Greetings and welcome to the Emerson First Quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operating assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Doug Ashby, Director of Investor Relations. Thank you. You may begin.

Good afternoon, and thank you for joining Emerson's first quarter 2026 earnings conference call. For those who don't know me, my name is Doug Ashby, and I'm the Director of Investor Relations for Emerson. Today, I'm joined by Emerson's President and Chief Executive Officer, Law Carson Bay, Chief Financial Officer, Mike Bachman, and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with the slide presentation, which is available on our website. Please turn to slide two. This presentation may include forward-looking statements, which contain a degree of business risk and uncertainty. Please take time to read the Safe Harbor Statement and note on the non-GAAP measures. I will now pass the call over to Emerson's President and CEO, Law Carson Bay, for his opening remarks.

Thank you, Doug, and good afternoon, everyone. Thursday, February 5th, marks my fifth anniversary as Chief Executive of Emerson. Over the five years, I have found the work challenging, motivating, and rewarding. The execution of our vision to transform Emerson into the world's leading automation company has been incredibly gratifying. We align the company to important secular drivers, which will experience outsized growth well into the future. Our customer engagement teams now deliver an unequaled software-enabled technology stack to solve industry's biggest challenges. I am surrounded by the best management team in industrial tech and by 70,000 talented, engaged colleagues all around the world. The Emerson Management System will enable best-in-class execution led by growth, earnings, cash, and resulting in differentiated value creation. I remain ever grateful to Emerson's Board of Directors, employees, and investors for their trust and support. Please turn to slide three. In November, we hosted our first investor conference since completing our transformation, and he was energizing to present Emerson as the global automation leader, executing on our vision to engineer the autonomous future. In addition to highlighting our technology advancements and innovation, we introduced our value creation framework, which guides how we operate the company, beginning with organic growth. Emerson's automation portfolio is aligned to powerful secular tailwinds, electrification, energy security, and nearshoring and sovereign self-sufficiency, and we expect these to drive growth over the next three years and beyond. We are also delivering innovation that enables customers to unlock significant value from automation. Operational excellence is a hallmark of Emerson, and we have plans to further expand adjusted segment EBITDA margins by 240 basis points by 2028. And importantly, we plan to return $10 billion, or 70% of cumulative cash, to shareholders through $6 billion of share repurchase and $4 billion of dividend payout. We remain confident in achieving our 2028 targets. The $21 billion top line, 40% incrementals that deliver the 30% adjusted segment EBITDA margin, $8 of adjusted EPS, and 20% free cash flow margin. We believe this is a highly differentiated value creation framework, and we are excited for the future of Emerson. Please turn to slide four. So, 2026 marks the 50th anniversary of National Instruments, which was founded in Austin, Texas, in 1976 by James Truchard, Jeff Kodowski, and Bill Nolan. The trio was frustrated by the inefficient tools they encountered while working in a test lab at the University of Texas and believed connecting instruments to a computer could revolutionize electronic tests and measurement. They developed LabVIEW while working out of Trushar's garage, And since its release in 1986, LabVIEW has redefined productivity and engineering workflows through software-defined tests. Today, Emerson Van Nye is the leader in test automation systems. And two recent developments demonstrate how Emerson is still driving tests forward through software. In January, our Nigel AI Advisor was one of 13 products recognized as the 2025 Product of the Year by Electronic Product Design and Test. This UK-based trade publication focused on electronic test, validation, and manufacturing, and their annual list highlights products that use innovation to achieve even greater levels of performance. Nigel provides intelligent workflows with AI-driven test design and orchestration to accelerate troubleshooting, optimize lab performance, and enhance decision-making. This award demonstrates Emerson's leadership in AI-enabled test automation and reflects continued momentum as we move the industry towards autonomous test operations. NIGEL AI is purpose-built to support the specific tasks engineers face throughout the different stages of the product life cycle. And today, Emerson released the next generation of NIGEL AI, strengthening our capabilities in AI-enabled tests. These upgrades deliver step-changing performance by moving NIGEL AI from an AI assistant to an AI author. accelerating code development to make engineering workflows more efficient from design and validation through production. Processes that previously took hours can now be completed in minutes. For our customers, this means engineers spend less time navigating tasks and more time focused on improving tests. This evolution marks a clear step along our roadmap towards agentic AI, where software increasingly enhances productivity, and we are seeing accelerated user adoption of LabVIEW since the first launch of Nigel in 2025. Please turn to slide five. Robust demand continued in the first quarter, with underlying orders growth of 9%. Customers are