Rockwell Automation, Inc.

Thank you for holding and welcome to Rockwell Automation's quarterly conference call. I need to remind everyone that today's conference call is being recorded. Later in the call, we will open up the lines for questions. If you have a question at the time, please press star 1. At this time, I would like to turn the call over to Jessica Kourakos, Head of Investor Relations. Ms. Kourakos, please go ahead.

Good morning and thank you for joining us for Rockwell Automation's first quarter fiscal 2020 earnings release conference call. With me today is Blake Morett, our Chairman and CEO, and Patrick Gorris, our CFO. Our results were released earlier this morning and the press release and charts have been posted to our website. Both the press release and charts include, and our call today will reference non-GAAP measures. Both the press release and charts include reconciliations of these non-GAAP measures. A webcast of this call will be available at that website for replay for the next 30 days. For your convenience, a transcript of our prepared remarks will also be available on our website at the conclusion of today's call. Before we get started, I need to remind you that our comments will include statements related to the expected future results of our company and are therefore forward-looking statements. Our actual results may differ materially from our projections due to a wide range of risks and uncertainties that are described in our earnings release and detailed in our SEC filings. So with that, I'll hand the call over to Blake.

Thanks, Jessica, and good morning, everyone. Thank you for joining us on the call today. Please turn to page 3 of the slide deck. I'll begin by saying that I'm pleased with our execution in the quarter and our start to the year. Despite a tough manufacturing environment, both revenue and earnings were slightly better than our expectations for Q1. Total sales grew 3%, including over four points of contribution from inorganic investments primarily related to our Sensia joint venture. Organic sales were down 1% compared to a strong quarter a year ago. Backlog, however, was up year over year as well as sequentially. Organic sales performance continues to include market share gains in core platforms. For instance, independent cart motion control technology grew strong double digits for us in the quarter. It is becoming a game-changing solution across a broad range of industries and applications. Information Solutions and Connected Services, or ISCS for short, had another great quarter, also growing strong double digits. We had notable wins in life sciences, food and beverage, our first MES win in luxury goods, a significant MES win in mining, and our first ever augmented reality project in oil and gas. Our broader and more differentiated portfolio gives us more ways to win in a wide variety of industries, including those where we are not the incumbent control platform. Recurring revenue in the quarter grew double digits, led by an increase in software subscriptions. As I mentioned, our earnings performance was slightly better than expected. Segment margins and adjusted EPS include one-time items related to Centsia as well as investments we are making to increase our long-term differentiation. As we look ahead to the rest of the year, we are reaffirming our organic sales and adjusted EPS guidance for fiscal 2020. While there have been recent positive developments on global trade and the macro environment is showing signs of stabilization, it is still too early to see that impact on customer spending. Let's now turn to slide 4 and go a little deeper into our vertical sales performance for the quarter. Discrete and hybrid end market segments did a little better than we expected this quarter, while process was a little weaker than we expected. Within our discrete segment, auto grew mid-single digits, largely related to higher program spend in North America and Asia Pacific and stabilization in MRO, albeit at low levels. While this higher program spend was better than anticipated, the overall auto market is still relatively weak and we think it is premature to change our flat full-year outlook to this vertical. Semiconductor sales were notably better in all regions of high single digits. Historically, our exposure to semis has been largely in facilities management, but we are also seeing new traction in material handling, IoT, and cybersecurity applications. Turning now to our hybrid market segment, food and beverage declined low single digits, reflecting some project delays. However, given what we are hearing from customers and the activity we have seen at packaging OEMs, we still believe food and beverage will grow low single digits for the year. In life sciences, we had another solid quarter, with sales growing both -over-year as well sequentially. As we've said before, this is an industry where a scalable architecture and our differentiation in ISEs are well aligned in paying dividends. Our process market segment declined slightly, especially in chemicals and pulp and paper. Organically, oil and gas grew mid single digits this quarter and we continue to expect low single digit sales performance for the year. Centros and Atencia, which had a good start to the year, is expected to grow double the digital oil field segment of this vertical. Turning to