Earnings Call Transcript - JCI Q1 2021

Operator, Operator

Good morning and thank you for joining our conference call to discuss Johnson Controls’ First Quarter of Fiscal 2021 Results. The press release and all related tables issued earlier this morning as well as the conference call slide presentations can be found on the Investor Relations portion of our website at johnsoncontrols.com. Joining me on the call today are Johnson Controls’ Chairman and Chief Executive Officer, George Oliver; and our Chief Financial Officer, Olivier Leonetti.

George Oliver, CEO

Thanks, Antonella, and good morning everyone. Thank you for joining us on today’s call. Hopefully, the New Year is treating you well so far. I will start with a brief strategic update and a summary of our Q1 results. Olivier will provide a more detailed review of those results and update you on our forward outlook, and we’ll have plenty of time to take your questions. Let’s get started on Slide 3. We are off to a strong start in the first quarter with solid financial performance and accelerating momentum on all of our strategic initiatives. As we will cover in a few minutes, top-line performance was at the high end of the expectations we communicated to you last quarter, which together with impressive operational execution across all segments enabled us to grow EBIT by 5% year-on-year, despite continued volume pressure related to the ongoing pandemic. Although the promise of a vaccine is sparking modest optimism in several of our end markets, many of which continued to show improving sequential demand, there are still many regions of the world facing second and third waves with varying degrees of lockdowns and restrictions. With that being the case, we have remained focused on the commitments we made to our employees, customers, and suppliers. Our teams have come together to achieve truly extraordinary things, improving the fundamentals of our businesses and executing our overall strategy. During the quarter, we were honored to receive recognition from several organizations. Additionally, as you may have seen in a separate press release issued earlier this morning, we announced an ambitious set of new ESG commitments, reinforcing sustainability as a top priority in our leadership role in climate change. Lastly, we continued to gain traction on several of our core growth initiatives, which we have been discussing with you over the last couple of quarters, scaling OpenBlue, driving higher service attachment rates in sales growth, and accelerating new product introductions.

Olivier Leonetti, CFO

Thanks, George, and good morning everyone. Continuing on Slide 9. Q1 sales declined 5% organically, improving sequentially compared to the 6% decline last quarter. Relative to our expectations, global products outperformed primarily due to continued high levels of demand for residential HVAC equipment, both here in North America as well as our Hitachi business in Asia-Pacific including China. Segment EBITA expanded 80 basis points year-over-year to 12%, the highest margin rate in any first half since the merger, despite volume headwinds related to the pandemic. EPS of $0.43 increased 8%, benefiting from the higher profitability I just discussed as well as a lower share count as we have maintained a disciplined approach to capital allocation. Our free cash flow performance in the quarter was strong, up about 10% on a reported basis to over $400 million. I will provide the details on our cash performance later in the call, but the strong start in Q1 puts us on a path to achieve 100% conversion for the full year. Please turn to Slide 10. Orders of our field businesses continue to improve with the year-over-year decline moderating to just 3%, despite our install business still experiencing pressure from slower non-residential new build activity with retrofit activity showing signs of recovery. Service orders increased 2% overall, driven by EMEALA and supported by the recovery of our core commercial fire and security businesses in Europe.

Operator, Operator

Thank you. Our first question comes from Nigel Coe with Wolfe Research. Your line is open.

Nigel Coe, Analyst

Thanks. Good morning, everyone.

George Oliver, CEO

Good morning, Nigel.

Nigel Coe, Analyst

So first of all, thanks for all the additional details on the slides, it's been very helpful. So, looking at the margin guide for the full year, the implied back half is obviously much flatter. I realize we've got temporary costs come back into the equation here. But is there anything else that we should think about in terms of mix, raw materials? Anything else that would cause that margin to flatten out in the second half?

George Oliver, CEO

So, Nigel, good morning. Indeed, we are – the guide implies that the margin rate for the second half is going to be marginally up. We discussed that in prior calls. In the second half of the year, some of the costs we mitigated last year are going to come back. The net for the year we discussed is about $40 million, but the second half is going to be a headwind. As I indicated last quarter, we're working on mitigating those costs coming back. We have plans in place. It's too early for us to commit to an improvement in margin in the second half, and we'll come back when those plans are a bit more structured, Nigel.

