Capital Markets Day Transcript - HON 2026-06-11

Operator

Good morning and welcome to Honeywell Technologies 2026 Investor Day. This webcast and the presentation materials, including non-GAAP reconciliations, are available on our Investor Relations website. From time to time, we post new information on this website that may be of interest or material to our investors. Our discussion today includes forward-looking statements that are based on our best view of the world and of our businesses as we see them today, and are subject to certain risks and uncertainties, including those described in our recent SEC filings.

Operator

Some things just have to work. The plant, the pipeline, the hospital, the building down the street, the grid that powers them all. For more than a century, we've operated at the heart of the world's essential systems, The controllers, the sensors, the impeligent networks, running the operations the world depends on. Every second their systems collect data. Decades of it. For a long time, that data was trapped. Isolated in tools, equipment, and operating systems. Not anymore. We're connecting it. Contextualizing it. Putting it to work. Not a leap, a path built step-by-step, accelerating with the certainty critical industries demand. Tens of thousands of customers, hundreds of thousands of sites, and millions of assets. Connected, learning, getting smarter every day. The buildings where people work, learn, heal, gather, safe, integrated, sustainable. The sensors and smart devices that form the foundation of autonomy. Smart, reliable, secure. The reactors, the chemistry, the lab where life-saving medicines are created. Precise, reliable, efficient. And the people, operators, engineers, technicians, working with clarity and confidence, their expertise amplified, never replaced. This is Honeywell Technologies, the intelligence powering the world's most critical operations. When something has to work, we're already there. Honeywell Technologies, at the heart of it.

Operator

Please welcome Senior Vice President of Investor Relations, Mark Macaluso.

Mark Macaluso, Head of Investor Relations

Well, good afternoon. Thank you, everyone, for coming. We finally made it, and no one is more excited to be here than this team. So we have a packed agenda for you, a ton of great content, plenty of time for Q&A sessions, and then we hope you all stay and join us for reception at the end. So a quick look at our agenda for today. We'll start with our chairman and CEO, of course, Vimal Kapoor. And just a quick look at our presenters. It's going to be a great day. Thank you for sticking with us the whole afternoon. And with that...

Vimal Kapur, COO

Good day, everyone. I've been privileged to work in Honeywell over the last 35 plus years across different sectors of automation, be it buildings, be it process industry, be it industrial sector. And each one of them, I've been highly influenced by the customer voice who talk to us every day on making their business better and solving their complex problems. These customers are in refining, these are in hospitals, these are in data centers, these are in hotels, these are in semiconductor fabs, and then the list goes on. So I thought, what an exciting start to the investor day to hear voices, some of these customers, which are shaping the future of Honeywell. So here we go.

ExxonMobil Representative, Analyst — Other

I've had an interface with Honeywell for over 20 years. One of the biggest opportunities we've had over the last several years is in the area of process control. And given the complexities, the scale of ExxonMobil, the scale of ExxonMobil's operations, and Honeywell's in the majority of those operations all over the world that help to develop and deliver products to our customers. In fact, Honeywell was recognized this year as supplier innovator of the year. And that's in large part due to the work that was done in process control. Our relationship goes well beyond the supplier aspects. And there's a lot of areas where we're users of your technology, where we've got co-innovation ongoing. And from my perspective, there's a bright future in that. But the foundations of the relationship are transparency in terms of understanding what we as a customer need in our facilities, aligned with the fact that everything that we do together is science-based. What is the best science, what is the best technology to solve the world's problems, and what is the best policy?

Equinix Representative, Analyst — Other

Since Vimal and I first connected, what I've come to appreciate is how genuine he is and how well he and his team listen. They take the time to understand what we're trying to accomplish here at Equinix. And then they show us how Honeywell can help us move faster and serve our customers better. And I mean that quite literally. We are each other's customers. Honeywell depends on Equinix's infrastructure and we're proud to call Honeywell our customer. And Equinix depends on Honeywell's technology. I believe that the world needs Honeywell more than ever and your innovation will shape the future. Honeywell

NXP Representative, Analyst — Other

helps make NXP better. Being a core part of Honeywell's platforms let us deploy truly innovative solutions at scale. Systems that are smart, secure, and safe. Just as important, Honeywell is an outstanding partner in early architecture discussions. Their input helps us optimize features and shape our roadmap before products are built. And that's a real partnership, a real value for NXP. The next chapter in industrial is AI, and it's a big one. The market is expected to grow almost 10x over the next decade, and the real opportunity is AI that operates in the physical world together we can augment existing applications create new ones and ultimately redefine industrial segments while delivering significant value to honeywell's customers at a broader level partnership like this matter because we share a common belief that technology should make the world smarter safer and more sustainable physical ai enables safer communities smarter infrastructure and lower environmental impact we're also proud of be deploying Honeywell solution at our own farms to accelerate our operational

Mr. Dangote, Analyst — Other

sustainability goals. I think our collaboration has been a very very progressive collaboration and one of the key strengths of Honeywell is that you hardly hear no. I think the decision that I made in counseling a contract with another company to now give you this finally I didn't make a mistake. We make a decision very fast. You also run very fast. Without this relationship, we wouldn't have been able to build the largest single train in the world. I think the future between the two of us, between Honeywell and Nangoti, is going to be great. I think with you guys, the sky is the limit.

Operator

Please welcome Honeywell Chairman and CEO, Vimal Kapoor.

