Honeywell International Inc. ($HON)

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

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

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

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

Please welcome Honeywell Chairman and CEO, Vimal Kapur.

Good afternoon, everyone. And a warm welcome to everybody to join us on our Investor Day. I thought it's important to start with our customers because if we have to commit to you growth, if we have to commit to you our bright future, it's not without these people who shape our decisions every day. And I really take it very seriously to thinking about customer-first mindset. So I'm going to walk through my story, and you will hear these messages. So I thought I will lay it out in the front, what you're going to hear from me in the next 35 to 40 minutes. The first is about our transformation to a pure-play automation company, something which you have been following upon. But more importantly, focusing automation on mission-critical segment. Automation is a very wide market. You can make a lot of choices. We are making a choice to operate in a segment where mission criticality matters, where uptime matters, customers want to use these systems 24/7. And making that choice is a critical decision we have been evolving upon over the last 2 years since we are reworking our portfolio. But also the point number three, that we, as a company, are practicing a single business model, which is a bit novel because companies having a business model is not unique about it. Having a businesses following a practice is very standard. But we are going to follow at Honeywell level, a single business model that we build an installed base and we served our installed base through services and software at scale of the entire company. Then moving along to AI, which is going to be a future opportunity for us. You will hear from me and subsequent speakers how our industry of automation will turn towards autonomy. It's real. Some of you had a chance to look at our demos. You can already see that we are pivoting towards our offering. But I believe that as a future optionality of revenue opportunities, it's going to create much bigger than what is in our numbers today. And then, of course, our operating system, which gives us an execution certainty and our team, which knows how to deliver. So jumping on to it. So I'm going to tell my story to you in three parts. I'll first walk you through our portfolio transformation, then I'll move towards what's going to drive growth in Honeywell and finally, how we're going to execute it. So the three simple chapters. So working on the portfolio transformation before that, I thought, let me go back to the last Investor Day of Honeywell, which was 11th of May 2023. So about 3 years and 1 month back. I was not a CEO at that time. So my chart said incoming CEO priorities, and I thought it just could go back and say, what did I say? And did I do what I said or I just wondered around and chose to do different things. And if you'll see the list of things to what I said, we will accelerate top line growth, improve our say = do on that. We'll execute on Honeywell transformation. We will accelerate our new product machinery. We'll improve our operating system. We'll pivot towards more corporate responsibility even though priorities have changed there over the last 3 years, but we haven't lost a course on that. And we deploy capital strategically. I won't say that we've done 100% precisely, but the direction of travel has been what I committed. There are some tweaks. The point being that I stay on course. I don't change my mind. If we are -- what we're going to present to you today, you can have a high amount of certainty that me and my team are going to deliver on these commitments in the times ahead. If you look at our portfolio, many of these actions are known, but I thought it's good to summarize on a page what we have been able to accomplish since start of January '24 until about 2.5 years of journey. Two spins successfully executed the Advanced Material spins last year. Aerospace spin happening in about 2 weeks' time from now. We did seven acquisitions in the Automation portfolio. There were two additional we did in Aerospace, so I'm not counting those. We've done three divestitures, one completed, two are under execution, should occur in the Q3 of this year. We also had significant balance sheet simplification so that our business is easier to understand. And finally, we were able to accomplish the IPO of Quantinuum about a few days back. Now imagine I started as a CEO in June of 2023, and I presented on this chart, I'm going to do this. You may think this is a crazy idea to do all this in such a short period of time. But we are able to accomplish this because we are mission-centric. We really want to build a automation-centric portfolio. So when you work for a mission you get the energy and execution speed on which we have delivered on this. And this has really created the new Honeywell. These are 2025 numbers, so they are backward looking. So $17 billion rough numbers is our revenue of the Honeywell Technologies, divided into three segments: buildings, industrial and process. But 25% of the portfolio is refreshed with all the changes we made of divestitures and acquisitions, 1/4 of the revenue is going to come from the new revenue stream, generally speaking, from a higher growth opportunities and not only have we've been able to create a pure-play diversified end market portfolio, but also have positioned it well for the growth. If you look at the distribution of the revenue, the center pie chart, if you pay attention to that, we really start really focusing upon this whole notion of growing installed base and mining installed base. 60% of our revenue come from solutions, 20% and 40% product. That's when we grow our installed base. We do it every day. That's when we ship a product, or we build a solution. So our installed base keeps growing. But if our mindset is that we need to mine installed base, that's 40% of our revenue, 30% come from services, 10% come from software. And we like both. There's no question of that we need more of services and more of software. We want both of them, because both are equally profitable. And that mindset allows us to really think about our future business model. So one of the things we are planning as part of this layout is we want our services and software revenue to grow to 45%. Because it makes our business more predictable, less cyclical but also more profitable because clearly, that revenue stream has a higher margin compared to the solution and product stream. And that's one of our strategic goals that we want to treat this business with this mindset of building and mining installed base. If you look at our geographic distribution, as you would expect, businesses geographically very distributed, a little over 40% revenue from U.S. and 60% rest of the world. So we will benefit from -- as the global expansion occurs in different end markets will equally benefit from that. Now if the question will obviously come in that automation is a big market, where exactly we play and why we made these choices. It's important question because that's a heart and center of the discussion. So I put a very simple illustration of automation on the left-hand side. Some of you are familiar is called Purdue model, so you started sensing and measuring something, then you define a control measure on what you want to do, and finally, you can optimize it using software. This is how the industry has evolved since mid-70s when this industry got created. As I mentioned, we play in three end markets. building, process and discrete. We have made choice to play in the mission-critical part of these markets. And also you don't see some other parts of automation we have not representing because we believe it doesn't fit into the either mission criticality or our business model of building and mining installed base doesn't really fit in well. Because if that's our core principle, we need to be selling true to our principle. So if you walk the stack here in buildings, we play through sensors, controls and software. So in building the sensors are smoke detectors, cameras, field devices, then we have significant position in the control domain, and we have significant position in the software domain. But when you can do the process, we have significant position in the solutions side, both in the control and software. And on industrial automation, we have sensing and measurement play at this point. We want to build a strong sensing and measurement business in the industrial automation. This is a space we believe in because the thesis is very simple. If the world is going to invest much more in AI, AI is built upon data. And in the physical world, data comes from sensors. You can't estimate temperature of a room or a condition in a building or any such asset based on estimate, it's some going to work. So physical sensing is the heart of it. It's a very fragmented industry. We have already built a strong product-based business in buildings, and we want to illustrate that reputation in Industrial Automation. Discrete automation, in the control side, we don't represent today. And the question will be why we don't participate in this market. It's an attractive market with the U.S. onshoring occurring, there should be growth here. At this point, we don't have a participation in that because that's how our portfolio has evolved over the last many years. It doesn't mean we won't participate in the future. We understand these domains quite well, but today, our position is open at this point. So we're keeping our optionality open. And near term, we'll continue to focus on strengthening our sensing and measurement space. But moving forward, we'll keep ourselves a room to grow into discrete Automation on the control side. So very wide portfolio, which jumps in nicely to the next chart, why do we like all this? Okay, why do you like this combination. First and foremost, we play in a market which is a little over $200 billion between building, industrial and process. And market grows somewhere around 3.5% in a given period. So 3% growth in industries and process and 4% growth in building. Now we want to grow 4% to 6%. So why would we grow higher than market? I mean if market grows about 3.5, what's our entitlement to grow higher than market. There are two fundamental reasons for that. Before I get to those reasons, automation by itself is a secular growth market for several decades to come. In the critical segment, we operate, thinking about critical segment like hospitals, like data center, pharmaceutical facilities, refineries, semiconductor facility, utilities. Automation is like oxygen for these facilities. You cannot run these complex facilities without automation. So we are not in any fundamental shift, which is likely to occur for decades to come. It has 5 decades of proven history. So secular growth here is highly probable in the times to come. So that's a table stakes. But the fundamentals of macros are strong, whether it's infrastructure built out the energy security, which has become a major challenge due to two wars. The labor scarcity and AI issue, which are interrelated, I'll talk to it and reshoring. I think these are the foundational growth vectors, which are occurring in Automation, which support us and support the entire peer group with whom we compete with every day. So question comes in that why would we grow higher than the market? The thesis is built upon two fundamentals. The first is within these markets, there are verticals which are growing at a much higher rate. We are greater than 3.5%, like data centers like semiconductor fabs and many others like LNG. If we are able to participate in those markets and grow at a higher rate, we are able to change the rate of acceleration of our group. So part is how do we make those choices because we can't be everywhere, how we carefully make the choices and grow those markets at a higher rate, while we maintain our share in the core. So that's the first change we want to make and I'll talk more about. And the second, our installed base built over the last 50 to 75 years in some businesses is significant. You're talking here tens of thousands of plants, millions of buildings and assets which we own, how do we execute our aftermarket services strategy? In this mission critical segment, where service is very important. Uptime is very important. Customers care about these assets to work all the time. So if we are able to execute our strategy on service and software flawlessly, that gives us an incremental growth opportunity. So it's fundamentally grow with the market with these two optionality of growing higher on the high-growth markets and mining our installed base better, makes the case for us not to grow 3% to 4%, but make a case to grow from 4% to 6%. In addition to that, the market characteristic of fragmentation in buildings and industrial market, in particular, is very attractive for us, more from future growth and optionality to further do acquisitions. Because fragmentation allows us to make choices. The markets are big, as you can see, $200 billion, and we are shy of $20 billion. So we have a lot of runway organically, but equally importantly, inorganically. And we believe that there's an aggregation opportunity selectively where necessary possible in addition to that. So there's a lot to like in these markets for us to feel bullish about on how can we deliver in the years ahead. All that really comes together in form of where our position is as a pure-play Automation leader, #1 player in building automation and #1 player in process technology. Now if I was standing here in 2019 and saying we are going to be #1 player in building automation, mostly most people will not believe that statement because the segment itself did not exist. We have created a segment called Building Automation from scratch after spinning off our residential business in late 2018. And from scratch, we built a business, which was $5.3 billion, sub 20% margins, to a business which is trending towards $8 billion and high 20s margin. We know how to create pure-play. And we are going to repeat that formula in industrial and process automation, where we believe in honest admission, we are top 3, but our ambition is to stay also become #1. It's going to take a while. I'm not saying it's happening next quarter. but that's part of our strategy that how we continue to execute and bring our position. Our foundational strengths is our installed base, our global scale and our operating system. But our differentiation comes from three points. The first is domain experience. Now domain experience matters in mission-critical segments and our participation in these industries give us a deep understanding on how these sectors work. And more importantly, if we have to mine our installed base, we have to understand the customer needs much more deeply than only at our product level. As an example, if you take care of process industry, which is about 40% of our business, the domain experience there come from understanding the conversion of molecule. These domains really drive a convert a molecule from position A to position B. Not easy to understand domain, it is possessed by very few people who provide technology to asset builder to do that. We own that business. We are #1 provider of process technology in the whole world. which makes us uniquely positioned to have deep domain knowledge to play in that segment. And by the way, the same argument applies in industrial and buildings too. And that gives us a unique advantage as we are turning our focus more from automation to autonomy. Domain experience is going to be paramount to do that. Number two, Honeywell Forge something we have been investing in since 2019. 7 years of journey, now this is a foundation of our business model. If we have to mine our installed base, we want to do through Honeywell Forge platform, which is an AI platform, which mines our installed base better and creates a higher value for our customers. And pivots the path to autonomy. I will ask you to consider checking how many industrial companies announced a cloud strategy in 2019? And how many companies still have the cloud strategy in 2026. We are one of the few companies who stayed on course because we believed into it. And therefore, it has become a competitive difference for us after 7 or 8 years. And then finally, our decision to play in innovation across critical control points, the mission criticality. It's a choice we have made. The whole company runs with a mindset of serving customers, which are mission-critical, which positions us differently from others, which want to serve all the segments. So that's where we believe at our starting point. Now before I go away from my portfolio section, I want to spend a minute on our commitment on ESG. We have stayed on course on that, specifically after separation of Aerospace and our Specialty Chemicals business. We don't have any exposure to nuclear weapons. Some of the shareholders have that as criteria. That obviously was obstacle in our previous portfolio, not anymore. But more importantly, for me, 75% of our offerings are sustainability oriented. That number will only go up in terms of how we think about this business. And finally, our own emissions have been reducing. We haven't changed our course just because it became less visible to the outside world. We have been executing on it. We will be carbon neutral by 2035. We'll be half of our emissions since we started measuring it by 2030. We do it every day. We do it every week, so we are going to stay on course on that. So that was the first part of the story. We have transformed our portfolio we believe in every part of our portfolio we have, and we're in a good position. The question is now what do you do with that? Portfolio is just a good starting point. You need to execute and drive a growth based upon that. So before I jump into our growth strategy, I just want to show back -- go back to this interesting chart for you. If you see the left-hand side, I started my first year was 2024. So I thought it's good to start from the year 1 of me being the CEO. We had a, I would say, at best okay year or not so great year, whichever word you want to choose in. Our Industrial business, Automation business shrank about 4%. And Process and Building grew both around 2%. So not good performance out of the gate, but that's where we started laying out the strategy, which I'm going to share to you that how we are going to grow as a company from mid- to high single digit. There has to be a consistent way to do it. And that way is consistent across all the three segments. You've seen how the Building Automation performance have changed from low single to consistent high single-digit growth we have delivered over the last 6 quarters. And I believe that we are well positioned to do that for rest of the year. The question is, is that strategy replicable in industrial automation and process automation? The answer is yes, because we have a consistent and the same strategy. We don't have different ways to think about it. We are in a different stage of journey in terms of maturity of our strategy execution in our portfolio and have a very high confidence that what we are committing to you in terms of our growth of mid-single-digit growth for Industrial Automation and Process Automation technology and Building in from mid- to high single-digit growth is absolutely going to happen because of the consistency of the strategy. So what's our growth strategy? It's built on this whole circle of shared value creation. We start with growing installed base, which is 60% of our revenue. We need to make careful choices on where we go, and I'll talk to that in a minute. And then we really start with the circle of monetizing installed base. Now if you go back 10 years back, monetizing installed base was all around getting about some parts business, some break/fix services, some service contracts. That changed over the last few years since we started instrumenting our business with the cloud. Now we think about every asset need to get connected, harness the power of Honeywell Forge platform, which creates optimized outcome for the customer. And then as the customer asset gets older, 5 years, 10 years, we refresh it with our migration software offerings. And the cycle starts all over again. That's a fundamental principle. If we think about it across all our businesses, it changes the mindset on what business you're in because you think your growth strategy around that. So with that in mind, this is how we think about our growth strategy. It's a simple triangle. We grow our installed base by selling products and projects, that's 60% of our business. And then we mine that installed base using our Honeywell Forge platform through services and software. And to do 1 and 2, I need new products. If I need to participate in high-growth verticals, I need something to sell to them, which is differentiated. If I have to mine my installed base, I need to give them an offering by which customers are willing to pay for all that converts into 3. And if I do a good job on new products, that ensures my growth. So simple way to think about Honeywell Technology is