Nigel Coe, Analyst

Great, now that's clear. And then the attachment rate initiatives, 35% of service attachment rates, looking to increase that by a few hundred basis points for the year. I'm just curious how you're looking to achieve that. What sort of incentives do you have in place to either sales or technicians? And what role is OpenBlue in that? So any help there would be helpful.

George Oliver, CEO

So, Nigel, when you look at our $6 billion Service business, of course, as we've laid out, it's a very attractive vector for growth, and that has been accelerated with the healthy buildings trends. So when you look at historically, we've been under-serving our installed base. And so we've been going back after that, and we believe that, that's a real material opportunity and a competitive advantage for us. We have been increasing our market coverage with people as well as enhancing the technology that we're deploying within our solutions with OpenBlue. When you look at the margin profile, it's 2x the overall company EBITDA margin. And as we now look at our new capabilities, differentiating our services with connectivity and the utilization of data really gives us an opportunity to be able to get longer-term contracts, solve bigger problems, attach contracts, and ultimately drive that attachment rate. We've seen great progress here in Q1. We're up about 90 basis points sequentially in Q1. We expect for the whole year that our attach rate will move up 300 or 400 basis points, and we will actually accelerate as we enter 2022. It's a combination of all of that, that truly positions us to be able to take what we've done historically and truly now move the needle with how we can attach a lot more to what we do to serve that installed base.

Nigel Coe, Analyst

Okay, thanks, George.

Operator, Operator

Thank you, Mr. Coe. Our next question is from Deane Dray with RBC Capital Markets. Your line is open, sir.

Deane Dray, Analyst

Thank you. Good morning everyone.

George Oliver, CEO

Good morning, Deane.

Deane Dray, Analyst

Hi. I really like seeing the slide right upfront profiling the opportunity in Healthy Buildings, this whole indoor air quality theme that we think is really meaningful post COVID. And George, I was hoping you can give us a little bit more granularity in how you arrived at that $10 billion to $15 billion. Maybe a sense of how much is equipment, services, digital. And how much of this benefit are you seeing today?

George Oliver, CEO

Yes, so, when you look at what we launched here, Deane, the OpenBlue Healthy Buildings, it does represent our new comprehensive strategy to be able to address both the clean air, which we said was a few billion dollars previously, and then all of what else we do within a building around Healthy Buildings. Holistically, it's about $10 billion to $15 billion of new addressable market when you look at it holistically. Now when you look at across industries, more than half of businesses not only have implemented some type of Healthy Building initiative, OpenBlue Healthy Building now addresses this next phase, where not only are we driving efficiency, but we're driving health and safety and we're positioned to be able to then drive sustainability and reduce energy to be able to achieve those outcomes. When you look at what we do, it combines all of our core, tailors what we do to each individual customer. And now we have about 25 unique solutions or services that, to your point, it takes our products, it takes our service technology, and it takes our data services that we're developing to truly now create these new outcomes. So it's aimed not only at helping customers return to work, but also optimizing their performance of their infrastructure longer term, not only through efficiency and energy reduction, all of which contributes to their sustainability goals. It's really a combination of all of that that allows us to differentiate what we can do to deliver these type of solutions.

Deane Dray, Analyst

Great. And just as a follow-up there. If you had to split the opportunity between, let's say, a one-time windfall of new equipment, higher filtration and so forth versus an ongoing service opportunity, monitoring, the digital side of this, what's the split? How much is pure equipment upgrade versus the ongoing recurring connected building opportunity?

George Oliver, CEO

Well, to give you an idea, and this will be within our global products. We've seen huge increases with filtration. Orders up strong 20%, 30%. We've got our ISO clean, our potable air purification units. We see growth of well over 100% year-on-year. We're seeing our pleated filters up 500%. We're seeing filtration products up kind of 50%. So we are seeing benefit in the products that ultimately go into our solutions in what we can do to look at every aspect, filtration, disinfection, recirculation, as well as isolation that ultimately we provide with our solutions. It's really a combination of all of that, Deane. As we're now upgrading these systems, the more connectivity that we can gain with how we utilize our medicines platform to collect data and be able to optimize the outcomes that we can produce is the advantage that we have with the 16,000 people that we have deployed across the globe that are intimately working with customers in delivering these solutions.

