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

Good morning, everyone. This is Sean Meakim, Vice President of Investor Relations for Honeywell. Welcome to the third quarter 2022 installment of the Honeywell Leadership Webcast Series. The purpose of this webcast is to provide our investors with the opportunity to hear from a wide range of Honeywell leaders on topics of special interest. Today, we would like to highlight Honeywell's innovation playbook and show how Honeywell's new products and breakthrough innovations are aligned to big, bold and disruptive ideas that will drive market growth for Honeywell. Joining me today are Honeywell's Senior Vice President and Chief Commercial Officer, John Waldron; Honeywell's Senior Vice President and Chief Technology and Innovation Officer, Suresh Venkatarayalu; and Wolfe Research, Managing Director and Head of U.S. Electrical Equipment and Multi-Industry Research Analyst, Nigel Coe. This presentation and webcast are available on our website at www.honeywell.com/investor. Honeywell also uses our website as a means of disclosing information, which may be of interest or material to our investors and for complying with disclosure obligations under Regulation FD. Accordingly, investors should monitor our Investor Relations website in addition to following our press releases, SEC filings, public conference calls, webcasts and social media. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our businesses as we see them today. Those elements can change based on many factors, including changing economic and business conditions, and we ask that you interpret them in that light. We identify the principal risks and uncertainties that may affect our performance in our annual report on Form 10-K and other SEC filings. John, Suresh and Nigel, thank you for being here today. Now that we've got the perfunctory matters out of the way, let's turn the call over to Suresh and John for some -- for their opening presentation, then we'll turn it over to Nigel for his questions.

Terrific. Thanks, Sean. Welcome, Nigel.

Thank you.

Great to be here. So I'm going to start, and then I'll turn it over to Suresh, and we'll present a few slides and then get into Q&A. So as a follow-up to our Investor Day in March, we wanted to go a bit deeper on Honeywell's approach to innovation and how innovation and what we're doing in this area drives organic growth and creates new revenue streams, which, as everyone knows, are key elements of our growth equation. All of our SBGs and HCE are linked by 3 core elements: our history of leadership in controls and autonomous operations, delivering software and digital transformations for our customers, as well as ESG and sustainability, which are deeply held values that we have as well as experts in practice. These 3 elements guide our efforts, provide compelling opportunities, and I think you'll see as we go forward today, are linked throughout many of the things that we're doing and excite our 100,000 future shapers every day. So the outline for today's discussion is going to be a little bit of our history in the innovation journey, how we do this at Honeywell as well as providing a few proof points of our progress along the way. So with that, let's dig in. Suresh?

Thanks, John. Thanks -- great to be here to share Honeywell thoughts on innovation and automation playbook. I want to say, 100 years of transforming industries. And if you really go back and look at it, we have a rich history of deep innovation, including inventing solution that revolutionized our industry where we serve some of the big innovation firsts within the segments we serve. We're going to highlight some of the great examples in aerospace, gyroscope, APU, advanced navigation stuff. We're pretty proud about what we have done. In our SPS portfolio, the global shutter barcode scanner, we were the first one. We're pretty proud about what we've done. In our PMT portfolio, if you really go back and look at it, low global warming refrigerants, catalysts for manufacturing, petrochemical, and then you're starting to see a lot more coming up on our way from our sustainable technology portfolio. And then really going back in HPT, life safety systems or smoke detection aspirin system. There are so many first innovation and with a rich heritage of with our patent portfolio and then the best technologies to the company, we're extremely proud about what we have done. Flip to the next slide. What have we done the last 10 years? We have focused all our efforts around one specific clear objectives that our customers were looking for, that was digital transformation. And part of it, I would say this, for the last 100 years, we are a control system company. We continue that foundation. And what did we do in the last 10, 15 years? We virtualized the control system. As we virtualized the control system, we also pivoted from industrial to software industrial. And then what have we done? Why is it so critical for our customers? The industries we serve, they require digital transformation. Our customers need digital transformation, and they have turned to us to help them. And we have leveraged our deep domain-depth knowledge. And with the expansive installed base that we have had with them, that has helped us to really transform the portfolio. Let me talk about a few of the examples how we have done. Go to the next slide, Aerospace. Hundreds years of fantastic technologies from avionics to engines to APUs to mechanical subsystem. And you all would have heard about the connected cockpit, Anthem, the early part of this year. We feel pretty great about what it enables, the value it enables, safer flight, better ATC, single pilot flight, a lot more great innovation. Flip to the next example, buildings portfolio. We have done this all. And in the last few years, we talked about connected building, intelligent building, now sustainable self-sufficient building. What's the value prop? What do we enable? Low energy, carbon footprint, better occupant experience, and we are starting to see that really growing. And we'll talk about a few of the BTIs that is evolving in that particular space. If we go to the next slide. On the supply chain side, we have really in the last many, many years really brought many warehouses during this pandemic and post pandemic. And from there, we are starting to really look at the world that's going to be connected distribution centers for the future. Why is it important? It's about higher uptime, predictive maintenance, network visibility and performance across the facilities. They see that as a huge value equation, and we are bringing in software and digital technology in place. And the last example, which is our process business, process controls business and in most of our control technology, they're all connected and promote digital operations. Why is it important? Our customers really care for high-yield, safer operation. And then during the pandemic, they looked for remote operations across that portfolio, and they ran it exceptionally well with our technology and our services base. So a few examples would highlight to you that how we are completely rewiring a company. And more and more as we look at it, a control system company evolved itself into virtualizing the control system. We see ourselves reverting into autonomous controls with a few of the examples coming through. John?

