Honeywell International Inc. (HON) Earnings Call Transcript & Summary

Good morning. This is Andrew Obin. I'm Bank of America's multi-industrial and now industrial software analyst. And this is the first meeting of our 3-day Industrial Software and Automation Summit, which we have done for several years now with close partnership with Alex Virgo, who is my European counterpart and has been a very, very close partner on industrial IoT. And I think Bank of America does have a very unique approach to industrial software and automation. I think what's different about us is that, a, Alex and I work very closely together globally; and b, I would say both Alex and I look at both hardware and software companies, which I think is very unique on The Street. And as I said, it's -- I just want to make sure I welcome Alex, who has been a great partner, and it's great to have a partner like that. So we'll start with that. We have 3 days of presentations. We have many of the key companies in our coverage presenting. And of course, the largest, most important company we cover right now is Honeywell. They have the largest market cap. They worked very hard to get there. And the company -- definitely digital transformation is at the heart of the company's strategy going forward. Honeywell is a leader, a thought leader and leader in implementation, all things digital on its factory floor and to its customers. And we are very lucky to have here Mike Spencer, who is Vice President and CFO of Honeywell Connected Enterprise. And Mike actually came to Honeywell from Microsoft, and some of you may be familiar with him from his days at Microsoft. And Mike has a presentation, and he'll go over slides, and then we'll go into the fireside chat format. [Operator Instructions] And with that, Mike, welcome to our event. Thank you for being the opening keynote speaker, and take it away. Thank you very much.