Deane Dray, Analyst

That’s great. And just congratulations on all of your ESG commitments. That really does put you guys best in class here. Thank you.

George Oliver, CEO

Thanks, Deane.

Operator, Operator

Thank you for your question, Mr. Dray. Our next question comes from Scott Davis with Melius Research. Your line is open, sir.

Scott Davis, Analyst

Hi, good morning everybody.

George Oliver, CEO

Good morning, Scott.

Scott Davis, Analyst

George, is there a preference between M&A and buybacks in 2021? Or any kind of opening of M&A markets that get you more interested?

George Oliver, CEO

Yes, so we – as we've been improving our fundamentals here, Scott, and gaining a lot of confidence with the continued improvement that we're going to deliver on, that we think that M&A is a space that, as we're building our pipeline, is attractive in being able to take what we're doing with our organic investments and be able to contribute more to how we ultimately deliver growth. So as we look at our priorities for the year, we are not only supporting strong dividends, but also optimistically doing the buybacks. We've committed the $1 billion that's still remaining from the Power Solutions sale. On a go-forward basis, we see M&A as being an area that we can contribute 1% or 2% growth on a go-forward basis annually because of the pipeline that we see, the ability to enhance our technologies, our go-to-market, our services, and then accelerate the work we're doing with OpenBlue.

Scott Davis, Analyst

Makes sense. And then just switching gears to service. You've referenced a mid-single-digit growth rate and attachments of 35%. What – I mean, you say the entitlement is double the current rate, but what can get you there? I mean, we're not there yet. So what needs to happen either within the sales force or perhaps customer education or something else that kind of gets you driving to a higher growth rate in Service?

George Oliver, CEO

So, if you look before the pandemic, Scott, we had got our growth rate to 4%, 5%; it was pretty much at the market rate and that involved a lot of blocking and tackling. Now, strategically, we've been investing in new services. We've been enhancing those services with OpenBlue. We've been targeting our installed base in a much more aggressive manner because we have an opportunity to bring that forward with new technologies and address some of the new challenges that our customers are facing. So when you put all of that together and you look at our performance here, in Q1, we've been sequentially improving. Service was down 1%, it was down 3% in Q4. We're projecting a go-forward, and our orders were actually up 2% in the quarter. On a go-forward basis, we see our orders continuing to improve. We're getting a higher mix of longer-term contracts within those orders. We believe that from a revenue standpoint, we'll turn positive here in Q2 and it will continue to ramp in Q3 and Q4. So, it's really a combination of not only mining the installed base but also adding additional capabilities within the field and enhancing the offerings, gaining connectivity, utilizing data, creating new outcomes, and ultimately being positioned to attach. Our attach rate in Q1 was up 90 basis points sequentially, and we see that improving 400 or 500 basis points over the year and then accelerating beyond that. So, that gives us confidence here, Scott, that through the year, we'll get to mid-single-digit growth in 2021, and we believe that we can accelerate from there with very attractive margins going forward.

Scott Davis, Analyst

Sounds encouraging. Good luck, George. Thanks, guys.

George Oliver, CEO

Thanks, Scott.

Operator, Operator

Thank you for your question, Mr. Davis. Our next question is from Steve Tusa with JPMorgan. Your line is open, sir.

Steve Tusa, Analyst

Hi, guys. Good morning.

George Oliver, CEO

Hi, Steve.

Steve Tusa, Analyst

Can you just fill us in on kind of what you're seeing in your core, like the commercial HVAC equipment market in the U.S.? Just kind of hard to tell what the real trend is? I mean, non-res construction, obviously remains kind of weak, but you've got all these opportunities on ESG and IAQ etc. Just curious as to how this cycle is shaping up versus prior maybe on that front, equipment?

