Good morning and welcome to Otis’ Second Quarter 2021 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 will now turn the call over to Michael Rednor, Senior Director of Investor Relations.

Thank you, Angie,. Welcome to Otis’ Second Quarter 2021 Earnings Conference Call. On the call with me today, are Judy Marks, President and Chief Executive Officer, and Rahul Ghai, Executive Vice -President and Chief Financial Officer. Please note, except where otherwise noted, the Company will speak to results from continuing operations, excluding restructuring and significant non-recurring items. The Company will also refer to adjusted results where adjustments were made as though Otis was a standalone Company in the current period and prior year. A reconciliation of these measures can be found in the appendix of the webcast. We also remind listeners that the presentation contains forward-looking statements which are subject to risks and uncertainties. Otis’ SEC filings, including our Form 10-K and quarterly reports on Form 10-Q, provide details on important factors that could cause actual results to differ materially. With that, I'd like to turn the call over to Judy.

Thank you, Mike, and thank you everyone for joining us. We hope that everyone listening is safe and well. Before we get into the quarter, I'd like to congratulate Mike on his new role, leading Investor Relations, and thanks Stacy for all the great work getting us to this point. We look forward to seeing you both excel in your new positions. Otis delivered an excellent second quarter closing out a strong first half. This included mid-teens organic sales growth, demonstrating the resiliency of our colleagues and business, and our ability to execute on our long-term strategy. Overall, demand in the New Equipment segment was strong. We gained about 1 point of New Equipment share with orders up approximately 24%, in a market that was up low-teens. New Equipment orders grew in all regions and were particularly strong in the Americas, up nearly 50%, with an over four times increase in major project bookings versus the prior year. These orders will support customer projects throughout North America. For example, in Canada, Otis secured an order to outfit a luxury high-rise condominium building in the M City community with several elevators, including custom cab interiors that fit the buildings’ upscale design. Moving to service, we grew sales in all lines of business, including repair and modernization. Modernization demand was strong with orders up mid-teens versus the prior year. This includes another Otis partnership with Silverstein Properties in the Americas, where we will modernize more than 40 elevators in the U.S. Bank Tower in Los Angeles and integrate Compass 360 and Otis’ eCall app to allow for more seamless customer and tenant access to the building services. The demonstrated strength of the Maintenance business continues, and we achieved 3% growth year-over-year on our industry-leading service portfolio, a key goal we set for…

Thank you, Judy. And good morning, everyone. Starting with second quarter results on Slide 5. Net sales grew 22.2% to $3.7 billion as the strong growth momentum continued in New Equipment and Service grew for the second consecutive quarter. Adjusted operating profit was up approximately 25% or $115 million, and up $80 million at constant currency, primarily from the benefit of higher volume in both segments. Favorable service pricing and productivity initiatives in both New Equipment and Service helped offset the headwinds from commodity inflation and the absence of temporary cost actions taken last year to absorb the impact from COVID-19. We maintained the focus on cost containment, while continuing to invest in the business, and adjusted SG&A was down 60 basis points as a percentage of sales despite the step-up in public Company expenses. R&D spend and other strategic investments were up approximately $8 million versus prior -year, and were about flat as a percentage of sales. This strong focus on execution resulted in 40 basis points of margin expansion in the quarter, and a full point of margin expansion at constant segment mix. Second quarter adjusted EPS was up 41%, or $0.23, driven primarily from $0.18 of operating profit growth and $0.06 from a lower adjusted tax rate. Moving to Slide 6. New Equipment orders were up 23.9% at constant currency with growth in all regions. Orders momentum continued in the Americas and EMEA, up approximately 47% and 19% respectively, as the markets recovered and the investments made by Otis continued to deliver. Orders in Asia were up approximately 17%. And we're up for the fifth consecutive quarter, including strength in China, where the orders were up mid-teens with record bookings during the quarter. Pricing was down 60 basis points, similar to the first quarter. Organic sales were…

Angie can we take the first question?

Jeff, your line is open. Please state your question.

Hi. It's Jeff Sprague at Vertical Research.

Good morning, Jeff.

