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

Okay. Good morning. My name is Nick Heymann, and thank you very much for coming this morning to join us for the Honeywell International presentation at our second What's Next for Industrials virtual conference. I'm the research analyst here at William Blair that covers Honeywell, and I'm required to inform you that a full list of disclosures and potential conflicts of interest are available on our website at williamblair.com. Joining us this morning from Honeywell are Que Dallara, who is President and CEO of Honeywell Connected Enterprise, and Reena Vaidya, who is Director of Investor Relations at Honeywell. Before we get started, please note that you're welcome to submit questions and are encouraged to do that as they arise. You don't have to wait for the Q&A portion of the session to begin. Just type your question and click the white Q&A icon at the bottom of your screen to submit it. If you prefer to submit a question anonymously, just send -- or select the Send Anonymously check box before you submit your question. So with that, let me turn it over to Que, who will share some insights and slides about what Honeywell Connected Enterprise is all about and how it's a big part of the future of Honeywell going forward.

Well, good morning. Thanks, Nick. Thanks for having me. I don't see the slides up. Are you seeing there up?

I see here. There we go. Ready to rock. Now we have all screens of the slides.

All right. Perfect. So well, thanks for having me. I lead Honeywell software business that we call Honeywell Connected Enterprise. And let's start on the next page, if you don't mind. The best way to understand what we do is to actually understand what Honeywell does. And while we serve -- the company serves a lot of end markets in the industrial space, the way to think about what Honeywell does is we really do 3 things: we're quite essential in the design, in the build and the operate stages for our clients. So you think about the next-generation building or the next-generation aircraft or the next-generation warehouse or factory. We're involved in that. We're involved in -- with our clients through the cycle of construction and commissioning. And then we're involved in the operate and maintain -- just go to the next page, please -- to the next stage of operate and maintain. And so when we looked at the opportunity and what was happening with digital transformation, we felt that it was immensely important to form a business to extend what we already do, design, build and operate for our clients, into the area of optimization and how do we make every day the best day of performance for our customers. And if you think about our customer base, the industries we serve, what we call advanced industries, typically, very capital intensive. They often have regulations. The manufacturing processes are very complex. There's thousands of frontline workers. And this is a huge, ripe opportunity for digital transformation. And we've seen the benefits of Software as a Service and the impact of digital in the enterprise -- in the office. So there's no reason why the benefits there would not accrue in the area of operations and supply chain. And so in many ways, we think of this as really the last frontier of where digital can have an immense impact on the operational part of the business. So we founded this business 3 years ago to help our customers digitally transform their operational technology environments. And many have either migrated or are in the midst of moving their infrastructure and specific applications to the cloud. And this is typically in the IT arena, not the OT, the operational technology arena. And so our goal, like most software companies, is to help our clients perform at their very best every day and not fluctuate day-to-day to the magic of software. We made tremendous progress over that period of time. And I'm really pleased to say that in the last 3 years, we've built a very large installed base. That's one big advantage of having this business to be housed in Honeywell. We've also built a really world-class software team that brings together the combination of deep domain experience with the industries we serve as well as world-class software capabilities. As you see, half of our organization works on products and engineering. And we've also formed a very sizable AI machine learning pool of expertise within the company. We've been able to leverage the Honeywell installed base. And our focus really is in sectors that Honeywell serves today. We really don't want to stray too far away from sectors that we don't understand. And that brings a big advantage as you think about new products coming into the market. Customers that you serve already tend to trust you and give you the benefit of doubt as they go with you on this journey. The last point I'll make is Life Sciences is a new vertical for us. We're really pleased with the progress so far from the Sparta acquisition earlier this year, and we're super excited about the growth trends that we're seeing in that