George Oliver, CEO

Sure. When you look at our commercial HVAC market, let me start with applied. Applied HVAC orders were down low-single digits, this is globally, now about 3%. We did see continued sequential improvement in the market through the quarter. We did see some pressure in North America, due purely to timing of orders as well as some federal business that got pressured, again, timing. Asia-Pacific continues to accelerate; China was up over 20%. When you look at the sales now following the orders, the sales were down low to mid-single-digits globally, about 4%. We did see sequential improvement in North America as well as APAC. APAC actually came back to being flat, and a lot of that's being driven by our service growth and the traction we're getting there. The North America install is better, and we're seeing an increase as Olivier said, with more retrofit quarter-on-quarter. When you look at unitary markets, they generally remain under pressure; they were down low-single digits in Q1. The mix of that is light commercial, smaller tonnage units was down slightly in the quarter. Larger tonnage units are actually weaker because of larger projects being delayed or deferred. We continue to gain share as a result of the investment we've made in both new products as well as channel. When you look at the whole space, we're still pretty bullish that these are very attractive end markets with long-term secular trends that align very well with our core. A lot of focus now on energy and sustainability is going to drive the industry. We’ve been leading with the investments we've made in our YZ chillers and the increased tonnage that we're launching there, our rooftops, and our premier choice in select rooftops. Ultimately, we’re investing more heavily in next-gen air cool technologies, electrification with heat pumps and heat transfer units and advanced VRF technology. When you think of the space, there are some changes happening, but we're invested to capitalize on that going forward. With our larger installed base and now with the connectivity with our digital offering, we have an opportunity to really leverage that and build the service business that we've been building. The trends are sequentially positive, with some pressure on the larger non-residential construction that we see being pushed to the right a bit, but we are seeing sequential improvement, Steve.

Steve Tusa, Analyst

And just a simple one, do you think the applied markets in the U.S. will be on a calendar basis down in 2021, the biggest ticket stuff in the market?

George Oliver, CEO

So, when you look at the overall market driven by non-residential construction, the overall market will be slightly down.

Steve Tusa, Analyst

Okay, got it.

George Oliver, CEO

Now, when you look at our mix, we have been remixing towards the higher growth end markets and we've been focused on the new demand around healthy buildings and the like, we've been doing more shorter cycle projects and putting that into the backlog that we are projecting our North America business will be positive for the year. That's gaining share, that's above the industry metrics that you follow, whether it would be ABI or construction starts. With the work that we've been doing with remixing our capacity, focusing on high-growth end markets and the acceleration that we see with some of these upgrades and retrofits, that's what's going to drive our business for the year.

Steve Tusa, Analyst

Great. Thanks. Appreciate it.

Operator, Operator

Thank you for your question, Mr. Tusa. Our next question is from Jeff Sprague with Vertical Research. Your line is open, sir.

Jeff Sprague, Analyst

Thanks. Good morning, everyone.

George Oliver, CEO

Good morning, Jeff.

Jeff Sprague, Analyst

Good morning. Just two unrelated questions. First on, back on service attachment, I think you're actually probably being conservative saying 35%, right, because you're saying like a full service contract, so – but I wonder if you could give us a sense of your aggregate service reach? It does seem like you believe you can score some early points on this. I'm wondering if this is a function of really ramping up the service activity at customers you are engaged with and taking it to a different level or the service attachment is being driven primarily by attachment on new installations?

George Oliver, CEO

No, it's all of the above, Jeff. What we're doing is, as we've really brought our strategy around service to a whole new level, we brought on new leadership, and we've structured such that we've got all of the key metrics that we're driving. It starts with understanding the installed base, and where we are today with the services we provide. We have significant opportunity to go back into that installed base and bring that forward. That includes bringing holistic solutions, getting longer-term contracts with how we deploy those solutions, and then ultimately getting a recurring revenue that comes out of that work. It's been both. We are getting a higher attach with the new projects that we're engineering and deploying and getting a higher attach rate because of the value proposition we bring with our OpenBlue capabilities combined with our service capabilities in the field. At the same time, we can get additional volume by leveraging the installed base and bringing that forward with some of the newer technologies and capabilities. As we look at going forward, we believe that not only do you get a higher attach rate, but you get higher revenue per customer because of the connectivity and the data and the solutions that are being provided, which will contribute to our growth rate and allow it to continue to increase through the year, setting up 2022 very well.