I have two questions -- good morning, everyone. Just first on the revenue outlook, Judy or Rahul. You did mention accelerated backlog conversion. I am just wondering how that's playing into the top-line insomuch as the guide would suggest revenues in absolute terms stepped down a bit in the back half relative to this Q2 level. So could you give us a little color on that just kind of what's going on with the backlog and what you're thinking about conversion?

Yeah, Jeff, good morning. Listen, we're really pleased with the backlog conversion we've seen through the first half of the year. It was obviously slower through '20, and the compares certainly for this quarter were favorable and our team performed very well. The compares do get a bit tougher, but we, with our orders up so significantly 23.9%, our backlog is up 5%, so we're not burning -- we didn't pull ahead and not replenish. We're actually delivering more for our customers and driving more backlog there, but the compares do get tougher. If you recall second half of last year, both Americas and EMEA grew stronger, especially in the fourth quarter. So we think we're going to still see about the same momentum, but the compares do get tougher.

Sure. And then as you noted in your fits [ph] up and down the line, things are just better than you are expecting and better than certainly the initial Analyst Day early last year. Maybe you can give us some thoughts, an updated outlook and longer range plans. I wonder if you could give us a sneak peek on what you're thinking about in terms of timing or magnitude and on any of these particular metrics, particularly around margins and growth?

Yes. So Jeff, we've been -- and when we did Investor Day in February of '20, standing up as a new independent Company and then faced -- we had already been experiencing the early days of COVID in China. We weren't quite sure what the mid-term outlook that we shared, where that would come out. Again, strong performance through '20 and '21. And if you really look at EPS itself, almost up 13% in '20, and our new guide at the midpoint really has it up 15% this year. We had been talking about high single-digits at the midterm outlook, so we’re going to revisit that as we go into the second half of this year. And we'll share more with you, we believe early in '22, with probably a revised mid-term outlook on all the metrics. Again, the end markets are far more positive, and if you have a chance and look at Slide 19 in the backup, you'll see for adjusted operating profit, for organic revenue, we did a compare that takes us to '19, '20, and '21, and the '21 outlook beats every metric fairly significantly even from '19. So, Rahul and I have some work to do there and we will get back to you in early '22.

Great. Thanks a lot. Appreciate it.

Your next question comes from the line of Nick Housden with RBC Capital Markets.

Hi, everyone. Thank you for taking my questions. My first one, excuse me, is just looking at the guidance upgrades. And my sense is that the underlying assumptions for H2 haven't really changed. The raise is more just a reflection of the strong Q2 results. Is that a fair assessment of the situation?

I think that's fair. Nick, good morning first by the way, no that's a fair assessment. I think as you look at, and Judith kind of alluded to that a little bit in her response to Jeff. I mean, if you look at between first half and second half, there's definitely -- more difficult compare both on New Equipment and on Service. We were down about 10% in the first half of last year in New Equipment, up a couple of points in the second half on New Equipment in 2020, so the compares get tougher. Service Q2 last year was the weakest quarter, I would say. And then Q3 and Q4 were down, but not as down as Q2. So definitely tougher compares getting into the second half. So that -- as we look at first half and second half compares for 2021, New Equipment growth definitely slows down, but Service is about flat in both, up 4%, 4.5% both first half and second half. So, that growth looks consistent. And then, if you look at on the Earnings side, obviously, second half reflects the change in volume growth assumptions, but also incremental commodity headwinds that we are seeing in the business, which is going to be a little bit more back-half loaded. So you're seeing that. And – but, I mean our productivity initiatives continue to deliver. We've seen good improvement in our installation execution out in the field, so that is covering a lot of issues that we're dealing with, especially on the commodity side. And if you look at first half and second half, in the second half our earnings continue to grow. Our margins continue to expand in both segments and there’s a decent drop through coming on the volume growth that we're seeing. So, we’re seeing about a 10 basis points expansion on the New Equipment margin in the second half, and 90 basis points overall for the year. And on Service, we're seeing about a 40 basis point, 50 basis point expansion in the second half and about 40 basis points for the full year. So, we think it's a solid second half, recognizing a slightly different environment and a bit more difficult compare.