Yes. Thanks, Andrew. Thanks for having me. I'm excited to be here. So I just wanted to open this morning with just a few slides to help set the table and the context for the discussion this morning, which I'm really looking forward to and should be pretty entertaining, I hope, for everyone. So I think everyone has access to the slides. So I'll just call out where we're at, starting at the beginning here. I just want to give a brief overview on a little bit of background on Honeywell Connected Enterprise and where we've been and where we are today. I think, as most of you know, Connected Enterprise was founded roughly 3 years ago back in 2018. And really, the focus was to help the Honeywell customer base and the industrial space at large digitally transform, as Andrew highlighted. And it's the heart and the center of the mindset of most of the customer [ base ] these days. So as I think many of you are familiar with the space itself, many of our customers are either in the process or already well down the road of migrating either infrastructure or end-use applications to the cloud and thinking about what that overall ecosystem looks like. And so we're looking to take that one step further. And the reason HCE was established is really to help customers perform their best every day in their operational space. And using the magic of software, we think we're well on the path to do that. Over that first few years of our life cycle, we've made a lot of progress. I'll let you read the numbers for themselves in the slides. But as you can see, a very large installed base, quite a healthy employee base with a large number of software engineers. And then there at the bottom, over 8,000 customers with 95% retention. I mean it's been a very healthy business over at least the first 3 years of life. So we're super excited. And of course, this is all on the back of Honeywell being a leader in the industrial space, as Andrew highlighted in his opening. And we're lucky in the fact that -- and I've only been here 6 months, but we're lucky in the fact that Connected Enterprise had a little bit of a running start based on that, which is super helpful. And then finally, as mostly noted, I'm sure we'll talk about it during the dialogue today, in the verticals here, the one that might stick out is life sciences, which is obviously a newer vertical for us, which was coming off the back of the Sparta acquisition earlier this year. So we're super excited about that. So I'll advance here to the second slide. And just to lay the land on the problem statement that we're trying to solve. At the core of it, the industrial space is very complex across many different verticals and many different problem sets. But the core problem statements themselves are actually very similar among the customer base. So a lot of times, it revolves around having real-time analytics and dashboards to be able to make these decisions and difficulty around that. Benchmarking what's the best practice or what should be good, better or best with any given scenario, the fractured nature of the ecosystem, whether that's equipment, whether that's processes, make it very, very difficult to compound data and synthesize, making sense of that data. When something goes wrong, a lot of times, given the complexity of the nature, it requires a repair person to be sent out to fix a piece of equipment. That can be very expensive. And then obviously, with companies all over the map in terms of what the makeup of that infrastructure looks like, every customer tends to be a little bit unique in their approach in what they're doing. And finally, on the front line, the workers are at the core of this. And so you have 2 sides of that coin. You have employees challenged with the lack of automation, this remote environment and how to get things done, if they're not necessarily on site at a given moment in time, to the company side of the coin where companies are trying to do more with less. And I don't think anyone is unique in that situation and certainly not in the industrial space. That's not a unique or new proposition. But that all leads to a very complex set of dynamics, which to get to the punchline, challenges digital transformation, when you think about companies taking it from the information worker side to the operational technology side. So then moving on to Slide 3, that enters Honeywell Forge. And our goal and objective at the end of the day really is to be the operational technology system of record. And what does that mean? The parallel I would give you to put some context around this is if you think about CRM and what Salesforce has done for the management of sales and field service and customer service, all of which used to be in disparate systems and architectures and data models, Honeywell Forge is becoming the system of record from an operational technology standpoint, deploying an enterprise-wide scalable solution through software with end-use applications in a SaaS structure, so based on cloud, that help achieve everything we talked about in the previous slide, right, help achieve productivity, help achieve sustainability outcomes, help companies save money at the end of the day. So let me kind of walk you through an example of what that looks like. And it's a little bit of what the [ right ] has. But kind of a typical if you think about a large retail customer that's got a warehouse. And the end goal is similar, again, as I mentioned earlier, across all the industries, right, maximizing throughput. How can we be more efficient in the same space that we're working in, get more productivity out of our workers and maximize our throughput in a given environment. And so we have a solution. We have a connected warehouse solution that monitors the assets within the space. So within -- in this case, within the warehouse provides the ability to predict when maintenance challenges are going to come in, whether it's a piece of equipment, whether it's a system that's overviewing the manufacturing facility or the warehouse and then obviously optimizing it on the end worker. That frontline worker is at the core of this. And so if we can help them, even just a little bit, solve a problem before it becomes a major issue, obviously, that can lead to major, major savings for the customer. And so we think we're well positioned to provide a good value prop or a strong value prop with the customer base. And so then that culminates in why we win and why it matters. Honeywell Connected Enterprise really has grown over the last 3 years. Que Dallara, who most of you know, our President and CEO, has done an amazing job in conjunction with Darius and Greg in building a very experienced leadership team. I come to Connected Enterprise with 20 years of software experience, and I feel like the junior person on campus at times, if you will. We have a very focused strategy. As you've probably heard Darius and Greg talk about, we are very focused on software within Honeywell. And so really utilizing the leverage that we have from a Forge standpoint and then making that extensible to our customer base. Honeywell obviously brings a ton of domain expertise to the mix. And then as I highlighted on the first slide, we have a very extensive customer reach. That all culminates in the ability to provide customers with savings. You see a few of the logos there on the bottom. Using just one of them, for example, we can achieve 10% savings from an efficiency standpoint. And we've got many proof cases of that on things like energy consumption as a good example. This obviously leads to outcomes for Honeywell which we're super proud of. We can accelerate what the recurring revenue stream looks like, making it more stable. Bringing software margins to the mix within an industrial company can be very accretive to the bottom line, which obviously, ultimately, leads to what we believe to be shareholder value at the end of the day, which is what all we care about. And then as you probably heard us talk a little bit about, we've got a lot of momentum in the business. So we've talked a lot about the -- our double-digit recurring revenue growth that we've been able to drive. Sales has done really well, the highlight there around the latest quarter. And then even our -- one of our core products, Tridium Niagara, we just passed 1 million instances of that deployed, which is a pretty monumental milestone on a worldwide basis. So again, we're super proud of where we're at, and we're super excited about where we're going and the work we have in front of us. So with that, as I mentioned, it's a little bit of a short intro, but I'll look back to Andrew now, and we can get going on Q&A.

Yes. Sure thing. Clearly, this being an industrial tech conference, I'm having issues with my technology. But Mike, maybe we can start, and I will figure out how to get the picture back on. So you have a very interesting perspective coming from a software company background into an industrial company that's rapidly adding software. What's the same? And what's different?