Jeff Sprague, Analyst

And then second unrelated question, probably for Olivier, but I wonder if we could just dig a little bit further on what you're doing on cash flow? It's really encouraging to see the 100% kind of benchmark here now in the target zone. In particular, it seems like there are huge opportunities in DSOs. I'm sure that's not the only thing we're working on, but can you elaborate on what you are driving to make this cash flow number work here?

Olivier Leonetti, CFO

Yes, good morning, Jeff. We are very pleased with the cash flow performance in the quarter. By the way, last year was pretty good too. If you remember Jeff during the prior call, we said that we believe we are a 100-plus free cash flow compression company. The debate was when. We were concerned this year with some of the tax cash benefits we took in 2020 being headwinds this year, but despite that, we believe we’re going to be at 100% this year. So what is happening? A few things: first, the level of profit is strong, and we believe we can make that stronger. To your point on working capital, we have strong discipline happening on that. DSO has been trending well. We believe we have opportunities to improve DSO. At the top of the house, we have weekly reviews to ensure we keep the momentum on cash flow generation. It's also part of our incentive plan at the level of the enterprise. All the lines are aligned today, Jeff, to keep performing on cash, we believe.

Jeff Sprague, Analyst

Great. Thank you. I’ll pass it on.

Operator, Operator

Thank you for your question, Mr. Sprague. Our next question is from Andy Kaplowitz with Citi Group. Your line is open, sir.

Andy Kaplowitz, Analyst

Hey, good morning guys.

George Oliver, CEO

Good morning.

Andy Kaplowitz, Analyst

George, last quarter, you mentioned you might see a pullback in product-related revenue in Q1, given somewhat of a pent-up snap back that you saw in Q4, but products actually improved in terms of the revenue decline. So, obviously, some of that improvement looks like it was North American residential, but it seems like Fire & Security products continue to improve. Can you just provide more color on what you're seeing in that category in particular moving forward?

George Oliver, CEO

Yes, let me start by saying I was very pleased with the performance in global products in the quarter with the underlying trends in overall output we saw. It really is built on the depth and breadth of our product portfolio, which, as we have been reinvesting, is industry-leading. We've been gaining share. We've had various new product introductions related to both the core HVAC and Fire & Security products, as well as products that are enabling the COVID response and healthy building opportunities. Just quickly, HVAC, we’ve had the continued tonnage expansion of the YZ chiller platform. We’ve had the Premier Choice Select rooftops, the York Affinity series in residential, and additional heat pumps. In controls, we continue to advance our Amedisys 11, with continuous upgrades to enhance capabilities and better user interfaces. Security with our Qualys business, we’re now in a leadership position and leading in providing smart home solutions. Electronic Fire has been very strong. Electronic Fire has been more around connectivity, notification, and enhanced interfaces. In fire suppression, although we’re pressured over the last year or so in the high hazard business, we’ve continued to advance our sprinkler heads and we're getting good traction there. Overall, the business recovers nicely. There was some pressure in the non-residential space remaining. Q1 definitely saw better than expected performance, which was broken down into the rest of the world residential, our JCH business with better performance and recovery there, and gaining share. We saw a stronger sequential improvement across nearly all our product businesses within the quarter.

Olivier Leonetti, CFO

And Andy, we mentioned that in our prepared remarks, we are going to accelerate the number of new product launches in the rest of the year. We've launched some exciting new products in Q1, but that will accelerate. We're optimistic about what this business can continue to do for us.

George Oliver, CEO

And your second question, Andy, was around Fire & Security?

Andy Kaplowitz, Analyst

Yes, in particular.