Vimal Kapur, COO

Good afternoon, everyone. I'm a warm welcome to everybody to join us on our Investor Day. I thought it's important to start with our customers because if we have to commit to growth, if we have to commit to our bright future, it's not without these people who shape our decisions every day. And I really take it very seriously to thinking about customer-first mindset. So I'm going to walk through my story, and you will hear these messages. So I thought I would lay it out in the front what you're going to hear from me in the next 35 to 40 minutes. The first is about our transformation to a pure-play automation company, something which you have been falling upon. But more importantly, focusing automation on mission-critical segment. Automation is a very wide market. You can make a lot of choices. We are making a choice to operate in a segment where mission-criticality matters, where uptime matters. Customers want to use these systems 24-7. And making that choice is a critical decision we have been evolving upon over the last two years since we are reworking our portfolio. But also the point number three, that we as a company are practicing a single business model, which is a bit novel because companies having a business model is not unique about it. Having a business is following a practice is very standard. But we are going to follow at Honeywell level a single business model that we build an install base and we serve our install base through services and software at scale of the entire company. Then moving along to AI, which is going to be a future opportunity for us, you will hear from me and subsequent speakers how our industry of automation will turn towards autonomy. It's real. Some of you had a chance to look at our demos. You can already see that we are pivoting towards our offering, but I believe that as a future optionality of revenue opportunities, it's going to create, much bigger than what is in our numbers today. And then, of course, our operating system, which gives us an execution certainty, and our team, which knows how to deliver. So jumping onto it, I'm going to tell my story to you in three parts. I'll first walk you through our portfolio transformation. Then I'll move towards what's going to drive growth in Honeywell. And finally, how are we going to execute it? So the three simple chapters. So walking on the portfolio transformation, before that, I thought, Let me go back to the last investor day of Honeywell, which was 11th of May, 2023, so about three years and one month back. I was not CEO at that time, so my chart said incoming CEO priorities, and I thought it just could go back and see what did I say, and did I do what I said, or I just wandered around and chose to do different things. And if you see the list of things to what I said, we will accelerate top-line growth, improve our say-do on that. We'll execute on Honeywell transformation. We'll accelerate our new product machinery. We'll improve our operating system. We'll pivot towards more corporate responsibility, even though priorities have changed there over the last three years, but we haven't lost course on that. And we deploy capital strategically. I won't say that we've done 100% precisely, but the direction of travel has been what I committed. There have been some tweaks. the point being that I stay on course. I don't change my mind. If we have what we're going to present you today you can have a high amount of certainty that me and my team are going to deliver on these commitments in the times ahead. If you look at our portfolio many of these actions are known but I thought it's good to summarize on a page what we have been able to accomplish since start of January 24 till you know about two and a half years of journey. Two spins successfully executed the advanced material spins last year. Aerospace spin happening in about two weeks' time from now. We did seven acquisitions in the automation portfolio. There were two additional we did in aerospace, so I'm not counting those. We've done three divestitures, one completed, two are under execution, should occur in the Q3 of this year. We also did significant balance sheet simplification so that our business is easier to understand. And finally, we were able to accomplish the IPO of Continuum about a few days back. Now, imagine I started as a CEO on June of 2023, and I presented you this chart. I'm going to do this. You may think this is a crazy idea to do all this in such a short period of time. But we have been able to accomplish this because we are mission-centric. We really want to build an automation-centric portfolio. So when you work for a mission, you get the energy and execution speed on which we have delivered on this. And this has really created the new Honeywell. These are 2025 numbers, so they are backward looking. So 17 billion rough numbers is our revenue of the Honeywell technologies, divided into three segments, buildings, industrial, and process. But 25% of the portfolio is refreshed. With all the changes we made of divestures and acquisitions, one-fourth of the revenue is going to come from the new revenue stream, generally speaking, from higher growth opportunities. And not only have we been able to create a pure play, diversified end markets portfolio, but also have positioned it well for the growth. If you look at the distribution of the revenue, the center pie chart, if you pay attention to that, But we really start really focusing upon this whole notion of growing install base and mining install base. 60% of our revenue come from solutions, 20% and 40% product. That's when we grow our install base. We do it every day. That's when we ship a product or we build a solution. So our install base keeps growing. But if our mindset is that we need to mine install base, that's 40% of our revenue. 30% come from services, 10% come from software. And we like both. It's no question of that we need more of services and more of software. We want both of them because both are equally profitable. And that mindset allows us to really think about our future business models. So one of the things we are planning as part of this layout is we want our services and software that we need to grow to 45%. because it makes our business more predictable, less cyclical, but also more profitable because clearly that revenue stream has a higher margin compared to the solution and product stream. And that's one of our strategic goals that we want to treat this business with this mindset of building and mining install base. If you look at our geographic distribution, as you would expect, business is geographically very distributed, little over 40% revenue from US and 60% rest of the world. So we will benefit from, as the global expansion occurs in different end markets, we'll equally benefit from that. Now, the question will obviously come in that automation is a big market. Where exactly we play and why we made these choices? It's an important question because that's the heart and center of the discussion. So I put a very simple illustration of automation on the left-hand side. Some of you are familiar. It's called Purdue model. So you start the sensing and measuring something. Then you define a control measure on what you want to do. And finally, you can optimize it using software. This is how the industry has evolved since mid-'70s when this industry got created. As I mentioned, we play in three-end markets, building, process, and discrete. We have made choice to play in the mission-critical part of these markets. And also, you don't see some other parts of automation. we have not representing because we believe it doesn't fit into either mission criticality or our business model of building and mining install base doesn't really fit in well because if that's our core principle, we need to be setting true to our principle. So if you walk the stack here, in buildings, we play through sensors, controls, and software. So in building, the sensors are smoke detectors, cameras, field devices. Then we have significant position in the control domain, and we have significant position in the software domain. But when you go into the process, we have significant position in the solution side, both in the control and software. And on industrial automation, we have sensing and measurement play at this point. We want to build a strong sensing and measurement business in the industrial automation. This is a space we believe in because the thesis is very simple. If the word is going to invest much more in AI, AI is built upon data and in the physical world data come from sensors. You can't estimate temperature of a room or a condition in a building or any such asset based on estimate. It's not going to work. So physical sensing is the heart of it. It's a very fragmented industry. We have already built a strong product based business in buildings and we want to illustrate that reputation in industrial automation. Discrete automation in the control side we don't represent today. And the question will be why we don't participate in this market. It's an attractive market with the U.S. on-shoring occurring. There should be growth here. At this point, we don't have a participation in that because that's how our portfolio has evolved over the last many years. It doesn't mean we won't participate in the future. We understand these domains quite well, but today our position is open at this point. So we're keeping our optionality open. And near term, we'll continue to focus on strengthening our sensing and measurement space, but moving forward will keep ourselves a room to grow into discrete automation on the control side. So very wide portfolio, which jumps in nicely to the next chart. Why do we like all this? Okay, why do you like this combination? First and foremost, we play in a market which is little over 200 billion dollars between building industrial and process. And market grows somewhere around three and a half percent in a given period. So three percent growth in industry and process and four percent growth in building. Now we want to grow four to six percent, so why would we grow higher than market? I mean if market grows about three and a half, what's our entitlement to grow higher than market? There are two fundamental reasons for that. Before I get to those reasons, automation by itself is a secular growth market for several decades to come. In the critical segment we operate, thinking about critical segment like hospitals, like data center, pharmaceutical facilities, refineries, semiconductor facility, utilities. Automation is like oxygen for these facilities. You cannot run these complex facilities without automation. So we are not in any fundamental shift which is likely to occur for decades to come. It is five decades of proven history. So secular growth here is highly probable in the times to come. So that's a table stakes. But the fundamentals of macros are strong, whether infrastructure built out, the energy security, which has become a major challenge due to two wars, the labor scarcity and AI issue, which are interrelated, and I'll talk to it, and reshoring. I think these are the foundational growth vectors which are occurring in automation, which support us and support the entire peer group with whom we compete with every day. So the question comes in that why would we grow higher than the market. The thesis is built upon two fundamentals. The first is within these markets, there are verticals which are growing at a much higher rate, way greater than 3.5 percent, like data centers, like semiconductor fabs, and many others like LNG. If we are able to participate in those markets and grow at a higher rate, we are able to change the rate of acceleration of our growth. So part A is, how do we make those choices? Because we can't be everywhere. How we carefully make the choices and grow those markets at a higher rate while we maintain our share in the core? So that's the first change we want to make, and I'll talk more about it. Now the second, our install base built over the last 50 to 75 years in some businesses is significant. You're talking here tens of thousands of plants, millions of buildings, and assets which we own, how do we execute our aftermarket services strategy in this mission-critical segment where service is very important, uptime is very important, customers care about these assets who work all the time. So if we are able to execute our strategy on services and software flawlessly, that gives us an incremental growth opportunity. So it's fundamentally grow with the market with these to optionality of growing higher on the high-growth markets and mining your install base better. Makes the case for us not to grow 3% to 4%, but make a case to grow from 4% to 6%. In addition to that, the market characteristic of fragmentation in buildings and industrial market in particular is very attractive for us, more from future growth and optionality to further do acquisitions. Because fragmentation allows us to make choices. The markets are big. As you can see, $200 billion, and we are shy of $20 billion. So we have a lot of runway, organically, but equally importantly, inorganically. And we believe that there's an aggregation opportunity selectively where necessary possible in addition to that. So there's a lot to like in these markets for us to feel bullish about on how can we deliver in the years ahead. All that really comes together in form of where our position is as a pure play automation leader. Number one player in building automation and number one player in process technology. Now, if I was standing here in 2019 and saying we are going to be number one player in building automation, mostly most people will not believe that statement because the segment itself did not exist. We have created a segment called building automation from scratch after spinning off our residential business in late 2018. And from scratch, we built a business which was $5.3 billion, sub-20% margins, to a business which is trending towards $8 billion and high 20s margin. We know how to create pure play. And we are going to repeat that formula in industrial and process automation. We believe in honest admission, we are top three, but our ambition is to stay also become number one. It's going to take a while. I'm not saying it's happening next quarter, but that's part of our strategy that how we continue to execute and bring our position. Our foundational strengths is our install base, our global scale, and our operating system. But our differentiation comes from three points. The first is domain experience. Now, domain experience matters in mission-critical segments, and our participation in these industries give us a deep understanding on how these sectors work. And more importantly, if we have to mine our install base, we have to understand the customer needs much more deeply than only at our product level. As an example, if you take care of process industry, which is about 40% of our business, The domain experience there comes from understanding the conversion of molecule. These domains really drive a convert a molecule from position A to position B. Not easy to understand domain. It is possessed by very few people who provide technology to asset builder to do that. We own that business. We are number one provider of process technology in the whole world, which makes us uniquely positioned to have deep domain knowledge to play in that segment. And by the way, the same argument applies in industrial and buildings too. And that gives us a unique advantage as we are turning our focus more from automation to autonomy. Domain experience is going to be paramount to do that. Number two, Honeywell Forge, something we have been investing in since 2019. Seven years of journey. Now this is a foundation of our business model. If we have to mine our install base, we want to do through Honeywell Forge platform, which is an AI platform which minds are install-based better and creates a higher value for our customers and pivots the part to autonomy. I will ask you to consider checking how many industrial companies announced a cloud strategy in 2019 and how many companies still have the cloud strategy in 2026. We are one of the few companies who stayed on course because we believed into it and therefore it has become a competitive differentiator for us after seven or eight years. And then finally, our decision to play in innovation across critical control points, the mission criticality. It's a choice we have made. The whole company runs with the mindset of serving customers, which are mission critical, which positions us differently from others, which want to serve all the segments. So that's where we believe at our starting point. Now, before I go away from my portfolio section, I want to spend a minute on our commitment on ESG. We have stayed on course on that, specifically after separation of aerospace and our specialty chemicals business. We don't have any exposure to nuclear weapons. Some of the shareholders have that as criteria. That obviously was obstacle in our previous portfolio, not anymore. But more importantly for me, 75% of our offerings are sustainability oriented. That number will only go up in terms of how we think about this business. And finally our own emissions have been reducing. We haven't changed our course just because it became less visible to the outside world. We have been executing on it. We will be carbon neutral by 2035, will be half of our emissions since we started measuring it by 2030. We do it every day, we do it every week, so we are going to stay on course on that. So that was the first part of the story. We have transformed my portfolio. We believe in every part of our portfolio we have and we're in a good position. The question is, now, what do you do with that? Portfolio is just a good starting point. You need to execute and deliver a growth based upon that. So before I jump into our growth strategy, I just want to show back, go back to this interesting chart for you. If you see the left-hand side, I started, my first year was 2024. So I thought it's good to start from the year one of me being the CEO. We had a, you know, I would say at best, okay year or not so great here whichever word you want to choose in our industrial business automation business shrank about four percent process and building grew both around two percent so not good performance out of the gate but that's where we started laying out the strategy which I'm going to share to you that how we're going to grow as a company from mid to heights high single digit there has to be a consistent way to do it and that way is consistent across all the three segments you've seen how the building automation performance have change from low single to consistent high single digit growth we have delivered over the last six quarters. And I believe that we are well positioned to do that for the rest of the year. The question is, is that strategy replicable in industrial automation and process automation? The answer is yes, because we have a consistent and the same strategy. We don't have different ways to think about it. We are in a different stage of journey in terms of maturity of our strategy execution in our portfolio and have a very high confidence that what we are committing to you in terms of our growth of mid-single-digit growth for industrial automation and process automation technology and of buildings in from mid to high single-digit growth is absolutely going to happen because of the consistency of the strategy. So what's our growth strategy? It's built on this whole circle of shared value creation. We start with growing install base, which is 60% of our revenue. We need to make careful choices on where we go, and I'll talk to that in a minute. And then we really start with the circle of monetizing install base. Now, if you go back 10 years back, monetizing install base was all around getting about some parts business, some break-fix services, some service contracts. That changed over the last few years since we started instrumenting our business with the cloud. Now we think about every asset need to get connected, harness the power of Honeywell Forge platform, which creates optimized outcome for the customer and then as a as a customer asset gets older five years ten years we refresh it with our migration software offerings and the cycle starts all over again that's a fundamental principle if we think about it across all our businesses it changes the mindset on what business you are in because you think your growth strategy around that so with that in mind this is how we think about our growth strategy it's a simple triangle. We grow our install base by selling products and projects. That's 60% of our business. And then we mine that install base using our Honeywell Forge platform through services and software. And to do one and two, I need new products. If I need to participate in high growth verticals, I need something to sell to them, which is differentiated. If I have to mine my install base, I need to give them an offering by which customers are willing to pay for. All that converts into three. And if I go a good job on new products, that ensures my growth. So simple way to think about Honeywell technologies is going to be in a typical year, how much growth came from new products, how much growth came from price. You add the two, subtract from them any market disruption or any churn which happens, that's going to be our growth vector, growth numbers. Relatively simple to do and why it relates this way because that linked to our strategy. So we want to make ourselves so easy to understand that we don't have to do a lot of thinking on how to think about Honeywell in the future. Let me dig into each one of them, how we think about growing install base, monetizing install base, and introducing products. So let's talk about growing install base. On the left-hand side, you'll see our current construct of revenue. 80% of our revenue come from what we call mature verticals, where the growth happens at GDP rate, around 3% SAM growth, a typical year. So that's our businesses in end markets like commercial real estate, education, airport, refining chemicals, absolutely important business for us. We want to keep our share in these markets and gain some where we have an opportunity through our innovation. That's core part of our strategy. But equally important for us is that it's an and strategy, that while we do that, we also make a choice of high growth verticals, which is 20% of our revenue, and growing them at a higher rate, at a double-digit growth rate. And when we do that well consistently, that 20% becomes 25%. The question will be, how do you choose where you want to grow? Do you randomly pick up what's occurring at this point, or do you want to be thoughtful on that? We're really putting bets on four things on a next five or 10-year horizon. The four things should not surprise you. The first is we believe AI is here to stay for a long time. That's why the two end markets of data center and semiconductor are important for us. Number two, if AI is here to stay, you need more energy. Therefore, LNG and grid infrastructure is important. And those are the two end markets we really want to focus upon. Number three, aging population is here to stay for a long time, which means the world needs more life sciences, more drugs, and also likely need more hospitals. So we're putting bets on those two. And then finally, hospitality. As word becomes more richer, consumption increases. People want to spend money on leisure, and therefore the hospitality industry grows. So we are not putting random bets on what's in fashion. We are thoughtful on four big vectors of AI, energy, aging, and consumption. If those two are true, which we believe they are based upon our analysis, that gives us a structured way to keep thinking about where to focus on high growth verticals and we have proven it already. We have grown nicely in LNG through our inorganic acquisition. We have built a good position in data center from nowhere over the last three to four years. We built a good position in hospitality with a combination of our actions of organic and inorganic. So we're going to continue this in journey. Some places we have lot more runways, some places we have less runways. So that's part of one of our strategy, growing our install base in a very thoughtful manner through our solution and our product. Then once we have built our install base, then we want to mine our install base, which is the upper end of this bar. So 40% was, 60% was at the bottom. Now we need to mine it. Now we are not selling, as I said, breakfast services. We are selling outcomes. That's a direction we are pivoting towards. Selling skilled labor efficiency, selling asset uptime, or operational efficiency, the offering which customers care about consistently across all the segment we operate. That's where the mission criticality matters. If you operate in mission critical segment, customers care about uptime, they care about operational efficiency, they care about skilled labor and therefore our offerings remain highly repeatable because we can work on them across many sectors and if you see the middle chart of our install base penetration, we have wired our entire install base which is a bit relatively unique feature. If you have time to walk through one of our demos in the room here, is we have visibility to our entire install base of whole of Honeywell. Why it matters? Because if my business model is to mine install base, the obvious first question is, do you even know where it is? Looks very pedestrian question, but it's hard for an industrial company, which has grown over multiple years through multiple acquisition, to instrument that. Now we have that data. We know which customer is under contract. We know the life of the asset, which parts are obsolete, which are not obsolete, which needs renewal, and that gives us the penetration option. And you see some businesses are in mid-single digits, like process technology, 3%. I see that an opportunity of runway. We can grow from 3 to 10s and 20s. But every business has a runway to grow. From a theoretical option, if we have to get all the service business in theory in the planet from my install base, the theoretical model or empirical model is roughly $20 billion, and our service business is just $7 billion. So that, to me, is an opportunity set. How we should think about it, how to get from seven to seven and a half to eight, which gives me a confidence that we will get to 45% of revenue mix of services and software because the entitlement is very large, and machine criticality drives us towards that, which nicely puts us the whole story of Honeywell Forge, which is the center of our strategy to monetize our install base. Forge, as I said, we've invested over a billion dollars since 2019 to really build this hardware agnostics AI platform, which allow us to build our offerings, to mine our install base through services and software. So Resh, we'll walk you through in his section how the journey has evolved over the last few years, but really started with connected services. Connect our install base and offer our customer a service contract through Forge platform. Why it matters? Because customers are able to get better uptime. They have better visibility of the assets. We're able to get better price as a customer, as a company, and also have lower cost to serve. That's how we started in 2019. Then we pivoted toward new software applications, the applications which were created with the power of data. You can create new software application to configure our products. You can create application to inspect our products for a license fee. And they became a new revenue stream for us. So revenue streams are growing to a point that today approximately $1 billion of revenue is annual recurring revenue for us, only for software. A company like us used to have big software numbers. We have learned our lesson to keep it simple. Just report ARR, which is what we invoice. And this should grow about 15%, we believe, if we execute this strategy well. And that becomes a growth engine for monetizing install base. Of course, as I said, a total service and software business is $7 billion. A billion of that is from software recurring ARR. So obviously, we will work towards growing that in the future. Now, the last box here of autonomous operation is equally important. As the world is growing, as we are getting more and more data, we clearly see automation industry moving towards autonomy. What does it mean? If you go back to automation industry when it was created in mid-'70s, the whole model was built upon the concept of a rule-based system where human is in the loop. So you take an asset, take a hospital, take a semiconductor fab, take a refinery, you instrument it, you put control measure. There are exceptions which happen. Exceptions are managed by humans. Humans will come in and take a control measure to deal with exception. Now, at the hindsight, after 50 years, you say, wow, there's a problem in that model. The problem in that model is that human, which was running that asset for 10 years, 20 years, acquired a lot of knowledge. Why this system fails? Why it doesn't operate the way it operates it? So when that human leaves, the knowledge leaves with the human. And that's becoming a problem over the last 10 years as lesser and lesser skilled people are available. Knowledge is becoming an issue. AI solves a problem. So we are in a world today of agentic systems where agents are helping human to augment the knowledge they are missing. So our customers are asking for more and more agents to run their facility, run their buildings, run their plants, run their process facilities, and eventually we will find a pathway towards autonomy. But augmentation itself has a huge opportunity of transforming our industry from automation to working towards autonomy. And if you look at it, how we are enabling it, look at some stats on the right-hand side of the chart. We have more than 300,000 customers connected. I would argue that's some scale. Five million assets which are connected, and every day, every day, we collect more than a trillion terabyte of data. That's the basis for us to build our autonomy. It's not going to happen just because I want it. It needs a foundational system, and we have created a foundation on which we are going to build an autonomous system in the future. It's a future optionality. Only a billion dollar of ARR revenue is in our revenue stream today, but I'll argue that there's a lot more runway to come. Now, all for us to do moving into verticals and serving our install base requires new products. And one of the decisions I made as incoming CEO was to raise our R&D spend. In 2025, if you observed, our R&D spend went up by about 50 basis points. I think it was necessary because if our thesis is all about growth through new products, we need to spend at median or above median of the market. But we need to spend it smartly. So we have done that. I don't see a necessity for us to make any more correction. We are at the point we like it to be. Now we need to grow our revenue every year and earn that incremental revenue through our growth while keeping the percentages same. But what that has done is our vitality has been progressively growing to mid-40s. The typical industrial average of vitality is about 20s. Vitality is defined as products you created over the last three years so that you can see the health of the business. You're not selling old stuff. You're selling the new stuff, so you're less disruptive to yourself. And then all that is leading to our organic growth, what you can see on the right. We are slowly progressing from not growing based upon new products to more growing, and we do expect this number to keep going up as we make progress on this. But it's less about spending more money. I wish that you can grow by just spending more R&D dollars. It's not that straightforward. We've also invested heavily in refreshing our offering managers. We have 600 of them. Looking at their talent, making sure that we have the right people in the right jobs. That's an important part of our execution. But also looking at underlying systems. Do we have the right systems on how we look at our new product performance? How do we know which is working, what's not working? What's the basis of that? What's the definition of that? And then our launch processes. You know, it's because we launch hundreds of products in a year, that's a big opportunity. So all that really is a basis for us to think about high confidence in this. I spend a lot of my personal time on this process. Question is why? Because all our growth is linked to new products. And if me and my colleagues, SBT CEOs, are not passionate about it, we will not be able to execute the growth we're really talking about. All that really comes back to the story I started about. This whole cycle of shared value creation is in motion. This is not something we are thinking about. It's a strategy we're going to do it in the future. 5.2 million assets connected. It will be 9 million conservatively by 2028, almost double, which is giving us a high confidence that using Forge will continue to propel our services and software revenue from 40% to 45% because we create outcome for our customers. And then we keep refreshing our install base and go back to the whole cycle. So the cycle of value creation is the whole heart of our growth strategy, which we want to get across. So before we wrap up this section, I thought I'd also spend a minute on our M&A. Our growth is heavily dependent on organic growth. I want to make it very clear. That's the majority of our growth. We did six acquisitions, and acquisitions were done more around some known growth vectors we strongly believe in. Either in end markets, we believe there's a high growth. So we made three acquisitions in LNG space, Air Products LNG business, Sundine business, and CCC business. But we also made two acquisitions in the space of security. We believe the world is going to invest more in security, be it physical, be it cyber. So we are acquiring in the spaces what we call bolt-on, the spaces we know extremely well. So there's a lower risk and higher probability of execution. And Mike will share with you numbers of all these acquisitions. We want to be absolutely transparent on how we are doing against them. But, you know, the good news there is we are beating our internal model across all of them. And they are based upon some tough numbers we are committed to ourselves. And we're going to stay on the same strategy. We're going to stay on the bolt-on strategy in the optimal deal size of $2 to $4 billion with a clear path on commercial synergies, continue to operate in mission-critical segments. We're not going to change our rubric, what has been successful for us. and we'll be very selective, we'll be very thoughtful because we are very focused, at least in 2027, to wind down our debt and continue to make our commitments on that front. I thought it was important to spend a minute also on Continuum, a good success story of completing IPO a few days back. The Continuum now becomes an optionality for us in the future. We own 47% of the company, so how do we monetize it with future optionality for us? But what excites me about Quantinuum is the quantum story and AI story goes hand in hand. As AI is scaling, the compute power is not able to keep up with that. The compute power is running in differential to the compute power which AI is demanding. And the best way to solve that is quantum. And the areas like drug design, optimization, new material discovery, cybersecurity is where quantum demand is imminent. And we believe that at the right time, when these start scaling up, will be the right time for us to monetize our stake. But we are in a much better position now because the company being public and will execute at the right part of time. So moving to the last part of the story now, spending my last five minutes on, okay, it's all great. How are you going to execute it? I mean, anybody can say, and, you know, it's good to tell the story. Do we have a muscle to execute all of that? I'll first point out to our Honeywell Accelerator, which is our operating system. This has grown over 20 years. I am proud to say that my two predecessors did an excellent job to lay down a strong foundation of this operating system since 2005. When Dave Cody started, we really focused on functional excellence and manufacturing operating system. Under leadership of Darius, we really moved into new products and pricing and to some bit to commercial excellence. And under my leadership, we focused on business models and customer obsession. So the point being that this is an ever-evolutionary operating system. This is how we make a choice to work by discipline, and it makes our businesses better. It also gives us an assurance that we can execute with certainty versus execute with high variability across businesses. And you will hear from different business leaders how they use operating system, not only for running their business, and if we did an acquisition, how we integrate those acquisitions flawlessly as part of our business. which nicely flows into the next point that accelerator is a big part for us to also drive our margin expansion. Now, margin expansion tools are going to be typical. It's going to be pricing. It's going to be productivity, for sure. But rather than pricing and productivity through not a systemic manner, we use our tools we have created over 15 to 20 years to drive manufacturing excellence, to drive pricing execution, to drive commercial excellence, to ensure that we can deliver on our margin expansion, but also use our tools to manage our fixed cost. Our fixed cost has come down by almost 600 basis point with all the work we have done. Now our job is to keep it at 31%. We have garnered, and if possible, make it even lower to further expand our margin. And our operating system really drives us to understand what are the optionality and options for our fixed cost management. And finally, as I mentioned before, our mix of, you know, revenue mix as it changes is certainly going to be marginally creative. All that gives me high assurance that our margin expansion rubric is very solid because it's built on a back-off operating system which we use every day. Now, to do all that, we have a very capable leadership team. You're going to hear from six of them later today, from Mike, Suresh, and four CEOs. I can tell you that this team is super charged up and highly excited about optionality it has in front of them we have executed as I mentioned to you flawlessly over the last two years delivered to you hopefully since surprisingly manner on executing our spins flawlessly acquisition integration but also continue to deliver our financial commitments and this team is very capable to deliver to future commitments really talking about ahead of us. It's also interesting that many of the team players rejoin Honeywell. I thought it's an important feature to point out, starting from Mark himself, who rejoined us, but also Anant, who rejoined us from Microsoft, Bilal, who rejoined us, and Pete, who also rejoined us. The question is why people are excited, not because they are my great friends, but because they believe in the strategy. They believe that we are on to something which creates a new opportunity. And we collectively are excited about that. So is also our board. I'm proud to have three of our board members in the room today. Mike Lamarck, who hopefully needs no introduction, CEO and chair of Trane. Mike is going to be our lead director. We have Indra Nooye, who is chair and CEO of PepsiCo. And Stephen Williamson, who was CFO of Thermo Fisher. They represent our board here today. And I'm very proud to have a board which is not only driving governance, but driving us inside, helping us execute this strategy. And like any other purpose-built company, you also get to build a purposeful board so that it's aligned to execution of your strategy. So the great team with the right board gives me a high confidence that we're going to execute on it in a flawless manner. This chart is, you know, I wanted to leave this chart for you, which is a very interesting data point. If you see on the right-hand side, this is an attrition trend of Honeywell since 2019. And if you see the numbers, like when the big resignation happened, our numbers went up like everybody else. And if you see the chart on the extremely right in end of 2025, our attrition is lowest in our history to our data we can ever find in the last 15 years. That sounds very counterintuitive, that a company which is going through such a big transformation, spinning stuff, selling companies, why people are not leaving? Because they believe in the future. We are creating a true growth culture. Look at some of the stats on the left-hand side. Our voice of employee score is 74, above industry median. Our Glassdoor score is way higher than our peers. Because we are investing in people, in their training, in customer co-creation, they can see the strategy. So I think if no other stat gives you confidence, I think this stat, it's all facts, that this gives you confidence that you're on the right trajectory because our employees believe into it. They're insiders, they can see and feel it every day on how we are executing that. So that and wrap up, I will say that we as a company feel, Mike will talk more about our financial rubric, but I as a leader of the business feel highly confident on delivering what we are committing to today. Four to six percent organic growth. We do have a contingency built into that. We are absolutely transparent about it. I do believe in today's uncertain time, you do need some contingency to deliver the commitment. So we can't build a plan and come back with you to excuses to say here is the reason we can't deliver that. I feel highly confident about our margin expansion and delivering 10% plus adjusted income growth. So then I'm going to wrap up here my section. I hope the story of building a pure play automation leader is convincing. The story of durable growth margin with our mission criticality focus and business model is convincing. And optionality of future are going from autonomy, from automation autonomy is real. And our operating system is going to be the backbone, and our team is going to be the backbone which we're going to execute it. So I look forward to more conversation. I'm going to invite my friend Bilal on the stage to talk about his successful story of building