Yes. Great question, Andrew. And maybe to start for context for the audience, just a brief background on myself. I spent quite a few years in Silicon Valley with a number of tech and software start-ups, the last of which down there was with a speech technology company that ended up getting acquired by Microsoft. And as a result, that road led me to moving up to the mothership, if you will, and moving up to Seattle and helping transform the Office franchise. When I started in Office in -- back in 2010, Office was a goliath, but it was all on-premise. And over the span of the next 7 years in that position, we were able to transform that business into the SaaS Office 365 business it is today, cutting across everything from productivity to security to kind of everyday tasks that you use now in communications like Teams. And then I spent my last 3 years there in Investor Relations. So I don't take it for granted. I've been in a super-privileged position to kind of see it from the other side of the coin, if you will, with a broader tech company and software company that was born in software. And so for me, the biggest contrast, stating the obvious, obviously, is switching sides and going to a company like Honeywell, which is obviously steep with history and has a very strong reputation in industrial space, I saw a very intriguing opportunity to help Honeywell continue their push to be the industrial software company that it's becoming. And you've heard a lot about that in previous dialogue. But now coming into Connected Enterprise and being able to help do it from the inside and help connect the dots on -- for companies as they digitally transform in what -- the initial part of the journey was through productivity software, moving to the initial phases of public cloud, starting to get some of their base infrastructure like CRM or HR applications or information worker applications to moving more towards the operational technology side and connecting the dots on that last mile, whether that's on Azure or AWS or Google Cloud, really helping customers bridge that gap, if you will. And so the major difference, obviously, is just coming from a place where it was a software company from the get-go, so the mentality and the processes and everything revolved around that, to an industrial company where you're transforming a company from what it was, being just a strong industrial company to being software-focused. And that requires a lot of change internally. But also helping our customers change, and I would say that's the biggest. One of the other biggest differences I do see is that within our customer base, helping our customers move towards scalable, repeatable software structure within their operational space, which presents just a very intriguing opportunity.

That's a great segue into my next question. So look, Honeywell Connected Enterprise revenue and orders were up 20% in the second quarter, so clearly, having success. What are the top 2, 3 drivers that are causing industrial companies to invest in digital initiatives? You sort of -- you touched on it, but maybe go into more detail there.

Yes. Sure. So there's a few -- from my standpoint, there's a few big challenges that I see. And I don't think any of them are going to be rocket science per se, but they're very hard problems. And as I described in my -- kind of in my opening presentation, the approach that most of our customer base have taken historically in how they manage their factories or their warehouses or how they go after process has really been more on a consulting basis [ than in ] a building over time basis that led to kind of that fractured nature of the market that I've talked about. And customers are now realizing because a lot of times they've already started on that journey that by standardizing, by stitching together data, by really focusing on how to standardize on software, it can lead to quite a bit of savings. And so as we look forward, one of the things that we spend a lot of time with customers on is helping them think about what that long-term picture can look like, what the savings could possibly be and what it will take to actually transform their environment. And that could be standardizing equipment. That could be putting camera sensors in place to look at predictive maintenance on a factory line. That could be how they monitor security and how looking at entry points. And as highlighted by the title of your conference on Internet of Things, the massive amount of endpoints that are being created every day only makes this challenge more complex. And so it's really about bringing that ecosystem together and helping our customers make sense of that data and then be able to make that data actionable. And I would say that's the biggest theme that we see within the customer base.

Got you. And just going to that. So how has the go-to-market evolved? And specifically, how is Honeywell Connected Enterprise helping customers to overcome their biggest challenges in digital transformation? And you guys have a very interesting partnership with SAP. Is that something that you can replicate in other end markets? So I know a lengthy question, but maybe you can give us key points.

