OTIS - Earnings call transcript Q4 2024 | Otis Worldwide Corporation

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Operator

Good morning, and welcome to Otis' Fourth 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' website at www.otis.com.

I'll now turn it over to Rob Citaro, Vice President of Investor Relations. Please go ahead.

Unknown Executive

Sarah. you, Thank Fourth Otis' Earnings Call. Conference Welcome Quarter to XXXX

otherwise today Marks, Mendez, be appendix to Chair, On except Vice the significant and results can Judy items. me with where note, excluding Please the Christina 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

Now I'd to Judy. the like turn call over to

Judith Marks

morning, joining momentum service-driven XXXX and you Otis express of to quarter our the listening Good Thank and strategy, our demonstration XXXX We confidence in everyone that for year, afternoon us. enter the of hope dedication through their safe solid work, and everyone. want for around with and I our execution is customers well. business results fourth these and full with finished evening, Thank you, both We results, Rob. we our to hard so of our globe, gratitude colleagues absolutes. the for my commitment achieved We and model.

Modernization XX% quarter, stands up impact with We industry third more which X.X% up our our X.X% ahead. constant portfolio quarter driven and maintenance X% year, at the the our grew the of in service currency, well approximately year modernization in by than repair XXXX. We the which units, performance highlight Slide on our a XX% now of maintenance sets at grew grew performance validating organic in We our for for X.X X. in and strong growth backlog year was with million Starting contribution while the orders portfolio and modernization. in by and service, sales achieved continued ended the consecutive both great and leading flywheel. us

free quarter, in in driven spin. the generated million net collections is reduction a working Cash adjusted highest of We result $XXX capital. our cash since and generation our was by quarterly flow excellent which

the of our $XXX customer-centric uplift expected XXXX. continued annual execution now us rate by to strong increase we to Additionally, the enabling of run half second program, savings million the

In current in growth announced earlier for modernization a China of to and in China we this month, transformation and our the business position better service environment. evolving addition, market ourselves

in our in transitioning new and China mod equipment streams flywheel. our We revenue are our profit underway from to well service and

make ESG take strategy. decisions and ESG we on recognition world We for the also the of that are the row with and received consideration as around sustainable made from stakeholders. customers they third meaningful a quarter, EcoVadis. to pursue progress that our aligned this demonstrates Many a our procurement drive business gold execute into In for that strongly our value in we on rating initiatives year strategies fourth continue

since spin year XX overall expansion. we margin operating growth and adjusted consecutive profit for delivered the points sales In basis XXXX, fourth organic of

our is management We allowing Despite EPS in through billion believe new adjusted of X.X% shareholders the grew to have XX return XX%. basis adjusted expanded company points and We macro headwinds every our we billion or industry our in of margin year finished since cash equipment to XXXX strong and share more by maintained at spin. equipment year the strategy us XXXX, free $X.X with shareholder-driven faced flow repurchases. $X.X share sustainable. approximately dividends We cash new

Slide on Turning to our X. performance orders

quarter, the in challenging conditions, China. declined X% to market orders continued in Equipment New due primarily

in teens X of half increased New mid-teens Latin orders growth delivered orders Americas Equipment the approximately a second The high in strong strong months, with America. in QX, last performance China, the year, including XX%. Excluding growing

the results greater growth solid with region. XX% Pacific than Asia delivered across

digits declined the declined full than Orders continued In EMEA the up single quarter in China, Western high but year in Europe, more by in X.X%. due XX% demand. weakness in orders quarter, to soft finished the including

Our We year new constant as in I equipment prior backlog the orders was at XX% China, up including was excluding than down X% noted, backlog China up with, year versus widespread, Modernization versus low with Growth the bounced it single modernization as growth. ended back year, was the currency. up greater XX% constant currency XX%. QX at although digits. prior expected

quarter mix backlog where from and markets we refurbishment. modernization there's point orders a of concentration in equipment new to units combined higher modernization grew with and as to drive down other mature need continue and and a X equipment aged modernization China the in New shift in

EMEA. growth Our driving in the approximately position growth our X.X% #X Asia All our million service portfolio now were conversions. and consecutive and grew approximately mid-single-digit low the globally. China, as through neutral Pacific churn net growth noted Globally, cancellations in X contributed in Americas stands at strengthening and single-digit at and units, and leaving positively with net growth X.X mid-teens both third for recaptures year, regions

of As globally. approximately X year-end connected we million have XXXX, units

profitability and and serve driving We while to our to innovate adapt growth changing continue our to better to across business. demands market customers

GenX urban are continued out cities we smart platforms, elevator our developed Pacific, increasingly connected areas. launching being Asia where in roll to across For digitally example, major

customers' features flagship addition, In are globally, that a to launched new product escalator our the that critical provides we infrastructure public needs. enhanced

this the standards out for passengers. packages experience global for ready to global which significant business, uniting With comfortable is a their our million provide units for to safety lever portfolio. We modernization more also installed modernization a and million opportunity to rolled customers to XX plan a our the help service be and proactively is growth of X to their new upgrade upgraded, our latest

and strategic sales innovate relatively invest reflecting remained to and year, investments R&D efficiently. X.X% ability at of stable the Overall, about for our

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

Mexico, For will XXX example, facilities. Mexican the install Social units Institute at Security Otis in

transportation Our And added elevators the by joining hospitals portfolio, our will XX the upon Otis. XXX reliable serviced clinics to and maintenance be country. at vertical public agency's existing safe will and completion, nearly IMSS already by the help support mission across elevators providing

And destination will XXX use will across modernize floors Hyderabad a install in Northwest which XX upgrade India, units XX Line In will system towers, X apartments. India's X. residential Otis TriLite Otis on China, will the Wuhan, XX than In set first will Airport China, in city's of units the project. the XX Compass up Otis Otis towers in a stations Xi'an XX we be residential across escalators in high-rise luxury infrastructure we to walkways modernize These of and the XXX elevators. management At stand more projects. X Metro moving tall