Operator

automation. Bilal, over to you. Please welcome President and CEO of Building Automation, Bilal

Bilal Hamoud, CEO

Hamoud. Thank you, Vimal, and welcome, everyone. Thank you for being here. In building automation, We have created an amazing business that's operating in an attractive space, $120 billion space of pure play controls, growing at 4% annually with strong secular growth trends. Our focus in building automation is on the three primary operational control domains of fire life safety, security and access, and energy management. We do all of those while addressing the number one problem facing our customers around the world, which is this shortage of skilled labor. In the next 20 minutes, you will see firsthand how we've transformed this business into one of the fastest-growing businesses in the industry. We've done that really with focusing on three things. One, customer-centricity. Two, on speed of innovation. And three, having the best empowered talent to do that. On customer-centricity, working along with our channel partners, we've really increased our focus on growth verticals. And we have made intentional decisions to reorganize our people, as well as change our decision rights, to allow highly talented, capable people in the regions closest to the customers to make decisions. They understand the customer best, and they are able to move fastest to make the right decisions. On innovation, multiple years of double-digit increase in our R&D sales, led by our focus on force-connected building, which has become an important part of our overall growth algorithm. So all in all, what this allowed us to do in 2025 is to grow our top line by 8% to 7.4 billion and expand our margins by 80 basis points to 26.5%. What you will see here is a well-balanced business with a lot of optionality for growth, both in terms of how we look at products and solutions, as well as our strong geographic mix, as well as our exposure to different verticals. Specifically, when you look at these verticals in healthcare, hospitality, and data centers, Rimmel touched on them. We see those for building automation as three growth verticals globally, especially when you think about data centers, which a couple of years ago, was really a negligible part of our sales, and in 2025, it became 4% of our sales. And as we sit here in 2026, it's operating well above 5%. That's how it's trending. So we expect these to continue to grow in the years to come. So how do we serve these verticals? It's not enough to show up with end-to-end business teams, but you have to have something worthwhile to sell. And specifically what you can see here is how we position our technologies to deliver things in each vertical that that vertical cares about. We're going to keep going on this, and the benefit we get with Honeywell Technologies as a pure-play automation company is now we are able to work across all the businesses in Honeywell to start to bring one Honeywell offerings. Specifically, what you see on this chart highlighted in red, data centers, utilities, and life sciences, these are the first verticals that we are tackling from across Honeywell where we believe we can bring one Honeywell offering that will be absolutely unmatched by any other competitor in the world. We're really excited about this. Specifically for building automation, how we are serving these customers with these offerings, you heard Vimul talk about the basic of our offering, which is very true for building automation. We have sensors, we have controls, we have software that lays in on top of it. We sit at that critical intersection between the physical world and artificial intelligence. And we see a lot of value creation potential as we lead the buildings industry into true autonomous building operation. But even within each one of those specific domains, there's a lot of opportunity to differentiate and create value. I'll share with you just one example from each. If I start with fire, some of you may have seen how people walk around literally with a stick that creates smoke. This is part of a, in the U.S., that's an annual compliance test that has to be done. Typically, it takes two people, walkie-talkies, one person walking around with the smoke, sometimes they need some help with a ladder, another person standing in the back room next to the five panel, I just exposed smoke, do you see smoke, yes or no? Well, all of that is gone now. We have smoke detectors that actually generate and test themselves, so you no longer need two people walking around doing the test and without connect connected life safety are offering what we are able to do now is run this test completely remotely and our connected life safety generates that report it's a it's a simple task but it's one that takes a lot of time and one that you have to do to be in compliance so not only have we saved the time but we've done two important things for our channel partners this is skilled labor that was not working on new projects that now is able to do that and they are able to grow their business and when they grow their business they grow our installed base with it. For our end users think about a hospital and having to walk into different rooms with patients there and having to disrupt that operation. So a lot of differentiation being created there with this capability. If I think about security our on guard platform is by far the most scalable platform and access solutions. We are able to serve customers that need to run global operations with hundreds of thousands of devices and users all off of one platform. As we look into what we're doing next, we are taking this into cloud-native authoring that is super scalable and creates a unified view for customers around their security and access operations. And in building management, we are the very proud owner of Niagara framework. It is the most commonly spoken language and building controls that are more than dependent developers around the world that use Niagara than any other thing in building management systems. And obviously we'll continue to build on that as we take Niagara as a cloud native offering and we layer in Forge and bring in the AI capabilities to that. Our services businesses, no surprise, will benefit greatly from our Forge and connected building capabilities as we are able to create more better outcomes for our customers and we're able to do things on a more as-need basis as opposed to check the list. And finally, in our projects business, what we do there, we actually take our own products and we go install them for customers. Why do we do that? If you can think about some of our customers being global customers that operate in multiple countries around the world, they benefit from the ability for us to execute consistently around the world no matter where they are located. And also, sometimes you have complex projects that involve multiple control domains, and this is where we do it ourselves. In our projects business, it's about 15% of our business. So from projects we're only installing 15% of our installed base, who else is doing it? And this is where the very important and highly differentiated channel partner network that we have around the world comes into play. Our channels represent over 60% of our sales. These tend to be highly capable, very nimble companies that know their customers very well. Our work with them allows us to do things. Two things. Number one, they are able to take our innovation and scale it faster than Honeywell or any of our multinational competitors can. So they are able to drive more quickly than bigger companies can. The other thing they do is they keep us on our toes. And they move fast. They expect us to move fast. So as you see in the last few years, what we've done here in our major regions, we are serving over 80% of the needs of that region locally. And also since 2021, we've done tremendous, almost a 90% decrease in our lead times from the time the customer tells us they want something to the time we're able to shift it. And we did that while significantly improving our CEDU for these partners. So a great partnership works really well for us. It works really well for our partners. And that allows us to focus on the high end of the value creation for pure play controls. We have a balanced portfolio mix with fire and security being over two-thirds of what we sell. The HVAC, building management system controls, is less than one-third. So you see that the overlap between us and the HVAC players is less. For one thing, we're not doing equipment. We're just doing controls. And then obviously the global nature of controls as opposed to when you're doing heavy equipment, a lot of that for these players tends to be more focused on a regional basis. And as you can see here, we have leading positions across the woods in very different countries here. So what does that do for our growth algorithm? and multiple ways here for us to look at it if i pointed attention to the top right of the chart when you look at our offerings and then we'll show this as part of our overall honeywell accelerator growth algorithm we have software growing high double digits we have services growing in the high single digits low double digits and we have products and projects growing in that mid single digits range all of that gives us instrumentation to grow consistently in that high single-digit percentage. Our vertical focus, something similar way, but different way to come at it, our high-growth verticals growing in double digits, our established verticals growing in the mid-single digits, that gets us into that high single-digit space. Similarly, on our regional focus between the high-growth regions and the established regions, and last but not least, multiple years of double-digit increase in R&D investment meant that we are getting a lot more of our revenue now and a new product introduction is a real growth accelerator for us. In fact, of the 8% that we delivered in 2025, 4.5% came from new product introduction. So clearly those choices we are making on R&D investment are paying off and showing up in our financial performance. So how will we continue to do this? We have the number one position in the three critical building control domains, fire life safety, security and access, and energy management. And we will continue to build on that and create more differentiation. Forge-connected building has reached the escape velocity. The flywheel is turning. In fact, we connected more buildings in 2025 than we have since the inception of Forge several years ago and expect that to continue to accelerate and continue to grow very nicely for us. New product introduction. New products are the lifeblood of an organization. You heard Vimul talk about it, that we don't delegate new product introduction. This is our responsibility as a Honeywell leadership team. In fact, two years ago, Suresh and I started this thing where we do every other week, we sit with our team for the good part of a full day, and we review our new product work that our team is doing. And we're very proud of what the team has done in the last couple of years. Our conversations have gone from two years ago where we were focused on execution to now our team has execution. We don't need to get involved in it. They do a very good job at it. And our conversations are more about roadmaps, are all about thought leadership, are all about the vision for the future. We allow individual contributor-offering managers to come in, and we sit there for a day, and we problem-solve with them, We talk about different scenarios. We're able to understand our true competitive position, certainly not only from our established competitors, but also for any up-and-coming competitors. It's a great way to stay on top of the business, make sure that capital allocation is going in the right place, and also it's an amazing way to develop talent, and it's really nice to see how people pick up from these conversations and what they do with it. And certainly our business model is all about an install base that we continue to monetize. And we will continue to do this. We cannot overemphasize the importance of our highly differentiated network of skilled third-party partners that help us to scale our business as we go. Said another way, our virtual circle of growth, we grow the installed base, we connect the assets, we leverage forge, we deliver more outcomes, and we allow our customers to make the best utilization out of that asset. Buildings are inexpensive assets. Our customers expect us to help them get more out of that building each year, especially when you think about verticals where the building itself is key to the way the customer makes money, whether it's a data center or a hotel or a hospital. And Forge will play an outsized role as we move forward, and Connected Building will be very prominent in how we help customers make better utilization and serve the customer better through the building, what the building can do. This is a really good example of that. In this case, this is Vanderbilt University. This is a project that we're working on with one of our channel partners. In fact, in Vanderbilt University, one of the very few, but it just so happens that there are no Honeywell controls on that building. So we leverage our Niagara framework and we leverage Force Connected Building to come in and connect these buildings. And when you see on here, clearly, the fact that we've gone from two weeks connected building to a few hours really helps with the return on investment. And it's not only about the energy savings and the labor savings, but for Vanderbilt University, their mission is on education. And they continue to grow. One of the obstacles for growth was how do they continue to service those buildings because they cannot find enough trained technicians. So now we take that off the table with force-connected building, and we allow the customer to focus on their core mission, and we help with making sure that the building does not become an obstacle for that. Another good example here in data centers, you all saw Adair talk about, she said, literally helping them do things faster. If you think about how you serve the verticals, you show up with end-to-end empowered business teams, but you also have to get to a point where you truly understand what it takes for the customers in those verticals to succeed with their own customers. And in the case of data centers, it's all about speed of scaling. And with Equinix, when you think about the commissioning of that data center, it typically takes five to eight months, and this is where you find the surprises that you don't want to find. So we work with Equinex to reduce that commissioning stage by 33%, and in the process, not only make it shorter, but make it more reliable, and again, help Equinex focus on scaling and serving the customers than worry about commissioning a new building. So what will this give us for the outlook? We have instrumented this business with the focus on verticals, verticals with talented, empowered teams in our regions, the investments we're making on new product introduction, and the acceleration we're getting from Forge Connected Building, we have instrumented this business to grow at high single digits, and we expect no matter what comes at us in the world, we'll be consistent in that mid-single to high single digit space. Some of you in this room, couple of years ago, we had a lot of interesting discussions on margins in building automation and why does building automation has the highest margins in the industry? And is that sustainable or are we going to have to trade off between margins and growth? I hope you see now that we can do both. Fundamentally, as you saw from what we just discussed, our margins and the differentiation of margins is because of our differentiated business model. That combination of us focusing in the pure play controls, the combination of us innovating and having channel partners who can scale that innovation very quickly, and they worry about most of the time, most of that labor content, and we stay focused on the parts and smarts, that's the fundamental difference here that you see in our margins. And the good news here, 26.5% in 2025, we see that going to 29 percent over the next three years. How's that going to happen? Well, as we were busy transforming the business and transforming good results in 2025 and 2026, we've also been investing in the business. Today, we can serve the volume growth that will come at us without having to build a single factory and, in fact, without having to expand a single building. In fact, we don't even need to put any major capital investments in our factories. We've tooled up our factories to help us deliver the growth for next three years. Not only in our factories, but R&D investments, consecutive years of double-digit growth in R&D, we now have the scale we need to continue innovating effectively and quickly. In our being close to our customers, we've invested hundreds of resources in our regions, in our verticals focused on demand generation. So the business is well instrumented to be able to continue to grow and benefit from the volume leverage. Our Honeywell accelerator framework is very proven, and we have a clearly proven formula that talks about pricing and productivity always exceeding inflation and investment. We did that last year. We're going to continue to do it. And last but certainly not least, as we accelerate force-connected building and our connected offering and our software recurring revenue, expect to see that margin mix continue to be favorable as we launch these products. All in all, we have an amazing business. This is one of a kind business that will continue to give as we invest in it. We are super excited about it, and we truly see the sky's the limit for this business. Thank you. And with that, I'll turn it over to Pete Lau, my good friend and