Yes. For sure. It's actually very -- I think a very important point because I think as most of you are aware, the ecosystem of vendors that approach this problem with our customer base is very wide. And so one of the things from a go-to-market standpoint that we've been hyperfocused on is really being customer-centric in our approach. So it's not only, as I previously mentioned, helping our customers think through what that long-term solution is, but also helping them think through what the -- and work through what the ecosystem that's supporting their move to digital structure within their operational technology, what that move is going to look like. That includes us partnering in the ecosystem, as you highlighted with SAP, with companies like Nozomi. It's really trying to help those customers stitch together so they're not on their own, right? Our customer success is our success. And so if we come in with a point solution and say deploy this but we don't help them stitch it together with other systems that they're running, we're not really helping the customer at the end of the day. We may solve a very siloed-nature problem, but we really have to help them focus on solving the entire equation really to maximize what that efficiency can look like. And I would say that in most customers, what we see in -- on the go-to-market side is that customers are very early on. Like I said earlier, they've been hyperfocused on the broader, I would say, information or IT side of things. But on the operational technology side, given the complexity of it, we're still very early on in what that adoption curve looks like. And so we're really focused on helping stitch together that fractured nature of where the offerings are, some of the data challenge I mentioned earlier, and then helping customers kind of overcome maybe some of that anxiety that they might have or maybe some challenges they might have in their own processes to help make that transition. And so connecting that last mile becomes super, super important for us with our customer base.

And SAP, sorry? Or did I miss that?

SAP is, I would say, just a good example of where we are really trying to help customers stitch together these various systems that they've got. So it's a good example of us leaning in with our customers to help solve some of that dynamics where they might be deploying different vendors. And SAP is a good example of that.

And is SAP sort of specific to a particular vertical? Or can you expand that or the relationship with SAP into other verticals? Or is that vertical...

Yes. Right now, it's been focused on the building side of things and helping sit together some of the SAP systems that companies have deployed with some of our connected building offerings, specifically on energy optimization. But the goal, hopefully, at the end of the day is to expand it much like most of our partnerships. Because the problem set, if you will, when you think about data, disparate systems, et cetera, is repeatable across the verticals. It just so happens this first one is on the building side of things.

Got you. So maybe we can sort of shift more, talk about Honeywell Forge broader. So how is Honeywell Connected Enterprises using Forge to create customer value and actually to become the OT system of record. And then maybe you can try to talk about the impact of Forge on SaaS for Honeywell. And just generally, how do you go about monetizing that value?

Yes. It's a great question, a super important topic. Maybe what might be helpful is I can give a little bit of lens into how we think about the architecture of Forge. And so think about Forge as a platform that is able to provide a single pane of glass or a single pane of architecture with end-use applications to make it real for our customers. That single pane of glass, though, is really stitching together the data on the back end. That then allows customers to measure, to analyze, to take action in running those complex operations. And as I mentioned earlier and have spent some time on, data is obviously at the center of any use case scenario. And we're not unique to that, right? If you talk to anyone who's looking at migrating to the cloud or utilizing cloud, everything is -- hinges around the ability to rationalize around data. It's the old saying of kind of garbage in, garbage out. And if you can't make sense of the data, what you get out on the backside with a very nice UI and analytics won't necessarily mean a whole lot if that data is not able to feed that. And so with Forge, really help our customers stitch that together into giving them the ability to act on it. And so within the system of record, making that actionable requires us to provide intelligence within that system. And so you saw -- in that one of the first slides I showed today, you saw that we have a pretty large contingency of AI-focused engineers. I mean obviously, that's a key element to Forge in being able to develop a learning system that's ever evolving in the maturity. And as with any SaaS application, providing ongoing value is critical. On the monetization and obviously within the industrial space, it varies quite a bit on vertical to vertical on what the use case is and how that looks to end users. In some case, it can be by users, so think frontline workers on what those use cases look like. In some cases, it can be by endpoint. It can be by assets. It can even be by buildings of sites. And so the exact nature or economic unit that's being monetized might vary a little bit, but the core is still the same, right? It's a SaaS-based structure based on the specific use case for a given vertical. And obviously, that leads to strong recurring revenue. And as I mentioned in the previous, we've seen good momentum on that. So recurring revenue growth has been very strong for tech in enterprise. We've been seeing double digits, and that growth is fueling that. I think you're on mute, Andrew.

Just a follow-up question from the audience just about sort of bringing Honeywell Connected Enterprises into the real world. How much of the historical data is actually usable sort of accessibility, availability, format and quality? I know that's a very big topic in the industry.