slide five and our regional sales performance in the quarter, North America was down 3% organically, reflecting a weak manufacturing environment. The weakness in process industries was partially offset by auto of double digits and strength in semiconductor. OMEA was up 2% in the quarter, led by oil and gas, life sciences, and tire. Asia Pacific grew by 6%, led by strong demand for oil and gas, life sciences, and auto. Auto was up over 10% in the region and included strong gains at EV battery manufacturers where our readiness to serve is high. Our portfolio is demonstrating how well positioned we are to benefit from the transition to EV. Latin America sales were down 1%, largely due to a tough comparison from last year and weaker performance in automotive and mining. I'll now make a few additional comments on our other accomplishments in the quarter. Our annual automation fair was held last November in Chicago and I'm proud to say that we reached a new all-time attendance record. Customers are focusing on outcomes and sharply increased sales leads from the event indicate we are demonstrating our increased value for a wide variety of industries. We also had record attendance at our investor day in November. There, we highlighted our execution plans to accelerate profitable long-term growth while at the same time build even greater resiliency in our business through higher recurring revenue streams and a leaner, more flexible cost structure. We also had exciting new partners at the event including Schlumberger, Accenture, and Ancest which is a game-changing technology partner for simulation and digital twin applications. We're seeing our partnerships contribute to many strategic wins and we had some great wins this quarter including in life sciences across all major geographies. In Europe, we signed a major agreement with Roche. Roche will be implementing our Pharma Suite MES platform across 16 plants in their pharma and diagnostics divisions. In North America, we entered into a new multi-year agreement with a major pharmaceutical producer They selected Factory Talk Innovation Suite to drive their digital transformation program for a connected plant and supply chain. It will provide a common platform to drive real-time visibility of analytics to the operator, plant, and enterprise levels, predict future events to avoid unplanned downtime and improve energy efficiency, and accelerate knowledge transfer and improve ease of use. Once implemented, this solution will eliminate hundreds of overlapping edge solutions resulting in significant operational savings. In China, Ruying Pharma Group, a large pharmaceutical company, chose Rockwell to transform their factories to become smarter and more predictive while at the same time assisting them to oversee quality management and ensuring that they comply with regulatory requirements. From regulatory compliance to safety and energy efficiency, Rockwell is becoming an increasingly important partner of our customers' ESG initiatives. In addition to what we're doing in our own facilities, everything we do for customers is about increasing efficiency, reducing energy usage, improving worker safety, and ensuring regulatory compliance, all of which lowers business risk and is good for the environment. Now, turning to slide six, let's talk a little more about our inorganic investments, which are becoming an increasingly important complement to our long-term organic growth strategy. Starting with Sensia, this was our first quarter, including Sensia as a fully operational joint venture consolidated in our results, and I'm very pleased with its performance in Q1. Operationally, Sensia's top line grew double digits with strong traction at marquee, oil, and gas customers around the world. Our sales teams have been fully integrated, and we are looking forward to the launch of new solutions and products that will contribute to the double-digit sales performance we expect this year. We also announced the acquisition of MES Tech at the beginning of Q1. MES Tech is an industrial software consulting and delivery services company based in India, and they have already been instrumental in winning key business for us in the quarter. Earlier this month, we announced the acquisition of Avnet Data Security, a cybersecurity provider based in Israel with over 20 years of experience. Cybersecurity is one of the fastest growing parts of our services business. The extensive knowledge and experience of the Avnet team will support our company's strategic objective to achieve double-digit growth in information solutions and connected services by expanding our ITOT cyber and network expertise globally. Plus, this acquisition will establish a global cybersecurity center of excellence for us in EMEA. This includes a remote managed service center and expands our portfolio of capabilities, including a full training curriculum and labs. As you can see, we are actively deploying capital to advance our strategic priorities to accelerate share gains in our core business, continue growing double digits in ISEs, grow domain expertise in process, and accelerate our market access in Europe and Asia. We're focused on driving value with more intensity than ever before. Let me now turn it over to Patrick, who will elaborate on our first quarter financial performance and fiscal 2020 outlook and his remarks.