deploying capital in longer cycle projects in our growth verticals, with momentum building in North America, India, and the Middle East and Africa. I will discuss more details on demand on the next slide. Emerson's first quarter results reflect disciplined execution. Underlying sales met expectations and were up 2% year over year. Momentum continued in test and measurement, up 11% year over year, and our ovation business accelerated sharply, up 20%, driven by the secular demand for power. Profitability exceeded expectations with adjusted segment EBITDA margin of 27.7% and adjusted earnings per share of $1.46. Annual contract value of our software grew 9% year-over-year and ended the quarter at $1.6 billion. We remain confident in our plans for 2026, supported by a good start to the year and our proven track record of operational excellence. We are reiterating our guidance of 5.5% sales growth, 4% underlying sales growth, and an adjusted segment EBITDA margin of approximately 28%. We are also raising the bottom and midpoint of our adjusted EPS guide and now expect $6.40 to $6.55 per share. Emerson completed $250 million of share repurchased in the first quarter, and we are committed to our plans to return approximately $2.2 billion of capital to shareholders. Finally, I want to highlight multiple key developments in technology and innovation at Emerson. In January, Emerson was named the 2026 Industrial IoT Company of the Year by IoT Breakthrough, marking the fourth time in the past five years that we have received this recognition. Over 4,000 companies were nominated globally for the 2026 competition, and Emerson was selected for having the most complete industrial IoT technology stack. Additionally, we released Delta-V version 16, which advances our software-defined automation vision and is an integral piece of our enterprise operations platform. With flexible architecture and enterprise integration, Delta-V version 16 empowers customers to make smarter decisions by improving access and providing context to operational data to facilitate advanced analytics and AI optimization. Lastly, we strengthen our leadership position in life sciences through a strategic collaboration with Roach, underscoring how Emerson software dramatically improves and shortens the technology transfer process. The new Delta-V modality library enables LifeScience customers to efficiently design, scale, and deploy new production processes with pre-built and proven solutions that save months of development. Please turn to slide six. Underlying orders were up 9%, marking four consecutive quarters of strong order growth. Rating 12-month orders are up 6%, providing the backlog to support sales in the second half of 2026 and into 2027. North America, India, and the Middle East and Africa continue to show robust demand while we are seeing ongoing softness in Europe and China. Orders growth was most pronounced in our software and systems group, which was up 23% year-over-year. Broad-based strength in test and measurement drove orders growth of 20%, led by Semiconductor, Aerospace and Defense, and the portfolio business. AI and digital transformation of manufacturing are leading customers to deploy significant capital towards greenfield and modernization projects for power generation, especially in the U.S. Orders in our ovation business were up 74%, driven by large project wins, including behind-the-meter data centers and fleet modernizations for major utility customers. And we expect growth in the mid-teens for the year. We are also seeing healthy investments in grid digitization, with ACB and Aspen Tech's digital grid management suite up 25% year over year. Secular tailwinds are driving substantial long-cycle project activity. And Emerson won approximately $450 million of automation content from our project funnel in the quarter. Eighty percent of these wins came from our growth verticals, led by power and LNG. Our funnel remains at $11.1 billion, replenished by new opportunities in our growth verticals, and I want to highlight a few projects that support our confidence in continuing to win at high rates. First, Emerson was chosen to automate on-site power generation for a new 1.7 gigawatt AI data center in the United States, helping to meet accelerated deployment timelines and mission-critical reliability. The project will leverage proven behind-the-meter power generation management software as part of the Ovation platform, enabling faster time to market for the customer. Emerson's recently announced strategic collaboration with Prevalon Energy played an instrumental role in our selection for this project. as a collaboration brings together Emerson's automation and control expertise with advanced energy storage to help data center operators improve reliance, resilience, reliability, and efficiency in increasingly power-constrained environments. Emerson was selected for Semper Infrastructure's Port Arthur LNG Phase II project, which will add 13 million tons per annum in capacity to the U.S. Gulf Coast facility. Emerson's Delta V control system and severe service control valves were chosen based upon our reputation for strong operational performance in LNG applications and our local presence and support. Lastly, Emerson 1 projects have multiple large new space customers. and will help develop, test, and validate complex communication links for their satellite-based programs to provide reliable, high-speed Internet around the world. The customers will use NI's leading test software and PXI platform, which were selected due to their superior performance in reducing test times while providing best-in-class measurement accuracy. I will now turn the call over to Mike Bachman to discuss our results and 2026 guidance in more detail.

