Johnson Controls International plc (JCI) Q3 2021 Earnings Report, Transcript and Summary

Welcome to the Johnson Controls' Third Quarter 2021 Earnings Call. Your lines have been placed on a listen-only, until the question-and-answer session. This conference is being recorded. If you have any objections, please disconnect at this time. I'm now going to turn over the call to Antonella Franzen, Vice President, and Chief Investor Relations and Communications Officer.

Good morning and thank you for joining our conference call to discuss Johnson Controls' third quarter of fiscal 2021 results. The press release and all related tables issued earlier this morning as well as the conference call slide presentations can be found on the Investor Relations portion of our Web site at johnsoncontrols.com.

Thanks, Antonella, and good morning everyone. Thank you for joining us on the call today. Let me kick things off with a brief update, spotlighting a few specific areas related to our strategic initiatives. And Olivier will provide a detailed review of Q3 results and update you on our forward outlook. We will leave as much time as possible to take your questions. Let's get started on slide three. Another quarter of solid results, with demand accelerating across most of our end markets as a robust recovery continues to expand. Q3 represents our easiest comparison of the year, but I am encouraged to see the underlying sequential improvement experienced in the first-half continue to accelerate in the third quarter, with many of our businesses back to operating at pre-pandemic volume levels. Non-residential construction markets continue to recover led by the ongoing strength in retrofit activity, tied to demand for healthy building solutions. New construction is also beginning to show signs of stabilization and the inflection in order trends for our longer-cycle project businesses sets us up well as we look to next year and beyond. Our service business has recovered, and we continue to transform this business through our digital service strategy to drive higher levels of recurring revenue and an improved growth profile. This recovery has not been without its challenges. We have managed through significant headwinds related to persistent supply chain disruptions, component shortages, labor constraints, and continued inflation. While these dynamics have created some revenue pressure which will continue near-term, the pace and composition of order growth in the quarter provides confidence that we will remain on track over the medium and long-term.

Thanks, George, and good morning, everyone. Continuing on slide eight, organic sales accelerated in Q3 of 15% of all in line with the guidance we provided last quarter as growth in global products and our field businesses accelerated. The strength in global products was across the board from continued high level of demands in residential end markets including both our Global HVAC equipment and security products due to the anticipated rebound in commercial HVAC and fire and security. Segment EBITA increased 21% versus the prior-year and segment EBITA margin expanded 30 basis points to 16.2%. Better leverage on higher volumes, the benefit of our SG&A actions and strong execution more than offset the significant headwind from the reversal of temporary cost reductions and a modest headwind from negative price costs. EPS of $0.83 increased 24%, benefiting from higher profitability as well as a lower share count. On cash, we had another strong quarter, free cash flow in the quarter was $735 million flat versus the prior-year despite the planned up tick in CapEx. I'll give you further details of our performance later in the call.

Thank you. We will now begin the question-and-answer session. Our first question comes from Joe Ritchie of Goldman Sachs. Your line is open.

Thanks. Good morning everybody.

Morning, Joe.

Morning, Joe.

So, maybe just starting off I just wanted to maybe just talk about the cost pressures, and talk about inflation and how that impacted the business this quarter. And also, just thinking about what's embedded for the temporary cost actions as we head into 4Q, how much does that step down from 3Q into 4Q, clearly recognizing that there was a pretty big headwind this year from the furloughs reversal?

Yes, Joe, let me take that, and then I'll turn it over to Olivier to give you some additional color or a year-on-year basis. When you look at the year, the way that we set up the year and made sure that we were anticipating the inflationary pressures and ultimately making sure that we're driving the proper level of price, as well as continuing to drive productivity, we've built that into our model. And so every step through the year we've been staying ahead on pricing, and we've been ultimately driving additional productivity to offset some of these headwinds. And I would say from pricing standpoint, over the last couple of years we've built a lot of strong strategic capability across our businesses. And that has played out extremely well during this period of time. And so, with the inflationary environment, we knew that that was going to be a challenge in the second-half, and we anticipated that. And there's -- we probably have about two points of price flowing through the top line, which given the timing of that, that has created some headwind here in the third quarter. But with the work that we've done here, we're going to be set up still to be able to continue to deliver on the 80 or 90 basis points of margin expansion for the year. And so, I think the team has done an incredible job from where -- when we first set the year up, and then ultimately how we've executed; we've executed extremely well. Olivier?