Patrick? Thank you, Blake, and good morning, everyone. I'll start on slide seven, first quarter key financial information. First quarter reported sales were up .6% year over year. As expected, organic sales were down 1%. Acquisitions, which mainly represent the impact of sentia, contributed four and a half points of growth, better than expected. Currency translation decreased sales by 0.9 points, a higher headwind than we expected. Segment operating margin was 20.1%, down 270 basis points compared to last year. About half of the year over year decrease relates to the impact of acquisitions and related one-time costs, primarily sentia. The other half of the year over year margin decrease is about evenly split between higher investment spending and unfavorable mix. General corporate net expense of 32.8 million was up 11 million compared to last year. The increase is due to the impact of market to market adjustments related to our deferred and non-qualified compensation plans and sentia related transaction fees. The adjusted effective tax rate for the quarter was .9% compared to .7% last year. About half of the reduction in the year over year tax rate is due to a sentia $19 million one-time tax benefit. The remainder is due to other discrete items, primarily tax benefits from option exercises. Adjusted EPS of $2.11 was a bit better than we expected and down 10 cents compared to the first quarter of last year, a decrease of 5%. The year over year decrease in adjusted EPS is primarily due to lower organic sales, particularly in some of our product businesses leading to unfavorable mix and higher investment spending. Partially offsetting that is a lower tax rate excluding the sentia impacts and the net benefit of a lower share count and higher net interest expense. The net year over year adjusted EPS contribution of sentia in the quarter was one penny. The sentia contribution of one penny includes a 7 cents larger than expected headwinds related to one-time items. Pre-cash flow was $194 million in the quarter or about 80% of adjusted income. During the quarter we paid the annual bonus that our employees earned in fiscal 19. A few additional items not shown on the slide. For adjusted EPS average diluted shares outstanding in the quarter were $116.6 million, down $4.9 million or about 4% from last year. We repurchased about half a million shares in the quarter at a cost of $100 million. This is in line with our full year target of about $400 million. At December 31st we had $1 billion remaining under our share repurchase authorization. Slide 8 provides the sales and margin performance overview of our operating segments. The architecture and software segment had modest organic growth in the quarter. Segment margin was very strong at .8% and a bit lower than the record market margin last year, mainly due to increased investment spending. Organic sales of the control products and solutions segment decreased 2.5%. Inorganic investments increased sales by .2% compared to last year since the accounts for almost all of the inorganic growth. Organic sales for our solutions and services businesses in this segment was down about half a point year over year. The higher margin product businesses in this segment were down about 5% on an organic basis. First quarter organic book to bill performance for our solutions and services businesses was 1.12, typical for a first quarter. Operating margin for this segment of .4% was down 310 basis points compared to Q1 last year, primarily due to Stencia one-time items, lower organic sales and unfavorable mix. Segment margin excluding the -over-year impact of Stencia was about 14%. In the appendix, you will find two slides with a more detailed overview of the -over-year incremental impact of Stencia for Q1 and for full year fiscal 2020 outlook. It is the same format we provided to you at our investor day. As I mentioned earlier, from an operational viewpoint, Stencia sales and earnings were a bit better than we expected. Non-recurring items, including the tax benefit, were 7 cents worse than we expected in the first quarter, primarily due to larger purchase accounting adjustments and the lower tax benefit. For full year fiscal 2020, we now expect the net -over-year impact of Stencia to be about neutral to adjusted EPS. The financial framework we shared with you at investor day last November remains valid with Stencia. We continue to target 30 to 35% earnings conversion for Rockwall, assuming mid-single digit organic sales growth. This takes us to slide 9, guidance. Our outlook for fiscal 2020 remains unchanged compared to our November guidance. We are maintaining our sales growth and adjusted EPS guidance ranges. For adjusted EPS, in essence, compared to prior guidance, small headwinds due to Stencia one-time items, currency, and the higher share count are offset by a somewhat lower adjusted effective tax rate. The lower tax rate is the result of a higher excess income tax benefit related to share-based compensation. General corporate net is now expected to be closer to $105 million. Purchase accounting amortization expense for the full year is expected to be about $40 million, up $20 million compared to last year. Net interest expense for fiscal 2020 is still expected to be about $100 million. We expect non-controlling interest to be about $10 million or a 10-cent charge to adjusted EPS. Average diluted share count is now expected to be $116.5 million for fiscal 2020, and our adjusted effective tax rate is expected to be closer to 15.5%, which includes about a 150 basis point one-time benefit related to Stencia. We continue to project free cash flow conversion of about 100% of adjusted income. Finally, we continue to project the weaker first half of the year with organic sales down low single digits, followed by a stronger second half of the year. And as is typical for us, we expect weaker second quarter adjusted EPS performance versus the first quarter. With that, I'll hand it to Jessica to start Q&A.

