So Judy Marks, we had a chance to meet a few times as we both been invited to our friend Jeffrey Sonnenfeld's Yale CEO summits and we've had a chance to sit proximate to one another a couple of times and I've just been amazed by your story. Engineer turns out to be a great manager too. Great turns out to be a very, very good business organizer and you've had this unique situation of a term you don't hear very much about anymore and I wonder what your thoughts are and that term is conglomerate. You've worked for big companies, you've worked in all capacities and you took over Otis at a time that it was part of a big conglomerate and I suspect with a plan to spin it out. Have conglomerates gone out of favor?
Jim, it's great to be with you today. I think everything has a time and a place. And I think in today's era, conglomerates really are something where in the past the sum of the parts was even more important because you had flexibility. You had countercyclicality. At this point in time, I think what investors are telling any of us in the public markets and maybe even in the private markets is they want to make that choice on capital allocation. So they want focused companies. They want companies that are dedicated to their missions versus having a layer of a conglomerate making those capital allocation decisions. You see it with GE, you're seeing it with Honeywell now. A lot of the industrials have gone through it, but you're seeing it in consumer product goods. You're seeing it across the board.
Yeah. I think the interesting point you make, the most interesting point you make there is about the investors now are sophisticated and don't buy the argument that we can better allocate capital. Let us make those decisions and we'll view it on an area by area performance basis, not just on a mutual fund kind of cast that a conglomerate might appear to be.
Yeah, I think you hit it spot on and you know, listen, investors are sophisticated and they understand focus and it's that focus that's allowed us to obviously return to our independence to stay focused on our markets and our segments and to drive those returns.
Getting to chat with you a little bit about it. What an interesting company Otis is. I love how you tell the story of its history and for a company that everyone knows, I think I was mouth open to hear about the scope and scale of what Otis is today and what your footprint is globally. I think you told me that you have over 70,000 people and doing business in over 200 different countries. That's quite remarkable.
Yeah, I think you'll find we are the ultimate iconic brand founded almost 173 years ago in Yonkers, New York by Elijah Otis. It was family founded, family run for a long time before we went public. But it's been one of those inventions and what he invented was the safety brake that allowed passengers to feel safe using elevators. It's one of those inventions that has not only spawned an industry but has allowed cities to rise. If you think about just every...
Literally and figuratively, huh?
Urbanization taking over. So yeah, now again in September will be 173 years later. We're still the industry leader, but we have found ways not just to be part of construction and urbanization where cities are rising, but to make sure people are moving safely throughout the globe. 72,000 colleagues, 200 countries and territories. And of those 72,000, 45,000 are our field professionals who mainly spend their time on service making sure elevators are safe, reliable, and continue to last as buildings continue to age.
And I imagine the behind-the-scenes things that go into the safety of the transportation devices that you put in place and maintain is changing pretty dramatically. We've gone this far in our conversation without mentioning AI, but I imagine it's ever-present in your mind and in your engineers' minds in terms of how you can use it to make things safer, to make things less expensive to operate and to maximize mobility among folks. And it seems to me that with you being so focused on particularly on cities rising, how the urbanization trend that continues plays into your hand.