Terrific. So let's talk a little bit about how we do this. And I would like to describe 2 things in this slide. The first is on the left-hand side, which is Honeywell Accelerator, which is really the Honeywell Operating System 2.0. We have advanced our efforts here to really define the systems and the processes that go end-to-end across our enterprise. We've defined the digital solutions that underpin those systems and processes. And then we've translated that into standards for how we work, how to do manuals, so to speak, for how our future shapers do the work every day. And as you can see from the 7 elements of the Honeywell Accelerator operating system, this applies to many things that we do throughout the company, not just innovation. But if I use an example of innovation to make the case a little more in detail, we have a set of processes that are operated at our GBE level, at our portfolio level, our SBG level, which really curate the new product portfolio. They make the decisions about what investments to make, what investments not to make. The digital systems that we've invested in give us immediate visibility into those investments, how they're performing and the new product development efforts, whether they're on track, whether we're on target with our initiatives. And then the standards are then rolled down into the future shapers that are involved, the offering management teams that define those offerings, the engineers that are creating those solutions and then our customer marketers and sellers that take those out to our customers all have clear standard work as it pertains to delivering innovation. So that's really what the Honeywell Operating System is now delivering through Honeywell Accelerator. On the right-hand side, you see what we're expecting that to do for us in terms of impact. We've set new long-term growth targets for the company at between 4% and 7% back in March at our Investor Day. And you can see from the graph that we've got here how we're expecting that to start to transform in terms of those selling results and what that looks like in our business results. And what this is meant to articulate is that our core businesses are fairly mature. And what we're trying to do through Honeywell Accelerator and our innovation efforts is add new vectors of growth, new revenue streams. So we're going to talk a little bit more about some specifics of what those are, but these new growth efforts are expected to be [ curve benders ] for us as a company. So if we go and we talk about one specific area that we're very, very proud of as an example of kind of how this has come to be and has become inculcated in everything that we do. And we started over 20 years ago focusing on ESG and in particular, on the environmental elements of ESG and having to focus internally to make sure that we were managing our carbon footprint, managing the environment that we're a part of and then delivering better safety and governance solutions for the company. Over the course of that 20-year period, we have essentially pivoted our investments in R&D and our portfolio presence to be almost 2/3 or about 60% delivering now on and focused in these ESG areas. And this is a great area where we have, again, standard systems and practices. We have a digital representation of those efforts through Honeywell Accelerator, and that is translating down into standard work to all of our future shapers so that they know what they're working on and how that it impacts our ESG efforts, footprint and overall portfolio. So with that, why don't we turn the page here and talk a little bit more in detail about driving breakthrough growth.

