Otis Worldwide Corporation (OTIS) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Otis ESG conference call. [Operator Instructions] Please be advised that today's conference may be recorded. I'd now like to hand the conference over to your host today, Mr. Jeff Sprague at Vertical Research Partners. Please go ahead.

Thank you, operator. Good day, everyone. It's Jeff here at Vertical Research Partners. And very pleased to be able to host this call today with the senior management of Otis Worldwide. I'm going to turn the call over to Stacy Laszewski at Investor Relations to lay some groundwork. And then after some opening remarks from the company, I'll get into a fireside chat with Judy Marks and Todd Glance, who's EVP of Operations. So Stacy, I'll turn it to you.

Thanks, Jeff, and good morning, everyone. Thanks for joining us. As Jeff said, we have Judy Marks, our President and CEO; and Todd Glance, our Executive Vice President of Operations, with us today. Judy and Todd will spend the next 20 minutes or so walking through Otis' ESG strategy, progress and goals, and then we'll spend the second half of the call on a Q&A that Jeff will moderate. A quick reminder that given the timing within the quarter, this call will be focused strictly on ESG. The presentation also contains certain forward-looking statements, which are subject to risks and uncertainties, which are highlighted in our presentation and SEC filings. With that, I'll pass it over to Judy.

Thank you, Stacy, and good morning, everyone. Thanks for joining us, and we hope that everyone listening is safe and well. Todd and I are excited to join you today to discuss this important topic, the initiatives behind Otis' ESG performance and our goals over the next several years to continue to drive our vision forward. Starting on Slide 3. Shortly after I became President of Otis, we put a new vision in place for the company. We set our Otis Absolutes, which commit us to conducting our business the right way, and we set our vision. At Otis, we give people freedom to connect and thrive in a taller, faster, smarter world. We hold ourselves accountable for 3 complementary goals: first, driving a global enterprise that has better-than-peer performance for our shareholders; second, leading our industry in ESG, supporting our colleagues and communities while respecting the planet; and third, living our Otis Absolutes. These goals and our vision inform how and define who we want to be at Otis. Behind our strategies is a driving intent to promote the ability of people to connect and thrive, to improve the human condition and leave the world at least a little better off than we found it. And so our ESG programs are integral to bringing our vision to life. Turning to Slide 4. This vision obviously speaks to our role in providing vertical transportation solutions and enabling continued growth of cities. Our business strategy supports the vision, sustaining new equipment growth, accelerating service portfolio growth, advancing digitalization and empowering our organization to drive sales, earnings and cash flow growth to create sustainable shareholder value. At the same time, we're focused on fostering a culture that embraces many voices and points of view and proactively engages in the communities we serve. We strive to reduce the environmental impact of our products, operations and services, both for ourselves and our customers. We uphold the highest standards for strong governance, ethics and integrity. And above all, we're committed to health and safety, an Otis Absolute. Moving to Slide 5. ESG has been a focus at Otis for decades, embedded in our strategy and culture, but our journey as an independent public company and through the COVID pandemic has brought new light to this important topic. We took a comprehensive and thoughtful approach to further developing these commitments and carving a path to achieve our targets. Over the last few months, we completed a robust materiality assessment to identify and prioritize ESG topics that are most material to Otis and our stakeholders. This assessment highlighted that our teams are focused on the right things: health and safety, environment and impact, people and communities and governance and accountability. This month, we became an official signatory of the UN Global Compact and aligned our ESG initiatives with the U.S. -- UN Sustainable Development Goals listed here that represent a high level of business relevance to Otis in areas where we feel we can make a significant positive impact: things like ensuring the health and safety of our workforce; reducing our carbon footprint to minimize climate impact; fostering diversity, equity and inclusion in our workplace and communities; and upholding the highest level of ethics and integrity. Turning to Slide 6. The health and safety of our colleagues and the riding public is paramount. Otis is a leader in the elevator and escalator industry, setting the safety standard, but we can always do better. We actively work to ensure our workplaces are safe, and our colleagues and partners have the tools, training and support to create and sustain an injury-free environment. Between 2015 and 2020, total recordable incident rate and lost-time incident rate were down 13% and 35%, respectively, reflecting strong progress on various safety initiatives. All Otis colleagues are empowered with stop work authority, extending to any job, any time and under any circumstances. Last year, we began an annual Safety Stand-Down Day, where our colleagues from around the world take a purposeful pause to come together to share best practices and recommit to safety. During this year's stand-down, we covered several topics, one of which was pre-start checklist, ensuring supervisors perform safety audits and verify proper procedures before starting work. This includes things like demonstrating proper lockout/tagout processes, performing electrical test verifications and evaluating hoisting devices and equipment. But in addition to process changes, we're adding technology innovations to support our safety absolute. We're making it easier for our colleagues to perform effective safety audits and inspections through our survey apps, removing the need for written documentation, improving accessibility and record creation and strengthening field engagement and safety. We're also seeing increased adoption of our proprietary Tune app, which can eliminate the need for our mechanics to get on top of the elevator cab to identify issues and troubleshoot. Our focus remains on training, sound risk identification, assessment and mitigation programs and fostering a strong safety culture. This, along with expanding mental health and well-being benefits to our colleagues, are just a few examples of how we're prioritizing health and safety throughout the organization. This commitment extends past our colleagues and partners to the riding public. We are in the life safety business. And Otis elevators and escalators meet or exceed strict elevator safety code standards around the world. As new passenger concerns emerged with the COVID pandemic, we commissioned and published the results of an elevator airflow study with Purdue University, where air quality experts assessed the safety of airflow within an elevator to determine that elevators have a high level of air exchange and elevator rides are on the lower end of the exposure risk activity scale. The risk of an average elevator ride is less than a trip to the supermarket or outside dining. We were equipped to introduce new health solutions, including purification fans, UV products and focused on our touchless technologies like our eCall smartphone app. With that, I'm going to hand it to Todd to talk about our environmental initiatives in more detail.

