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 one. 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 2025 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 listing charts have been posted to our website. Both the press listing charts include, and our call today will reference, non-GAAP measures. Both the press listing 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 detailed in all our SSE filings. So with that, I'll hand it over to Blake.

Thanks, Ayjana, and good morning, everyone. I'll make a couple of initial comments before we turn to our fourth quarter results. When we introduced guidance for fiscal year 2025 last November, amid a mixed set of headwinds and tailwinds for growth, much of the discussion centered on additional detail around the cost reduction and margin expansion actions we initiated in 2024. With a top-line guidance range that included limited growth, we knew it would be a challenge to both absorb higher costs and expand margins. So, with the very busy 12 months of fiscal year 25 in the books, I'm proud of the team's execution as we have returned to top-line growth and continue to reduce costs. Rockwell is well positioned for sustained market-beating growth and profitability as we build on this success for fiscal 26 and beyond. We close the year with another strong quarter of outperformance versus our expectations, including double-digit year-over-year growth in both sales and operating earnings. Our differentiated portfolio, price discipline, and continued focus on productivity all contributed to this great finish to the year. Free cash flow was also very good in the quarter and for the year. As we will discuss, we're taking further steps to streamline the organization and increase efficiency in the service of customer value and expanded margins. Uncertainty remains, but it's clear that countries around the world are more aware than ever of the strategic importance of investing in advanced manufacturing capabilities and capacity. Nowhere is this more apparent than in the U.S., our home market. Let's now turn to our fourth quarter results on slide three. Both reported and organic Q4 sales were up double digits versus prior year. While we did have favorable comps from a year-over-year standpoint, Q4 sales grew high single digits sequentially. which was better than we expected. Organic year-over-year sales growth of 13% was led by continued strength in our product businesses. Similar to the last two quarters, CapEx activity in longer cycle businesses remained muted, with customers holding off on larger investments. On our last earnings call, we flagged the potential for Q4 pull-ins into Q3. Based on our analysis of daily orders and sales trends, inventory levels in our channel, and machine builder surveys, pull-in orders were less than expected in Q3 and not evident in Q4. Annual recurring revenue was up 8% in the quarter. While some customers continued to delay discretionary services spending, we did have a number of large software and services wins around the world in Q4. One notable win was with Stanley Electric. a Japanese Tier 1 automotive supplier who will deploy our cloud-native Plex platform across 25 global sites. We also secured a key cybersecurity win in life sciences with GSK selecting our Verve platform as their new standard for asset vulnerability management to be deployed across 33 sites over the next five years. In our intelligent devices segment, organic sales were up 14% versus prior year and up low double digits sequentially. Strong sequential growth in the quarter was driven by our power control business, where a combination of our existing business and our cubic acquisition is helping us win competitive projects around the world. A good example of this was our win with Ferry Systems, a Spanish system integrator. who will be providing our flexible and compact motor control system for Africa's largest desalination plant. I'll share some additional power control wins later on the call. We also had a good quarter in our ClearPath business with double-digit Euro year growth and our Otto autonomous mobile robot business. I'm pleased with how this acquisition continues to add new ways to win and expand our customer base. Our AMR business grew double digits in fiscal 25, and we are optimistic about fiscal 26 as we plan for ClearPath to turn profitable in the year. Software and control organic sales in the quarter grew 30% year over year, led by continued momentum in our logics business, both versus prior year and sequentially. On the software front, Plex and Fix continue to add new logos as we augment our existing sales force with new go-to-market partners. One of our Plex software wins in Q4 was with THG, a UK-based global e-commerce leader in beauty and nutrition. This customer chose our cloud-native MES and quality management solution to eliminate manual processes and drive further operational efficiency. Organic sales and lifecycle services We're down 4% versus prior year, slightly below our expectations. Book to bill in this segment was 0.9, consistent with our historical Q4 seasonality. We've continued to see project delays across both our core business and Sensia as customers wait for more clarity and stability around the impact of trade and policy on their operations. Regarding our Sensia joint venture with SLB, following a strategic review, both parent companies have decided to pursue an orderly dissolution. Rockwell will assume 100% ownership of the process automation business that we initially contributed to the joint venture, and SLB will again fully own the parts that they contributed. After the expected close of the transaction in the first half of this year, fiscal 26, Rockwell will realize lower revenue but higher operating margin going forward due to the deconsolidation. Rockwell's resulting sales into the oil and gas vertical will be about 10%, but with a simplified go-to-market motion. That go-to-market approach continues to include SLB as an important partner with deeper relationships than the two companies had six years ago. I want to be clear that Sensia did not meet our long-term expectations. That is why SLB and Rockwell have jointly agreed to make this change. However, the changes we are making demonstrate our continued commitment to the oil and gas market, and we are well-positioned to grow in this space. Our portfolio has expanded since the JV was launched, with new process I.O. and process safety capabilities for logics, an industry-leading portfolio of cloud-native software applications and deeper domain expertise. Importantly, we have taken this step in order to grow in this vertical with improved profitability going forward. Christian will add more detail on the financial impact in the quarter and the benefits going forward later on the call. Turning back to our fourth quarter, Rockwell's