Thanks, John. One of the things that John talked about was how Honeywell innovates. Let me take you through what we have done. We actually said our fundamental goal is to establish a toolkit or a playbook for every GM so that we can empower them to have a structured approach to drive innovation. So we have come across with this 8 foundational building block, strategy, how do you run an NPI portfolio, how do you look at cheaper value proposition, we think about your business model, machinery about your process, which is your NPD process and how do you accelerate them. Technology is all about road maps, IP, differentiation, how do you really commercialize once you actually build it with the marketing. The last thing is, but not the least, talent, skills, capability and differentiation, how do you really rewire and build them up. And this is something that we are -- fundamentally me and John are cheerleading, training on the ground and driving this as a standard approach. As we're doing it -- if you can go to the next slide, we are also looking at what are the key elements within that -- one of the key elements within the toolkit is technology. We said the technology focus which have to fuel our growth for the next 10 years. So we have our own bets in terms of the top 10 technology bets that fundamentally fuels many of our operators, many of your new net NPI. And that's where we are rewiring it, rebuilding our skills and capability and investments are falling those track. And from there, if you're really moving to the next slide, the technology feeds with a very structured road map for us in what we call a BTI. We have looked at our NPI portfolio in the last 5, 6 years. We have probably doubled our vitality growth, which we'll talk about in the next slide. But then we actually said, if you really track your NPI -- our NPI vitality growth is a function of your how do you capture your market, how do you really grow. And as we started doing that, we said we'll slide them by saying what's core to the product that we will continue to refresh and watch net new, new to the market, new technology, new offering. And then we said, breakthroughs. Breakthroughs are $100 million new portfolio idea in 3 years. And then as we really look at it, it's a sample example of how we see it. There are 5 or 6 great breakthroughs that have graduated. We have spoken about that during the last many investor conferences and discussion. What you see in the middle are the breakthrough initiatives where we have a greenhouse approach, a dedicated GM, dedicated organization where we are investing today and we really see a potential opportunity to commercialize it with co-innovating with the customers. And what you see on our extreme left, our early research today. We are putting a lot of dollars and resources at this juncture, developing a technology in IP that can fuel an offering where we can co-innovate with a customer. This pipeline approach has improved a lot in the last 3, 4 years, and we are pretty upbeat. And this is the role that me and John are going to play a role together in developing both quantity and quality of our pipeline and ensuring the hit rates are great for Honeywell to drive our organic growth. If you look to the next slide, how do we measure it? We talked about the vitality. And as we really look at it in the last 5 years or 4 years, we have really driven that vitality growth rate significantly. And now we are really looking at the quality of the vitality growth by BTI and NPI new and NPI core. And what you see on the right side of the chart is the investment profile between the legacy product investment to the NPI core investment to an NPI new BTI. We are changing the mix in our investment that changes the profile of our vitality growth rate. And that's pretty much a key measure that me and John track it almost back in every single month today at various level across our test portfolio. John?

Terrific. Thanks, Suresh. Exciting stuff. But I want to make sure that everyone listening understands that this is real and it's happening now. We're not just talking about what's going to be true in the future. These are real examples from real customers that have been announced publicly where we are co-innovating based on what Suresh described as our approach and the impacts that we're trying to make. And we're creating the next generation of flight both for humans as well as for goods transportation. And we're working with health care providers and medical technology providers, pharmaceutical technology players to recreate their value chains to be safer or traceable and smarter. And we're partnering with utility and energy companies to redefine how energy is generated, how it's stored and delivered and so that we have a more sustainable future in that way. And there are many other examples that we could talk about today of how we are co-innovating and collaborating with our customers to help them create a new future for themselves and their customers. So with that, we just want to close where we started. We're focused really in 3 areas across the company: industrial controls and autonomous operations, software and digital solutions for industries and our customers, and sustainability and ESG. These are the 3 things that define all of our businesses and define Honeywell. Our 100,000 future shapers are innovating every day to transform the way the world works.

Well, great. So Nigel, I'll turn it over to you for questions.

Great. Thanks, Sean. And thanks, John and Suresh for the details. That was great. Obviously, an awful lot of detail in the slides. So maybe if we can just take a step back, for the benefits of the investors on this call, some great societal goals within there, but focusing on growth and how these initiatives will help to accelerate Honeywell's growth. Maybe just connect those dots for us.