Operator

colleague. Please welcome President and CEO of Industrial Automation, Pete Lau. Incredible job,

Pete Lau, CEO

Abelel. Amazing stuff. Okay, good afternoon, everyone, and welcome to our Investor Day. It's good to see a few familiar faces out there. My name is Pete Lau, and I'm the president and CEO of Industrial Automation here at Honeywell. I'm excited to be here with Vimmel and our colleagues today talking about Honeywell technologies. I am acutely aware that probably the least understood part of our portfolio is industrial automation. So I'm looking forward to explaining IA in more detail. We'll spend this time talking about our customers and our offerings, and I'll cover how IA has evolved, where we play, why we win, and why we're a valuable part of Honeywell. But mostly, I'm looking forward to talking about why we're an essential part of our customers' workflows. Okay, so it's been a bit of a journey for the businesses that make up IA today. These are product-led businesses with attractive and growing software and aftermarket offerings. As Honeywell has evolved, these businesses have had multiple homes, a partial position in performance materials technology, a partial position in safety productivity solutions, and as a part of the previous $10 billion IA that I joined in October. The opportunity here for these businesses is all about focus. focusing on these product-led businesses. Historically, IA was a part of larger entities that were dominated by project-led, integrated project-led businesses. And trust me, those businesses take management's time, they take attention, and they take an outsized portion of the investment. And the larger entities had critical mass in specific end markets like process and warehouse automation. And so the product businesses really just existed to further the interest of those entities, which means that the IA businesses did not invest enough in new products for solutions that are tailored to their technology in high-growth verticals. We've lacked a little bit of an identity. We've lacked an operational focus, and we've lacked rigor in these businesses. And as a result, these really good businesses have underperformed. In the last four years, the pro forma for these businesses, revenue CAGR was minus 4%. NPI contribution to revenue was less than a half a percent. Gross R&D investment down 20%. Our on time to delivery for our customers was 45%. As a result, we lost share. But in the new focus portfolio that is IA with all the portfolio that work that we've done, that's going to stop and it's already stopped we've already started to turn the corner the new IA is a sensing and measurement business and sensing and measurement forms the foundational tech technologies for the automation tech stack and for the first time in over a decade we'll be able to focus on these product-led businesses we enable industrial automation through data collection and we collect a lot of data across a variety of verticals and a lot of different industries and channeled markets. Our offerings are used in basically every single one of Honeywell's businesses. Commonality for IA will be in the technologies and our operational excellence rather than in a singular end market. This setup will allow us to optimize the IA businesses in a way that we've never been able to do in the past and really drive world-class operational efficiency. This is an incredible set of businesses. IAE's technologies are engineered for mission-critical environments. Precise accuracy and reliability are absolutely essential for our customers. And failure to meet those objectives carries material impact to human life, to safety, to customers' revenue, to their operations, to compliance. And we have really high barriers of entry because of those regulations. and so we have a lot of competitive differentiation. Our offerings make up a small part of the bill of material for automation and so that implies a certain amount of price and elasticity. We built a well-deserved reputation for quality and reliability and our install base is substantial. So a lot of times it's just too risky for our customers to substitute our solutions and that creates the ability to expand our services and software offerings in a way that we've not been able to focus on in the past. With a highly focused organization and differentiated businesses in highly regulated markets, IA is primed to be a value creation engine for Honeywell over the next couple of years and beyond. Okay, so this is a one-page overview of our businesses moving forward. And to be clear, this page really reflects industrial automation post the sales of Intelligrated and our PSS business. So today we're a $6 billion business, but after those divestitures, we'll be about a $4 billion business, and ProForm is about 20% segment margin. As Bimel noted, we operate in a $35 billion space, and so there is a ton of opportunity for M&A. But I want to be really clear that the organic opportunity for these businesses is significant. When I look at this page in this portfolio, I see nothing but opportunity. We're way underpenetrated in our solutions offerings. Our vertical mix is 85% skewed towards mature markets, and that's led to margin contraction. But our new homogenous business model will allow for focused MPI investments in higher growth verticals and higher margin spaces, sustained focus on offerings and software offerings, and as a result, we expect to expand margins significantly. There's meaningful white space for organic growth, either by expanding on our sensing use cases, so becoming more important to our existing customers, or selectively moving up the tech stack and growing our position in instrumentation. Today's IA is positioned to reach its full potential by allowing our businesses to flourish within their target high growth verticals and by pooling investments to drive world-class processes in these product-led business models. Okay, so a little bit about where we play today, and I categorize our offering into three main areas, all directionally about the same size. And so the first is an industrial measurement. Typically, we are measuring highly toxic gases in mission-critical environments related to human safety. They require reporting to regulatory bodies. The second is in utility measurement. Think about the movement and measurement of resources, and the mission criticality here is all about the measurement. We move billions of dollars of gas, water, and electricity around our world and power the world safely and productively. And then the third is in sensing. Sensing for the most mission-critical environments that demand the ultimate in reliability. Failure is simply not an option here. Our sensors are designed into a lot of equipment, both OEM equipment and our own, and they cannot fail. And I'm going to give you an example of that in just a little bit. The spaces we plan are all highly regulated with significant install base, an install base that's not fully mined to its potential and with the ability to expand our services and software offerings set in a meaningful way. About 18% of our revenue is solutions-focused today, but just to give you a feel, we think entitlement is probably closer to 35%. Understanding the technology stack is a really important part of understanding how we've set up IA in the pure play automation Honeywell. On the left-hand side of the page, I'm showing an overly simplified version of a tech stack for automation. But generally, to achieve automation, a customer first requires equipment at their site. Okay, and then that equipment generally has measurement or sensing technologies either designed into that equipment or set in a standalone instrument. These are the technologies that collect data, and then they deposit that data into a data lake. In our instance, Forge. And then the controls in the software consume that data to deliver automation. The new IA is pretty much a slight departure from how we've generally set up the business groups in the past. Normally in Honeywell, we move vertically. We own the really valuable parts of the tech stack, and then we do critical mass to really drive differentiation, as Bilal just described in buildings, or what you'll hear from Ken and Jim in process. What's really cool about IA is that we're unique. We go horizontal. We own the sensing and measurement portion of the tech stack. We collect the data that enables automation. And this is a really fragmented but extremely valuable part of the tech stack, especially when you play in highly regulated or highly specified use cases. And that's our core business. The horizontal setup will allow us to pursue meaningful white space, both inorganically and organically. Just a reminder, we're a $4 billion business in a $35 billion space. So with our new configure of focus, we're free to invest in new products, in high growth end markets, in really attractive spaces with great cash flow margin, and capitalize on our pooled investments that are applicable to these common business models. Just to bring to life our solutions a little bit and where they show up across industries, as a sensing and measurement platform, we're designed into a lot of instruments and a lot of equipment. we tend to show up everywhere. Inherently, we cover a lot of geography, but I want to point out a couple of use cases or industries that we'll continue to focus our organic and inorganic efforts towards. We make critical sensing technologies for highly regulated industries. Industries like aerospace, industries like utility, industries in life science where I partner with Jim and PA to deliver a differentiated offering. And then we make sensing and measurement technologies for highly regulated use cases in less regulated industries. Semiconductor is a great example. Industrial is a great example. Petrochemical, where we team up with Ken to deliver a differentiated solution, is incredible. These are just a few examples of how our product and solutions drive mission criticality in our markets and across the world. So in summary, IA is an extremely differentiated business with many tangible proof points. 90% of our offerings are certified, either to very tight specifications or to regulatory requirements. That makes us competitively advantaged. Our solutions have a high cost of failure and are a small part of the overall bill of material for our customers, which makes our customers reluctant to change. And this enables deep domain expertise and customer intimacy that solidifies our relationships across a very vast and growing install base. And that intimacy and that install base serves as a launch point for more lifecycle services and solutions. So to give an example, one of the parts of our portfolio that's extremely differentiated is our sensing business. Most of the sensing portfolio is highly engineered solutions that are designed into products, whether they be OEM systems or so many Honeywell instruments. This makes the business extremely sticky and gives us multi-year visibility into revenue tied to our customers' product life cycles. And so to bring that sensing to story life a little bit, let's take a look at our ultra-high-force sensitivity sensors that our customers use to ensure reliable medication delivery for healthcare patients. A good example is Fresenius. So Fresenius, along with a lot of other medical device makers, sells millions of infusion and dialysis machines every year. These are regulated devices that are FDA-certified. Health care facilities use these to really identify potential events that would block a fluid pathway of medication. The solution is mission critical for patient safety. HSS's sensors can simply touch a fluid delivery line and identify these events, enabling our customers to deliver really reliable solutions. The sensor is mission critical in the ultimate of high-risk environments. It can mean the difference between life and death for a patient. These customers have been trusting us to design these sensors into their equipment for many decades. The risk of change for them is massive. If I'm on the other side, I'm not trusting anybody else but Honeywell to continue to design these sensors as we have for decades. Plus, these customers get the knowledge that the unique sensing elements are made in our owned and operated wafer fab in Richardson, Texas, which is a competitive advantage in this industry. Last year, we made 200 million unique sensing elements alone in just that fab. Okay, so here's another example of IA's highly differentiated capabilities, this time in gas detection in the semiconductor fab. So most of you know that semiconductors use a host of highly toxic, inflammable gases to create wafers, right? Monitoring for gas leaks is mission critical, not just for human safety, but the accuracy of that measurement is so important because uptime and fabs is worth $2 million of productivity an hour. Honeywell's comprehensive gas detection system is the standard for hazardous gas detection. We are the specification in every single semiconductor manufacturer across the world. And again, we benefit from having done this with these folks for multiple decades. And that enables us to partner and offer lifecycle solutions. So it's an OPEX and a CAPEX solution. It's the gift that keeps on giving. But these are just a few examples of how our products and solutions support mission-critical applications across a wide range of industries. And so before I hand it over to Jim and Ken, I want to leave you with a summary of what all this means for IA's future. The opportunity for these businesses to finally be in a home with similar business models is massive. Over the next three years, the revenue of this business is going to grow mid-single digits and will reach 25% operating margin. And so to tie that back to earlier in the presentation, it's a drastic change in our revenue growth fortunes, but also 500 basis points of segment margin expansion in the next three years. and it's not back-end loaded. I feel very bullish about the second half of 2026 and 2027. We're going to do this by focusing on three key revenue levers in the Honeywell growth algorithm that Vimel talked about. First, we're going to increase our exposure to high-growth verticals through a combination of NPI, channel expansion, and go-to-market. As I talked about earlier, only 15% of our business is exposed to high-growth verticals today. But as we shift our mix, we're going to stay true to our core and really expand in highly regulated environments where we have unique differentiation, which means the right to play and the right to win. Second, we're doubling down on investment full stop. In the last 18 months, we've increased our R&D investment by 13%, and over the next three years, we're going to do another 15% to 20%. Like Bilal has done with buildings, we are going to turn this business into new product introduction machines. We are going to relentlessly focus on building solutions that really drive customer value and give solutions to our customers that they want. We'll do this in our core, where we know we already have relationships with these customers, and we'll do this in close adjacencies to our core where our technology has an obvious fit. And then third, as we grow that vast install brace through number one and number two, we're going to compound customer value by delivering more solutions and offerings set. Look, as a part of these larger businesses, we did not focus enough on solutions. And we talked in our tech demo today about different solutions for aftermarket that we're going to be able to do, we highlighted Safety Suite, which is a software service that's based on CLSS. Some of you may or may not know, but I was the president of the fire business and buildings when we launched the CLSS that Bilal was talking about. Bilal, of course, has supercharged it, but Safety Suite is based on that CLSS. This is a core competency for Honeywell, one that we know how to do and one that will do really well. And then last, on the right-hand side of the page, we'll apply Honeywell Accelerator to all that we do. The operational excellence that's not been a focus in these businesses is absolutely fertile ground. We have a clear path to expanding margins through better pricing, productivity, and then stranded cost reduction through all the portfolio moves that we've done in IA. But we'll apply a milestone funding approach to this. We'll responsibly invest, but we'll do it in concert with growth. The productivity that's in these fertile grounds will allow us to not just expand margins, but also simultaneously invest heavily in the growth of this business. And when we start growing, look out. The thing that I'm most excited about in this business is the leverage that exists in it. Look, these are extremely high variable contribution margin businesses. So as the revenue starts to turn, the operating leverage that exists in these businesses is incredible. So the refocused IA as a sensing and measurement business is primed to reach its full potential. And to my 20,000-ish IA colleagues around the world that are sitting in watch parties right now in Shanghai, in Pune, in Dubai, in Mines, Raleigh, Charlotte, Muncie, Houston, and Richardson, Texas, I can't wait to create value with you guys. So thanks so much for your time, and I'm going to hand it over to my dear friends Jim and Ken to talk about P&T.

Operator

Please welcome President and CEO of Process Automation, Jim Masso, and President and CEO of Process Technology, Ken West.