Yeah. So Jim, two and a half billion people a day use our product. They do it autonomously. So if you think about especially as we go into this AI era and people are so worried about job creation, job destruction, skills changing, you know until the 50s there was an elevator operator in every one of these elevators. So we were one of the early autonomous technology providers and again where people just trust us whether it's our elevators, our escalators or moving walkways and don't think twice which is what we want about movement about whether it's in their apartment, their condominium, their office, in an airport, in a manufacturing facility. We really have this ubiquitous product, but with this ubiquitous product and offering comes the responsibility to stay relevant and to stay in a leadership position and to always adopt new technologies. And so AI has an absolute what I believe will be a significant impact in how we operate our business, in how we work and we have to change the way we work to be able to take advantage of that. It will still be human-led because of safety and because of regulatory code that mandates this safety. There won't be a time in the near future where you won't need our service mechanics or people doing these installations for all the right reasons, but it'll be human-led and AI enabled. So we will be and we already are applying AI to make ourselves more productive, more efficient. On any given day we've got about 10,000 elevator installations or refurbishments going on. On any given day we've got about 200,000 service calls going on. So it's the ultimate distributed business local in every city and suburb around the globe. So AI is going to play a part in productivity. It's clearly going to play a part as it is for every company in your own enterprise. How do you do transactions? How are you using agentic AI versus generative AI to help you move your business along? But one of the things we're really driving is to make sure and this is from the top at the enterprise level. We want AI to be part of our offerings to make a difference for our customers which are mainly businesses, condominium associations, developers, architects, facilities managers. We want our products to become smarter, to become more autonomous, and to be able to create a different passenger experience using voice, using video, using AI agents to make the passenger experience that much more valuable. So, it really goes across the spectrum. Our elevators are connected. We service about two and a half million elevators in our service portfolio. Of the 22 million in the world, we have the largest service portfolio and about half of those are connected. So we are getting real time internet of things data to understand performance real time to be able to do predictive monitoring and maintenance, but also to make the ride more effective, to stop breakdowns, to fix problems before they happen, but again to make the customer relationship more valuable, but also to make it better for passengers. Wouldn't it be amazing? And we've shown this. We actually demoed this on a new product in China late last year. If you could walk up to an elevator and say, 'I'm here to see fill in the blank, my cardiologist.' And it says, 'Okay, is it Dr. Smith?' And you say, 'Yes.' Says, 'Please enter the elevator.' And it takes you to the floor. And as you think about that kind of experience, as you think about selecting music and the mood in the elevator real time, it just gives you that ability. How about lighting and scent?
But you think about aging populations and...
Don't make fun of me now.
I love aromatherapy and I can see where we have a connectivity here with 1800 follow. I'm with you.
We do have the ability. It's funny during COVID, funny story obviously, you know everyone kept asking us well you need to put air filtration, you need to put fans in elevators and I would look at all these customers and I said they've always been there you just wanted us to cover them up for all these years in terms of not being visible. So we've got the opportunity for aromas, for scents. On average we've got someone for about eight seconds in the globe.
Eight seconds. What about entertainment? What role do you think entertainment and the changes there in would impact your business going forward? That is entertainment while people are using your devices.
You bet. I mean, we already have some relationships where we do a tremendous amount of the ability to broadcast in a cab, in an elevator cab. And you can do that from the building. You can do that remotely. You can do that via digital marketing. You could do that in an office building where one of the restaurants wants to have a lunchtime special. So, do that real time so people can say, 'Oh, that sounds interesting. I'm going to try that.' Or hazards, weather coming, emergency situations. You know, when you're in mobility, you're dealing with entertainment. You're dealing with real-time data. You're dealing with people's egress. And believe it or not, lunchtime is the most traffic time because you've got people going in both directions versus morning rush and evening rush in office or in residential. So about half, more than half of our portfolio is residential. But think about that as multifamily apartments, condominiums around the globe where many people live in non-single family homes.
Yeah. 33% growth in your core business is awfully attractive. Tell me, we're hearing a lot about future technologies and the yield they'll bring to us in terms of compute, in terms of robotics. You've been in the robotics business for a long time. How do you think about when you hear the term robotics, everyone thinks about someone who looks like a human and can do a lot of the tasks that we'd rather not have to do ourselves or can better be done by robots. But you've been in the robotics business a long time. How do you think about robotics?
Yeah. So, we think about robots as literally another stakeholder set, another set of passengers for us as humanoid robots and other robots continue to develop. And so we've architected for the ability for robots to be able to use our elevators without having to tactally or look like a human or push a button. So we actually have an interface that we sell as a subscription service for robots to do food service in hotels, room service, to do supplies where there's not enough labor in hospitals.
So you're thinking about your role in moving the robots.
You bet. You bet. And especially when you think about again the aging population and humanoid robots and people wanting to stay in their homes longer or moving to senior facilities. I think you're going to see humanoid robots over the next 5 to 10 years move beyond manufacturing and industrial.
This is something I'm sure you know an awful lot about, but I'm just learning about it. I'm on a board of a health care system here in New York, the NYU Langone Health System. And we're looking to replace a hospital that we have here on Long Island. And I naively thought, well, if we could get a big enough piece of land and really spread this out and no, no. For a hospital to operate efficiently, they want vertical.
And a core of that literally and figuratively is elevators because it's much easier to operate a hospital. They don't have to go long lateral distances if they can move a patient from emergency into imaging into OR into recovery and back to a patient room. That works so much better vertically. I've learned that's something you and your engineers have known for a long time.