going to be in a typical year, how much growth came from new products, how much growth came from price. You add the two, substract from them, any market disruption or any churn which happens, that's going to be our growth numbers. Relatively simple to do and why it relates this way because that's linked to our strategy. So we want to make ourselves so easy to understand that we don't have to do a lot of thinking on how to think about Honeywell in the future. Let me dig into each one of them, how we think about growing installed base, monetizing installed base and introducing products. So let's talk about growing installed base. On the left-hand side, you see our current construct of revenue, 80% of our revenue come from what we call mature verticals where the growth happens at GDP rate, around 3% SAM growth, a typical year. So that's our businesses in end markets like commercial real estate, education, airport, refining chemicals, absolutely important business for us. We want to keep our share in these markets and gain some where we have an opportunity through our innovation, that's core part of our strategy. But equally potent for us is that it's an "and" strategy that while we do that, we also make a choice of high-growth verticals, which is 20% of our revenue and growing them at a higher rate. At a double-digit growth rate. And when we do that well, consistently, that 20% becomes 25%. The question will be, how do you choose where do you want to grow? If you randomly pick up what's occurring at this point? Or you want to be thoughtful on that. We're really putting bets on four things on the next 5- or 10-year horizon. The four things should not surprise you. The first is, we believe AI is here to stay for a long time. That's why the two end markets of data center and semiconductor are important for us. Number two, if AI is here to stay, you need more energy, Therefore, LNG and grid infrastructure is important. And those are two end markets we really want to focus upon. Number three, aging population is here to stay for a long time, which means the world needs more life sciences, more drugs and also likely need more hospitals. So we're putting bets on those too. And then finally, hospitality, as world becomes more richer, consumption increases, people want to spend money on leisure and therefore, the hospitality industry grows. So we are not putting random bets on what's in fashion. We are thoughtful on four big vectors of AI, energy, aging and consumption. If those two are true, which we believe they are based upon our analysis, that gives us a structured way to keep thinking about where to focus on high-growth verticals. And we have proven it already. We have grown nicely in LNG through our inorganic acquisition. We have built a good position in data center from nowhere over the last 3 to 4 years. We built a good position in hospitality with a combination of our actions of organic and inorganic. So we're going to continue this journey. Some places, we have a lot more runway, some places we have lesser on this. So that's part of one of our strategy growing our installed base in a very thoughtful manner through our solution and our product. Then once we have built our installed base, then we want to buy an installed base, which is the upper end of this bar. So 40% was -- 60% was at the bottom. Now we need to mine it. Now we are not selling, as I said, breakfast services. We are selling outcomes. That's the direction we are pivoting towards selling labor efficiency, selling asset uptime or operational efficiency, the offering which customers care about consistently across all the segments we operate. That's why the mission criticality matters. If you operate in mission-critical segment, customers care about uptime. They care about operational efficiency. They care about skilled labor. And therefore, our offerings remain highly repeatable because we can work on them across many sectors. And if you see the middle chart of our installed base penetration, we have wired our entire installed base, which is a bit relatively unique feature. If you have time to walkthrough one of our demos in the room here, is we have visibility to our entire installed base of whole of Honeywell. Why it matters? Because If my business model is to my installed base, the obvious first question is, do you even know where it is. It looks very pedestrian question, but it's hard for industrial company, which has grown over multiple years through multiple acquisitions to instrument that. Now we have that data. We know which customers are under contract. We know the life of the asset, which parts are obsolete, which are not obsolete, which needs renewal, and that gives us the penetration option. And you see some businesses are in mid-single digits like process technology, 3%. I see that as an opportunity of runway. We can grow from 3 to 10s and 20s. But every business have a runway to grow. From a critical option if we have to get all the service business in theory in the planet from my installed base, the critical model or empirical model is roughly $20 billion, and our service business is just $7 billion. So that to me is an opportunity set. How we should think about it, how to get from $7 billion to $7.5 billion to $8 billion, which gives me a confidence that we will get to 45% of revenue mix of services and software because the entitlement is very large and mission criticality drives us towards that. Which nicely puts the whole story of Honeywell Forge, which is the center of our strategy to monetize our installed base. Forge, as I said, we've invested [indiscernible] in dollars since 2019 to really build this hardware-agnostic AI platform, which allow us to build our offerings to mine our installed base through services and software. Suresh will walk you through in his section, how the journey has evolved over the last few years? But really started with connected services, connect our installed base and offer our customers a service contract through force platform. Why it matters? Because customers are able to get better uptime, they have better visibility of the assets, we're able to get better prices as a company and also have a lower cost to serve. That's how we started in 2019. Then we pivoted toward new software applications, applications which were created with the power of data. You can create new software application to configure our products. You can create application to inspect our product. For a license fee, and they became a new revenue stream for us. So revenue streams are growing to a point that today of approximately $1 billion of revenue is annual recurring revenue for us, only for software. Company like us used to have big software numbers. We have learned our lesson to keep it simple, just report ARR, which is what we invoice. And this should grow about 15%. We believe if we execute the strategy well. and that becomes a growth engine for monetizing our installed base. Of course, as I said, total service or business is $7 billion. $1 billion of that is from software recurring ARR. So obviously, we will work towards growing that in the future. Now the last box here of autonomous operation is equally important. As the word is growing as we are getting more and more data, we clearly see automation industry moving towards autonomy. So what does it mean? If you go back to automation industry, when it was created in mid-'70s, the whole model was built upon the concept of rule-based system where human is in the loop. So you take an asset, take a hospital, take a semiconductor fab, take a refinery, you instrument it, you put control measure. There are exceptions which happened, exceptions are managed by humans. Humans will come in and take a control measure to deal with exception. Now at the hindsight, after 50 years, you say, wow, there's a problem in that model. The problem in that model is that human, which was running that asset for 10 years, 20 years, acquired a lot of knowledge why this system fails, why it doesn't operate the way it operates it. So when that human leaves, the knowledge leaves with the human. And that's becoming a problem over the last 10 years as lesser and lesser skilled people were available -- are available, knowledge is becoming an issue. AI solves the problem. So we are in a world today of Agentic systems where agents are helping human to augment the knowledge we are missing. So our customers are asking for more and more agents to run their facility, run their buildings, run their plants, run their process facilities, and eventually, we will find a pathway towards autonomy. But augmentation itself has a huge opportunity of transforming our industry from automation to working towards autonomy. And if you look at it, how we are enabling it, look at some stats on the right-hand side of the chart, we have more than 300,000 customers connected. I would argue that some scale, 5 million assets which are connected. And every day, every day, we collect more than 1 trillion terabyte of data. That's the basis for us to build our autonomy. It's not going to happen just because I want it needs a foundational system, and we have created a foundation on which we're going to build an autonomous system on the future. So future optionality. Only $1 billion of ARR revenue is in our revenue stream today, but I'll argue that there's a lot more runway to come. Now all for us to do moving into verticals and serving our installed base requires new products. And one of the decisions I made as incoming CEO was to raise our R&D spend in 2025, if you observe our R&D spend went up by about 50 basis points. I think it was necessary, because if our thesis is all about growth through new products, we need to spend at median or above end of the market. That's -- but we need to spend it smartly. So we have done that. I don't see a necessity for us to make any more correction. We are at the point we like it to be. Now we need to grow our revenue every year and earn that incremental revenue through our growth while keeping the percentages the same. But what that has done is our vitality has been progressively growing to mid-40s. The typical industry leverage of vitality is about 20s. Vitality is defined as products you created over the last 3 years so that you can see the health of the business. You're not selling old stuff, you're selling the new stuff, so you're less disruptive to yourself. And then all that is leading to our organic growth, what you can see on the right, we are slowly progressing from not growing based upon new products to more growing. And we do expect this number to keep going up as we make progress on this. But it's less about spending more money. I wish that you can grow by just spending more R&D dollars. It's not that straightforward. We have also invested heavily in refreshing our offering managers. We have 600 of them looking at their talent, making sure that we have the right people in the right jobs. That's an important part of our execution. But also looking at underlying systems, do we have the right systems on how we look at our new product performance. How do we know which is working? What's not working? What's the basis of that? What's the definition of that? And then our launch processes. It's because we launched hundreds of products in a year, that's a big opportunity. So all that really is a basis for us to think about high confidence in this. I spend a lot of my personal time on this process. Question is why? Because all our growth is linked to new products. And if me and my colleagues, SBGs CEOs are not passionate about it, we will not be able to execute the growth we're really talking about. All that really comes back to the story I started about. This whole cycle of shared value creation is in motion. This is not something we are thinking about. It's a strategy we're going to do it in the future. 5.2 million assets connected it will be 9 million conservatively by 2028, almost double, which is giving us a high confidence that using Forge will continue to propel our services and software revenue from 40% to 45% because we create outcome for our customers. And then we keep refreshing our installed base and go back to the whole cycle. So the cycle of value creation is a whole part of our growth strategy, which we want to get across. So before we wrap up this section, I thought also spend a minute on our M&A. Our growth is heavily dependent on organic growth. I want to make it very clear. That's the majority of our growth. We did six acquisitions. And acquisitions were done more around some known growth vectors we strongly believe in, either in end markets, we believe there's a high growth. So we made three acquisitions in LNG space. Air Products LNG business, Sundyne business and CCC business. But we also made two acquisitions in the space of security. We believe the world isn't going to invest more in security, be it physical, be it cyber. So we are acquiring in the spaces, what we call bolt-on, the space is extremely well. So there's a lower risk and higher probability of execution. And Mike will share with you numbers of all these acquisitions, we want to be absolutely transparent on how we are doing against them. But the good news there is we are beating our internal model across all of them, and they are based upon some tough numbers we are committed to ourselves. And we're going to stay on the same strategy. We're going to stay on the bolt-on strategy in the optimal size of $2 billion to $4 billion. With a clear path on commercial synergies, continue to operate in mission-critical segments. So we're not going to change our rubric what has been successful for us. And we'll be very selective. We'll be very thoughtful because we are very focused at least in 2027 to wind down our debt and continue to make our commitments on that front. I thought it's important to spend a minute also on Quantinuum, a good success story of completing IPO a few days back. The Quantinuum now becomes an optionality for us in the future. We own 47% of the company. So how do we monetize it with future optionality for us? But what excites me about Quantinuum is the quantum story and AI story it goes hand in hand. As AI is scaling, the compute power is not able to keep up with that. The compute power is running in differential to the compute power, which AI is demanding. And the best way to solve that is quantum. And the areas like drug design, optimization, new material discovery, cybersecurity is where cyber demand where quantum demand is imminent. And we believe that at the right time, when these start scaling up, it will be the right time for us to monetize our stake. But we are in a much better position now because the company being public and will execute at the right part of time. So moving to the last part of the story now, I'm spending my last 5 minutes on, okay, it's all great. How are you going to execute it? I mean anybody can say and it's good to tell the story, but do we have a muscle to execute all of that? I'll first point out to our Honeywell Accelerator, which is our operating system. This has grown over 20 years. I am proud to say that my two predecessors did an excellent job to lay down a strong foundation of this operating system since 2005 when Dave Cote started really focused on functional excellence and manufacturing operating system. Under leadership of Darius, we really moved into new products and pricing and to some it to commercial excellence. And under my leadership, we focused on business models and customer obsession. So the point being that this is an ever evolutionary operating system. This is how we make a choice to work by discipline and it makes our businesses better. It also gave us an assurance that we can execute with certainty versus execute with high variability across businesses. And you will hear from different business leaders, how they use operating system, not only for running their business. And if we did an acquisition, how we integrate those acquisitions flawlessly as part of our business. Which nicely flows into the next point that accelerator is a big part for us to also drive our margin expansion. The margin expansion tools are going to be typical. It's going to be pricing, it's going to be productivity for sure. But rather than pricing on productivity through not a systemic manner, we use our tools, we have created over 15 to 20 years, to drive manufacturing excellence, to drive pricing execution, to drive commercial excellence, to ensure that we can deliver on our margin expansion. But also use our tools to manage our fixed cost. Our fixed cost has come down by almost 600 basis points with all the work we have done. Now our job is to keep it at 31%. We have got it. And if possible, make it even lower to further expand our margin. And our operating system really drives us to understand what are the optionality and options for our fixed cost management. And finally, as I mentioned before, our mix of -- revenue mix as it changes is certainly going to be margin accretive. So all that gives me high assurance that our margin expansion in rubric is very solid, because it's built on a back of operating system, which we use every day. Now to do all that, we have a very capable leadership team. You're going to hear from six of them later today. From Mike, Suresh and 4 CEOs. I can tell you that this team is super charge up and highly excited about optionality it had in front of them. We have executed, as I mentioned to you, flawlessly over the last 2 years. Delivered to you, hopefully, in surprisingly matter on executing our plans, flawlessly acquisition integration, but also continue to deliver our financial commitments. And this team is very capable to deliver to future commitments. We're really talking about ahead of us. It's also interesting that many of the team players rejoined Honeywell, I thought it's an important feature to point out. Starting from Mark himself, who rejoined us, but also Anant, who rejoined us from Microsoft, Billal, who joined us and Pete, who also rejoined us. The question is why people are excited, not because they're a great friends. But because they believe in the strategy. They believe that we are on to something which creates a new opportunity, and we collectively are excited about that. So it's also our Board. I'm proud to have three of our board members in the room today. Mike Lamach, who hopefully needs no introduction, CEO and Chair of Trane. Mike is going to be our Lead Director. We have Indra Nooyi, who as Chair and CEO of PepsiCo; and Stephen Williamson, who was CFO of Thermo Fisher. They represent our board here today, and I'm very proud to have a Board which is not only driving governance but driving us insight, helping us execute this strategy. And like any other purpose-built company, you also get to build a purposeful board so that it's aligned to execution of your strategy. So the great team with the right Board gives me high confidence that we're going to execute on it in a flawless manner. This chart is -- I wanted to leave this chart for you, which is a very interesting data point. If you see on the right-hand side, this is an attrition trend of Honeywell since 2019. And if you see the numbers like when the big resignation happened, our numbers went up like everybody else, and if you see the chart on the extremely right in end of 2025, our attrition is lowest in our history to our data we can ever find in the last 15 years. That sounds very counter-intuitive that a company which is going through such a big transformation, spinning stuff, selling companies, why people are not leaving because they believe in the future. We are creating a true growth culture. look at some of the stats on the left-hand side. Our Voice of Employee Score is 74% above industry median. Our Glassdoor score is way higher than our peers because we are investing in people, in their training in customer co-creation, they can see the strategy. So I think if know the stat gives you confidence, I think this is all facts that this gives you confidence that we're on the right trajectory because the employees believe into it. they're insiders, they can see and feel it every day on how we are executing that. So with that and wrap up, I will say that we as a company feel -- Mike will talk more about our financial rubric, but I, as a leader of the business, feel highly confident on delivering what we are committing to you today, 4% to 6% organic growth. We do have a contingency built into that. We are absolutely transparent about it. I do believe in today's uncertain time, you do need some contingency to deliver the commitment. So you can't build a plan and come back with you to excuse us to say, here is the reason we can't deliver that. I feel highly confident about our margin expansion and delivering 10% plus adjusted income growth. So with that, I'm going to wrap up here, my section. I hope the story of building a pure-play automation leader is convincing the story of durable growth margin with our mission criticality focus and business model is convincing. And optionality of future are going from autonomy from automation to autonomy is real. And our operating system is going to be the backbone and our team. It's going to be the backbone, which I've executed. So I look forward to the more conversation. I'm going to invite my friend, Billal on the stage to talk about his successful story of Building Automation.

