Earnings call transcript Q4 2022

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Operator

Good morning, and welcome to Otis’ Fourth 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 the call over to Michael Rednor, Senior Director of Investor Relations. Please go ahead, sir.

Michael Rednor

Norma. you, Thank fourth Otis’ earnings call. conference Welcome quarter to XXXX

otherwise today Marks, Maheshwari, be appendix to Chair, On except Vice the significant and results can Judy items. me with where note, excluding Please the Anurag of call from CEO continuing will restructuring measures are President; the A and webcast. reconciliation CFO. found the these operations, in noted, company President and speak Executive nonrecurring and of

statements, quarterly listeners which uncertainties. details remind the Form could that results differ that risks including contains forward-looking cause XX-Q, factors subject also and to are We materially. Otis' our presentation to Form reports provide filings, SEC important actual XX-K on and on

With that, like to turn I'd to the call Judy. over

Judy Marks

delivered colleagues the growth, continue the execute company everyone, to organization. we equipment in and sustaining of I’m new perform empowering a is advancing XXXX. service of for we year focusing portfolio strategic strategic solid with with good everyone growth, listening performance We're momentum proud resiliency well. you, a and a We ended our by We pillars, of thank to hope our digitalization, who our strong year demonstrating us. four globe while continue these as and accelerating variety the results safe joining and full macro as around XXXX in that our headwinds. Mike, pleased we entered year quarter grow you, fourth Thank characterized and

X. Slide on Starting

particularly in and X% in overall, with orders the X% were performance although the perform orders We in the XXXX up growth performance full had XX%. strong Orders a in down growing performance Asia-Pacific. quarter. year. in with well to In EMEA with orders X%, continue the the single-digit quarter, business the quarter, for almost solid Americas very China mid New in Orders, returned Equipment continued grew to strong

X.X%. into X%. which at XXXX, multiyear constant X.X sales. XX% foreign stands adjusted company. at increased service, our currency maintenance headwinds. to giving despite grow units, in million sales Equipment is We by new portfolio grew heading for Organic industry-leading grew solid a visibility We It our $XXX up delivered by adjusted Our exchange-related backlog New X.X% EPS us driven milestone X.X%, now growth million

billion to We through generated cash shareholders of $X.X dividends to $X.XX allowing and repurchases. share free in flow, us cash return billion

the continue many We to projects trust have ability based win us. in our and to on exciting innovation, deliver customers

along two than Americas, Centre The selected lead Surrey, provide to For system, Gen Otis Lark six SkyRise six-year extends and example, built with dispatch elevators relationship our in more was and for X to be building will the the British with Compass standards City XX-storey Group. Columbia. destination our gold in X

already since Otis Metro Gen Northern for X opening equipment X using Tianjin selected This XXX provide takes China, than more Otis was elevators XXXX. Extension. their the Line been November, In has to In than in system. the delivering escalators and elevators new and units Otis maintenance These connected to platform, Otis ONE will to expanding of the be City's real-time X,XXX. more for network on number Port new metro IoT-based subway the monitoring predictive

escalators a we In were including busy London, through install to for contract relationship XXXX, a the flowing. in busy had the long-term specifically maintain We're and to Most meters network recently, to with playing extend UK, escalators, designed day run XX length network. XX in provide we've the to a Battersea station long-standing hours our the keep manufacture, and nine travelators Transport contracted rise. meters and and for on about part with specialty

financial drive stakeholder XXXX, priorities. progress alongside value in to Our ESG initiatives to our continued helping

us has in zero become Florence, and the efficiency, recognizing helping achievement, Otis use resource achieved or the certified true to goal in certification its our spring. total With our by published set ESG South facility, true Our to report, be factories second certification, all annual in Carolina to have XXXX. manufacturing zero first level progress landfill eligible elevator We about success waste industry facility which for of sharing this in having a more is ESG towards in our gold waste. to our look the forward

to two-point to share equipment of X. strong one increase With XXXX. Moving in able between top approximately of XXXX, were XXXX Slide on the new orders we performance gain, and achieved point

results growth were New Asia-Pacific XXXX, able to and we challenges, especially in and business. For chain the all sales strong Equipment year demonstrating our geographic These sales within China, we've Equipment diversification in first impact to and overcome of in the continued as Americas. quarter of since EMEA the QX the returned the installation-related that mitigated supply decline growth experienced mid-single-digit New power

Notably, Innovation to QX. China helping as see path recovery the a compared we is sales drive Equipment in region on New growth across business. improved our to

digitally-connected the in our expanding Gen platforms, and Portugal continue the X of elevator to we Europe Republic, example, GenXXX deployment For Slovakia. Czech launching India, roll out in Poland, to and

