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 that time, please press star 1. At this time, I would like to turn the call over to Ajana Zellner, Head of Investor Relations and Market Strategy. Ms. Zellner, please go ahead.

Thank you, Julianne. Good morning, and thank you for joining us for Rockwell Automation's fourth quarter fiscal 2024 earnings release conference call. With me today is Blake Moretz, our chairman and CEO, and Christian Roethe, 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 on our 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 details in all our SEC filings. So with that, I'll hand it over to Blake.

Thanks, Saijana, and good morning, everyone. Thank you for joining us today. I'll make a couple of comments before we turn to our fourth quarter results. With the U.S. Federal Election Day now behind us, we're optimistic that the country will turn its focus to a smooth transition to newly elected leaders. We're pleased that policymakers recognize the essential role that U.S. manufacturing plays at the core of our economy. Rockwell is the clear leader in providing technology that helps U.S. manufacturers be more competitive, so we welcome policies that will benefit our most important market by spurring innovation, streamlining project approvals, and leveling the playing field. Orders continued to be soft in Q4, but we had solid execution on several fronts. Customer service levels and conversion of new orders to shipments are back to pre-pandemic levels across all businesses. We are growing profitable software and digital services lines of business, which help to partially mitigate the impact of excess product inventory in our channel. Annual recurring revenue grew double digits in the year and is now 10% of our total revenue. For comparison, ARR was about 4% of our revenue in 2018. We've seen modest market share gains over the past few years based on U.S. market share reports, product-specific studies, and comparison to the automation businesses of our closest competitors. Our best results in fiscal year 24 were in North America, our home market, and China is now less than 5% of our revenue. We are broadening our cost savings activities, and Christian Rothie, our new CFO, has jumped into the effort with enthusiasm. He brings valuable new perspectives on additional opportunities. At the end of fiscal year 24, we were able to accelerate our savings to realize about $110 million of cost reductions in the second half of the year, $10 million above the target we first discussed in May. As of the end of October of 2024, our global headcount is down over 12% since Q2 of fiscal 24. In the last call, we talked about multiple additional cost-down opportunities, including activities to reduce the price paid for purchase components and services, as well as actions to increase the efficiency of our manufacturing plants. Despite the headwind of lower volumes, We are still confident in our ability to save $250 million in fiscal year 25 from the combination of all our productivity actions. We continue to see positive impact from pricing actions. These have been difficult times, but I'm impressed by the resilience and sense of urgency of our teams as we position ourselves to deliver market-beating growth and profitability. Later on this call, Kristen will cover our pricing, productivity, and margin expansion actions for next year. Let's now turn to our Q4 results on slide three. Our Q4 orders were down low single-digit sequentially compared to our expectations for low single-digit improvement. Similar to last quarter, the rate of reduction of lingering excess inventory at our distributors and machine builders was gated by slower end-user demand. Of note, we did see sequential orders growth in North America, with Asia contributing the largest sequential decline. Going forward, we expect our Q1 orders to be flat sequentially. We expect our Q1 sales to be down high single digits from last quarter, primarily due to typical seasonality in our configure-to-order and solutions businesses and slower orders in Q4 of fiscal 24. I'll talk more about our fiscal 25 outlook later on the call. Despite weaker than expected orders, our Q4 organic sales came in largely in line with expectations. As I mentioned earlier, we quickly converted incoming product orders to shipments and lifecycle services capped off a year of improved performance with good execution in the quarter. Q4 sales for the company declined 21% versus prior year, compared to 18% growth in Q4 of last year. The decline is due to the difficult year-over-year comparison, lingering channel destocking effects in our product businesses, and slower end-user demand. Organic sales in our intelligent devices segment declined 20% year-over-year, Products were down with configure-to-order offerings and acquisitions growing year over year. I'm pleased with how our recent acquisitions are expanding our market. In particular, we saw good growth in our cubic orders for data center power needs, where we continue to gain traction with leading hyperscalers and IT infrastructure providers. This quarter, we secured a strategic win at NTT, a leading data center colo provider. Rockwell is helping this customer achieve significant footprint savings by leveraging Cubix modular, compact, and switchgear agnostic custom design capabilities. In software and control, organic sales were down over 30% year over year. Within this segment, logic shipments were weaker due to slower end demand in product-centric end markets. Despite the continuing volatility in product shipments, our PLC market share is slightly up, helped by a geographic mix and continued innovation. We recently introduced Logix SIS, a new process safety controller, building on Rockwell's established leadership in safety applications across discrete, hybrid, and process applications, and we're already helping key OEMs designed significant upcoming Rockwell product releases into their new machine designs. Other launches extend the differentiation of our software offering. Last quarter, we launched our Vision AI solution to help customers improve their quality and yield. In general, software was our best performing area this year, with good revenue growth across FIX, Plex, and other factory talk offerings. The newest FactoryTalk Design Studio release features a co-pilot, which boosts automation system design productivity and is integrated in this cloud-native application, which is an industry first. You'll see many of these products at our automation fair in a few weeks. Lifecycle Services organic sales grew about 2% versus prior year. Book-to-bill in this segment was 0.9%, and slightly below our historical average for Q4. We saw a couple of customer delay projects in our Sensia business this quarter. We continue to have a healthy pipeline of projects, which