No, absolutely. Good morning, Joe. So, at a high level, we mentioned this. So, 30 basis points of EBITA margin increase in the quarter. We had the impact of Silent-Aire for about 10, so it's a 40 basis point increase in Q3. Going through some of the elements, you asked specifically about productivity. The impact of our temporary actions from last year net of our ongoing productivity program is about 160 basis points in the quarter. If you look at price costs, the impact in Q3 is around 40 basis points. We believe we will be in price cost positive for the second-half. So, of course, Q4 would be positive. And last piece of your question, the headwind from temporary actions in OpEx net of our ongoing productivity actions. In Q4, the impact would be about 50 basis points negative. So we are positing improvement in margin rates despite two major headwinds which are temporary in nature. And we feel good about our ability to keep improving the profitability of Johnson Controls.

That's very helpful and clear, thank you. And then maybe just my follow-on question. I know that you probably don't want to preview too much exactly what we'll hear on September 8. But if you could give us any kind of color on how you're planning to organize the virtual Investor Day and the key topics that you'll be focused on?

Yes, Joe, I mean we're setting that up very much in line with the strategy that we've communicated with all of our key growth vectors in how we're, not only reinvesting in products and technology, OpenBlue, but also making sure that with that we're positioned to be able to capitalize on big growth vectors as we build out our digital services, as we capitalize on the trends in decarbonization, as we capitalize on the significant market that's being developed with healthy buildings, and then making sure that that is coming together in supporting the core, because at the end of the day we have a unique position here with the combined portfolio to truly lead the future buildings, as we're thinking about healthy buildings, not only healthy people, healthy places, healthy planet. And so that'll be core to the strategy. And then supporting all of that will be all of the strategic priorities that we're executing on operationally that ultimately delivers on acceleration of growth and above market growth, while we're continuing to deliver best-in-class as far as margins and being able to close the gap that we've had there through our programs. But we're extremely excited about the progress we made, and really looking forward to laying that out in detail, on September 8.

Great, thank you. Look forward to it.

Thank you. Our next question comes from Josh Pokrzywinski of Morgan Stanley. Your line is open.

Hi, good morning, guys.

Good morning, Josh.

Morning.

So, Olivier, thanks for all the color there on some of the margin drivers in 4Q. I know price cost is always a bit of a moving target, and it seems like you're getting on top of that. So, I guess it leaves net productivity as maybe the biggest factor for getting all those actions to drop to the bottom line and the overall EBITA leverage. But when does that 50 basis points of net headwind kind of split more acutely, either based on the comparison for the temporary items or just the productivity deck ramping up?

So, thank you for your question. The main impact of the headwinds is in Q3, by a wide margin. And that's true, by the way, for the full fiscal year. And our ongoing productivity actions have an equal weight in Q3 and in Q4.

Got it. And then, George, a question for you just on kind of the overall cadence of demand or mix of drivers here, I think across the building space there is this pretty heavy cocktail with cyclical recovery and some of the secular drivers that you talk about, whether it's IQ or building efficiency infrastructure, all that. It does seem like there's some order momentum. But when do we see these tailwinds kind of stack up where you get the cyclical and secular at the same point? Like do you think that those can actually overlap or the secular stuff maybe takes a little bit longer?