Thanks, Patrick. Before we start the Q&A, I just want to say that we would like to get as many of you in as possible. So please limit yourself to one question and a quick follow up. Thank you. Sharon, let's take our first question.

If you'd like to ask a question, please press star one. Our first question comes from Julian Mitchell with Berkeley.

Hey, good morning, everyone. This is Jaowon for Julian. Morning. Can we start with diving into backlog trends? Can you maybe just provide some color on what drove the sequential rise and the year over year rise? And then maybe within that, any more details on solutions and services?

Yes, I'm sure how much more color we can provide except that as we mentioned, backlogs are up both year over year and sequentially. And I would say it was broad-based, including in North America.

Got it. Thank you. And then at the end market level, kind of on the -single-digit growth for oil and gas, was this on kind of company-specific drivers, maybe share gains? Or are you seeing kind of more positives in the end market as a whole?

You know, on the organic side, there obviously has been a flatish capital spending. And we do see a slowing of the oil and gas organically. However, on the Centsia joint venture, because the majority of that is focused on producing wells and not drilling new wells, we see it less susceptible to capex reductions. And that gives us confidence based on our first quarter results and the outlook that double digits in that part of our overall oil and gas business can take share and grow fast. Perfect. Thank you.

Thank you. Next question comes from John Inge with Gordon Haskett.

Hi. Good morning. It's Karen Lau Dowling in for John.

Good morning, Karen. Good

morning. So thank you for all the details on Centsia in the appendix. I was just wondering in terms of the core margins, it looks like, you know, you guys were making 18% core margins, excluding the one-time items in the first quarter. But then the four-year, you're guiding to around 14% margins. What is the driver of that?

Yeah, the way you can think about it, Karen, what you see in the appendix is the -over-year incremental piece of Centsia. It's the impact of the contribution of Schlumberger, which was higher margin business than what we contributed.

Okay.

And so therefore, when we talk about overall margin profile of Centsia, we do expect it to be a 20% EBITDA business going forward. But this year, we think it will be closer to mid-teams.

Okay. But is it, I mean, am I reading correctly that the first quarter results were better than what you're expecting for the full year? Or is that like some...

For the piece that was contributed by Schlumberger and the synergy, the answer to that is yes. I would also say that our spend increased in Centsia because we were making some investments in technology and commercial resources. They were a little bit lighter in the first quarter than we expected. That's why you see that margining Q1 being a little bit better as well. Than what you see for the full year outlook.

Got it. And then just quickly, can you remind us what's your expectation for investment spending for the year and kind of the cadence throughout the year?

Yes. The way you can think about it, Karen, is consistent with what I mentioned to you in November. We think the -over-year increase will be a little bit less than 2%. And it will be first half weighted. And so we expect it to be more than that in the first half. And in the second half, the increase -over-year will be minimal in terms of -over-year spend.

Got it. Thank you.

Thank you, Karen.

Next question comes from Robert McCarthy with Stevens. Hi,

it's Robert McCarthy on for Robert McCarthy. Hey, Rob. How you doing? So in any event, just wanted to first, I mean, obviously, listen, it's a very dynamic situation right now. You've had the trade deal. You've had a very encouraging quarter. But obviously, you've had this rising potential of a pandemic. And I don't want to get too much of a Debbie downer. But how do you think about kind of your supply chain in China? How do you think about kind of the trends and spillover? I know it's very early and we don't have a lot of information yet. But could you just give us some factors to think about and what sensitivities you're looking at in terms of exposures as you manage the situation? Sure.

Well, first of all, Rob, the overwhelming first priority for us is to ensure that we're looking after our people in the region. And so we're paying close attention to that to make sure that we can reduce to the very extent possible their exposure. Second, and on a parallel path, we're undergoing a detailed review of our own manufacturing footprint as well as our supply base to gauge the potential impacts. At this point, we don't expect an impact to the quarter's performance. But as you said, it's a very dynamic situation. And we're monitoring it hourly and looking for new inputs to help inform how we feel about the business impact. But it's the safety and well-being of our employees first.

Thank

you for that.