Yes. It's a great question, and it's actually very, very relevant. I don't know that I have an exact percentage, but let me give you some perspective. I would say, depending on what the ecosystem of a given customer looks like, in some cases, some of that data may not be usable. But what we found is that in most cases, customers actually have been pretty diligent over time about keeping up with asset structure. And so -- and the replenishment, if you will, a refresh of that asset base. And that's led to -- actually, over time, even though we have different OEMs running on different standards, it's not as siloed maybe as it once was. If we were having this conversation 7 or 8 years ago, we'd be having a very different dialogue. But over time, the customers have started to upgrade their ecosystem, and with every upgrade obviously become -- comes new opportunity and new standards that come into play that help it actually make it a little bit easier. And so I would say we're not where we were 8 years ago. We're not actually where we want to be today, but we've made a lot of progress, and it's one of the core focal points for us. So that includes partnering with the OEMs. That includes helping customers rationalize with use of things like data lakes and activity like that to help stitch it together.

Got you. So just going back to Honeywell Forge. So the competitive set barriers, I'm sure, by industry and by application. But maybe to dive into one application, Forge for commercial airlines, what are the 2 or 3 criteria that clients are really looking at for making selections?

Yes. It's a great question, and it's a super interesting space actually. Customers at the end of the day, kind of no matter what the vertical is and airlines are no different and we can touch on airlines specifically. But at the end of the day, they really are looking for -- to transform, but they're also looking for a trusted partner to help make that happen. And so when we go into a customer contractual relationship, it's not meant to be vendor in nature. It's meant to be partnered in nature. And developing that level of trust helps the customer as well as helping us because it creates a 2-way road with the customer, not only in helping us continue to evolve and improve the value that we're providing to customers but help them really believe in what they're doing. And so as I mentioned earlier, from a monetization standpoint, that ongoing value is critical to that symbiotic relationship. We need to be responsive. We need to be transparent. We really need to help problem solve with the customer, helping think through challenges and then how we fix those challenges. As with all SaaS offerings, you expect that continued innovation improvement over time. And so it goes without saying that TCO is critical in that dialogue. So when you think about the criteria, showing that value to customers and showing it helping them realize that it is becoming real. And then more specific to the case of airlines, I wouldn't say the criteria is any different. The problems that might be a little bit more unique, especially in today's environment, if you think about it from their side of things, if I was interviewing an airline executive here, he'd probably tell you that delivering the best customer experience on time and at the cheapest cost, in a very simplistic way is probably at the cornerstone of what they're trying to achieve. And so a good example of that on our side is one of our products called Flight Efficiency, which connects into the broader computer system to be simple about it, of the airplane, allowing for real-time analytics, leading to things like efficiency in fuel consumption and reading of the control systems within the plane to drive that cost efficiency I mentioned earlier. And obviously, the airline industry itself is in a very unique phase in its life cycle. I mean so never more than what we see today has it been more relevant than where we're at.

Got you. So by design, right, that's an interesting question. So Forge software offerings are hardware agnostic. But if you looked at Forge win rates versus the Honeywell's equipment share, is there a positive relationship? Or maybe the broader question is how significant a benefit is Honeywell's installed base in growing software?

Yes. It's a great question. And the short answer is it's massive. As I mentioned earlier on, one of the unique advantages, and as I called it kind of a running start that Connected Enterprise got was the fact that Honeywell was so well positioned in the market, leveraging those existing relationships, leveraging the offerings across our business groups that are already there. And then stitching the road map together from a software standpoint, and Honeywell has been executing at this for several years now. And it's unfortunate to walk into a space where those partnerships and those relationships are very deep. And so customers really look to Honeywell to help them kind of in that broader solution. So we work super, super closely with those business groups. And a lot of times, it ends up being a combined solution. A good example of this is in our safety and productivity software with Intelligrated is a good example. We partner super closely with our Buildings Technologies groups, because obviously, if they're deploying the broader technologies that Honeywell has from a building standpoint, stitching software together with that is critical. And so we're constantly evaluating what those joint solutions look like, what that innovation road map looks like. And that's at the forefront of all of our planning and how we think about it. That's obviously not to say that we don't work with partners outside. And as I mentioned, that's a key part of our strategy as well. But to start and at the core of it, obviously, leaning on the expertise from legacy Honeywell and the business groups is critical to our success. And as I mentioned, without their cooperation, there's no way that we can lead to the accretive overall gross margin we can provide to the company or segment margin and the Honeywell sales that we've talked about. The partnership we have with them is critical.