Please welcome President and CEO of Building Automation, Billal Hammoud.

Thank you, Vimal, and welcome, everyone. Thank you for being here. In Building Automation, we have created an amazing business that's operating in an attractive space, $120 billion space are pure-play controls, growing at 4% annually with strong secular growth trends. Our focus on Building Automations on the three primary operational control domains, fire-life safety, security & access and energy management. We do all of those while addressing the #1 problem facing our customers around the world which is this shortage of skilled labor. In the next 20 minutes, you will see firsthand how we've transformed this business into one of the fastest-growing businesses in the industry. We've done that really we're focusing on three things: one customer centricity; two, on speed of innovation; and three, having the best empowered talent to do that. On customer centricity, working along with our channel partners, we've really increased our focus on growth verticals, and we have made intentional decisions to reorganize our people as well as change our decision rights to allow highly talented, capable people in the regions, closest to the customers to make decisions. They understand the customer best, and they are able to move fastest to make the right decisions. On innovation, multiple years of double-digit increase in our R&D sales, led by our focus on Forge Connected Building, which has become an important part of our overall growth algorithm. So all in all, what this allowed us to do in 2025 is to grow our top line by 8% to $7.4 billion and expand our margins by 80 basis points to 26.5%. What you will see here is a well-balanced business with a lot of optionality for growth, both in terms of how we look at products and solutions as well as our strong geographic mix as well as our exposure to different verticals. Specifically, when you look at these verticals in health care, hospitality and data centers, Vimal touched on them, we see those for Building Automation as three growth verticals globally. And especially when you think about data centers, which a couple of years ago was really a negligible part of our sales. And in 2025, it became 4% about sales. And as we sit here it's operating well above 5%. That's how it's trending. So we expect these to continue to grow in the years to come. So how do we serve these verticals? It's not enough to show up with end-to-end business teams. But you have to have something worthwhile to sell. And specifically, what you can see here is how we position our technologies to deliver things in each vertical that, that vertical cares about. When I keep going on this, and the benefit we get with Honeywell Technologies as a pure-play automation company is now we are able to work across all the businesses in Honeywell to start to bring one Honeywell offerings. Specifically, what you see on this chart highlighted in red, data centers, utilities and life sciences. These are the first verticals that we are tackling from a class Honeywell, where we believe we can bring on Honeywell offering that will be absolutely unmatched by any other competitor in the world. We're really excited about this. Specifically for Building Automation, how we are serving these customers with these offerings you heard Jim will talk about the basic of our offering, which is very true for Building Automation. We have sensors, we have controls, we have software that lives on top of it. We sit at that critical intersection between the physical world and artificial intelligence. And we see a lot of value creation potential as we lead the buildings industry into true autonomous building operation. But even within each one of those specific domains, there's a lot of opportunity to differentiate and create value. I'll share with you just one example from each. If I start with fire, some of you may have seen how people walk around with literally with a stick that creates smoke. This is part of a -- in the U.S., that's a annual compliance test that has to be done. Typically, it takes two people wake takes one person walking around with the smoke. Sometimes it needs to help with the ladder. Another person standing next to in the back room, next to the fire panel. I just expose smoke. Do you see smoke? Yes or no. Well, all of that is gone now. We have smoke detectors that actually generate and test themselves. So you no longer need two people walking around doing the test. And without connected life safety offering, what we are able to do now is do this test completely remotely and our connected life safety generates that report. It's a simple task, but it's 1 that takes a lot of time and one that you have to do to be in compliance. So not only have we saved the time, but we've done two important things. for our channel partners. This is a skilled labor that was not working on new projects that now is able to do that, and they are able to grow that business. And when they build the business, they grow our installed base with it. For our end users think about the hospital and having to walk into different rooms with patients they have and having to disrupt that operation. So a lot of differentiation being created there with this capability. If I think about security, our OnGuard platform is by far the most scalable platform and access solutions, we are able to serve customers that need to run global operations with hundreds of thousands of devices and users all off of one platform. As we look into what we're doing next, we will -- we are taking this into a cloud native offering that is super scalable and creates a unified view for customers around the security and access operations. And then building management, we are the very proud owner of Niagara framework. It is the most commonly spoken language in building controls that are more than independent developers around the world that use Niagara and any other thing in building management systems. And obviously, we'll continue to build on that as we take Niagara as a cloud native offering and we layer them Forge and bring in the AI capabilities to that. Our services businesses, no surprise, will benefit greatly from our Forge and Connected Building Capabilities, as we are able to create more better outcomes for our customers, and we're able to do things on a more as-need basis as opposed to check the list. And finally, in our Projects business, what we do there, we actually take our own products and we go install them for customers. Why do we do that? If you can think about some of our customers being global customers that operate in multiple countries around the world, they benefit from the ability for us to execute consistently around the world no matter where they are located. And also, sometimes you have complex projects that involve multiple control domains, and this is where we do it ourselves. In our Projects business, it's about 15% of our business. So if Projects, we're only installing 15% of our installed base who else is doing it. And this is where the very important and highly differentiated channel partner network that we have around the world comes into play. Our channels represent over 60% of our sales. These tend to be highly capable, very nimble companies that know their customers very well. I'll work with them allows us to do two things, two things. Number one, they are able to take out innovation and scale it faster than Honeywell or any of our multinational competitors can. So they are able to drive more quickly than anybody -- bigger companies can. The other thing they do is they keep us on our toes. And they move fast. They expect us to move fast. So as you've seen in the last few years, what we've done here in our major regions, we are serving over 80% of the needs of that region locally. And also since 2021, we've done tremendous, almost a 90% decrease in our lead times from the time the customer tells us they want something to the time we were able to ship it. And we did that while significantly improving our say = do for these partners. So great partnership works really well for us. It works really well for that for our partners and that allows us to focus on the high end of the value creation for pure-play controls. We have a balanced portfolio mix with Fire and Security being over 2/3 of what we sell. The HVAC building management system controls is less than 1/3. So if you see that the overlap between us and the HVAC player is less. For one thing we're not doing equipment, we're just doing controls. And then obviously, the global nature of controls as opposed to when you're doing heavy equipment, lot of that for these players tends to be more focused on a regional basis. And as you can see here, we have leading positions across the worlds in very different countries here. So, what does that do for our growth algorithm and multiple ways here for us to look at it? If I pointed that tension to the top right of the chart, when you look at other offerings, and then we'll show this as a overall Honeywell Accelerator growth algorithm. We have software growing high double digits. We have services growing in the high single digits, low double digits, and we have fabs and projects going in that mid-single-digit range. All of that gives us instrumentation to grow consistently in that high single-digit percentage. Our vertical focus, something similar way with a different way to come at it. Our high-growth verticals growing in double digits. The established verticals growing in the mid-single digits, that gets us into that high single-digit space. Similarly, on our regional focus between the high-growth regions and the established lesions. And last but not least, multiple years of double-digit increase in R&D investment meant that we are getting a lot more of our revenue now and the new product introduction is a real growth accelerator for us. In fact, of the 8% that we delivered in 2025, 4.5% came from new product introduction. So clearly, those choices we are making on R&D investments are paying off and showing up in our financial performance. So how will we continue to do this? We have the #1 position in the three critical building controlled domains, Fire and Safety, Security and Access and Energy management, and we will continue to build on that and create more differentiation. For Connected Building has reached escape velocity, the flywheel turning. In fact, we connected more buildings in 2025 than we have since the inception of Forge several years ago and expect that to continue to accelerate and continue to grow very nicely for us. New product introduction. New products have the blood lifeblood of an organization. You heard Vimal talk about it, that we don't delegate new product introduction. This is our responsibility as a Honeywell leadership team. In fact, 2 years ago, Suresh and I started this thing where we do every other week, we sit with our team for the good part of a full day and we review our new product work that our team is doing. And we're very proud of what the team has done in the last couple of years. Our conversations have gone from 3 years ago where we will focus on execution. To now, our team has execution. We don't need to get involved in it. They do a very good job at it. And our conversations are more about road maps, a lot about thought leadership and all about the vision for the future. We allow individual contributive offering managers to come in and we sit there for the day and we problem solve with them. We talk about different scenarios. We're able to understand our competitive position, certainly not only from the established competitors, but also for any up-and-coming competitors. It's a great way to stay on top of the business, make sure that capital allocation is going to the right place. And it's also -- it's an amazing way to develop talent. And it's really nice to see how people pick up from these conversations and what they do with it. And certainly, our business model is all about an installed base that we continue to monetize. And we will continue to do this. We cannot overemphasize the importance of our highly differentiated network of skilled third-party partners that help us to scale our business as we go. Said another way, a virtuous circle of growth. We grow the installed base. We connect the assets. We leverage Forge. We deliver more outcomes, and we allow our customers to make the best utilization out of that asset. Buildings are inexpensive assets. Our customers expect us to help them get more out of that building each year. Especially when you think about verticals where the building itself is key to the way the customer makes money, whether it's a data center or a hotel or the hospital. And Forge will play an outsized role as we move forward in connected building will be very prominent in how we help customers make better utilization and serve the customer better through the building -- what the building can do. This is an example of that. This is -- in this case, this is Vanderbilt University. This is a project that we're working on with one of our channel partners. In fact, Vanderbilt University, one of the very few, but it just so happens that there are no Honeywell controls on that building. So we leverage our Niagara framework, and we leverage force connected building to come in and connect these buildings. And when you see on here, clearly, the fact that we've gone from 2 weeks connected building to a few hours really helps with the return on investment. And it's not only about the energy savings and the labor savings but for Vanderbilt University, the mission is on education, and they continue to grow. One of the obstacles for growth was how do they continue to service those buildings because they cannot find enough trained technicians. So now we take that off the table with Forge connected building, and we allow the customer to focus on that core mission, and we help with making sure that the building does not become an obstacle for that. Another good example here in data centers. You all saw [indiscernible] talked about, she said literally helping them do things faster. If you think about how you serve the verticals, you show up with end-to-end empowered business teams, but you also have to get to a point where you truly understand what it takes for the customers in those verticals to succeed with their own customers. And in the case of data centers, it's all about speed of scaling. And with Equinix, when you think about the commissioning of that data center, it typically takes 5 to 8 months, and this is where you find the surprises that you don't want to find. So we work with Equinix to reduce that commissioning stage by 33% and in the process, not only make it shorter, but make it more reliable and again, help Equinix focus on scaling and serving the customers they worry about commissioning a new building. So what will this give us for the outlook? We have instrumented this business with the focus on verticals with talented empowered teams and our visions. The investments we're making on new product introduction and the acceleration we're getting from Forge connected building, we have instrumented this business to grow at high single digits. And we expect no matter what comes out from the world will be consistent in that mid single to high single-digit space. Some of you in this on a couple of years ago, we had a lot of interesting discussions on margins and building automation. And why does building automation has the highest margins in the industry? And is that sustainable? Or we're going to have to trade-off between margins and growth. I hope you see now that we can do both. Fundamentally, as you saw from what we just discussed, our margins and the differentiation of margins is because of our differentiated business model. The combination of us focusing on the pure-play controls. The combination of us innovating and having channel partners who can scale that innovation very quickly, and they worry about the most of the time, most of that labor content and we stay focused on the parts and smarts. That's the fundamental difference here that you see in our margins. And the good news here, 26.5% in 2025. We see that going to 29% over the next 3 years. How is that going to happen? Well, as we are busy transforming the business and transforming good results in 2025 and 2026, we've also been investing in the business. Today, we can serve the volume growth that will come at us without having to build a single factory and in fact, without having to expand a single building. In fact, we don't even need to put any major capital investments in our factories. We've pulled up our factories to help us deliver the growth for the next 3 years. Not only enough factories, but R&D investments, consecutive years of double-digit growth in R&D, we now have the scale we need to continue innovating effectively and quickly. And are being close to our customers, we've invested hundreds of resources in our regions and our verticals focus on demand generation. So the business is well instrumented to be able to continue to grow and benefit from the volume leverage. I have Honeywell Accelerator framework, which is very proven, and we have a clearly proven formula that talks about pricing and productivity always exceeding inflation and investment. We did that last year, we were going to continue to do it. And that, but certainly not least, as we accelerate force connected building and our connected offering in our software recurring revenue, expect to see that margin mix continue to be favorable as we launch these products. All in all, we have an amazing business. This is one-of-a-kind business that we'll continue to give as we invest in it. We are super excited about it, and we truly see sky is a limit for this business. Thank you. And with that, I'll turn it over to Pete Lau, my good friend and colleague.

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

Incredible job Billal, amazing stuff. Okay. Good afternoon, everyone, and welcome to our Investor Day. It's good to see a few familiar faces out there. My name is Pete Lau, and I'm the President and CEO of Industrial Automation here at Honeywell. I'm excited to be here with Vimal and our colleagues today talking about Honeywell Technologies. I am acutely aware that probably the least understood part of our portfolio is industrial automation. So I'm looking forward to explaining IA in more detail. We'll spend this time talking about our customers and our offerings, and I'll cover how IA has evolved, where we play, why we win and why we're a valuable part of Honeywell. But mostly, I'm looking forward to talking about why we're an essential part of our customers' workflows. Okay. So it's been a bit of a journey for the businesses that make up IA today. These are product-led businesses with attractive and growing software and aftermarket offerings. As Honeywell has evolved, these businesses have had multiple homes, a partial position in performance materials technology, a partial position in safety productivity solutions as a part of the previous $10 billion IA that I joined in October. The opportunity here for these businesses is all about focus, focusing on these product-led businesses. Historically, IA was a part of larger entities that were dominated by project-led -- integrated project-led businesses. And trust me, those businesses take management's time. They take attention and they take an outsized portion of the investment. And the larger entities had critical mass in specific end markets like process and warehouse automation. And so the product businesses really just existed to further the interest of those entities, which means that the IA businesses did not invest enough in new products. For solutions that are tailored to their technology in high-growth verticals. We've lacked a little bit of an identity. We've lacked an operational focus, and we've lacked rigor in these businesses. And as a result, these really good businesses have underperformed. In the last 4 years, the pro forma for these businesses, revenue CAGR was minus 4%. NPI contribution to revenue was less than 0.5%. And gross R&D investment down 20%, our on time to delivery for our customers was 45%. As a result, we lost share. But in the new focused portfolio that is IA with all the portfolio that work that we've done, that's going to stop. And it's already stopped. We've already started to turn the corner. The new IA is a sensing and measurement business. And sensing and measurement forms the foundational technologies for the automation tech stack. And for the first time in over a decade, we'll be able to focus on these product-led businesses. We enable industrial automation through data collection, and we collect a lot of data across a variety of verticals in a lot of different industries and channel to markets. Our offerings are used in basically every single one of Honeywell's businesses. Commonality for IA will be in the technologies and our operational excellence rather than in a singular end market. This setup will allow us to optimize the IA businesses in a way that we've never been able to do in the past and really drive world-class operational efficiency. This is an incredible set of businesses. IA's technologies are engineered for mission-critical environments. Precise accuracy and reliability are absolutely essential for our customers, and failure to meet those objectives carries material impact to human life, to safety, to customers' revenue, to their operations, to compliance. And we have really high barriers of entry because of those regulations. And so we have a lot of competitive differentiation. Our offerings make up a small part of the bill of material for automation and so that implies a certain amount of price inelasticity. We built a well-deserved reputation for quality and reliability, and our installed base is substantial. So a lot of times, it's just too risky for our customers to substitute our solutions. And that creates the ability to expand our services and software offerings in a way that we've not been able to focus on the past. With a highly focused organization and differentiated businesses in highly regulated markets, IA is primed to be a value creation engine for Honeywell over the next couple of years and beyond. Okay. So here's -- this is a one-page overview of our businesses moving forward. And to be clear, this page really reflects Industrial Automation post the sales of Intelligrated and our PSS business. So today, we're a $6 billion business. But after those divestitures will be about a $4 billion business and pro forma is about 20% segment margin. As Vimal noted, we operate in a $35 billion space. And so there is a ton of opportunity for M&A. But I want to be really clear that the organic opportunity for these businesses is significant. When I look at this page in this portfolio, I see nothing but opportunity, we're way underpenetrated in our solutions offerings. Our vertical mix is 85% skewed towards mature markets. And that's led to margin contraction. But our new homogeneous business model will allow for focused NPI investments in higher growth verticals and higher-margin spaces, sustained focus on offerings and software offerings. And as a result, we expect to expand margins significantly. There's meaningful white space for organic growth, either by expanding on our sensing use cases, so becoming more important to our existing customers or selectively moving up the tech stack and growing our position in instrumentation. Today's IA is positioned to reach its full potential by allowing our businesses to flourish within their target high-growth verticals. And by pooling investments to drive world-class processes in these product-led business models. Okay. So a little bit about where we play today, and I categorize our offering into three main areas: all directionally about the same size. And so the first is an industrial measurement. Typically, we are measuring highly toxic gases in mission-critical environments related to human safety. They require reporting to regulatory bodies. The second is in utility measurement. Think about the movement and measurement of resources and the mission criticality here is all about the measurement. We move billions of dollars of gas, water and electricity around our world then the third is in sensing. Sensing for the most mission-critical environments that demand the ultimate in reliability, failure is simply not an option here. Our sensors are designed into a lot of equipment, both OEM equipment and our own, and they cannot fail. And I'm going to give you an example of that in just a little bit. The spaces we play in are all highly regulated with significant installed base, an installed base that's not fully mined to its potential and with the ability to expand our services and software offering set in a meaningful way. About 18% of our revenue is solutions focused today. But just to give you a feel, we think entitlement is probably closer to 35%. Understanding the technology stack is a really important part of understanding how we set up IA in the pure-play automation Honeywell. On the left-hand side of the page, I'm showing an overly simplified version of a tech stack for automation. But generally, to achieve automation, a customer first requires equipment at their site. Okay? And then that equipment generally has measurement or sensing technologies, either designed into that equipment or set in a stand-alone instrument. These are the technologies that collect data and then they deposit that data into a data link in our instance, Forge. And then the controls and the software consume that data to deliver automation. The new IA is pretty much a slight departure from how we've generally set up the business groups in the past. Normally, in Honeywell, we moved vertically. We own the really valuable parts of the tech stack, and then we do critical mass to really drive differentiation, as Billal just described in buildings or what you'll hear from Ken and Jim in process. What's really cool about IA is that we're unique. We go horizontal. We own the sensing and measurement portion of the tech stack. We collect the data that enables automation. And this is a really fragmented but extremely valuable part of the tech stack. Especially when you play a highly regulated or highly specified use case -- specified use cases, and that's our core business. The horizontal setup will allow us to pursue meaningful white space both inorganically and organically. Just a reminder, we're a $4 billion business and a $35 billion space. So with our new configured focus, we're free to invest in new products in high-growth end markets, in really attractive spaces with great cash flow margin and capitalize on our pooled investments that are applicable to these common business models. Just to bring to life our solutions a little bit and where they show up across industries. As a sensing and measurement platform, we're designed into a lot of instruments and a lot of equipment. We tend to show up everywhere. Inherently, we cover a lot of geography. But I want to point out a couple of use cases or industries that will continue to focus our organic and inorganic efforts towards. We make critical sensing technologies highly regulated industries, industries like aerospace, industries like utility, industries in life science, where I partner with Jim and PA to deliver a differentiated offering. And then we make sensing and measurement technologies for highly regulated use cases in less regulated industries. Semiconductor is a great example. Industrial is a great example. Petrochemical, where we team up with Ken to deliver a differentiated solution is incredible. These are just a few examples of how our product and solutions drive mission criticality in our markets and across the world. So in summary, IA is an extremely differentiated businesses with many tangible proof points. 90% of our offerings are certified either to very tight specifications or to regulatory requirements. That makes us competitively advantaged. Our solutions have a high cost of failure and are a small part of the overall bill of material for our customers, which makes our customers reluctant to change. And this enables deep domain expertise and customer intimacy that solidifies our relationships across a very vast and growing installed base. And that intimacy and that installed base serves as a launch point for more life cycle services and solutions. So to give an example, one of the parts of our portfolio that's extremely differentiated is our sensing business. Most of the sensing portfolio is highly engineered solutions that are designed into products, whether they be OEM systems or so many Honeywell instruments. This makes the business extremely sticky and gives us multiyear visibility into revenue tied to our customers' product life cycles. And so to bring that sensing to story of life a little bit, let's take a look at our ultra-high four sensitivity sensors, that our customers use to ensure reliable medication delivery for health care patients. A good example is Fresenius. So Fresenius along with a lot of other medical device makers, sells millions of infusion and dialysis machines every year. These are regulated devices that are FDA certified. Health care facilities use these to really identify potential events that would block a fluid pathway of medication. The solution is mission critical for patient safety. HSS's sensors can simply touch a fluid delivery line and identify these events, enabling our customers to deliver really reliable solutions. The sensor is mission-critical in the ultimate of high-risk environments, it can mean the difference between life and death for a patient. These customers have been trusting us to design these sensors into their equipment for many decades. The risk of change for them is massive. If I'm on the other side, I'm not trusted anybody else but Honeywell to continue to design these sensors as we have for decades. Plus, these customers get the knowledge that the unique sensing elements are made and are owned and operated wafer fab in Richardson, Texas, which is a competitive advantage in this industry. Last year, we made 200 million unique sensing elements alone in just that fab. Okay. So here's another example of IA's highly differentiated capabilities this time in gas detection in the semiconductor fab. So most of you know that semiconductors use a host of highly toxic flammable gases to create wafers, right? Monitoring for gas leaks is mission critical, not just for human safety. But the accuracy of that measurement is so important because uptime and fabs is worth $2 million of productivity an hour. Honeywell's comprehensive gas solution -- gas detection system is the standard for hazardous gas detection. We are the specification in every single semiconductor manufacturer across the world. And again, we benefit from having done this with these folks for multiple decades. And that enables us to partner and offer life cycle solutions. So it's an OpEx and a CapEx solution. It's the gift that keeps on giving. But these are just a few examples of how our products and solutions support mission-critical applications across a wide range of industries. And so before I hand it over to Jim and Ken, I want to leave you with a summary of what all this means for IA's future. The opportunity for these businesses to finally be in a home with similar business models is massive. Over the next 3 years, the revenue of this business is going to grow mid-single digits and we'll reach 25% operating margin. And so to tie that back to earlier in the presentation, it's a drastic change in our revenue growth fortunes, but also 500 basis points of segment margin expansion in the next 3 years. And it's not back-end loaded. I feel very bullish about the second half of 2026 and 2027. We're going to do this by focusing on three key revenue levers in the Honeywell growth algorithm that Vimal talked about. First, we're going to increase our exposure to high-growth verticals through a combination of NPI, channel expansion and go-to-market. As I talked about earlier, only 15% of our business is exposed to high-growth verticals today. But as we shift our mix, we're going to stay true to our core and really expand in highly regulated environments where we have unique differentiation, which means the right to play and the right to win. Second, we're doubling down our investment full stop. In the last 18 months, we've increased our R&D investment by 13%. And over the next 3 years, we're going to do another 15% to 20%. Like Billal has done with buildings, we are going to turn this business into new product introduction machines. We are going to relentlessly focus on building solutions that really drive customer value and give solutions to our customers that they want. We'll do this in our core, where we know we already have relationships with these customers, and we'll do this in close adjacencies to our core where our technology has an obvious fit. And then third, as we grow that vast install base through #1 and #2, we're going to compound customer value by delivering more solutions and offering set. Look, as a part of these larger businesses, we did not focus enough on solutions. And we talked in our tech demo today about different solutions for aftermarket that we're going to be able to do. We highlighted Safety Suite, which is a software service that's based on CLSS. Some of you may not know, but I was the President of the Fire business in Buildings when we launched the CLSS that Billal was talking about. Billal of course, is supercharged it. But Safety Suite is based on that CLSS. This is a core competency for Honeywell. One that we know how to do and one that we'll do really well. And then last, on the right-hand side of the page, we'll apply Honeywell Accelerator to all that we do. The operational excellence that's not been a focus in these businesses is absolutely fertile ground. We have a clear path to expanding margins through better pricing, productivity and then stranded cost reduction through all the portfolio moves that we've done in IA. But we'll apply a milestone funding approach to this. We'll responsibly invest, but we'll do it in concert with growth. The productivity that's in these fertile grounds will allow us to not just expand margins, but also simultaneously invest heavily in the growth of this business. And when we start growing, look out, the thing that I'm most excited about in this business is the leverage that exists in it. Look, these are extremely high variable contribution margin businesses. So as the revenue starts to turn, the operating leverage that exists in this business is incredible. So the refocused IA as a sensing and measurement business is prime to reach its full potential. Into my 20,000 colleagues around the world that are sitting in watch parties right now in Shanghai, in Pune, in Dubai, in Mines, Raleigh, Charlotte, Muncie, Houston and Richardson, Texas, I can't wait to create value with you guys. So thanks so much for your time, and I'm going to hand it over to my dear friends, Jim and Ken to talk about PA&T.