ONE essential service The disruption long-term is industry favors New as solution our this this believe and component saw and in we an accelerated into strategy product growth algorithm. and our we're portfolio. the our portfolio demonstrating We our top of Equipment deploy offerings our year IoT we line the growth Otis OEM,

connectivity than goal We pleased continue we're the to towards units of increasing additional and to XXX,XXX year. of XX% this portfolio, connected approximately our have to work more

maintenance of cost well force the year, sales Our within with business. labor mitigate to the headwinds service points, pricing performed helping service like-for-like three throughout

as profit projects from we delivered margin XXXX For on we row and with the enter momentum, independent Equipment New well we a backlog. our remain adjusted as company, especially execute positioned in third year expansion, we as operating an

by conflict. Latin offset Eastern the well, that up Now low leading Americas Slide to was In in a X. had America roughly to due strong mid a market In Europe single-digits. up the market Europe turning America XXXX, better while single-digits, to North than Western was mid to year, EMEA, performed flat,

In Asia, the high single-digits. market was down

the year, in with downturn XX% strong be a performance approximately down up the by XX%. which masked had about China, estimate to we Asia-Pacific very

the several the in long-term seen years, fundamentals market growth Although well model. the service-driven fluid, over remain of industry the dynamics as are past grounded we've

New globally mid in down in and be to are X% XX%. with markets expected down where units the to XXXX, mid EMEA flattish and the Equipment to driven Americas by single-digits market In Asia, in single-digits expect markets be we China, down

region Asia-Pacific should to rate and is The see installed the to another grow infrastructure driven reach XXXX growth, that expected about units. investments. single-digits XX approximately at industry by a in year at base of of or better mid mid-single-digit urbanization global and similar million

in expecting X% growth. range China. by Asia, the growth X.X% we expect growth we're for billion, actual we this driven sales of And the at Otis, to in $XX.X FX. expect high single-digit with to single-digit up X%, EMEA, and Americas to the billion of $XX.X In With as X% sales total backdrop low to organic be industry

By segment, low we New Asia. to growth grow the X% in mid-single-digit expect and with X% EMEA Equipment this and year, in single-digit will Americas growth

ease and Asia-Pacific market mid expecting back business expect of get liquidity the we China second single-digits, to should half as of the COVID-related least flat We're grow the XXXX better our a Equipment We while at as on constraints in government anticipate we market for year. into about the to support. China be New

In business the X%. we growing X% solid segment, to another the with Service anticipate of growth, year

repair with line. solid drive growth modernization our single-digit and mid in business, growth maintenance volume expect the pricing higher We in to and business

Our the currency. quarters, year we the a few up modernization X% and well constant performed quite MOD orders over entered past backlog with at

backlog the sales We driven at growth growth. the midpoint, expect by X%

of expected is profit headwinds. to $XXX million million operating Adjusted $X.X to $XX be up and $XXX billion $X.XX currency accounting $XXX foreign million actual billion, or million for to between exchange

to approximately prior up at midpoint $X.XX EPS adjusted to be or versus year. expect of to $X.XX XX% a We range the in the $X.XX, X%

We XXX% expect $X.XX between to bolt-on $XXX addition dividends $X net repurchase following $X.X year in paying balanced free program typical $XXX billion pursuing remain our we this million to GAAP new cash our expect and repurchase M&A discipline in Finally, billion of capital flow authorized strategy. allocation to committed and and to million our to billion of Board XXX% strategy income. to the shares

our turn With detail. outlook more that, to XXXX Anurag and I’ll over walk through results in it XXXX to

Anurag Maheshwari

and X. with Judy, Starting morning, you, everyone. on Thank Slide results fourth quarter good

million fourth growth the $XX service. year of with were ninth Organic and X.X%. down grew growth quarter for sales best currency sales headwind mid-single-digit our Adjusted segments. reported quarter, a consecutive the increased new billion performance the growth X%, with profit of constant equipment in $X.X million Forex $XX excluding both growth in For high-single-digit in accelerated to and operating

as the a especially quarter SG&A year commodities offset partially was of equipment headwinds committed to containment we as expense about as mitigate the cost have the are headwinds sales, higher volume macro mixed performance, reduction service percent as the well we Strong basis and and the in XX improved points remain price flat. and of new corporate remain cost. Adjusted At to and on as for vigilant faced. structural percentage a we and by on same R&D sales cost time, help strategic and investment business growing

share $X.XX by headwind and accretion million from operational the operational from Forex. growth than repurchases the X% grew Adjusted of Zardoya alongside the of growth in EPS or quarter $XXX $X.XX. $X.XX strong driven This more offset

built than or $XX While XXX%, income conversion flow strong XXX% XXXX. we cash the support supply free into billion came fourth chain at in $X.XX cash million of anticipated year net inventory flow as mitigate challenges going full had conversion our backlog quarter lighter we and free was at to of

a Otis the with constant and quarter, decline XX% the we of better X% a with equipment regions, the digits modest Overall growth in and which on more performance new currency Americas. offset to in Moving than digits, up finished new in Slide orders equipment EMEA in at orders all in expected returning with adjusted orders quarter including year than growth notably high equipment with to China. the backlog increased Asia-Pacific growth single up mid-single China new X.