Thanks, Wal. Please turn to slide 7 for a more in-depth look at our Q1 financial results. As a reminder, our first half financial results are adversely affected by a software contract renewal dynamic that we detailed in our November earnings call. This impacted our Q1 year-over-year sales growth by approximately one percentage point, adjusted segment EBITDA margin expansion by 70 basis points, and earnings per share growth by $0.06. For Q1 and including the one-point drag, underlying sales growth was 2% with all segments reporting growth. Growth was led by software and systems, which was up 3% and 6% without the software contract renewal dynamic, while intelligent devices grew 2% and safety and productivity was up 1%. I will provide more details on geographic and group performance on the next two slides. Price contributed three points to growth as expected. MRO for the company represented 65% of sales. Our backlog ended the quarter at $7.9 billion, up 9% year-over-year, and our book-to-bill was 1.13. Adjusted segment EBITDA margin of 27.7% came in above expectations. Favorable price cost and cost reductions, including synergies, outpaced inflation to benefit margin. Excluding the 70 basis point impact from the software dynamic, adjusted segment EBITDA margin was up 40 basis points. Adjusted earnings per share came in at $1.46, a 6% increase year over year. Q1 free cash flow of $602 million with a margin of 14% came in slightly better than expected, positioning us well for our expected full-year growth of approximately 10% at greater than 18% margin. Overall, Q1 was a very good start to 2026. Please turn to slide 8 for details on Q1 underlying sales by region. As expected, underlying sales were strongest in the U.S. and the Middle East and Africa, while China remained soft. The Americas were up 3%, and the U.S. remained strong, up 6%, with sustained momentum and power in LMG, while also benefiting from nearshoring with expansions in life sciences and semiconductor. North America pace of business remained healthy with resilient MRO spend. Europe was up 3%, benefiting from the timing of projects in Eastern Europe, although the overall pace of business was subdued. 9% growth in the Middle East and Africa was driven by greenfield project activity. We are seeing broad-based momentum in our growth verticals, which collectively were up 14%. Power led the strength of 17% with elevated activity across lifetime extensions, upgrades, and greenfield projects to support the unprecedented increase in electricity demand. Life Sciences also provided significant growth driven by GLP-1 demand with greenfield and modernization products to support nearshoring and self-sufficiency in multiple regions. Ongoing strength in North America and the Middle East, as well as our growth verticals and sustained demand for automation give us confidence in our full-year outlook. Please turn to slide 9 for details on sales and margin performance for our three business groups. Software and systems underlying sales growth of 3% was led by broad-based strength in test and measurement, which was up 11% and helped offset a three-point drag from the software contract renewal dynamic in Q1. We saw significant growth in power, life sciences, semiconductor, and aerospace and defense. Software and systems margin of 31.3% increased 20 basis points year over year, driven by by strong profitability from test and measurement and the benefit of synergies, offsetting a two-point headwind from the software contract renewal dynamic. Intelligent devices underlying sales growth of 2% was led by Power, LNG, and North America MRO, offset by weakness in China. The pace of business in Europe and China was light, although Q1 growth in Europe benefited from the timing of projects. Intelligent devices' margin of 26.9% decreased by 70 basis points year over year, driven primarily by mix and headwinds from FX due to a favorable impact last year. Safety and productivity was up 1% underlying, driven by electrical products and stable project activity in North America, while European markets remained soft. Safety and productivity's margin of 20.9% was down 40 basis points year-over-year due to a lower volume offset by benefits from price and cost reductions. Please turn to slide 10, where I will bridge Q1 adjusted EPS from the prior year. Excluding the $0.06 impact of software renewals, operations delivered $0.10 of incremental EPS in Q1. Software and systems contributed $0.08, reflecting strong operational execution, and intelligent devices added $0.02. Non-operating items added $0.04 from share count and tax rate benefits. Overall, adjusted EPS grew 6% year-on-year to $1.46. Please turn to slide 11 for an overview of our Q2 and full year 2026 guidance. We are reiterating our full year guidance for sales, adjusted segment EBITDA margin, and free cash flow. We are raising the bottom and midpoint of our 2026 adjusted EPS guide and now expect $6.40 to $6.55. We still expect a return approximately $2.2 billion to shareholders through $1.2 billion in dividends and $1 billion of share repurchase, of which we completed $250 million in Q1. Turning to the second quarter, sales growth is expected to be 3 to 4 percent with underlying sales growth of 1 to 2 percent. We expect adjusted segment EBITDA margin of approximately 27 percent and adjusted EPS of $1.50 to $1.55. I will provide additional details on guidance in the following two slides. Please turn to slide 12 for our 2026 group underlying sales guidance. We expect software and systems to be flat in Q2 and up 4% for the full year. Test and measurement is planned to have high single-digit growth in both Q2 and the full year, while the control systems and software segment is expected to be down low single digits in Q2 due to a $65 million headwind from the timing of software contract renewals. As a reminder, this accounting dynamic adversely affects GAAP revenues by $110 million in the first half and $120 million for the full year. We continue to see robust adoption of our software and expect ACV to grow 10% plus in 2026. Intelligent Devices is projected to grow 2% to 3% in Q2 and 4% for the full year with stable MRO led by strength in North America. Second half growth is supported by backlog phasing and the timing of project shipments. Safety and productivity is expected to grow 1% to 2% in Q2 and 2% to 3% for the full year. Growth is driven by North American markets and electric and utility strength, but offset by continuing weakness in European markets. Overall, Emerson expects to grow 1% to 2% in Q2 and approximately 4% for the full year. The second half growth acceleration to approximately 6% is supported by our strong orders momentum and lapping of the software contract renewal dynamic. Excluding the impact of software contract renewals, Emerson's growth rate is expected to be 3% to 4% for Q2 and 5% for the full year. Please turn to slide 13 for additional detail on adjusted segment EBITDA margin and EPS guidance. For Q2 2026, we expect operations to contribute around $0.05 to EPS with another $0.09 from non-operating items, primarily FX, to offset a $0.09 impact from the software contract renewal dynamic. As a reminder, Q2 2025 adjusted EPS of $1.48 benefited from about $0.04 from the Total Energies project that we discussed in our Q2 2025 earnings call. The lower volume from renewals in the Total Energies deal impacts Emerson's adjusted segment EBITDA margin by approximately 150 basis points compared to Q2 2025. We are guiding our Q2 2026 adjusted EPS at $1.50 to $1.55. For the full year, we are raising the bottom of our EPS guide by $0.05, reflecting the good performance in Q1. The renewal dynamic reduces adjusted EPS by approximately $0.15 and adjusted segment EBITDA margin by approximately 40 basis points. We still expect operations to generate about $0.50 of incremental EPS with approximately 80 basis points of margin expansion from positive price cost and the continued benefit of synergy realization from Aspentech and tested measurement. With that, I would like to turn the call back to the operator.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up their handset before pressing these star keys. We also ask each person in the queue to limit themselves to only one question and one follow-up to allow everyone a chance. Our first question comes from the line of Andy Kaplowitz with Citigroup. Please proceed with your question.