Finally, Ellison in more the the will Development Institute laboratory and gathering Otis Research XX,XXX care lift and preventive U.K., and and than oncology incorporate research at Technologies XX spaces. educational clinic and Oxford space will campus of square interdisciplinary install and X of elevators platform that meters

and grew or a Turning X.X%. by X% count. a to headwind, organic million X. with Slide up sales exchange our of in billion profit, fourth quarter the strong driven operating sales share the benefit results up lower net $X.XX was $XX segment. quarter EPS million approximately of excluding foreign $X $X.X Otis the Service operational Adjusted Adjusted performance on with delivered

With walk our more detail. results that, turn Christina I'll through to to XXXX over in it

Cristina Mendez

Thank segment quarter organic which X. performance sales you, sales on was service, growth X.X%. Judy. the driven Starting with Slide in by Total was up

sales backlog to is than mid-single of into greater Latin business. in strength quarter digits the heading Pacific best-performing were quarter growth declining India, equipment growing sales regions each XX%. credit in led X.X% was all growth sales Americas, control partially EMEA with with together organic new on a execution. were with offset lines down of in greater was Asia back and digit decline Equipment the Service down regions other New China, shipments backlog America. up This, X.X%, a which and with the mid-single of or of mid-teens. strong China Within and all This our the strict the in year Spain by notable organic

repair further including was more regions, continued volumes pricing and driving with efforts XX% of X.X% and excluding impact the to Maintenance continued Pacific from together approximately in in year. our Pricing points, growth, than with all growing churn. disciplined benefiting XX%, sales were X up growth each and modernization with accelerated sales up mix XX% Asia this strategy. in maintenance Repair across growth the growth quarter quarter portfolio

performance Slide profit on X. Turning segment operating to

came were $XX including the X.X%. uplift of headwinds equipment volume profit in million mix the driven commodity currency, and and product and by profit from million by partially of lower operating was expected costs. Operating constant margins offset largely at $XX as regional New lower productivity, at benefits that down

down Equipment points basis currency, operating with $XX full million at partially and mitigated uplift was XX offsetting lower prior being through from China the increased productivity, wage the constant the operating X.X%, softness more profit $XXX annual of including million year, with For in higher operating versus pricing volume, New Service favorable year, tailwinds. inflation. finished constant currency $XX commodity million at benefits and pricing the productivity, at profit margin than

to our quarter profit operating XX% Operating accounted profit year. the XX.X% margins XX% to profit points expanded and XXXX XX.X% basis basis in XX of in the Service full XX to last operating year. points in compared for overall

interest EPS effective to tax bridge X. tax together adjusted our our the rate XXXX count Below on tax increased continued adjusted grew the XX.X%, currency. offset focus rate, Adjusted from $X.XX at including by declined than EPS reduced expense. the point [indiscernible] Slide a solid by to by NCI, year constant optimizing $X.XX full Moving and year rates the share growth operational more service or lower headwinds than performance. in driven with X XXXX in line, more on X.X%, continued effective

collections. the finish our highest since the XXXX flow expected cash with driven mainly 'XX Overall, capital QX, year. quarterly Additionally, working in we the excellent strong improvement performance throughout finished delivering year with by in to ], a solid [

challenging to on conditions high shareholders the of we have in strategy. of the resilience service-driven delivered sustained back execution China, We equipment deliver anticipated, market EPS to continue proving service growth single-digit value model. our of as Despite business new our

to I back XXXX Judy it outlook. our to will discuss now turn

Judith Marks

X on Slide outlook. the Starting with market Christina. Thanks,

Latin North America mid-single-digit digits growth in low the New For up and single-digit XXXX Equipment in Americas, the with America. market in mid-single growth was in

expect second in anticipate the the in driven was started Central be will XXXX, market We down by continue will the digits. single Americas XXXX, low market overall half digits up Europe. the primarily in XXXX of EMEA, and that improvement In Western mid-single and that that market

XXXX, XXXX. anticipate to moderate not markets these Although compared will the we recover that decline in X expected to is

in solid with market EMEA expected XXXX overall up the market to new of approximately the growth market digits, down low was Asia Asia, which offsetting We've increase estimate XX% the approximately continued Pacific, In the in partially China, seen the single equipment decline in XX% total, reduction XXXX. China we about an down height digits. XX%. In is since low single was in

XXXX. expect in the will China Although to remains decline to XXXX situation We new market late XX% we believe the in resetting the fluid, this level. approximately China stabilize market

mid-single Korea with while growth, Asia to be Pacific up again the down Southeast is India digits expected and to Japan be be is is to flat. expected expected and Asia driving

equipment sequential XXXX, the offset compared a digits Pacific in with more by be growth EMEA improvement and trends in expect market in mid-single than equipment the we Overall, the new XXXX. in the decline to down in This new in global Asia XXXX will China. represents market Americas, units

global to mid-single at grow Service, the million of digits, reaching In units approximately installed XX XXXX. continues base the end

driven As growth mid-single-digit we XXXX, anticipate growth we by continued all to regions. in turn

XX base approximately global reach the Taken expect together, at installed million we year-end. to units

financial to Turning outlook for our XXXX.