led cost we to Pricing eased have pressure quarter neutral productivity throughout the in by offset on EMEA the equipment with we in inflation China, price XXXX orders drive roughly in market. In the APAC. performance pricing increased as solid Americas points been and X new to and continue commodity

Asia billion the mitigated in our Fourth sales well navigated in EMEA prior containment from China new through to the commodities year strong productivity team of growth higher $X.X outperforming growth declined approximately lockdown roughly quarter the and than EMEA the cost execution XX% lower saw what sales and to driven flat the The by profit margins Overall, will were for return quarter. to backlog. strong Forex. in outbreaks headwinds the nearly volume, million sales the quarter the Operating of fourth execute America, return on we post with team $XX benefit a of equipment. as the expectations. new Pacific equipment over at middle COVID growth and rate in by

and turning Now year. year Slide to to of adding region segment portfolio excellent high another in to Service with growth units. every low an conversions with teens cancellations is We portfolio single X. digit as acceleration saw X% for on China Globally, our than this growth growth our performance growth million over year in the With more our recaptures the X.X driver. portfolio elsewhere, the offset about now

Additional appendix. details the in for XXXX growth drivers found growth portfolio and in our future on can be

Modernization and XX% also major offerings. Asia up growth with mod in Americas Pacific highlight the package all a orders continued and including project bookings strength in from regions, were a some

versus the backlog XXXX. giving of growth good up us year, X% in line modernization is for sight Our prior

growth year, saw growth service Maintenance mix X we last excluding point impact points to up Moving for with Organic of came approximately including sales. expected We revenue up Americas of modernization growth. similar double overall broad of on organic sales and another growth contributing Pacific. almost grew X sales in and all growth business. both X% and as regions, in pricing, Asia across to quarter quarter X.X% strong to the the churn in delivered about lines digit

annual We service higher was Adjusted favorable as were expansion for volume, our partially the our increases. up in of with headwind million by productivity basis finished up the operating million and offset pricing XX best $XX wage quarter. Forex margin profit, points year $XX excluding

delivered consecutive increasing with the service margins XX We XXX three years. basis roughly expansion over have past quarters now margin of points

constant $XXX out Slide rate, in full capital the to or currency we including Zardoya and which and to operating performance transaction allocation offset headwinds. strategy, of Overall, of $X.XX EPS tax $X. mitigated X optimizing million profit our share year repurchase strong led XX $XXX of growth Strong bridge. able operational from to Forex in X.X% a accretion or the headwinds the were adjusted $X.XX. EPS of XXXX growth leading EPS operational million $X.XX. commodity growth, lays $X.XX Through execution drove

which to finished quarter year versus XXXX, contributed backlog, throughout team the rate executing by improvement basis tax the us XXXX margin helped EPS well grow points both shareholders. the point the build Overall, with and performed a XX $X.X the sales, year. organic return controllables, and to adjusted by on We expand which basis for a full in XX.X%, XXXX billion growth strong of to XXX

we ahead equipment new to XX. on look Slide As XXXX, outlook the is

years, market gain sight combination from of digits between In grow X% up Asia X% to backlog, initiatives low sales to years. expect of robust we Americas XXXX, mid-single few and orders resulted of our This the has globally digits. new couple for a equipment EMEA next line growing and with past single the a we Over pricing share delivered have and good multi-year growth, incremental actions. in giving us strong organic

digits, expected expect to be sales market in in X Ship expected pressure points, is backlog though reflecting China and up is and business mid-single about first to from least on half. the the Book declines Asia-Pacific we at up flat be the

expect to up equipment basis We be flat profit points. XX new to margins

due will mix and productivity We cost from expense and offset commodities. This snap back regional expect XXXX project volume, million actions. roughly by be some of unfavorable in $XXX containment and partially tailwinds pricing, SG&A to

closeouts productivity and to We drive year as will both and progresses project out strong on installation drive continue to material performance. the

expected to on growth we service grow solid organic with repair two increasing to mid-single X.X% repair Slide maintenance portfolio another XX. expect driven X%. service in to and anticipate digit of sales or by Maintenance are Turning our to X.X% strong organic Starting years sales pricing growth, low and outlook X% and year sales, COVID-related recovery. after

X pricing churn. than for point mix more adjusting and of expect after We

launches For our execute of drive digits we on single focus and modernization, specialization. we a business anticipate force Ship organic product on mid and from solid sales sales and backlog as to Book high new

to wage margin Headwinds more expansion. price of we than Turning similar basis annual to profit, points volume, by expect drivers offset be roughly will from productivity XX and XXXX. inflation