George Oliver, CEO

As a total, Fire & Security remains very attractive to us. 40% of our revenues are in the space. It’s core to building systems. Very attractive margin profile due to the service mix. We’ve got an incredible installed base, which creates significant recurring revenue in service. When you look at these attributes, they’re critical to what we’re doing with OpenBlue and really driving a comprehensive solution within the building, deploying technology in our go-to-market. Security is coming to the forefront since it integrates all that is done in a building, bringing it together interactively, and managing the data collected. Performance did moderate; service was down in Q1. It was only down roughly about 1% – 1% or 2%. We saw North America recurring service revenue turned positive, and that was due to our ability to drive long-term contracts in the fire business. EMEALA overall service turned positive, and Asia-Pacific slightly down. The pressure right now comes from install, mainly due to project delays and general prioritization by customers of HVAC around indoor air quality, causing resource allocation. However, I believe that is only a timing issue. These projects will be released, and we will be positioned to capitalize on those going forward. The only other note is retail continues to be under pressure. It’s down about the same it was in Q4. It’s a great business; it has a high-value proposition within our business. Given what’s been happening in retail, we’ve been working to reposition ourselves to be critical to the essential retailers while helping the less essential apparel retailers expand their omnichannel along with their brick-and-mortar infrastructures. That is where we are in Fire & Security, but still a very attractive business for us.

Andy Kaplowitz, Analyst

Very helpful. And just a quick clarification on price versus cost. I assume it’s in your forecast, Olivier, for 2021, but you’ve been able to cover rising inflation in the past. Any thoughts on price versus costs in 2021?

Olivier Leonetti, CFO

It’s still positive. It was in the quarter, Andy. We believe the discipline in the organization is strong, and price/cost will remain positive for the back half of the year.

George Oliver, CEO

To reinforce that, Andy, we've put in place very strategic pricing over the last couple of years. We've demonstrated strong performance, being able to net 100 basis points to the top line every year. Yes, we are seeing the commodity costs increase, but with the work we’ve done, there are more than enough mitigating actions across the levers we're utilizing around BAV, direct material productivity, and supply chain. We're very well positioned to have positive price cost, and the margin guidance incorporates the updated price cost headwind that we see.

Andy Kaplowitz, Analyst

Very helpful, guys. Thanks.

Operator, Operator

Thank you for your question, Mr. Kaplowitz. Our next one is from Julian Mitchell with Barclays. Your line is open, sir.

Julian Mitchell, Analyst

Hi, good morning. Maybe just the first question around the installed outlook. So the orders were down 7% in the quarter. Understood why there is some weakness in Fire & Security and so forth in different regions. But maybe help us understand globally, when you think that figure may return to growth? What should we expect for installed revenues for fiscal 2021?

George Oliver, CEO

Julian, let me start. When you look at the market indicators coming out of 2020, they were pointing to a weaker new construction. That was ABI and construction starts and the like, and when you look at the verticals, certain verticals have strong growth and others are more challenged. New construction starts remain under pressure. We are seeing retrofit activity related to healthy buildings and service beginning to pick back up. We see our installed business growing low single-digits this year in spite of those metrics, because we’ve been reallocating our resources to higher growth verticals and capitalizing on retrofit opportunities we see both short and long term. There are certain verticals under more pressure than others. Better than 25% of our sales go into institutional markets in both healthcare and education, receiving a lot of attention now with respect to building health. Commercial office is more mixed with lower utilization rates near term. However, we believe there’s going to be demand since there is a lot of interest in solutions for the new normal within buildings. The overall impact of COVID has delayed investment decisions, creating uncertainty and limited visibility beyond six months. We believe our pipeline has been growing, and in North America, for instance, with access restrictions easing, we foresee some headwinds in Europe and LatAm with shutdowns. As we get into the second half of the year, we believe we start to recover on orders. Orders are actually going to be recovering here in the second quarter, improving throughout the year and setting us up well for 2022. We have a $9 billion backlog, which is up year-on-year with a mix of shorter cycle, helping us book and turn throughout the year, outperforming the market in the non-residential sector. Service recovery with PSAs is offsetting pressure from some site restrictions. Overall, we expect to outperform through the year. The market will recover and you'll see metrics expanding positively in 2022.