Jim Masso, CEO

So to start, something a little bit different with this presentation, there's two of us on stage. Ken West, who leads our process technology business, myself, Jim Masso, who leads the process automation business. Now, in my almost one year with Honeywell, I knew before coming in how incredible the technology of this business was and I was excited to be a part of the transformation but nothing has been more amazing to me than the transformation I've seen over the last almost 12 months at the intersection of the deep domain knowledge and intellectual property informed by a hundred forty-one years of innovation and process technology paired with the unique and leading software and automation capabilities and process automation, where we're at the heart of every one of our customers' operations. Now, this was clearly illustrated to me earlier this week at the Honeywell Users Group in Phoenix that I just got here from. We had a little over 600 of our customers and a number of our partners, NVIDIA, Google, Cisco, all excited to partner with us, and the enthusiasm was incredible. The value we're unlocking by bringing these capabilities together is amazing. The transformation is having a direct impact in our customers' operation every day.

Ken West, CEO

And I can say, Jim, having been here at Honeywell over the last seven years, I've been a part of that evolution as we've gone from performance materials and technology to energy and sustainability solutions and now to process automation and technology. And you're absolutely right. It is different. It feels different today as we really unlock the value of the cross-sell opportunity through our combined offerings, and we are driving differentiation through that distinct domain expertise.

Jim Masso, CEO

Thanks, Ken. Now, there's a lot of things I wanted you to take away today, but here's four to start. The first is this is an incredible market opportunity, and 30% of that market opportunity, we're in these high-growing verticals where we have deep domain expertise and LNG and life sciences and low-carbon solutions and grid infrastructure. And we're systematically cross-selling across all of Honeywell technologies, enabling end-to-end lifecycle value in a way that no other company can. Our installed base is massive, and we're continuing to create value across over 28,000 assets and monetizing that even further with Honeywell's unique Forge infrastructure. Furthermore, we're expanding margin through the Honeywell operating system, both in operational excellence as well as adding additional service capabilities across the long tail of life on these assets. Now, let's talk about the business, the $6.4 billion business, with, again, end-to-end life cycle solutions across both physical and digital applications. We served last year over 4,197 customers in 72 countries with, again, software and automation capabilities that are defining their operation with differentiated domain expertise and the critical verticals we play, amplifying that value with connected solutions with AI and a platform enabling enterprise-level impact across these critical verticals where we have these unique capabilities.

Ken West, CEO

You know, Jim, that's actually where the real power unlock comes in PA&T. It really comes from that deep domain expertise you mentioned at the beginning. And when I think about the other solutions that are out there in the marketplace, this is where we truly are unmatched. No one else in the industry can bring together the capabilities of truly physical twins. I mean, hundreds of pilot plants behind the scenes, getting true data, merging that into our operating system.

Jim Masso, CEO

Yeah, Ken, I completely agree. Now, let's talk about where we play. These are some of the markets we're in as P, A, and T. And one thing you should see immediately on this slide, these are critical industries. The risk of loss is massive. Customers have to look at safety, resiliency, and ensuring when they make these massive investments, they've got the right strategic partner to bring it through. Our services and expertise is amplifying that value for every one of our customers. And then we're connecting it with digital solutions that further enable value. Not to mention we have over a quarter century of cybersecurity experience. And what we're able to do is take our unique process knowledge and direct telemetry to do things in cybersecurity no one else can, using AI and other advanced solutions to keep ahead of the curve and keep our customers' OT infrastructure safe. Not to mention, and a lot of companies are talking about autonomous operations, we're already doing it, embedding critical intellectual property and years of data directly into our customers' control systems, allowing them to improve outcomes, improve yield, and operate with a lot more certainty. Now, I'm going to pick two, although there's many, where we're cross-selling across all of the reported segments in Honeywell. The first is life sciences. Now, I'll talk a little bit more about this today, but our building automation, industrial automation, and process automation businesses all play a critical role in this end market. Grid infrastructure is another one where we're seeing a lot of growth. And we're across the entire energy value chain of the grid from creating energy to our control systems being on over 50 gigawatts of installed base of power to our grid management capabilities with our smart meter business that sits in industrial automation. Not to mention, in process automation, we do behind and in front of the meter energy storage with energy management systems that enable microgrids as well as on-grid automation. Furthermore, we pair that capability with our building automation business, enabling virtual power plants and more scale and impact to a number of these energy management solutions. Now, let's talk a little bit about the portfolio and what makes it up. the first intellectual property, unique domain expertise in our process technology business, where we have unique knowledge of our customer system all the way from inception through the end of life. Not to mention a robust and durable services business with catalysts and absorbents constantly increasing our customers' profitability and yield. Not to mention aftermarket services that spans across the entire portfolio. Again, lifecycle relationships with these customers, constantly moving them to the upper quartile of operations. And then our automation and control systems. Again, extensive industry experience, unique software capabilities, and we take our domain knowledge and directly embed it into some of the most reliable solutions in the world. Now, you then pair that with digital and cybersecurity, where we maximize and elevate the customer value. These solutions allow us to unlock more incrementally. And just process automation alone, when you take our services and software, we've got around a billion dollars of ARR. Again, differentiated solutions that stick with our customers throughout the life cycle.

Ken West, CEO

All right. Well, one of the exciting things in process automation and technology is truly how we go to market and what we deliver to the customer. So you heard a lot of great things about our domain expertise and how we go with customers. but what does that customer journey look like? Many of you know the value of Honeywell UOP. This is a 112-year-old legacy of technology, engineering, and expertise. This gets our foot in the door many times two to three years before a project, whether it's a refinery, a petrochemical plant, a new renewable fuels plant, or an LNG plant, is even starting with construction. So once our foot's in the door, we have the start. And we bring on top of that, right at the very beginnings of the project, the capabilities of merging all of that data that we have, the analytics and the know-how behind the scenes, the domain expertise. We merge that with our automation capabilities. We commission the construction, sometimes in a modular basis in challenging countries around the world. And then it doesn't stop there. Now we take that installed base, as Jim said, over 28,000 units around the world, and that big install base, we monetize it for ARR, recurring revenue, out into the future. We have the benefit of not only building these plants, but we provide consumables, things like catalyst and adsorbents to the plants that are going to provide that life cycle. This really feeds into and builds out the growth algorithm that Wimmel spoke about in the beginning of the presentation and why this growth is so powerful. And so just a few proof points of how we win when we're out there. Well, today, about 70% of all the fuels anywhere around the world in gasoline are actually produced on Honeywell UOP technology. We're in fact in more than two-thirds of LNG installations. And when you think about why we did some of the acquisitions that we did, the process technology business from Air Products or the Sundine business that we brought together to build that end-to-end solution, we were already in 40% of LNG trains with our pre-treatment technology. We added this together and we get end-to-end solutions. And not only that, all of these installed solutions around the world give us a capability to automate that install base. We're automated in more than 700 of those customers. And in fact, that includes not just energy, but it also includes high growth industries like life sciences when we're in eight out of the top 10 med tech companies. So how does the growth really come together? Well, when we take a look at it, this has been an industry that we recognize has been somewhat lower growth, low single digit and cyclical over the history. When we bring together these new capabilities that are unlocked in P-A-N-T, we are moving into higher growth verticals, verticals like LNG, low carbon energy and life sciences. We are going out and monetizing that install base that we talked about, providing an avenue for new connected solutions for driving recurring revenue as we go forward. And the thing I'm most excited about is we're driving true cross-sell synergies. And when we do this, these synergies allow us to be in at the beginning. We're not getting into a price war as we go down and we drive that application and we broaden the scope later in the project.

Jim Masso, CEO

Yeah, you know, one of the things I get really excited when I see this slide, because I know the impact it's having on our customers. We're unlocking outsized margin for Honeywell, but major impact for our customers. Absolutely. And there's no better place to think

Ken West, CEO

about that than within LNG. And as we've expanded our capabilities in LNG, we take a look at this broader offering. And the broader offering brings together, as I said, not only over 40 years of experience in UOP pre-treatment and developing LNG capabilities, it also brings the acquisition we did of compressor controls in our automation business. It brings together the acquisition of the air products, liquefaction technology, and it brings together the Sundine technology. Now we have an integrated end-to-end solution that is turnkey. It takes away the risk and mitigates the risk of budget. It takes away the risk of schedule. We can provide a one-stop shop for our customers to come in and do the project with us. But I think what's important as you look at the verticals to the right is we remain focused in this business on a balanced approach and on the 70% that's core when you take a look over to the focus on the left as well. So, yes, we're going into high-growth verticals. Yes, that's adding to our growth. But we're remaining focused on the core of the business. And I also think that separates us a little bit from where our competition has been because we have not moved up and down through the different cycles.

Jim Masso, CEO

Yeah, so another high-growth vertical where we're having a huge impact, where we've quietly become the largest life sciences business in the markets we serve at around $600 million of revenue. And this one's really interesting. We're serving both biopharma and medical devices with over a million users just of our quality software alone. Now to kind of bring this to life, I was talking with one of our large biopharma customers last month. They have over 300 treatments they want to bring to market. Some of these treatments are life saving with AI used in drug discovery and all of the advancements in research. They're looking to bring these technologies to life. Now challenge number one, speed matters. Bringing these treatments to life in a predictable way is essential. And when you bring building automation, so looking at the facility they're going to be manufactured in, process automation, enabling the actual process to run, with industrial automation, actually measuring the process, you're able to bring these treatments to market faster, building a new facility in a way that no other company can enable. Now, quality. Two reasons why this is so important. First is we're talking about more challenging manufacturing operations. In biopharma, we're talking about culturing treatments in human cells. Small variations can have a major impact to the predictability of the operation. Not to mention, the second, ensuring that when you make this large investment, and we're talking about almost $300 billion of onshoring of life sciences manufacturing, In this country alone, over the next five years, these are big investments. And when you make them, they need to work. So bringing environmental control together with process automation and then our quality software that ties this all together and allows continuous improvement enables these offerings to have certainty on their operation and enabling a quality that no other company can unlock with these combined solutions. And then lastly, energy optimization. So I talked about grid infrastructure. These have an environmental footprint. They need energy. They need water. So looking at our building automation business and our process automation business, as well as our ability to manage energy in and out of the facility with our industrial automation business, we're able to scale these operations in a sustainable way. This isn't just changing one facility. This is fundamentally changing our customers' business model and enabling a revolution in life sciences. Now, we need to talk about our installed base, a massive installed base of over 28,000 systems. As I mentioned before, more than half of our business is in the aftermarket. We have a large services installed base, and that's growing. Now, when I add that, we're also adding connected, which is growing at a rapid rate. Now, you'll see in process automation, only 14% of our systems are connecting, but that is growing quick. Same thing in process technology, around 13%. And what we're able to do as we connect what is an increasingly robust model, we're able to unlock incremental value. The first I'll mention is resilience. So OT cybersecurity, these are critical assets. Honeywell's OT cybersecurity solution is unique. Again, we're using proactive solutions to help monitor a scaling threat. Furthermore, we're enabling outcomes, unlocking enterprise insights that are critical to our customers' operations, And then a critical thread at every single site, workforce. Every scaling process facility is struggling to fill the talent gap. And these systems unlock incremental understanding and capability within each of these systems. And then with process technology, directly embedding intellectual property with our connected plant offerings, engineering services, understanding catalysts. Again, ensuring resilient operations, enabling our customers to do things better. This is a long-term impact. Now, let me hand it over to Ken to talk a little bit more about this.

Ken West, CEO

Yeah, actually, Jim, just even on this slide, I'll say this. What's exciting to me, this is where this starts to get to be exponential growth. If you looked at these numbers, that 1075 of connected plants for process technology, just a couple years ago, what would that have been? It would have been zero. We wouldn't have had any. And you see how many of those are getting recurring revenue contracts. So this is where we've taken that investment that we've made within Honeywell Forge. We've unlocked that with our capabilities with process automation, and we've really built a combined offering. So when you ask what makes it different, that's what makes it different. Now, I'll go into just maybe a brief story. We saw the customer testimonials early because we can come up all day and say how much we have an offering that works together, but are the customers seeing it? And they really are. I had the opportunity about 18 months ago to meet Mr. Dengoti, who you saw in the customer testimonial. And I met him in Italy for dinner, and we talked through some of the expansions that he was doing within his refinery. And he knew Honeywell UOP very well, and we were a hook that got us in to help with the expansion of his refinery, one of the largest in the world. But what I can tell you is this, once we got through that conversation and he understood the data we were collecting on other facilities around the world. He understood the 100 process plants we had in our R&D centers that were literally mock-ups running 24-7 of almost every refinery in the world. And the fact that we were bringing 3.5 billion data points a day off of these, all of a sudden it clicked on him. The value was there. And he said, look, I really want to go with Honeywell. And not only that, he took contracts away from others for the automation side of the business and brought this as a combined offering. That's when it clicked for me and I realized, wow, we have something powerful here. As we take a look at what this means for us as we go, we talked a lot about the growth levers here over the last few minutes between Jim and I. We're unlocking that incremental growth through high growth verticals like LNG and low carbon energy, life sciences. We're monetizing this broader install base, and we're also going and managing that cross-sell with folks just like Mr. Dangote and what we were able to do there. But what we really are driving more than that is scalability, leverage, and margin improvement. Our capabilities, when we go into these higher growth industries, we have a differentiated position. Our position at coming together with an end-to-end solution no one can match. That provides us the lever to be able to drive the margin that's there. I can tell you firsthand this is working. As I stand in front of you, we shared in some of our public earnings releases a little bit about the order rates, particularly within process technology. We have very good line of sight into the future in this long cycle business. We are seeing order rates that are there and predicting that they will drive future growth. We've been driving higher than 1.2 book-to-bills over the past few quarters and this is going to drive a very good result and very good growth in this business in the second half of 2026 and beyond. So I'm incredibly excited to be here. Thank you so much for a few minutes to listen and with that I am going to invite Mark and my other colleagues up to the stage to do our first Q&A session with all of us. Thank you. Nice job, buddy.

Mark Macaluso, Head of Investor Relations

Good? Okay. Great. So we're going to spend the first 10 minutes or so addressing some key questions we get from investors with each of the segments. And I promise you we're going to open it up to Q&A as promised. So Bilal, maybe we'll start with you. Every investor meeting we have, one of the first questions we get on billing automation is the how. How does this business grow? 7%, 8%, 9% every quarter. And the second question immediately goes to, is it sustainable? So maybe we'd start there. Thanks, Mark.

Bilal Hamoud, CEO

I mean, it's no secret that a couple of years ago, building automation was not performing like this. And it's really about the transformation in the last couple of years around customer centricity, speed and effectiveness of innovation, and then having the absolute best talent and power to do what they do best to get it done. And that has really allowed us to do this. And we've instrumented this business to continue to do that for the years to come.

Mark Macaluso, Head of Investor Relations

Excellent. And then maybe sticking with buildings, maybe just talk about the levers to grow margins. Obviously, issued some pretty good targets for a second margin.

Bilal Hamoud, CEO

I mentioned a little bit about this. In fact, a couple years ago, we walked into the factories, and everybody was talking about, oh, we need to knock this wall down and expand if you're really going to be driving the growth and so on. So we challenged our team and said, let's think about how we rethink about that, how we reuse the space. And in fact, a couple weeks ago, I was visiting one of those factories. And it's helping us. This is one of the factories that's driving the highest growth right now, close to double digits. And when you walk into that factory, you'd think that business is slow because they have taped off all these empty areas. And they said, you challenged us through lean and continuous improvement and Kaizen projects to reduce our footprint. Tell us where it's going to come. Keep growing this business. That's just one example. And then, obviously, in the rest of the business and R&D and demand generation capabilities, we've made all those investments. We are where we need to be to deliver our commitments for the next three years. So when the volume comes in, it's going to have a really great leverage for us, along with the acceleration of our force-connected offerings and the margin favorability that those will bring. Excellent. Great.

