And when you think about 1% portfolio growth throughout the decade before we spun, and now us, four straight quarters over 4%, we’re going to end this year at 2.3 million units. And that is the strongest, but it’s still at 2.3 million units of a $21 million, $22 million segment leaves us lots of room for growth. And that’s why we’re convinced the service-driven growth strategy globally is the right answer for us and our shareholders.
Steve Tusa: Yes, clearly the service is very strong. Just a question on cash flow, I missed the first part of the call, but any reason for that tweak on cash specifically?
Anurag Maheshwari: Oh yes, absolutely. It’s two weeks, okay, So firstly on cash we are at about $934 million. We got $550 million and I guess your question is tweaking it to the low-end of the guidance is two reasons; one is clearly lower down payments, because of new equipment orders which have been a little bit lower. But second is also a repair business which has grown very, we started this year would be low-single-digit repair. It’s growing at a very good rate. Great for sales, great for profit on the P&L side, but we do get paid after we complete our work, so it’s a little bit of a receivable drag. I think it’s a combination of these two reasons why you see a little bit of a tweak in the cash flow guide.
Judy Marks: Yes, and for any of our customers listening, Steve, I think it’s important they know that when they need a repair, we do the repair. And then we make sure we bill and follow-up to collect. And that’s really what happens in that repair world. We know customers, if they’ve got an elevator down, we’re going to get them back up.
Steve Tusa: Sorry, sorry, one last quick one. A lot of volatility in multifamily in the U.S., kind of hard to tell where that business is going. Any impact on you guys from that? And thanks a lot for the answers to the questions.
Judy Marks: Yes, so I mean, that multifamily was our, from a market perspective, a segment perspective, was the worst performing in the U.S. this past quarter. Now, it’s down off record highs for multiple years, and there’s still demand for it, but we’re just seeing the developers slow down on the start button, which is when we get those advances that Anurag was talking about in his cash answer. So we’ll wait and see. If rates stay where they are, you know, developers will figure out the math for this because demand is still there for housing. So, you know, we’re in a wait and see, but our backlog in especially in North America is strong mid-single-digit, including a lot of multifamily in the backlog. So we’re going to keep performing, and then our team will drive the orders as they come.
Steve Tusa: Great. Thanks a lot.
Operator: Please stand by for the next question. The next question comes from Nick Housden with RBC. Your line is open.
Nick Housden: Yes. Hi Judy, Anurag, Mike. Thanks for the questions. So, yes, just on that free cash flow point, I mean, it looks like China is never going to go back to that 650,000 unit mark. So I’m just wondering if that means that over the medium term there needs to be a permanent reset on the expectations for cash conversion from the current 100%, 110% target that you’ve already got. That’s the first one, thanks.
Judy Marks: Well, I can take that 1. The answer is no. No reset.
Nick Housden: Okay.
Anurag Maheshwari: There’s no reset because, I mean, at the two — with the new, lower — definitely lower orders, but also we’re executing on high backlogs. All these will normalize and the repair revenue will also, kind of, we start converting more into cash. So I don’t think there’s any reason for us to reset the target, yes.
Nick Housden: Okay. Great. Very clear. And then just a second question on some of the competitive dynamics in modernization. So it sounds like when you guys or some of your European competitors modernize a unit, especially in China, it’s almost always someone else’s unit and very often it’s one of the Asian competitors units that you’re modernizing and then moving into your own portfolio. Are the Asian guys just not focused on modernization? Or why does it seem to be the case that you are kind of eating their lunch there?
Judy Marks: Well, your hypothesis that most of our modernization is on non-Otis equipment in China is accurate. But remember, our China market share is or our share of segment in service is pretty low, because 75% of all the units in China are maintained by ISPs. So I wouldn’t specifically say it’s, you know, some of the units we’re getting back, our Otis units that are not on portfolio. Many are non-Otis units, but they’re not necessarily, you know, Japanese or European. I can’t comment on who they are. What we’ve done is we’ve created very innovative packages to be able to put our hardware on non-Otis equipment to modernize it, to add new technology, and then to convert it into our portfolio.
Nick Housden: Okay, great, Thank you.
Operator: [Operator Instructions] Our Next question comes from Gautam Khanna with TD Cowen. Your line is open.
Gautam Khanna: Hey, good morning, guys.
Judy Marks: Good morning.
Gautam Khanna: I had two questions. First, Anurag, on your comment about escalators next year being comparable to that of this year. I was just wondering if you could elaborate maybe by region and why that’s so given the level of inflation this year seems below that of last year? And then I have a follow-up.
Anurag Maheshwari: Yes. Sorry, you got an email on the service business, the price escalation?
Gautam Khanna: Yes.
Anurag Maheshwari: Yes. So, yes, listen. Let’s start with Europe where we got about half of our portfolio over there. Inflation is still pretty high in Europe, not as high as last year, but not too far off from there. And most of our contracts are right now in negotiation and they’re obviously linked to an index. So we feel pretty good about the pricing increase in Europe next year. It could be around the mid-single-digit level again, so that’s really encouraging. Inflation in America is also not coming down to a great extent, so we should see that. So these two definitely give us confidence on our pricing going up. The rest of Asia has always been a low to mid-single-digit price increase. That will continue. And China, I think, as I mentioned earlier, there is more price discipline, but it’s never been a price escalator market on the service side.
So put all of that together, it gives us confidence there’s going to be another good price increase next year on top of our portfolio growth, which should mean that our maintenance business should grow mid-single-digit plus.
Gautam Khanna: Okay. And just a quick follow-up. Could you talk a little bit about any trends in churn coming down in the quarter? And maybe year-to-date on service renewals?
Judy Marks: So we will share our statistics at our fourth quarter earnings. We do that on an annual basis, but there’s no significant changes that we’ve seen, but we’ll share that next quarter.
Gautam Khanna: Thank you.
Operator: I show no further questions at this time. I would now like to turn the call back to Judy Marks for closing remarks.
Judy Marks: Yes, thank you, Michelle. Our service-driven business model is working as we approach 2.3 million units in our portfolio by year-end with the compounding lifetime value of each additional unit. Year-to-date results are indicative of the strength of our strategy as we continue to prioritize value creation for our shareholders for the remainder of 2023 and beyond. Thank you for joining us today. Stay safe and well.
Operator: Thank you for participating. This concludes today’s conference call. You may now disconnect.