vertical as well. Next page, please. So when you think about the challenges that of digital, why is it that digital hasn't had a more pronounced impact on operational technology and supply chain. And it's really a number of things that are really happening. One is that it's just hard. It's a hard opportunity. There have been some in the studies from McKinsey that say you can improve a single-digit productivity that's a $1 trillion economic impact alone. And our plan is to take more than our fair share of slice of this market. The reason why it's hard is because in these environments, in production, you've got to be fairly thoughtful about changes that you make to it because it could be a safety issue. It could life or death. You could have a production stoppage and, not to mention, impact from OT cybersecurity incidents. And it's hard because the visibility into the operations in an automated fashion, you can have visibility but tend to be manual. To get automation and real-time data is lacking because the data -- there's a lot of data that comes from machines and people in process, but they're often in silos. And that makes benchmarking incredibly difficult. So visibility is not there. At the center of it, data is also very inconsistent because, like most companies, our building gets put up one building at a time. And so each building is different, making it very difficult to compare building by building or factory by factory. And within the building itself, you typically have very different technology stacks, different systems, different OEMs, different integrations. And so this is very painful when it comes to implementing wholesale change at an enterprise level and very, very difficult to scale. If -- as an example, when a piece of equipment breaks down, more oftentimes than not, you've got to send a repair person there. So that's an expensive [ truck roll ]. And within a factory, you can imagine that there's hundreds of pieces of equipment and, therefore, hundreds of OEMs that are involved in maintaining that operations. So this is a very fragmented environment to manage. On the front lines, most of the frontline workers don't have the digital tools that knowledge workers have in the office. And a lot of these tools are clip boards and manually written down and lack automation. This is the real world. So work quality and productivity between shifts, for example, are inconsistent. And look, in today's world of remote work, the lack of automation makes even little things very difficult to do, and COVID was certainly a very clear example of that, suddenly, where everything has to be done on site and you couldn't get on site, you couldn't maintain your equipment. And so these things are very near and present real-world issues that happen. So at the end of the day, when we think about our clients, the business problems of growth and productivity are not new. These are still the goals that our customers need, but they need to do more with less. And so how do they drive these outcomes in the domains of operations and supply chain? We think this of the last mile where digital can have a significant impact on operations. So what's Honeywell doing? If you go to the next page, I think the big story here is that we're bringing to the industrial world the same digital foundation what we're calling the system of record, a single source of truth that Salesforce, to use an analogy, brought to CRM. Before Salesforce, if you think about sales and marketing and field service, they were all different systems, different architectures, different data models. And so really difficult in the enterprise to have a 360-degree view of the customer. Likewise, in operations, when things live in silos, it's very hard to have a total view of your operations and how to optimize and drive excellence in performance every day. Salesforce changed this when they built Software as a Service from the ground up a cloud technology. And really, their strategy was no software. How do we have a configurable software service, not a customized piece of software? How do we have single line of code Software as a Service product strategy? And so we've built Honeywell Forge, what we call enterprise performance management to do the same thing in industrial world, providing an OT system of record, and we've built this as a cloud-native Software as a Service. And within our DNA, there were 3 really core principles of how we went about this. We didn't simply take old software and encapsulated in a virtual machine and hosted in a public cloud. We built -- this was a purpose-built, ground-up, extensible data architecture that future-proofs customers' investments. So if you want solar panels put in your roof in the future, how do you manage that asset? Well, our software can accommodate those extensions. We've also built this to uniquely capture Honeywell's domain expertise and to support all of our industrial businesses. And then lastly, this is built on a Software as a Service infrastructure that accelerates customers' digital transformation by reducing time for deployment