XXXX bridge. for Slide the to adjusted XX Turning EPS

are We adjusted $X.XX of $X.XX driven growth. expecting operating EPS $X.XX to by profit to in $X.XX

expense $X.XX at offset tax million interest a $XXX million Zardoya Forex to increase share We midpoint to in modest and through expect $X.XX continued the year. complete count, of lower remaining a rate. to of accretion $XXX repurchases in the of a plan optimization headwind and share We during

half second For equipment the We and cadence, China, we see overhang expect thereafter, a in in performance while year, growth roughly stronger second the the half bulk impact strong in EPS COVID growth new remains the better year. of the first China of flat. in quarter. We FX half the in first anticipate the modest the of headwind, post in supply sequentially chain including lockdown

cash year of margin to EPS free consistent net continue XX the billion X% macro to on with execution to midpoint. $X.X anticipate approximately we in of X% XX we points cash, This of another Overall, to at XX% value. organic solid Otis growth. growth we meaningful of income mitigate to outlook expect in basis sales leading and basis create to shareholder And GAAP X% generate points flow as conversion operational demonstrates billion $X.XX and challenges to XXXX, XXX% expansion

With please I request line open for that, questions. will to the Norma

Operator

question Thank from you. Julian [Operator Our Mitchell comes Barclays. first from Instructions]

Your line open. is now

Julian Mitchell

and thanks very morning much. Good Hi.

the commentary we the those up Should to expect of dig bit performance? more first in headwinds starting the in maybe quarter? a the of see terms the be And a to for little very homing I EPS into out how around sequentially of still you assumptions more in a wanted kind QX good just on after First off, market in some suppose I QX. just little orders year bit China

Judy Marks

Julian. Judy. morning, good Well, It’s

what absenteeism new seeing tell Year. on a New fluid Let start would was in the lockdowns. in really in team’s COVID-related liquidity the you up with me all that from We Chinese the back what situation with come now. recovery challenging really were being as between quarter, again, we’re with we of in fourth on and the ground a ground. Chinese performance pleased quarter It’s is I orders with equipment our the state the a the economy

watch to closely. that going We’re

on where changes the in liquidity property consumer the But QX terms came XXXX lockdowns XX% XXX,XXX and lifting, of which about We down the XX%. between about the with we’re and that monitoring what we’re outbreaks. then in and market units. COVID thought seeing the which came And market. is confidence is and shared, in the XXX,XXX led was saw where we where sentiment we to the down easing, in between Obviously QX abrupt expected think and we some

we first of and by first XXXX, of quarters encouraged we’re as very few actions the So all, to date. through go the policy government

We are second expecting better a half.

was see segment We down But have in very first XX% market in half XXXX. harder China, a up an well XXXX of in was only and the that first infrastructure did there. that on what market, a half based we compare did the in was happening we up

well. X were by Perry been and executed has and very agents strategy impacted market. And there the the we’ve executed on team Tier down X in negatively that. distributors again, key you just focused accounts really know and China least the and on our

did China. feeling expect X% down down in of well. down I’ll were versus health our XX% in do well, we market good we digits about leave with, it a XX% business and In to XXXX mid-single So as the down well to I’m market a a we market in

share gained last we year. So

talk backlog. us let going enable with Anurag the question. strategy we’re Our to I’ll EPS will and in do to that,

Anurag Maheshwari

for to From first. year a guidance. with factor Judy. modernization start Yes, performance some the service on mix, swing one perspective, the call but just of year, major growth repair, Julian, be so margin close The quarter ran or expansion Thanks, full line and good expect could segments be aren’t in we to Great. the at see not basis with me the It anything let may to through expansion. overall still and but expect out year. regarding mid-single we XX be kind points digit we as the

segment The do expect a is from new perspective. margin we that a a equipment some weakness and both sales

start Judy of to year, the performance second didn’t go impact compared course the quarter. better expect year. we China – compare COVID as as we And do tough the as China really we as a Specifically in the mentioned, while last through until

it expecting We of second aren’t to until year. the happen the half

the the and But well which chain is there shortages, supply or Americas in fourth to still team expected very the In up quarter. some I quarter. second third performed inefficiencies labor in clear

overall, to So margins on be ended we up where and expect quarter-over-quarter new sales be equipment with down the the to above fourth flattish and year-over-year, quarter. side we in

to of kind year light expenses. the corporate did. Last going first all the we was because with items, of cost Now starting other containment the half line

to going is what similar it – the So rate’s saw the fourth quarter. to up very in pick going to run we

could So the time side, a will come in said the was euro there quarter point a bulk there. the was in and we’ve of $X.XX, over it headwinds at million renminbi couple year be midpoint about of because last FX this FX headwind And of pennies then $XX $X.XX. of on at the first the

a there the currencies though headwind. So still have is improved, significant

come FX So in the quarter. first headwind will of majority our

it together, couple be expect putting pennies. a we So EPS all down of do to

offset kind service the any in the performance the Forex will know, equipment accretion. you of and corporate As new good Zardoya

be also and pennies sequentially net-net a down couple $X.XX $X.XX. down So or could of

Julian Mitchell

That’s extremely much. Thanks helpful. very

Operator

Thank our you. next for One question. moment

Steve question comes Tusa from JPMorgan. with next Our

are mute? now your Mr. Your line now line on open. Steve, Tusa, is is you open.