Hey, Josh, let me say that in all the time that I've been in these businesses, I've never seen as fast of a recovery to get back to where we were as I've seen with this cycle. And if you look at why that's true with our business, the general macro conditions continue to improve, although they're not linear across all the regions, as Olivier laid out. We're seeing continued momentum in construction-related indicators, and that's beginning to accelerate. So, we're actually seeing that come through. And that's supported by ABI continuing to be very strong. Dodge construction starts are improving sequentially. And what we're seeing is, we're very active in the earlier shorter-cycle projects, which is really outperforming right now. And for us, a lot of that is focused on healthy buildings. And that's been really critical to how we filled in our backlog through the course of the year. Retrofit right now in these smaller term projects continue to ramp. In North America, they were up year-on-year or up over 30%. And so that has been a big driver of our install business and when Olivier talked about our backlog, we were up, we've got a record backlog, we're up 7%, and so, as you play out fourth quarter, we don't see any slowdown. And so as we begin to set up '22, that is where we've had a lot of the pressure here in '21. And that's come back nicely. You can go through different verticals that are driving that healthcare, education, some of the datacenters, we're seeing good activity there, real estate is coming back, and so, I think overall, when you ask about the cycle, this not only the short cycle demand, as well as the longer cycle, and then with services with now these new demands and new outcomes that our customers are looking for, we have an incredible opportunity now, as we're digitizing our existing service business to now take the new technologies, and to be able to create new outcomes, which ultimately has given us a recurring revenue stream. And that is another dimension that we didn't have before, as we get into more of a change in the market and being positioned to be able to now capitalize on those changes.

Let me give you, Josh, some additional statistics, we gave some of those in our prepared remarks. So what is the performance about the decarb market, right? It's a market we believe, which is good to be around $250 billion of hopefully, over the next 10 years. If you look at the best proxy for this at Johnson Controls, it's our performance infrastructure contract. This business is year-to-date growing at about 15%, last year this business was growing 2%, so it's really a business which is taking altitude, on the indoor air quality, if you pass in install or the growth between retrofit and new, in the retrofit which is a byproduct of indoor air quality, the older growth was in the quarter 29%, close to 30% on the two year stack, plus 10%. And we said that last quarter, we see this retrofit really accelerating it is and we said we are starting to see an inflection point in new build, we said that last quarter, it's happening this quarter, new build install up 16 in the quarter, then you speak about services, and George mentioned some of the statistics already, so we have clear indicators that were getting traction. Q – Josh Pokrzywinski: Thank you both for all the color. Really appreciate it.

Thank you. Our next question comes from Nigel Coe of Wolfe Research. Your line is open.

Thanks. Good morning. Better saying about the virtual thing for September 8, I was actually looking forward to coming to Milwaukee. So that's understandable, I guess.

We were also looking forward to it, Nigel.

Then the Delta variants. So, this one is just to kind of putting down the APAC margins because it seems to me I understand the temporary cost kind of comments, but it does feel like there's a bit of a mix issue as well. I'm just wondering, is that China growth primarily, you did call out country mix there and thinking about the price costs, Olivier you mentioned price cost was, this is the toughest quarter from price cost perspective. Did that hit more in APAC than other regions just as curious there?

So you're right, Nigel, two impacts for APAC. One country mix China particularly on the one and point number two also, the actions we took last year to reduce our OpEx base. It's difficult to read the quarter because of those phenomenons, you have data impacting APAC, you have data impacting also North America. Structurally, the margin profile of the business is improving across the portfolio. That includes also the regions Nigel, net of those one-off.

Nigel, there is a little bit of mix there across the region where we've had continued pressures there with volumes, that's playing through there, but that's beginning to come back also, as we see kind of our Japan business and the business that we have in Hong Kong, and the like, so there's some mix there also.

Okay. Thanks, George. And then, on OpenBlue, the patent filings are very encouraging? How do we measure OpenBlue success momentum from an external perspective, is it really just the cadence on installations and services, are there other metrics that you can call out to give us a sense on how we're progressing here?