X% to organically expected headwinds. of profit and exchange sales X% in actual net foreign be $X.X up operating expect actual billion, X% excluding currency, growing to We currency. to $XXX million to to billion between $XX.X million, $XXX million and down to $X.X $XX.X billion, Adjusted $XXX million up in X% million $XX is or

prior more than We the range expect X% X% versus up the and to year the to of XX% guide. in at or $X the midpoint adjusted of $X.XX, EPS

free expect adjusted we of billion. approximately Finally, cash flow $X.X

will shares M&A. We and allocation disciplined to and grow capital million dividend continue XXXX, payout expect of our in to approximately strategy our $XXX execute $XXX pursue million repurchase in bolt-on on approximately

XX. to Turning Slide

and margin-accretive strong evolve working this our the years, over deriving several over it's emphasis foresaw a but and an shifted have new as a the equipment from on been in the with emphasis is base our maintenance, globally installed an in business delivered XX% boom installed shifting model, a sales. The to market, important customer resetting has growing. That's After past dramatically. discussed market. large now requires we've We entering years prime today. total high-growth overtime regular market. are that XX sales repair on lifetime China as large from and market As mature last units many very of age repair modernization. value modernization the units to and approximately The a Each of XX and to modernization. maintenance, for construction is the built years over China modernization XX unit opportunity The

presents now drive China expand our portfolio tremendous and maintenance a significant growth service-driven modernization our opportunity deliver to orders, business in model.

China our Equipment flywheel strategy. New on are to operations in our We and China Service both transforming deliver Service

and with portfolio to Through expansion. we in profitably and our Service targeting focus margin annual efforts, on growth our growth quality low-teens -- investing our recaptures. are business are We conversions grow through a portfolio performance

our Our service China approximately total of revenue revenue. X/X is now

an and distributor than Equipment After and for equipment and we're a in growth. units as our to more modernization late will growth. the XX% XXX,XXX XX% win more to adapting multiyear industry then, for share XXX,XXX sales, well. annual see years, in XXXX. it We we're increasing modernization, accelerate units New at mid-teens CAGR approximately units. believe the a agent mature units XXX,XXX of at Equipment new peaked Since environment XX we're Equipment in approximately XXX,XXX market targeting growing market order New than network declined We stabilize To 'XX between XXXX. have engaging opportunity, greater Within New

X from from XXXX addition the through strategy, are have served flywheel structure drive This our run enabled million in simplifying XXX% which our Equipment operations and New annual from separate us to manufacturing $XX has well approximately in consolidating rate. portfolio. to XXXX. business operated China, a brands grow operate savings largely uplift historically in additional in The and currently efficiencies product of independently. our we To XXXX We our deliver to us will million to year sales with cost rationalizing $XX exiting and over

initiatives, a these continue important China, have market. for all which and position to underway to together, which large Otis in revenue Taken and will been a Service grow margin while, be

and second We've $XXX tremendous have $XX had approximately expect with in savings of XX. Slide deliver savings XXXX. to of Turning million We program unlocked by rate XXXX. million success now our uplift the half to of run

$XX with are million. our a in-year with together Taken targeting we XXXX savings of in China and transformation, rate target year exiting approximately savings run the of million $XXX

me With outline detail. that, XXXX let hand to more it the in segment back to Christina outlook

Cai Von Rumohr

a and segment. strong Taking expected Judy. look detailed XX. our are Service you, sales to up at Thank in X%, to by be organic performance X% Total our sales with more continued driven starting outlook slide on

with in XXXX. this driven new China continued versus Total Asia expect by equipment digits be in to down improvement We expected we half be demand, year. the single to mid-single pressures in offset to low down down Pacific, decline by sales a low impacted X% work a growth be is helping due backlog, strong lower decline organic digits X% foresee to of We to although a the market soft China. Asia to sequential as Americas a the represents in partially first through last to

our mid-single back execute to from year-end. portfolio strong of with expected to XXXX. our performance repair to digits. up digits up line X% over service in We to EMEA strong X% and growth we overall in with is and to the continue growth mid-single X%, that be sustained maintenance as backlog anticipate This anticipated up organic single includes sales grow high are digits modernization low continued on in on

Turning to Slide XX.

benefits executing in of strategy, and of margin expanding strong back the profit profit operating profitability. will every points strong modernization including our the and basis consistently XXX in backlog industry China on by of terms on our delivered proven setting portfolio, maintenance service benchmark transformation. since on year increasing remain With uplift continue spin, focused we productivity, performance We the industry-leading growth service. growing have We our

in approximately the in be expected we productivity, and we tailwinds impact we A offset from solid constant XXXX. flat in operating foresee our contributor. including a new transformation in Meanwhile, In be currency. including basis delivering all, China is is in and margins were in uplift million mix. benefits to performance Commodities positive XXXX, sustained equipment expanding XX to headwinds expand XXXX, with to expect XXXX. All to the to the XXXX, service however, pricing, in margin anticipated at line $XXX million and volume business, points growth $XXX estimate

XXXX XX. EPS Slide to on the Moving rates

$X.XX with strong foreign that EPS an is performance, around share adjusted interest $X.XX rates. approximately exchange lower of $X.XX for from count based guidance in is operational $X.XX guidance $X a along to growth. headwinds. spot our mitigate a current with and benefits driving for on Note And will the Our on exchange

Excluding this a impact, adjusted represent the in with our year-over-year, guide growth would our midpoint guidance. high of single-digit midterm line EPS

our a second of relatively We realization from cost initiatives the be of the the are and year, uplift in backlog, and trends Service execution business. savings of modernization stronger the growth first our by reflecting loaded our China China half and equipment. transformation repair in expect the to quarters in to be flat Maintenance through resiliency expected driven and and strength of in with second Americas EPS year, level improving and

Turning to Slide XX.

margin execution of midpoint of programs. for China growth year expansion. driven year outlook profit performance XX project currency, by X% operating constant service led and our up Our guidance of by another at and and uplift adjusted another business, the transformation strategic basis profit of our resilient strong consistent XXXX reflects our points We with approximately

forecast support dividend XX% million $X.X adjusted and $XXX which payout. of sales of repurchases free a will Our approximately cash billion, is flow

delivering shareholder long-term generating customers serving service-driven through We and growth model our value. remain business committed to our

that, will the With to please Sarah for line you. questions. I ask Thank open

Operator

[Operator Instructions] of from O'Dea the Fargo. Your line first Joe Wells comes question with

Joseph O'Dea

the to seen trying cost about the context that on of billion if revenue. And that X/X $XX here. about that bit revenue that the expand of where of it are we uplift, as opportunity you seem would a X% equipment think kind go think pool And of that's over just oriented, Can could initiatives targeted like new sort time? the a with more it revisions to we've equipment $X little in that around China it around trying of get in and million upward China roughly maybe savings

Judith Marks

Yes.