Yeah, Nick. It's Judith. Let me just add on to Rahul. We also have some one-off support that we're trying to offset, including some government help that helped us in 2020 that's going to come through in the second half of the year. But we have seen, again, for the second quarter, with Repair and Modernization revenues up and orders up in both. That gives us comfort on the Service side and a 40 basis point margin expansion full-year for Service. We will, when you think -- when you look at the new guide, even with that second half as we've contacted it, even with all of our abilities to offset the now 70 million to 80 million of raw materials, the commodity headwinds, there's really a good outcome here. Our profit is going to be up 240 million, our EPS is going to be up 15% even accounting for all that, and the higher stand-alone costs, and an extra quarter of interest expense. And that's coming off a strong '20, where we grew operating profit and grew EPS as well. So, for us it's growth on growth, which we believe all of our colleagues listening understand that is our mantra, that is our strategy.

Thanks. And then if I can just add on to that, I mean listening both to your results today and to your competitive last week, it almost feels like you've been taken by surprise by the strength that we've seen in Q2. I'm just wondering when you look at this strength, are there any areas where you feel like it's unsustainable either in particular business lines or particular geographies or anything that should give us a reason to think that that maybe a bit more risk in H2 and into 2022?

Not really, Nick. I mean, the Americas got off to a better start than we expected. The market's up mid-single-digits. EMEA was stable in '20, and we expect low-to-mid single-digit growth in '21, and we're seeing that. We still are watching Asia Pacific, ex-China, because there are still, obviously, India is coming back, but Singapore is in lockdown and several other Southeast Asian countries are in lockdown. So, we’re watching that with caution, and thinking about our colleagues and customers there, but you really know no surprises. The second half on Service, EMEA and Americas are going to continue on a low-single digit. And the New Equipment market is going to continue to feed our Service market. Having the portfolio where we did for the first time at 3% and the backlog up 5% on New Equipment is really what gives us the confidence to drive the sales, and then the orders execution, we haven't seen real drastic changes in the end markets that would give us pause.

Okay. Great. Thanks very much, guys.

Thank you.

Your next question comes from the line of John Walsh with Credit Suisse.

Hi, good morning.

Morning, John.

Maybe a question as it relates to price cost. Appreciate all the color earlier around that equation. Wanted to dive a little bit into China. One of the things that we had picked up is, it seems like there are several OEMs trying to get a price in China as we look forward in the back half of the year. Is that something you're seeing? Do you have any plans, any color you can give there on the pricing dynamic on the ground in China?

Yeah. Sure, John. As Rahul mentioned, one of the 3 strategies we have to offset the commodity headwinds we're facing is a more broad-based price increase. We started this last quarter very focused in a few countries, and now it will be more broad-based and go across all of our regions. We are -- we always look at this in terms of what the market can bear and how the competitors respond. In China, the top 10 OEM s have 90% of the market segment. We heard the same thing you did last week about people raising prices. We are doing similar, but obviously we'll tailor it to the segments in China where we think we can get price and not give up share as well. Our -- we're really pleased China results so far as we came through the quarter. Record orders in the mid-teens, so very pleased with that. Double-digit sales, and the team grew our portfolio mid-teens. We gained share. We think we grew faster than the market. And even if China get -- becomes more stable versus the high single-digit growth we saw in the segment in the first half, it will still be a growth segment. Not on -- the segment will be a growth for the year, and it will certainly be growth for Otis.

And just to add to that, John, part of the reason why we feel okay about our situation in China is if you look at the flows rate under construction, that's up more than 10% over last year and 13% over 2019. And the real estate investment in China is up 15%, so there's a lot of activity happening in China. We feel that the overall market growth in China has gone up from mid-single digits what -- when we've started the year to maybe mid-single digits plus. And now we think it's high single-digit. The market's definitely growing, and that gives us incremental ability to pass on a little bit of price in China.

Thank you for that. And then maybe just a question around digital. I think a lot of the -- Well, I'll just ask the question here. If you're seeing customers really increase their take-up of paid digital services, or if this is really still an opportunity more around the cost-driven payback of upgrading to a digital service? Just curious what you're seeing there from customers' acceptance and willingness to actually take these services.