Yes, let me frame it up for you, Nigel, OpenBlue now is being incorporated, we're leveraging OpenBlue with all of our services, we're getting all of our installations connected, being able to now extract all of the critical data, and then apply AI and analytics to that data to create new outcomes. And then if you advance forward, that not only doing it with the core business, but now as we're building out new capabilities across all of our digital platforms, and bringing them all together into one architecture. I talked about Vijay Sankaran coming on board, we've been able to bring Vijay in and he's got an incredible reputation, and the ability now to be able to take all of what we've done and really put that together. So, not only it enhances our core, but it accelerates the pipeline of digital content that is ultimately now being deployed in everything we do and so a good metric is when you look at our digital revenues, our digital revenues today, we don't segment that but if you were to look at all of our digital revenues, we're up strong double-digits across all of our, whether it be our platforms, indoor, through our digital services. And so another way to look at it is when you look at our pipeline, so as we were building pipeline across all three regions is a much more significant digital content that's being now built into solutions that we're deploying, because we're now differentiating the value that we're bringing to our customers with new offerings. And so, that pipeline is well over, I think we've talked about this in previous quarters is now a well over a $1 billion going forward. So those are the ways you kind of look at how it's being deployed, and the amount of impact that it's having, not only on decarb, but now as we look to really lead what I would call autonomous buildings of the future, which is a little bit more forward-looking, we'll have all of the pieces that come together to be able to now support these big outcomes, and Olivier said it, decarbonisation is going to be a $240 billion market, helping buildings is $10 billion to $15 billion and the digital content is what enables us to bring leadership solution to that. And so, as we invent smart buildings will be a little bit longer-term. But we showed some examples today, we're deploying OpenBlue not only takes all of our core, enhances our core, but then positions us to be able to get incremental revenue above that.

Thanks, George. I'll leave at there.

Thank you. Our next question comes from Jeff Sprague of Vertical Research. Your line is open.

Hey, thanks. Good morning, everyone. Just two from me, could we drill in a little bit on actually kind of what's going on in your resi and light commercial business and maybe some production or supply chain disruptions there you characterized resi as kind of in line with your expectation, but market look like it was stronger than that in the quarter. So give us a little bit of color on what's going on in that business. And do you have the ability to maybe uncork some more volume at your facilities there?

Jeff, so when you look at our light commercial, it includes not only the light commercial unitary rooftops, it also includes VRFs and we said earlier, VRF we're continuing to perform extremely well. When you look at the unitary business, we've been launching new products. So we've got a product lineup now of three new product launches, we've been expanding the capacity with those launches. And now with this strong recovery, we've been working to keep up with the recovery of the market. Our orders, when you look at our orders in that space, we're up about 75%, so we didn't get the pull through here during the quarter, but we're continuing very strong with the new products that we've launched, and we've got a backlog that that now is up three times from what it was a year-ago. So, a lot of this is just the cycle time of conversion, and well, we're continuing to expand the capacity for the new products that we've launched.

Understood. And maybe you could give us a little update on Silent-Aire now that you own it, obviously you haven't owned it for long, but kind of initial customer response, how you will plan to pull the business around the globe? Any change in customer behavior or anything like that since you took the keys to the asset?

Yes, Jeff, so, let me comment on that. I mean, I couldn't be more excited. As things have opened up, I've also had the opportunity to visit our Silent-Aire team and a couple of sites out in Phoenix here recently. And I couldn't be more excited about how this is going to fit in to our portfolio and aligned to our priorities. And so, when you look at this, it's bolt-on technology. It's filling out white space that we didn't have capability in. It also enables us to be able to build out and increase install base where we haven't had a significant level of service there, but there's tremendous opportunity to build service on top of those offerings. And then the whole digital content being able to take what they do so well working with all of the datacenter operators that really is innovative. It takes the technology. It configures the technology in a way that truly differentiates how they work with each of these datacenter operators. And now you throw digital into that. It really becomes a game-changer. And so, I believe that, as we look at datacenters and how we're going to be able to leverage this, not only with the Silent-Aire capability, but also with the core -- our core capabilities, I couldn't be more excited. Now with any integration and the like, there is a lot of work, but having been with the team and really taken a pulse on where we are, that's going to play out really nicely for us.