Got you. But the channel is -- the hardware and software channel, they're separate, right, the sales channel?

There's -- we have both a separate channel. So within our HCE structure, we have a direct sales force. And then we also have -- do joint sales through the -- through our business groups. And so you can think of the business groups as both an innovation partner when it comes to solutions but also a channel from a sales standpoint.

Got you. So maybe we can sort of talk broadly about -- and as I said, you touched on offerings and markets. So your software efforts are focused on key market verticals, buildings, industrial, aerospace, cyber, life sciences. Could you expand a bit on the opportunity and trends in the building segments? We're hearing a lot from the channel. You're being very active. And how are you offering and serving it right now?

Yes. It's a great question, especially in today's environment, it's got to -- I chuck a little bit, but it's kind of funny just because real estate is taken on a whole different dynamic these days given most folks are still working remotely. But at the core of it, most large companies have a very complex real estate portfolio, and managing that can be very challenging. And so as I mentioned in the initial problem set statements, being able to do that in an efficient manner that allows workers to use real-time data to make decisions to handle predictive maintenance issues, things like that, it's super complex. And especially in the ecosystem where almost no building -- 2 buildings are the same. That's everything from an HVAC system through security system to the environmental management of a specific building. And that uniqueness across the building portfolio creates a whole lot of complexity. And so our goal is really to automate and standardize in that space and provide through the use of Forge and then an end-use application around things like energy optimization, providing customers to -- the ability to manage that, whether that's in a remote fashion, whether that's in a more efficient fashion or provide sales, provide cost savings at the end of the day. A few examples here. I mean I mentioned energy optimization. Predictive maintenance is a great one. So if you think about being able to know before it happens when an elevator might need servicing. We had an acquisition earlier this year that most of you are aware of called Sine, which is at the center of our occupant experience. And you think about the return-to-work environment that we're currently in and the ability to set up the employers, management of their employees and their ability to lock in, for example and check into a building versus needing to check in with the security guard and do that remotely and manage their employees that way. And so we're really trying to attack all aspects of what that building experience looks like, both for employees as well as employers ability to manage that.

Fair to say that the nature of assets and data in a building lend themselves particularly well to sort of early -- to sort of deploying your expertise. What I've heard is that's sort of more straightforward and given the nature of your sort of hardware dominance. I don't know if we should use the word dominance, but the strength inside buildings is that it's just data structure, the nature of data streams, the nature of hardware is just easier to map and analyze. Is that a fair statement?

I think it's fair. I mean I would say that I think Honeywell Forge in a lot of ways made its name on the back of buildings as kind of being the lead horse, if you want to describe it that way. And so I think it's a very fair statement. And to your point, Honeywell's incumbent position maybe is the word for it, but it's positioned in the market, especially when it comes to building technologies, obviously lends itself to that -- that same dialogue I was having earlier, right, where that partnership with a division like HBT or Buildings Technology Group allows an entry way in for us to really help customers move that to the software level. And so to your point, that -- I think that's been very helpful to us. And now what we're looking to do is really expand that. The Sine acquisition is a great example of that, where we move beyond, kind of, let's call it, the infrastructure of the building and move now to what the people moving around the building, the employees and the service work and everybody else are experiencing as they enter the building as they move through the building and taking it to the next level, if you will, on that magic of software, I'd like to call it.

Got you. And maybe, Mike, if that's maybe more, I don't know, complex just talk about industrials. We always hear about the complexity of the market. So what are you seeing in that segment and how your offerings is helping customers digitally transform when it comes to industrial assets?