Thanks, Judy, and good morning, everyone. I'm on Slide 7. As Judy mentioned, we're committed to creating a more sustainable future for Otis and reducing environmental impact. From 2015 to 2020, we reduced factory greenhouse gas emissions by over 30% by implementing energy best practices, efficiency projects and renewable energy. Over the same time frame, water usage was reduced by over 40%, and we recycled 99% of factory waste. Our Florence, South Carolina factory switched on a new solar field in 2018 that produces nearly 25% of that facility's annual power requirement. At this point, about 85% of our manufacturing facilities are ISO 14001 certified, and 6 of our European manufacturing centers achieved ISO 50001, an international improved energy performance accolade. We'll continue to deploy energy best practices in our factories and offices to minimize our environmental footprint. This focus on reducing impact extends to our product offerings for both new and existing buildings. Otis has several products that help minimize energy usage, technologies such as our ReGen system that reduces electricity consumption by up to 75% compared to conventional nonregenerative systems, capturing and using energy that's normally wasted as heat. This benefits not only new buildings, but also has the opportunity to address the growing modernization of elevators, where nearly 1/3 of all elevators in use today are over 20 years old. Our Gen2 Switch elevator uses a battery charged by a single-phase outlet to power the elevator. This unit can provide up to 100 trips in the event of power failure. With this Gen2 Switch technology, our elevators are 100% compatible with alternative energy sources like solar panels and wind turbines. Compass 360 optimizes travel time, dispatching elevators in the most efficient way possible and moving to standby mode when not in use. This is all part of our commitment to incorporate environmental thinking into everything we do, including our latest innovations. Turning to Slide 8. Gen360, our next-generation elevator platform currently being piloted in Europe, provides new safety features, a compact footprint and improved energy efficiency. This platform comes with a best-in-class A rating on the international standard for energy performance of elevators and escalators. When in standby mode, the elevator uses about 25 watts of energy. That's less than most household appliances and a 75% reduction from Gen2 standby power demands despite including nearly double the electronics. Gen360 reimagines mechanic and passenger safety, introducing drive-by-wire technology that enables us to make real-time and remote repairs, reducing the risk of entrapments. This, coupled with 24/7 Otis ONE monitoring and remote services, keeps passengers moving. This new platform also addresses the critical need to keep our mechanics safe through the application of our in-cab maintenance solution, which eliminates the need for a mechanic to go on top of the car. Otis ONE allows us to optimize mechanic routes, directing preemptive maintenance by using real-time analytics to prevent unnecessary visits, which saves fuel. These products provide meaningful solutions for our customers and assist them in achieving green ratings within their buildings. This, combined with fleet vehicle and route optimization initiatives, will reduce travel time for our mechanics and will be a major lever in our GHG emission reduction plans. Now I'll hand it back to Judy to talk through that in more detail.

