The operator introduces the Otis' Fourth Quarter 2023 Earnings Conference Call and hands it over to Michael Rednor, Vice President of Investor Relations. Judy Marks, Chair, CEO, and President, and Anurag Maheshwari, Executive Vice President and CFO, are also on the call. Michael reminds listeners of the company's forward-looking statements and the risks involved. Judy thanks everyone for joining and highlights the strong fourth quarter and full year performance. She also mentions the company's strategic pillars and thanks the colleagues for their hard work and commitment. The company achieved full year organic sales growth in all regions, driven by service.

In 2023, the company achieved record high growth in their maintenance portfolio, strong adjusted EPS growth, and an increase in modernization orders and backlog. They also saw growth in new equipment orders and backlog, and gained market share. The company returned a significant amount of cash to shareholders and began initiatives to improve efficiency and generate savings. They exceeded their medium-term guidance and are well-positioned for 2024. The company also made progress towards their environmental, social, and governance goals.

In early November, we committed to setting science-based greenhouse gas reduction targets and submitted them for evaluation. New equipment orders grew in the quarter, with gains in all regions except China and the Americas. Despite macro challenges, we gained market share and grew our backlog. We continue to innovate, such as with our digitally connected elevator platforms and upgrades to support our modernization business. Our R&D and strategic investments remained stable at 1.4% of sales. We maintained our position as the number one global company, with portfolio growth in China, Asia Pacific, and the Americas and EMEA.

In 2023, Otis saw an increase in portfolio growth and conversions globally, with China's conversion rate improving by 4%. The company's service sales force performed well, helping to mitigate labor cost headwinds. The company's modernization orders were up 16.8%, with strong growth in Asia and the Americas. The company's modernization backlog is up 15%, and they continue to win projects based on innovation and customer trust. Otis is also working with China's metro providers to expand urban transport and city development, providing 237 units for line 15 of the Chongqing Metro with Otis ONE technology.

Otis has been awarded several significant projects in different parts of the world, including a comprehensive modernization of a commercial office building in San Francisco, a modernization project at Chin, Iowa State in Hong Kong, and a modernization of the Burj Khalifa in Dubai. They have also been entrusted with the upgrade of controllers and drives for the Eiffel Tower in Paris. In the fourth quarter, reported sales increased by 5.3% and organic sales grew for the 13th consecutive quarter. Adjusted operating profit and EPS also saw significant growth.

In the fourth quarter, the company had adjusted free cash flow of $573 million and finished the year with approximately $1.5 billion. Anurag Maheshwari then discussed the sales performance in different regions, with organic sales remaining flat in Otis fourth quarter. However, there was strong growth in service sales, with all lines of business and regions showing positive results. For the full year, new equipment sales grew by 2.6% and service sales had an organic growth of 7.7%. The company also saw margin expansion in the fourth quarter, with a 120 basis point increase in new equipment segment operating profit.

The adjusted operating profit for the fourth quarter was up $20 million due to strong productivity, pricing, and commodity tailwinds, despite unfavorable regional and product mix and higher SG&A expense. The Service segment also saw an increase in adjusted operating profit, up $33 million, thanks to higher volumes, maintenance pricing, and productivity. Overall, the company's operating profit for the full year was up $166 million at constant currency, with a 30 basis point increase in margin. The company also achieved $26 million in new equipment profit growth despite weakness in China. Service operating profit increased by $178 million, and service margins have increased by 240 basis points since the previous year. The full year adjusted EPS grew by $0.37, driven by operational performance, accretion from a transaction, share repurchases, and optimization of the tax rate. The company also saw a notable increase in adjusted free cash flow of $573 million in the quarter.

In the fourth quarter, the company saw an increase in down payments due to higher new equipment orders and effective management of working capital. This resulted in the achievement of their annual guidance and the generation of $1.5 billion in adjusted free cash flow. Despite an uncertain macro environment, the company outperformed their initial guidance and returned $1.35 billion to shareholders. The strong end to the year and solid order activity in 2023 has led to an expansion of the company's new equipment and modernization backlog, which will support growth in 2024 and beyond. The market outlook for 2024 predicts a global decline in new equipment sales, with the Americas and EMEA markets down low-single-digits and the Asia market down low to mid-single-digits due to a downturn in China.