Sure. So maybe I'll start. And if you think about what the company has been doing over the past 5 years or so, we've been heavily focused on transformation. We've simplified our manufacturing footprint. We've invested in supply chain resiliency. We've invested heavily and delivered some pretty exciting things in our Honeywell Digital capability and our IT infrastructure. We've invested in our customer experience. We've done a lot of things to enable better decision making, more real-time decision-making, and we work pretty hard on the portfolio. We've done several spins and divestitures, made some strategic acquisitions and stood up the Honeywell Connected Enterprise. So that really defines kind of the last 4 or 5 years of what we've been focused on. When we think about the next 5 years and capitalizing on all that and we talk about our upsized growth expectations on our new targets, and we really have to then bear down on the NPI portfolio, the new product investments that we're making and really making sure that we have a robust portfolio. And we're investing in the areas we've talked about. And I think the pipeline approach that Suresh described probably best illustrates how this comes to life in terms of having a lot of potential bets to make and then selecting the right bets that have high probability and a market opportunity of great-enough size and then making sure we're making smart decisions in terms of continue to invest or [ sunset ] or whatever those choices are. But that process is what's yielding tremendous opportunities by way of the breakthroughs that are now graduated in new businesses and a couple that we've talked a little bit about already would be our sustainable technologies business. The connected enterprise actually started this way, our UAS/UAM business in Aerospace; or even our cyber business, which is a pretty exciting space to be in, where we've stood up a practice and we have a very compelling ability to solve cyber solutions for our customers across PMT, HBT and SPS. Those are just a couple of examples, but we think that those are all kind of next-generation outputs that are delivering impact today and should fuel organic growth for years to come.

That's great. I thought Slide 9 was very interesting. And it's clearly got a very systematic approach around the Honeywell Accelerator. And maybe just talk about how you get ideas into the pipeline and how are ideas seeded. And maybe just talk about how your team, search team work with these units.

Ready to take that, Suresh?

Sure. Late 2018, we went and looked at our NPD process. We had those legacy Honeywell NPD process, which is like 5 sequential gates. We said that needs to change. That needs to change how we would engage with our customers, markets and between our internal cross-function. So we came back with the something called Z21, which is Zero to 1st revenue. The way we simplified was there's a continuous discovery phase and there should be a continuous development phase. Continuous discovery phases between technologies and offering and marketing team should be engaging customers upstream. So we have -- John's leadership team, we have deployed a strategic accounts today and customer advisory board. We are leveraging those today to really -- connecting with them, piloting with them, ideating with them. I think that is a phenomenal, refreshing new way of how we are engaging with our customers and co-innovating with them. And the second one is our technology team are not thinking about this 24-month cycle or 36-month cycle. It doesn't have minimal viable offering as a first shot, delivering a first cut product that can actually solve the customer needs and engaging with them. So this new way of operating altogether with the platforms like customer advisory board, with a platform like strategic accounts, starting to really piloting with them. Me and John have personally seen 4 or 5 key accounts that we have seen in the last 2, 3 years. That's a refreshing new way of how we innovate, how we're building a pipeline. On top of it, one of the things that we have reanchored this year, we brought the whole road mapping culture in a very streamlined form because if you say our idea pipeline is great, okay? And then Sir Darius asked the President and CEO and CCO and CTO, me and John, to actually sit down and go through every business, 35 Gold Business Enterprises to say, okay, you have a great idea pipeline. Walk us through the next 3-year road map, technology, offering organic investment, inorganic partnerships with ventures. I actually think that, that is getting structured very, very well at the structure between Z21, roadmaps. And then it gets into a machinery.

And I would just add to that. We have a very regular engagement and through a pretty structured management operating system with the CTOs and the SPGs, the CCOs and the SBGs, who are really in the businesses on the ground and the market is making it happen. So we're trying to provide what is a clear guidance, clear governance from the center. But they're the ones really close to the markets, and they're the ones making those choices and collaborating every day. So I think we're trying to deliver that balance of intimacy with central value and governance.

That's great. Thanks John and Suresh. We're going to get on to investments a little bit later in the Q&A. But tend to just -- when you think about the rigor around this process, how do we think about IRRs and ROIs that you're looking towards payback math? How do we think about that?

