Otis Worldwide (US:OTIS)2024-04-25 20:11PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the quarter ended March 31, 2024, including key results like a 2.7% increase in net sales to $3.44 billion and a rise in diluted EPS to $0.86 from $0.79 year-over-year Condensed Consolidated Financial Statements For the first quarter of 2024, the company reported net sales of $3,437 million and net income attributable to Otis of $353 million, with diluted earnings per share increasing to $0.86 from $0.79 | Metric (dollars in millions, except per share) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Sales | $3,437 | $3,346 | | Operating Profit | $544 | $513 | | Net Income Attributable to Otis | $353 | $331 | | Diluted EPS | $0.86 | $0.79 | | Metric (dollars in millions) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $9,791 | $10,117 | | Total Liabilities | $14,607 | $14,837 | | Total Equity (Deficit) | $(4,940) | $(4,855) | | Metric (dollars in millions) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $171 | $278 | | Net Cash from Investing Activities | $(79) | $(21) | | Net Cash from Financing Activities | $(467) | $(341) | Notes to Condensed Consolidated Financial Statements The notes provide detailed explanations of accounting policies and financial statement line items, including a total Remaining Performance Obligation (RPO) of $18.3 billion and ongoing German tax litigation - Total Remaining Performance Obligations (RPO) were approximately $18.3 billion as of March 31, 2024, with about 90% expected to be recognized as sales over the following 24 months36 - The company repurchased 3.4 million shares for $300 million in Q1 2024, with approximately $900 million remaining under its $2.0 billion share repurchase authorization5556 - Restructuring costs totaled $20 million in Q1 2024, a significant increase from $5 million in Q1 2023, driven by new and ongoing actions, including the "UpLift" program64 - The company is involved in German tax litigation concerning approximately €215 million ($233 million) in tax benefits plus €118 million ($128 million) in interest, with German tax authorities appealing a favorable court decision8890 Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP reviewed the interim financial information and found no material modifications necessary for conformity with U.S. GAAP, noting the review's limited scope compared to a full audit - The independent auditors, PricewaterhouseCoopers LLP, performed a review, not a full audit, of the Q1 2024 financial statements and found no material modifications necessary for conformity with U.S. GAAP116118 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results for Q1 2024, highlighting the "UpLift" transformation program, segment performance, liquidity, and share repurchase activities Business Overview Otis operates through New Equipment and Service segments, implementing its "UpLift" program for $150 million in annual savings by mid-2025, while managing global macroeconomic impacts - The "UpLift" program, announced in July 2023, aims to generate approximately $150 million in annual savings by mid-2025, with $13 million in related costs incurred in Q1 2024125126 - The company does not have operations in Russia, and business in Ukraine, Israel, and Gaza is not material, representing less than 1% of revenue and operating profit130131 Results of Operations For Q1 2024, net sales increased 2.7% to $3.44 billion, driven by 3.8% organic growth, with operating profit rising to $544 million and a decreased effective tax rate | Component | Percentage Change | | :--- | :--- | | Organic Volume | 3.8% | | Foreign Currency Translation | (1.2)% | | Acquisitions and Divestitures, net | 0.1% | | Total % Change | 2.7% | - Restructuring costs increased significantly to $20 million in Q1 2024 from $5 million in Q1 2023148 - The effective tax rate for Q1 2024 decreased to 25.2% from 26.7% in Q1 2023, primarily due to the tax impact of a reduction in a contractual indemnity obligation and excess tax benefits from stock option exercises157 Segment Review The Service segment drove Q1 2024 performance with 6.5% organic growth and margin expansion, while the New Equipment segment saw a slight organic decline due to China market weakness | Segment | Net Sales (in millions) | Operating Profit (in millions) | Operating Margin | | :--- | :--- | :--- | :--- | | New Equipment | | | | | Q1 2024 | $1,280 | $71 | 5.5% | | Q1 2023 | $1,307 | $69 | 5.3% | | Service | | | | | Q1 2024 | $2,157 | $523 | 24.2% | | Q1 2023 | $2,039 | $479 | 23.5% | - New Equipment organic sales decreased by 0.5%, driven by a decline in China, which was partially offset by mid-teens organic sales growth in the Americas165166 - Service organic sales grew 6.5%, with maintenance and repair up 5.8% and modernization up 9.7% organically171172 Liquidity and Financial Condition As of March 31, 2024, Otis had $884 million in cash and $6.88 billion in total debt, with net cash from operating activities decreasing to $171 million, and capital returned through share repurchases and dividends | Metric (in millions) | March 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $884 | $1,274 | | Total debt | $6,881 | $6,898 | | Net debt | $5,997 | $5,624 | - Net cash from operating activities decreased to $171 million in Q1 2024 from $278 million in Q1 2023, primarily due to working capital changes, including an increase in accounts receivable185187 - In Q1 2024, the company used $467 million in financing activities, which included $300 million for share repurchases and $138 million for dividends195 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states there have been no material changes to its market risk during the quarter ended March 31, 2024, referring to its 2023 Form 10-K for full discussion - There were no material changes to the company's market risk exposure during Q1 2024206 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of March 31, 2024207 - No material changes were made to internal control over financial reporting during the quarter ended March 31, 2024208 PART II – OTHER INFORMATION Item 1. Legal Proceedings The company refers to Note 16 of the financial statements for information on material legal proceedings, including German tax litigation and asbestos matters, with no other material developments since the 2023 Form 10-K - For details on legal proceedings, the report refers to Note 16 of the Condensed Consolidated Financial Statements; no material developments occurred during the quarter214 Item 1A. Risk Factors The company states there have been no material changes to its risk factors from those disclosed in its 2023 Form 10-K, directing readers to the MD&A section for recent developments - No material changes to the company's risk factors were reported for the quarter215 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activity for the quarter, with 3.35 million shares repurchased for approximately $300 million, and $900 million remaining under authorization | Period | Shares Purchased (thousands) | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2024 | 1,895 | $87.65 | | Feb 2024 | 1,282 | $91.59 | | Mar 2024 | 173 | $95.57 | | Total Q1 2024 | 3,350 | $89.57 | - As of March 31, 2024, approximately $900 million remained authorized for future share repurchases under the current program217 Item 5. Other Information The company reports that there is no other information to disclose under this item for the reporting period - No information was reported under this item218 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including amended incentive plans, equity award schedules, auditor's letter, officer certifications, and XBRL data files - The exhibits filed with this report include amended incentive plans, terms for new equity awards, and required officer certifications under Sarbanes-Oxley219