Johnson Controls International plc (JCI) Earnings Call Transcript & Summary

All right. Up next, we have Johnson Controls, who you all know very well. We have CEO, George Oliver; and new CFO, Olivier Leonetti. I'm going to let them open it up with a couple of comments here, and then we'll go right to Q&A. [Operator Instructions] George, thanks for joining us. And with that, I'll leave it off to you here for a couple of intro comments.

Yes. Terrific. And thanks for having us, Steve. It's great to be with you. I thought I would start with a few opening comments, and then we'll get into the questions. After wrapping up a year of strong execution in a very challenging environment, fiscal 2021 is off to a strong start. We are seeing the momentum continue. Our portfolio is very well aligned with strong secular trends, some of which have accelerated as a result of the pandemic. Those would be sustainability and energy efficiency, including decarbonization and electrification, smarter and safer buildings and infrastructure, and then digitalization and connectivity. We are uniquely positioned to service trends with a holistic approach that leverages the most comprehensive product portfolio in the industry. We also have one of the largest direct channel footprints with an unmatched history and expertise in buildings and best-in-class team of over 16,000 sales and service engineers and technicians. Our digital transformation platform OpenBlue extends our leadership position in smart buildings. We have a comprehensive suite of connected solutions that bring together the IT as well as the OT systems of a building. This open architecture platform enables us to leverage our very large install base of equipment, sensors and devices to collect massive amounts of data from in and out of the building. We push that data to a cloud where we and our partner to apply the latest in data analytics, artificial intelligence and machine learning and ultimately deliver outcome-based solutions for our customers. This is another clear competitive advantage for us and expands our value proposition. On sustainability and the ESG in general, what I would say is both our core to the vision, mission and values of the company. We've been at this a long time. I'd say that we are very well positioned from a product portfolio standpoint to address our customers' goals to lower their greenhouse gas emissions with nearly half of our revenue coming from products designed to exceed minimum efficiency requirements and significantly reduce greenhouse gas emissions. We issued our third-generation of ambitious ESG commitments in January. And we are well positioned to, not only drive our ESG commitments, but help our customers achieve their environmental commitments around decarbonization. From a strategic perspective, as we look to 2021 and beyond, we're focused on a few key priorities: Accelerating top line growth. We have a number of strategic initiatives aimed at driving above-market growth over the next few years, including higher new product launches, increasing service attachment rates and revenue per user in scaling the launch of OpenBlue. Second is optimizing our G&A structure. We're going to continue our focus on expanding margins and increasing profitability with a renewed focus on managing operating expenses lower over time, including our announced multiyear SG&A cost-reduction actions. Additionally, we are finalizing our plan to step up the reduction in COGS and we'll share those details on or before the Q2 call. And these actions, coupled with ongoing productivity, will drive significant margin expansion and close the gap with peer markets. Third is maintaining a strong free cash flow profile and -- with a very disciplined capital allocation strategy, focused on returning capital to shareholders. Cash generation has improved tremendously over the last few years. We're now in a position to sustainably generate 100% free cash conversion. And you may have seen, we raised our dividend for the first time since the Power Solutions divestiture. We maintained that dividend despite divesting nearly 1/3 of our earnings. So we've spent the last 2 years growing back into an over 40% payout ratio, and we expect to continue growing the dividend from here. And by the end of 2021, we will have successfully deployed 100% of the Power Solutions proceeds. And we will have bought back over $9 billion worth of stock and repaid more than $3 billion in debt, net of issuances. Our balance sheet is in excellent shape with leverage still below our target range and ample sources of liquidity. And as we move forward, we will be balanced in our approach to capital allocation. We will continue to grow our dividend. We're going to continue the reinvestments in our businesses with the tractions that we're getting and being able to deliver growth. And the remaining available free cash flow will go to bolt-on M&A and our opportunistic share repurchases. So with that, Steve, I'll turn it back to you, and I'm looking forward to your questions.