Thanks, Todd. On Slide 9. We're partnering with our customers to provide sustainable products and services, which are increasingly in demand. We continue to lead and find ways to help our customers address their challenges, and several of the products that Todd mentioned are helping us to win and grow share. In Singapore, we partnered with The Concourse, a 41-story, multiuse development serving office, retail and residential clients, to modernize their existing elevators, including the use of ReGen, and continue to provide additional maintenance services. In downtown Singapore, we outfitted Republic Plaza with 15 double-deck elevators, including Compass, to optimize travel time and the use of standby mode when idle, and eCall, providing a seamless touchless experience for tenants. These projects achieved Building and Construction Authority's Green Mark Platinum Award, where the development was rated on various factors, including the energy efficiency and ventilation of lifts and escalators. We're also helping some of our U.S. customers achieve green ratings. Otis elevators equipped with ReGen and energy-efficient escalators are used throughout the new Chase Center in San Francisco, a LEED Gold-certified building. And in La Défense, The Link, the next tallest building in France, will be equipped with Otis double-deck elevators, the fastest in their category. This building achieved the WELL Silver distinction. This increased demand for more sustainable solutions and innovation is supported by macro trends that drive the elevator industry and Otis' business. This is true for both new equipment and modernization. The elevator installed base continues to age, with about 6 million units over 20 years old, an opportunity for Otis as building managers and contractors look for more energy-efficient and safe upgrades, things like moving from a gear to a gearless solution, removing the need for a reduction gearbox and reducing incremental cost and power consumption. It also removes the need for additional lubrication, creating a cleaner, greener hoistway and minimizing waste. This, combined with increase in sustainability funding and the growing desire to achieve green ratings and buildings, support significant business opportunity for both new equipment and modernization. On Slide 10. Our holistic approach to sustainability, inclusive of factory, fleet, products and footprint is leading us in an exciting direction. We'll continue to rationalize our footprint, rightsizing office space at 1,400 branch offices and headquarters locations and deploying energy efficiency projects to our offices and manufacturing facilities where appropriate. We'll focus on optimizing our fleet, electrifying vehicles over time and taking the steps to reduce fuel consumption by leveraging the power of IoT, route optimization and mechanic specialization. And we'll continue developing safe and sustainable products for our customers and passengers that are friendlier to our planet. We have set several science-based targets that we will hold ourselves accountable to. We plan to reduce Scope 1 and 2 greenhouse gas emissions by 50% by 2030 by attacking each of these levers, with the largest reductions coming from electrifying and optimizing our fleet vehicles and routes and employing best practices and energy efficiency projects in our factories. We plan to reach zero-waste-to-landfill certification eligibility in all of our factories by 2025, with 100% certified ISO 14001. We will share our progress as we drive these goals to reality in our enterprise. Moving to social on Slide 11. At Otis, we foster a culture that embraces many voices and points of view, and we support our people with training and professional development. We strive to be a best-in-class employer for people of broad perspectives and experiences, cultures, genders, sexual orientation, races and generations. In 2020, we launched Our Commitment to Change, a 6-point framework to ensure we hold ourselves accountable to these ideals. Currently, 34% of our executives are women, 26% of our U.S.-based executives are ethnically or racially diverse, and over 20% of our U.S. supplier spend is awarded to diverse suppliers. In 2020, we joined Paradigm for Parity and pledged to achieve gender parity in our executive ranks by 2030. The development, engagement and retention of our colleagues is critical. Over the last 5 years, we've reduced our voluntary attrition rate by about 4 points to the mid-single-digit range. And last year, Otis scored 4 points above the benchmark for Otis culture as measured in our engagement survey results. We approach development in many ways, providing job-related training globally. I'm particularly proud of our long-standing employee scholar program that has provided over 5,500 degrees in over 60 countries since inception. The program includes broad eligibility for full and part-time colleagues up to 100% subsidized education and paid time-off to study. We also extend our inclusion efforts beyond Otis and into the communities where we live and work. In 2020, we were recognized as one of the best places to work for the LGBTQ community by the Human Rights Campaign. And later this year, we will receive the prestigious Corporate Citizenship Award given by The Conference Board's Committee for Economic Development. On Slide 12. In 2020, we introduced Made to Move Communities, a bespoke CSR program focused on advancing youth STEM education and providing inclusive mobility solutions for communities in need. In our inaugural year, we chose to align efforts in student projects to the timely real-world challenges being felt as a result of the COVID-19 pandemic. We were able to engage hundreds of students and Otis mentors from across 9 different geographies. We plan to expand this program to include even more schools and students in 2021 and beyond. We also formed meaningful relationships with a diverse set of nonprofits and NGOs and made social justice and racial equity an integral part of our community giving. And Otis colleagues continue to show up in a big way, volunteering through organizations across the world, many of whom we've had long-term relationships with, like the Theodora Foundation and FIRST Robotics. On Slide 13. As a newly independent company, it was important for us to recruit and build a highly diverse and experienced Board of Directors. Today, 5 of 9 members are women, racially or ethnically diverse or both. Our Board is committed to corporate governance best practices and strong ESG oversight, and we review our progress at every Board meeting in detail. Our Nominations and Governance Committee oversees these topics, with layers of functional support, including a council leaders that meets monthly to discuss progress and align on objectives. And now wrapping up on Slide 14. At Otis, we stand to gain from the important global trends, including urbanization and aging population and accelerating digitalization. Investments by our customers in sustainability and by governments in infrastructure will further accelerate our performance. In all this, we have the clear opportunity to lead our business to make an impact for our stakeholders and society. Our business strategy, vision and commitments give people freedom to connect and thrive in a taller, faster, smarter, more sustainable and hopeful world. ESG is at the heart of what we do. Our commitments are part of our Otis Absolutes. We will partner with our customers to enable them to be more sustainable as we become more sustainable ourselves. Otis culture will continue to be enhanced by our investment in our colleagues' health and safety, in their development and as we continue to build a diverse, inclusive and equitable company. Our shareholders win by all of this, supported by strong governance that is strategic, detailed and ethical. At Otis, we're committed to not only being the industry leader we are today, but one that pushes the industry forward as we drive value for customers, passengers and shareholders. With that, I'll turn it back to Liz for instructions.