Joe, I Let asking have the start, on the business. resetting me team for Sally thanks really and we question. focused Listen, think have and our really

We our have more continue seen changing become of structural a becoming pivot market. mature in to and of change journey we to Otis business, China, structurally to and move a to and it's are more service-oriented

we've you of it year. the exit January, this We terms it. estimate first now working So and what the see change. we're best our we week run as rate made of through And in right is announced

We at also than opportunity mid-teens straight quarter, more at are what to our is base. for the we but installed up of is started every XXth We we with XXX,XXX XX% ensure . ended the portfolio with looking which since again, spin. portfolio, our want possible, XXXX China but units, we ended twice

for that's you this still assume still, journey, X% been but we've So if market on share. China, that's to X% that that's --

introduced all the in the were our really we that need We're mechanics, mod pretty key on quarter. this and you the we fourth we mod to we that of to and we keep investing growing think, quarter. saw, now that of combination China make tranche. a refurbishment doubled focus estimate our And and also them. proud X% secured we in for of skills mod the share that, is business. refurbishment, orders, So X% service succeed of keep want we're in for first market orders that -- stimulus to about strong where as was and sure combination a we

a overlapping about costs us, market-driven out organization, for again, and the Service now So very creating it's stripping and business. excess Mod tuning

Cristina Mendez

the with can And Yes. financials. Judy, complement I

$XX the side. rate in to run So Equipment be primarily expected million New are the

backlog see expect from the towards end year, going a Equipment because in the to flowing a in revenue going but China pricing be XXXX through the it's lower market stabilization moderate plus New flowing pressure the from because backlog additionally, we standpoint, of are also under the through. the the of margins we So to

'XX, that may in in down You remember pricing was China XX%.

new new transformation to in in order we going market the this program, are specifically rightsize adapt So organization, to the with equipment size. to

reduction real We of are targeting in savings will XX% that indirect be year approximately $XX and cost in mid-teens million estate. low reduction to

about the rightsizing Service Now only is about or also the most. program opportunities the and here because It's into investing are not Equipment.

XXXX, Services So the revenues China. of X/X as of of

the and This we brands the We and of market increase this we small X service, same have a to to Consolidating going on will to grow. the are coveraging umbrella. And us allow want the share grow would in service. is be back under teams,

accelerate and agent is being more also Second XX% annual also as on that consolidating the not said, this an to to differentiate Judy value able but portfolio customer needs least, basis. help rationalizing consolidating targeted and than has different address growth, last and and distribution and to modernization would networks

Joseph O'Dea

all a internal looks And expectations. little margin third then Service as to have the the there shy may That's fourth detail. it down and come in of like it the from sequentially quarter quarter, relates and just helpful

so think how forward? that you color on about And and any that moving then margin service

Judith Marks

Yes.

linchpin professionals, Joe, obvious to having that our globe. what the flywheel. we Let in it throughout me field XX,XXX prior In a a and a our made is about end mechanics focused of isn't XXXX, is service skilled qualified field professionals which and lot. But is craft population. everyone available investment mechanics added start. we've field talk probably to X,XXX We the

workforce. a critical don't this curve field an them have that can . But underestimated shortfall. investment direct future we we the come and so of safety productivity with they our is the for We've in fourth X,XXX business, may to we X%, on drive probably the time. and it's but of and labor of in takes the trained absolutely partner have the apprentices, And Because grow mechanics bringing Service as life in quarter, learning we mechanics many increased cost me, we those So them. Modernization. both especially got had our Service, experienced

again, up just field investment. every joined and -- XX,XXX are delivering lot us, to But us. we're are it's day worthwhile So a for who have professionals a

Cristina Mendez

sequential the Joe. on comparison, And

And a right, this 'XX grown have sharper to in versus the is in was we in but are field compared seasonal you see. points So acceleration of absorption that because XX including uplift. has 'XX, it the decline, a had effect basis XXXX. despite vacation you mode, Service past back, XXXX. grew and And in of in in margin of in may it's our QX, It's even when than good rating you this the sales more and performance but modernization on look because efficiencies, XX% XX the basis points is and much

able faster are to XXXX. in grow margin We to terms rating of service compared

Operator

The from Melius Wertheimer comes with next Research. Rob question

Robert Wertheimer

your process field the professionals. curious I'm a the you have thoughts decision in bit little on if mentioned addition there. And any you Judy,

some what maybe deal we your see that on the an rate until guess, maybe -- Does productivity grow you sort workforce there's -- retail productivity think professionals. as anticipate have trend you might productivity can be in above So whatever of with labor existing that would to base there. mode what replacement I aging is your

your thinking decision that workforce? you process expand Just about as

Judith Marks

Rob. thanks, No, Yes.

made invest, across conscious has for And a investment to I think we're this craft, such general because globe. the we that and skilled decision in is across construction us, occurred seeing workforce. many challenges the for markets in the market

to We there. And the our better want growing picking be we we're the service got outlook for know So try going obviously, to 'XX backlog, up to high to modernization portfolio. just can you that single, grow continue prepared. even revenue with We've we'll see do in year-over-year.

first So men and and can us, other apprentices the we some requirements so of in wanted come journey who even the fulfill skilled companies repair maintenance to that have. from for we immediate these get we

XX% is another . year. Our repair about up business for still

or wants their that -- elevator to need we have one we workforce. escalator So no field down,

do most which, indirect our short-term in to XX,XXX impact XX,XXX Again, have us, for workforce you just we've worthwhile capability did an count to So the if But do, Again, aging that's on industrials we're in almost long-term deliver. an a the it I our field think means margins up now, a it's math, and investment. colleagues like margins head quarter. obviously me, in it versus do the fourth service to we have X,XXX. reduced issue

we're So And in the need importantly need to serve. Otis' the more future able customers markets we because for needs markets, we the I think our workforce. right heading in but of direction fulfill for to next in year be we that those

Operator

The next question Mehrotra comes from Amit with UBS.