Mark Macaluso, Head of Investor Relations

Pete, on IA, you've talked about IA being a bit of a turnaround story. So maybe as you step back, how can we help investors get comfortable that this business is going to sharply inflect to mid-single digit and obviously strong margin expansion as well?

Pete Lau, CEO

Yeah, I think I wouldn't disagree with any skepticism because over the last couple of years, it has been a negative 4% CAGR story. But, you know, the portfolio moves that we made, the focus is really important. And just if I was just going to go back to the basics for a second, you know, Vimul talked about our markets growing at 3%. I told you that our on-time delivery was 45%. So when that happens, you don't participate in market growth. And, you know, so, you know, just really fixing our operations. I truly believe the market's going to grow up three. I feel really good about that. I feel good about our ability to fix our operations and participate in the market growth. And then when you do that, you can actually get a couple points of price. And so, you know, that should be a flywheel, right,

Mark Macaluso, Head of Investor Relations

that we get a couple of points of price a year on top of that market growth.

Pete Lau, CEO

And that's before we even start talking about the growth algorithm that we talked about, the move to higher growth verticals, the investment in new products, you know, and the services and the software. So I feel really confident about the growth. On the margin expansion of 500 basis points, I go as far as to guarantee it. I feel really good about, you know, where we are, where we sit right now, and the opportunity ahead for the businesses, and then the operational leverage. So I feel really good about it.

Mark Macaluso, Head of Investor Relations

Maybe quickly move in a process for Jim and Ken. Obviously, Ken, as you noted, we've spoken a lot about the orders and backlog growth in your business and that we expect a sharp inflection in the back half to sort of high single-digit growth in your business. So obviously it's somewhat tough maybe for investors to underwrite that, especially what's going on in the Middle East. So maybe just take a minute, talk about what you're seeing and why the confidence in that growth inflection.

Ken West, CEO

Well, first, just given the events, even in the last few days, my thoughts are with all of our partners that are in the Middle East and operating in the Middle East every day. It's become a very, very challenging place. I've been over there over the last few weeks. I'll be back over there next week. What I can say is this, that the nice thing about energy is the demand profile behind it and the fact the world needs more energy tomorrow than it has today. And when there's a disruption in one area, we see upticks in other areas around the world. And so that is absolutely occurring. We've seen refurbishments, catalyst reloads that may not have happened. So we're seeing a return to that activity. And then, very unfortunate, but there's many facilities across the Middle East that are our technology and our equipment that have been impacted. And we're going to be brought in to help do the refurbishment and rebuilds that's already getting started. We're already partnering with many of those. And so we see that as a tailwind for us.

Mark Macaluso, Head of Investor Relations

Okay, and then Jim, starting with Vimble's presentation, we talked a lot about the enhanced focus on some of these higher growth verticals. So maybe just dive a little deeper for everyone into the life sciences example.

Jim Masso, CEO

Yeah, you know, when you think about unlocking the power of focus and the partnerships we've been able to have across all the businesses here represented on stage, it's amazing, right? I mean, you think about the problems our customers are trying to solve, right? They have to have absolute assurance when a facility is built, it's going to do what it was designed to do. And so that, again, environmental control with the ability to directly measure the system and then run that process with a quality thread with our track-wise quality, again, allowing this feedback loop to keep improving and scaling operations. I mean, this is going to be one of the backbones that the life sciences industry is built on for decades to come. This cross-sell is doing something where we're all using a lot of the same tools. We're all on similar software. We're all connected into this Forge platform. Again, these businesses together are having a real impact in how our customers do business.

Mark Macaluso, Head of Investor Relations

And maybe just on the high-growth verticals, Blal, maybe you can talk a bit about, you mentioned data centers going from next to nothing to 4% to 5% of revenue. So what is it that BA does in that space?

Bilal Hamoud, CEO

It's about how you show up and you have to have end-to-end teams focused on it that understand that space. And then you have to make sure that you position your offering in a good way. If I think about data centers, we have the number one solution for advanced fire detection in data centers, and we added Lion Tamer for lithium-ion battery fire detection to that. In building management systems, we're leveraging Niagara to help our customers drive through integration within the building domain control. And then on the access control side, we have some of the most complex global networks of access control that our OnGuard platform does. So showing up, understanding what it takes for your customers to succeed, and then making sure that we position our offerings to help them deliver what they need to deliver to their customers.

Mark Macaluso, Head of Investor Relations

Excellent, great. Before we open up for Q&A with everyone, just maybe one last question. We often get asked, even after all the work we've done in the spin, why do these businesses still belong together? And I think from our perspective, one of the things that binds them is the cross-sell opportunity. So maybe just in 30 seconds, we meet you one tangible example on the cross-sell opportunity in your business. May we start at the end, Ken?

Ken West, CEO

Sure. For me and process technology, it's domain expertise. What makes us differentiated is the fact that we truly have the technology, the models behind the scenes that are going to augment the pure-play automation of Honeywell Technologies.

Jim Masso, CEO

Yeah, I look at the certainty we can provide. Again, the domain expertise of process technology coming in, it has been fantastic to work with customers, not to mention bringing our capabilities with the building automation business to data centers, with Pete's business to semiconductor fab, right? These are just incredible impacts that no other company can do.

Pete Lau, CEO

yeah i just say in a word um everywhere you know we're a sensing and measurement business we we were embedded in in all of these businesses but you know if i if i had to pick one i'd choose semiconductor you know since we've become really intentional about um showing up as one honeywell you know we we our business leads in semiconductor because we are the specification you know for gas detection and um you know just last week had a great conversation with a major semiconductor player who a lot of equipment runs on simply batteries in the fab. I had a really great conversation about Lion Tamer, which is off-gas detection in Bilal's business. There's a lot there. Well, everything is a building.

Bilal Hamoud, CEO

In fact, these are buildings. In the case of Ken's business and process technologies, what we do in some cases is very hard for other people to do. We leverage that high differentiated differentiation to bring in building automation along with we do process technologies and data centers as an example liquid cooling requires a lot of new sensing capabilities that did not exist and Pete and his team are developing some really compelling solutions there so we're able to bring those and then in Jim's business we're able to bring that high-level control system of systems and bring that approach along with PLC controls into the data center space excellent great so

Mark Macaluso, Head of Investor Relations

let's move to a live Q&A and I just ask that everyone introduce themselves when they're handed the mic so maybe we can start with Julian Mitchell of Barclays

Julian Mitchell, Analyst — Barclays

thank you Julian Mitchell of Barclays maybe Pete start with you you know if you think about the operational side of things in IA you mentioned the OTIPS very bad so maybe help us understand on some of those operating KPIs like what should we expect as the rate of improvement? Also, you had that page 52, which had some maroon boxes, but masses of white space around it. When we look at that, is the assumption that the white space will be filled in through M&A coming up and that block will be very kind of fully covered in a few years' time? And then lastly, who are the main peers that we should think about comparing you with in the segment, whether aspirational or just who you fight with day-to-day?

Pete Lau, CEO

I'll take those in order, Julian. Yeah, I think the first one is really just about customer satisfaction. You know, with Vimal leading, you know, Honeywell, he's made it, and he said it at the outset, you know, everything that we do and we talk about is customers. And customer obsession is a real thing. And so if that means putting in $20 million of extra inventory, you know, on a bet that, you know, we're going to make that up in second margin that flows to cash flow, you know, that's what we're going to do. And we have the latitude to make those sorts of decisions. And so, you know, the big things we'll look at as customer sat, we'll look at delivery, we'll look at, you know, actually, you know, time to resolve of our quality cases is probably a bigger deal than our quality metric right now so there's a lot of a lot of things that feed into that but ultimately we're going to judge ourselves on free cash flow margin operating profit and revenue growth the second question I forgot in the white space the white space yeah look we're gonna do both organically and inorganically you know where we see an opportunity and together we um we make the decision to to go in organically we're going to go in organically um you know organically we're probably going to stay a little closer to our core than we otherwise would become more important to our existing customers you know we've got still a lot of places that we can go in aerospace and in data centers you know solutions that we don't have today that you know where the customer uses or we've got a spoon um today you know we're gonna offer the fork and the knife you know and the salad fork too right you know we have that opportunity to do that and that's a higher right to play and a right to win a higher probability win so we'll probably do that and then of course you know we've got a you know we've got some work on you know paying down debt reducing the interest expense and once we get through that and Mike and then we'll say we're ready to go we've we're working a list of high value targets in terms of competition and peers we're pretty broad space we've got point competitors everywhere but you know i think of us more as like a if you think about a peer business an amatech teledyne you know and idex those are the kind of quality of businesses that we have the kind of the cash flow that i think that we can put off the rallying business for example those are the kind of people that i would say you know the the best way to look at us is think about it from a peer perspective and not competitive because there's there's no one company that we compete with in every every place that we that we play

Mark Macaluso, Head of Investor Relations

great let's leave it there we go to Scott Davis right on the end thank you

Scott Davis, Analyst — Melius Research

guys people to what extent will you integrate these assets I mean they're they're very different but you also seem to have a lot of confidence that there's some synergies so to what extent will you will they stay decentralized versus having some level of command and control centralized yeah

Pete Lau, CEO

I mean, we're going to do, like, we're going to follow the accelerator playbook, right? And so, for me, you know, world-class processes across engineering, where it makes sense, operations, supply chain, where it makes sense, productivity on variable costs and supplier negotiations, to an extent, our pricing processes, right? We'll do that offering specific R&D. We want to be very close to the customers for those business units, so we won't touch that. It'll be more in the operational processes, and that's how we're going to drive the margin expansion.

Scott Davis, Analyst — Melius Research

And I'm just curious, if each one of you can give a 10-second answer as we can keep this flowing, but why is price so much easier to get today than three years ago? It can't just be new products. There has to be more to it than that.

Bilal Hamoud, CEO

I can start. The price is ultimately about the value that you deliver and the ease with which you're able to do pricing has to do how much value you're delivering. And value delivery, new products is a big part of it. But how you do your job every single day, when your customer asks you a question, when you deliver something to your customer, the speed of innovation, all of those come into the value creation that you do for customers. specifically in building automation, that's through for some of the other businesses, what we sell into our channel is less than 20% of the cost of our channel to go do something. To the extent that we are, that 80% is sitting in the labor and design and engineering, to the extent that we are able to go and tap into that 80% and help them make that 80% lower, that gives us a lot of opportunity to create value.

Ken West, CEO

I could add maybe as well, we have different tools today than we had then. So if I think about it three years ago, we were developing the tools we're using today. So we have some of the best tools I've seen out in the industry in terms of real-time looks at what our raw materials are at a skew level, at a base raw material. We saw very quickly we had built out a model as the impact of tariffs came on. And these real-world models that we have and the skills give us the tools behind the scenes as we're running our pricing reviews to know exactly where we need to be. So I just think the speed of decision-making has increased with the tools we have behind the scenes.

Jim Masso, CEO

Yeah. And this thing around mission critical matters. I mean, we are in really high impact environments across all these businesses. And so, I mean, you think about sort of some of the lower end of the spectrum of automation. We're in these critical facilities where, again, everything we do has to work. It has to deliver an outcome. And so when I look at what we've been able to do with price, I completely agree with what was said. I think we're all, we talk a lot about our operating model, how we get effective scale, but the markets we're in, we're having a real impact. When we talk about this cross-selling, we really are doing things that others can't. And so that directly correlates to how we position in the market.

Vimal Kapur, COO

I just wanted to, Scott brought you a point on how much of commonalities in industrial automation businesses and will be, what processes will be common. I want to draw a parallel to building automation business. While Bilal's business serves same-end market, our channels in FHIR, security, and BMS are unique. We don't share any channel partner. So Bilal has unique offerings for each one and each channel, but back-end is common, factory, pricing process. We are replicating the same model. It's exactly copying the same model. It appears everything is the same, but in reality it is not. In fact, we do not share channel partners for the reasons we will appreciate. And that scale is highly replicable in industrial automation. So I want to clarify that this is not a new invention. We're basically copying what we've always been very successful.

Mark Macaluso, Head of Investor Relations

Let's go to Dean Dre of RBC.

Dean Dre, Analyst — RBC

Thank you. I appreciate all the color here today and what you all did to put this together. I'd love to hear a bit more about the statistic that Vimel gave on new product vitality at you know the mid 40s is an extraordinarily high number for an organization I'd love to hear just briefly from the team how do you manage it at within your business incentives and is there any concern about cannibalization as you you know maintain such a high level of new product

Bilal Hamoud, CEO

introductions. Thank you. Why don't we start with Blah? Yeah, sure. Then we'll touch on it, the importance of our offering management, and we've put a lot into our offering management community. At Honeywell, when we think about innovation, we can engineer anything. I grew up at Honeywell. I first started at Honeywell 22 years ago. We never fail because we cannot come up, engineer the solution. The trick for us and the challenge for us is to make sure that we are working on the right thing. And that's why we spend so much time with our offering management team. And to your question about the incentives and so on, they are running their mini businesses within the larger ecosystem, and they're getting compensated just like a GM would on top line and bottom line free cash flow growth. So that allows us to, that focus we've done our offering management in the last couple of years has really helped us to turn the corner on the effectiveness of our new product offerings. And your question about cannibalization and so on, our core is very strong. So as we work on new exciting ideas like forge-connected building, which is completely new and some of the other things we talked about today, we make sure that we keep an eye on our core because that core is so crucial to keep going. And this is how we make sure that the vitality, and that's where the vitality comes in, that people will want to continue to buy these traditional products as we layer in new solutions on top of them.

Pete Lau, CEO

Yeah, I would say, you know, on that one too, you know, we measure it not just in Vitality but in net new, right? So it's a net NPI number. And so Vitality is always then going to be a little bit bigger because your core is shrinking and you're intentionally, you know, shrinking that core to get new products. So it's not just the one metric, but they work in concert with each other. You said it.

Ken West, CEO

I think as well in the long life cycle businesses we have put a distinct investment in some of the longer cycle research as well as new product innovation that's going to come out in the one to two years so we monitor our investment very closely and we have a very strong feedback loop to say when is a project working and when is it not working so we can make fast decisions and be nimble with that spending and we've seen that and that's reviewed even on a monthly basis at every level of our organization

Mark Macaluso, Head of Investor Relations

Excellent, let's go to Jeff Sprague of Vertical Research right in front Jeff great thank you good

Jeffrey Sprague, Analyst — Vertical Research

afternoon everyone so we can all probably clearly understand that connected is good and connected with ARR is even better right but as long as I've been doing this Honeywell has been an installed base you know harvest the installed base play right so we've had all this technology innovation we've got forge etc etc but we heard a lot of good stuff about the customer outcome the outcome to honeywell is obviously embedded in the guide that you're sharing with us but i'm wondering if you could give us some context on that right um a piece of installed base that goes to something you're servicing regular way old way to now connected now with arr some some way to think about the context around that whether it's points of organic growth or something along those lines um and then separately uh just ken or jim can you just give us a little bit more color on on the energy cycle that might be unfolding in front of us and whether that gets you to the promised land on your organic growth all alone without everything else you've talked about.