[Operator Instructions]

And then this is Jeff. I think as we're accumulating questions, I'll move forward with the fireside chat, and we'll circle back to questions, if we have any on the line. I did just want to repeat also for folks who are on late, because I'm getting a couple of IMs and questions on my e-mail, the discussion here today will be limited solely to ESG topics, given where we're at in the quarter, essentially at quarter end. So we will not be getting into near-term business trends. Well, Judy and Todd, thank you very much for that discussion. It was very informative. Maybe a couple of things to start. Some of it was evident in what you shared with us today, but how would you say the ESG focus in some of these metrics that you're driving towards actually affect the overall business performance of the company?

Yes. Thanks, Jeff. And it's great to hear from you again. We have an integrated approach to ESG. We believe that performing in a more sustainable, socially responsible fashion drives business performance, which benefits our customers with more efficient products and services and benefits us by having a more diverse and engaged workforce. So our integrated approach to ESG really combines the best of doing what's right with delivering business performance. On the product side, we have been invested in environmentally driving our products now for well over a decade, and it's really great now to see more customer demand and more customer pull. And I think that's been the biggest change we've seen in this decade. But these are exciting times, and we think the business impact will be positive, especially in new equipment and modernization.

And I was also wondering, right, there's some practical things we can look at. You shared with us your safety incidences and retention improving and things that are tangible. But then there's also a number of third-party organizations, scoring companies and the like. It's a little challenging for investors to actually sort through some of this. For example, MSCI has you at BBB, which is certainly fine. I think that's average in their bell curve. But how do you view that rating? How would you respond to the fact that they actually have you lagging in labor management and opportunities in clean tech?

Yes. MSCI actually issued the score a month after our spin, so it would have been in May 2020, where we had fairly a short time frame and very limited disclosures, as you can imagine. As we prepared to be independent, we focused on many items. But we knew during this first year, we would be tackling so many more. And ESG and our commitments are just one of those. We have had this thoughtful analysis. We've now done a materiality assessment. Our annual report shared even more information, which was just issued a few weeks ago, and now we are ready to make even additional commitments, as we said today, reducing our greenhouse gas Scope 1 and 2 emissions 50% by 2030 and really continuing to make a difference. In the area of labor management, we have and we've disclosed this prior, Jeff, that 64% of our employees here in the U.S. are covered by collective bargaining agreements. And then as we look across Europe and all of our works councils as well as many other regions of the world, we have very positive relationships with labor. The strength of Otis is in our colleagues, and a lot of our field colleagues have collective bargaining agreements. We respect them, and we hold up our part, which is also providing a safe environment. So we're encouraged by the dialogue we're going to have with these rating agencies. We believe more transparency will help. We are going to be issuing a sustainability report in 2022. We'll continue to, during earnings calls, provide updates. And just as one other fact, we will be doing an investor download in the coming months on several key metrics that I think will help investors understand more fully the full range of our commitments and our metrics.

And clearly, there are benefits, as you said, employee engagement and the like. But just bringing it down to kind of the arithmetic of some of the cost to do this. Is there a meaningful change in capital costs or operating costs of the company to implement some of these changes? I'm sure that -- and obviously, there's energy savings on the back end. I just wonder if you could help us think about how those 2 interplay.