Well, let me take that one. We don't think about this differently than our investors do. I mean we use some basic financial measurements like IRR, NPV and total lifetime value, to rack and stack the opportunities that we have. And we know that our -- investing in ourselves is the highest-return thing we can invest in. Whether that's new products or capital for expansion, we know that the IRR on those projects supersedes most other opportunities we have. So those are really the things that get our first attention. And then we're -- and think them -- when we stack, rack those things, we try to really think about them both tactically and strategically, right? What are the things that have the most strategic lifetime value but maybe have the best IRR because they have the fastest payback? And we're looking at those in a portfolio of you, and that's kind of how we're engaging with the businesses in that same way I described earlier in terms of that local intimacy with the opportunities, but also with a central view with kind of clear capital allocation governance. The examples of these are many throughout the portfolio, where that process then yields what is a great new platform for Honeywell. A good example that we've talked about before is Solstice, which was a new molecule in our Fluorines business to deliver cooling solutions with a lower global warming footprint that we've invested $1 billion in both R&D and CapEx over about the last 5 years or so -- or 15 years, sorry. And that now is a $1 billion platform, and it's continuing to grow. We're continuing to find new use cases. We started in the markets like household refrigerants or consumer goods or automotive. You may have seen recently, there have been announcements around propellants where we're replacing legacy propellants with the Solstice molecules for lots of applications. So that's a terrific example where that curation process delivers a great investment that had high IRR as well as terrific lifetime value for the company. We -- there's others that we've announced that you've heard about like our Anthem platform in Aerospace, which is the next-generation avionics suite, a similar process. We've got health care sensing solutions in SPS that also come out by way of that process that are -- where our flow technologies are selected among others to then become solutions in next-generation ventilators or next-generation health care medical devices. There are many others like that, but I think Nigel, that gives you a sense of kind of how we use the governance and curation to deliver that -- the growth platforms for the future.

Yes. Absolutely does. Maybe focusing a bit targets around growth, some of the growth targets. And you've made it very clear that we're in the early phases of a growth acceleration. So let's talk about that in more detail. In your -- Suresh, you talked about the NPI developments, 21% in 2017 to 31% last year, I think, 33% in 2023. I think if I go back in time, it's a lot lower than 21%. Maybe it's as low as 10% in the past. Maybe talk about the importance of NPI and what that does to the growth profile. And where do you see the NPI going over time, maybe the next 3, 5 years?

It's interesting. We are a technology engineering company. And the fact is when we started measuring, you are right, we are probably higher teens or lower teens when we started it. Then we realized that the importance of speed, managing portfolio, and I think the company grow the zero-based budgeting process meticulously for the last 5 years. That gave us a view on how do you look at your NPI as a portfolio. Where do you invest? How do you invest? How do you really make decisions? And I think an area that we are getting better and better and I think we have to do a lot more is a disciplined approach to make decisions on investment, pivoting and killing a product based on the commercial performances. I think that is something that is much more liberating right now. One of the reasons that you're starting to see that uptick of the vitality growth rate is, one, discipline, the process culture and then having the right measure. And today, this is part of our financial measure every single month today in our MBRs where we track our NPI performances, group course-corrective actions, making the right decision and choices. Then we see our NPI mission to have 3 foundational building blocks. One, to you have a great idea pipeline and road maps. And then if you don't have it, go back and rework on it. If you get that right, second is execution. Are you hitting your launch windows faster than your competition? So you get that right. Then how do you commercialize it? How do you really set the market on fire and how do you really position it well? I think that's how we simplify those 3 building blocks. I think -- I actually think that we are getting better and better. You have to see a lot more because the way we set it right now, our NPI mission got better, but now it's going to be the this net new and BTI growth that is going to drive the organic growth back.

Let me add a little bit to that because I completely agree with what Suresh has said, and I think this -- to paint a picture, though, a company as big and diverse as Honeywell might have 1,500 projects going on at any one time. And if you think about that 2x2 matrix that I described visually of, the probability of success of those investments against the size of opportunity, when you start a project, it's not exactly clear how big the opportunity might be, and you learn more as you go. And what you find in that very diverse set of opportunities is, some of them aren't as large as the others. And so there's always this opportunity for curation, and there's always this opportunity to reallocate resources and investments toward the significantly large or significant few, as it's sometimes called. And that constant reallocation process, that constant curation process is incredibly beneficial. Because other -- in lieu of that, what happens is that the long tail prevails. People fall in love with their idea. They might have 1 or 2 customers excited, but 1 or 2 customers is typically not a market. And so by providing that visibility, that centralized portfolio management and governance process that we talked about, we're able to give all our general managers, our GBE leaders the ability and -- as well as the tools to say, well, we're going to reallocate investment dollars from, A to B knowing that things in B are going to be the higher return opportunities to invest in.