Yeah. John, our strategy was to control and drive productivity first with giving customers value, whereby we control the deployment of the Otis ONE units so that we had -- and we're able to take advantage of route density as well as other productivity measures for us. Obviously, our customers get visibility into this. We've started seeing uptake on our Otis ONE subscription services but it's early days. But we believe in it and that's why, as we've rolled out our Gen3 and Gen360, they are Otis ONE digitally enabled. The IoT is built in. We're now shipping units with Otis ONE already built in so that we have the foundation, we have the ability to do over-the-air updates to add features, to add value. Still early days, but we have seen the customer uptake not to where it's material yet in the revenue.

Great. Thank you.

Your next question comes from the line of Steve Tusa with JPMorgan.

Hey, guys, good morning.

Good morning, Steve.

Hi, Steve.

Just a question on the margins again. What do you expect the price to be for this year, and that lever to offset the commodity costs? And then when you look out to the next couple of years, is there any bump in the road when it comes to margins? And, ultimately, you guys are performing well here. Is there a potential for a higher entitlement back to where you were before, way back when, in the good old days?

Steve, let me start and then I'll let Rahul add to it. But -- so with these price increases, the order to revenue cycle is variable throughout the globe. And some countries drive an earlier benefit from the price increases than others. The price increases that we started last quarter will start flowing through later this year. The price increases we started in July, we'll see some of that the end of this year. But the majority of that we put in place to, again, have protection through first half and more importantly, second half of '22. It's been targeted, but the real actions to drive the offset beyond price that we're going to see quickly are the productivity we've gotten in installation, which as any of you who follow us know, we've had all these service productivity initiatives. We've invested in technology there. There is ripe opportunity for us to continue to yield installation productivity. And then our material productivity has not stopped in the factories. And we were yielding 3% every quarter. That we anticipate material productivity to continue to help us offset this, and it's included in our outlook. But I'll let Rahul add there and see what he wants to say about returning to the days of old.

Listen, it's early days, Steve. Again, I think Judith alluded to it in a response to an earlier question. Clearly, we are very, very pleased with the progress we've made over the last couple of years since Investor Day between what we were able to do in 2020 and now '21. Between the 2 years, we have more than 100 basis points of margin expansion. it is very, very good progress, good return to growth. The numbers are above 2019 levels. And if you look at the absolute profit dollars, I feel that is, the margins may not be, but I think if you definitely feel really good about delivering the absolute profit dollars. And maybe at that point I don't know what the peak was, but our revenue was probably $3 to $4 billion higher than where it was back in 2010, 2011. And even if the margins are lower, I think in absolute profit dollars we may be kind of getting there. I don't know, I haven't gone back and checked the AFX numbers for 2010, 2011, but it feels like -- and that's an important metric for us. But listen, we will continue to work it. You know we're clearly doing everything that we should be doing in the business, and we feel we've got good traction. And as Judy said earlier, we'll come back and kind of update our medium-term guidance early next year. More comes --

It was 20%. I can send you the number just in case you don't have it there. And then just one last question on the 3% maintenance -- units under maintenance number. What was the biggest lever on that? You guys had some good, obviously, new unit deliveries. Could you just give us a bit of an update on attrition and recapture?

The numbers continue to improve in all metrics, Steve. Conversion rates are better, including conversion rates in China. I think there were -- they maintained their merging towards our 60% target that we've set for ourselves. And there'll be -- and, again, as we've said before, we expect a meaningful improvement this year in China on the conversion rates. And we are getting there. The recapture rates are better as well in China where we have the biggest opportunity, and the retention rates continue to improve as well. I think we are making good improvements across all 3 metrics. And like we always do, we'll update you guys annually on where we end for the year. But it was an improvement across all 3 metrics for Otis overall. And obviously, in China, you're seeing some really good traction on the portfolio growth, and the units were up in all regions. We're seeing some good traction overall in the Service portfolio.

Right. And that --

Our retention rate is still at 94% at the round. We can't go up and we certainly, with those actions, wouldn't go down.

And that 3% unit growth can translate into something a bit higher on the revenue side, right? That's my last question.