Yes. It's a great segue actually from the previous question. And what I would say is that if HBT was a lead horse, I would put industrials behind them. And that's not a statement about desire or push from that customer base on wanting to evolve and wanting to transform, to use that terminology again. It's really just about the complexity of it, as you highlighted. And so if you think about whether that's a manufacturing facility, whether that's an oil and gas rig, kind of pick your poison. The nature of kind of each segment within that broader vertical brings with it a whole set of different complexities that really are focused around processing and management of the facility as much as it is about the assets and things like maintenance. And so it just brings a different unique perspective to it. And so at the core of it, it's still the same in terms of needing to rationalize over a set of data coming from those systems and processes. But I would say, from an adoption standpoint, industrials is further behind. And so we have a unique opportunity to really step in and fill that void with the customers. Many of them obviously have already started to shift to public cloud, like I've mentioned. And this is true across most of our customer base, but I think specifically in industrial. But it's really that last-mile connectivity and moving from that historical nature where many folks in this space have used very heavy consulting-based dynamic to solve problems within their solutions or problems within their assets to moving more towards a software approach and standardizing on a public cloud or sell our platform like Forge. And so that's really the distinct difference. I would just say the problem sets are similar in nature. They're just a step or two behind where we've seen progress in places like buildings.

And Mike, just a clarification, one of the investors is asking online. And I think I know what the answer is, but would it make -- just you talked about public cloud. Would it make sense for Honeywell to develop its own cloud instead of using Azure, AWS, whoever Tier 2 is in the cloud space? I think we know the answer. But...

I'm happy to take it. I mean I would say this...

Your comments on that?

Yes. Yes. I would say this. It's been fascinating. One of the things that intrigued me about the role and moving to Honeywell was coming from a company that was obviously very much in the public cloud space and seeing from the other side of the coin, seeing what that last-mile connectivity is and where it is and where it is from a phasing standpoint. The short answer is, no, right? The short answer is for us to establish a cloud infrastructure that's needed to support a global customer base, satisfy data requirements that many customers have, satisfy compliance requirements that many customers have and to do it with an ever-evolving and improving system that covers everything from core data storage and processing, all the way up the stack to full AI complexity and processing is a very expensive endeavor. There's a reason there's only 3 or 4 of them worldwide, 4 of them if you include Alibaba. And so for us, leveraging the expertise that's already there can actually be cheaper at the end of the day than actually developing our own infrastructure and the scalable nature by which public cloud provides from a worldwide solution standpoint. By far, we will strip out what we could do in the time necessary to deliver for our customers.

No. I think I know this was a big debate maybe 5, 10 years ago. But...

Correct.

The nature of public cloud has evolved quite a bit, but it was just -- but it was -- I thought it was a good question.

Yes. For sure.

Sparta, you guys closed $1.3 billion acquisition in February.

Mike, sorry about that. We do seem to have lost Andrew. I will try -- oh, here he is. Okay. We're back.

Yes. Can you hear me?

Yes. You're good, Andrew.

Yes. Apologies. It's wonderful to sort of -- this remote technology is just doing wonders. But...

It wouldn't be a tech conference if we didn't have a small glitch.

No. No. But just talking about Sparta, I don't know how much of my question you've got, but it's focused on life sciences, $1.3 billion acquisition closed in February. Can you just give us an overview of Sparta, the market and the opportunity you're seeing there? Because I know just talking to Honeywell, the management was very excited about this acquisition.

Yes. I think excited is the right word. We've been super pleased with the Sparta acquisition. And as you've heard us talk about it, and we talked about it in our last earnings cycle, the momentum in the business has been strong as well. Honeywell took a pretty unique position with this acquisition versus, I think, what they've done more historically. And that we've kept Sparta kind of running in a silo, if you want to use those words, to ensure that we could really propel the growth while working on some of those joint innovation road maps I mentioned earlier, but doing it in a way that's mindful of the organic business. Maybe for the audience, a bit of background on Sparta. Sparta is an industry leader on quality management systems and software focused on kind of biopharmaceutical and the [ medical ] device industry. And so that's kind of their core essence and their core product within that product called TrackWise, and so providing predictive analytics and capabilities. It's obviously not only applicable to the biopharmaceutical space or medical device space, but you can think about the expansive nature by which that quality management layer can be applicable across other verticals, so consumer packaged goods, food and beverage, advanced materials, et cetera. So we're super excited about what it brings to the table for Honeywell and the expansion opportunity within that. We are actively pushing on Sparta and deploying internally at Honeywell on existing facilities. And we're super excited, like I said earlier, about the momentum. You heard us talk about in each one kind of 30% bookings increase year-over-year, backlog over $100 million now. And so I would say momentum is really moving on the business right now, and we're excited about where it's going to go. And opening up a new vertical for HCE specifically has been great because, obviously, not only is Sparta serving that with their product, but it also opens the door for the ability for us to cross-sell in some things like buildings technology and other aspects.