Amit Mehrotra

you you what's of the China market? in give that Service. market impact think market New some company margins more costs taking giving behind pivot that, mix but sense Equipment that do the that to talk maybe I of I the obviously moving get rent business that Equipment where of this as the structurally? proactively expect terms structurally, Can maybe the related of been target. you're just a the about New of market could kind to Can proactively the And know Service? kind of But highest impact. just you in of go or to New XXXX is you the pivot just towards maybe side, XXX,XXX and has what's Equipment Judy, you market for us on mix there, if out offset you XXX,XXX you to maybe confidence more

Judith Marks

Amit. thanks, No, Yes.

quarter the up of in. total and XX% where we revenue, of all So we year third wrapped going that's ended and as listen, kind -- is which Otis being on it China, fourth we saw

as have environment, deflationary team installation our cost years the said, we with Equipment has Traditionally, total did job and high more I XX%. to amazing done has over become revenue prices get It business versus high-volume get a China an material profitability. more So a in as but productivity. past had get very revenue it incredible New challenging X to become in become competitive total is Otis productivity with to China CAGR out, the

to or gives is want our us that's in improve service focus terms modernization a take in profitability modularizing and opportunity and do we to why packages. that unique What making China of we're China. mod both same

we as since because as density it's drives profit you up our we as recaptures, to you mid-teens especially grow we service actually, and that but that need that year country. spin. has it's Again, quarters the increased to every ability build through our year build end density year, XX, service for units again XXX,XXX Chart the see First, we since margin as continue every on portfolio, density very increased with in the large -- Otis straight operating XX saw a

China. we to what lens. to that through do that's little different So And a we need take

As out focused X we of each so But have aspirations. we now spin, on acceptable. We're the came unit. quality portfolio. at X% much understand unit. We plus, that growing data have understand higher now we right available of service of we each contribution we wasn't the our value

in some to least China at and That's equipment margins, traditionally which -- markets, a exceeded explicitly, we been and the doing globally to said, come medium modernization we the recaptures, mature don't or placing over we've the can will mod to, year, we we've have lowest of we This to as in so as China, to margins. it cost. full opportunity scale. for in it conversions And markets. the get going mod because the at a density we're get moved same focus term. double-digit for as and improved mature is new going we're help the service lack approximate margins point, margins continue, that And modernization on at margins, us where make in have done city our specifically on route other density

Amit Mehrotra

Okay. That's I X And very for follow-up if could. helpful. Christine, just

Can is about outgrowth? organic to So talk just expectation there? mix, positive are think is They I mod the were digits growth talk just mix this last think single-digit up high I be margins? disconnect maybe for fourth you up service I low Is quarter. -- impact And teens high the mix neutral? guess, were orders mod that from globally, double up about you the in growth the it Can year, year.

Cristina Mendez

right. are you Amit, guide, the on So

say we little to up. we be was conservatism as very have QX, bit would good ramping -- to is on the to mentioned, ramp-up see And able a to that is in a we the strong order there but backlog. continue the on want in we there execute need based I resources of So in guide

So is an opportunity the guide. for this

are exiting high do single-digit can We the getting XX% versus we resources. guiding backlog, and more

the mix. On

margin So at because supply we you beginning efficiencies the based compared although chain of the repair margins to being New standardization recall overpass maintenance, growing. the And field they that lower modernization margins on and in of the continue within increasing modernization and continue Service may year, Equipment of are the the above trend, has modernization and standardization. and that

a but Service. get rate very positive terms to it's terms will be going So overall, But in margins the dollars gradually, in better, headwind contribution. margin of in of

Operator

next with comes Nigel Your question Coe Research. from Wolfe

Nigel Coe

I just wanted MOD's has to margins Obviously, mod question. improving been on big that follow a initiative. up

digits, cost that you've know 'XX? both 'XX track versus got the mod So they savings -- single to the coming we plus. maybe through about then mid-single margins a where I just And be they're that do think I on on programs. towards And in running talk were the low expect both

disclosed between in those the land just perhaps total but where XXXX, Corporate? You've Equipment, curious and Services impact

Judith Marks

Yes.

on said, so than mod obviously, row, margins, -- now for equipment year, -- equipment which margin higher the Nigel, X in we surpassed margins, new new full we quarters annual 'XX. a So as we

digit, heading our feedback double mod and that then drive and of towards our our So revenue, responded mod just not high, a part to have well. portfolio. Cristina? which but strategy . again, little has Again, objective, towards into the teams above been mid-single heading all

Cristina Mendez

Yes.