Yeah, absolutely. And if you look at the Service pricing overall, Service pricing has continued to track well. In a part of that, we reflected that in our guide as well. Service pricing continues to track well. The concessions have come down to terminal levels overall. And this high inflationary environment that we're seeing should help us on service pricing. Because most of our contracts in Europe and Americas, have price escalators built in. They're largely tied to labor inflation. And historically, we've always had that lever, but given low inflationary environment in the macro market, the price s don't always stick. And now with this inflationary environment, we should have a greater ability to stick to those prices. That should help next year.

Great. Thanks a lot, guys. Appreciate it.

Your next question comes from the line of Cai von Rumohr with Cowen.

Yes. Thanks so much. To follow up on Steve's question, maybe give us a little bit more color on the 3% service growth. You mentioned China mid-teens, but where was it elsewhere? And give us maybe a little more color also in terms of the conversion and the recapture rates.

It was a broad-based growth, Cai. I mean, Asia Pacific, that's our next biggest opportunity in terms of portfolio growth because [Indiscernible] that had some developing markets, So that clearly continues to add to our portfolio count as well. Asia Pacific, I would say would be number 2. And then Americas and Europe are obviously more mature market, so the portfolio growth is lower compared to the other two regions. But again, all regions grew their portfolio. Cai, so that is obviously very, very good. And you see the overall growth accelerated. And as I said in response to an earlier question, I think that all three metrics improved. So we've seen good, good improvement. Our recapture rates are better, conversion rates continue to edge up. And obviously, China is the [Indiscernible] there. We made a meaningful step in the right direction. And retention rates have, again, I'm repeating myself, but it just continues to improve. And every little bit helps because we've got, obviously, on 2.1 million units, every 10 basis points helps. And that was up year-over-year, the retention was up year-over-year.

Cai, the other element that most people -- it's a little bit of a nuance, but I want to make sure everyone understands is as we do modernizations, a lot of those are off portfolio that we then bring back through the Modernization and it becomes part of our portfolio going forward. Modernization orders were up double-digit in the Americas, EMEA, and China that led us to this 17% across the board. The Mod business is coming back nicely, especially post-pandemic. Some of it's pent up demand, but a lot of it is just -- elevators are now a year, a year-and-a-half older. And so there's almost 6 million elevators over -- out there that are over 20 years old. They're not all in our service portfolio, but modernization gives us an opportunity, not just to recapture them, but to recapture them, do a modernization and then start the service cycle and put them in our portfolio.

Great, thanks. And then, in terms of rollout of IoT and connectivity, I think your target was 100,000 units. Can you maybe update us there?

Yeah. We're on track for the year. We'll finish with another at least 100,000 units this year. We are shipping from the factories as well, as we've now started shipping. Obviously, we have new orders on Gen3, which is our IoT -enabled platform everywhere but EMEA, which has the Gen360 rolling out, which is also IoT -enabled. We're going all in. We believe it makes sense for us as we're going through the change management with our field professionals. They have been embracing Otis ONE, and I've heard some personal stories in Chicago -- in the Chicago suburbs and other locations, where it's just -- it's amazing how this is driving less entrapment, as well as customer satisfaction, because we are actually proactively repairing parts of the elevator before the customer even has a shutdown. It's being viewed well internally, which is important to get that ground swell. Our field professionals really are appreciating it. We've gotten the installation time down to very small minutes, in terms of installing a unit. And this is our future. The Connected Elevator is here and Otis ONE helps us start that and becomes that foundational platform.

Terrific. Last one. You added to your sales force last year and you added agents in China. Can you maybe update us in terms of what you're doing there?

Sure. In this quarter we added another 150 net, so we're up to 2150. That's -- we continue to tune it. You won't see the same acceleration, but we're also appropriately doing some assessments on who should be in, who should be out, so that we have the yield. What we're seeing for the second quarter in a row is we gained share in the Tier 1 and Tier 2 cities, which is where we were not performing as well as we needed to, and we're gaining share with the key accounts in China. The agent distributor network is working for us. And I'll just -- Rahul spoke in his remarks about SG &A and us driving that down 60 basis points this quarter. Our SG &A and the dollar amount actually grew because we are investing in the S part of it. We're continuing to add sales resources in focused markets where we were focusing on key segments and underserved markets in specific countries throughout the globe. And our teams executing very well on that while we're trying to obviously drive the G&A piece down on increasing revenue. So we are committed to sales coverage, whether that's through direct sales people in certain parts of the world, or our agents and distributors.