Michael Rednor

go you. question. Norma, Thank the let’s to next

Operator

next moment for question. you. One Thank our

Capital comes RBC Our from Markets. next question with Housden Nick

is line now open. Your

Nick Housden

I’ll Thanks just Hi, one. taking ask Yes. for question. everyone. my

that as for just able to hinted over and already X.X% maintenance escalation Looking at seem guiding and clauses X% X% that you’re of is the particular I’m increasing in of organic. in are outlook up and thinking, competent to you units and enforce you kind you pretty probably is the kind the X.X% in maintain going level. slide. up Pricing at being

the it X% think am looks being new a to going a into? a competitive I a do little with midpoint Pacific, the conservative? Asia guidance pricing where X.X% wrong bit in So units more And maybe are bit is X% lot Thanks. volumes, in pricing, that of to

Judy Marks

Nick, – afternoon. good me Let

digit X walk. Let similar me let we’ve gains and was Listen, points is was Pacific. in comments, more less predicted. question – service drivers this are then really answer pricing, QX through Asia mid-single really And EMEA I’ll in price we the solid Mature in got productivity, his Anurag China. kind the pricing been take you markets and as the in where on strong digit Anurag margin very the to volume of low pricing single and like-for-like on pleased as and globally QX we’ve up in said saw and Americas, density

XXXX, a North X%. think – XXXX contracts, in we they contracts should in service But lot the now, And have The Europe inflationary that’s by the of clauses be driven signing reflect the them better clauses America. looking, we are contracts will majority really And right quarter. are especially so like-for-like Europe of that and in than Western inflation our first we backward Western those indices. in

– how So share will able we’re be to able that. next to on quarter performing be to

pricing able lot and a where company But for to from being team a was many service deserves pivoted it discount kind We to of credit. pricing’s justified. price, being especially years healthy, of appropriate gain

Anurag Maheshwari

add that And to growth in Yes. just terms XXXX. for of to the

the in XXXX. about mix, our you a are it than spoke adjust yes, add but is at should we midpoint X%, up and pieces that be then in were the different. pricing, you bit for where So about X% higher to together churn XXXX, Judy right we you’re for The which what is and the put as portfolio where you XXXX, X% similar growth little growth is very

or the three coming XX% my CAGR the business over Repair Repair as in years past running mentioned I at been we’ve of is on prepared out a comments, two COVID.

happened Maintenance But on increasing bit the be just a penetration. – outgrow as new year catch of going be years. the Maintenance business. continue on repair And business up from then should typically business little forward, a this our past the Repair what strategy will because in outpace there’ll Now, to the two three packages, we it

that’s saying mid-single low So why we’re to digit.

is modernization around percent midpoint. it’s – X-ish And pretty the at

are X.X%. to us the those pieces So which get

if be bit little ship there comes over and repair little But a could the the now at Now, is a we better, in midpoint feel clearly, calibrated more better, book pricing there. the bit and right of guidance. modernization well

Nick Housden

great. Okay, That’s helpful. you. Thank very

Operator

you. Thank Gautam our And our next next for One Cowen. comes moment with from Khanna question question.

Your now is line open.

Unidentified Analyst

Hi guys. This is actually Jack on for Gautam today. Thanks for the question.

Judy Marks

Hi, Jack.

Unidentified Analyst

there. Hi,

quick on end Just question first just comments of your on a of kind demand market kind on perspective to back question. the the Judy’s

global the backdrop any so of sort seeing seeing of what then you’re you’re far? municipalities end XXXX maybe any defer in seeing you’re of today with other market kind if versus seeing macro what anything parsing And Just or or resi commercial infrastructure? slowing or kind here, you’re just by customers helpful. kind there if kind be field would in of then and the projects Just maybe of geography by

Judy Marks

to and try me both let parts. Jack, Sure. respond

be me with in and Pacific into really the this overall that the urbanization really Southeast part start in and in Korea, due Asia accelerating expecting actually solid and I’ll solid service, Asia we’re world. with break growth should India. where market to Let expectations start in new seeing any I’ll And equipment and growth. It’s not and growth and slowing for infrastructure of new we’re equipment because

the is market. think XXXX. the strong XXXX worse in be was in to incredibly an market a going XXXX Americas, little we it’s For than

XX.X. rising First XX, a the for past half we’re half, stronger been really as and the has construction, at still Architects Index three seeing including saw strong market second on Momentum than the Dodge months Index Billing under but we December but

So we’re watching that carefully.