Yeah. So, hospitals are a key segment for us for a variety of reasons. You know, one is you need obviously a larger elevator, larger cab to be able to fit in hospital beds, stretchers, etc. wheelchairs and you know people take for granted here in the US ADA access. There's a reason why elevators are larger here than they are like if you've ever been anywhere else in the world and you walk into a hotel and you're like I can barely fit myself and my luggage in. And it's because of our laws here in the US. But it's that those laws actually laid the groundwork for hospitals to become a very important part and the more advanced hospitals now are including robotics and the last question we get asked because it's all about traffic flow, people traffic flow, and that's what we optimize, that's what our AI algorithms do on a real-time basis understand when an event's letting out maybe in the auditorium of the hospital if they have such a thing so we make sure we send all the elevators there. But more importantly, what the debates some of the hospitals are having with us is should they dedicate a bank to robotics. So just the robots will use it that do all the delivery again of the linens, of the consumable items and because there's not enough labor for all the orderlies. They can't fulfill that. Luckily, our logic allows the ability for us to tell a robot either go in the elevator when there's a human there or to wait. But that's really just a rule you set based on how you want to use it.
So, how early in the planning of a hospital are you involved or would you and your engineers want to be involved? Are you working with architectural design firms who specialize in those areas early on? Do you meet before there's even a plan or an assignment to advance the area of study and ideation about how to prepare for the future? Where do you guys get excited and how early do you get involved?
We get involved really early. You use the word core. The core of a building tends to be the elevator banks and that's actually been one of the as you think about people remodeling office to residential which you're seeing a lot in the city and other places right now since COVID, we're still in that core of the building and the more traffic we can move with the least hoistways but be able to move that many people.
What is that term hoistways?
We call it a hoistway. That big cement core. We call that a hoistway. That's the first thing, you know, once you get past the architects and the developers and the financing, the first thing that tends to get poured is the foundation and the hoistway. So if you drive around anywhere on any city, you'll see something coming up out of the ground first. That's the elevator hoistway. So we get involved early in the ideation because we want to that again if more space can be dedicated in a hospital to patients to obviously revenue generating testing whatever is appropriate and we can move more people in less space and still meet all the codes and make them feel comfortable that's a win-win. So we do work very early on spec position working with architects working with developers across every vertical.
You as a company convene those other professions from time to time.
Yeah, we're all part, you know, when you think about the building industry, whether it's the AIA, whether it's the general contractors, there is quite an ecosystem on the construction side to optimize and then obviously you have all of the people who have to make this pencil out financially, right? You have the developers, but these people, these are real estate professionals. And you know, there's times we feel we're part of that and we are. And then there's also times that we're part of kind of the facilities and property management piece where we provide service. But, you know, we'll sign service contracts with condo associations, with individual homeowners in lots of countries. You know, it's the full gamut here from we don't have a single customer that's over 1% of our revenue, which is a great diversification strategy, but it also means we've got a lot of customers.
You mentioned regulators before. Sounds to me like regulators are your friends and it sounds to me like regulation means different things in different parts of the world.
Yeah, actually regulation means different things in different cities in the US, let alone different parts of the world. There's a code in New York City versus a code in Chicago. When you're in the life safety business, which we are, so you think about what our engineers are architecting for and designing for, we don't ever want someone to think twice or have a fear of stepping in or using our product. There is a very healthy UN code, regulated code to protect that. So we live up to that code when we engineer, when we design, when we develop, manufacture and install. And then the service regulations are even a different set of codes. They're different all over the world, which is, you know, it's a good moat in terms of a business person because we have the ability to serve all those whereas others would take years to really master that. But when you get into service, the unique part about our business is the regulatory requirement is on the customer. So, if you think about that little inspection certificate when you walk in an elevator, it's up to the owner to make sure they have a service contract with one of our providers, ourselves, or some of our competitors, and that they have that kept up to code so that they can pass their annual inspection so they can operate. That requirement is on the customer which makes it, you know, whether the building's full, whether there's only one tenant, they still need to keep that current, which is why our maintenance offering, which is a subscription, obviously an annual maintenance offering that we could sign for more than one year, we offer around the globe. And that maintenance business is again that's the key foundation of our revenue. On top of that, things break that may or may not be in a comprehensive contract or a basic contract. And it's just like when your car breaks, you take it back. Here, you can't take it back. We come and we do a repair, a break fix repair. And then when elevators, you know, the buildings last many decades. So, like any technology, as elevators age, they need to be upgraded. And at about the 20 year point, they need to be modernized and refurbished.