Yes. Let me take the cost, and then I'll let Todd elaborate a little bit more on the fleet and what we're doing because that's one of our high leverage points, the fleet, and obviously, energy efficiency at the factories. But we believe our ESG targets really fit into our financial targets, and it's not a trade-off for us. There will be a slight incremental cost to electrify our fleet. But we manage through that through a combination of leases, rentals. We do have a significant fleet when we've got such a large field workforce, but we also weigh the value of the fuel reduction we're going to get as we go to electrification as well as the infrastructure available in countries where we're going to move to a more electrified fleet. So net-net, not a big number in terms of early investment, but it's -- we believe it's the right thing to do and the key lever for us to bring down the greenhouse gas emissions within our fleet. Todd, do you want to make any comments on the fleet?

Sure. And I think maybe even more broadly, we've talked about there's a lot we're doing on our factories. And under the -- our program with UTC, that was a big focus, and we really drove a lot of progress. There's more that we'll drive. But as we make our own program, we are really going after the field, which is our fleet as well as our office base and branches. When we look at the fleet, this is one we're going after. And yes, the goal is to heavily electrify that fleet. And Judy talked about a little bit about how those economics work out. We have these in our goals, and we're taking our earlier steps on more and more efficient vehicles, hybrids and some EVs, and then that will ramp up in the coming years as more fleet EVs come on the market. We also expect those economics to improve and move towards an actual cost parity. But we're moving on this hard, and we do see quite a few opportunities here. And we do see that it's very manageable. We lease our vehicles, and that's an advantage to us because every few years, we're turning them over. So we're not looking at big retrofit costs or other expense when we go and look at moving to electrifying. And we'll do that as part of the normal kind of upgrade and replacement cycle.

And Todd, could you just share the size of the fleet roughly, how many vehicles are we talking?

We have roughly 22,000 vehicles across our fleet. And 80% of those vehicles, Jeff, are concentrated across 12 countries. So when we look at our rollout program, we obviously want to take into account the infrastructure to support electrification. And that concentration gives us a lot of confidence that we can make meaningful penetration in fairly short order, given that those countries are also ones that look like they're the best equipped with the infrastructure improvements that will support EVs.

Great. Judy or Todd, really, when you think about energy efficiency now in terms of the customer discussion, how has that evolved in recent years? And do you see a clear change in customer preference?

There is an absolute change in customer preference. Just as I think all of us are keenly focused on the impact we're having on the environment and on society, so are our customers. And our customers range, on the new equipment side, primarily from developers, architects as well as general contractors. And then on the maintenance and modernization side, it's more building managers, facilities providers, et cetera. But I can tell you, talking to a broad cap swath of customers even recently, this is not about certification for nice -- it's nice to have. This makes our customers, especially when you're putting up a new facility, more competitive to attract the tenants they want. And anything we can do to help them, whether it's through our products and we have environmental product declarations that assist on that, whether it's through modernizations and using items like ReGen that replace the geared product and eliminate the gearbox as well as a lot of lubrication, that's a significant savings when you can drive your energy consumption down by almost 75% in existing buildings. And I will call your attention, we are really seeing -- and we think post COVID especially, the modernization business will ramp back. We think that was demand delayed by decision-making in a lot of condominiums and other buildings. But 6 million elevators are over 30 years old, and over 3 million of those, Jeff, are in Europe. And that's where we have -- 1.1 million of our portfolio is in Europe. They're not all over 20 years old, but it really is an opportunity, again, to drive energy efficiency in places where customers are asking for it. We're seeing this as a big discriminator. We've seen factors beyond technical and cost, where this is the third equal discriminator in both public bids with governments on infrastructure as well as customer bids. It really does make a difference to our customers, which is rewarding because we've been investing in this for quite some time to bring products and services like this to the market. And then whenever we have the opportunity as well to obviously deal with incremental stimulus activities of -- I bring up Europe on the modernization side specific because we're not sure, but we're obviously tracking what may happen here in the United States with an infrastructure bill and the new administration. But in the EU, there is a new Recovery and Resilience Facility, the RRF, for over EUR 672 billion that's got a minimum of a green requirement of 37% for the grants, which is almost half of that EUR 672 billion. So we believe the opportunity is real. We believe that stimulus will actually accelerate this. And so we've got the products and services and customers are pulling.

Interesting. And that takes me to kind of an additional thought I had. Clearly, your global scale competitors are all pursuing the same initiatives. I would imagine it's hard to kind of achieve and sustain any real distance between those. But do you see -- and certainly, if you disagree, please say so. But I'm just wondering if this is one more arrow in the quiver in terms of kind of displacing some of the ISPs, particularly in the modernization market and upgrades.