think EMEA, In flattish. we

facing. it’s are but is potential bounced EMEA that as a you, despite to consumers in residential all East terms the part resilient tell well. back so balancing seen I’ll headwinds, have Middle the East, market grow market’s in going end more strong demand growing. smaller is far Europe really And challenges including has become we although Europe We’re the the of nicely our Middle of

to in than last The good news going year-on-year it’s China, better year. be

in looks half, we’re X% little and half then predicting on Again, expect first Second a segment we through down half. the the XXXX, better. to acceleration to down, see second XX% more

at look we’re the on new as And at we got great this XXXX backlog slide. we in we’ve shared for equipment. outlook that prepared that So, because XX%

end the the digit mid-single just market’s Asia make I growing year. regions. Modernization low-single growth that market led equipment after nicely recall digit new solid to all the in really turn It’s market. after minimal in When It’s And developed and have the swings digit year grow impact year up you really the it’s on and I regions, going in to mid-single Service we’re by that. just business, service for markets. is all ready

continue backlog mod X% in to a – XXXX. with mod, we to side in going and on We’re expect to to continue demand grow from a

in infrastructure. We’ve seen we yet. But XXXX. It that metros other the the Act positive and – projects. China again, not of the Act in later the Reduction seen terms segment grew slowing the only sector see infrastructure and not have impact cycle in We on did Inflationary also good a infrastructure. – airports, America in We of see that Reduction North was

So good. we’re feeling

our through, take is strong. looking again, us we’ll coming watch take think book in our and the Our early forward us Service the and we’re XXXX. mod new to year. backlog through And is going on and will business backlog, to equipment bill But we in

Unidentified Analyst

in cost and sort quickly of converting Anurag, Thanks, on that’s helpful. one price here. quick the Judy. just really then assumptions for one And really margin just XXXX backlog Yes,

of of cost what over in you’re how thinking roll just Just XXXX? your kind material Thanks. on XXXX? of assumptions here kind of in raw are snapping the seeing Kind high level, about line price sort

Anurag Maheshwari

the question. for Thanks great. Okay,

midpoint. is cost XXXX. as well margin the you price it So mean, expansion in see happening that’s the can at from positive I

through assumed if first And up coming – up backlog the for next the at is our it’s while about we half, positive. roughly flattish basis not reason our still are are into for margins years, backlog basis convert pricing come is have I have seeing pricing, X% backlog the price over to into some what started takes And of And this later you a actually after pricing basis million. going XXX it what look the up XX that P&L, mean, will XX which in So points right but is about now points $XX-ish points. is into year, revenue, we year in back and of half. we

In million Slightly On came commodity headwind. Europe past came do look $XX rest $XX the more we and Americas that years. seeing $XX some million And a commodities, and over come $XX and it though million, two XX% than headwind, about are If $XXX we $XXX locked, tailwind. the million from and started China, over of million to see prices of from steel back as still down. Asia. of we back we about years, have about faced of of $XXX coming expect on Americas the China, we're coming million we million down

So that very positive. clearly, is

tailwinds ago. Asia-Pacific up at if two now. not It In the from where you years set EMEA and is actually guide in rails, XX% right where was Europe, we're look in seeing it it

come suppliers, commodities. $XX in yet And overall, well. we from a Tier on about clearly, million So we and over But Asia, there. not down some $XX buy X as is there lot see a headwind tailwind million, that's

So net-net positive. between it's price and commodities,

Unidentified Analyst

Thank you.

Operator

Nigel question Research. moment comes our question. for One you. And Wolfe from with our next Coe Thank next

open. Your line is now

Nigel Coe

question. everyone. Good for Thanks the Thanks. morning,

you some in And out impacts monitor on the Equipment. to margins. New and wanted called mix of puts think I take Just

mean on invest. clarify just my what of So that on I the double-click question continue real just the just sort are. mixed maybe headwinds to is you to But really and investments,

maybe retention just I initiatives. talk successful spend and the on very think But focus investment about going forward? it's for recaptures the been

Judy Marks

talk we've spend, yield Yes, Let terms are focused independent, think our Anurag have me investments extremely innovation. – then I to business, became on obviously seen, our our and investment focused in the been with start on I'll strategy will and on in you've markets, focused been since of mix. the we we we've Nigel, that

been that's using business, So continue apps field the – service investments to our both more in incredible they've incredible continued show making we've we've promise. productive done and in professionals that yielded our our

Tune Our XX%. of up app terms is in usage,

service in we've got our of lot ordered. terms field, a being of the parts In

– selling of sales And our extended app our using are field professionals part force and upgrade sales the being repairs. our also

that's predictive, being to It's in And define the and all to It's for best install well information is get on yield productivity ecosystem. these having we continued side we of service on transparent strategy Otis ONE. our the that strategy available we're the going again, for stickiness. both ONE, where working where but our connected. customer Otis investment So linchpin our

customer stickiness by higher XXX,XXX two That's year larger this on over also So what our units be – and that did should coverage XX% where the of trajectory our And ways. productivity in becoming running number. again off units We to heading. We're a seeing that medium X.X in X.X we're on side, well that point what's where million that. on on arrivals we'll said be down. the deploy side XXXX this our the we're we're portfolio, XX% seeing, And results that we of over seeing we're two year. seeing are million term, it

higher are like rates we're getting when more our for product, EV service. getting One connected we product rates. and then conversion higher retention any is connected, or And in price we're