Great. So a lot of the things you talked about are very interesting. I'd say -- I would have said longer term, maybe a year ago. But these are -- seem to be more like intermediate term trends now. They're are definitely -- they're not necessarily here today, but they're on the come and they're happening on the ground. How are you seeing this kind of juxtaposition against this focus on what building owners and managers kind of have to do longer term, but their appetite to spend in order, today, given their buildings are not necessarily full and they're still figuring out what the post-COVID environment looks like, are you starting to see any kind of loosening in those budgets? And how would you characterize this recovery on the non-resi activity side versus prior cycles?

Yes. What I would say...

In the U.S. Let's kind of focus in the U.S., because China is a little bit different, obviously, but maybe in the U.S. here.

Let's stay in the U.S. What I would say is the non-resi construction in general is expected to be a headwind for our install business, but we do expect to outperform based on our end market mix and what I would say the pipeline for opportunity for shorter cycle projects. We see our smaller projects that are outpacing our larger projects. And what I would say, Steve, the retrofit opportunities are being influenced by the healthy buildings demand. So when I look at HVAC in North America, what I would say is [ supply ] is recovering nicely. And with the investments that we've been making in our products and our capabilities in the field, we're gaining share, and that's continuing. When you look at our market for the commercial unitary, I would say that still remains under pressure. I would say the key end markets for our unitary business were a harder hit, which is in a smaller tonnage range. But I do believe, based on what I see happening today in the orders that we're seeing in the in the acceleration, we do believe that our portfolio is ahead of the market when it comes to compliance with the 2023 standard change. And with the new products we've launched, we're seeing a nice pickup in share in that space. Now let me just talk a little bit about retrofit. So when we look at the mix and I showed this, I think, back during our earnings call, when you look at our retrofits in North America, it's going to be -- it'll be up kind of mid- to upper teens, so when you look at the mix of our projects that we're executing on. And as we look at our pipeline, that could double again in the next quarter. So there's been tremendous activity relative to the shorter-cycle projects that do tie to not only the health and safety of the building, but also now as being combined with some of the sustainability, focus on energy reduction and the like. So although the overall ABI has still been under 50, although trending better, we've been able to offset that. We're building a pipeline that's very much focused on what we see to be very important trends within the industry. And then with our combined capabilities, our ability to be able to actually now get more than our fair share because of our mix.

So when you say retrofits, and that pipeline is update, like, can you just put some context around that? I mean, if it's up that much, how kind of big of a piece of your business is it today? And what do you mean by that? Do you mean by -- do you mean you're replacing Metasys building management systems? You're replacing -- I can't imagine that's like full chiller replacements. But what do you mean by -- what revenue bucket is that? And what do you mean by the retrofit when you say it or the refurb?

It's really all of the above. I mean, when you look at -- take our institutional vertical market, so health care and education. There, we are the market leader in North America with both equipment share as well as our control share. And so as we look at within those markets, how do we now go attack to get to a clean air delivery rate? And a clean air delivery rate is not only taking the controls with what we do to manage HVAC, but also the rest of the building. And then being able to get to a clean air delivery rate that takes into account the space, the occupancy, where people are located within the building and ultimately gets to an outcome that we believe not only optimizes the health and safety of the building with air purification and how that building is operating, but it also enables us to be able to provide a very attractive solution-based on energy required to be able to get to that elevated air purification. So that -- those spaces, like let's take education, the K-12. Right now, there's significant stimulus that's been put out into the market. We've been tracking all of that stimulus for schools. What I would say is there -- we have a relationship with 6,000 school districts and 1,300 higher ed institutions that are now well positioned -- and we're well positioned to capitalize on these opportunities. And I would say is when you're looking at not only replacements, but also looking at upgrading the overall environment, you're looking at both. How do I get a more efficient solution, but at the same time be able to address the indoor air quality with what's going to be required to maintain self building -- a safe building. So I think for us, it's both. It's seen both in not only replacement equipment, but also now providing solutions that ultimately achieve what our customers are looking to achieve from a health and safety standpoint.