and then also simplifying the sales process with Try before you Buy as part of our commercialization process. So just to bring this alive -- and I think this is where our strategy is fairly unique in the market. You take this warehouse example. A warehouse is not very different from a factory. The mission is how many packages or parcels can you ship out of that warehouse. I mean if you think about the e-commerce world, the more throughput you have, that's a very, very important metric for anyone offering an e-commerce warehouse or distribution center. And so who are the players that make this happen? Well, you have a reliability engineer that looks at all the assets within the warehouse and constantly monitors the risk of these assets breaking down and how that impacts the overall flow within the warehouse. The reliability engineer uses the information from Honeywell Forge to caucus and confer with the maintenance manager. The maintenance engineer uses Forge as a system of record to quickly see the same issue that maybe, in this warehouse example, the ball bearings in a particular asset are problematic. And so the maintenance manager can quickly identify the issue because if you think they walk into the warehouse on any given day, and there's 1,000 things that are going on, what do they work on? How do they prioritize the things that they spend their precious resources focusing on? So here, this is a ball bearing example. And then they've got to dispatch a technician. The worker that gets a work order notification is prompted to do the task, to repair or replace the ball bearings and then is given a guided workflow on how to solve that problem and a recommendation on how to solve the problem in the fastest possible way. So in this scenario, it's not just about asset performance, it's about tying together what the frontline worker is doing with the process of the warehouse itself. And that's what our software aims to solve is to give the COO that's running these operations a 360-degree view of their operations and supply chain. And so we're very excited about these offerings that we're bringing out to the market. If you go to the next page, please. The opportunity here is really significant for our clients. And COVID as a pre-seismic event has made that even more difficult because now you've got to do all these things with a much lower cost base and with challenges such as being able to do this remotely. So we've assembled, I think, a world-class team of deep experience in enterprise software as well as deep domain experience. And we also can leverage the knowledge that's within Honeywell to bring to market. We've had a very focused strategy, a very intentional strategy that focuses on Software as a Service and on the industries where we understand the customer problems, and we have long-standing customer relationships. And then lastly, the carryover of the customer reach and decades of serving these industries gives us a head start, frankly speaking, when we're introducing new applications to the market. We're bringing all these things together. I think we've made tremendous progress. You can see some of the logos there. This is certainly not all. We've had -- we've seen now in 3 years of operating that we can, in the case of Hamdan Universe, as an example, a 10% reduction in energy consumption. This is not only good for the bottom line, but it's good for the environment. And Hamdan operates in the Middle East, where temperatures can be 50 degree Celsius on any given day. And so energy consumption is a massive cost to the operations of that campus, for example, Codelco being another example. We've built -- worked very closely with them to build our overall plant-wise optimizer. And so that's allowing Codelco to increase the process mineral by 3.5% productively but also be much more mindful of the footprint increase on water consumption and things like that. So -- and ADNOC, another example, is probably one of the largest connected asset performance management deployments we've done with over 2,000 assets digitized and managed in this way. So many, many examples of real large-scale enterprise deployments that we've done in the last 3 years. The last one I'll make here is when we add -- I mean, ultimately, the only [ currency in the room ] -- I can say how wonderful our technology is and the progress that we're making with the -- ultimately, the [ currency in the room ] is how fastest we act. And when you add this up in terms of our financial performance and growth, we're seeing double-digit recurring revenue year-to-date. We've had growth in bookings over 20% in this just finished second quarter of 2021. We've deployed over 1 million instances of Niagara in our connected buildings solution. So we've got 1 million buildings connected. And today, the business is accretive already from a margin standpoint to Honeywell. So our goal -- our long-term goal is certainly being a much bigger mix of Honeywell's overall sales and a significant contributor to Honeywell's value creation. So Nick, I'll just turn it over to you. Thank you.