Our were rate will retention because forward report with. They're service-driven can the retention validity XX% our that have a at I pleased that this we significant strategy. to we XX%. to growth look rates year, day

to and this being this think XX% well. up they year. ended And as a where Gen units was lot going in that, X Conversions ONE to were our up year especially connected Otis our due elevators of I China,

path then, now a is which So And rate. we globally, to the we think be about on that at get as conversion at to China its XX% target, we're conversion. will XX% is XX%, And margin our continues higher globally, conversion.

the it medium-term that at that including On what XXXX. about the guide portfolio ONE. X%, us take higher. is is can the Otis X.X% for even product in gives this we is believe higher, that we we that can the get connected though growth conviction shared do portfolio itself, we It that Even

So Equipment continuing. New all-in-all, are side investments in the

is spend R&D Our there.

investments Our expanding there. and are X Gen really strategic We're with pleased GenXXX.

we proposition well it's service is reflected the value Otis the and our expansion for margin side, the working, ONE shareholders. believe customers in our as for On

for mix. Anurag, So to it you over turn let me

Anurag Maheshwari

Thanks. Yes.

our year on about to productivity XXXX. see, for we can you other the ways that. Last for as basis continue points, grow And year, we'll So grew side, XX this look investment we're margins. and to still offset invest guiding of we'll kind

the mix, On mix. it's two, and it's project regional or product

market up the single-digit. China are China. are little markets year to whereas high flat, to even us. if regional And Equipment in a Asia New did look that higher we guiding mid for XXXX, be China and bit last be you But mix, the XXXX, is single-digit other better for than at On Americas-EMEA to you aware margin mid as a

bigger three as But of announcements coming projects, share adds as past the obviously little mix on, seen lot bit it us part has regional of as mix. over or been verticals, project be is that strategy years, volume a to impact infrastructure, major growth more So impact. a you've making looking from we mix our the grow on And major our two won a well the projects. of others at different and

volume And definitely very but business. margin the in lower stickiness, than very are, maintenance the good more projects high they they business, are margin, major with come good very

little So there's into of XXXX impact, healthy as that a beyond. have XX% a that go and backlog of we we bit

Nigel Coe

you detail. ask want say out those I on – Thanks I sense. of How Makes ONE to the Otis questions. much my just connected two for called to a today. that. that half, I was elevators But but XXX,XXX connectivity? about clarify question guess want

Judy Marks

about half. think I accurate, Yes, that's

Nigel Coe

Judy. thanks great, Yes,

Judy Marks

You bet.

Operator

our the question from of for JPMorgan. Steve And Thank with One line comes our next moment question. next Tusa you.

Your open. line is now

Steve Tusa

Hey, good morning.

Judy Marks

Steve. Hey,

Steve Tusa

– we this I so calls I was think overlap. got going me. some you other on you morning, called

just info lot. that. little on that year-over-year. a a more improved much have about Sorry more Maybe X% we how bit or is may Obviously, little Can get a around precision like attrition retention?

Maybe there's XX%. So a that, just more on there. the little from precision nuance some

Judy Marks

they're to We in relationship want then retention back. And between decades is most a Retention, churn decades. – the having start customer margin, them into we that shared to the Steve, we've modernization and and got there's and We've chart net Yes. into that recaptures. we last us. that important individual just at that's where focus for positive it, units we the highest net a our hope get –

have at price with was Two, it is retention So sales the they up really and XX%. items. out. last sure It's sales to call lower the by few the it a that accretive. terms aligned it's capturing for best slightly, units I'll where with And healthy, XXXX. we and at all – go close to about they was actually And up. recapture but I'd you that and of we a want recapture have can that say One our was driven specialization in normal because of make pretty see it's in would though, at we Otis conversion, on a reps density do. that, they focus than that are but optimal we is

that continue through offering the on And the we is on And second our we went do to connected makes investment, at that customers. difference go the when XXXX. recapture a specialists make and data hit their ONE. units to really them – really saw recapture level Otis we So as stride the capital we

a and difference. portfolios they those And back. they're we it can involved the been makes have, We of a going their dashboard offer. really to to them I've in some few show win have personally calls ecosystem visibility whole sales the

that's two doing. and strategy, helped, And so that's to our really have – continue it's going what and been combined really we're those

Steve Tusa

on And there of then base, calling the installed in it's attrition I part a out? the China. know trends but worth any just growing

Judy Marks

– our consistent I little I is over straight think high in portfolio, shared Obviously, what mid a And to that's XXX,XXX we've think sixth It's say. with anomalies. of units. grown. see didn't China, it's our pretty portfolio service it's China. would huge I our XXXX is single-digit We growth portfolio quarter in

And so we're continuing, recapture, did well there.

that. to – that continuing are segment, in teens monitor straight because again in our continuing that for our expect to XXXX. six be we and team against we're But we teams China So the growth quarters, of the in – expect service