All right. Got you. And maybe we can talk about the future of Honeywell Connected Enterprise. Externally, the target for HC Software is 20%-plus revenue growth. So how should investors think about this target moving forward? And what should our expectations be on the contribution to Honeywell's bottom line in both the near and long term?

Yes. It's -- I would say this. I'm super excited about the opportunity that Connected Enterprise has within Honeywell. The support from management in what we're trying to do is unwavering. And we've been really focused and as I talked about early on in the presentation, we've been laser-focused on moving fast and really trying to enhance that growth and provide accretive margin to the bottom line. And so this is really about taking it to the next level and using software to really help Honeywell, I would say, exceed the expectation of being a technology and software industrial. Very early on in my tenure here, I had a lot of conversations with Darius and Greg and Que. And I've been very impressed with the level of commitment that the company has really to making Connected Enterprise go. And so as we move forward, I think the expectations investors should have is that you'll continue to hear from us about progress that we're making, about where we think we can take the business and about how we help Honeywell more broadly from a software standpoint, so not only within Connected Enterprise but how we help our business groups as well using the power of software. So I'm excited about where we're going as a business, and we'll go from there.

And then we just put 15x revenue multiple on that, and everybody will be very happy. We are almost out of time. So maybe I'll let the audience see if people have questions, maybe pause and ask folks to ask questions. As I said, we have a couple of minutes left. [Operator Instructions] A couple of folks have done it during the presentation who have done it. So I'll just pause for a second.

Okay.

Okay. We have one question. I think maybe it's more of a clarification question. What are the top verticals where Honeywell Forge is being deployed? And I think what I've heard you sort of highlighted buildings as being very important, followed by industrials. Is there an opportunity to sort of rank order the rest? Or how should we think about that?

Yes. I don't know that I would -- rank ordering is kind of like picking your favorite child, if you will. But let's call it, I would look at buildings, look at industrials. We're obviously in the safety and productivity space. We're in cyber. We're in aero. And then obviously, the last one, which I spent some time talking about really is life sciences. And so think of it as almost the mirror structure or mirror setup from a vertical standpoint with the rest of Honeywell, with obviously life sciences being the newcomer to the equation.

Okay. So actually, we do have an interesting question. I think it's a very good question. You see competitive landscape evolving given companies like Microsoft or AWS, I think, taking a more active interest in industrial vertical.

Yes. I -- it's a great question. And obviously, I don't have a crystal ball, so I can speak both from my previous experience as well as kind of what I see. As we've discussed a lot, it's a very fractured market. So you have everything from kind of the start-up ecosystem all the way to the more mature players. And as I think everyone has seen over the past few years, there's been quite a bit of M&A type of activity. And so I don't know that I would expect a change in trajectory more broadly in the industry in that regard. You'll see the bigger players continue to invest like us as well as continued M&A type activity. I'd be surprised if we saw a huge vacuum of that take place. As far as the broader players, the bigger tech players, I don't know that I would expect to see an AWS or a Microsoft or anybody get down to the level of that last mile that we are seeing the ecosystem go after. If you think about where they're at, that's not their wheelhouse. A lot of them have been focused on industry-type solutions. But a lot of times, those solutions are focused on kind of the very generic scenario and/or partnering with the ecosystem. And so I wouldn't expect disruption per se from the larger players, more of a partnership type of approach to helping those big industrials. Because at the end of the day, those industrial companies, no matter kind of where they sit, usually are customers of those bigger companies as well as customers of places like Honeywell and some of the smaller players in the market. So I don't know that I would see necessarily a replacement in that mix.

No. I tend to agree with you. My view personally is just it's not going to be dissimilar from Microsoft-Cisco dynamic 20 years ago, where at the end of the day, it's just not worth the time to go and get in all the nitty-gritty. This has been fantastic. Apologies for technical difficulties.

No worries.

You can blame my -- you can blame Verizon for that.

Okay.

But thank you so much. It's, Mike, been a pleasure, and thank you for joining us. And our day will continue in about 10 minutes. Thank you so much.

Thank you for having me, Andrew.