Que, that was a really good overview of almost an invisible part of Honeywell. But hopefully, it's going to become a lot more well understood as we go forward. I guess my first question is, this is a unique and abstract opportunity for Honeywell. What -- where did you come from? And how did your background prepare you to lead this initiative?

I've been at Honeywell 5 years, and my background is really half of my career it has been in tech and in software, I grew up at Microsoft, and the other half has been in the industrial space. And so I feel a bit like the Rosetta stone where I can understand both worlds. And I think what's fascinating about the world we live in today is if you go back 20 years, the biggest impact on digital is in sectors like retail and media and financial services and IT. In the next 20 years, it's every other industry. And to bring together brand-new products and services to our customers, you have to have the marriage of both.

Okay. As your customers kind of embark on this challenge, I guess, the first question is, how do you source your customers? Do your customers come to you? Do you work with other parts of Honeywell that suggest ideas of this customer really could utilize Honeywell's connected enterprise offerings? How do you begin to develop who to help?

Well, one of -- the first -- in the software business, one of the things -- the first things we do when we come up with new product ideas is this idea of product market fit, meaning, what problems do you see? You start with the customer and you work backwards and you -- trying to innovate on new ways to solve problems. The problems actually are not new. It's productivity, growth, safety, sustainability. Those things are not new. But how you solve them is new. And so we have an advantage in inherent installed base that Honeywell has that we leverage. So we're in conversations with our customers all the time. We have formal customer advisory boards where we are in ongoing discussions throughout the year around what's happening, the industrial challenges they see. And then we have an early adopter program, where as we build and innovate new things, our customers are with us from the very beginning. So they see the sausage making, they see the challenges we solve, and we co-innovate together in that way. So it comes from a lot of places. But at the end of the day, one big advantage that -- and one of the reasons why we built Honeywell Connected Enterprise within Honeywell is to take advantage of those capabilities.

Okay. And as you basically work with your customers, I mean, what inning are they in understanding, one, what you're offering; and two, when it's deployed and how it will transform the effectiveness of their business? Is this very early stages or now is moving into the middle stages? Or is it different across different industries? You mentioned several different verticals like building, aerospace, life science. Are some of these a lot earlier on or others further along the path?

I don't think there's a company that isn't looking at digital transformation to have an impact on their business. And I think that -- If you think about it from an IT standpoint, the IT transition is a lot faster than the OT transition. So IT, I would say, is probably in the third or fourth inning, and it's still early days in OT. It's a big opportunity, but it is one of the most difficult challenges to take on. I don't have a precise answer for you, but it is going to happen. But it will take some time. I think the next few years are going to be super exciting to see an acceleration in this area because most companies are sort of getting through the tail end of their digital transformation in the IT side.

Okay. And the pandemic, it's changed a lot about how many portions of our economy operate in many different industries. Is there any impact or evidence that you're starting to see that post pandemic, companies that might have been thinking about doing this in the middle or later this decade have now decided to step up for whatever reason and do this sooner?

I think COVID has driven [indiscernible] on number of fronts. One is how do you do more with less? And if you think about our clients, their cost of goods sold typically represents 55% to 70% of their sales and over 85% of their costs. So if you can drive even single-digit productivity, this is a massive cost base. They haven't even begun to tackle. Because remember, a lot of the ITs in the areas of HR and finance, that's in your OpEx layer. So everyone can see the opportunity is huge. It's a bit like saying to someone, do you want to do lean? Of course, you want to do lean. You know it's going to work. But the journey on how to get there is challenging, as I sort of mentioned earlier. So everyone is excited about the opportunity. The question is how do you get there? And I think part of the immaturity of the industry, well, still early days, as you say, Nick, is that it's a combination of the available products. Offerings available in the market isn't at the same level as IT. There are certainly data and security challenges that are much more pronounced in a way that's different from IT. And I think our own customers' digital talent pool and their ability to go through the changed management and make that transition is also -- inhibits the change to happen as fast as we've seen in IT. But it's happening. The acceleration has been happening. The other point about COVID is, it's actually not just productivity anymore. It's business continuity and resilience. It is now a much higher risk than it was before because before you could rely on being able to go to a site and fix a machine or inspect what's happening or manage it to send somebody out to an oil platform in the North Sea. How to do that in the area of COVID? So that's led to a lot of acceleration of -- I saw people were starting on digital programs. They're now trying to do something in a few months that they used to allocate 2 to 3 years towards.

Okay. To maybe help people better conceptualize if there is who are the competitors that you face that are trying to do what you're doing? Is it consulting firms? Is it many of the former computing companies that now focus a lot more on providing their own consulting services? Who would you kind of define or think of as it relates to your most primary competitors? Or do they exist?

Yes. Well, look, it's early days. So by definition, when you're trying to introduce something new like our OT system of record, what we're trying to do with cloud native application, Honeywell Forge, is by definition, you've got to generate new demand. And I would say the next best alternative to this is there's a lot of data in the industrial world. There's actually more data in the industrial world than there is in the consumer Internet of Things. But that's the way that our customers have solved that typically involve people. You have a lot of engineers on site, as an example, and they look at that and they have experience and they figure out how to make decisions. And it's also custom software or consulting, as -- Nick, as you put it. So when you don't have commercial offerings, you tend to figure out how to build it yourself. But you're doing it one site at a time, one machine at a time, and it's all bespoke software. And we think that's a very expensive and slow way to go about it. And that's why we've built Honeywell Forge, our enterprise solution, as a digital foundation for our clients to embark on this journey, and we've done it in a scalable way with native cloud technologies and how we thought about the data architecture behind the software. So the goal is configuration of software, not customization. So that's the main competition. The main competition is, today, we -- it's either manual or it's custom software or it's a bunch of consulting. And that's -- we don't think that's a very scalable way to go about it.