And then I guess the follow-up would be just maybe a little more color around information solutions with connected services, the continued double-digit growth there. Can you talk about kind of the continued development and collaboration with PTC, some of the wins, and maybe expand on your comments around augmented reality and I don't know, track and trace is something that started to pick up there or is looking to be encouraging. Yeah,

Rob, it's a great story for us. And with our own offerings that we've developed ourselves, plus with partners like PTC, the information solutions and connected services part of our offering continues to grow strong double digits. And we're seeing it as a true differentiator in some of the fastest growing parts of the overall automation market, like electric vehicles and life sciences. So, you know, it works perfectly to complement the basic automation that we're providing in those industries, whether it's discrete automotive assembly or it's process control for pharma. But as they're looking for more traceability, as they're looking for adding the ability to transfer knowledge from older workers to newer workers, augmented reality is a great part of that. We've mentioned before about a third of our sales of the software in this space include augmented reality. So it all works together. It's increasing the hit rate for our MES software because we have a broader portfolio and it works together well. So there's a lot of positives in this respect. And I should mention it's not just for end users. It's also for OEMs because they're looking for increasing the value of what they're providing. And as they look for ways to increase their flexibility, getting closer to that zero change over time for packaging that is hot in the industry today, then this has a lot of benefit for them as well. We had a win in the quarter with Harpac, who you heard from at the Investor Day in November, as they're adding that software to the basic, you know, logic control and variable speed drives and so on. That's part of the basic automation of those systems. And then at the final point, we have seen probably a higher degree of adoption of this software on top of competitive control platforms than we originally thought would happen. Thanks for your time.

Next question comes from Richard Eastman with Baird.

Yes. Good morning. Thank you for the questions. Blake, could you kind of speak maybe to the geographic mix, you know, the organic growth by geography in the quarter? And it just, you know, it seems a bit scattered here. I presume Asia was probably better than expected. U.S. maybe a little bit weaker. But how does, you know, the incoming backlog being up quarter to quarter and year over year, how does that filter into, you know, maybe the geographic growth that you expect for the full year against, you know, kind of that midpoint of, you know, flat expectation for all of ROC?

Yeah, let me start with a couple of comments and then Patrick may have some additional color on that. But as you said, Asia was better than expected. Latin America a little worse than expected. North America and EMEA were pretty much in line with expectations. In North America, as we mentioned, we were down about 3 percent. And that was largely due to declines in more process oriented verticals with the exception of oil and gas. So we saw chemical, pulp and paper and metals. And then that was offset by the growth we mentioned in automotive power and semiconductor. EMEA was up and oil and gas was a contributor there along with the recurrent theme of life sciences. Water wastewater was a good area for EMEA. And in Asia, we were up with growth in oil and gas, life sciences, auto, tire and mass transit. And then LATAM was down a little bit where weakness in auto and mining was partially offset by growth in power, oil and gas and life sciences. So that was kind of a rundown of what we saw in Q1. In terms of how the backlog feathers into that, obviously mainly project, but also with some of the higher value services as well, particularly those included with the connected services part of ISCS.

Rick, maybe a little bit of color as to our assumptions by region for the full year. And so organic growth at the midpoint is flat year over year. We expect both North America and EMEA to be a little bit below that. And we expect both Latin America and Asia to be up a little less than five percent, about mid single digits. OK. So what that implies is that we expect, and that's embedded in our guidance, we expect second half of the year, as I mentioned, improvement. And that includes the US, I would say North America.

OK. And is there any noticeable impact on the backlog and order flow around passage of the USMCA when you're talking about Latin America and Mexico? Was there any noteworthy improvement in bookings or anything once that uncertainty was more or less lifted?

Not yet, is the short answer. No. We're still in the first step in supporting the concept of free and fair trade that we've talked a lot about in the past. So we think it's a good thing, but we haven't seen the results on our performance yet.

OK. Very good. Thank you.

Thank you.

Next question comes from Noah K. with Oppenheimer.

Thank you. You know, I was intrigued, Blake, to hear you call out ESG as a potential driving force for your customers to implement your suite of offerings. Conceptually, I think we can understand that there's just a basic efficiency play here that plays into ESG. Could you maybe provide some examples of where you're seeing that make a material difference in customers' decisions?

