Judy Marks: Yes. Let me unpack a few of those questions, Julian and start with service margins. It is early in the year, but what we are seeing, again with the portfolio growth of 4 plus what we are getting in service pricing like-for-like over three points. We are feeling good there. We do have a mix coming into play a little bit as Mod revenue grows, and it grows a little faster than maintenance and repair. There is a little bit of a mix there that we’ve kind of factored in to that margin outlook. But we’ve done — our team has done a fantastic job on the productivity side, especially in the field and on driving repairs and the repair backlog as well, especially in the Americas. So right now, we will continue to watch it. We feel comfortable at the 50 basis points.
This is our 17th straight quarter of service adjusted operating profit increasing and it is the engine, as you know, to our model and our service-driven business model. Wage inflation, we are not seeing anything unusual. And obviously, we focus on productivity to offset that.
Julian Mitchell: Great. Thank you.
Operator: Your next question comes from the line of Nigel Coe with Wolfe Research. Your line is open.
Nigel Coe: Thanks, good morning everyone. So as a proud Watchman, I was very pleased to hear Wales getting called out a couple of times there, so thanks for that, Judy. So it’s not — it doesn’t happen very often on these calls. So…
Judy Marks: I know. It’s fun selecting them, Nigel.
Nigel Coe: Yes, well. I appreciate that. The [2Q] (ph) kind of quite unusual for you guys to give so much color on the quarter. So just wondering — is this like a new world we’re in here where you’re going to give us a bit more kind of quarterly color or is there just some unusual stuff happening in the second quarter and [I think] (ph) you wanted to call out? And then maybe just in the spirit of maybe helping us to fill out the model, perhaps below the segment line I mean tax rate seems to come in a bit lower. But anything on corporate expenses, we should bear in mind as well.
Anurag Maheshwari: Yes. Thanks for the question, Nigel. The reason we give a little bit — we typically give quite good color on the New Equipment and Service [outstanding] (ph) for the quarter, gave a little bit more color this time was exactly the question you asked was on the tax rate, which was much lower in the quarter coming in at 20% for the full year. The guide is roughly the same at 25.5%. But because of planning and discrete items, they shift quarter-to-quarter, so wanted to kind of highlight the fact that where tax was coming in for the quarter. And obviously, the team is doing a really good job in terms of managing it through the course and bringing it down in years to come. On the corporate expense, yes it’s going to be a few million dollars high in the quarter, probably 0.9% to 1% of revenue.
As we look at this year, nothing unusual there, except for ForEx, where we do have some ForEx headwinds and that does get reflected in our corporate expense. So that probably increases by 5 basis points to 10 basis points.
Nigel Coe: Okay. That’s really helpful. Thanks for that. And then on the free cash flow, I understand it’s mainly AR timing, but is there anything in the mix of business I don’t know, Mod mix or anything else that’s may be leading to a lengthening in the billing cycles there, just curious seeing AR increasing from 4Q to 1Q. Anything to call out there? Or was it just timing?
Anurag Maheshwari: It’s essentially timing. I mean if you look back at the past few years, we have more than 100% conversion. We are confident that we will get to the 100% conversion this year. We built up a couple of hundred million dollars of working capital, but — a little bit of it was because of lower down payments due to lower New Equipment orders, but a larger part of it was just the timing of billings through the course of the quarter, where a lot happened in the month of March. We’ve already started unwinding that in the second quarter, we’ll get to the $1.6 billion, and the confidence is reflected in the dividend and also increasing our share repurchase of $800 million to $1 billion. So no real structural change in terms of collection or in terms of cash flow generation.
Nigel Coe: That’s great. Thank you.
Operator: Your next question comes from the line of Steve Tusa with JPMorgan. Your line is open.
Steve Tusa: Hi good morning. I think that there has been, from your peers a little bit of chatter around China and pricing there. Can you maybe just clarify what you’re seeing on the ground?
Judy Marks: Yes. Let me break it into New Equipment and Service pricing. China is by far the most competitive pricing market we are in anywhere in the globe, and it is the only region where we are not getting price for New Equipment. Now we’ve offset that with both productivity and a great job on commodities, where we’ve seen — we’ve locked in and we’ve seen steel prices, which are 80% of our commodity purchases come down. But it is extremely competitive. And we see that through the public bids, we see that through the volume bids, and we just see that through the segment. I mean the segment itself, the New Equipment market is weak. It’s down 10% in the quarter, and we’re calling it down high-single digit to 10% for the year, and that’s after really two years of it already being down.
So if you ask us Steve, we would tell you the China segment for 2024 will be at about 450,000 units and we expect New Equipment pricing to remain competitive. Again, focusing — we focus, we brought in some new product innovations in the quarter and we’ll continue to exercise and work with our dealers and our agents and distributors and increase our sales channel and continue to grow share. On service pricing. Service pricing, again, in China is kind of flattish. And — but the drivers are less price in service and more on productivity, volume density and Otis ONE and Otis ONE is really a nice contributor for us. We grew our portfolio in China. We’re now at 400,000 units and more than half cover with Otis ONE, and that’s driving some significant productivity challenges.