So the customized approach, would that be provided by Accenture or SAP or folks like that? Or again, would it just be your customers that are trying to do this piecemeal in-house. They don't have Honeywell Forge as a kind of foundation for this effort, and so suddenly, they decide, oh, wait a minute, we've got to go to somebody that's already been down this path. We should go to Honeywell Connected Enterprise.

I think it's all of the above. I think it's -- when you look, the parallel is the IT industry. If you go back 30 years, before ERP became a category, what did you have? You had consultants, and you had custom software or you had IT departments that built their own software because they couldn't go to the market and say, well, here's a commercial off-the-shelf offering. And so one of the things that we're trying to do is make it off the shelf so that it is cheaper and faster and more scalable than having bespoke applications that would be one way in a certain plant and in another way in another plant. And I think that's what I mean by early innings. Over time, I think, you're going to see more applications, more standardization to overcome some of this bespoke and fragmented nature of the industrial world.

What do you think about -- obviously, you've developed a plan, and you're going to market, you have verticals. What do you worry about that would be most disruptive to where you're trying to go and become a bigger part of Honeywell's growth and returns? What are the biggest obstacles that you're worrying -- you're focusing on making sure don't happen?

Look, I think one of the -- when you're in the early days of a market, you are really focused on driving demand. And unfortunately, in the industrial -- in the production environment, if you think about manufacturing and supply chain, you just can't rip and replace. It's not like consumer apps, software apps. You can change your iPhone apps all day long and it doesn't have an impact. But if you start putting in bespoke software and you're deploying in a certain way, those things are very brittle and flexible. And you've got to better work with that environment. So I think one of the early challenges is how do we make that even simpler and easier to get data out of the system, to have normalized data across different pieces of equipment. And so I think the industry grapples with that. I think the other challenge is around data sovereignty in certain markets. We've got to work through that. The standards are still emerging how people think about those things. And then that leads to an OT cybersecurity challenge. Again, the OT world is very different from the IT world. In the IT world, what do you have? You have computers, you have servers, you have switches. So you can send agents and tell you what you have in your inventory and you can monitor and manage that. In the IT -- in the OT world, you've got hundreds and thousands of pieces of equipment. You don't know what you have. So how do you monitor and keep those things safe? So these are some concerns that we've got to work through with our clients and help them solve in a scalable way.

Okay. There's an element now that would argue we're going to go through a capital investment renaissance. And part of that is the fact that we have such a shortage both in Europe and particularly in the U.S. for labor. And many people don't want to do jobs that once upon a time they might have done because they're dangerous or boring or dirty. Is this going to at all impact and accelerate the growth of the Honeywell Connected Enterprise as corporations think this isn't per se a capital investment like a new plant or a new machining. But is it -- does it really fall into the genesis that this is going to be an accelerator for your growth business?

Absolutely. I think one of the mega trends for sure is automation. And automation is driven by certainly a need for productivity but also a need for business resilience because of the remote nature of certain things. And so if we can cut down the number of truck rolls, customers have to go do, that's a cost benefit, but it's also an efficiency benefit. And sometimes when people think about automation, they immediately think robotics and machines that can do all these things. But -- and we think there's a place for that, but there's also massive automation in business process, and massive automation in getting manual work -- eliminating manual work and waste. And think about the world, we've got something like 2.5 billion frontline workers. None of -- they don't really have digital tools in the way that we do in the office. So imagine if we could arm them with how tos and guides and being able to call an expert if they're on site, but the expert -- you only have 3 experts, and they're sitting back at headquarters. You can do that now. And our Honeywell Forge Connected Worker solution helps connect the frontline worker to the expert and get more leverage out of the labor you have. So I think automation is a very, very interesting theme. And I think we're squarely in the bull's eye of that trend with what we're doing in Honeywell.