I and the investors on this call know the perils of falling in love with an idea that's not a great idea. So it's good you got that rigor. I do think it's maybe important to touch very briefly on how you differentiate between an NPI and then an NPI new idea and then BTI. I think that would be interesting for some of the newer people to the story.

Yes. Probably, I'll start. Probably John can actually add on. We looked at it the last few years. And I said, okay, NPI Vitality was growing exceptionally well. And we said, we need to equate this to an organic growth story. Then we realized that we need to segment that up. Then said, if you're building NPI core and incrementally innovating around NPI core, you could cannibalize your replacing your product and your growth vector could be a little bit more incremental in nature. Then you said, how big is your NPI new? Then we actually said, okay, the vitality on NPI new started probably at a single digit. And you said, it's a good baseline to have, but that is new to market. That's new offering altogether, and it's something of huge differentiation. And I said, how do you really size your NPI new? That's why we came back and said, anything that would hit $100 million in 3 years is breakthrough initiative. Anything that would fall anywhere between $10 million to $100 million will be NPI new. But that would create new markets that will create a completely new SKU and a new technology offering in the market. That will be a net addition to our financial equation. And I think the fact is now we have a measure, and we have fundamentally redefined the portfolio, the organization is starting to see that to say, okay, as a general manager, I have 2 business to run. I have a core business to run, which I need to protect from erosion and grow at the GDP growth rate. The other one is all about your organic growth lever. I think that's pretty much what we're doing right now in training and reigniting and measuring altogether. John?

Yes. Let me give a specific example to bring Suresh's description to life. So a core innovation might be a new smoke detector in our fire business. And we are the world leader in fire protection technologies, and we protect thousands and thousands of buildings around the world. But technology evolves. And so we have to replace old products with new products in the core of that business to maintain its competitive edge. And so we do that all the time. That same business, though, has also innovated in something they call the Connected Life Sciences software suite -- connected Life Safety software suite, which connects the panels and provide a remote connection capability as well as other really interesting value adds that's net new to the portfolio. And that's what we would call a net new NPI stream, where it's connected to and adjacent to one of our businesses but really a total new idea on creating value for our customers. Contrast that with the BTI, which one of the most exciting things that we've done is create the world's most powerful quantum computer. And partnering with Cambridge, we've brought those 2 together. The Quantinuum opportunity is billions and billions of dollars in value, which is something that we're -- the world hadn't seen. We weren't in the market of. That is a very classic example of a breakthrough initiative. And so I think those 3 would be very consistent with how all of our business leaders are thinking about those 3 streams of opportunity with their investments.

That's great. And I do hope to touch on quantum, if we got a chance at the end. And you called out $1.3 billion of growth from BTIs in 2021. How do we think about how that scales over the next 3 to 5 years?

Well, maybe let me take a shot at this. So we -- one of the ways that we drive our organic growth commitments up is by having a greater contribution of both breakthrough initiatives as well as net new NPIs. So we haven't publicly disclosed all the things we're doing in those spaces, but Suresh shared with you some of what the pipeline of opportunities look like. We would expect $1.3 billion to grow, and we would expect it to be a greater part of our overall growth equation. The ones that we've already publicly talked about, and we just spoke briefly about Quantinuum, and we think the Quantinuum opportunity could be $2 billion in sales by 2026. We're already realizing wins with customers across lots of different market segments from financial services to drug discovery and many others. So we're very bullish about that opportunity. We've talked about our Sustainable Technology Solutions business, which really brings together some super exciting technologies against what is, I think, now a pretty obvious trend to global warming. And whether it's sustainable aviation fuel, plastics recycling, carbon capture, green or blue hydrogen, we have the technologies in that business to apply to what is billions and billions of dollars of opportunity. We expect that business to deliver $700 million in sales by 2024. The number could be quite a bit bigger. It's really going to depend upon the adoption rates and the project scale that happens there and then what we want to bite off in terms of our position in that market. UAS/UAM we've talked about, has a huge backlog. We've been winning in lots of different platforms. We think the regulatory environment seems to be lining up. The platform builders there are expecting to take flight in the next couple of years. So that's another example where we think that revenue stream could be billions of dollars in the next 5 to 10 years. So I think we're bullish about the -- how BTIs will contribute to our overall growth equation.