And so I guess you kind of throw that all in, and we look at the kind of order rates that you guys talk about. Is this enough to kind of see a sharp kind of V-shape inflection in those order rates in the next couple of quarters? Because, I mean, those are some big numbers you're talking about, mid- to high-teens or whatever you were talking about retrofits. I mean like how do I kind of put this into the grand scheme of your orders' pace, which is not short cycle. It's definitely lagging what you would see at other shorter-cycle businesses, which makes complete sense. But is this enough to kind of have a V shape over the next couple of quarters with that kind of pipeline?

Yes. So as we had said during our last earnings, when you look at retrofit business, retrofit upgrade, it's roughly 20%, 25% of our base of install.

Okay, got it.

So we're starting to see the real ramp up. As we projected for the year, we did say that we would all perform in total, the overall -- our ability to be able to capture market share and be able to capitalize on these secular trends. And because of that, for the year, we actually do our position to be able to deliver positive growth within our install business and accelerated service growth on top of that for the year. So that's what we projected for the year. We're tracking very well, not only in how we're building the pipeline, but how we're converting the pipeline, which then plays out to how we're actually going to deliver revenues here in this quarter, third and fourth quarter, for the year.

Got it. And then one last kind of question on this, because I just want to make sure that we have it right for my market kind of mindset. These are -- like, this isn't like replacing an old chiller. This is like when you say refurb, it's a little more of like the -- your nonchiller-related products in and around the building and maybe some unitary stuff that you're doing. I mean, are you seeing like chiller, full-on, big-ticket kind of chiller replacements yet? I would assume that's a little bit later on the come.

Yes. That's a little bit of a longer cycle, although we have been we have been doing chiller replacements. It has been constant over the last few years. So I recognize a base -- roughly a base of about 150,000 chillers, right, in North America, thereabouts, plus or minus. And there has been there have been upgrades in replacements within that business over the years, and that'll continue going forward. So that has always been part of our core as we think about our applied business. What we're doing, Steve, is also with that installed base, this also allows us to go back. As we've talked about our service business, we have a 35% attach rate of contracts to that install base. Now new business going forward, that's much higher. But what we've done in the last 18 months is go back and understand where all that install base is, how do we provide upgrades, not only to the controls and panels; and then how do we then extend our ability to be able to provide the highest amount of service to that install base on a go-forward basis through contracts? And so we've had tremendous success, not only with chillers in being able to do that, upgrade, be able to attach and then get a recurring revenue to be able to support that chiller. But think about a Metasys, we go back to still Metasys 5 and 6 that are in operation in the field. We're now up to Metasys 11. We can go back and do the same thing with Metasys. How do we upgrade, bring that forward, ultimately connect to the cloud and then be able to provide the outcomes that we can produce because of the combination of not only having the equipment, but the building controls and the other sensoring and capabilities within the building, which then come together with OpenBlue in our ability to be able to now commit to outcomes for the customers that we serve.

And that 150,000 that's a North America number that's your install base?

No, that's the overall. When we think about the market and...

Market, got it.

[ We seem to be earning ] numbers on that, but it's roughly about 150,000 active chillers that are in service.

Active chillers. Got it. That's great. And I guess one more just kind of like on the geographic markets, and I'm going to kind of circle back into the services discussion, because it's obviously very interesting and most important for you guys and your initiatives. The -- China, what are you guys seeing in China these days? Obviously, very strong off the bottom, held up well last year. I think you said there were some very strong order momentum there last quarter. What are you seeing so far this year in China?

Yes. So China is recovering very nicely. Our China HVAC orders were up 20% in the last quarter. So we're expecting another strong quarter of order growth in China in the second quarter, similar to that. It's mainly being driven by our HVAC business. We're seeing high demand or higher demand for air quality solutions. Data centers are also a source of strength. It's one of the strong verticals that we see. And then when we look at our portfolio, whether it be the leadership in HVAC combined with controls, with our refrigeration franchise in China, that overall has positioned us extremely well to really build our service business, and we're seeing really nice traction in how we're building out that business. So overall, that's continuing here. So their recovery is, from what we originally thought to where we are, I think we're performing even better and that's continuing.