Well, you have several markets that you laid out. You referenced them on, I think, the second slide. And I didn't know if you could kind of go through and not only talk a little bit about buildings or industrial or aerospace or cyber or life science, but also not just what the market is and how you're attacking it, but also partnerships that you are forming. I think it was SAP that you had run for real estate and buildings. Obviously, you've got Sparta in Life Science. And so the compare and contrast -- life science is a new market for you. Building is something that's been with Honeywell almost since day 1. And how you're, in turn, using the different aspects of your relationship to these markets to help accelerate your growth?

Well, we have over 1 million connected buildings already. We -- if you look into any building, no building is the same. If you sat in a building -- it's probably a long time now. But if you sat in a building in the middle of a summer, you still have to [ put this later ] on. It tells you how buildings are being managed. I mean, literally, there's an on and off switch. It's about as sophisticated as it can get. And so a company like Honeywell, we have 1,000 buildings. And there are many companies, whether they're investor -- real estate investor groups or companies like Amazon, for example, they've got a lot more buildings than we have. How do they manage that fleet of buildings in an efficient way? If you look at some of the data, actually, the buildings' infrastructure in the world generate something like 30% to 40% of energy consumption of the world. So just even that alone is a massive cost to that type of footprint. And so that's why one of the first opportunities we were so excited about was Honeywell Forge for buildings, where we can automate and standardize how you operate those buildings at scale. Today, it's one at a time. You have a team on site. You outsource it to a facilities manager, and it's very, very bespoke single sites. You can't look and compare across the buildings. And so whether it's HVAC or security management or environmental management, our software is helping to give the people who own these real estate portfolios an enterprise view of their fleet of buildings, and we're automating the maintenance of that as well as the occupant experience of those buildings. We partnered with SAP and Microsoft actually because what's interesting is if you marry OT data, which we know very well, with the business and financial data that, say, in SAP has, suddenly, you are giving the decision-makers a clear connection to what's happening physically with the financial impact. So it's interesting for companies to say, "Hey, we want to have the net 0 and make carbon pledges and count how much emissions they have and how much energy they're using, but they can't translate that easily to the bottom line. And so one of the reasons why we're so excited about our partnership with SAP and Microsoft, we're stitching that data together. And so that allows someone who's operating a building a lot of ammunition for what do we work on and how do we drive that impact physically and into the financials as well. So that's pretty exciting. The other thing, Nick, I'll say is our acquisition was signed and, as an example of what SaaS scalability represents is, we've been focused on how to help companies return to work, return to site and go through the health checks and make sure that we've got all of the compliance with coming back to the office. We're now extending that application to vaccine management as a result of the federal government pushing for vaccine mandates. And we're already doing it in markets like Australia that has that regime in place. So that's the value of extensibility. It isn't just, here's an app to do one thing, it's as your needs change and you have an OT system of record, you can then extend that very easily towards those types of use cases as they emerge, and that's what's very exciting around the building space.

This is cool, Que. I guess my next question you kind of led into it was right now, we conceptualize that what you're doing is providing a set of solutions, okay, for particular customers' own internal needs. But when you connect 1 million buildings, okay, do you see at some point where you can amalgamate, okay, your customer base and then in turn be an interface for another part of our economy? So if you're managing buildings on Manhattan, can you in turn become an interface off hours for Con Ed to help them understand where electrons should go off hours where demand is? Is that another dimension of what eventually you can be able to offer?

Absolutely. Look, there's -- one of the wonderful things is we don't purport to know all the use cases. And the use cases are not static. I mean what's beautiful about the world we serve is, it's dynamic. They're living things. The building is a living thing that changes and is dynamic. So today, we want to think big. So I think it's a big vision you've painted, Nick, but we want to start more and move fast. And so we start with the things that really can drive an impact, but it's very logical. It's a logical next step to say as we get more and more and our customers allow us to aggregate data in that way, then we can provide benchmarking. And we can provide other insights at a more macro level, for example. But today, we -- even if we just do this -- the basic blocking and tackling, I think, it has a massive impact already on our customers' financials.

Okay. And then you have the partnership in the buildings with SAP and real estate. Could you talk a little bit about -- Sparta was kind of a new market. It was a way that jumped right into the health science market -- life science market. Is -- are there more acquisitions that you're thinking about and how, in fact, has Sparta put you right at the front edge of being able to then bring your sets of solutions to that market?