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

So to start, something we know a little bit different with this presentation. There's two of us on stage, Ken West, who leads our Process Technology Business; and myself, Jim Masso, who leads the Process Automation business. Now in my almost 1 year with Honeywell, I know before coming in, how incredible the technology of this business was. And I was excited to be a part of the transformation. But nothing has been more amazing to me than the transformation I've seen over the last almost 12 months. At the intersection of the deep domain knowledge and intellectual property informed by 141 years of innovation in process technology paired with the unique and leading software and automation capabilities and process automation, where we're at the heart of every one of our customers' operations. Now this was clearly illustrated to me earlier this week at the Honeywell Users Group in Phoenix that I just got here from. We had a little over 600 of our customers and a number of our partners, NVIDIA, Google, Cisco, all excited to partner with us and the enthusiasm was incredible. The value we're unlocking by bringing these capabilities together is amazing. The transformation is having a direct impact on our customers' operation every day.

And I can say, Jim, having been here at Honeywell over the last 7 years, I've been a part of that evolution as we've gone from Performance Materials and Technology, to energy and sustainability solutions and now to Process Automation and technology. And you're absolutely right. It is different. It feels different today as we really unlock the value of the cross-sell opportunity through our combined offerings and we are driving differentiation through that distinct domain expertise.

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

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

Yes, Ken, I completely agree. Now let's talk about where we play. These are some of the markets we're in as PA&T. And one thing you should see immediately on this slide, these are critical industries. The risk of loss is massive. Customers have to look at safety resiliency and ensuring when they make these massive investments, they've got the right strategic partner to bring it through. Our services and expertise is amplifying that value for every one of our customers. and then we're connecting it with digital solutions that further enable value. Not to mention, we have over 0.25 century of cybersecurity experience. And what we're able to do is take our unique Process knowledge and direct telemetry to do things in cybersecurity, no one else can, using AI and other advanced solutions to keep ahead of the curve and keep our customers' OT infrastructure safe. Not to mention, and a lot of companies are talking about autonomous operations. We're already doing it, embedding critical intellectual property and years of data directly into our customers' control systems, allowing them to improve outcomes, improve yield and operate with a lot more certainty. Now I'm going to pick two, although there's many where we're cross-selling across all of the reported segments in Honeywell. The first is life sciences. Now I'll talk a little bit more about this today, but our building automation, industrial automation and Process Automation businesses all play a critical role in this end market. Grid infrastructure is another one where we're seeing a lot of growth. And we're across the entire energy value chain of the grid from creating energy to our control systems being on over 50 gigawatts of installed base of power to our grid management capabilities with our smart meter business that sits in industrial automation. Not to mention in Process Automation, we do behind and in front of the meter energy storage with energy management systems that enable microgrids as well as on grid automation. Furthermore, we pair that capability with our building automation business, enabling virtual power plants, and more scale and impact to a number of these energy management solutions. Now let's talk a little bit about the portfolio and what makes it up. The first intellectual property, unique domain expertise in our Process Technology Business, where we have unique knowledge of our customer system all the way from inception through the end of life. Not to mention a robust and durable services business and with catalysts and absorbents, constantly increasing our customers' profitability and yield. Not to mention aftermarket services that spans across the entire portfolio. Again, life cycle relationships with these customers constantly moving them to the upper quartile of operations. And then our automation and control systems, again, extensive industry experience, unique software capabilities. And we take our domain knowledge and directly embedded into some of the most reliable solutions in the world. Now you then pair that with digital and cybersecurity, where we maximize and elevate the customer value. These solutions allow us to unlock more incrementally. And just Process Automation alone, when you take our services and software, got around $1 billion of ARR, again, differentiated solutions that stick with our customers throughout the life cycle.

All right. Well, one of the exciting things in Process Automation and technology is truly how we go to market and what we deliver to the customer. So you heard a lot of great things about our domain expertise and why we go with customers. But what does that customer journey look like? Many of you know the value of Honeywell UOP. This is a 112-year-old legacy of technology, engineering and expertise. This gets our foot in the door. Many times 2 to 3 years before a project, whether it's a refinery, a petrochemical plant, a new renewable fuels plant or an LNG plant is even starting with construction. So once our foot is in the door, we have the start. And we bring on top of that right at the very beginning of the project, the capabilities of merging all of that data that we have, the analytics and the know-how behind the scenes, the domain expertise. We merged that with our automation capabilities. We commissioned the construction, sometimes in a modular basis in challenging countries around the world and then doesn't stop there. Now we take that installed base. As Jim said, over 28,000 units around the world, and that installed base we monetize it for ARR, recurring revenue out into the future. We have the benefit of not only building these plants, but we provide consumables, things like catalysts and absorbents to the plants that are going to provide that life cycle. This really feeds into and builds out the growth algorithm that Vimal spoke about in the beginning of the presentation and why this growth is so powerful. And so just a few proof points of why -- how we win when we're out there. Well, today, about 70% of all of the fuels anywhere around the world in gasoline are actually produced on Honeywell UOP technology. We're, in fact, in more than 2/3 of LNG installations. So when you think about where -- why we did some of the acquisitions that we did, the Process technology business from Air Products or the Sundyne business that we brought together to build that end-to-end solution, we were already in 40% of LNG trains with our pretreatment technology. We added this together and we get into end solutions. And not only that, all of these installed solutions around the world give us a capability to automate that installed base. We're automated in more than 700 of those customers. And in fact, that includes not just energy, but it also includes high-growth industries like life sciences when we're in 8 out of the top 10 med tech companies. So how does the growth really come together? Well, when we take a look at it, this has been an industry that we recognize has been somewhat lower growth, low single digit and cyclical over the history. When we bring together these new capabilities that are unlocked in PA&T, we are able -- we are moving into higher growth verticals, verticals like LNG, low-carbon energy and life sciences. We are going out and monetizing that installed base that we talked about. Providing an avenue for new connected solutions for driving recurring revenue as we go forward. And the thing I'm most excited about is we're driving true cross-sell synergies. Now when we do this, these synergies allow us to be in at the beginning. We're not getting into a price war as we go down and we drive that application, and we broaden the scope later in the project.

Yes. One of the things I get really excited when I see this slide because I know the impact it's having on our customers, we're unlocking outsized margin for Honeywell, but major impact for our customers.

Absolutely. And there's no better place to think about that than within LNG. And as we've expanded our capabilities in LNG. We take a look at this broader offering. And the broader offering brings together, as I said, not only over 40 years of experience in UOP pretreatment and developing LNG capabilities. It also brings the acquisition we did of compressor controls in our automation business. It brings together the acquisition of the Air Products, liquefaction technology, and it brings together the Sundyne technology. Now we have an integrated end-to-end solution that is turnkey. It takes away the risk of -- and mitigates the risk of budget. It takes away the risk of schedule. We can provide a one-stop shop for our customers to come in and do the project with us. But I think what's important as you look at the verticals to the right is we remain focused in this business on a balanced approach and on the 70% that's core. When you take a look over to the focus on the left as well. So yes, we're going into high-growth verticals, yes, that's adding to our growth, but we're remaining focused on the core of the business. And I also think that separates us a little bit from where our competition has been because we have not moved up and down through the different cycles.

Yes. So another high-growth vertical where we're having a huge impact, where we've quietly become the largest life sciences business in the markets we serve at around $600 million of revenue. And this one is really interesting. We're serving with biopharma and medical devices with over 1 million users just of our quality software alone. Now to kind of bring this to life, I was talking with one of our large biopharma customers last month. They have over 300 treatments they want to bring to market. Some of these treatments are life-saving with AI used in drug discovery and all of the advancements in research they're looking to bring these technologies to life. Now challenge number one, speed matters, bringing these treatments to life in a predictable way is essential. And when you bring building automation, so looking at the facility, they're going to be manufactured in Process Automation enabling the actual process to run with industrial automation, actually measuring the process, you're able to bring these treatments to market faster, building a new facility in a way that no other company can enable. Now quality. Two reasons why this is so important. First is we're talking about more challenging manufacturing operations. In biopharma, we're talking about culturing treatments in human cells. Small variations can have a major impact to the predictability of the operation. Not to mention the second, ensuring that when you make this large investment, and we're talking about almost $300 billion of on-shoring of life sciences manufacturing. In this country alone, over the next 5 years, these are big investments. And when you make them, they need to work. So bringing environmental control together with Process Automation and then our quality software that ties this all together and allows continuous improvement, enables these offerings to have certainty on their operation. And enabling a quality that no other company can unlock with these combined solutions. And then lastly, energy optimization. So I talked about grid infrastructure. These have an environmental footprint. They need energy. They need water. So looking at our building automation business and our Process Automation business as well as our ability to manage energy in and out of the facility with our Industrial Automation business, we're able to scale these operations in a sustainable way. This isn't just changing one facility. This is fundamentally changing our customers' business model and enabling a revolution in life sciences. Now we need to talk about our installed base, a massive installed base of over 28,000 systems. As I mentioned before, more than half of our business is in the aftermarket. We have a large services installed base, and that's growing. Now when I add that, we're also adding Connected, which is growing at a rapid rate. Now you'll see in Process Automation. Only 14% of our systems are connecting, but that is growing quick. Same thing in process technology around 13%. And what we're able to do as we connect what is an increasingly robust model, we're able to unlock incremental value. The first I'll mention is resilience. So OT cybersecurity. These are critical assets Honeywell's OT cybersecurity solution is unique. Again, we're using proactive solutions to help monitor a scaling threat. Furthermore, we're enabling outcomes, unlocking enterprise insights that are critical to our customers' operations and then a critical thread at every single site workforce. Every scaling process facility is struggling to fill the talent gap. And these systems unlock incremental understanding and capability within each of these systems. And then with process technology, directly embedding intellectual property with our connected plant offerings, engineering services, understanding catalysts, again, ensuring resilient operations, enabling our customers to do things better. This is a long-term impact. Now let me hand it over to Ken to talk a little bit more about this.