Well, as you said, everything we do is about productivity, and a huge part of that productivity is efficiency. So you take our power control offering, variable speed drives, which reduce dramatically the amount of energy that's required to run industrial processes. A tremendous amount of the world's energy is consumed in factories, and simply not running full across the line when you don't need it saves a ton of energy. And variable speed drives, low voltage and medium voltage, continue to be a very strong part of our offering. Specifically, in the new eco-industrial segment that we introduced in November, talking about our support of renewables, of water and wastewater treatment and mass transit, you know, those are all industries that reduce the amount of energy that are required. And it was no coincidence that we created that new segment because we're going to be doing more in that space. And then finally, safety. That's something we've talked a lot about in the past. And in terms of the technology to be able to automate safety, but also the services that we've provided, that's an important part of ESG. We think that we're number one in the world when you pull all the discrete and process safety technology together, and that remains a really important area for us.

That's helpful. And then, you know, maybe drilling into auto a little bit. As you said, it surprised the upside and you gave some good color around, you know, some regional patterns there in your prepared remarks. But just, you know, the outlook for kind of, you know, soft overall, you know, light vehicles and is that having any impact as far as you can tell in kind of the backlog of the longer cycle business in terms of OEM plans to bring new models to market or plan model changeovers? How are you thinking about that?

Well, we, you know, we're guiding to about flat currently with the overall automotive segment for the year. I'd say the growth is highest in the specific EV drivetrain portion of the segment as people are bringing, you know, that capacity online, whether it's the brand owner or it's the tier supplier. And by the way, that contributed a lot to our performance. That was a little better than expectations in Q1. It was battery assembly. That was a specific bright spot for us there. That's offset to some extent by the reality of a weaker SAR count for fewer vehicles than we saw, you know, a couple of years ago being bought. Certainly a lot of the brand owners are reducing their sedan portfolio, but there's still a fair bit of project spend there and in the particularly in the SUV side of things. And the growth that we saw in the quarter was primarily due to project spend, MRO stabilized, but we didn't see any real growth in MRO in the quarter.

That's helpful, Collin. Thanks, Mike.

Yeah, thanks, Noah. Next question comes from Steve Tusa with JPMorgan.

Hey, guys. Good morning. Good morning, Steve. Can you just talk about a little bit more about what you're seeing on the food and beverage side and OEM and then maybe just a bit of color on how you see kind of quarterly organic progressing as you move through the rest of the year?

Sure. I'll start with the food and beverage. You know, we did see some delays in food, but one of the bright spots, and I mentioned it, is we actually saw -single-digit growth in packaging OEMs. And it's early, but, you know, that's sometimes a leading indicator as people are putting packaging in place. And we did see that across the regions. We also heard anecdotally from the packaging OEMs that their backlog is fairly good. And so those are encouraging signs. One area of particular strength for us, it's small, but it's still noteworthy, India packaging OEMs. And I say it's noteworthy because India may be the most competitive market in the world. And for us to have success there is a really good testament to the functionality and the ability to get to competitive levels there. I was actually there and visited with some customers, including some packaging OEMs in December. And I think there's some great opportunities there, and we're going to continue to look at what we can do to grow our presence even faster in the Indian market. But in general, packaging OEMs were up. We also saw some strength specifically in beverage. We had a real nice conversion at a beverage OEM that's going to a well-known beverage user. And so that was also good in the quarter.

And then just the quarterly progression on organic?

Yes. So see for the full year, we remain at 0% organic growth. The Q1, we did minus one. I'd say Q2, low, low single digits, meaning it's close to what we did in Q1. We don't expect it to get worse than what we did in Q1. And then for the balance of the year, I'd say Q4 organic growth a little bit better than Q3.

OK. So it seems to me that like, how do you get to kind of the low end of the range then, if that's the case? What I was providing

was at the midpoint, Steve.

Yeah. OK. Got it.

The trend that I think we had seen in the past with chemical, and we did see that as the single largest contributor in the quarter, that was primarily in North America. We actually saw an increase in chemical in EMEA, down in Asia, and slightly down in Latin America. So it's all set. As we mentioned, we actually saw growth in oil and gas, but the chemical was down in the quarter, and most of that was concentrated in North America.

As we said earlier, within process, oil and gas was up, but generally process industries were weak in the quarter. I

would also mention just for background that in chemical, a lot of our exposure is in specialty chemical. It's not as much in the bulk chemical. That's our traditional focus. There's some overcapacity that we're currently seeing in chemical, and some effects from some of the consolidation that's been going on in the industry over the last couple of years as well. So that's an additional color that would certainly apply to North America.

That's great. Very helpful. And then just a quick one, just on EV. I know you said you had strong gains there during the quarter. I'm just wondering if you could talk about China EV specifically and what you've been seeing there. Any changes?