Good afternoon, everyone. Hi, Andy. Lal, could you break down a bit more your 9% order growth in Q1 between process and hybrid? I think you said 74% ovation growth, which was impressive, And I think you said sort of mid-teens growth in power is expected this year. But could that higher level behind-the-meter power opportunities lead to a more extended runway of power? And then generally, would you say your process in hybrid markets are settling into sort of this mid-single-digit order growth rate, despite some of the concerns that we hear out there?

Yeah, no, look, we were very – let me start with power – very energized with what we saw in the marketplace. It's, as you know, started to develop in 2025. where we saw certainly an acceleration in orders in the first quarter. And it's predominantly driven by two areas today, but there'll be a third that I think starts to pick up steam as we go forward into the year. And the two areas are modernization, upgrades of existing facilities, and behind-the-meter power-generated capacity at data centers. That's generally what drove the investment in the power-generating capacity. Of course, on the same line, we saw modernizations of the grid and investments in our – and we saw that reflected in the ACV of our DGM business at Aspen. What we'll see, I think, develop a little bit more for the longer cycle, Andy, will be new generating capacity coming in. We see plans being put forward, but we're really right now on evergreen modernizations and behind the meter work. I'll also highlight, in terms of the order drivers, the activity at Test and Measurement. Orders were up 20% in the queue, and Andy, it was broad-based. Portfolio business, semiconductor, and ADG, all up between 20 and 30-plus percent. The one offset there continues to be the transportation segment, which is relatively challenged. But overall, great momentum in that business. And we've seen very steady, consistent growth there.