And then in Europe, I know one of your competitors has made a big deal about their environmentally friendly commercial product that can heat and cool. I guess it's somewhat akin to a commercial heat pump. How are you guys doing over there? And do you have -- what's kind of your lineup of products that you're most excited about on commercial that can benefit from what is more of a sustainability trend over there?

So let me talk a little bit about that. Heat pump electrification trends are very important to us and something that we've been investing in. We're seeing market momentum for our heat pump solutions largely driven -- it's both Europe and Asia. What I would say is there's continued regulation shifting away from the fossil fuels and now with low GWP mandates. And so that's creating a demand for district heating applications, which has increased. And our demand in Europe is concentrated in Western Europe, Denmark, France, Benelux, mostly driven by this solution, water-to-water district heating. And then China has also had strong heat pump demand, but also -- but extends from large district heating applications all the way down to resi. What I would say, Steve, is we have a great portfolio of heat pump technologies. We've been the market-leading player in China for 10 years. We have a strong portfolio across the board right from industrial, as I talked about, district heating to resi, a leading scale position. And we've got a complete portfolio, including both water-to-water and air-to-water equipment. And our water-to-water portfolio is industry-leading. And I believe that I can say that we are the market leader. And no competitor has the same product breadth in tonnage, efficiency, max condensing, temperatures, low GWP offerings. So that has been a focus for us. As we think about our refrigeration capabilities and how we're applying that within Industrial Refrigeration has been extremely positive.

So let's talk about the services. You mentioned a 35% attachment rate. What -- how do you define that again? Just remind us of how you define that attachment rate. And then we'll start -- we'll just start there, so we can level set the conversation.

Yes. Let me turn it over to Olivier. He can baseline kind of where we are with the attachment. And then we can talk a little bit more about a strategy that we have been executing over the last about 18, 24 months. It's always been a focus of mine, and we've developed a service strategy over the last few years. And what I would tell you is it's kicking into second and third gear now, the way that we're executing. So on that, I'd like to have Olivier kind of baseline it, and then we'll talk a little bit more about what we're doing.

Absolutely, George. So the way we calculate the attach rate, and, you have various ways to calculate it in the industry, by the way. The way we do it as a nominator is all the blue contract, JCI, long-term contract for services and a nominator and denominator is the install base for our products. And this ratio is about 35%. We have -- and it's higher for Security and Fire, attach rate and lower for HVAC. And services has been a real focus for us for a number of quarters -- number of years for 2 reasons. One, we believe we have a low market share in this market. Two, this market is very attractive from a level of profit standpoint. The level of profit all in full P&L is twice the company average. And there are 2 things today, 2 trends going on relative to service at JCI. First, our focus today across the enterprise, we have a new organization focused on service. We have a new go-to-market. We have a new set of offerings. We have a new compensation program. So that is moving services forward, but also and, mainly, the strategy for services evolving. Today, if you look at competition in services, the competition is mainly local, providing a mechanical level of service. Going forward, we believe that these markets seem to become digital. And we believe, as a result, that we need to be able to gain shares because of the OpenBlue and the power will be to be able to provide from a service standpoint by mining data, so very excited. Let me give you, Steve, a few numbers. Orders for services were positive in Q2. We said that during our last earnings call. Of course, services orders will be positive in Q2, but also revenue in Q2 for services is expected to be positive. And we gain, in just 1 quarter, a point of attach rate, so Q1 relatively before. George?