XXXX, and are coming we from so It's the $XX all will raised be And expecting be million China see savings, run total we uplift to transformation to have in headwinds -- be million is going program the This in XXXX. the program. help GR million in expect the rate, we savings in and price the to the generate with from to compensate that Equipment around in XXXX On the $XX will backlog. we exited in we $XXX target. $XXX going million now

Approximately growth our guide a there Service $XX you the look piece will growth you million Corporate. very XX% the with deduct in savings, $XXX be XX% And of still very million Service, is uplift of in coming that, that performance. from a at in in when coming approximately remaining [indiscernible] Equipment small the that positive and with is can out see from operational you

Nigel Coe

XX. Okay. Maybe just as about think is the total I $XXX well, talk if is the of bucket you just restructuring kind of on million of sort Page that

understand second [ XQ guide, understand the just richer in have exit you maybe I a just of Service want could maybe rates But that. normally expand that's the to 'XX year. number. 'XX, one just in the on big margins we Just the ] half I

the in Just margin are wondering . of the about year tough first because how expansion think just half comps there. think quite Service I the we

Cristina Mendez

Yes.

with approximately uplift $XXX we finalizing program. million. So the bit because are dumber we guiding a restructuring, It's are

end the we we So Year-to-date, end 'XX, million of have rate by $XXX million $XXX run spent of will the restructuring. achieve approximately XXXX.

the spent in to program in are And China $XXX million the $XX in transformation. million from addition have to to up achieve be XXXX. remaining the the restructuring So that, cost to you

all to it's in good of cost a up out. our year very base going the move restructuring with year to be terms we intense position to order are in the from very in end So costs going a of

Judith Marks

activity done organization we We've called well. the think, business of we're I've XXXX. to definition. now uplift. globe as our the announced done the nicely. process in and Nigel, moving in for across And We've been We've global 'XX. transformation and Yes. aligns it this happen the services implemented making year Otis in design. this We're We've

be we see stronger cost with go off going where think business really simultaneously you position and as there's strategy to this our operationally, margin deliver with to in for we're through 'XX. the puts But transformation our following had. excellence is expansion driven So Service us and that a

but we're back been in EMEA And our -- it's we've pleased. couldn't When behind the this more of have rate in orders customers. in nice be the business, a rate we bounce of all importantly, benefit, more on focused all seen run Americas terms -- I our run is North actually America,

are XXXX market Pacific just our outperforming not in and across board possible. we are revenue. and orders the even in just the in but market, We Northern business every Europe, in our outperforming but had fantastic Asia a metric the

markets cost the got we got So the we We've nicely half 'XX get come second want. as centricity of to the is of we positioned. structure kind as and customer We've 'XX, Otis want.

We which why made workforce want, investment. that is we have we the

nicely execute, setting and for think 'XX have really I and later to the it's We 'XX. up strategy

Operator

question from with next Barclays. Julian The comes Mitchell

Julian Mitchell

Maybe first, just up. wanted to follow

you Cristina, EPS sort first half think, of stronger I and a about talked half. flattish then in the second

margin just And then second bigger steep. little because the you just follow there that. just have driver out I first organic in that slightly So being decline the flat on half up of sales is equipment very guess, bit, operating . that margins I pretty a headwind new maybe declines flesh then and half to kind of of than is please. half? to the Kind because first wanted a up FX slightly just new equipment

Cristina Mendez

Yes.

have you described. So as yes, it's broadly

expansion growth mid-single will modernization So the growing portfolio top execution, and Service going also very come be of back to the plus the is Service on gradually. margin going line digit continue is to level-loaded. on the

of going side, other half year is Equipment the the On first be New challenged. to

the orders second half tougher not we exiting for portfolio, because, You'll it's of only recall example, Americas year. the that have compare also the a in started increasing

be second the And in expect why half in half and reflect of first a through of That's all lower increase year. period a because the the the half. also and transformation price. margins. flow of also flat into until second And in in is of So it's impact the these the we this EPS the the going to to compare year, is of half impact initiatives we broadly backlog, first strong FX we a going tougher execute from

Judith Marks

And we rates shared to the year. best We as put the FX shared, it the was Yes. We chart. on we know spot the you. that that start with

quarter. flow In stronger, was U.S. currencies get revenue will you And in other We that every you'll and you'll XXXX the XX% appendix, see non-U.S. through. our . XX% in update see currencies. of if dollars that

Julian Mitchell

the backlog new my is then on outlook. just And equipment of sort follow-up great. That's

So in digits new backlog I QX was down for with think year. high the at equipment mid-single year down of single full digits currency Equipment orders New sort constant

RPO and in that out and of year stabilizing laid As comments the forth the we and core Is look to later kind should we that Equipment based the around up ahead, informing orders expect year programs be EMEA, China New to various assumption exiting or Americas in that your on you've savings cost the backlog so this XXXX? today? recovery

Judith Marks

had Julian, down They year in backlog is backlog is 'XX. down Americas mid-single. revenue New a Equipment our X%. tremendous The

teens. of Americas second our of actually a drove nicely, are And low is EMEA out digit. our they there double and for is factory. a up So lot a deliveries, solid backlog shipments in And lot time is of and there. installations 'XX. revenue orders lot up Florence almost conversion APE to lead half of of coming longest

this go be from X up not ship And encouraged the blend book will markets equipment our again, new market we down the China segments have much working we'll in we by They're So being so X on through. and of as going in backlog being we're that with there. obviously and markets.

Julian Mitchell

stabilization year. the Got of China it. But later sort

Judith Marks

Yes, just mid just me say, Julian, EMEA myself. backlog. let a me or let bit -- is correct up, let's

Julian Mitchell

And China sort that in of out China years? follow of with expected the any That's the functions later Got fleshing it. very at any property of assumption based for of or kind moves developers around sort wanted out when up Julie, you stable on the of just on sort to year. quickly, look stabilization conversation stimulus

Judith Marks

Yes.

challenge coming a challenge government. in and ownership assumed from state-owned enterprises, for lot local no local discussions the economic transitioned that, new officials this is lot now but local of of is to party local is a with stimulus So it a because a

changed that So happening in feeling that and There New XXX,XXX to I a in were tends activities haven't the with that discussions which multiple, when as is foundation the with are we said real there estate, forward. this we units time this what Equipment happens Chinese feeling of going gives We'll we of buyers. that us the holiday that's the stimulus confidence this week hit those Lunar saw see to general from of terms really 'XX, New that Year now all stable sentiment more happen having that XXX,XXX but in point which yet speak will getting we and is we're is between believe year. .