Yeah. So auto in China has been down Q3, Q4 of last year, and we saw that continue into the first quarter of fiscal 2020, and that includes EVs. And so we've seen some of the support or the subsidies go away in China, and generally, and obviously it's still a little bit lumpy because it's relatively small, but EV and auto in general, we've certainly seen some weakness in China. Interestingly, auto in Asia was up for us quite a bit, and the reason there is we're making some progress with some of the EV companies outside of China. Including some companies in Korea, for example.

Yeah. And that specific application that Patrick is mentioning in Korea was the battery assembly, which is a great application for us. We've mentioned before that in comparison to the subtractive manufacturing processes for internal combustion engines, for boring cylinders and things like that, that require a lot of CNC content, battery assembly and motor winding and EV drivetrain, we have a high readiness to serve there, and that's why we think that long-term EV is a great market for us to be in.

That's great. Thank you very much for your time.

Thank you. Next question comes from Jock Poker-Zawinski with Morgan Stanley. Please go ahead.

Hi. Good morning,

all. Good morning, Josh. Hey, Josh.

So apologies if I missed it earlier on the call, but Blake, one thing that we talked about at the Analyst Day, that I want to see how that is playing out, is kind of the lower cyclicality of Rockwell, maybe versus what folks would have been accustomed to five or ten years ago or even more, that it does seem like at a point in time where other folks are seeing kind of a more depressed outlook that Rockwell is hanging in there a bit more stable. I guess, one, is that consistent with the way you guys are seeing the world? And two, is there kind of a coiled spring on the back end where you can see customers have a willingness to spend on projects, but they're maybe not executing yet? So have we lost some of that upward mobility in exchange for lower cyclicality?

Yeah, I wouldn't draw the causality between the two, but as we talked about a lot in November, that greater resiliency to economic cycles is something that we're making very explicit steps to address. And so in addition to, you know, things like information solutions and connected services providing a lot of increased value to customers and pulling through some of our traditional products, it does have an impact that we think is already being felt, you know, in terms of kind of clipping the trough of some of the normal volatility. Now, it's still a relatively small part of our business, right? But that compounding of strong double-digit growth, plus what we do with acquisitions having more recurring revenue, makes it more important each year. And last year, we think, for instance, information solutions and connected services added about a point of organic growth to what we did. And, you know, in a relatively low growth year overall, that's meaningful. So we're going to continue to work on that in terms of both our organic development, the products and the environment to be able to manage recurring revenue. But it's also a consideration as we look for companies to acquire in the percentage of recurring revenue.

Got it. That's helpful. And then just to follow up on investment again, apologies if you covered already. Seems like, you know, some of that got pulled forward into the first quarter as maybe demand was a little bit better than expected. How should we think about the sensitivity from here on kind of that full-year investment budget? Is it at a healthy level to where if you're at the top end of the revenue range that the overall bucket doesn't increase or how are you thinking about the sensitivity over the remaining three quarters?

Thanks. Yes, Josh. So what we mentioned was that the spending in the -over-year increase in the first half will be higher than in the second half. Actually, the second half, the way we have it dealt in now is the flattish from a -over-year spend point of view. However, if depending on what happens with our outlook for the year and if we end up doing better what we do at the midpoint, clearly we could decide to release more investments. There is a very long list of attractive investments that we are looking through all the time and we could decide to do more.

Okay. Thanks for the call.

Thank

you.

Next question comes from Nigel Koa, Fulf Research.

Thanks. Good morning. I appreciate the question. I know you've kept a lot of ground already, and I know we tend to focus more on the end market outlooks, but I'm just wondering about the geographics and thinking about how geographically things are playing out relative to your initial guidance in November. In particular, North America, down .3% this quarter, and I know North America has been trending weak for some time now, but with ISM where it is and IP negative, how does that look in North America specifically compared to your initial outlook and what's bouncing against that if it is weaker than you expected?

Yeah, so as you said, the macro can generally be characterized as weak and there were some downward revisions. In opposition to that is some of the backlog that was built in the first quarter and some of the things, again, like the IS and CS, the information solutions and connected services that aren't going to be as coupled directly to some of the broader indicators. If in those areas we can demonstrate a relatively quick return on that investment, which is often from OpEx, then we think that that's going to be more resilient than some of the other more capital related spending.