Julian Mitchell, Analyst

Thanks. That’s helpful. Just a quick follow-up on the margin outlook across the four segments. You got that plus 50 bps figure firm-wide for operating margin for the year. Anything you’d call out on segments that should lead or lag that? Perhaps what kind of operating leverage do we expect in Global Products?

Olivier Leonetti, CFO

Actually, the margin profile of the business is going to be equally up in the year. If you look at the various regions, the various installed services or products, we see margin going up. We have said before and let me repeat this – we believe we can increase the margin of the enterprise, EBITDA margin by about 50 basis points to 60 basis points. We have the ability to be at this level this year despite the negative impact obviously of the pandemic. We feel good today about our ability to improve the profitability of this business and we are lining up several activities to deliver on this promise.

Julian Mitchell, Analyst

Great. Thank you.

George Oliver, CEO

Thanks, Julian.

Operator, Operator

Thank you for your question, Mr. Mitchell. Our last question will come from Joe Ritchie with Goldman Sachs. Your line is open, sir.

Joe Ritchie, Analyst

Thanks. Good morning, everybody, and thanks for putting me in.

George Oliver, CEO

Good morning.

Joe Ritchie, Analyst

I’m just going to ask one question, and I want to go back to the attachment rates that you were discussing. I guess my question is, when you think about the investments that’s needed in order to expand those attachment rates, maybe talk about what your quantification of those investments over the next couple of years is? Specifically, where are you actually taking share? Any discussion around the types of competitors that you expect to start to take some share from as you increase your attachment rates?

George Oliver, CEO

Yes, so the investments that we’re making is really what’s enabling our ability to have a higher attach rate. It’s not only making sure we have the right capacity deployed across the regions and going after our installed base in a more aggressive manner, bringing those forward by upgrading and getting new technology deployed, and getting recurring revenue contracts. On new solutions, we now bring our technology investments and embed those into the overall solution and tie that to a long-term contract, enabling us to get that attachment. That is the underlying strategy. The investments being made are integrated into our products and digital capabilities we're building with OpenBlue, ensuring we’ve got the infrastructure deployed within our regions to deliver successfully to our customers. All these elements have been built into our reinvestment plan over the last 18 to 24 months. We're starting to see the fruits of our labor with the work we’re doing. We're beginning to get attachment rates on new projects and see pickups in service on the installed base. All of that leads to higher attach rates, higher revenue per customer, and accelerating our overall service growth rate.

Olivier Leonetti, CFO

Joe, just to clarify, we will deliver those investments while scaling SG&A as a proportion of revenue. We do not believe we need to add OpEx as a proportion of revenue to deliver on this service strategic initiative.

Joe Ritchie, Analyst

Yes – no, that’s helpful. But – and then I guess maybe just that second part question about where you’re going to be able to take share; is there any color that you can provide at this point?

George Oliver, CEO

When you look at our – it’s in line with our installed base. We are strong in all verticals. I think you have a breakdown of the key verticals. It’s broad based. The strategy is such that historically it’s been more of a mechanical service maintaining break and fix, and some of that was done through long-term contracts. The difference now, Joe, is with the connectivity, data usage. We can improve the value proposition, solve customer problems that haven’t historically been solvable, and do it on a longer-term basis with connectivity and data utilization. It’s really across the board on all our new product installations, whether it be healthcare, education, industrial, or government. We are uniquely positioned with our business model, performance contracting, and some of the historical success we've had. We are now embedding our service technologies and capabilities, so that we can generate much more service with the collected data and ultimately deploy.

Joe Ritchie, Analyst

That makes sense, George. Thank you, both.

George Oliver, CEO

Thanks, Joe. I want to thank everyone again for joining our call this morning. I’m incredibly proud of how our teams continue to execute in what remains a challenging environment. I can tell you I’m extremely pleased with our continued strong performance and the resiliency of our global teams that have just continued to execute across the globe despite the pandemic. I hope that you and your families remain safe and certainly look forward to engaging and speaking with you – many of you soon. Operator, that concludes our call today.

Operator, Operator

Thank you so much sir. Thank you all for participating in today’s conference call. You may now disconnect. And have a great rest of your day.