Operator

Next Vertical question Jeff with comes Sprague Research. from

Jeffrey Sprague

conversion? address it's an China XX%, obviously Judy here today. the important global what slides, a just want is got at Could see to little , you in drill part into China XX. just the Service, shared I you more of the I bit we -- call

ex-China that the you're of run kind shared conversion XX%-ish Maybe means today speak behind to improve a what you rate? rate you with of conversion. conversion just the kind dynamics on China, might of sort think us I working or what that So in

Judith Marks

rate approximately ex-China you Yes, was. is conversion the it Jeff, said where

So world the average the of rest close XX%. on is to

a just getting XX%. markets to little We we're others that have under close where are and some XXX

terms conversions, We think China location that want density. than more conversions is do we of for metric more half a our So and I use. to would I China we've you effectively the to them say of and connected. portfolio done average, because where efficiently, right that's to happen more make the lot in

are that conversions. for all on We creates with units of Otis shipping our stickiness One them, and the

businesses as still relationships the brands, -- there. got We've a mentioned, have X still dual there. now don't X technology Cristina but the have independent we we've got we're we've brand, that operating. But So we

post to So to what is our another brand of Service during workforce Otis. coverage. as that stickiness coverage independent have be they And they'll the one one just come greater brand as conversion we get coverage increased won't they'll to over give that warranty going because get we for think period, versus us of take know we'll warranty example. That's for know

Jeffrey Sprague

down it little on in bit. think XX% and XX.X% just the 'XX similar Maybe it is we're had I function maybe a a here XX.X% I then 'XX, retention. think in softer But and of now. stripped And like I China. this

else what's something rate China? going that there? attention a the on Is little kind pressuring of bit? kind there Is of Just

Judith Marks

to heard And rate. the that. focus we on rate because retention retention across continue we we interesting It's to certainly -- focus have Yes. industry, leading me you've improve but our we want say before,

of As understand my data I efficiently every contributes unit our though, more using and mentioned answers, what effectively one to portfolio. we're more in Service other in

portfolio rates, about X.X% now not we all It's the it's about all growing can. about profitable having portfolio it's not most growth. So

other some So with have using reasons, of times that, our so at to not you, involuntary. would to decide are going tell I performance Obviously, for XX.X%, voluntary. of we some or or is that thrilled from to who XX.X% not change. that's customers But

if And net churn that making on quality the are in that and sure portfolio we're become we're down, growth. working net even what we Cristine conversions portfolio. we're also our through the the and then the going I that team sure is does tried rate so our And retention have so to neutral getting portfolio, profit higher is make higher dollars

churn, if in went So you even though neutral net retention are down. noticed on the we rate backup, the

to going a portfolio? retention you'll believe rate higher then contributing have I quality the go And we're again. do see up So

Jeffrey Sprague

one. other Great. And quick then one just

outlook. are volume China. . in you on just Equipment If price us the gave for you Just What XXXX? thinking New

Cristina Mendez

price cost Yes, we roughly being with neutral. expect

that a prime maybe So regular points with we of but few would mean decline, will cost out. compensate

Judith Marks

as in can, commodities about steel, in much deflationary locked our already engineering coming material Yes. locking And and we and But we're of -- productivity. got XX% up seeing globally. we've with the still other with China, we're as

to the as Our down the teams clock year. every cost have get side they . working around are

Operator

question next with comes from JPMorgan. Steve The Tusa

C. Stephen Tusa

been Equipment there you between said think difference have to New XX, I It I like it Is that from the the total right? orders, on ex-China? you was the X -- the ex-China. XX% the goes a negative of just and think positive asked. questions was But Most total said,

Judith Marks

Yes.

C. Stephen Tusa

Yes.

don't that plus, down if your know, base I the know orders But use numbers. I in mean XQ orders that I XX% you year? So pretty big know for it's like, I [indiscernible] a of is China. was XX% like XX%. last implies mean are of I revenue China just what China don't percentage hit adjustment

Judith Marks

but high, -- go think a that you're too wouldn't off. I I little far you're not

C. Stephen Tusa

that today? it's declines, annual a view a backlog guess, year, are the super was. not reconcile enough the mouth be kind of some XX%. year you your I are don't in -- profit-wise, significant how hand with your like -- you to but have is anymore because ultimately so bit a end business like do next would getting obviously. some XX% like So like I annual of to backlog huge a pretty know confident do we But still the XX% these that of part of Or down towards the of little the kind obviously, more

Judith Marks

Yes.

a X/X ship. So our book a traditional and and backlog China business was coming into third about year

language term in here. that's [indiscernible]. hand So talking your similar That's my mouth okay. term We're

So -- the did see third -- not that not especially or materialize the fourth that's and we quarter. in

So keep going segment We watching it's there. be to end down the stabilize Equipment to and for ] it. XX [ believe we year and another at XXX why it's in we're going between XXX,XXX New ended segment, to think China, the that's and units, and believe I going XXX

C. Stephen Tusa

year. that's entering guess of got I'm seem given [indiscernible] lower like I the like visibility wondering visibility? . it does -- that, how on we're average a But of like you've ton than Okay. kind how just

Judith Marks

down it it XX. in worse. going -- thought actually, I'd quarter, to in came similar The Yes. segment say fourth we came started, we although visibility last the year, to was

I'd did came our because we and have of for is team already visibility Equipment year this the now the Chinese results year, January the say it similar New the into -- help we've because really none So in right going per seen New se. XX. down But stimulus off Year.

sight. pretty we've line I So think of got good

Operator

The next with question Stanley. comes Morgan from Snyder Chris

Christopher Snyder

questions in to an business. here the wanted effort about ask combine try time. Americas my I I'll of to

we of order Americas. quarter, for sharp positive mostly But a comps. on change last growth function rate saw it seems the year-on-year a So of it's like

New but be in the questions Americas will are still one, is you I know revenue. industry and regard. going be understand up to Americas down guess, higher in orders business guys I in the primarily Or America's why a are, I that will guess broader So convert different the your And Equipment but slowly Americas, year, do next believe the this know comps? my those orders I low if in singles? market guys function you didn't absolute singles terms? are I of then from

Judith Marks

of I your down -- some not before which in different orders of and second were second half those we're for and don't industry Yes. second believe the up answer 'XX was positive understandably and from happen quarter, don't -- interest And think quarters New think to 'XX one. were significantly. first developers quarter, . those a X going was half in We started quarter. compare. broader rates the let third I XX% the the I for more green Americas And up a what just then me than decisions. economy, of with late we fourth that Equipment making led in seeing shoots orders, happening

Cristina Mendez

As I comment on can that.

quarter in dollars including in every orders absolute equipment growing new So QX. XXXX, sequentially, we been have

there a QX So was in also compared up good to ramp QX.