Thank you very much.

We've added about 100 agents -- to add a little bit more color, Cai, we've added about 100 salespeople this year. Between last year and through the first half, our sales force is up about 6%. That is -- that's a step in the right direction. And the digital marketing efforts are also using a lot of results. Our digital sales, our bookings are up 2X where we were in the first half last year. So it's just not feet on the ground, but also the digital strategy that's paying off.

Terrific. Thank you very much.

Your next question comes from the line of Julian Mitchell with Barclays.

Hi, good morning.

Good morning, Julian.

Hi, Julian.

Good morning. Maybe you just want to clarify on the pricing commentary, because you talked about prices going up more recently, prices going up into next year as well. But there was a comment at the beginning of the prepared remarks about the pricing down 60 bps. So maybe I misheard that, but just wanted to sort of try and square. Was the down 60 a sort of lagging backlog number net or something? And then when we're looking forward to the gross and net price that starts to swing more positively?

No, Julian. You heard it exactly right. I think both the statements are accurate. Pricing was down in the quarter, similar to the levels that we saw in Q1. The price increases that we put in place in Q2, that we spoke about earlier, they were in -- they were in targeted countries. And indeed, we were very, very careful because, again, it was early in the year, we were not sure how the markets were recovering. We were very targeted in those price increases. Obviously, that is still going through the course to the order cycle. Hopefully, we will see the benefit of that in the second half of this year. We do expect pricing headwinds in terms of absolute dollar terms to be lower in the second half than we had in the first half, so that should start to help. And then we put in prices -- incremental price increases in additional markets across the world. This is a far more broader price increase, and this is because the markets are recovering better than what we thought. Americas, I think Judy said it earlier. Americas is now expected to be up maybe mid-to-high single-digits versus up slightly at the beginning of the year. China is going to be up more high versus mid. So markets are trending in the right direction. That gives us confidence. Okay, market has the ability to absorb these price increases. We are -- there's a much broader price increase. And that should show up into our numbers and more in '22. And maybe some in the first-half, but maybe more in the second half in terms of absolute dollar benefit. So I think both those statements are absolutely accurate because this 60 basis points of bright decline that we saw in the quarter was more in response to the quotes that we've issued last year.

And Julian, of our 17 billion of RPO, 89% of that we recognized as sales in the following 24 months, which gives us time for productivity initiatives, gives us time for learning curves on all of that backlog, and as Rahul said, that backlog margin. And when you look at the performance this quarter to be up 2 points in New Equipment from that which we bid within the -- 6-20 months ago, I think shows that we know how to drive those learning curves and the productivity.

Very helpful. Thank you. And just my second question around capital deployment, and I don't know if that's come up yet in the Q&A. I noticed the decent share buyback increase. Clearly, the very high and stable cash flow levels mean you have a lot of scope for capital deployment beyond this year. Just wondered how you're seeing the M&A environment right now. There is an opportunity to go out there and buy up a lot of service providers locally in different regions, for example. Just wondered how appealing doing that systematically on a large scale would be?

We ended the quarter with $1.9 billion of cash on the balance sheet. And we clearly don't require that much cash to operate this business. Second Quarter of negative net working capital. So, everyone was very focused -- remains very focused on that. We've continued our small service Company acquisitions. We've targeted and we shared this in Investor Day, $50 million to $70 million a year in doing that. And the challenges is their readiness. We've got a good book of potential targets that we continue to look at, but the owners have to be willing to sell, and then it has to has to meet our model in terms of being accretive, and as well as being on the right place for us to add to our routes and to our locations from a density standpoint. We do many of these. Most of those are private transactions with private companies, so you don't hear about all of them. But it's robust and it's continuing. We remain open to all opportunities from an M&A perspective. And we don't know when generational opportunities will come around, but we remain open and evaluate all opportunities. A year and a half ago, we needed to repay debt. We needed to start our dividend. We had no cash -- no stock buybacks. We've repaid the debt we thought was at the appropriate level now, so that our net debt EBITDA is about 1.7 kind of level, which we think is very healthy with the debt we're holding. We increased our dividend last quarter. and we've increased share buybacks we weren't originally planning to do any this year. We announced $300 million in the first quarter or at the beginning of the year, $500 million last quarter, and now we're upping it to 750. So we will continue to drive shareholder value and remain open to M&A opportunities as they arise.