No, I would say, Steve, is that if you think about our service business as being a very -- historically, very much break-fix, maybe upgrade a bit and more mechanical and more viewed as an entitlement of that install base. What we've done very well here over the last couple of years is now focused on service as a strategy. And so as we go back into -- when you look at the install base, I would say it was undermined, underserved. And so our ability to be able to now go back into that install base, even get it connected, the service that we are performing, how do we now perform that better and then on top of that, how do we upgrade that install base and bring it forward from a technology standpoint with an incredible opportunity to be able to create value. So not only an uptime of that equipment, but also from an energy standpoint how that equipment is operated and maintained and the like. And so a big focus on that. For instance, in controls, like I said, hundreds of millions of dollars of opportunity to go back into the install base, upgrade it with a value proposition with what we can deliver for the customers that we're serving with that current install base. And so we're very excited about that. And then on a go-forward basis, now with the connectivity with an integrated data platform that we can take all of the sensing, not only off of our equipment and devices, but also everything else within the building, which then is utilized to optimize the output with what ultimately can be created, whether it be around health and safety or energy or any other use case that is required within a building. Truly sets us up to be the leader in smart buildings. The big -- if I think about it, Steve, think of it as 3 big secular trends: sustainability, health and safety, and digitalization. And they all converge. And so the ability to be able to go in, like, with our performance contracting and reduce energy by 40%, 50% at the same time that you're elevating air purification. And then with that connectivity and digitalization, how does that not only contribute to that, but also how do you create new outcomes above and beyond that ultimately are viewed as being value to the customers that we serve. So we're really excited about that.

What percentage of these -- you mentioned the attachment rate. I mean, what percentage of that is actually kind of a longer-term agreement, something that would be beyond 1 to 2 years? Is that just -- is that the nature that you're kind of going after? Or is that not really the right way to think about it? How much are we talking about is truly kind of visible long-term types of agreements?

So the way to think about it, Steve, is that historically, with around more of the mechanical brake fix repair has been annual contracts, maybe high renewal rates, maybe you get to a 3- to 5-year contract. But most of them renewed annually. Now with the connectivity with the digital solutions with now the new services we add, you get a longer-term agreement with the service that you provide. So it's a huge enabler to not only take what we've done historically, combined with the new capabilities that allows us to be able to not only get an attach, but with that attach, how do you maintain -- not only how do you reduce attrition, maintain that customer and always be focused on how do I continue to build value on top of that, that base business or core that we've always performed for the customer.

Right. So is there any upfront cost to that at all? I mean is there a different degree of kind of earnings profile or cash profile as you transition, I guess, that book from 1 to 2 years to more like the ideal more, like 3 to 5? Are there any financial dynamics here that we have to kind of keep in mind, whether it's earnings or cash flow?

No. I mean we're -- I mean obviously, we have a number of solutions that are being built. We're within a long-term contract. Sometimes we do provide financing as part of our offering, third-party financing that ultimately is enabling us to be able to upgrade an installation and then be able to attach and execute on service. But what I would say is that we have -- our strategy over the last few years is -- has been a strategy of, from an R&D standpoint, having leadership product and being able to get intelligence at the edge with our products, right? So that's all. And then with that, make sure that every product is connected. And then with that connectivity in our direct channel, it then enables us to not only manage through warranty or through a warranty cycle, but then be able to create even more value or new offerings on top of that install base on a go-forward basis. And so we believe that with what we see in our ability to be able to not only continue with the core, but also build on top of that, a whole new market with the connectivity that we're putting in place that it really addresses these big secular trends. That is playing out as we had planned.

Steve, at the moment, because of the differentiated value proposition, we see 2 things happening with services: one, higher win rate; and two, higher gross margin.

Got it. Got it. So those are big factors. How important is the Fire & Security portfolio when it comes to this initiative? I would think that Metasys is obviously extremely important. Your HVAC core is -- has always been -- install base has always been a differentiator. The value of the Fire & Security side has always been a little bit tougher for us to all kind of understand because it just -- it doesn't seem to grow as fast as other, maybe, building products. How does Fire & Security kind of play into all this for you guys?