We're really, really pleased with the Sparta acquisition, the progress we're making. I mean the business momentum is off the charts. We've exceeded our own internal metrics on how the acquisition has performed. And Sparta Systems is a leader in enterprise grade quality management system for the life sciences industry, medical device industry. And our product track-wise has -- we've been enhancing it with predictive analytics. We're actually in the process now of combining that with our process solutions automation capabilities. And we're bringing proactive insights around quality. We can also take this solution to adjacent industries, food and beverage, consumer packaged goods, Advanced Materials, for example, and we've deployed -- we're in the process now of deploying Sparta at one of our sites in Baton Rouge. And I would say that, financially, this has been a fantastic result so far. Our first half orders are up over 30%. We have -- our backlog is over $100 million. And we've got double-digit growth in our Software as a Service customer base since a year end of 2020. And so in all dimensions, it is just on fire, and it's kind of a nice problem to have, how do we accelerate and put gas on the fire to actually make it accelerate even further. But it's really exceeded all expectations that we've had.

That's excellent. Now let me ask you a final question, I guess, and that is to help us better understand and quantify. You had a double-digit revenue growth year-to-date. You have growth in bookings that are up over 20% in the first quarter. When we think 5 years from now, okay, what part of Honeywell's revenue is likely to come from your business? And how -- you mentioned it was above average in terms of the fleet average for profitability. How is this likely to improve? Is it return on investment? Is it free cash generation? Is it growth? What are the dimensions that we should think about Connected Enterprise really being able to kind of be an afterburner for Honeywell as we think about the company moving to the middle of the decade?

Well, the first thing is...

I don't want to put you too much on the [ fire ]...

No, no. I mean, look, the first thing that gets me excited is the market is huge. The market for digital transformation and operation supply chain is massive. But it's also very difficult. And we think we've got to lead in our approach to solve this problem. And as we crack it and the market matures, I think we've got a massive advantage. So there's a lot of inherent things to like around the moat that we're creating in this area. It matters to our customers. It's a huge impact and, therefore, it will be a huge win for Honeywell. So that's one thing to get excited. If I look at our innovation pipeline as well as our partnership pipeline, we have built these cloud-native applications, and we're transitioning what we have on-premise to the cloud. We've been doing that consistently across the energy sector, nonresidential construction industry, manufacturing, our e-commerce as well as life sciences. So there's a very, very strong and robust pipeline there. And more partnerships to come. There's things we're working on now, I can't talk about it, but there's more to come on that base. The other thing that's very interesting here is our economic model. We're monetizing this through recurring, a growing and recurring revenue stream. So we're going to enter 2022 with things in the bank because we've got customers -- we have 95% retention of our customer base. So as they subscribe to these services, the majority of them hang on and we can land and expand more content with the customers -- the 8,000 customers we have. So -- and then if I look at this business, this is not something that we have put money into, and we're losing money, unlike, I think, a number of high-growth companies. It's already accretive to Honeywell's margins. So for us, it's a question of scale. And our ambitions are, I would say, very -- they're pretty big. We've had a long term -- we stated that we've had a long-term growth that we want to reach of overall growth of 20%, long-term CAGR. And we -- certainly, our ambition is to be a growth engine for Honeywell and certainly double-digit mix from a percentage of sales standpoint in Honeywell. We want to be a lot bigger. We've got this, I think, very dynamic business that we've built here and lots of tailwinds as we look at mega trends and how the business is performing today.

And all what you're building is the SaaS. It's not a onetime kind of consultant model. This is a recurring revenue, which you carry forward with you with all your customers and build on going forward.

That's right. Our focus is on SaaS. We have -- we do have an on-premise part of our business and that -- we are transitioning that to SaaS over time.

Okay. Que, this has been kind of a unique journey out to the outer edge of the understanding of certainly most industrial and investors. But on behalf of William Blair, we really thank you for joining us today, and we thank our clients for joining, and we hope that everybody enjoys the rest of the virtual conference. Thanks very, very much for joining us. We appreciate it.

My Pleasure. Thank you very much.

Okay.

Bye-bye.

Bye-bye.