Yes. Actually, Jim, just even on this slide, I'll say this. It's exciting to me, this is where this starts to get to be exponential growth. If you look at these numbers, that 1,075 of connected plants or process technology, just a couple of years ago, what would that have been, it would have been 0. We wouldn't have had any. And you see how many of those are getting recurring revenue contracts. So this is where we've taken that investment that we've made within Honeywell Forge. We've unlocked that with our capabilities with Process Automation, and we've really built combined offerings. So when you ask what makes it different, that's what makes it different. Now, I'll go into just maybe a brief story, we saw the customer testimonial is early because we can come up all day and say how much we have an offering that works together, but are the customers seeing it? And really are. I had the opportunity about 18 months ago to meet Mr. Dangote, who you saw in the customer testimonial. And I mean in Italy for dinner, and we talked through some of the expansions that he was doing within his refinery. And he knew Honeywell UOP very well, and we were a hook that got us in to help with the expansion of his refinery, one of the largest in the world. But what I can tell you is this, once we got through that conversation and he understood the data we were collecting on other facilities around the world. He understood the 100 process plants we had in our R&D centers that were literally mockups running 24/7 of almost every refinery in the world and the fact that we were bringing 3.5 billion data points a day off of these. He, all of a sudden, it clicked on him, the value was there, and he said, "Look, I really want to go with Honeywell". And not only that, he took contracts away from others for the automation side of the business and brought this as a combined offering. That's when it clicked for me and I realized, wow, we have something powerful here. As we take a look at what this means for us as we go, we talked a lot about the growth levers here over the last few minutes between Jim and I. We're unlocking that incremental growth through high-growth verticals like LNG, in low-carbon energy, life sciences, we're monetizing this broader installed base. And we're also going and managing that cross-sell with folks just like Mr. Dangote at what we were able to do there. But what we really are driving more than that is a big leverage and margin improvement. Our capabilities, when we go into these higher-growth industries, we have a differentiated position. Our position of coming together with an end-to-end solution, no one can match that provides us the lever to be able to drive the margin that's there. I can tell you firsthand, this is working as I stand in front of you. We shared in some of our public earnings releases a little bit about the order rates, particularly within process technology. We have very good line of sight into the future in the long-cycle business. We are seeing order rates that are there and predicting that they will drive future growth. We've been driving higher than 1.2 book to bills over the past few quarters, and this is going to drive a very good result and very good growth in this business in the second half of 2026 and beyond. So I'm incredibly excited to be here. Thank you so much for a few minutes to listen. And with that, I am going to invite Mark and my other colleagues up to the stage to do our first Q&A session with all of us. Thank you.

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

Thanks, Mark. I mean you see a couple of years ago, Building Automation was not performing like this. And it's all about the transformation in the last couple of years around customer centricity. Speed and effectiveness of innovation and then having the absolute best talent empowered to do what they do best to get it done. And that has really allowed us to do this. And we've instrumented this business to continue to do that for the years to come.

Excellent. And then maybe sticking with Buildings, maybe you could just talk about the levers to grow margins, obviously, issued some pretty good targets for segment margin.

I mentioned a little bit about this. In fact, a couple of years ago, we walked into the fact of these and everybody was talking about, oh, we need to knock the wall down and expand if you're really going to be driving the growth and so on. So we challenged our team and said, let's think about how we think about that, how we use the space. And in fact, a couple of weeks ago, I was visiting one of those factories. And it's helping us -- this is one of the factors that's driving the highest growth right now, close to double digits. And when you walk into that factory, you think that business is slow because they have taped off all these empty areas. And I said, you challenged us to lean and continuous improvement and Kaizen projects to reduce our open we've done it, tell us come, keep growing this business. That's just one example. And then obviously, in the rest of the business and R&D and in demand generation capabilities, we've made all those investments. We are where we need to be to deliver our commitments for the next 3 years. So when the volume comes in, it's going to have a really great leverage for us, along with the acceleration of our force connected offerings and the margin favorability that those will bring.

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

Yes. I think I wouldn't disagree with any skepticism because over the last couple of years, it has been a negative 4% CAGR story. But the portfolio moves that we made, the focus is really important. And just if I was just going to go back to the basics for a second. Vimal talked about our markets growing at 3%. I told you that our on-time delivery was 45%. So when that happens, you don't participate in market growth. And so just really fixing our operations. I truly believe the market is going to grow at 3%. We feel really good about that. I feel good about our ability to fix our operations and participate in the market growth. And then when you do that, you can actually get a couple of points of price. And so that should be a flywheel, right, that we get a couple of points of price a year on top of that market growth. And that's before we even start talking about the growth algorithm that we talked about, the move to higher growth verticals, the investment in new products and the services and the software. So I feel really confident about the growth. On the margin expansion of 500 basis points, I go as far as a guarantee, I feel really good about where we are, where we sit right now and the opportunity ahead for the businesses. And then the operational leverage, it's -- I feel really good about it.

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

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

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

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

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

It's about how you show up and you have to have end-to-end teams focus on it that understand that space. And then you have to make sure that you position your offering in a good way. If I think about data centers, we have the #1 solution for advanced fire detection and data center, and we added Lion Tamer for Lithium-ion battery fire detection to that. In building management systems, we're leveraging Niagara to help our customers drive through the integration within the building domain console. And then on the Access Control side, we have some of the most complex global networks of access control that OnGuard platform does. So showing up understanding what it takes for your customers to succeed and then making sure that we position our offerings to help them deliver what they need to deliver to their customers.

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

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

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

Yes, I'd just say in a word, everywhere. We're sensing and measurement business. We were embedded in all of these businesses. But if I had to pick one, I choose semiconductor since we become really intentional about showing up as one Honeywell, we -- our business leads in semiconductor because we are the specification for gas detection. And just last week, had a great conversation with a major semiconductor player who a lot of equipment runs on similar batteries in the fab and had a really great conversation about Lion Tamer, which is a gas detection and Billal's business. So there's a lot there.

Well, everything is a building. In fact, it's our building. So in the case of Ken's business and Process Technologies, what we do, in some cases, very hard for other people to do. So we leveraged that high differentiation to bring in building automation along what we do with Pete's technologies. And data centers, as an example, liquid cooling requires a lot of new sensing capabilities. that did not exist. And Pete's team are developing some really compelling solutions there. So we're able to bring those. And then in Jim's business, we're able to bring that high level control system of systems and bring that approach along with PLC controls into the data center space.

Excellent. Great. So let's move to a live Q&A, and I'll just ask that everyone to introduce themselves when they're hand to the mic. So maybe we can start with Julian Mitchell of Barclays.

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

Okay. Yes. Cool, I'll take those in order, Julian. Yes, I think the first one is really just about customer satisfaction. With Vimal leading Honeywell, he's made it and he said it at the outset, everything that we do and we talk about is customers and customer obsession is a real thing. And so if that means putting in $20 million of extra inventory on a bet that we're going to make that up in second margin that flows to cash flow. That's what we're going to do. And we have the we have the latitude to make those sorts of decisions. And so the big things we'll look at is customer set, we'll look at delivery. We'll look at actually, time to resolve our quality cases is probably a bigger deal than our quality metric right now. So there's a lot of things that feed into that. But ultimately, we're going to judge ourselves on free cash flow margin, operating profit and revenue growth. A second question, I forgot...

The white space.

The white space, yes. Look, we're going to do both. Organically and inorganically where we see an opportunity and together we make the decision to go inorganically. We're going to go inorganically. Organically, we're probably going to stay a little closer to our core than we otherwise would become more important to our existing customers we've got still a lot of places that we can go in aerospace and in data centers, solutions that we don't have today that where the customer uses or we've got a spoon today, we're going to offer the fork in the knife. In the salad and fork too, right? We have that opportunity to do that. And that's a higher right to play and a right to win a higher probability win. So we'll probably do that. And then, of course, we've got some work on paying down debt, reducing the interest expense. And once we get through that, and Mike and Vimal will say we're ready to go, we're working a list of high-value targets. In terms of competition and peers, we're pretty broad space. We've got point competitors everywhere, but I think of us more as like -- if you think about a peer business and AMETEK, Teledyne and IDEXX. Those are the kind of quality of businesses that we have, the kind of the cash flow that I think that we can put off. Or the [ Ralliant ] business, for example, those are the kind of people that I would say the best way to look at us is think about it from a peer perspective and not competitive because there's no one company that we compete with in every place that we play.

Great. See it there. Go to Scott Davis right on the end.

Thank you, guys. Pete, to what extent will you integrate these assets, I mean there they're very different, but you also seem to have a lot of confidence that there's some synergies. So to what extent will you -- will they stay decentralized versus having some level of demand and control centralized?

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

And I'm just curious, just each one of you can give a 10-second answer, so we can keep this flowing. But why is price so much easier to get today than 3 years ago? It can't just be new products. There has to be more to it than that.

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

I could add maybe as well. We have different tools today than we have been -- so if I think about it 3 years ago, we were developing the tools we're using today. So we have some of the best tools I've seen in the industry in terms of real-time looks at what our raw materials are at a SKU level at a base raw material we saw very quickly we had built out a model as the impact of tariffs came on. And these real-world models that we have skills, give us the tools behind the scenes, as we're running our pricing reviews to know exactly where we need to be. So I just think the speed of decision-making is increased with the tools we have behind the scenes.

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

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

Yes. Let's go to Deane Dray of RBC.

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

Why don't we start with Billal.

Yes. Sure. Then we'll touch on it, the importance about offering management, and we've put a lot into our offering management community. At Honeywell, when we think about innovation, we can engineer anything. I grew up at Honeywell. I first started annual 22 years ago. We never failed because we cannot come up engineer this solution. The trick for us and the challenge for us is to make sure that we are working on the right thing. And that's why we spend so much time without offering management team. And to your question about the incentives and so on, they are planning to have many businesses within the larger ecosystem, and they're getting compensated just like a GM would on top line and bottom line free cash flow growth. So that allows us to -- that focus we've done the offering management in the last couple of years has really helped us to turn the corner on the effectiveness of our new product offerings. And your question about cannibalization and so on, our core is very strong. So as we work on new exciting ideas like Forge connected building, which is completely new and some of the other things we talked about today, we make sure that we keep an eye on our core because that was so crucial to keep going. And this is how we make sure that the vitality and that's where the vitality comes in, that people will want to continue to buy these additional products as we lay in new solutions on top of them.

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

I think as well on the long life cycle businesses. We have put in a distinct investment in some of the longer cycle research as well as new product innovation that's going to come out in the 1 to 2 years. So we monitor our investment very closely, and we have a very strong feedback loop to say when is the project working and when is it not working so we can make fast decisions and be nimble with that spending. And we've seen that review even on a monthly basis at every level of our organization.

Excellent. Let's go to Jeffrey Sprague of Vertical Research.

Great. Thank you. Good afternoon, everyone. So we can all probably clearly understand that connected is good and connected with ARR is even better right? But as long as I've been doing this, Honeywell has been an installed base, harvesting installed base play, right? So we've had all this technology innovation. We've got Forge, et cetera, et cetera. But we heard a lot of good stuff about the customer outcome the outcome to Honeywell is obviously embedded in the guide that you're sharing with us. But I'm wondering if you could give us some context on that, right? A piece of installed base that goes to something you're servicing regular way old way to now connected, now with ARR. Some way to think about the context around that, whether it's points of organic growth or something along those lines? And then separately, just Ken or Jim, can you just give us a little bit more color on the energy cycle that might be unfolding in front of us and whether that gets you to promise land on your organic growth all alone without everything else you've talked about.

Both are good, Jeff, and I can give you a little bit on both. First off, I mean, a great example is one. I don't know if you happen to see it in our demonstration over here or not. But as we're connecting to each of these process units, we're learning a lot more about it. And one example where we're changing the customer outcome is on digital imaging of catalyst. So as many of you know, Catalyst is something that a customer puts into a refinery every sometimes 1 or 2 years, sometimes 3 to 5 years depending on the product. And it's a very nice cycle for us because it provides a revenue stream. And in the past, what customers had to do is they had to go pull a sample out of the bottom of that catalyst unit, send it to a lab, analyze it many times, by the time they realize the catalyst was bad. The refinery is already losing efficiency. It's already starting to go down and it has a problem. We're now through our connected solution able to do that every day, let the customer know exactly when they should change the catalyst or if they have a plug somewhere in the system and let them know they should be proactive. We have another customer that's running a PDH unit. This is a unit that provides plastics from crude oil. And they were having all kinds of problems. In fact, both Vimal and I were down to meet with them. There's a big challenge with it. And we've been connected to that unit, put our engineers down there, been able to fix the problem and showing that we can bring that up. Those are the kind of examples that I can share with folks like Mr. Dangote to be able to drive this integrated growth. So that's kind of the first piece of where we're seeing the customer outcome. And I'd say it is an exciting time to be in the energy industry right now. We're seeing really almost unprecedented growth in certain areas. The time that we put the investments in place to do LNG. We had done the strategic research ahead of time to understand it was an attractive play, but I don't even think we realized how attractive that was going to be with the need for more power and now particularly with the need to move power between continents. So that's going to continue to unlock that growth and provide better results here, second half and beyond.

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

Okay. Maybe we'll squeeze in two quick ones. We go with Nicole and then end with Kap.

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

I think I speak to Ken more than anybody in my family. My wife is probably watching in life it's constant. It is absolutely constant. And I think Ken can talk a little bit more about how quickly we've been driving these solutions across the business.

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

And then on that fair to say that mean the time spent together, the pipeline, but the real benefit is still on the come because you guys are working really well together right now, but the benefit is...

It is. And that really gets into the second -- or the first part of the question, which was you're right. That's really low. I mean we connected our 1,000th plant. I think it was on December 17. We're now at 1,075, as you saw. We're connecting plants almost every day. We're just starting to see that ARR ramp up. Customers are now starting to see that benefit. This has very much changed. A couple of years ago, many customers didn't recognize what that was or what the value really was. They're starting to now. And I do believe this will be exponential. As more and more customers start to see it, we're also playing into a couple of really important kind of macro trends across the industry. One is labor shortage. Many of our customers just don't have the experience control room operators to continue to run. And they're losing some of their engineering expertise and talent to retirement. We're coming in and helping augment that existing workforce with these capabilities. So you're dead on. It's going to be a lot of opportunity in the future coming off of that low base, and we're going to be able to solve it together.

Okay. Great. Maybe we'll end with Andy Kaplowitz of Citi.

Got it. So Pete, you talked about 500 basis points of margin improvement in 3 years. As you know, that's not a lot of time. So do you need some of these bigger initiatives to kick in NPI sort of accelerating or focus on high-growth markets? Or can you just get it from operating leverage. So is it back-end loaded or not? And then maybe just quickly for Billal, you talked about the high-growth regions, 25% of the business. It feels like you kind of talk about it like it's the 20 teens, but as you know, the world has changed a bit, right? So China may be not the growth driver than it was before, but it's doing well for you. So like -- have you shifted at all and what high-growth regions mean? Or is it still kind of the same?

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

Yes. On the vision, the good news is with the new organization we have and regional focus, all of our regions are growing. China and Europe have long been slow. But for us, they're growing quite nicely. In fact, Europe is showing up in the mid-single digits, and we expect that to continue. Your question about how things change I think the fact that we have capable teams empowered to make our own choices and the visions will help us to do that. If I take the example of our Middle East and Africa region. A couple of years ago, when we talked about growth in that vision, it was all about the investments happening in Asia. Well, last it was all about Saudi Arabia and more than Northwest Africa. Our teams anticipate the growth and they have the capability and the empowerment to go and make sure that they are the default when it happens. And we see that dynamism and how our team approaches it to across all of our regions and the customer centricity help them continue to deliver on that.

Excellent. Great. Let's leave it there. We take a quick 15-minute break. We'll get back here right about 3:35 to kick off with Suresh. Thanks. [Break] [This call length has exceeded streaming capabilities - Please refer to the preliminary transcript that will be posted shortly.]