Rob, thank you for that. Just to add, I'll give you geographic color on the 9%. Law gave it to you about business. But North America was up 18%, reflecting many of the end markets that Law described. Certainly power, LNG, and many of the T&M markets in North America were very strong. Middle East was up 6% for us. Latin America was up 9%. So those fundamentally drove the strength. India was up 22%. So consistent with the commentary where we thought we had strength, we demonstrated a lot of positive momentum that should continue. Certainly Europe was down low single digits, and China was down high single digits in the quarter from an order's perspective.

And then the last thing I'll add, Andy, just on the funnel, on the projects, It was a significant, as we highlighted, $432 million of wins that came from approximately 70 project wins. A third of those were in power, but they had heavy participation in LNG and in semiconductor life science and ADG as well, with each of those representing about 15% of the wins. So lots of broad-based activity, but of course, power generating, transmission and distribution.

Well, that's very helpful. And then ACV growth was 9% in the quarter. You're still talking about expected 10%-plus growth for the year. But as you know, there's angst regarding AI's impact on software. So I think you already spoke about Nigel AI. I know you've talked about the greater vision of boundless automation, so maybe you can remind us why AI could be complementary to growth for you guys in ACV and margin in your software businesses.

Yeah, you know, for us, from a software perspective, first off, All of our software offerings are built on first principle models, very, very sticky, and a lot of domain knowledge built into these simulation capabilities, not just at Aspen, but also our software offerings with Ovation, Delta V, and certainly the NI suite. So the threat of AI disrupting our software business is very minimal as we see it today. and really as a counterpoint that AI capability we're building into our software should frankly accelerate the growth. So we see AI and all the AI capabilities we've launched, not just with Nigel, but also the capabilities, innovation, and Delta V should be a net accelerator for our software offerings, and that's really what we expect to see with continued ACV growth.

Helpful, guys.

Thank you. Our next question comes from the line of Nigel Kloh with Wolf Research. Please proceed with your question.

Thanks. Going back to the order commentary, you obviously call out LNG, call out power. Obviously, these are two very long cycle, you know, end markets. I'm just wondering if some of the orders we're seeing, especially in power, are pushing beyond this year and into sort of multi-year phases.

Yeah, you're absolutely right. Certainly it's given us the confidence, not just in the back half of 26, as we see the backlog timing, but we start to gain confidence into our 2027 as we see those orders and that timing of those shipments. But I'll also suggest, Nigel, that if you look at the test and measurement business, there are projects in that business, but there's a lot more of the short cycle activity, particularly in the portfolio business and in elements of semiconductor as well.

Okay. And then a quick follow-up on the, I guess, the census is the new name. The census margins were down, I think through a base point of the year. I think you talked about FX benefits in the prior year quarter.

Is there any, you know, impact of memory chip insulation here? because if there's one area of emerson where you might see some of this accumulation that I think it might be there so just maybe just touch on the margin weakness and then talk about the memory differentiation as well hey hey Nigel it's Mike yes you uh your memory is very good we did last year have some fx uh benefits that were in that segment that we don't have this year which drove about a point of the year-over-year negative comparison of about two points. The other things going on there related to mix, there was geographic mix.

Ladies and gentlemen, please stand by with the technical difficulty. Ladies and gentlemen, thank you for your patience.

We will review them.

And you may continue.

Nigel, that was such a great question. They just got to send the call on that.

Seriously, I think I broke the thing.

So Nigel, where did we drop, so we can, where did we drop?

I think you were talking about geographic mix and then I went to.

Did I finish the DRAM explanation on or not?

No, nothing on DRAM.

Okay, let's go back to your question, Nigel, about sensors margins. And I was commenting that you were correct about the FX impact, which was about a point of the approximately two points that the sensor margin was down on a year-over-year basis. There was also some mixed dynamics that prior year had a stronger North America and some backlog dynamic going on that benefited them. And then there's some other regional mix that affected profitability. The sensors business had a good quarter in Europe, which was largely project-based, which had a negative effect on the comparisons as well in the mix. So that was about the other point of margin decline in that business. As we look out to the full year, we expect some improvement on the 28.6 that that business reported in the prior year. As for the second part of your question around the DRAM, from a profitability perspective, no impact, but I'll pass it to Ron to talk a little bit about that.