Yeah. And then Nigel, for Q1, we would say that North America and Namia came in basically in line with our expectations. Asia Pacific came in better and Latin America came in weaker. And for the full year, at the midpoint, we think that North America and Namia will be down a bit, and we think that Asia Pacific and Latin America will be up a single digit to a little less than 5%.

Okay, that's helpful. Thanks, Patrick. And then a quick one on, you know, obviously ANS is holding up a lot better through the soft patch than we've seen historically. And I know DOGS is flowing to the IS layer, but, you know, can you just maybe, is there any way to quantify kind of the relationship with PDC and how that's helping to, you know, maybe improve the top performance of ANS and any kind of that would be helpful?

Yeah, I'll make a general comment to that. And that is, you know, manufacturing, advanced manufacturing is becoming a much more noteworthy part of a company's overall digital transformation plans. So we see companies like Stanley Black and Decker, as they talk about, you know, fairly significant reductions in cost, they're being asked to go a little deeper and explain how they're going to get there. And we're finding ourselves a part of those explanations as to how we're going to be able to reduce OPEX for these companies by having the relationship with PDC and having the increasingly, you know, important ISCS offering, we're able to have those broad discussions at a higher level than if we were just talking about programmable controller performance or, you know, some of the other elements of basic automation. So it allows us to get higher in the organization and to play a more meaningful part of those overall discussions. Whereas if we didn't have that kind of breadth, then we might find ourselves playing a little more defense in some of the core components. So that's, you know, at a high level, how a partnership with a company like PDC will pull through some performance in the core products, because they all go together, that basic automation, and then the information that sits on top of it to draw insights from the data that's born in our products.

Okay, thanks, Blake. Sharon,

we'll take one more question. I have a question from Andrew Kaplewitz with Citi.

Good morning, guys. Morning, Andy. Thanks for having me in. Blake, you might have talked about this earlier, but on Centsia, you mentioned that operating performance was better than expected. Maybe you could just talk about, give a little more color on what that means. Obviously, there's a lot of moving pieces with Centsia and the guide that you gave last quarter for the year. I think you talked about five cents excluding interest. Could it be better than that in 2020?

Yeah, I mean, we're pushing the team, obviously, to perform as if they're in an open field, because we think they are. We think that what they're offering is somewhat unique in the market. Our original hypothesis that there was a relatively low level of basic automation in the oil field, particularly the onshore oil field, is proving to be true. The things that we're talking about as we're selling the traditional offerings into that space of things like measurement devices, as well as artificial lift and so on, the ability to come in and to weave that together is really meeting with a lot of interest. Some of these are our existing customers, but customers that in the past have bought products as needed from us. But now they're seeing that we can play a much more significant part in their overall strategy. I had a chance to talk with some of these customers over the last year in Latin America and in Europe. And we're excited and even more excited after the first quarter's results, because these companies are voting with their wallets. And again, it's a solutions-based approach. It's the measurement devices, it's the artificial lift, it's the software, and then it's the delivery capability to bring this all together to reduce their cost to produce a barrel of oil.

Blake, I just wanted to follow up on your comment on Latin America. Is the incremental weakness or the moderation that you saw really focused on mining and or just tough comparisons? There's been a little bit of unrest down there. You just mentioned oil and gas is pretty strong. So what are you seeing down there?

Yeah, so, you know, mechanically, we still have some tough comps against that big Codelco project in mining that we've talked about over the last year or so. That project is going very well, by the way. In general, in Latin America, we saw modest growth in Mexico and Brazil, but it was offset by weakness in Argentina and Chile. And of course, a good component of that would be mining-related. Mexico was up low single digits, and Brazil was also up low single digits. So I think you're right that some of it is comps. We expect mining to be about flat for the year for us in Latin America.

Thanks, Blake.

Thank

you,

Annie. And at this time, I will turn the call over to Ms. Karakos.

Thank you, Sharon. I'll turn it back to Blake for a few final comments.

Thanks, Jessica. As we've been discussing, I'm happy to see our new offerings delivering significantly increased value. We've never been better positioned with a more differentiated offering as a convergence of IT and OT creates tremendous new opportunities. And our employees and partners, they continue to set us apart, and we're really excited about the journey ahead.

Okay, that concludes today's call. Thank you for joining us.

That concludes today's conference call. At this time, you may now disconnect. Thank you.