Judith Marks

us. activity it us to Yes. But you XX are Dodge picking tell at The positive, again, up, and ABI -- the I'll The is -- to lag -- even seeing strong. this Index we is whether positive. be you, tends and look Chris, we pessimistic, an ABI to as activity are is very could indicator months for and Construction looks up construction is proposal

our in revenue to challenges Americas other through credit jobs, We'll very looks it the is our reason Our But longer even in deserves or the with is backlog strong. volume XX order our We've from ability segments that. now such with up recognition. had all line low for strong down team backlog. down we -- a permitting, jobs digit single ton months though year sight full even to convert Americas got backlog has 'XX is working The revenue a refill the and take Americas of been because 'XX. and . just of our

Operator

line next RBC. of question comes with from Houston Nick the The

Nicholas Housden

is X.X% the also to installed in think X Equipment I'll into recapture base, then New down ask growth is my conversions in biggest conversions this I Because past If conversions? sense declining. just retention the probably it equipment and mod as the business we MOD of that about is possible break the bigger one. years, gets X, and mean, feeder new becoming that portfolio

quantify maybe if you that, So can curious please? I'm just

Judith Marks

Yes, Nick.

there's portfolio refurbishment So an and where types off X mod. in is as on our portfolio mods. conversions, have service mod of on-portfolio we mod on already one There's portfolio. And an modernization and it

financially to get And been this the those. modernization. in plan cultivating, it less capital tend and with the get so we them working customer, environment with We their we've planners, competitive for because we a helping get

are So on already neutral think those almost net when fact about that they're the portfolio. our you

So portfolio we sure I modernization bring but off you that just becomes then portfolio that in do an want it can back and today, to incremental make maintenance convert our understand, the something upside. that's not mods

retention So and of is the one kind add. truly new a other is almost portfolio

across I'm really I'm into purposely know company added an -- board imperative. that you on hope the from sales and manufacturing I focused We excited the about know So market. the strategic to -- plants. mod moving our this a I

the chain portion these a significantly be chain but to will will activity that packages get grow portfolio. and -- in supply we trying savings, are from own we the and mod, We're supply made driving of our in

kind So versus growth. that's new protect of

not now, MOD a into about add -- think sure discussed would I'm the small Right date X.X, just you we've before. have that portion tell mod very small. to want that yet to would that, because X.X, very you, broken I as that comes I dimension of we where off-portfolio not I but So just be out

growing small a we time. is grow as going over on conversion, try forward. amount. color recapture, to retention And significantly So very still and at of Service mod That go how this we'll provide is portfolio that's all least

Operator

question comes line of final with Miguel Borrega Pariba. Your BNP from the

Miguel Nabeiro Ensinas Serra Borrega

pressure this views one And to I increasingly why over price New become of the the words, China come? other Equipment? in years in kind around last in mods modernization seen see we market competitive and market wanted question. just same wouldn't In have whether your we've the as

Judith Marks

Thanks, Yes. Miguel.

mean modernization last a because . large can of the are for multitude own XXX,XXX have in to When it's portfolio. such relationship there's converting actually source XX% be work will think and in a conversation, like China. you difference competitive crafting portfolio, in on probability independent you think world, you're I the of I level they installed ISPs anywhere is XXX,XXX, the it the units it it's still sole for ample out into it. in base, China, be ties see a customer potential portfolio, service higher have don't we providers you of my service into China a award the biggest I service off service of have new date is nicely if segment growing the equipment just year your which at

have contractor. the penetrate market it you we than So level. at any construction different repairing takes elevators really general don't see no them pull out. modernization trying just Modernization to a takes skills There's skills, to unit and because maintaining

modernization the as all provider. it do You

mature a it's not doing the China, in And that, large So while some small some in ISPs large we number. parts see of markets it's very number. a

with get will serve? Will to it OEMs large the be a it Yes. So market competitive larger potentially?

everything. Should pricing focused been same as own on because reason we want We're do or for -- And we're so quantity get parts equipment as scale. is It's have we those so a that a why will which procuring for just new going getting same to so we be portfolio? And efficiency grow in our moved factories good China from that very portfolio teams China really and It's have to getting in new packages equipment another we're our the mod and why getting of Yes, strategy same we're GenXXX, supply doing it as GenX rapidly that. already now China. modernization be But going the to that we've machine. our to we're a be well. service into for installation are It's have possible equipment. as the large, a installation GenX installation installation will cost will mod. effective

in what side at China will cost we that scale New Equipment be mod. in leverage everything on So the for worked

Operator

So turn this I closing concludes for remarks. now will Judy the Q&A session. to Marks

Judith Marks

for colleagues . Otis. hope XXXX certain our provide value and customers, Well, thank a We for of was joining confidence Service strategy us I shareholders. year with safe and you, resilience to you our and strength enter long-term of for Sarah. Listen, strategic XXXX ability and in stays our everyone well. Thank today.

Operator

This today's for you conference concludes joining. call. Thank

You may disconnect. now

Otis Worldwide (OTIS) 29 Jan 252024 Q4 Earnings call transcript