I think the one thing that I can add to what John said, Slide 13, we highlighted around 89 years today, that's something that we felt bubbling up. But as the CTO, I can say there are more than what you actually see today. And that is almost 2x than what we put out -- said 2 years ago in terms of the pipeline of ideas we're investing, nurturing, incubating. And they're all in a different level of maturity at this juncture. In our equation, even if 15% of them succeed, I think the pipeline that we have today has to really help us to grow.

Yes. I think it sits between had, that would be sound then. Okay. So let's talk about investment requirements. We've touched on ROI and IRRs briefly, but I wanted to talk about maybe some of the software investment requirements, hiring and team development and also R&D. But maybe start off with how the mentality of engineering departments changed over the past several years and how your hiring requirements evolving as well?

Yes. We have close to 17,000 engineers. One of the things that deep technical innovators have the best domain depth in many of the businesses. We see an experience of 20 to 30 years of controls depth in the portfolio. But what we've really brought them in the last 3, 4 years change is customer back, market back, commercial back. I think that's something that we are etching all over the place. I think the whole -- the Z21 frame a lot because we are exposing our engineers and technologists with the offering management or product managers for the customers, spending more time with them. I think that is a new DNA shift or a change. Second, we've been augmenting with new cutting-edge new technologies, meaning we've pivoted our company from industrial to software industrial. We brought the emerging software skill set. I mean we have the new [indiscernible] DNA shift or a change. Second, we've been augmenting with new cutting-edge new technologies, meaning we've pivoted our company from industrial to software and industrial. We brought the emerging software skill set. I mean we have the new HubSpot with Atlanta, Bangalore. And we are building a skill set. I think the new age AI machine learning capability, we have Pittsburgh, we have Atlanta. We are starting to be in the build as we speak. I think that rewiring the organization with a continuous infusion of new skills, at the same time, customer market and the commercial back is a DNA that we are treating at this juncture.

Yes. I would maybe just add to that by going back to the beginning. I mean the 3 things that define the company energize our technologists and potential technologists. The people today want to have a purpose. They want to connect with the core of the company they spend 40 to 50 to 60 hours a week and with all of their colleagues investing their lives into. And when we talk to those people about the inventions and the cool things that they're working on that deliver the controls, the basic control systems for the industries we're part of, the fact those controls are becoming more autonomous and connected to become these software ecosystems that we're a part of, and in some cases, the heart of. And we're building a sustainable world with our technologies that are going to have -- allow the planet to outlive us. That's compelling. And it allows us to talk to employees and give them tasks that they feel very, very connected to.

Yes. Yes. And then coming back to financial investments. As we go from 3 to 5 to 4 to 7 as a growth algorithm, does that require a step-up in R&D spending as opposed to sales, the required step-up in CapEx as part of sales? Or is it more a case of being more focused and more efficient with your current spending?

Why don't you speak, Suresh, about the R&D footprint and I'll touch on CapEx.

Yes. Yes. From a R&D investment, we have been pruning a lot, but let me talk about the footprint transformation we've been going through. We had probably hundreds and -- the numbers were too many, probably 4, 5 years ago. We are up to the point right now, the company has a sizable maybe 50% lesser than where we were. And our thinking is in the next 2 to 3 years, we want to really optimize. The reason we want to really do is you've got to have a consolidation of hubs and satellites where you have a critical mass for skills, capability closer to your markets or closer to your supply chain. I think that retransforming the skill sets of the footprint, at the same time, optimizing the spend profile and pushing the envelope on net new versus BTI, that's been my focus on together. John, on the capital investment?

Yes. Let me just maybe parameterize what Suresh is describing. So when we think about our overall percentage of sales to get invested into R&D both expense and capital, we're touching 10%, and it's a very healthy investment profile. Over the next several years, we expect an elevated investment level of R&D just based on some of the opportunities we see, some of the platform builds that are happening in some of our businesses, which we're very excited about. Relative to capital, we don't expect any particular outsized investment profile in the horizon. I think we publicly communicated about a $900 million CapEx rate that investors should expect. But as I said before, it is the highest-return thing that we can invest in is ourselves. So we -- that optionality is something we think is valuable to make sure that if we see higher-return opportunities, we're going to take those opportunities down as a way to fuel higher growth. So we feel pretty good about where we are in terms of our investment level, the outlook for that investment level and the returns that those generate.