Let me just touch upon controls because I think it is it is critical to enabling a smart building, and that becomes the foundation of a smart building. Sustainability and energy efficiency will be the standout driver that ultimately, you can't optimize energy efficiency without a strong controls platform. And then as we said, Steve, over the life cycle, we continue to upgrade and bring that technology forward within the control system, which is absolutely vital. Now that does combine to take that as the base. It does combine with all of the other the other digital assets within the building, which Fire & security is critical to that. And what I would say is when you look at purely Fire & Security, it has been a very attractive part of the portfolio. It is core to the building systems. And it does have a very attractive margin profile due to the service mix. Now when we look at the install base, we believe that, that's going to be critical to be able to continue to build strong recurring revenue base and service. And then when you look at OpenBlue, the attributes that we have within those businesses, how that combines with OpenBlue and being able to then get the full set of data that ultimately is then deployed in the type of solutions that we deploy. What I would say around security is incredible interactive qualities that come off of our security systems, whether it be video, access or intrusion. And with the connectivity, the data analytics, a strong control point for a building, knowing what is critical and how does a smart building, connected building work, it is absolutely going to be the foundation of a smart building. And what I would say, the prepandemic, we had reinvigorated growth in our Fire & Security business. We were getting above-market growth, mid-single digits, and we do expect that to come back pretty strong as we move forward. And we are beginning to see a prioritization. There has been a prioritization of HVAC over Fire & Security given the immediate indoor air quality needs. But we do believe, based on what we see now in service in Fire & Security that we have inflected positive and that a lot has been driven by the focus on service and being able to build out our PSA contracts and revenues despite the continued pressure that we have had within our L&M business. And that's mainly, Steve, driven by getting access to facilities that aren't ultimately bringing people back to work yet. And so that is just a matter of time till that actually comes back. And so we would expect the trends in both service and install continuing to improve as the lockdowns, restrictions ease in the remaining hotspots. And it is, as I said, from a margin return standpoint, a very attractive part of the portfolio with a higher mix of service. And therefore, as we get back to above-market growth and how that contributes to our ability to be able to get a higher share of smart buildings, and then with that connectivity, being able to maintain and grow our share of Fire & Security is pretty high.

How like -- I know it's a little bit of a different discussion today than it was several years ago. How many projects or at least maybe services, or however you want to look at it, are now truly integrated, that you're kind of doing all of this for the customer? Because it's obviously, I think your position in integrated buildings is -- this whole business model has been pulled forward because everybody is looking at the entire building now. But how much are they actually now? What's the progression of that being bid together now versus separately, which is I know kind of some of the pushback on that model from several years ago?

So I would start by saying, how do we sell before and how do we sell now. So before, we had domains that we're selling to a fairly low level within the organization. It might be a facilities manager. And it's kind of more viewed as kind of a cost center, and that's ultimately how it's managed. What's happened in the pandemic, now whether it be sustainability, whether it be indoor air quality, the health and safety of a building and then this idea that historically, buildings have lagged behind other industries in our ability to be able to digitize the buildings. And so what's happening is, and I've seen this in a big way where now the decision is around buildings, not only new buildings, but even existing buildings are being pushed to the C-suite and so -- because of these trends. And so what we've seen now especially with our enterprise customers, when you look at our top hundred accounts, and they're significant as far as the revenue base today. When you look at how we serve those customers bottoms-up, what that was previously, and now from a top-down standpoint, how we can ultimately serve those customers being able to address these secular trends, it's pretty significant. And so there's a lot in the pipeline as we sit here today that is significantly more than historically what we've seen and how these integrated systems come together and how we go-to-market with those and who we're actually selling to, to be able to make that value proposition.

How much of the -- I know you guys have given kind of a revenue uptick target when it comes to OpenBlue proliferation, right? It can grow a certain percentage of revenues above market, I believe. I think you said like a couple of hundred basis points or something like that. How much of that is OpenBlue system enabling you selling more IAQ, more touch points in security, another control system versus kind of like what you're actually getting paid for that particular platform, if you will?

So Steve, it's very difficult to remove, OpenBlue from the rest of the ecosystem of the company. We believe that -- so if you look at indoor air quality, you can fix indoor air quality, but the side effect is you create more energy consumption. So how do you do both at the same time is complicated. And you need OpenBlue connection with your products, a different service offering. We believe as the total package for the company is mid-single-digits plus revenue profile when all put together. And we see today that the book of business is highly more profitable than it was before. That's the way I would summarize it, Steve.