It is. Let me just start with, Otis is an absolute leader when we look at beyond just some of the environmental actions we've taken and products we've developed. But in our social activities, we are the most diverse and inclusive workforce. We are leading the elevator and escalator industry, both with the diversity of our leadership, our executives, our Board across the globe. And we're going to continue to drive that, which will drive the best of thought. It gives us that diversity of problem solving. It gives us that ability to look like our customers as well as the riding public so that we are -- we reflect the people that we serve across the globe. So to me, I think we are a leader, and that people difference to me is not really going to be quantifiable, but I believe it's going to be a discriminator and a differentiator for us. But in terms of modernization, the ISPs are going to be -- that is the market we are pursuing, both from a service in terms of growing our portfolio, which is one of our major strategic initiatives, accelerating our service portfolio as well as through modernization. We will have the opportunity to drive energy efficiency with our products, be it an entire upgrade or just a partial technology upgrade. And we believe that as more of the population -- again, over half our portfolio is residential. So as more of these condominium associations get back to their new routine, as they have the opportunity to vote on the upgrades they need for their aging infrastructure and their aging elevators, the OEMs, ourselves included, are going to have an advantage. And we think we'll -- that will grow our service market and our Service segment.

What percent of the building electricity usage is equated to the elevator? I believe it's relatively small, but obviously, if you can achieve 75% reductions, it matters a lot. But could you just level set us on that?

Yes. We have -- we've made such progress over the years. It is relatively small. But 75% of any number is still a big number. So we still see tremendous opportunity, especially in the modernization side. The best upgrade we can do is to bring our Gen2 with the ReGen drive. And the other area is when you think about aging infrastructure, our elevators are fairly ubiquitous and universal in terms of their applications to end markets. So as we look through the K-12 initiative that could possibly happen in the U.S. and we think about all the schools that are 3 stories, there's tremendous opportunity for us to drive a cleaner, more energy-efficient solution in all end markets. Todd, do you want to add?

Yes. I think the -- when we think about this -- just that improvement, right, that we can go give with new products with a 75% improvement is really meaningful. And Judy, was there more that you wanted me to comment on?

No. That's fine. Thanks.

Okay. I -- Judy, you indicated that it's a little early to know what might be in a U.S. stimulus package. You mentioned the K-12. Do you hear anything else kind of rattling through the system through your government ties, lobbying efforts and the like? Do you see a decent opportunity there, something that's analogous to what's happened in Europe in terms of some of these green initiatives?

Well, we first saw infrastructure investment really come back last year in China. As we look around the globe, we've seen other stimulus efforts just starting in Asia as well. Europe, obviously, with this Recovery and Resilience Facility, will be a nice stimulus effort, and we think that will help not repeat kind of 2008 through 2011 in -- especially in Western Europe. So it's early days to understand what's going to be going on here. I just -- our U.S. team is very focused on ensuring we look at all, and I'll use the word verticals, but in all verticals and market segments to really understand where the investments are going to happen and how we can have standardized modernization kits ready to go and how we can really drive reductions for efficiency gains of up to maybe 15% to 40%. As I said, Gen2 would be the most attractive with our technology. But we think we're well positioned, Jeff. I don't have any additional insight versus anyone else. But we are -- obviously, we have a significant market position here in the United States, and we would expect our customers to turn to us for value, and this is where we can drive value.

Kind of along those lines, but again, maybe a little bit more consumer-driven. The whole indoor air quality kind of question mark, and you referenced it a little bit in your opening remarks. Is there a clear demand pull for those sorts of solutions? Or perhaps confidence in vaccines makes people think twice whether they want to spend on that sort of thing? What could you share with us in terms of what you're seeing on the ground today?

Yes. On the ground, we're seeing a commitment to the health of building residents, occupants from building owners. And our view is that health will not be something that will be short-lived. We always spoke on and we talk about safety. And obviously, COVID has driven us to talk more about safety and health. So we've got a significant amount of proposal activity still underway for our touchless solutions, for our air purification fans, our UV. And a lot of building owners are preparing for buildings to return to new occupancy. Unclear what that new occupancy will look like, but there will be new occupancy and, more importantly for us, new traffic flows. So Compass was always a strong product for us, our destination dispatch product that manages people flow, and we are still seeing really strong demand for Compass. We don't believe that these -- you call them indoor air quality, I will call it touchless and health solutions, are going to slow down. We believe more decision-making will happen when more people return to buildings. And I think it will be a part of our portfolio and our offering going forward, especially now in new equipment. Originally, it was an immediate use for existing elevators for modernization and repair, but these are now going to be built in when people order new elevators as additional features.

And could you -- you've shared some numbers in the past, I don't know if they've moved around a bit. But just kind of the opportunity on the service revenue stream if people adopt things like Compass 360 and other offerings. What impact might those have on kind of a typical revenue stream for a service contract?

