn the call over to Michael Redner, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Krista. Welcome to Otis's third quarter 2024 earnings conference call. On the call with me today are Judy Marks, Chair, CEO, and President, and Cristina Mendez, 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. I hope all are safe and well. Starting with Q3 highlights on slide three. Otis returned to top-line growth in the third quarter as we continued to demonstrate the strength of our service-driven business model with solid third-quarter results. In service, we delivered high single-digit growth in Q3, bringing year-to-date service organic sales to 6.4%, with all lines of business contributing. We achieved maintenance portfolio growth of 4.2%, and our modernization backlog increased 12% at constant currency. Through the first nine months of 2024, we have expanded overall adjusted operating profit margin by 60 basis points and achieved adjusted EPS growth of 8.2%. In Q3, we generated $381 million in adjusted free cash flow and completed $200 million in share repurchases. Year-to-date, We've generated approximately $900 million in adjusted free cash flow and returned $800 million through share repurchases as we execute on our disciplined capital allocation strategy. Otis had several exciting accomplishments recently. For example, our manufacturing hub in Korea obtained ISO 5001 certification. Otis now has 11 manufacturing sites certified through the global standard for establishing, implementing, maintaining, and improving energy management. In addition, we announced the expansion of our Bengaluru manufacturing facility. This will increase our capacity and capabilities to help meet the growing residential, commercial, and infrastructure demand for elevators and escalators in India, while also expanding our localized manufacturing strategy in the country. And last, earlier this month, we're proud to have been named one of the world's best employers by Forbes magazine for the third year in a row, reflecting our commitment to our colleagues' well-being. Moving to our orders performance on slide four. New equipment orders were down 3% in the third quarter, a sequential improvement versus the first two quarters of the year, despite continued challenging market conditions. Excluding China, orders increased approximately 10%. Orders returned to growth in the Americas, growing more than 20% with excellent performance in North America, while APAC delivered high single-digit growth driven by continued strength in Japan and Southeast Asia. Orders declined by high single digits in EMEA due to continued weakness in Western and Northern Europe, bringing orders to 8% year-to-date after a strong first half. A greater than 20% decline in China, was a result of continued economic softness in the region. Our new equipment backlog at constant currency was down 3% versus the prior year. Although similar to last quarter, the new equipment backlog excluding China was up low single digits. This quarter marked two consecutive years of delivering 4% or greater maintenance portfolio growth in each quarter. And last, within service, modernization orders increased 3%, As we faced a challenging compare from the prior year in major project bookings, and we expect to see a bounce back to solid mod orders growth in the fourth quarter. With mod orders year-to-date up approximately 10%, our modernization backlog increased 12% at constant currency versus the prior year. As our colleagues across the globe continue to deliver, we have several customer highlights to share from the third quarter. In Melbourne, Australia, Otis will modernize 30 elevators at 101 Collins Street in the Central Business District. Our Skyrise and Gen 3 modernization-specific products will be featured, along with our signature regen drives and the Otis One IoT platform. Otis installed the building's original elevators in 1989 and has maintained them for the past 35 years. In the United States, We're proud to support the expansion of the St. Luke's University Health Anderson Campus Hospital in Bethlehem Township, Pennsylvania. Otis will install nine elevators, including five Gen 3 Peak and one Gen 3 Edge unit, for a new five-floor addition. The St. Luke's organization has been a valued customer for more than 10 years. In the Nordics, our local teams have worked closely with customers to add more than 400 units to the portfolio. In Denmark, we've recaptured 275 units with Domea, a leading construction and housing business. And in Sweden, we've recaptured 132 units at Vallingby Shopping Center, a customer making a welcome return to Otis after 10 years. Reflecting the continued strength of the infrastructure vertical, Otis was selected to provide more than 340 escalators and Gen 3 elevators for the Tianjin Metro in China, as part of the Metro's new Line 8 and Binhai B1 line. This brings the total number of OTIS units in the city's expanding Metro network to more than 2,000. Tension Metro has been using OTIS equipment for almost three decades. Turning to Q3 results on slide five. OTIS delivered net sales of $3.5 billion with organic sales up approximately 1%. Adjusted operating profit, excluding a $4 million foreign exchange headwind, was up $8 million, driven by the service segment. Third quarter adjusted EPS grew approximately 1%, or one cent in the quarter, against a tough compare of approximately 19% EPS growth in the third quarter of the prior year. Operational performance was partially offset by foreign exchange headwinds. This brings year-to-date adjusted EPS growth to 8.2%. With that, I'll turn it over to Christina to walk through our results in more detail.