So, Nigel, we're obviously watching that carefully. We buy about $8 million of DRAMs that impact many product lines, but mostly in control systems and software and T&M. The sensors, to a specific question, less than a million dollars of DRAM exposure. Off that, you know, most of our buy is really Gen 3 and Gen 4, DDR 3 and 4, where, yes, supply chains have extended. We're watching that carefully. We don't have a lot of exposure in Gen 5 DDRs, which is really the AI-driven constraints and inflation that we're seeing. But net-net, for us, the margin impact from the price inflation is something very manageable. We'll manage that within the scope of our P&L. It's really the availability that we're watching very carefully and making sure that we're addressing this with our suppliers and ensuring that we have enough availability to cover the year and beyond.

That's great, Kyle.

Thank you. Our next question comes from the line of Steve Tusa with JPMorgan. please proceed with your question.

Hi, this is Shigusa Kotoku on for Steve. Thanks for taking my question. Just following up on the orders, the order terms are encouraging and the backlog is up quarter over quarter, too. But just there's longer cycle orders in there, too, as you mentioned earlier. And so just how should we think about the cadence of these orders translating into sales? And what businesses specifically do you expect to hit the second half that supports the full-year guidance?

Yeah, I mean, so if you looked at the phasing of the backlog, they're very supportive of hitting our second half sales. So these backlogs translate into the mid-single-digit growth, tell the 6% growth that we've got into the second half. Our trading 12-month orders at 6% also substantiate that. Our backlog at $7.9 billion, which is up 9%, also phase into the second half and into the first half of 2027. The backlog build is, frankly, across the board, certainly in our control systems and software business, both in power as well as our Delta V business. In final control, we have a balanced backlog position in our sensor business to support the second half, so the build is across the board.

Thank you. Our next question comes from the line of Jeff Sprague with RetroCore Research Partners. Please proceed with your question.

Hey, thanks. Good afternoon, everyone. Law, congrats, five years. They can't believe it. That's amazing. Time does fly. I'm sure it only seems like four and a half to you, right? Just a couple quick ones from me. Mike, thanks for all those bridge items. One thing I was curious about, though, is just, you know, the drop in sequential margins, Q1 to Q2, on what should be, you know, maybe a couple hundred million higher revenues sequentially. Give us a little bit of insight on what would be driving that.

Yeah, it's primarily the impact of the software renewal dynamic, even sequentially. I mean, frankly, the 65 over the 45 and the dilution driven by that is the fundamental driver and, frankly, unfavorable mix.

And the total deal, Jeff, that came through, that was another boost to the barrier that won't be there.

And thank you for that. And those software numbers have moved around a little bit, right? I think you were thinking 50 million in Q1, and it's 40 million, and it sounds like Q2 went up a little bit. I think you were saying 16 or 65. So just, yeah, just a little bit of movement there. Could you just also just address sort of the weak verticals and, you know, do you see stabilization? I'm thinking chem probably, you know, most notably, but some of these areas that have been, you know, just under a lot of secular pressure and this whole deindustrialization trend that's ongoing in, you know, Europe, chemicals. Do you see any bottom there? Is that, you know, eroding your MRO activity? And I don't know if there's any other verticals to kind of talk about also.

Yeah, certainly, Jeff, you hit a very important point here. We're seeing continued flat activity in Europe for the year. Certainly there are industries such as automotive, packaging, but certainly chemicals in places like the Benelux in Germany that are still very challenged. And then our outlook on China has turned a little more bearish as we navigated another We now believe that we'll be down low single digits for the year, based, again, on lackluster activity in particularly the chemical sector. There are some green shoots in China, of course. There's activity that Tessa Measurement is seeing that's very encouraging. There's power generation activity, but a large chemical business, which we've had for a foster for many years continues to be, and we have not seen challenging, and we've not seen recovery in that business in either one of those large world areas.

And then certainly the automotive segment, which is not as big as chemical for us, but certainly a meaningful part of parts of safety and productivity in T&M is continues to remain soft in both Europe and China.

Yeah, yeah. Okay, great. Thanks for the color, guys. Thank you.

Thank you. Our next question comes from the line of Julian Mitchell from Barclays. Please proceed with your question.