Yes. So the impact is twofold. One is, depending on which technology, if it's one of our connected technologies, we have the opportunity for some uplift in terms of subscription services. For example, our eView product that gives you multimedia in a cab, we have data that basically indicates we get about 15% additional revenue on our maintenance contracts for that. But what's just as important is with all these connected products, be they eView, be they Otis ONE, any time we connect with the customer, Compass, et cetera, and have that digital connection, our conversion rate, some people call it attachment rate, our conversion rate goes up significantly. And just as important, our industry-leading retention rate, which is over 94%, where people re-sign a maintenance contract, is up in the high 90s. So again, it gets back to our key strategic pillar, which is accelerating service portfolio growth. Having that connectivity with the customer gives us more stickiness, and that's really the value to us of these types of offerings. The subscription revenue is a nice uplift, but the real value is in growing our portfolio.

Right. And so the 94% is the total fleet average today, but on the new connected services, it's in the high 90s, just want to clarify that.

High 90s. And remember, we have these service contracts on average globally for about 4 years. So we have this annuity revenue stream, almost a subscription service onto itself in terms of our maintenance contracts. And so that's -- that is what is our resilient business and the largest driver of our profit base and cash.

And then on the labor side of this whole equation, right, many of the tools that you're talking about just makes the labor force more efficient, maybe allows remote diagnostics instead of rolling a truck. Judy or Todd, maybe you could share a little bit of color on how we think about that, the impact on the cost side of service execution with all these new technologies moving into the market.

Sure. Judy, do you want me to start with that one? Or do you want to...

Sure. Go ahead, Todd.

Okay. So listen, I appreciate you asking about service improvement. It's an area that we have a lot of focus on and I'm really excited about. When I think about the service improvement, there's 2 broad areas where we're focused. One is around technology-enabled, and the other is around process improvement and measurement. So if I talk about the first one. First, going back a little bit, back in 2016, we started deploying iPhones to our mechanics. And we've developed our own suite of apps to help make them both safer and more efficient in what they do. And we've talked about the Tune app, for example, which eliminates the need for a mechanic to go on top of a car for some diagnostics. We've also talked a bit about Otis ONE here today. The fact that this allows remote intervention and remote maintenance, that eliminates visits, which in turn saves fuel and it saves time. It also delights the customers. Now when we do -- when a mechanic does need to visit a unit that has Otis ONE, he or she is also prepared with a lot of information before even going to that site, which allows for quicker resolution. Now on the process improvement side, there's a couple of things we're doing here. One is around optimizing our roots to minimize travel time. As you know, we already have the largest service portfolio in the industry, which gives us density and that, by nature, helps us more efficient because we're spending less time traveling. But what we've been doing is looking further here and analyzing those routes and optimizing them so that each mechanic's route minimize that travel time, again, saving time, saving fuel. Another one we rolled out, we started in 2019, a lot of pilot -- or a lot of rollout last year, and we're continuing that now is around mechanic specialization. So historically, in the past, we have mechanics who would be doing regular maintenance, and then they would be interrupted because they would need to go to a customer who would call their Otis line and needed some support. What we've done is we've separated the standard service mechanic from ones that are attending the customer callbacks. It allows us to tailor skill sets with those roles. It allows those folks to be focused on what they're doing, and it makes them more efficient, and there's less travel time going between jobs unexpectedly. We've also incorporated dashboards and coaching plans so that we can identify where are the places where people may need more help and go help them to get the skills or changes they need to improve their performance.

Jeff, let me just add one item. And I've been clear about this in all of our earnings calls that there's no oversupply of professional field mechanics -- field professionals today, which was the situation back at the last global financial crisis. So all these productivity measures have multiple objectives. First, obviously, our customers will have more uptime. Secondly, we'll be more productive, our mechanics' roles will be more meaningful. But as we continue to be more productive, it allows us the flexibility to have our mechanics handle more of our growth. We've committed in our midterm outlook to growth. And that is Otis' stated intent. And to do that, we need the skills and the competencies around the world to do that. So our intention is not to use this productivity to reduce our professional -- our field professionals base or quantity. Our 33,000 service professionals are the heart of our business. So we want to make their roles more meaningful. And that's part of the specialization. But we also want to be able to take on more volume and have the capabilities and skills to do it. So that's where we are, and that's really what's behind a lot of this productivity. Yes, it's important for us in terms of financial metrics, but it's just as important for our customers with more uptime and equally important for our colleagues so they have valid career paths.

What percent of your service force would you say, for lack of a better term, kind of just has a front-end customer touch point beyond just kind of showing up for the repair, making some kind of sales call or some other kind of commercial action to try to drive the business?