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

Welcome back. And just to let you know, I've been with the company for 31 years. It's a great day and great beginning to rewrite the chapter of Honeywell along with Vimal and the leadership team. I really feel both excited and fortunate to really do so. I actually met many of you here back in CES and also in AHR along with Billal. So great to connect with some of you, and I would love to really spend more time this evening. Forge, why Forge matters. I'm sure the question you hear from Vimal, you hear from all the 4 segment CEOs. They talked a lot about Forge is enabling their services growth, software growth, how that's going to be the future and foundation for driving automation to autonomy. For me, there are 3 or 4 things that really matters from a customer standpoint. #1, please imagine or reimagine the future buildings, plants, data centers, critical infrastructure are not going to be just connected. Maybe that's what all of us have done in the first 6, 7 years. It's going to be more intelligent, adaptive and increasingly autonomous. I think that's the future state our customers are going to demand in the name of outcomes that they demand. Second, if you really look at our history for a century, we have automated the physical world. And how did we do it? It's a combination of installed base asset with domain knowledge, and we brought Forge to really drive the outcome. Third, for me and for us, Forge is that intelligence layer. And it brings in this 2 interesting dynamic, which is deterministic model. I think many of you would actually really question what it is. As a control system company for the last 140 years, the control system company have to have a control lot to deliver 99.9999 in person. That means those algorithms that model, a predictive input parameter from sensors and actuators has to deliver a predictable output all the time. Now with all of it, there are 4 things that we have done different that's very real in Forge. You see that frictionless connectivity. We saw our customer environments are fragmented. You actually walk into a customer site, data is fragmented, systems are fragmented. When you actually really see it, you would have seen an example. We connected our campus in India. When you walk into that building, you need to connect 14,000 assets, not easy. They are specialized protocols that requires certification. So when we sat on it 2 years ago, Vimal looked at it and said, how long does it take to connect any of those buildings, our industrial plant, we said close to 100, 150 days or 150 hours, sorry. And it wasn't clicking because we were working with our system integrators and system integrators who lose interest and they don't have the technical skill. That's something that we really brought it down to less than a day. And not only that, in Billal's business, we have 14,000 system integrators. We have taken Forge Academy to train them, handholding them, supporting them across the region. That's clicking. Second, we use the word Ontology. It's not new for many of you. We hear it from all the software companies like Palantir and others. We thought -- we used -- how many times have we used the word domain knowledge. For us, it's codifying the domain knowledge that AI understands, and that's what we have been doing in the last year or so. Third, it's our control systems. It's built for the regulated and safety industry. We are proud about it. AI in itself needs a guardrail. I think we speak a lot about the guardrail, which we believe that the control architecture and Experion, EBI, I think it's a control guardrail for us. The last one, I think with our cyber business, we believe that we will be the bridge between IT and OT world. I think 3 things that I would actually ask us to really remember, it's all about data. It's about domain knowledge, deterministic model together. I think it's going to be speed. I think we spoke a lot about the speed of innovation, and I'll give you a little bit more teaser about how we are retransforming our company. There's 2 chapters, Chapter 1, 2018 to 2024. We enabled the connectivity, brought the visibility, sold a lot of remote services to our customers. Customers believed in it. I think there are a lot of value additions that we brought in for them, for us, and I'll walk you through the evolution model. But there's one thing that it lacked. I think if you look at the point #5, it lacked the contextual insights around our installed base because you're dealing with bits to Athens. That's the difference between the traditional AI to physical AI. And that's something that actually said, you could do more because that's where you can deliver outcome. And that's an area that we spent a lot of time. So that led into 2025 last year, we said physical AI was real to an extent. I'm sure if you've all been in CES last year, Jensen set the tone on physical AI as a new reality. It's going to be a near term. And we actually said we need to take the lead right there. And then in the last year or so, as you really look at it, it's not -- meaning I'll be happy to really walk you through a little later. It's not just on the compute box. We absolutely believe that it has a category to bring in a compute with controls and an ability to contextualize using ontology, it's the new beginning. That's how we are actually starting to tease you with an opportunity to show how we drive autonomy in a building environment or a plant environment. So what have we done in terms of -- from 2025? We said, Billal said it nicely. The amount of connections we have had in the last 12 months was much larger than what we have done in the first probably 5, 6 years. One of the reasons was frictionless connectivity. Second, once we connected right there, the next thing was how do we move up your value chain, not just selling services upgrade or a software upgrade, it's an outcome. So for us, it's a real pivot point where physical AI was a reality, and I'll talk to you a little bit more about partnership and we'll also give you a teaser on how we are trying to do this. Now with that, Forge business model is evolving, evolving all the time. Now there are 4 ways to really see this evolution. Look at 2020 to 2024. I think we focused on connectivity selling digital services on top of our installed base. I think it's there in that $1 billion ARR that Vimal talked about. We have grown our services portfolio. We brought in other assets like Sparta and 3DM. So there is a high focus around connectivity upselling services. That was our focus from the first 4, 5 years. Look at from '25 onwards, which points out to what Billal said, we had more connections from sites, customers and assets. That's an acceleration, which we really brought in. Then from there, our focus was all about selling software as a Forge Performance Plus, customers were asking us to run their operations better. So asset performance management, predictive maintenance, carbon energy management, you have cyber. So a lot of software evolved. And the final category is an automation economy. We believe that it's a closed-loop operation. Customers are expecting us to really deliver on certain outcomes. I think it's an interesting pivot, and I'm sure that you're starting to see some of the demonstration later this evening and something that we're going to show, it's the beginning for the new reality. And that new realization is going to be a tremendous opportunity growth for us moving forward. There are 2 or 3 case studies that I want to really talk about before we jump into automation economy. Take a digital services. We built this business along on the process automation, traditional services portfolio. As you look at it, we had probably a traditional reactive support model, which over a period in time, we were able to connect to our installed base. Look at it 660 sites, 350 customers, 130,000 assets. Now what does it do? One, direct visibility to our installed base. Two, we were able to really upsell some of the new product portfolio, Digital Prime, Assurance 360, but it also helped us to improve our cost to serve. Now the business is growing in spite of some of the core erosion, they were able to keep up with it. For me, this is important because it gives you a hook back to your installed base to really upsell more software and then a future possibility what Ken and Jim talked about, a connected plant cannot happen without hooks back into your installed base. And this is a replicatable one for Billal's buildings portfolio and also for the Industrial Automation in terms of really selling, upselling services on top of your installed base. A second case study, which is organically built CLSS. Billal talked about it. I think you heard Pete referring that CLSS. This is a connected life safety services business on top of Fire. Fire was working with this system integrator portfolio, selling panels and selling services and they were selling outcomes, which is compliant, which is manual-driven compliance outcomes they were selling. What we were able to do in the last 8, 9 years is $130 million software portfolio with $40 million ARR that is growing at a rapid pace, move from remote operation, compliance response, human-driven to a Digital alarm transmission, AI assist with integration with Rapid SOS, that business is transforming. We believe that this is replicatable for our gas detection business and utility business moving forward because you actually deal with a similar system integrator dimensions right there. Now for me, case study 3, which is the automation to autonomy is an interesting one. I think autonomy, we speak about it, and we spoke about it as an industry for the last 2 to 3 years. Two things, process automation that our customers are working with us. For them, it is clear. Can you eliminate the variability in operator handling of abnormal solutions? I think you can actually read it. It's in the public domain. I think we have a demo coming up with -- in a Middle East customer with Borouge. They've been very happy partnering with us, taking experient cognition. That's an important use case. On the building side, it's 10% to 15% operational efficiency, meaning when you double-click it, it's energy performance, operational performance because of all the nuisance alarm coming from multiple systems on top of it, cyber, on top of it, comfort performance. There are 4 or 5 KPIs. But directionally, they will tell you that 10% to 15% improvement that you needed. Now Interestingly, though, right here, there are 2 stories before I jump in and give you what I'm about to show. 2025, CES, and some of you were there and I was there where NVIDIA launched what they call a DGX and AGX, which is a supercompute at a price point was available for every automotive player. And then we talk with them and we said, if that is available for every single car, can we bring that category into every single building. It could be a commercial building or industrial plant because I was looking for a brain behind a building similar to a brain behind a car to drive autonomy and action. 6 to 7 months in a row, I think we really built that both the compute and the AI engine as a full prototype. I think around September, we showcased it to our Board with an initial idea of our forge cognition with some few use cases and whatnot. But this CES, within a 12-month period, we actually sat down with NVIDIA leadership team. Vimal was there, and we've been talking about a future prospect of building autonomy in action. I think Jensen's leadership team pushed us back to say, we should have a lighthouse customer. And then Vimal being Vimal, he said, yes, we need to have a lighthouse customer. Why can't you be the Lighthouse customer? And I was a CTO sitting there not really knowing what are we committing for. But here we are. We were able to really take -- I think to give a credit back to the NVIDIA team, they took their one of the campus, Wag headquarters. You see the picture. They hand over back to us on February 6. I, along with Rahul Patel and Greg Turner, technology leaders pitched in the vision and what we could do. It was not on our installed base. But OnGuard was our installed base. We were able to get cognition up and running. What it does is 3 things. That box is powered by Blackwell architecture from NVIDIA. It has Omniverse to simulate the entire campus. You can emulate and simulate the building connected to their assets, and I'll show you that very quickly. Third, it has the whole NVIDIA model, Nemotron and Cosmos reasoning and Gemini model and is autonomously running. So let me take you live to our Voyager campus, give you a view on what it does. So as you really see, as we get into the real aspect on zooming into the NVIDIA campus, Santa Clara, it's a 750,000 square feet area. And close to 1,000 assets, a combination of building management, BMS assets and then some of the security access control. What you see as a virtual reality is Omniverse powered up. You would be able to pick any of those assets to see their real-time performances. I just want you to know, for me, it's a ChatGPT moment for the industrial world as a technologist. And from there, you have an opportunity to have an interaction directly with the building. So you're asking the question, how much electricity have you consumed? This is Voyager headquarters data point. It also highlights 30% of their energy spend every single month was during the peak load that to in California. In fact, I presented back to their GRE head 2 weeks ago. He is seriously looking at should they have a battery energy storage to optimize the spend, how should we do it? As you look at it, one of the biggest pain points that they have is the nuisance alarm all over the place. You have an opportunity to really interact with your building to say, how much is the nuisance alarm coming from a security system? As you look at it for a week, close to 5,000. Remember, they have to have human beings, more operators inside an SoC who are clearing up every single false alarms, which they call a nuisance alarm. So we actually built an agent for them, which is a semiautonomous agent, which technically goes back and then looks at it, BMS system today for the past 1 month had 85% nuisance alarm. And then it's not just at this level, the agent goes back and gives them all those alarms so that the operator in building operations can go back and look at what those alarms are, what the fact stays, what are the insights and then there is a point in time we should be able to train the system to provide more recommendation. But end of the day, it also gives an operator opportunity like you post your e-mail by saying, these are pretty much junk e-mails or spam e-mail. You have an opportunity. So if the operator trains this model 3, 5, 10x, then there'll be a confidence to give the control back to autonomy. And if you really look at the next big thing, which is their biggest ask when we started was security system. You look at 98% false alarm. And I can just tell you, in one of the buildings that we are not touching right now, 250,000 alarms per quarter. And they need 14 to 15 people clearing up every shift. This actually gives -- this is an interesting one. You're dealing with security means your camera inputs have to be fed in and with facts that SOC should be able to clear up to say is it false or not. So as you're really looking at it, you're interacting with the building and then you are actually dealing with an algorithm and you're reinforcing the model, either you're reinforcing the model or reinforcing the process side altogether. So this is a great use case where I just wanted to really give you a first instance perspective on how we are approaching this autonomy. We have done -- we have showcased to some of you how we did Bangalore campus. That's how we took this idea back to NVIDIA. The head on GRE initially was not very sure what we could do. But having done this, and I presented it last week, they've given us 6 more weeks where if they can actually really go back and look at all the KPIs, if it hits it well, I hope that we can actually go and deploy across their entire campus, and we may have a PR release. But I want to really get to a point on partnerships. These things are not possible. I think there's an NVIDIA partnership. You have seen me in Dell World Congress or Technologies World last month. But Google's partnership started 2 years ago. We brought in Gemini 1.5, 2.5. We've rewired a number of things. But what you're going to see in our cognition is GDC, which is Google distributed cloud compute, which is like a GCP. So Thomas and his leadership team has been working with us for the last 2 years, and then we have asked him for a short video about his partnership and how he sees he can contribute to a physical AI transformation.

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

Just to sum it up, I think the whole piece that I want to say is Forge is here to stay for driving the physical AI transformation. And with a partnership in place, for me, automation to autonomy for future has 3 fundamentals. Assets need to work harder, People to work smarter and Processes work more efficiently. Those fundamentals are important to enable the future buildings, plant and industrial operation that can see, think and learn and act and which is the fundamental for autonomy. And I'm really, really happy to really take this evolution forward, and we'll be happy to really share more later this evening and connect with all of you back. So with that, I'm going to be inviting Mike Stepniak for the next session.