The long-term outlook for the global equipment market is positive, with expected growth in the installed base and service-driven growth model. Otis expects to see growth in net sales, operating profit, and EPS, as well as strong free cash flow and disciplined capital allocation. The new equipment outlook for 2024 is stable, with strong backlog coverage and initiatives in place for share gain and pricing. The Americas and EMEA are expected to see low-single-digit growth, while Asia Pacific, driven by China, is expected to see mid-single-digit growth.

The company expects new equipment profit margin to remain steady or increase slightly, with strong material and installation productivity and backlog conversion. In the service sector, they anticipate organic sales growth of 6-7%, driven by maintenance and repair services and a solid backlog for modernization projects. They also expect a 50 basis point margin expansion due to volume, pricing, and productivity, despite annual wage inflation and higher SG&A expenses. The company has begun implementing Project Uplift initiatives to improve efficiency and standardize processes.

The company is on track to achieve $150 million in savings by 2024, with half coming from leveraging enterprise scale and the rest from process improvements. They expect EPS to increase by $0.30 at the midpoint, driven by organic sales growth, margin expansion, and share repurchases. In the first quarter, they expect a decline in new equipment orders, but strong growth in portfolio and modernization orders, with a 3% increase in sales and over 50 basis points margin expansion.

The company is expecting a 1% increase in maintenance pricing and a 3% increase in new equipment pricing for 2024. There may be some pricing pressure in China, but overall there is no evidence of pricing deflation. The company expects the savings from uplift to primarily impact new equipment and services. There is also a focus on improving modernization margins.

Judy Marks and Anurag Maheshwari discuss the expected uplift in 2023 and the positive impact it has had on the company's savings and organizational model. They also mention the trajectory of Mod margins and the expected net savings of $40 million from uplift, which will contribute to a $170 million increase in operating profit in 2024. This increase is primarily driven by price cost and volume, net of mix.

The company's $40 million uplift in net flow through to the P&L is due to a competitive market in China, with prices and costs both declining. The company is managing this carefully and has gained market share in a market that is down 10%. The company's China business has contributed significantly to profits, and they have focused on growing their service business in addition to their sales of new equipment.

The speaker, Judy Marks, discusses the company's backlog and new equipment outlook for the year. She mentions that the backlog is strong in most regions, except for China, and that the company is confident in sustaining this strength. Anurag Maheshwari adds that the book-to-bill ratio is expected to be similar to the previous year, with orders being higher than new equipment revenue. They expect the backlog to finish the year flat or slightly higher.

In the first quarter, new equipment orders will be challenging for the company, but they are expected to improve in the second and third quarter. The market outlook is expected to remain stable, resulting in a flat or slightly higher backlog for the year. In terms of North America and EMEA, the company is seeing weakness in all segments, with multifamily being the weakest due to previous years of rapid growth. However, the company has been able to gain market share and increase pricing. The best performing segment is infrastructure, and the company has invested in the low-rise market, introducing a new product for 2-6 story buildings.

The company is seeing active bids in the market and has a great pipeline for Gen3 Core. The backlog and orders give them a good line of sight for next year's revenue. Europe's market is strong in South Europe but weak in Central Northern Europe. The company believes they gained share in China despite the market being down. They manage volume and share while maintaining profitability.

The company's order value declined mid-single-digits due to market deflation, but they were able to offset it with better productivity. They have invested in their products and expanded their reach in China, resulting in a 20% increase in bookings since pre-spin. The backlog is up 15% and the quality and profitability of the backlog are not sacrificed for volume. The company's modernization segment is experiencing growth in all regions and has higher margins than maintenance. The company expects modernization margins to continue to grow in the future.

The majority of growth in the elevator industry is due to the refurbishment of aging equipment. Orders have been consistently increasing, with Asia Pacific and China leading the way. Margins for modernization are expected to surpass those of new equipment soon, with a focus on industrializing the process and standardizing products. The company is seeing a positive trajectory for margins and expects them to continue to increase.

The speaker mentions that they will discuss the topic further in the upcoming weeks and that the margin should exceed that of new equipment. Then, the operator announces that there are no more questions and turns the call back to Judy Marks for closing remarks. Marks thanks everyone for their participation and mentions that Otis had a strong year in 2023. She invites listeners to attend their Investor Day on February 15 and concludes the call.

This summary was generated with AI and may contain some inaccuracies.