It's mixed depending on really where you are in the world, based on different workforces. But we have created an app that allows our service mechanics, our field professionals who are out there doing the maintenance, who really are the trusted partner of the customer, the person they're used to seeing, whether it's one of our mechanics who comes by for scheduled maintenance or who's trying to fix a shutdown. We've given them the ability to recommend repairs as well as an app that allows us to be able to quote it right there for the customer from their trusted party. We really don't break that out in terms of percentages. All I can share with you is that app usage has continued to grow significantly quarter-over-quarter. In some countries, it's used pervasively. We're still rolling it out in other countries.

One thing that has just occurred to me talking about all this is just in the context of M&A, Judy, given the way that you're shaping the organization in these priorities, have you found it harder? And then I think most of your M&A is bolt-ons, right? But have you found it harder to get things through your screen, so to speak, wanting to kind of accomplish these various initiatives? Or do you think there's plenty of ability to kind of digest smaller companies and, even if they're not on the right page, to get them on the right page fairly quickly?

There is ample opportunity in the M&A space for additional bolt-ons. We drive for -- it's part of our capital allocation strategy where we've shared in earnings calls that we target roughly $50 million a year of additional bolt-ons. Last year, we added Bay State up in the New England area. But we do this -- and we've done this for decades, Jeff. And it really does help us. I will tell you the filter focuses on a few items. One is to make sure these bolt-ons are accretive by year 2. It's easy for us to do that when we find the right company in the right location with the right density and routes. And then we just -- we fold these people in with our proven teams that know how to integrate successfully. So there's no shortage of that. The OEMs on the new equipment side, the top 5 have 70% of the market. But as you well know, the ISPs have over 55% of the market on the service side with the service portfolio. So we'll continue to make those acquisitions and looking forward to more of them, obviously, as we continue our capital allocation strategy.

And then just back to some of the products that we talked about today. Maybe just a little bit of an update. So the Gen360, right, I guess, is at early stage of prepping to launch in Europe. Just any color you can give us on when these products kind of roll out in full? And is the ReGen and the Gen2 Switch elevator also commercially available and in the market today as we speak?

Yes. So ReGen is absolutely commercially available, and you will find it in buildings across the globe everywhere. So ReGen is just -- it's been a great product for us and a great innovation. Gen2 Switch is also available. We find that the best applications for Gen2 Switches are in buildings, cities or countries where there's intermittent power surges, where there's not as predictable power. So it allows you to, again, to plug in single phase to use power or to have this battery backup. So when you think about some of the developing countries, Gen2 Switch is very attractive. In terms of Gen360, we are very excited about the Gen360 launch. The pilots are underway. It is a digitally native electronic architecture elevator, which for elevators that have been fairly mechanical since they came into existence, it's a pretty major change. And the biggest inhibitor to rolling that out everywhere is just our ability and time we need to work with code authorities throughout the globe for them to understand, to see the data and to write this into their new elevator codes, just due to the electronic safety architecture as well. But the features, this will be a game-changer. So it's already accepted in terms of code in Europe. Again, the launch will be soon. I don't want to preannounce anything, but the pilots are going well. We're learning. And most importantly, we're getting run time in real environments in multiple countries with real customers and real passengers. And elevators don't get -- new elevators don't get introduced as quickly as other technology because of the life safety and the code requirements. So we're going to make sure that this one is safe to use, which we are sure already. We've done all the simulations, we've done the runs in our test towers, but now it's getting real use, and we're learning from it. So more to follow there, but it's an exciting new product.

And would you expect initial adoption to be new construction? Or this is really a retrofit push with this product?

It's primarily new, but it certainly has the ability to retrofit. And -- but it's going to be a new product in Europe, in new construction. That's where we're doing the majority of the pilots, but it does have a modernization play similar to how our Gen2, which has been around now for 20 years, and we've sold over 1 million of those, has the same opportunity in a modernization play.

Well, great. Well, I think we're winding down here on time. So Judy and Todd, I thank you very much for your time. And I'll just turn it over to you, Judy, if you had any closing remarks. And thanks again.

Yes. Jeff, I just want to thank you for this. Yes, these are -- as I said, ESG, it's integrated at Otis. It's important to us. It's important to our customers. It's important to our colleagues. It's important to our shareholders. And it's integrated with our business. It lives off our Absolutes. Our strategy and vision feed it. And we're going to continue to be transparent, as I said, with more reporting coming out. As we finish our first year, you're going to see more and more information. We hope our shareholders have appreciated that as we've assumed our independence. And we're looking forward to a very opportunistic near-term environment for modernization and new equipment, but a long-term commitment to doing what's right. So thanks, Jeff. I hope you and all the listeners stay safe and well.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.