One additional color on your first question on resi, in North America we have been at capacity from a manufacturing standpoint now for a few months, few quarters. And we are adding capacity at the start of our fiscal year so -- as very soon and we believe we're going to be able them to change that trajectory. We are adding a fair amount of capacity, actually.

Great. Thank you for that color.

Thank you. Our next question comes from Deane Dray of RBC Capital Markets. Your line is open.

Thank you. Good morning, everyone.

Good morning, Deane.

I start up with a question with Olivier. The performance on trade working capital is pretty impressive in a quarter when many of your peers are needing to add lots of buffer inventory and you kind of see the trading capital moving against you. I did see inventory was up $7 million, but could you talk us through where it stands today, just overall trade working capital and how you're navigating through this period.

Deane, thank you for your question. So, a remarkable performance and trade working capital, 11% of revenue in the quarter, we were at about 13.5% same quarter a year ago. All the leavers are actually playing in our favor. Let me speak now in term of days. So DSO up -- down nine days year-on-year is structural. We have now in place a strong mechanic to really do a good job on DSO. That's a structural improvement and we have not reached our best game here. If you look at DPO improvement year-on-year by about four days, again structural, we have various programs in place to make our DPO even better for Johnson Controls. And last one in term of inventory also good job. That's byproduct also of strong demand. So some of the inventory improvements, so, it's 15 days in total, is structural, some of it is temporary, but we feel good about the free cash flow generation of the company. We said before, Deane, that we were 100% free cash flow organization would be at 105 including restructuring. So really the run rate is in 115 and we feel strong about cash flow generation in our company, Deane.

Well, that's all great to hear and it's such a difference between where the company was a couple of years ago on working capital management, free cash flow and being comfortably above 100% is -- congrats to the team there. And then, just second question for George, just put this net zero building as a service that you're highlighting today, put it in context, it's encouraging to see a SaaS business being added to this, but where does it stand in the priority stack in terms of, let's say, indoor air quality. And are there any regulatory oversight that's going to come into the industry on how these calculations are being made because obviously this feeds into each of your customers' ESG rankings and so forth. There's a lot of focus on it. Just how does this all develop from here?

So, Deane, let me start with healthy buildings indoor air quality because that's front and center as we sit here today because of the significant demand. And as I said, we've sized that market up to be $10 billion to $15 billion double-digit CAGR. We have secured well over $300 million to date and we have a pipeline that's well over $1 billion that we're working on. And that has been continuing to accelerate because of the reopening and return to work plans and the like. And a key space for us within healthy buildings is K-12. We've got an incredible position within schools, across 6,000 school districts, across the U.S. and as well as 1,900 higher ed. So, overall, it's been our ability to be able to not only from a pure equipment -- doing a pure equipment upgrade, it's really taken the combined capabilities that we have within a building that ultimately then creates the best outcome as you think about healthy buildings or indoor air quality. So, that is front and center today. When you think about decarbonization sustainability, we've been in that space for years with our performance contracting business. And really that business has been focused on reducing energy consumption, reducing the carbon footprint. Now with the commitments that have been made pretty broadly now to get to zero net carbon emissions, the capabilities that we can bring now without just a one narrow solution, we can bring a full solution to a building that enables us not only to optimize the equipment, but how the equipment operates within that building with the occupants that ultimately then creates the best outcome, which is ultimately reducing energy and achieving the decarbonization goals. We believe over the next decade, this will build into a $240 billion market, and that's above the $300 plus-billion market that we serve today. And I think when you look at our -- now -- not only the products and the building systems that now we have brought together, and now when you layer on OpenBlue and in the digital capabilities, it is what is required to get to the best outcome as you're looking to make a building most efficient and then with the remaining demand, how do you drive towards renewables as far as supply. So that is going to play out a little bit longer-term, Deane, but a very attractive space for us.