And just mechanically, again, OpenBlue is a -- it is a product that you're selling. And it is a like there is a lot of software -- enabling software in that product, correct?

So think about it, it is a digital platform that enables us to be able to product-ize solutions to the market. So there's connectivity. There's data analytics, AI applied to that data and ultimately creating outcomes out that we're actually supporting our customers with. So it starts as simple as, Steve, at the lowest level, getting everything that we do in service connected and being able to not only better perform that service, but then to attach a lot more service and get more recurring revenue on that base to, right from the top down, all of these new projects that we're now speccing and designing and speccing for our customers include a full integrated OpenBlue product. It takes -- everything we do within the building is connected. All of the data comes together into 1 platform. We have a suite of analytics in AI that ultimately then support the outcomes within that building. And the outcomes can be around sustainability, around indoor air quality, health and safety or just other outcomes within the building.

And that gets, actually, like that gets installed at kind of like an ERP type of level into your building control? I mean it's obviously pulling from a lot of different parts, but I would assume it kind of -- the data runs through your building controller. And maybe it sits on top of that, so you can sit on top of other building controllers. I mean is it a little like a manufacturing execution system for a building? Is that...

It is taking everything that's done in a building, being able to connect that all to one -- through the cloud through one data with a suite of analytics and AI that ultimately then support whatever type of outcome that you're looking to provide. Obviously, it all ties to being connected. Everything is connected, use of data, use the data to optimize not only what we do historically, but also build new services on top of that connected base.

So today, let me give you a statistic, Steve. We have more than $1 billion of revenue today every quarter lately, growing mid-single digits of connected devices with insight. So we're able to connect the device, drive information from the connection and provide then a differentiated level of service. This book of business today, every -- last quarter was more than $1 billion and obviously, growing mid-single digits, to show you how the velocity of this business is at this year.

Wow. Okay. What -- what would that have been last year, I guess, or 2 years ago?

Last year would have been lower.

Yes, but it was growing, sure.

Which is clearly accelerating more than the rest of the portfolio. That's why we are quite optimistic about what digital could do for the company. And again, digital means higher win rate and higher-margin profile for this business.

We -- Steve, we just think of it this way. With the connectivity of that install base, we now have been able to tier our services. We've been able to create -- there's a couple of dozen OpenBlue solutions that we've actually then pushed into those services, that tiered service offering, right? So that is enabling everything that we did historically in being able to bring that to a whole new level of value creation for our customer. And then on the installs, what it has enabled us to do have a whole different dialogue with our customers around sustainability, around how do you design a system for the highest level, lowest carbon footprint at the same time that you're designing a system that ultimately is going to meet or exceed whatever the standard's going to be on indoor air quality. And then with the connectivity that you get in a building, you have degrees of freedom to how do you want then to use that infrastructure to automate what you actually do in the building. That is what's different now when we're -- and we've got some big, big customers that we've launched OpenBlue holistically with, not only on new construction but also retrofitting existing -- take a retail -- I'm sorry, a building owner that has multiple hundreds of buildings, real estate owner. We've gone in and are retrofitting 40, 50 buildings that ultimately now with OpenBlue that standardizes how those buildings will operate and then has one single pane of glass to how those -- each of the buildings are operating, and it gives them incredible insights and then opportunities to be able to achieve their objectives with those buildings.

Got it. Okay. I think that's all the time we have, guys. Thank you so much. Looking forward to continuing to -- hopefully, we get out someday and, like, actually see some of this stuff in action because it's truly exciting. And you guys have made a lot of progress over the last, I don't know, 5 to 7 years on your technology across-the-board product refreshes that I think people are starting to kind of appreciate. So congrats on that. Best of luck in the future, and hopefully, talk to you guys soon.

All right, Steve. Appreciate it. Thanks for having us.

Thanks.