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

Good afternoon, everybody. Thank you again for being here today and your support. I realize it's been a long session, so I promise I'll be quick. But I think I understand why they always put the finance guys last in those sessions. Vimal and the team took you through our strategy, and I think they gave you a really good overview of the business and how we think about the future. In the next 20 minutes, I'll give you a little bit more insight into our financial framework. But before I do that, I just wanted to have a quick moment of reflection because I think days like that require that. I've been with Honeywell now for about 6 years. I've been the CFO of Honeywell for about 16 months. And I can tell you, I have never seen a team that is more committed and excited to deliver on our commitments and on the mission. Vimal talked about our VOE scores and our attrition. It goes beyond that. We have people that left us over the last 5 years, knocking back on our doors. Wanting to be part of the story. So it's extremely exciting. And look, I'm not a very outwardly excited person. I realize that, especially if you put me in the room with Mark Macaluso. But I am extremely excited about our financial framework and about our strategy and what we are going to deliver for our shareholders and our customers over the next 3 years. So with that, let's just recap the day really quick. Vimal talked about our transform and simplified portfolio. This is going to deliver higher, more profitable growth. Our legal team, our business development team spent the last 18 months deleveraging our balance sheet, which is unlocking our cash flow and helping our G&A costs. We are rapidly eliminating stranded costs and going beyond that, and I'll talk about it, it's a significant driver of margin expansion for us over the next 3 years. And all the presidents talked to you about refresh NPI, about better offering, being closer to the customers. Everything that we have done over the last 24 months makes me more than comfortable committing to delivering 10% plus EPS growth through 2029. Honeywell prides itself on execution. And before we talk about the financials, we just have to acknowledge and talk about how much the team has executed because I think that's been largely unnoticed, but a significant impact on our financials in a very good way going forward. So let's start with Industrial Automation. Industrial Automation, like Pete said, now it's pure sensing and measurement business. This business alone is going to deliver 100 bps of margin expansion for Honeywell over the next 12 months. More importantly, Pete can now keep the team focused and deliver not only the margin expansion, but deliver growth and think about expanding -- growing the business inorganically. Solstice spin-off made us less CapEx intensive and less cyclical. By the way, Solstice is up 60% since the launch in October. What a great story for the team and the shareholders. Like I said, we divested over $2 billion of legacy liabilities over the last 18 months. It's a significant tailwind for our cash flow and our G&A. And the automation segment, there is a reason why Ken and Jim talked to you together today. Their teams this year alone will deliver over $100 million of commercial synergies just between these 2 businesses. And this is -- we're really just in early innings of the journey. And finally, Quantinuum is making just excellent commercial progress, and you'll hear about it in the second half and delivering on their strategy. And once again, I'd like to congratulate Raj, Nitesh and their teams on a very successful IPO last week. By the way, that business, you'll see it in our second quarter financials, is going to sit on our books at $7 billion. So if you think about the optionality as far as cash flow and capital allocation, it's a big help for us going forward. So here we are. We are a pure-play automation company delivering mission-critical solutions in building automation, industrial and process automation industries. And the keyword here is mission-critical. The nature of our products and solutions allows us to have life cycle relationships with our customers. Most of our products, once again, have to be certified and have to be specified. More importantly, these products allow us greater pricing, more predictable revenue streams and getting closer to our customers. But this is just the beginning. So let's talk about where we go from here. Our value creation engine has 3 pillars. And I realize this is kind of on par with the -- this is on par with our peers as far as the growth, top line growth, margin expansion. What's exciting to me and what's compelling that this growth is going to come early. And there is a very good chance for us to overdrive this framework. And I'll talk about each of the pillars in a minute. Both top line and margin expansion will be underpinned by a more meaningful shift towards services and software annual revenue, recurring revenue. More importantly, margin expansion, the 60 bps of annual margin expansion, that's just operational expansion. We have over 200 bps of margin expansion coming structurally from us removing stranded costs and driving the portfolio actions that we talked about in IS. So let's talk to each of the pillars. And I think this is the most consequential page of today's presentation. And I'm really excited about the growth framework because as Honeywell, we know we undergrew last few years, but that's changing significantly. And let me just go through each of the pieces here. On volume, volume, we should grow 4% a year. And we talk about NPI, we talked about higher growth verticals. I'll talk a little bit about software annual recurring revenue. But I'm a data person to just give you some data points that I'm seeing. Billal is very humble human being. His business now delivered high single-digit growth 7 quarters in a row. His fire business last year launched over 30 NPIs. His orders quarter-to-date are high double digits. This business has momentum, not only in data centers, it has momentum in every vertical and every region that his business operating with. Pete has turned the corner on the business. It's really a story of self-help. The business is delivering better for the customers, starting to introduce NPI, team has focused and have mission. And finally, Process Automation Technologies. We talked about it now for 3 or 4 quarters. This business has been building the backlog, projects backlog. This backlog is converting. We are mobilizing our teams and starting to deliver these projects. And this is a multiyear cycle. Majority of our projects take 3 years to deliver. Our LNG business is sold out for the next 3 years. And by the way, catalyst volumes coming back. Second half over first half, catalyst short-term demand is going to be up more than 20%. So I'm really excited about this setup because all of our businesses have momentum and it's a strong momentum. Price. Look, we learned a lot about the art and science of pricing over the last 3 years. And just like Ken said, our models are better. They're much more dynamic. We're closer to our customers where we can understand how to price. And for better or worse, pricing now reports to me for the last 9 months. So I can give it the right level of visibility and drive the say do when needed. But I'm confident we'll deliver 3% plus pricing over the next few years. And then M&A, I'll have a slide later on to talk about M&A. M&A will drive 1% incremental growth for our company. All of our M&A is accretive to our growth. So why are we not growing 6% to 8%? Well, it seems these days, we have a 100-year flood about every 6 months. So I am assuming a very healthy level of contingency to make sure we can withstand all the geopolitical uncertainty and issues that we face every year. I have 2 more slides on top line growth that I want to touch on. One is on ARR and one is on M&A before we move to margin expansion. So let me start with services and software. Our services and software business is today about $7 billion or 40% of our business. Recurring revenue is about $2.3 billion, and software ARR is about $900 million. That's as of 2025. As the team said earlier today, we'll grow service and software from about 40% to 45% of overall revenue mix over the next 3 years. And software is going to grow at about 3x the rest of the business. We like this revenue model a lot. As we are maturing Forge and looking at connected and starting to analyze our installed base, we realize we have a massive opportunity here to lean in and drive incremental growth. This growth is also accretive to us and gives us a lot of leverage. Our incremental cost to scale this business is actually minimal. We're studied -- we're looking at our compute costs and for software. And on 15% revenue growth, our compute cost grows about 2%. So we're getting really good leverage on this growth. So let's talk about M&A. Look, our M&A strategy, bolt-on M&A strategy is doing extremely well. And that's something that I think is core to our -- it's a core strength for us. And team has been doing an excellent job, one, identifying M&A targets, vetting them and then bringing them on board at the right multiples. And the teams in the businesses have been doing really good job integrating these businesses. All of our M&A that we've done since 2023 is accretive to our growth, is beating revenue synergies and delivering on return on invested capital. If you take just Air Products LNG as an example, this business next year is going to be $0.5 billion business and it's sold out for the next 3.5 years. We'll continue to do M&A in the future, but we'll be very selective and continue to strategically supplement our businesses where we think there is a close adjacency or a strong fit. So let's move to margin expansion. I can guarantee you, Honeywell has not forgotten how to expand margins. We talked about this earlier this week, we'll deliver about 20% segment margin this year. We have a very clear path to expand about 200 bps over the next 12 months through structural actions. On top of that, organically, we'll expand another 60 bps a year. And that 60 bps a year has a ton of contingency and optionality in it. So if you start calculating this data, I think it becomes very clear that 24% is not only achievable, it's actually beatable and gives us a lot of optionality for M&A investments and obviously, contingencies. How we think about the 60 bps? Look, we have, I would say, plenty of optionality as far as how we expand the margins depending on the market. Like I said, price should be 3% to 4%. We're improving mix. We're doing more NPI. We're doing cross-sell. That's giving us a better leverage on our growth and expanding margins. But to me, the biggest opportunity is still in cost productivity. It's not only stranded costs. We're going much further beyond that. I'll just give you an example of what we're doing. Today, Honeywell has still about 700 legal entities. We can operate at 300. Over the next 2 years, we'll eliminate 400 legal entities as a significant source of productivity for us and margin expansion. Today, we still have about 10 ERPs. Over the next 2 years, we're migrating to 2 and now a significant source of simplification and productivity. And finally, if you think -- start thinking about artificial intelligence productivity tools and how you're going to deploy them, you need to deploy them at scale. So we are leveraging our shared services. Today, our shared services penetration is about 40%. Over the next 2 years, it will be over 70%. And that's where you get really payback on productivity on your AI investment. So we feel really good about this margin expansion. While we're also taking out stranded costs, and we get a lot of question on stranded costs. What is it? How much is it? When are you going to take it out, et cetera. So I'm pleased to say that today, our stranded cost is only $290 million. Just think about it, it's $290 million on over $20 billion of revenue. More importantly, we'll be taking this cost out -- remaining cost out in the next 12 months. We already actioned about $200 million of that through repositioning and other actions. It just needs to show up in our run rate. And then we have about $85 million of cost left that we'll take out next year by simplifying our structure and taking out -- sorry, and getting better penetration in shared services. So our fixed cost is going down by about 500 to 600 bps from '25 to '27 while we reinvested and stepped up our investment in R&D. So I think a really good story on cost. So with that, let's talk about EPS. And look, to me, the $6 EPS in 2029 of 10% drop, this is table stakes. I really have -- I'm asking 2 questions to myself. It's not whether we can hit it, but by how much can we beat it. And this EPS growth is coming in early years, meaning it's front loaded. So I'll be super disappointed in next year if we don't grow EPS by 12% plus. And to that point, the $4.05 for this year, there's still a lot of opportunity to beat that as well. So the teams are working really hard to deliver that. And I could assure you that, that growth is coming sooner versus later. You don't have to wait 3 years to see it, and it's operational. It's all through above-the-line items, volume, price, mix, productivity, everything we talked about today. So with that, let's maybe talk about -- a few minutes about cash and capital allocation because, obviously, those are extremely important to our future. So on cash, we will be 80% 'free cash flow-converted this year. We will be 95-plus percent converter in the second half of the year. There's just a lot of things went on in the first half of the year that we had to manage. If you think about it, we're raising $16 billion of debt. We're in the process of retiring $21 billion of debt. We're separating 140-year-old company and creating hopefully 2 companies over $100 billion market cap over the next few years. Just a lot of complexity that we had to deal that manage through transitory interest costs, taxes and also the conflict in Middle East, we had some [ possibilities ] in the first quarter. Now I am convinced we are 95% free cash flow converter going forward based on all the structural things we've done. We're paying out our debt, focusing on -- that's going to help our cash interest. Our tax rate going forward is about 19%. It used to be -- our ETR used to be 22%. That's a significant source of cash as well. And we have higher quality portfolio that is going to deliver better cash flow. And finally, look, as people -- our folks are coming off the separation work, including myself, we're getting more focused on cash. So I'll be focusing a lot on cash over the next 18 months. I can promise you that. So what are we going to do with all this cash? So first, we're going to pay down debt. We're managing our debt and that leverage ratio to below 3, hopefully by year-end. In the midterm, we'll continue to invest in CapEx. Our CapEx should be about 3% of sales. It's lighter than it used to be. It used to be more like 4% -- 3.5% to 4%. And then medium term, we also -- obviously will focus on returning excess capital to shareholders. Our dividend payout ratio should be about 35%, which is on par with our peer set, and we'll focus on about 1% share count reduction. And then we'll continue to do bolt-on M&A. Ticket size will be for us, bolt-on is about $2 billion to $4 billion of the purchase price. But we'll be thoughtful and we'll be patient. There is no urgency, but we'll continue to add assets strategically, just like we did with Access Solutions, just like we did with LNG and Sundyne. So with that, in closing, I just want to say we have created a very unique pure-play automation company. And from my vantage point, this company has a very, very good financial profile and financial framework for the next 3 years. And I'm confident that with the team you saw today, we're not only going to deliver this financial framework, we will beat that. So with that, I would like to invite Vimal, Suresh and Mark back on the stage for the final Q&A. Thank you.

Let's start right in the middle, Mr. Sprague.

Somebody said white space earlier. I think it was Julian. But Vimal, you really started off very early with our interest with the comment on discrete. And then also in the process pitch, we didn't really hear a lot about M&A, but you got sort of big white space maybe in field instruments and some other places. So maybe just spend a little bit of time on like what your strategic priorities are now as you try to take the company up to the next level.

I mean I would say the 2 biggest priority. One is we need to strengthen our IA portfolio goes without saying, but it has to be done thoughtfully. We have built this portfolio with a lot of effort, sensing and measurement. So we're not going to excursions here and there and just again create unrelated portfolio, but we'll absolutely pay more attention to that. But if I move beyond it, because that's must do, the two things I focus on, one is a vertical-based offering M&A. What we have learned hardware, it just takes 1 or 2 offerings just to give you a tremendous opportunity in a vertical. Look at LNG business. It was an Air Products business acquisition, which changed the whole profile of our business. And of course, we added on Sundyne subsequent to that. If you look at our hospitality segment, we have a big play in hotels. We always did the thermostat in the hotel INNCOM business we have for 10 or 15 years. But when we acquired Access Solutions business, we got electronic locks, which have digital identity of all of us linked to those locks. So all of a sudden, we became so critical for the hotels. So the point being one acquisition can change your whole profile. And those 8 verticals we have identified, which I talked about, the semiconductor and data center and LNG, hospitality and so on, that's where I want to focus on how we bring more strength so that our story is going hand in hand. We want to grow in those verticals. Can we find more space to inorganically to grow in that? And the last but not the least, I'm a big believer of frontier technology. Frontier technologies have an important role to play in our businesses. So think about we have made 2 acquisitions in cybersecurity in a very thoughtful manner. It's a frontier technology in our world. OT cybersecurity is still a nascent business. But if we continue to invest in frontier technology, we will be the leader in that space. We made 2 acquisitions in that. We made an acquisition in fire detection. We were the first company in 2017 to made a fire detection for data centers, a fact, which is not well known under Anne's leadership. Now of course, it's benefiting us from today because nobody would have put a bet on early detection of fire in data center in 2017, but we did. And we made a detection of the lithium-ion battery, the off-gases 3 years back. That's frontier technology. We need to know about it because they are disruptive. You need to be staying ahead of the game, which means we need a deeper understanding of our segment. So I think that's fundamentally our playbook here. Strengthen our IA business, continue to have our vertical story building together and keep an eye on frontier technology. And as we generate more cash, we'll responsibly spend it and do it in a thoughtful manner.

We'll go to Nigel Coe of Wolfe Research.

You sound very confident on overdriving the plan. So I'd be curious if you maybe just like emphasize where you think the best opportunities are driving, I'm guessing is the margin expansion. And on the margin question, can you just talk about the drop-through and the incremental margins on the ARR and recurring services because I'm guessing that's going to be higher margin. And then on the process side, you only pointed to 25% margins by 2029 versus 24% in 2024 -- 2025, I should say. Why is there limited opportunity there?

So a lot of questions. Four questions. So I would say, I think the reason I feel so comfortable about the margin expansion is in -- in many ways, our margin expansion is not dependent on the strong top line growth. So with whatever we're guiding at 4% top line growth, we still can get majority of this margin expansion. And this is because of us taking out the stranded costs, but also, like I said, going beyond that. It's really, I would say, about our structural simplification across the company. And I think with now having a cleaner portfolio and more focused portfolio, we can drive a lot of that. Second, pricing. Pricing discipline in Honeywell got much better over the last two years. Like I said, we learned a lot about pricing as far as how to be more into the markets. how to price regionally versus globally in one cookie approach. We're closer to our customers. Our offering is better, which allows us more pricing. So that's all helping us. So I think the margin expansion is largely derisked. It's really about can we get -- how far beyond 24% we can get there. As far as the incrementals on software are going to be really high. We invested $1 billion in Forge. We're not investing as much anymore. And that's why those incrementals that you're going to start seeing on the software revenue are higher than our product incrementals. So with all that, we see a lot of opportunity there. And then in terms of the growth, like I said, we -- all 3 businesses have momentum, and it's really strong momentum. IA is different because it's all about self-help -- so Pete is going to grow for a while at this mid-single-digit rate without even having considering too much of the market itself. And process automation technology, if you follow this industry, the cycles are multiyear cycles, and they're on the cusp of it. And Billal just -- he's taking share across the world, and he regionalized the first in the -- in Honeywell, and he's been on this journey now for 3 years. So -- and it's really -- his growth is driven by offering.

The P&T segment, we have assumed the Johnson Matthey acquisition. It pulls our margins down. But the rate of change opportunity it provides is very large. So it's like a little bit of short term, the math works against us, but then the rate of change opportunity, that's why we acquired it. So that's why kind of '25 is a little bit -- if we take it out, the numbers look different. So that's more of a math.

Okay. Let's go to Andrew Obin, Bank of America.

Just a question on your installed base and getting better attachment rate. So who does the service and specifically building automation and industrial automation. So what kind of people perform the services right now? And what's the strategy for increasing your share of the wallet with your customers?

Yes. So Andrew, if you look at it, if I look -- let me start with building automation, then I'll go to industrial automation. Building automation, as Billal shared, 60% of our revenue comes through channels. And two years back, we said we have no entitlement for any service there. We ship the product and they should serve it. I mean that sounds like a logical answer. And then 40% installed base, we own because we sell projects, and that's -- we have a large service business on that. So our first inning of Forge was to connect our installed base and make our service contact more digitized and Suresh talks about it. And then we said, who stopped us to ask service business from our channel partner? Whose thesis was that? It turns out nobody's thesis. It was self-imposed kind of a ban. Now our Forge is open to our channel partners. They can sell connected building to their installed base. When they sell it, they have to pay me a license fee. We have opened them an academy to train our channel partners on how to sell Forge. It's a big transformation for them. Our classical system integrator grown up to sell fire system, security system, and HVAC system. We are selling go and sell this IoT platform, and they obviously said, that's hard. We will train you for that. But every time you sell it, you have to pay me a license fee. So a great example is we talked about Connected Life Safety Solutions business in Fire launched in 2019, more than $100 million revenue from the recurring revenue it generates, but that's the engine which grows the product business because our channel partners are so dependent on our software to configure their product, it's unlikely they can move to anybody else. So I think how you -- the compounding effect of that is very high. Same is going to be now moving towards industrial automation. When we look at our installed base of gas detection, which is very similar to fire detection, the hazard to human. We are replicating the same model, building the tools by which our customers can remotely inspect these gas detectors, they can configure them, but it's in early innings, and we will repeat the same process. So it's a learning from one and transferring to other. And my confidence is that the ARR growth of 15% from a base of about $1 billion will require us to constantly innovate and generate that extra revenue.

And just a follow-up question. It sounds like pricing embedded in your medium-term forecast is 3 percentage points. Which sort of implies midpoint of volume growth is 2%. Am I correct? And it seems not much macro acceleration is embedded in that.

That's right. That is correct. And I think that's really where the opportunity is for us to overdrive.

I mean that's why we show the hedge of 2%, right? I mean, look, the inflation wants to just want to go up. The thing we can't do is we don't want to forecast next 4 year of price to say our prices will stay 3.5%, 3% to 4% range. But I and Mike know it is in that range for '26 and '27. It's in front of us. Can I say that Tony? I don't know. Maybe the inflation cools down and maybe it wants to become 2% or 1%, but we are then ready with higher NPI efficiency to still grow our revenue 4% to 6%. So I think it's a one variable we control in our growth, which is new products. one variable in our top line growth we don't control, which is inflation, which drives our pricing. So we'll manage the 2% and deliver the 4% to 6%. Do we have a hedge in it? Yes, we do. But if we plan a strategy in which we don't plan any hedge, I think we are not being responsible to making our commitments.

Let's go to Jairam Nathan from Daiwa.

Thanks, Mark. So I had a question for Suresh and kind of in terms of Forge, what's the go-to-market strategy here? Do you have a separate sales force? Or is it connected with the different segments? And I would think that the skill set for a sales team would be different for selling Forge compared to the...

The last two years, we took a go-to-market sales offering management. It's under Billal, it's under Jim Masso and Ken. We believe that, that is a very important pivot as part of our connected enterprise redesign that we have gone through because central team will own the whole platform operation, innovation partnership. I think -- and to that point, Billal and Jim and others are completely rewiring the skill set that's required to sell software, new business model, and there's a mix that is happening on an ongoing basis. And I think I completely agree that's a new muscle that we are building.