overall segment margin of 22.5% and adjusted EPS of $3.34 were well above our expectations, driven by higher volume and strong productivity. We ended this fiscal year with over $325 million of structural productivity savings, exceeding our original target of $250 million. Similar to last quarter, tariffs did not have a meaningful impact on our results in Q4. Christian will talk more about tariffs and the expected fiscal 26 impact in a few moments. Moving to slide four to review key highlights of our Q4 industry performance. Sales in discrete were up 20% year over year with strong growth in e-commerce and warehouse automation and good performance in automotive. Automotive sales exceeded our expectations in the quarter with low double-digit growth versus prior year. The industry continues to shift from an EV focus to a mix of traditional ice, hybrid, and electric vehicle offerings. Rockwell has good technical solutions and expertise for all of these types of vehicles. E-commerce and warehouse automation delivered another standout quarter, with sales growing over 70% year over year. This quarter, Rockwell secured a significant European win with another global logistics and parcel handling company. The customer selected our factory talk optics platform and digital services to digitize and expand operations across 28 sorting facilities. While our data center business is still relatively small, we continue to see strong double-digit growth with multiple wins across the globe. This quarter, Rockwell won a project with Alternative Heat Limited to supply modular cooling panels for large data centers in Europe. The rise of AI data centers is driving demand for faster deployment, advanced cooling solutions, and secure industrial-grade control platforms. Our Logix control platform and modular power distribution technology are well-positioned to meet these needs. We'll share more about our differentiation and growth in the data center space at our Investor Day later this month. Turning to our hybrid industries, we saw double-digit growth across food and beverage, home and personal care, and life sciences. In food and beverage, our customers are prioritizing productivity and operational efficiency in existing facilities. The industry is going through a period of consolidation, restructuring, and evolving consumer preferences. While this dynamic might delay some of the larger CapEx investments near term, We continue to build a strong pipeline of new capacity projects, both globally and in the U.S. In the quarter, ElectroLit Manufacturing selected Rockwell as a key automation and digital partner for their state-of-the-art beverage blending and bottling facility in Waco, Texas. This is ElectroLit's first greenfield in the U.S. Sales growth in our life sciences vertical was also strong in Q4. and exceeded our expectations. We continue to see growth in our software and cybersecurity services across the product lifecycle. We're also seeing increased automation adoption in the medical device segment. One of the important wins here this quarter was with Howell Miller, where our independent car technology is helping accelerate and optimize production of a high-speed auto-injector line for the obesity drug market. Moving to process, sales in this segment grew 10% with year-over-year growth across all industries. Similar to last quarter, process customers are focusing on driving efficiency and profitability in their existing facilities as they continue to grapple with weaker demand and low commodity prices. Rockwell's technology is well suited for both greenfield and brownfield investments, as demonstrated by several large wins in the quarter in energy, mining, and metals. A good example of this was our wind with Vale base metals, where our arc-resistant power control systems are modernizing their Sudbury mill to significantly enhance safety and operational efficiency. This wind positions Rockwell as a key automation partner in one of Canada's most critical mining operations. Turning to slide five in our Q4, organic regional sales. North America had a strong finish to the year and was once again our best performing region in the quarter. We expect North America to continue to be our strongest region in fiscal 26. Last quarter, we announced a $2 billion investment over the next five years to modernize infrastructure, grow talent, and enhance digital capabilities. These initiatives are now underway. and will unlock future growth and margin expansion with the U.S. as the primary beneficiary. We'll share more in the months ahead. Let's move to slide six for key highlights of full-year fiscal 2025. Our reported and organic sales were up about 1% versus prior year. Total ARR grew 8% with solid performance in our software as a service business. We ended the year with segment margin of 20.4% and adjusted EPS of $10.53. The improvement of over 100 basis points in year-over-year segment margin was driven by our cost reduction and margin expansion actions and strong price discipline. Free cash flow conversion of 114% exceeded our expectations for the year. I'm proud of our execution to get back above 100% free cash flow conversion, which remains an important part of our financial framework. Let's now move to slide seven to review our fiscal 2026 outlook. As we look to fiscal 26, we are confident in our ability to gain share and expand margins. We are less certain about the overall macro and geopolitical environment, as well as the timing of the CapEx investment recovery and our key verticals. Increased stability in trade policy will help unlock additional capital spending. We expect our reported sales growth for the year to be in the 3% to 7% range. The midpoint of our guide assumes a sequential sales decline in Q1, which is typical, followed by gradual sequential improvement in the subsequent quarters. Christian will provide more detail on this and the expected impact from price and tariffs in his section. Annual recurring revenue is slated to grow high single digits next year. We expect our segment margin to expand by over 100 basis points, and our adjusted EPS is projected to be $11.70 at the midpoint. We expect free cash flow conversion of 100% in fiscal year 26. Before I turn it over to Christian, I want to reiterate, how proud I am of the execution of the team in the quarter and throughout the year. To be sure, there remain plenty of opportunities for continued improvement, and we are taking action to further our progress throughout the coming year and beyond. As we'll discuss in less than two weeks at Investor Day, keys to execution include strengthening a high performance culture, accelerating top line growth, expanding margin, and continuing our progress and operational excellence. And these are the elements of the Rockwell operating model. And with that, I'll turn it over to Christian.