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. At this time, I would like to turn the call over to Aijana 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 third quarter fiscal 2024 earnings release conference call. With me today is Blake Moret, our Chairman and CEO; and Nick Gangestad, 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 detailed in all our SEC filings. And with that, I'll hand it over to Blake.

Thanks, Aijana. And good morning, everyone. Thank you for joining us today. Before we turn to our third quarter results, I'll make some initial comments. As we saw in Q2, operational performance continued to be strong in our third quarter, but order growth continued to ramp at a slower than expected pace. Our accelerated actions to bring costs in line with the lower outlook on current year orders contributed to the strong margin performance in the quarter, and we are well into the more comprehensive program to expand margins introduced during our Investor Day last November. We continue to expect savings of $100 million in the second half of this year from accelerated actions taken this fiscal year, which will create a good starting point for fiscal year 2025. Based on actions taken in the last 12 months, our worldwide headcount is down 6% since Q2, and most others who will be affected have been notified. We will see incremental savings of $120 million next year from these actions alone, plus a larger amount of additional savings from the more comprehensive program, as I'll discuss in a few minutes. We've announced our new CFO, Christian Roth, who starts in two weeks and is excited to begin. Christian brings a successful track record and will work with me and the rest of the team to combine market-beating growth and financial performance in a consistent longer-term model based on the targets introduced last November to create significant shareholder value. Turning to specific results in the quarter, Q3 orders were up low single digits, both year-over-year and sequentially, with growth across all regions. However, while our distributors and machine builders are making progress on working down their excess inventory, their orders to us came in lower than expected in the quarter due to weaker end-user demand. As a result, we are projecting a more gradual sequential order growth in Q4 and into fiscal year 2025 than we had previously expected. We had another quarter of strong execution with sales, margins, and EPS, all exceeding our expectations. Total and organic sales were down 8.4% versus prior year. Organic sales came in better than we expected, with strong backlog execution in our longer cycle businesses, including lifecycle services and the configured to order products in Intelligent Devices. Organic sales in our Intelligent Devices segment were down by about a point versus prior year. We continue to see a solid pipeline of projects across all product lines, including good opportunities involving Clearpath's mobile robots and cubic data center solutions. In software and control, organic sales declined over 31% year-over-year compared to 24% growth in Q3 of last year. Sales in this segment were still better than expected, driven by better Logix recovery as machine builders reduced their inventory. We also saw good growth in our software business, including both on-prem and cloud-native offerings. For example, in the quarter, we had over 150 new logos for a recently launched FactoryTalk optics portfolio. This reinforces the importance of continued investment in innovation and new product introduction as we continue to redeploy and prioritize our spending towards areas of highest growth and strategic importance. We've talked a lot about cost savings during this challenging year, but we're taking great care to preserve the investments that will enable us to continue to grow share. Lifecycle services had another strong quarter, with organic sales up over 11% year-over-year, driven by continued relative strength in process end markets and strong execution of our project backlog. Book-to-bill in this segment was 1.0. We did see some additional project delays, especially affecting our solutions orders. Some manufacturing customers are taking a pause in making large capacity investments as they deal with slower consumer demand, high-interest rates, and policy uncertainty around tax tariffs and stimulus incentives. Even so, our customers are still investing in their operational resilience, reflected by continued double-digit sales growth of our recurring managed services. Total ARR for the company was up a strong 17% this quarter. Segment margin of 20.8% and adjusted EPS of $2.71 were well above our expectations. We're making good progress on driving productivity across the enterprise and we are seeing the benefits of these actions with over $40 million of savings in Q3 alone. Turning to Slide 4 to review key highlights of our Q3 industry segment performance. Last quarter we talked about some project delays and end-user CapEx slowdown in parts of our business, namely automotive and food and beverage. We saw project delays across a broader group of industries this quarter, which will impact our end-market performance through the end of the fiscal year. Sales in our discrete industries were down high single digits versus prior year, with declines in auto and semi being partially offset by year-over-year growth in warehouse automation. Within discrete, automotive sales declined high teens versus prior year. Brand owners are delaying more EV programs as they continue to reassess their product strategy in light of slower consumer adoption and policy uncertainty in the U.S. Semiconductor sales were down high teens. We continue to see delays in new capacity builds and the associated tooling, due in part to questions about the timing and certainty of CHIPS funding disbursements. E-commerce and warehouse automation sales grew high teens versus prior year, led by strong double-digit growth in North America. We continue to see a broad-based recovery at our end-user and machine builder customer segments. Moving to hybrid, sales in this industry segment were down mid-teens, driven by year-over-year declines in food and beverage and Life Sciences. Food and beverage sales decreased mid-teens in the quarter. Producers in certain segments of the food and beverage market, like baking and snacks, are seeing inflationary headwinds as consumers shift from high-end brands to more affordable labels. We're seeing less greenfield activity, but we do continue to see high demand for software and services that optimize processes to increase efficiency. Life Sciences sales were down high teens. Similar to food and beverage, customers and Life Sciences are prioritizing investments in their operational resilience and infrastructure. In the quarter, we had important wins with two leading pharmaceutical companies. The Life Sciences of Merck in Darmstadt, Germany, which operates in the U.S. and Canada as Millipore Sigma, selected Rockwell to assess the company's current plant infrastructure and help enhance the digital connectivity and cybersecurity resilience of operational assets. Another