That's a journey we have gone through. So your question is absolutely right. when we started Honeywell Connected Enterprise in first phase, we said we need a separate -- we need very smart people who can sell software. It turns out that thesis was wrong because it creates an internal conflict in one organization. So we made a decision in early '25, late '24, operational '25. All those salespeople have been moved to all 4 segment leaders. They are very smart people. They know how to sell. They need offering, which this guy makes. Do we need to upgrade our sales force? Absolutely. That's our future. We want to sell services and software. So let's solve the real problem to upgrade our sales force progressively versus putting a band-aid to say, I think you are not so smart. I'm going to hire some extra people. I don't think that really works. We acknowledge our -- we created detour here and come to this core. And this is really working for us. Our confidence factor is high. The limiting factor for growth of ARR is innovation. Salespeople are smart. They'll always sell what sells in the market. if the offering is creating value for our customer, they want to sell it. So if we are innovating, if we have the right set of proposition and have a high confidence in Suresh's ability to think through innovation engine, and we are on the right trajectory there. It's hard, but we will do that.

And just as a quick follow-up. So to the earlier question, so would it be possible to kind of be a little more in the future, be more selective on the project side, given that it's slightly margin dilutive overall, if the channel partners' effort kind of succeeds?

I mean, look at our current mix of question, if I understood right, today mix of project business is 20%. It's very concentrated in process segment. You bring installed base through selling projects. That's how the market buys. So I don't think we want to walk back from that. We are not moving our process business to channel. There's no such strategy. Our channel business are industrial and buildings. There again, we don't have any plans to go direct. So we're very clear on our business model. Two channel businesses, direct business. And as we sell more software and services, between product and solution, what will reduce? I mean, I'm not going to forecast a guess here. 60% is going to become 55%, there'll be probably some adjustment. But net-net, we are more focused to kind of maintain our overall mix to 55%-45% range.

And I would just add to it, in our process business, and that's where we're really owning the life cycle, product life cycle relationship with the customer. We, a lot of times design the chemical process and own the IP on it for our customers. So before we even build anything, the customers will come to us and ask us to essentially engineer the outcomes for them, chemical outcomes as far as their feed, et cetera. So it's really the channel model there wouldn't work.

Let's go to Scott Davis from Melius.

Mike, how do you cut 400 legal entities without having your tax rate go up?

Yes. So look, I mean, we obviously -- we're working through it. It's really -- we're changing and thinking through how we're going to operate in countries. We operate materially in about 70 countries. We have countries where we have 30 legal entities. So we just have massive proliferation of legal entities. Like Germany, we have 30 legal entities in Germany. I guarantee we don't need 30 entities in Germany. So we have some of the frictional tax coming our way as far as trying to simplify it, but that's already, I would say, calculated in the context of what we're trying to do and as far as our simplification.

The low-hanging fruit, Scott, is pretty large. I mean if you look at it, one thing we did not pay attention to is we made -- Honeywell has made a lot of acquisition over the last 15, 20 years period. We did not pay an attention to eliminating the legal entities. And what we are realizing is that you don't need those legal entities just for the basic transactions, and that number is large. So low-hanging fruit out of the $400 million reduction is significant. And then comes a difficult portion of the tail where the fractional tax will come in and the team has to be thoughtful at how do we do that work here. The motivating factor for us is very clear. The motivating factor was we created Solstice and Aerospace from scratch. Aerospace has got 100 legal entities, and I can't stomach it. We need 300. There's no reason when we create a new entity, they have such a pristine business and then the RemainCo tends to carry the burden of the history. I think we can do it. It's just going to be a lot of effort, but I think structurally, we know how to execute that.

And a lot of this is also -- it's really simplification, not necessarily externally, but internally within Honeywell, we have a lot of intercompany transactions, et cetera. That's really eliminating this noise. That's where the leverage comes in, if you will, or the productivity.

That's helpful. And I just wanted to clarify, will there be some fine-tuning and tweaking to the incentive compensation program?

The compensation of the people?

Executive compensation.

We're working with our Board here. That's going to be one of our key topics coming right off as we become. The answer is absolutely yes. I think we need to make our compensation aligned to the strategy, which we are presenting to you. I haven't discussed with our Board of Directors. It's too premature for me what it will look like. But directionally, it will look like the things we talked about, our compensation should link to what we committed to you, should be directly proportional to that. So there's an opportunity here, and we're going to work with all our directors to make it happen.

Great. Okay. Let's go to Brett Linzey from Mizuho.

Just want to follow up on the 200,000 AI deployments. And specifically, what are the highest ROI opportunities at the segment level for the customers? And then as you guys look more inward and you gave a lot of customer examples, but more inward, is there more opportunity with physical AI in your own plants and footprint?

Let's take the inward example of AI. I think Mike talked about it. We as a company has been a productivity engine because we had an operating system for many years. So driving productivity 15, 20 years back was using Six Sigma and Kaizen and then you move forward, it became robotic process automation and so on. What we have realized is that for us to create opportunity of productivity at scale required us to build a centralized services model. And that realization came, we have centralized execution of R&D under Suresh's leadership, a common R&D team of almost 7,000 people. They were the first one to use AI at scale to do software testing and gave us substantial productivity. That gave us a ring bell to say, if you want to use AI, you have to centralize your function. It's as simple as that. There's no way you can have a disparate function like in case of Mike, he has finance team in the center. He has an FP&A, then he has people in the businesses. There's no way you don't have any scale to do AI to make a meaningful P&L impact. which made us now to pivot towards a shared services model to say corporate will be light. We are a public company. Of course, we need a corporate function to behave like a public company. But everything else we do should be a shared service so that we can reimagine that service using AI. So there should be Agentic versions in that when we do procurement, when we do finance, when we do other functions, customer service, that's our journey. So I would say that how much that number should be, it probably is going to be greater than what we all expect. But it's hard for us to put a number on the table to say it's going to be 30 basis points or 10% or nothing. But it absolutely is greater than 0%, and we are very bullish about that. On the external customer side, I think the -- our innovation adoption has to match with the customer's ability to do change management. Because these offering we are launching of Agentic system, building an Agentic system for buildings, building an Agentic system for process industry or plants. When a customer adopts it, they have to make an organization structural change. They have to hire different type of people. So can they do it in two months? Unlikely. Can they do that in two years? Probably. So we are shifting our discussion not only limited to Agentic system. When I talk to my peer group, they talk about it, how are you dealing with it? Are you making org changes? And they are really dealing with that issue because Agentic system means the skills are getting automated at the bottom of the pyramid. And the skills are moving in the middle of the pyramid. Suresh showed to you, he's going to eliminate all the nuisance alarms, okay? So there are a lot of people who are doing this punching the key to deal with nuisance alarm in different kind of system. But given they're eliminated, somebody needs to do something about it. Those people are different. So who's going to make the org change to say, all these people are left and we need something in the middle. So our scaling is more dependent upon customer adoption of their own org change. And more quickly they do it, I think the rate of change here could be quite different in any new technology, and we're absolutely working with our customers on that.

Okay. Let's go back to Andy Kaplowitz in the center.

Vimal, like I think you've run all the businesses in the past. So I'm just curious, like what do you think the biggest unlock is? Because you talked in the beginning of the conversation about getting the other segments to look like BA. So what do you think the biggest unlock is? And if you think about something like process, for instance, it is bigger customers, it's different markets. So how do you sort of deal with the different businesses to get them to look like BA?

I think the biggest unlock is for us, the next innings for Honeywell Technologies is going to be building a vertical-oriented offerings. What industrial companies do well is to build businesses by product line, process automation, life safety, gas detection. But the people are trained to sell their product to a customer. But if you pivot the problem by end market to say we are serving life sciences, we are serving semiconductor, we are serving grid infrastructure. Those are -- you have not solved a problem, which will need to sell products from multiple businesses, that to me is the biggest unlock. In today's revenue stream and all the numbers we presented to you, we don't have any meaningful number of cross-sell built in because we haven't proven anything. But if you ask me and all my SPG colleagues and Mike, that's what we are most excited about because this is a real scenario. And as we execute that, that to me is the biggest unlock because within the segments, I think each business leader is very capable to grow the strategy which we really presented. My job and Mike's job is really to imagine now how do we solve this vertical orientation because that's a relatively unique concept to build cross-sell of by each end market. In process, it's easy because both Jim and Ken, they sell to the same customer. There's a high amount of interrelation. Now I do it beyond, it just makes it harder, and that to me is the biggest unlock we have to solve it. 200 basis point of growth in there is possible? Absolutely. That's my incoming thesis. Have we delivered on that? Answer is no, but that's an upside, which is not in our numbers right now.

And then you probably deserve a little vacation after June 29, and you've been pretty busy. But assuming you don't take one, like where do you reprioritize your time? Because you will have a little more time, right? So where are you going to focus?

I mean, if you -- it looks -- how we executed the separation, it's a bit interesting to spend a minute on that. I think the separation team was done as a separate team under Anne's leadership. And we separated -- created a separate separation management office to really drive execution of Solstice and Aero separation. My time actually spent was not as significant as it appears from outside. I had to make a few difficult decisions, how to hire leadership team for Solstice and for Aerospace and create Board of Directors, of course. But time required is less, implication of decision is very big. So I did not really went away from the core of spending about 1/3 of my time externally. That has been my principle. It means be it with your salespeople and be it with your customer because that really gives you the insight on the businesses they are moving in. And -- but to your question, it's going to be a vertical thinking. The segments where we have a lesser penetration, I'm spending more time with life sciences customer. I'm spending more time with semiconductor customer, getting to know them, what are their pain points and what offerings we can make. It's interesting that I met with one of the large life sciences customer earlier this year or the largest company. And his comment was, I'm surprised I'm meeting a Honeywell CEO for the first time. But you're the biggest automation company, and I don't know why we don't have a relationship with you. My takeaway was our brand value is so high in his mind, and we've not done a good job to create value for them. And then we talk about our cross-sell solution, they really get excited about it because they said, this is new. We haven't heard this before. So that's where the time will get spent more in terms of organic growth, creating more opportunities and of course, building pipeline for M&A. I see my job continues to be more growth coming from organic and inorganic actions, and that's where I should spend more -- a lot of my time.

But just to the point of how focused we are, tomorrow morning, we'll have all day of business review.

Business review.

To focus on the second quarter.

For quarter 2.

We're serious.

We need to deliver.

Okay. Let's go to Nicole DeBlase with Deutsche Bank.

Just on the topic of M&A, does the $2 billion to $4 billion bolt-on range mean that large deals are completely off the table? And then a follow-up to Mike, you talked about the legal entities. You talked about the ERPs and you talked about shared services, but you didn't talk about facilities. Is that an opportunity? Or do you think that the size or the number of facilities that you have is right?

Do you want to answer M&A? I can talk about the facilities.

Yes. I mean -- look, our strategy is -- we have worked really well for us as a bolt-on acquisition. So what works well don't mess around with that. So I think fundamentally, we want to stay focused on that enterprise. And you never say no to everything. There's never say we won't do this and we won't do that. Things change. But principally speaking, we don't see any necessity to go away from our fundamental strategy of grow your installed base, mine your installed base, this strategy will work for us and do some meaningful addition in M&A where necessary, specifically to on what I mentioned, verticals and frontier technologies.

On your question on facilities, we are already 85% local for local, if you will, on region for region. We're optimizing things. Especially in IA. So you'll see more consolidation, but this is more just really to drive scale in our facilities. And that won't require any, I would say, incremental repositioning funds. I'm assuming about $70 million to $80 million of repositioning for Honeywell on a go-forward basis. But largely, we have a footprint that we want and we can grow on it.

Actually, Scott is here is our VP for ISC built a very clean strategy. We have about 80 factories, 80 facilities manufacturing as in Honeywell Technologies. He wants to build 25 facilities will produce 80% of our revenue, 80-20. We still need 80% because there are some nuances of localization, some of unique product line. But if we turn our focus to 25, that's where you invest capital, that's where you build scale, that's build your Honeywell operating system. And I think really his strategy is really smart to execute it that way. And that's going to give us leverage like Billal talked about it. We don't think Honeywell needs any new factory with one exception, LNG. If somebody has more LNG capacity, give me a phone call. We have so much of business. We can't serve it because it is unexpected business which is coming our way. But outside that, I think we have a good capacity to serve the entire company and scaling a few factories is our strategy.

Okay. Let's go to Alex Virgo from Evercore.

I wondered if you could talk a little bit to the context of the decision to have a fixed date, i.e., 3-year targets as opposed to through cycle targets? And maybe talk a little bit about, I guess, the lift in the acceleration near term and the confidence that you clearly have on the next 3 years, I totally get that, but the transition to, I guess, building habit to be growing faster in the NPI, et cetera, et cetera.

I think the 3-year number is just to illustrate for everybody in this room to give something which is tangible. Our strategy is more longer term and new durable. We don't think we are going to come back to you in 2 or 3 years from time to say we don't think we're going to change our strategy. So fundamental strategy of having mission-critical segments, serving building, industrial and process, growing through new products, that's going to remain very robust. But as a public company, we need to give you some commitment you can hold ourselves accountable to. But then as Mike said very well, we think every day, how do we beat that $6 commitment we are making because that really is what will excite you and what will excite us.

We operate on the 3-year cycles in Honeywell. And if someone comes to me with a plan that has 10% CAGR like that, and it's linear, it's not believable. So really, I always discount the last year, but really focus on the first 2 years because if you can get that growth and the margin expansion in the first 2 years, you're pretty sure you get it on the back end. So it's really about next 18 months. And once we instrument the next 18 months, in 6 months increments, we can then talk about rolling forward the forecast. But that's our general, I would say, construct of financially, and we're quite convicted on what we're going to deliver here in the early cycle of that.

Let's squeeze 1 or 2 more questions, Mark, before we...

Yes. Let's go back to Julian for a final question.

Maybe one for Vimal, just because of your background in the process business. I remember you used to talk about positioning the portfolio differently there. But when we look at it now, it's still almost half petrochem and refining. So I guess when you -- how do you think about the growth profile of that piece of it? And kind of how -- in 5 years' time, let's say, how much of that segment should be petrochem and refining?

Yes. I mean, clearly, Julian, the actions we have taken on LNG was thoughtful to derisk our business, which is concerning refining petrochemicals. So I think that certainly has helped. And the outside growth in that is certainly going to change. And then we are equally focused to grow our business on the process side of the business in life sciences and in grid infrastructure. On the core, we believe the biggest opportunity is OpEx leverage. There may not be a lot of capacity coming for refining petrochemicals, but nobody is shutting down any plant. So it means the money being spent on OpEx in terms of running these facilities better. That's why our mining installed base strategy is very critical. So I think that's going to enable our growth. A case in point is Ken's business never had any services. They licensed the technology and then sold the catalyst. Now Ken believe he can create several hundred million dollars of services business from ground zero. He never had any. So all that for us is incremental growth. We're displacing somebody else who was providing those services, maybe small system integrators, small EPCs, maybe customers' in-house team. So getting the maximum share of demand in our core but pivoting towards some of these higher-growth markets like LNG, grid infrastructure and life sciences. That's why vertical strategy is important. We have called out life sciences and grid infrastructure as our priority verticals. We'll do organic growth. Nothing stops us to look at inorganic opportunities there to continue to build our business more diversity there. So more to come.

Great. We'll leave it there. A couple of points before we wrap up. Lucky for all of you. We have nice warm pullovers to put on, on your way out the door and great timing. And we're going to watch the second half of the customer video from before, and then Vimal will join us for closing remarks. So thank you again. [Presentation]

Please welcome back Vimal Kapur.

All right. So again, I just wanted to thank everyone. I wanted to make sure that we start the day with the customer and end the day with the customer because I believe that customers drive our future. And you heard from several segment CEOs and how they're partnering with us every day to drive shape our future. I think this slide is a summary of where I started my day in the morning. Why own Honeywell Technologies, everybody has a lot of choices. But we have built a portfolio which is transformed as a pure-play global automation company. And the portfolio mix and the business model really give us an optionality to have more than 10% earnings growth through cycle. And then AI is an optionality. I truly believe that this industry is going to transform itself. The timing is near term versus long term, and we are going to be leading that whole move of automation to autonomy. And finally, execution is in our DNA, whether it's our operating system or it's in our team. So there's no -- this -- I've been in this segment, automation segment for 40 years. I just realized yesterday that I started working on 10th of June 1986. Today is 11th June. So I completed 40 years only in one segment. And I've never been excited about the future of automation industry, not because I'm CEO of the company, but the opportunities which is ahead of us. I'm really excited. I think this moment is a great moment for Honeywell Technologies. And I feel you all are excited in terms of future which falls ahead for us. So thank you very much for being here. We have a great set of demos put together for you on the site. So do stop by for reception, and have a good rest of your day. Thank you very much.