Ken West, CEO

Yeah, both are good, Jeff, and I can give you a little bit on both. First off, I mean, a great example is one, I don't know if you happen to see it in our demonstration over here or not, but as we're connecting to each of these process units, we're learning a lot more about it. And one example where we're changing the customer outcome is on digital imaging of Catalyst. So as many of you know, Catalyst is something that a customer puts into a refinery every sometimes one or two years, sometimes three to five years, depending on the product. And it's a very nice cycle for us because it provides a revenue stream. And in the past, what customers had to do is they had to go pull a sample out of the bottom of that Catalyst unit, send it to a lab, analyze it. Many times by the time they realized the Catalyst was bad, the refinery is already losing efficiency. It's already starting to go down, and it has a problem. we're now through our connected solution able to do that every day let the customer know exactly when they should change the catalyst or if they have a plug somewhere in the system and let them know they should be proactive we have another customer that's running a pdh unit this is a unit that provides plastics from crude oil and they were having all kinds of problems in fact both them and i were down to meet with them there's a big challenge with it and we've been connected to that unit put our engineers down there been able to fix the problem and shown that we can bring that up. Those are the kind of examples that I can share with folks like Mr. Dangote to be able to drive this integrated growth. So that's kind of the first piece of where we're seeing the customer outcome. And I'd say it is an exciting time to be in the energy industry right now. We're seeing really almost unprecedented growth in certain areas. The time that we put the investments in place to do LNG, we had done the strategic research ahead of time to understand it was an attractive play, but I don't even think we realized how attractive that was going to be with the need for more power and now particularly with the need to move power between continents. So that's going to continue to unlock that growth and provide

Jim Masso, CEO

better results here second half and beyond. Yeah, it's important to mention, you know, a lot of businesses are being disrupted by a lot of the new software capabilities that are coming out AI, right? So if you think about where we're unlocking this massive value, there's domain depth across all of these businesses, and very uniquely, there are cognition demos over there. If you haven't seen it, come see me after, where we're putting that domain depth directly into our control systems, directly into our automation, whether it be a building, process facility, it doesn't matter. And so the impact we're able to have on our customers' operations, depending on the industry, it's a wide range, but we're often talking tens of millions of dollars of immediate incremental difference for some of our automation solutions that are augmented by this domain depth. And again, because of that position, a lot of these new compute capabilities are really augmenting our capability and actually allowing us to get into markets in a way that no one else can. And so it's kind of interesting, this cycle of disruption. And I knew this coming into Honeywell, but it's been pretty incredible to see it play out over the last 11 months. It's driving a lot of value direct to our customers, which is where we're focused.

Mark Macaluso, Head of Investor Relations

Maybe we squeeze in two quick ones.

Mark Macaluso, Head of Investor Relations

go to Nicole, and then end with Kat. Yeah, thanks. Maybe Nicole DeBlaze from Deutsche Bank. Maybe just following on from Jeff's question, you shared that within process automation and technology, the connected systems percentage is kind of around 14%. I think ARR was similar, 13, 14. That struck me as a little bit low versus what the potential could be. So could you talk about that opportunity? And then same segment, second question is just how often do you guys work together today when it comes to cross-selling with um with your customer base and how often

Jim Masso, CEO

could you work together in the future i think i speak to ken more than anybody in my family my wife's probably watching and like yeah uh it's constant it is absolutely constant and you know i think ken can talk a little bit more about how quickly we've been driving these solutions across

Ken West, CEO

the business yeah absolutely i mean i think the nice thing here is as as jim came on we were really developing out this kind of joint offering and it came right at the right time where we were getting the pull on the connected capabilities so we were pulled in almost immediately with key customers many times we'll travel to the customers together there's times that we'll kind of divide and conquer with the customers as we can kind of show both sides of that so I do think from a customer point of view in a customer space it's a single offering now the backbones behind that are very different between the two businesses and that's why you know both of us are up here it's a little bit different how you develop molecules and and process technologies versus how you develop the new automation systems but i think we have the best of both worlds as we bring that together

Pete Lau, CEO

and then on that fair to say that you know i mean that the time spent together the pipeline but the real benefit is still on the come because you know you guys are working really well together

Ken West, CEO

right now but the benefit is it is and that really gets into the second or the first part of the question which was you're right that's really low i mean we connected our 1000th plan i think it was on december 17th we're now 1075 as you saw we're connecting plants almost every day we're just starting to see that arr cramp up customers are now starting to see that benefit this is very much changed a couple years ago many customers didn't recognize what that was or what the value really was they're starting to now and i do believe this will be exponential as more and more customers start to see it. We're also playing into a couple really important kind of macro trends across the industry. One is labor shortage. Many of our customers just don't have the experienced control room operators to continue to run, and they're losing some of their engineering expertise and talent to retirement. We're coming in and helping augment that existing workforce with these capabilities. So you're dead on. It's going to be a lot of opportunity in the future coming off of that low base and we're going to be able to solve it together okay great maybe we'll end with Andy

Andy Kaplowitz, Analyst — Citi

Kapowitz of Citi hey guys so Pete uh you talked about 500 base points of margin improvement in three years that as you know that's not a lot of time so do you need some of these bigger initiatives to kick in you know MPI sort of accelerating or you know focus on high growth markets or can you just get it from operating leverage so you know is it back end load or not and then maybe just quickly for Bilal like you talked about the high growth regions you know 25 of the business it feels like you know you kind of talk about it like it's the 2000 teens but as you know the world has changed a bit right so you know china may be not the growth driver that it was before but it's doing well for you so like have you shifted at all at what high growth regions

Pete Lau, CEO

mean or is it still kind of the same yeah i'll just start on the uh on the operating expansion um it's all within our control and that's why i feel so highly confident about it um i think we get their low single digits to almost no growth just on the self-help some of the self-help stuff and then um you know growth will you know growth will obviously supersize that um or be a part of that or we would take some of that and reinvest it as we're growing but we would you know i feel Obviously, on the growth side, there's more that's out of your control. But I feel pretty in control on the margin expansion and feel like we could do that at low single-digit growth.

Bilal Hamoud, CEO

Yeah, on the regions, the good news is with the new organization we have and the regional focus, all of our regions are growing. China and Europe has long been slow, but for us, they're growing quite nicely. In fact, Europe is showing up in the mid-single digits, and we expect that to continue. your question about how things change I think the fact that we have capable teams and power to make their own choices in the regions will help us to do that if I take the example of our Middle East and Africa region a couple years ago when we talked about growth in that region it was all about the investments happening in Egypt well lastly it was all about Saudi Arabia and more and more in Northwest Africa our teams anticipate the growth and they have the capability and the empowerment to go and make sure that they are ready for it when it happens. And we see that dynamism in how our team approaches it through across all of our regions, and the customer sensitivity helps them continue to deliver on that.

Mark Macaluso, Head of Investor Relations

Excellent. Great. Let's leave it there. We're going to take a quick 15-minute break. We'll get back here right about 3.35 to kick off with Suresh.

Vimal Kapur, COO

Honeywell is going to be a premier automation company. There's no large-scale automation players in the market, and we're going to benefit from our good understanding of the end markets we participate. We have lots of data which can be used intelligently to reduce the skill gap which is occurring in our customer work. Our systems make our customers more productive, more efficient and more safe. We should be proud to say that we do work that improves human quality of life. It makes a compelling reason for others to think about what we want to be versus what we were.

Operator

For over a century, Honeywell has been building the technology that shapes the future from the control systems that introduce automation to industry to the innovations reshaping our world we've been at the heart of it all now we're making that impact impossible to ignore taking the name you know and connecting it to the role we play every single day a role at the intersection of industry and ingenuity of expertise in data of imagination and implementation connecting intelligence to impact and impact to the industries that keep the world running today our name our voice our story the way we show up the way we stand out and what we stand for all signal we were built for this moment and that the next leap forward is now as the future runs on what we build

Operator

Please welcome Chief Technology Officer and President of Honeywell Connected Enterprise, Suresh Vinkatadailu.

Suresh Venkatadri, CTO

Welcome back. And just to let you know, I've been with the company for 31 years. It's a great day and a great beginning to rewrite the chapter of Honeywell along with Vimal and the leadership team. I really feel both excited and fortunate to really do so. So I actually met many of you here back in CES and also in AHR along with Bilal. So great to connect with some of you, and I would love to really spend more time this evening. Forge, why Forge matters? I'm sure the question you hear from Vimo, you hear from all the four-segment CEOs, they talked a lot about Forge is enabling their services growth, software growth, how there's going to be the future and foundation for driving automation to autonomy. For me, there are three or four things that really matters from a customer standpoint. Number one, please imagine or reimagine the future buildings, plans, data centers, critical infrastructure are not going to be just connected. Maybe that's what all of us have done in the first six, seven years. It's going to be more intelligent, adaptive, and increasingly autonomous. I think that's the future state our customers are going to demand in the name of outcomes that they demand. Second, if you really look at our history, for a century, we have automated the physical world. And how did we do it? It's a combination of install-based asset with domain knowledge, and we brought Forge to really drive the outcome. Third, for me and for us, Forge is that intelligence layer. And it brings in this two interesting dynamic, which is deterministic model. I think many of you would actually really question what it is. As a control system company for the last 140 years, a control system company have to have a control law to deliver 99.99999 in person. That means those algorithms that model a predictive input parameter from sensors and actuators has to deliver a predictable output all the time. Now, with all of it, there are four things that we have done different that's very real in Forge. You see that frictionless connectivity. We saw our customer environments are fragmented. You actually walk into a customer site, data is fragmented, systems are fragmented. When you actually really see it, you would have seen an example. We connected our campus in India. When you walk into that building, you need to connect 14,000 assets. Not easy. They are specialized protocols that require certification. So when we sat on it two years ago, Wimel looked at it and said, how long does it take to connect any of those buildings or industrial plant? We said close to 100, 150 days or 150 hours, sorry. And it wasn't clicking because we were working with our system integrators, and system integrators who lose interest and they don't have the technical skill. That's something that we really brought it down to less than a day. And not only that, in Bilal's business, you have 14,000 system integrators. We have taken Forge Academy to train them, hand-holding them, supporting them across the region. That's clicking. Second, we use the word ontology. It's not new. For many of you, we've heard it from all the software companies like Palantir and others. We thought, you know, we used, how many times have we used the word domain knowledge? For us, it's codifying the domain knowledge that AI understands. And that's what we have been doing in the last year or so. Third, it's our control systems. It's built for the regulated and safety industry. We are proud about it. AI itself needs a guardrail. I think we speak a lot about the guardrail, which we believe that the control architecture in Experian, EBI, I think it's a control guardrail for us. The last one, I think with our cyber business, we believe that we will be the bridge between IT and OT world. I think three things that I would actually ask us to really remember, it's all about data. It's about domain knowledge, deterministic model together. I think it's going to be speed. I think we spoke a lot about the speed of innovation, and I'll give you a little bit more teaser about how we are re-transforming our company. There's two chapters. Chapter one, 2018 to 2024. We enabled the connectivity, brought the visibility, sold a lot of remote services for our customers. Customer believed in it. I think there are a lot of value additions that we brought in for them, for us. And I'll walk you through the evolution model. But there's one thing that it lacked. I think if you look at the point number five, It lacked the contextual insights around our install base because you're dealing with bits to atoms. That's the difference between the traditional AI to physical AI. And that's something that actually said you could do more because that's where you can deliver outcome. And that's an area that we spent a lot of time. So that led into 2025, last year. We said physical AI was real to an extent. I'm sure if you've all been in CES last year, Jensen set the tone on physical AI as a new reality. It's going to be a near term. And we actually said we need to take the lead right there. And then in the last year or so, as you really look at it, it's not, meaning I'll be happy to really walk you through a little later, it's not just another compute box. We absolutely believe that it has a category to bring in a compute with controls and an ability to contextualize using ontology. It's the new beginning. That's how we are actually starting to tease you with an opportunity to show how we drive autonomy in a building environment or a plant environment. So what have we done in terms of from 2025? We said, Bilal said it nicely, the amount of connections we have had in the last 12 months was much larger than what we have done in the first probably five, six years. One of the reasons was frictionless connectivity. Second, once we connected right there, the next thing was how do we move up your value chain, not just selling services upgrade or a software upgrade. It's an outcome. So for us, it's a real pivot point where physical AI was a reality, and I'll talk a little bit more about partnership, and we'll also give you a teaser on how we are trying to do this. Now, with that, Forge business model is evolving, evolving, evolving all the time. Now, there are four ways to really see this evolution. Look at 2020 to 2024. I think we focused on connectivity, selling digital services on top of our install base. I think it's there in that billion-dollar ARR that Wimel talked about. We have grown our services portfolio. We brought in other assets like Sparta. and 3DM. So there is a high focus around connectivity, upselling services. That was our focus for the first four or five years. Look at from 25 onwards, which points out to what Bilal said. We had more connections from sites, customers, and assets. That's an acceleration, which we really brought in. Then from there, our focus was all about selling software as a, Forge Performance Plus, customers were asking us to run their operations better. So asset performance management, predictive maintenance, carbon energy management, you have cyber. So a lot of software evolved. Then the final category is an automation autonomy. We believe that it's a closed-loop operation. Customers are expecting us to really deliver on certain outcomes. I think it's an interesting pivot, and I'm sure that you're starting to see some of the demonstration later this evening and something that we're going to show, it's the beginning for the new reality. And that new realization is going to be a tremendous opportunity growth for us moving forward. There are two or three case studies that I want to really talk about before we jump into automation autonomy. Take a digital services. We built this business along on the process automation traditional services portfolio. As you look at it, we had probably a traditional reactive support model, which over a period in time, we were able to connect to our install base. Look at it, 660 sites, 350 customers, 130,000 assets. Now, what does it do? One, direct visibility to our install base. Now, two, we were able to really upsell some of the new product portfolio, Digital Prime, Assurance 360, but it also helped us to improve our cost to sell. Now, the business is growing in spite of some other core erosion, they were able to keep up with it. For me, this is important because it gives you a hook back to your install base to really upsell more software and then a future possibility, what Ken and Jim talked about, a connected plant cannot happen without hooks back into your install base. And this is a replicatable one for Bilal's buildings portfolio and also for the industrial automation in terms of really selling upselling services on top of your install base. A second case study, which is organically built CLSS. Bilal talked about it. I think you heard Pete referring that CLSS. This is a connected life safety services business on top of FHIR. FHIR was working with this system integrator portfolio, selling panels and selling services, and they were selling outcomes, which is compliance, which is manual-driven compliance outcomes they were selling. What we were able to do in the last eight, nine years is $130 million software portfolio with $40 million ARR that is growing at a rapid pace, moved from remote operation compliance response, human driven to a digital alarm transmission, AI assist with integration with rapid SOS, that business is transforming. We believe that this is replicatable for our gas detection business and utility business moving forward because you actually deal with a similar system integrator dimensions right there. Now for me, case study three, which is the automation to autonomy is an interesting one. I think autonomy, we speak about it and we spoke about it as an industry for the last two to three years. Two things, you know, process automation that our customers are working with us, for them is clear. Can you eliminate the availability in operator handling of abnormal solutions? I think you can actually read it. It's in a public domain. I think we have a demo coming up in a Middle East customer with Baroge. They've been very happy partnering with us, taking Xperia and Cognition. That's an important use case. On a building site, it's 10 to 15% operational efficiency. Meaning when you double-click it, it's energy performance, operational performance because of all the nuisance alarm coming from multiple systems. On top of it, cyber. On top of it, comfort performance. There are four or five KPIs, but directionally, they will tell you that 10% to 15% improvement that you needed. Now, interestingly though, right here, there are two stories before I jump in and give you what I'm about to show. 2025, CES, and some of you were there, and I was there, where NVIDIA launched what they call a DGX and AGX, which is a supercomputer at a price point was available for every automotive player. And then we sat with them, and we said, if that's available for every single car, can we bring that category into every single building? It could be a commercial building or industrial plant because I was looking for a brain behind a building similar to a brain behind a car to drive autonomy and action. Six to seven months in a row, I think we really built that both the compute and the AI engine as a full prototype. I think around September, we showcased it to our board with an initial idea of our forged cognition with some few use cases and whatnot. But this CES, within a 12-month period, we actually sat down with NVIDIA leadership team. Vimal was there. And we were talking about a future prospect of building autonomy in action. I think Jensen's leadership team pushed us back to say, we should have a Lighthouse customer. And then Vimal being Vimal, he said, yes, we need to have a Lighthouse customer. Why can't you be the latest customer? And I was a CTO sitting there not really knowing what are we committing for. But here we are. We were able to really take, I think to give a credit back to the NVIDIA team, they took their one of the campus, Voyager headquarters. You see the picture. They handed over back to us on February 6th. I, along with Mahal Patel and Greg Turner, technology leaders, pitched in the vision and what we could do. It was not on our install base, but OnGuard was our install base. We were able to get cognition up and running. What it does is three things. That box is powered by Blackwell architecture from NVIDIA. It has Omniverse to simulate the entire campus. You can emulate and simulate the building connected to their assets, and I'll show you that very quickly. Third, it has the whole NVIDIA model, Nemotron and Cosmos Reasoning and Gemini model, and it is autonomously running. So let me take you live to our Voyager campus, give you a view on what it does. So as you really see, as we get into the real aspect on zooming into the NVIDIA campus, Santa Clara, It's a 750,000 square feet area and close to 1,000 assets, a combination of building management, BMS assets, and then some of the security access control. What you see as a virtual reality is omniverse powered up. You would be able to pick any of those assets to see their real-time performances. I just want you to know, for me, it's a chat GPT moment for the industrial world as a technologist. And from there, you have an opportunity to have an interaction directly with the building. So you're asking the question, how much electricity have you consumed? This is Voyager Headquarters data point. It also highlights 30% of their energy spend every single month was during the peak load. That too in California. In fact, I presented back to their GRE head two weeks ago. So he's seriously looking at, should they have a battery energy storage to optimize the spend? How should we do it? As you look at it, one of the biggest pain points that they have is the nuisance alarm all over the place. You have an opportunity to really interact with your building to say, how much is a nuisance alarm coming from a security system? As you look at it for a week, close to 5,000. Remember, they have to have human beings, more operators inside an SOC who are clearing up every single false alarms, which they call a nuisance alarm. So we actually built an agent for them, which is a semi-autonomous agent, which technically goes back and then looks at it. BMS system today, for the past one month, had 85% nuisance alarm. And then it's not just at this level. The agent goes back and gives them all those alarms so that the operator in building operations can go back and look at what those alarms are, what the facts say, what are the insights, and then there is a point in time we should be able to train the system to provide more recommendation. But at the end of the day, it also gives an operator an opportunity, like you push your email by saying, oh, these are pretty much junk emails or spam email. You have an opportunity. So if the operator trains this model 3, 5, 10 times, then there'll be a confidence to give a control back to autonomy. And if you really look at the next big thing, which is their biggest ask when we started was security system. You look at 98% false alarm. And I can just tell you, in one of the buildings that we are not touching right now, 250,000 alarms per quarter. And they need 14 to 15 people clearing up every shift. This actually gives, this is an interesting one. You're dealing with security means your camera inputs have to be fed in and with facts that SOC should be able to clear up to say is it false or not. So, as you're really looking at it, you're interacting with the building, and then you are actually dealing with an algorithm, and you're reinforcing the model. Either you're reinforcing the model or reinforcing the process side altogether. So this is a great use case where I just wanted to really give you a first instance perspective on how we are approaching this autonomy. We have showcased to some of you how we did Bangalore campus. That's how we took this idea back to NVIDIA. The head of GRE initially was not very sure what we could do. But having done this, and I presented it last week, they have given us six more weeks. where if they can actually really go back and look at all the KPIs, if it hits it well, I hope that we can actually go and deploy across their entire campus and we may have a PR release. But I want to really get to a point on partnerships. These things are not possible. I think there's an NVIDIA partnership. You have seen me in Dell World Congress or Technologies World last month. But Google's partnership started two years ago. We brought in Gemini 1.5, 2.5. We've rewired a number of things, but what you're going to see in our cognition is GDC, which is Google Distributed Cloud Compute, which is like a GCP. So Thomas and his leadership team has been working with us for the last two years, and then we have asked him for a short video about his partnership and how he sees he can contribute to a physical AI transformation.