Hi, good evening. Maybe just wanted to understand kind of your own perspectives on the order's strength. So I guess, you know, first off, was it a surprise to you what those orders did? Or was it sort of in the plan based on what you knew of the dollar value of orders a year ago that we can't really see on the outside? And I suppose I'm asking that just because you didn't change your organic sales guide for the year. And the second quarter, we don't seem to see a sort of short cycle pull through into intelligent devices, revenue growth, for example, from these orders.

Yeah, I mean, I think what this – now, obviously, we didn't expect a plus nine, so there were some projects from Q2 that we got into Q1. But certainly the last four quarters, we were plus 4%, plus 4%, plus 6%, plus 9 on trailing three months, plus 6 is consistent. The mid-single digits is consistent with how we've thought about how the first half of this year will unfold and provide the needed momentum to deliver on the second half shipment. So I wouldn't say we're necessarily surprised by the level of order activity. It's consistent with how the funnel has manifested and these growth initiatives in LNG speed, power, semis, aerospace, and life sciences playing out.

I think you bring up a good point in intelligent devices, Julian, within certainly we had a phenomenal year as we worked through backlog in that business in 2024 and 2025. We're now at a point where we've been a little challenged over the last few quarters in the business.

We'll see that accelerate in the second half as we work our way out of it, but we'll be another softer quarter in Q2 and then and that would be largely behind us thanks very much and then just my follow-up on the margin so you've clarified second quarter the second half of the year I think you're dialing in kind of 40s type operating leverage year-on-year so just wanted to make sure that that's roughly the right ballpark and you know when you're Thinking about that, is there any risks to it around price cost, for example, or do you think that's a good kind of – you're confident in it and it's a good run rate going into the following fiscal year?

Yeah, we feel good about that leverage, and you're correct. The expectation for the year is in that high 30s, which, again, is affected by the software renewal dynamic, but we do feel good about that. The leverage for the quarter of 20% when you adjust for that software renewal is back up in the mid-30s.

So, yeah, I think as we move forward and think about the profitability and the growth and the leverage that we should see from the growth, we feel good about the expected leverage for the year and the back And the other way to look at the leverage is obviously on a sequential basis, half two to half one will be up mid to high single digits from a growth perspective, and that should lever in the 40s. So you can look at it year over year, you can look at it sequentially, and I think you'll calibrate that the second half margins will trend towards that 28% plus in terms of even on margins.

Thank you. All right, next question comes from the line of Andrew Oldman with Bank of America. Please proceed with your question.

Yes, good afternoon. Hi, Andrew. Hey, how are you? Just on the 3% pricing, what should we be thinking about for the second half? How should it flow?

2% approximately in the second half or about 2.5% for the full year.

Thank you. And just going back to this 18% North America order number, it's very, very impressive can we just I know you've sort of talked about it but it's just a nice acceleration and you know I know you sort of talked about sort of pull forward and people have tried to see you know what's going on but maybe can you just describe to us how did it go through the quarter what are we seeing are we seeing this rate of waters sustainable and you know what do you think has changed in North American economy to drive orders like this and I appreciate that you have behind the meter, you know, I understand that you're in a number of sort of high growth industries and there are sort of idiosyncratic stories, but 18% is just very, very impressive.

Thank you, Andrew. I'll try to give a little caller and Ram can jump in as well. No, look, I believe and we're seeing it reflected in the customer activity that the industrial for policy of the administration's benefiting five specific sectors that just happen to be our growth verticals. Electrification and power generation data centers, investments in AI, modernization of our grid and generating capacity, near-shoring impacting life sciences and semiconductor, a robust open energy policy that enables the development of shale gas and the export of LNG to our partners. And lastly, a defense policy that continues to modernize the American military apparatus, and we benefit from that through NIH. So that industrial policy holistically falls incredibly well in the United States and aligns to where our technology stack serves incredibly well.

Yeah, and, you know, just to break it down, on the 18%, you know, a large majority of the $450 million in Project WINS came in North America from a power and LNG perspective. We indicated our Ovation business was up 74% in orders. A lot of it was in North America. T&M was up 20% in orders, up close to 30% in North America. So the elements of LNG power, semiconductors, aerospace defense, life sciences, augmented with a strong MRO, which was up mid to high single digit from an order's perspective, drove the strength in North America. Now, we don't expect the 18% to continue through the quarter, but I think we're very confident that high single digit growth in North America is something we would bake into the plan. Thank you. For the full year. Thank you very much.

Our next question comes from the line of Scott Davis with Emilius Research. Please proceed with your question.

Hey, good afternoon, guys.