Steve Tusa

lot. Great, thanks a

Operator

Paribas. Instructions] BNP Exane next with question [Operator you. Thank And from our Miguel comes Borrega

open. now Your line is

Miguel Borrega

everyone. of morning, couple questions. good a I've Hi, got

The the today levels? that know first on versus, one your you in China, this don't margin evolved years? color compare has for your I margin can some does for this, on example, but how Equipment give How us you disclose New over pre-COVID

the longer term, keeping much China were is on Europe what direction a Thank profitable the at you. for And maybe can U.S.? give moment, orders? you of margins in travel for And sense margins than, the us new then or more example, why

Anurag Maheshwari

Okay.

there. think over I questions three there were

start with margin. We regions. by me let New So China Equipment margin the don't disclose

Equipment, it for you It's higher. New is business If China at a look margin good us. slightly

to of commodities at last that Importantly, decline, if through all you year that look mitigate amount we we volume a faced, even the significant with the were able headwinds still productivity.

to And because guiding So XXXX we margins we're the Equipment almost of this held of to productivity business. strong the quite where be, even New back have the margins year, to business are actually levels. our

Despite headwinds $XXX million. commodity a million, volume being flattish or of XX% through slightly down, about going China volume $XXX being and down

headwinds in the the would of direction. margins now. I where we able way the that we've And is right to mitigate quite say So been get happy are to right to trending clearly, some we're all the with are

Yes.

So margin regarding had Equipment first past of increases are. that's margins over trending where We've question trending our the quarters. is up. backlog price up. is on couple New Backlog The the

declined at are are proposals year, of don't in over market the new kind through we move it And would pricing and but where backlog inch this margin should of in, sticking and look commodities course we along there. going the point, that above our – you where it's XXXX, give our where orders new the year. and as If encouraging again, Yes. exiting of on point the margin price kind specific to we're guidance We, up right by backlog are where one one in now. see be,

couldn't And I question sorry, completely. the question? what third the quite was get

If that, Miguel. you just repeat could

Miguel Borrega

of down on sense margins the or Rest Well, just give we of China the Europe see us between spread U.S.? trending World. shouldn't the a conversion to like and more some the Why in kind

Anurag Maheshwari

keep the productivity. of terms us in there for Yes, when over accretive margins still it's driving we

So the we're productivity, up. that – see of upon embarking kind strategy will margins of we inching digitalization the the it kind of should

on end net-net, which with expansion region, we margin the on points seeing by the of and year, But all the across expansion XX doing margins side, service country. medium-term tools regions. mean high differ a we I is margin obviously, will by are basis all And the we're this guidance. see

Miguel Borrega

flow and a And you. not to normalizing? XXXX do XXX%; just between I your then XXXX, bit see XXX% was XXX%. and Thank question conversion, little also this cash XXX%, guide only Because you get XXXX, now but further on on free last one Where wanted views, away. you

do your real XXXX much. basically contributing working the with And that in less developers? on, China see you can ground any this capital? you you Do China estate improvements what's in color improving some to get today? of very going if more see Maybe Is financing there? on to we Thank

Anurag Maheshwari

Yes.

is progressing quite me well. So actually, take back, let capital in working collection China our

we XXX% sure income, get up we of make our support We XXXX. that because built about was little backlog We we If lighter receivables and XXXX, payables, you had a good. look pretty quite which bit finished inventory the at as to Between into strong much this can was a we net quarter. there. came we in fourth very of that are

build inventory the more was out. of it So

driven with Now as for income. offset strategy. a of expenditure is XXXX from XXX% on a modest earnings net what we're we're ONE by our bit essentially at of guiding little the It's midpoint capital growth embarking Otis

takes XXX% net us So that to income.

And we percent level. XXX-ish And that's of you earnings. see the cash what forward, guided move our normalizing as And we should around we've towards. with should that kind grow

Judy Marks

in staying I the we're with it Day you. we – and that that was right our now Yes. And medium-term that's what Investor gave year, February with that. beat the our guide mean consistent me wrap Day. this of last on let I'll we But Thank XXXX, Miguel, guide Investor just and in – is at

Operator

I'm And showing closing remarks. to further Ms. Marks no currently to this like back the over conference I'd time. any hand questions for at

Judy Marks

Well, thank you, Norma.

look strong of business confidence XXXX, year in all industry of dynamics, resiliency a we in riding well. we safe strategic pillars shareholders, as strategic row with the stakeholders, our begin We committed to Our and to to by for XXXX for and success Thank valued remain success the our Supported and new with public. ahead, our deliver demonstrates in sharing our set year performing a third significant we stay us forward our and for the you. order communities year. Please you. customers, provides goals

Operator

conference today's concludes your participation. This call. you for Thank

Everyone, You wonderful disconnect. day. have a now may

Otis Worldwide (OTIS) 2 Feb 232022 Q4 Earnings call transcript