Thomas Kurian, Analyst — Other

Hello, everyone. I want to start by thanking Vimal and the entire Honeywell team for inviting me to join you today. When we announced our AI partnership with Honeywell in 2024, it was centered on a mutual vision to realize and accelerate the path to autonomy for the industrial sector by combining Google Cloud's leading AI capabilities with Honeywell's industrial expertise and install base. This means bringing AI into the physical world in a way that can help buildings, plants, utilities, and other industrial environments move from traditional automation and static data to self-managing agentic systems. For example, Honeywell Forge provides the industrial software foundation and operational data from buildings, plants, and utilities, while Google Cloud and Gemini help process that information, identify patterns, and support better, faster decisions. This enables organizations to move beyond automation to autonomous systems that can sense, reason, and react in real time. Our partnership is critical to shaping the future of physical AI and supporting the infrastructure that businesses communities and economies rely on every single day at google cloud we're fully committed to our strategic partnership with honeywell and we look forward to shaping the future of physical ai together thank you once again vimal and the entire honeywell team

Suresh Venkatadri, CTO

just to sum it up i think the whole whole piece that i want to say is forge is here to stay for driving the physical AI transformation, and with a partnership in place, for me, automation to autonomy for a future has three fundamentals. Assets need to work harder, people to work smarter, and processes work more efficiently. Those fundamentals are important to enable the future buildings, plant, and industrial operation that can see, think, and learn and act, and which is the fundamental for autonomy. And I'm really, really happy to really take this evolution forward and we'll be happy to really share more later this evening and connect with all of you back. So with that, I'm going to be inviting Mike Stepniak for the next session.

Operator

Please welcome Senior Vice President and Chief Financial Officer Mike Stepniak.

Mike Stepniak, CFO

Good afternoon, everybody. Thank you again for being here today and your support. I realize it's been a long session, so I promise I'll be quick, but I think I understand why they always put the finance guys last in those sessions. Vimo and the team took you for our strategy, and I think they give you a really good overview of the business and how we think about the future. In the next 20 minutes, I'll give you a little bit more insight into our financial framework. But before I do that, I just wanted to have a quick moment of reflection, because I think days like that require that. I've been with Honeywell now for about six years. I've been the CFO of Honeywell for about 16 months. And I can tell you, I have never seen a team that is more committed and excited to deliver on our commitments and on the mission. Then we'll talk about our VOE scores and our attrition. It goes beyond that. We have people that left us over the last five years knocking back on our doors, wanting to be part of the story. so it's extremely exciting and look I'm not a very outwardly excited person I realize that especially if you put me in the room with Marc Macaluso but I am extremely excited about our financial framework and about our strategy and what we're going to deliver for our shareholders and our customers over the next three years so with that let's just recap the day really quick then we'll talk about how we transform and simplify portfolio this is going to deliver higher more profitable growth our legal team our business development team spent last 18 months deleveraging our balance sheet which is unlocking our cash flow and helping our gna cost we are rapidly eliminating extended costs and going beyond that I'll talk about it it's a significant driver of margin expansion for us over the next three years and all the presidents talk to you about refresh NPI about better offering being closer to the customers everything that we have done over the last 24 months makes me more than comfortable committing to delivering 10% plus EPS growth through 2029. Honeywell prides itself on execution and before we talk about the financials we just have to acknowledge and talk about how much the team has executed because I think that's been largely unnoticed but has significant impact on our financials in a very good way going forward. So let's start with industrial automation. Industrial automation like Pete said now is pure sensing and measurement business. This business alone is going to deliver 100 bibs of margin expansion for Honeywell over the next 12 months. More importantly Pete can now keep the team focused and deliver not only the margin expansion but deliver growth and think about expanding the growing the business inorganically solstice spin-off made us less capex intensive and less cyclical by the way solstice is up 60 percent since it launched in october what a great story for the team and the shareholders like i said we divested over two billion dollars of legacy liabilities over the last 18 months it's a significant tailwind for our cash flow and our gna and the automation segments And there is a reason why Ken and Jim talked to you together today. Their teams this year alone will deliver over $100 million of commercial synergies just between these two businesses. And this is, we're really just in early innings of the journey. And finally, Continuum is making just excellent commercial progress, and you hear about it in the second half, and delivering on their strategy. And once again, I'd like to congratulate Raj and Itesh and their teams on a very successful IPO last week. By the way, that business, you'll see it in our second quarter financials, is going to sit on our books at $7 billion. So if you think about optionality as far as cash flow and capital allocation, it's a big help for us going forward. So here we are. We are a pure play automation company. Delivering mission-critical solutions in building automation, industrial, and process automation industries. And the key word here is mission-critical. The nature of our products and solutions allows us to have lifecycle relationships with our customers. Most of our products, once again, have to be certified and have to be specified. More importantly, these products allow us greater pricing, more predictable revenue streams, and getting closer to our customers. But this is just the beginning, so let's talk about where we go from here. Our value creation engine has three pillars. and I realized this is kind of on par with the this is on par with our peers as far as the the growth top-line growth margin expansion what's exciting to me and what's compelling that this growth is going to come early and we there is a very good chance for us to overdrive this this framework and I'll talk about each of the pillars in a minute. Both top line and margin expansion will be underpinned by more meaningful shift towards services and software annual revenue, recurring revenue. More importantly, margin expansion, the 60 bibs of annual margin expansion, that's just operational expansion. We have over 200 bibs of margin expansion coming structurally from us removing stranded costs and driving the portfolio actions that we talked about in IAE. So let's talk to each of the pillars, and I think this is the most consequential page of today's presentation, and I'm really excited about the growth framework, because as Honeywell, we know we undergrew the last few years, but that's changing significantly. And let me just go through each of the pieces here. On volume, we should grow 4% a year, and we talked about NPI, we talked about higher growth verticals, I'll talk a little bit about software, a new recurring revenue. But I'm a data person, so I'll just give you some data points that I'm seeing. Bilal is a very humble human being. His business now delivered high single-digit growth seven quarters in a row. his fire business last year launched over 30 MPIs his orders quoted today are high double digits this business has momentum not only in data centers it has momentum in every vertical and every region that he his business operating with Pete has turned the corner on the business it's a really a story of self-help the business is delivering better for the customers starting to introduce NPI team has focus and have mission and funny process automation technologies we talked about it now for three or four quarters that business has been building the backlog projects back for this This backlog is converting. We're mobilizing our teams and starting to deliver these projects. And this is a multi-year cycle. Majority of our projects take three years to deliver. Our LNG business is sold out for the next three years. And by the way, catalyst volume is coming back. Second half of our first half catalyst short-term demand is going to be up more than 20%. So I'm really excited about this setup, because all of our businesses have momentum, and it's a strong momentum. Price? Look, we learned a lot about the art and science of pricing over the last three years. And just like Ken said, our models are better. They're much more dynamic. We're closer to our customers, where we can understand how to price. And for better or worse, pricing now reports to me for the last nine months. So I can give it the right level of visibility and drive the say-do when needed. But I'm confident it will deliver 3% plus pricing over the next few years. And then M&A. I'll have a slide later on to talk about M&A. M&A will drive 1% incremental growth for our company. All of our M&A is accretive to our growth. So why are we not growing 6% to 8%? Well, it seems these days we have a 100-year flood about every six months, so I am assuming a very healthy level of contingency to make sure we can withstand all the geopolitical uncertainty and issues that we face every year. I have two more slides on top-line growth that I want to touch on. One is on ARR and one is on M&A before we move to margin expansion. So maybe start with services and software. Our services and software business is today about $7 billion of 40% of our business. Recurring revenue is about $2.3 billion. And software ARR is about $900 million. That's as of 2025. As the team said earlier today, we'll grow service and software from about 40% to 45% of overall revenue mix over the next three years. And software is going to grow at about 3x the rest of the business. We like this revenue model a lot. As we are maturing Forge and looking at Connected and starting to analyze our install base, we realize we have a massive opportunity here to lean in and drive incremental growth. This growth is also creative to us and gives us a lot of leverage. Our incremental cost to scale this business is actually minimal. We're looking at our compute costs for software. And on 15% revenue growth, our compute cost grows about 2%. So you're getting really good leverage on this growth. So let's talk about M&A. Look, our M&A strategy, bolt-on M&A strategy, is doing extremely well. and something that I think is core strength for us. And teams have been doing an excellent job, one, identifying M&A targets, vetting them, and then bringing them on board at the right multiples. And the teams in the businesses have been doing a really good job integrating these businesses. All of our M&A that we've done since 2023 is accretive to our growth, is beating revenue synergies and delivering return on invested capital. If you take just Air Products LNG as an example, this business next year is going to be half a billion dollar business and it's sold out for the next three and a half years. We'll continue to do M&A in the future, but we'll be very selective. and continue to strategically supplement our businesses where we think there is a close adjacency or a strong fit. So let's move to margin expansion. I can guarantee you Honeywell has not forgotten how to expand margins. We talked about this earlier this week. We'll deliver about 20% segment margin this year. We have very clear path to expand about 200 BIPs over the next 12 months through structural actions. On top of that, organically, we'll expand another 60 BIPs a year. And that 60 BIPs a year has a ton of contingency and optionality in it. So if you start calculating this data, I think it becomes very clear that 24 is not only achievable, it's actually beatable, and gives us a lot of optionality for M&A investments and obviously contingencies. How we think about the 60 BIPs? Look, we have, I would say, plenty of optionality as far as how we expand the margins depending on the market. Like I said, price should be 3% to 4%. We're improving MIGs. We're doing more MPI. We're doing cross-sell. That's giving us a better leverage on our growth and expanding margins. But to me, the biggest opportunity is still in cost productivity. It's not only stranded cost. We're going much further beyond that. I'll just give an example of what we're doing. Today, Honeywell has still about 700 legal entities. We can operate at 300. Over the next two years, we'll eliminate 400 legal entities. That's a significant source of productivity for us in margin expansion. Today, we still have about 10 ERPs. Over the next two years, we're migrating to two, and now a significant source of simplification and productivity. And finally, if you start thinking about artificial intelligence productivity tools and how you're going to deploy them, you need to deploy them at scale. So we are leveraging our shared services. Today, our shared services penetration is about 40%. Over the next two years, it will be over 70, and that's where you get really...