That's fantastic. I know we're getting a little bit closer to the edge here. I did want to touch very briefly on the Honeywell Ventures. And how well aligned is that investment profile with what you've just described today? And how do you leverage the IP and technologies within that Venture profile?

Let me maybe take this off. So first, let's start with a little bit of the strategy around Honeywell Ventures. First, the strategy around Honeywell Ventures is really to stay at the edge of our markets and make sure we're close to the innovators that are out there affecting the markets that we serve. And we understand the trends, the technology, in some cases, the talent. And then also to make sure that we can participate in a collaborative way where it makes sense. And so we invest both to be a part of their growth but then also to collaborate together with them, in some cases, very closely. And I'll give you a couple of specific examples. We talked about Quantinuum a couple of times. Combining our efforts with Cambridge Computing really creates the best of both worlds, where we get to participate both financially and strategically and we get to pair with some of the greatest minds and capabilities that are out there in the world. Obviously, that's a very sizable stake in investment. Lilium Aerospace is another great example where we're sharing technology and going to be putting some of our technology on the platform that they're developing. And we're also an investor. So we have a strategic interest in helping them get certified and helping them get to flight so that all of our investments pay off both strategically in terms of our technology profile as well as financially. And then recently, we've invested in electric hydrogen, which is an exciting investment. It's relatively early days, but similar profile where we want to participate because we feel very strongly in the future of hydrogen as a fuel, the need for electrolyzers and to create that fuel, but then also in our ability to participate. Our membrane technologies, our knowledge of electrolyzer construction is world-class. And so we partner together with them. We participate in investing in them. And again, we get to have a strategic view of what's happening. We get to have our technology right along, and then we also get the benefits of, hopefully, a great financial outcome.

Great. So we're running up on time. Nigel, is there any else you want to touch on, maybe among the BTI portfolio? Anything else in relation...

Sure. Sure. I was hoping to maybe touch on the policy environment, but we can -- I can't leave this room without, again, an update on Quantinuum. This is, I mean, from my perspective, probably the most exciting and potentially impactful BTI. So maybe just give us a pulse check on what's been happening behind the scenes there.

Yes. Maybe I'll start, maybe John can add. We have this -- Quantinuum is operating as a single independent entity for the last 9 months. What we are excited as a much more closer with them, we had 2 major product launches in the last 5 to 6 months. One was on quantum margin, which is our unique quantum computing enhanced encryption key that we feel extremely good about. We are in an early stage. We are piloting even with Honeywell at this juncture. The second product that we went live was InQuanto, which is the state-of-the-art of quantum computational chemistry software, which, again, our PMT business is cross-collaborating. And I think that's a great way to start our next BTI thinking. But what's also pretty good about is our recent launch around the hardware. And we met one of the significant milestone, 20 qubits that we promised. We got it and much better performance than a physical one. I think that we are pretty proud about. But what is also an important thing was we announced recently the logical qubits in our fault-tolerant circuit using real-time quantum error correction, which was a significant milestone. I -- we believe that we are probably the first in that particular space. And in that announcement that went live a month ago. So between the hardware tracking against the road map that we said we will and the software products coming out and then we are engaged with a number of customers today, we are at the early stage of piloting who are innovating with them. I think more to come, more to come. I'm pretty excited and kicked about what we're doing that day.

Yes. And just to point out, I mean, we've made public announcements with several large customers, may have heard about BMW, Ford, Roche, NVIDIA, we've announced with and engaged with. And this is something that people are coming to us every day for. In fact, earlier this week, a very large health care provider wanted to talk about how to apply quantum to some of their research to develop better therapies for what they're working on. So the possibilities are endless, which again creates that dynamic of lots of innovation at the edge. The need for really smart and strong selection around which investment opportunities are the best.

Great. We're about out of time here. So John, Suresh, thank you for the insights. Nigel, thank you for the great questions. Thanks to everyone on the line for joining our third quarter leadership webcast. Honeywell remains focused on continuing to perform for our shareowners, and we are excited about the future of the company. We hope you'll tune in for the next leadership webcast, which we'll announce at a later date. And with that, we'll conclude the webcast. Thanks, everyone.