Fantastic. Thanks very much.

Thanks, Julian.

Thanks, Julian.

[Operator instructions] Your next question comes from the line of Nigel Coe with Wolfe Research.

Thanks. Good morning. Thanks for the question. We've covered a lot of ground already, but I want to go back to the 3% unit growth in maintenance units. That's a pretty big number. Do you think you can maintain that level of growth in units? And what I'm trying to drive at here is, if you do volume growth of that level with price, maybe an acquisition or two, and then maybe if digital starts hitting and getting traction, then we could be looking at well north of 5% service growth. I'm just wondering if that is how you view the world as well. But the main question is, do you think 3% can be sustained?

Yeah, Nigel, I think you've got a fairly accurate assessment, as usual, about our business. We do think it's sustainable now that we've achieved it. We set it as an internal target as we started the year. We've never hit 3% in the last decade. And so to us, this was important because as you know, our service drives 80% of our profits. And then this has that knock on effect obviously of the 5% you were talking about. So we set the target ourselves. We knew we needed to grow our portfolio in China, where the service market is growing faster than anywhere else, as well as in the emerging markets, including India, Southeast Asia, and other emerging markets. Our team has taken that onboard. And this quarter was the first time we hit 3%, last year we were at 2%. I believe in 2019, we rounded to 1%. We have a strategy in place to execute to do this. And a lot of it is basic block and tackling, perform, drive the conversions, drive the retention, stop the cancellations, delight the customer, and then add that digital layer, that foundational layer of IoT that gives us more stickiness. And it's not just IoT, it's our eView. It's any of our -- any time we're connected to the customer, all of our retention rate goes up, our conversion rates go up. And so whether it's eCall, our Compass Dispatch System, everything we're doing now with our -- I'm just so excited about Gen3 and Gen360 And having now that architecture out there that will give us that foundation to continue to grow. And it's all about growing the service portfolio. So I think you've got it accurate and I think it's sustainable.

Thanks, Judy. It was great. And then on the buyback uplift. I know that's Rahul, that the cash flow around the organization hasn't been -- wasn't optimized. Far from it that the time has been -- are we now in a position where we've greased the wheels and we now have more fluid cash-flow globally? And just any kind of thoughts on tax optimization strategies.

On tax, Nigel, we keep making progress. We obviously lowered our tax rate to 29% from 29.5% previously, 30.4% last year, so a 140 basis point reduction in the year. I think it's moving in the right direction. Our long-term guide or medium-term guide is still in the 25% to 28% range. We continue to move towards that number. Obviously, there's incremental improvements that you will see in '22 and then '23. And then on repatriation, listen, this -- the incremental 250 that we're able to do speaks well to the work that our teams are doing just to continue to look at different strategies to bring cash back to the U.S. where we can put it to work. Not to rehash the stuff that you just mentioned, but it it's -- clearly shows that we are doing our job, but -- and that is something we will need to continue working on. It's not a one-and-done thing. This is something that we need to keep pushing because [Indiscernible] keep building our cash offshore, and we'll have to keep thinking of how do we bring it back to the U.S. That has to be an ongoing activity. But really good progress. Our repatriation's probably going to be maybe 1.5-2X what we did last year. Clearly, a lot better this year. And then we'll need to think what we can do next year. That's an ongoing activity for us.

All right. Thanks very much.

Thanks, Nigel.

At this time, there are no further questions. I would like to turn the floor back to Ms. Marks for any additional or closing remarks.

Thanks, Angie. This solid first half of 2021 demonstrates the resiliency of our business, the strength of our strategy, and our ability to execute and innovate. I'm confident that this positive momentum, the dedication of our colleagues, and the pace of recovery in our end markets positions us well to deliver on the improved 2021 outlook. Looking forward to the second half of the year, we'll remain focused on driving value for our customers, colleagues, communities, and shareholders. Thank you for joining us today, and please stay safe and well.

This concludes today's conference call. You may now disconnect your lines at this time.