Terrific. I bet we'll hear more about that on September 8 too. Thanks.

Thank you. Our next question comes from Steve Tusa of JPMorgan. Your line is open.

Hi, good morning.

Good morning, Steve.

Hi. On the services revenue growth of 11%, I think it was -- what do you -- how do you kind of see that going forward? I know there's like -- it's kind of a confluence of events of comps being a little bit easier, but also some momentum and kind of your initiatives. How do we think about kind of that growth rate into the next 18 months, 18 to 24 months?

Yes, we've talked a lot about this, Steve; we've made incredible progress here in taking our $6 billion business. And then as we look at how we can fundamentally differentiate that business and it's pretty simple. For us we believe that when we deploy our digital capability with our core capability and get everything connected, that in itself is going to be a big uplift and we're seeing that. We're now up to -- we made the 400 basis points of improvement on attach. And so everything we deploy, we attach and then we get a contract and then the ability to differentiate the type of services that we ultimately perform with the data that is extracted from the systems that we deploy to optimize the overall operation. So that with the increased installed base, the attach, the additional, and then now as we think about some of these new opportunities with healthy buildings, and decarbonization, all of those converge into our ability to be able to deliver, as we've committed 200 to 300 basis points above the market. And I think as some of these trends continue to accelerate, I think there's opportunity beyond that. And so, a lot of it is the connection, the additional services, utilizing data, the retention of customers, and creating outcomes that historically haven't been achieved, because they're more of a mechanical service versus a digital service.

Got it. And then, just on your order, as you mentioned like commercial orders being up a lot. What were the applied orders up in the quarter for your applied equipment?

Yes, so when you look at our commercial HVAC business Steve, I'm extremely pleased with the performance that we've seen. It's a combination of the new products that we've continue to launch. And we're gaining share when seeing that pretty much across the board. And then we're also what's enabling this connectivity is we're embedding technology within the product that enables us to easily connect preservers for the long-term service. How that plays out? The orders we're better than 20% globally. For the quarter broad base across all three regions, I think Oliver said that in North America applied equipment, as part of the overall 21% increase was up over 50%. So we feel really good about the backlog we've built and how that's going to play out. And then the continued pipeline that we're seeing build that we're positioning to be able to go after. So that has played out from a revenue standpoint was high single-digits, we're pretty much across the region seeing growth -- varying levels of growth across all three regions. But Steve, that is a strength for us, and I think as we look at our strategies not only within the equipment, but then the ability to be able to build a base for service with connectivity, we're really going to be positioned well.

Right. Okay. Thanks a lot.

Thank you. Our next question comes from Scott Davis of Melius Research. Your line is open.

Hey, good morning, guys.

Good morning, Scott.

Just and most of my questions have been answered. But just to clarify a couple things. I mean, when you talk about being kind of on the right side of price versus cost in by 4Q. Is that material, labor and logistics or more just kind of material side of it?

It's mainly material, which is the big headwinds we are looking at. So if you look at for example, copper and aluminum, the pricing had declining. Steel is still up, but with steel mills starting to catch up, the lead time has been reduced by 75%. And if you look at some of the analyst's report on this important commodity, analysts are predicting that the price of steel by December so it's not very soon should be about to go down significantly. So we believe that the worst is behind us in commodity.

Okay. And I know, I mean, your fire and security business is a little bit more labor intensive than the HVAC side and the install. Are there labor shortages that concern you? Do you feel like you've got the capacity to be able to handle ever rising orders here?

Yes, Scott, we were anticipating that we're going to have challenges as the recovery started to heat up and recover. So we've had what we call PMOS pretty much requires all of our key markets that and solely focused on labor and making sure that we're getting more than our fair share, as far as labor and I would tell you at our manufacturing sites, at our in the field with the work that we've done. We talked a little bit about that in my prepared remarks with the different programs that we've launched to be real attractive to technicians in the light coming to work for our company. So what I would say here today, although we've had as we've ramped up, it's been a significant ramp up. We've certainly had some pressures Scott, but I feel very good about the progress we made and where we are to be able to continue to support the recovery and ultimately the growth that we're projecting.