include both traditional and energy transition applications, and reflect a general shift towards autonomous operations to improve safety and operational performance. Energy end markets overall were over 15% of our total business in fiscal 24. On the services side, we continued to increase customer penetration through managed services, with a growing number of contracts generating recurring revenue. Total ARR for the company grew 16% in the quarter, with double-digit growth across our software and services offerings. Segment margin was over 20%, and adjusted EPS was $2.47. Turning to slide four to review key highlights of our Q4 industry segment performance. Similar to our overall top line results in the quarter, our performance by industry reflects difficult year-over-year comparisons, with Q4 of last year being a record quarter of shipments. Sales in our discrete industries were impacted by continued declines in auto and semi, partially offset by growth in e-commerce and warehouse automation. In automotive, we saw another quarter of EV project delays as brand owners and tier suppliers wait for more policy certainty and an overall improvement in consumer spending. Despite this pause in EV, there's still activity, and we continue to win business across traditional ICE and hybrid programs. Rockwell was selected by Ford Motor Company as the automation partner for their Louisville, Kentucky facility. Rockwell will be supplying a full portfolio of Logix controllers, drives, HMI, and industrial components for the body and final assembly shops. There is also additional content for their next-generation truck programs. Moving to semiconductor, while the industry is dealing with oversupply and uncertainty around future stimulus support, We secured an important win with a global leader in semiconductor manufacturing to automate their R&D facilities here in the U.S. We also continue to gain traction with our production logistics offering from material transport. E-commerce and warehouse automation sales increased 25% versus prior year. In addition to continued investments in warehouse upgrades by both e-commerce and traditional retail players, we see the benefits of data center investment, particularly in our cubic business. Turning to our hybrid industry, sales in this segment were impacted by double-digit year-over-year declines in food and beverage and life sciences. In food and beverage, we continue to see muted capacity investments as end users are delaying projects and focusing on driving operational improvements across their existing facilities. With that said, we are working with leading food and beverage producers on their next greenfield plans. In the quarter, we had an important win with Kikoman, the largest soy sauce manufacturer in the world. In partnership with the engineering firm CRB, we are delivering Rockwell's portfolio of Plex MES software and scalable plant-wide control, helping Kikoman build their factory of the future here in Jefferson, Wisconsin. Within our life sciences vertical, we're seeing the investment in GLP-1 drugs as key pharma companies and their contract manufacturers aggressively add manufacturing capacity to support soaring consumer demand. Sales growth in our process industries was impacted by difficult comps, with over 25% growth in Q4 of last year for this industry segment. Within oil and gas, similar to last quarter, We saw project pushouts in North America due to election uncertainty and potential policy changes given the impact they may have on funding of greenhouse gas-related projects. Sensia did grow double digits in the quarter and continued to deliver improved profitability. In mining, customers are investing in the sustainability and safety of their operations. This quarter, Rockwell was chosen by Cerity New Denmark in South Africa, to upgrade their environmental monitoring system from a competitive software offering to ensure effective monitoring of environmental conditions and respond to potential hazards. Let's turn to slide five and our Q4 organic regional sales. In general, sales were down sharply year over year due to tough comparisons and the lingering impact of destocking. Orders were up sharply year over year due to the easy comparison with Q4 fiscal year 23. Sequentially, orders were down low single digits and shipments were flattish. The Americas, our home market, continue to be our best performing region. As I mentioned, orders were up sequentially in North America. While we are happy with our strong presence in the Americas, We continue to expand our share of wallet with European machine builders as they serve their end users around the world. In the quarter, we won an important project with Gaya in India. Gaya is one of the world's largest system suppliers for the food, beverage, and pharmaceutical sectors. The Gaya portfolio includes machinery and plants, as well as advanced process technology, components, and comprehensive services. The end user will implement state-of-the-art technologies to ensure efficient water usage and replenishment. Let's move to slide six for key highlights of fiscal 2024. We finished the year with a 9% year-over-year decline in reported sales. Sales from our ClearPath and VIRB acquisitions contributed about a point of growth as we expand our customer value in the production, logistics, and cybersecurity spaces. Total ARR grew 16% with strong performance across our recurring software and services portfolio and is now over 10% of our total business. The 200 basis point decrease in our segment margin on a high single-digit year-over-year sales decline would have been worse without our more diverse business mix and the significant cost reduction actions we took earlier this year to align our cost structure with the current business environment. These actions also position us for expanded margins as markets recover. 60% free cash flow conversion was in line with our prior forecast. Let's now move to slide 7 to review our fiscal 2025 outlook. Given the uncertainty in the macroeconomic environment and continued project delays across a number of our end markets, we're projecting sales growth in the range of positive 2% to negative 4%. After a sequential decline in Q1 shipments, primarily due to typical seasonality, we expect gradual sequential improvement in our top line growth through the balance of fiscal year 25. Christian will cover the calendarization of our guidance in more detail later on this call. We expect our annual recurring revenue to grow about 10%. Segment margin is projected to be down slightly versus prior year. An adjusted EPS is expected to be $9.20 at the midpoint. We expect free cash flow conversion to return to 100% in fiscal year 25. I'll now turn it over to Christian to provide more detail on our Q4 and full-year performance and financial outlook for fiscal 25.