Scott, how are you?

I'm good. I have to ask this question, even though I'm not sure you're going to be able to answer it with much precision, but on the opportunity out there in Venezuela, and there's got to be just a lot of old aging equipment in there that needs a refresh but I'm not sure if you guys have any color you could provide on that opportunity or whether you're already talking to customers about potentially having some boots on the ground there or what you can do to kind of make sure you can benefit from a rebuild.

So I appreciate the question Scott certainly a It's a subject that we've renewed here in the walls of our company with our teams. We have a long established history in Venezuela, and the relationship with PDVSA that goes back for decades. We estimate to have approximately a billion dollars of installed base in the country. And largely, many of our channel partners, believe it or not, are still intact in the country, although we are not – we've not been transacting in Venezuela since the sanctions that have been transacting over the last two years directly with Chevron, but sub-million dollars a year. So we have a plan. We've mobilized and thought through what the investments we need to put back into the country. We'll watch and see what happens with the national oil laws that need to be amended to enable foreign investment into Venezuela. But we believe that a market, and you're absolutely right, that it has been underinvested, lacks talent, is right for growth. So we'll see how things evolve, but we'll be ready to go in there and provide technology into those installations.

Just to add to that, interestingly as we looked at it, the first area that will probably go will be power. And so we'll have to work on the power situation there and there's an opportunity there for us as well.

And that's what I was going to ask as a follow-up really is, you know, I'm thinking about traditional, you know, upstream and perhaps maybe not thinking as much about some of the other stuff, including downstream, or even other industries. I don't know Venezuela well enough to know if there's any infrastructure out there otherwise, but is there a wider TAM out there than perhaps just what we're talking about in oil and gas?

Yeah, I think Mike's point on power generation is a valid one. But the biggest challenge the country's going to have, Scott, is that there's been an incredible brain drain that's impacted Venezuela over the last 20 years. lack of engineers, technical knowledge, and a lot of that has to be re-established. Security situation needs to be improved, and investment capability needs to be enabled by their Congress. So we're a ways away, but we're watching it very carefully, and we're at least, and to be honest, much like we did in Iraq after the Gulf War, becoming prepared so that we can hit the ground running.

Okay. Sounds good. Thanks, guys. And best of luck the rest of the year.

Thank you. All right. Last question will be from the line of Dean Dre with RBC Capital Markets. Please proceed with your question.

Thank you. Good afternoon, everyone. Thanks for fitting me in.

Thank you, Dean.

Just a couple quick ones. Any update on tariffs, mitigation activity, any color there?

Yeah, I mean, obviously, from a tariff perspective, the positive news on China, the AIPA tariffs there, fentanyl tariffs going from 20 to 10. Now, we did get some tariffs from Mexico where, you know, countries that don't have a trade agreement with Mexico and importing into Mexico have tariffs. So that's a little bit of a headwind. But net-net, and obviously the development today, it's early, but with India has a meaningful impact. So I would say more favorability. We still haven't quantified versus what we built in. I mean, we built in, I don't know if we've shared the number, Doug, on the amount of tariffs.

We built in about $130 million of tariffs into the plan we are seeing relief to that number but it's early to quantify how much but it will be a net positive for the year versus what we've baked into the plan got it that's helpful and then china's come up a couple different times i know it's not a new region of softness but well you mentioned it could be some green shoots so you know what's um the latest there what's the opportunity what or those green shoots you were referencing?

Yeah, you know, we've seen really good activity in the test and measurement space in the broad portfolio business. As you know, we don't participate in the aerospace defense segment there. The semiconductor, where we're allowed to with the various sanctions and certainly in portfolio. And that business is up in the high double digits. So we feel very good about that. There are great opportunities and continues to be great opportunities in power generation. Again, there is a dynamic in China that very much aligns in the U.S. around data center build-out, AI infrastructure, and power generation needs. We're seeing new capacity come online as opposed to that wave in the U.S. Yes, there were 25, I think, coal-fired car plants last year. There's a bunch of nuclear work to be done, as well as behind the meter work. So that's where we see the activity. But overall, still, I'm just overall concerned that we'll be in a low single-digit negative world by the time we're said and done this year.

Understood. Thank you.

Thank you, sir.

Thank you. And ladies and gentlemen, we have reached the end of the question and answer session. And this also concludes today's conference, and you may disconnect your line at this time. We thank you for your participation. Have a great day.