And stating the obvious, our guide includes, obviously consider the current environment.

Yes, now understood. Thank you. Good luck, guys.

Thank you.

Thanks Scott.

Thank you. Our last question will come from Julian Mitchell of Barclays. Your line is open.

Hi, good morning. Just wanted to follow-up on the margin point, so just wants to clarify, I think Olivier you've talked about a sort of 40% baseline incremental in the medium-term leaving aside portfolio changes. So just wanted to make sure sort of your confidence in that figure amidst the current cost environment, and also, when we look very short-term at the Q4 margin, by segment do we expect broadly similar trends to hold as you just saw in Q3?

Julian, thank you for your question. So, we feel confident about our ability to meet our productivity goals, our programs now are well on track. SG&A, we start to deliver on those and we're slightly ahead. COGS will have mainly an impact next fiscal, we are very pleased with where we are, and what we said before is the $550 million of net drop of profit to the bottom line. We still are very bullish about this. And our ability to do achieve 40% incremental over the next two years, we feel bullish about this as well, based upon where we are. Again, we talk about some of the trends going on commodity and labor, we gave a lot of colors and commodity. We believe we will be able to achieve the goals. We have mentioned in productivity with those despite those trends in commodity and labor.

Thanks very much. And then just when you're thinking about the sort of fire and security field business, realize that JCI's approach is to have a sort of a broad offering, the services pulling through the product. Clearly have seen peers sort of have a somewhat different view, most recently, demerging an F&S field business from products for example. Maybe help us understand George, how substantial or significant do you think those revenue synergies are from having a strong F&S field business sort of pulling through on the product side. And helping you perhaps, build up that that service activity as well?

Sure, so let's look at fire and security in the quarter. Although it was a little bit lagging, the recovery has come back really strong not only in our products being up over 30%. But now converting with new installs in the field and building backlog and then recognize that with that backlog, with that installed base that we create. It does been on a very attractive service. And so when you look at your question, how do we compare to the others and ultimately, strategically how this contributes to our growth? When you look at our fire and security field business, it's about $7 billion in revenue, and it's one of our highest margin views in our portfolio. And then when you look at fire and security products, that's another roughly $2 billion. And then with this installed base is what ultimately spins out a very attractive, what I would say more traditional service business. And now as we think -- as we go forward it's going to ultimately then be much more digital and be contributing to not only the fire and security aspect, but also to the overall smart building aspect of the building. So it is going to be an important part of the overall ability to be able to now capitalize on these big trends. We talked about decarbonization, we talked about healthy buildings. And so when you look at ours compared to others, there are some similarities there. There are major differences. I think you need to look at the geographic mix, the product and solution mix, the customer mix. I would say that we have a significant advantage when it comes to scale, and overall portfolio maturity. And then, as I said, I really if you look at the future and the ability to be able to now take all of the multiple systems within a building and bring those together into one architecture with one data platform that enables, it ultimately longer-term enables an autonomous building. But as we step away from where we are today to where were we go, we should see incremental growth as that begins to transform. And so, I truly believe the work that we've done and how it's been integrated and how it's enabling not only services or service. Being able to deliver a service growth above market, as well as being able to really capitalize on what we see to be accelerating trends in our space, it does become a competitive advantage.

Great, thank you.

All right, Operator, then we will close up the call. I want to thank everyone for joining our call this morning. And as I mentioned earlier, we've had a very strong third quarter, and the momentum that we are seeing across our portfolio in key verticals coupled with our strategic focus and improved execution gives me high confidence in our ability to keep outperforming. As we move forward, we look forward to speaking to many of you, and hope to see you virtually at our Investor Day that's coming up on September 8. So, on that, Operator, that concludes our call.

Thank you for your participation in today's conference. You may now disconnect at this time. Have a wonderful day.