important Q3 win in Life Sciences was with AstraZeneca. Together with our partner, Claroty, we're helping the customer identify and monitor plant assets, detect threats, and integrate internal services and systems to provide a comprehensive global cyber platform for all of their OT environments. Process sales were mixed across the individual vertical markets. Overall, sales were about flat year-over-year with growth in oil and gas and mining offset by declines in chemicals and metals. Oil and gas sales grew low single digits this quarter. Within this segment, our Sensia JV sales grew double digits versus prior year with good growth in process automation and digital solutions offerings. And while we continue to win business in the energy transition space, we did see some North America project push outs tied to customers wanting to understand potential policy changes that may occur after the U.S. elections in November. In mining, our sales increased high single digits versus prior year. Our growth in the quarter was driven by continued double-digit growth in Latin America. Here, Rockwell was chosen to integrate an end-to-end solution for Vale's new processing plant. As this customer looks to increase production capacity, reduce water consumption, and enhance cybersecurity infrastructure. This is a great example of how Rockwell brings our hardware, software, and services together to deliver differentiated value for our end users. Let's turn to Slide 5 and our Q3 organic regional sales. The Americas continue to outperform the rest of the world with North America sales flat year-over-year in the quarter and Latin America sales up almost 19%. EMEA sales were down 28% with continued macroeconomic challenges across Germany, Italy, and France, impacting end user demand. Despite these headwinds, we continue to make progress with our European machine builders to gain share in the end user market. In the quarter, IMA Group, an Italian-based leader in designing and developing packaging machines, has sold over a dozen machines equipped with our Rockwell platform. By recognizing the technical advantage of our motion control capabilities, coupled with the time to market provided by our integrated architecture solution, their end user, who's based in Germany, is now looking to adopt Rockwell as its preferred choice in all future commissions. Asia Pacific sales declined 22%. In addition to continued inventory de-stocking and economic challenges in China, we saw incremental headwinds from EV battery project delays in Korea this quarter. Moving to Slide 6 for a fiscal 2024 outlook. While our orders are improving sequentially, they're progressing at a more gradual pace than we anticipated. We believe this is largely tied to a pause in new capacity investments as manufacturers focus on cost control and operational efficiency, waiting for a potential reduction in interest rates and broader U.S. policy changes. Therefore, we're reducing our fiscal year 2024 guidance to reflect this gradual pace of orders growth. Taking into account our order progression through early August, we now expect Q4 orders to be up low single digits sequentially. With that, we expect our organic sales to decline 10% for the year. We continue to expect acquisitions to contribute about a point and a half of growth, and we expect currency to be about neutral for the year. Total ARR is expected to grow about 15% and will exceed 10% of total Rockwell sales this year. We now expect our segment margin to be slightly over 19% for the year. While this represents about a 200 basis point decrease versus last year, it also shows the improving resilience of our business model. Adjusted EPS is slated to decline 21% versus prior year. We expect free cash flow conversion of 60%. Nick will cover this in more detail in his section. Before I turn the call over to Nick, I'd like to spend a few moments on Slide 7 to discuss the progress we're making in setting the foundation for long-term productivity and margin expansion. We already talked about the accelerated actions we're taking in the second half of this fiscal year to drive efficiency and scale across our entire company, and we remain committed to delivering $100 million of savings this year and $120 million of incremental savings in fiscal year 2025, mainly targeted at reducing our SG&A spend. We will continue to optimize our general and administrative spend through a targeted approach, although the majority of additional productivity and margin expansion will be realized as a result of reductions in our cost of sales. As you can see from this chart, we expect to save another $130 million in fiscal year 2025 through additional margin expansion and productivity projects, bringing our total fiscal year 2025 year-over-year savings to roughly $250 million. You can see the broad list of actions and programs that are underway to realize these targets. These productivity projects include savings in the areas of product cost, indirect material, purchase services, logistics, manufacturing workflow, make or buy decisions, portfolio optimization through SKU reduction, and pricing. We look forward to Christian Roth's additional perspective as we maximize the effectiveness of this program in fiscal year 2025 and preserve it as a foundational part of our operating model going forward, regardless of the top-line growth in any particular year. Let me now turn it over to Nick to provide more detail on our Q3 performance and financial outlook for fiscal 2024.

Thank you, Blake, and good morning, everyone. I'll start on Slide 8, third quarter key financial information. Third quarter reported and organic sales were down 8.4% compared to last year. Acquisitions contributed 60 basis points to total growth. Currency translation decreased sales by 60 basis points. About 350 basis points of organic growth came from price this quarter. Segment operating margin was 20.8% compared to 21.1% a year ago. Margin performance in the quarter reflects lower sales volume and an unfavorable mix, largely offset by positive price cost, lower incentive compensation, and the benefits from cost reduction actions we announced on our last earnings call. Adjusted EPS of $2.71 was higher than expectations, driven by better revenue, mix, and savings from our cost actions. I'll cover a year-over-year adjusted EPS bridge on a later slide. The adjusted effective tax rate for the third quarter was 13.3%, benefiting from discrete tax items and below the prior year rate. Free cash flow was $238 million compared to $240 million in the prior year. Our lower year-over-year free cash flow generation in the quarter was driven by lower pretax income but was mostly offset by lower working capital, which improved for the second consecutive quarter, but at a slower rate than anticipated. One additional item not shown on the slide: We repurchased approximately 600,000 shares in the quarter at a cost of $160 million. On June 30th, $500 million remained available under our repurchase authorization. Slide 9 provides the sales and margin performance overview of our three operating segments. Intelligent Devices margin increased to 20.2% compared to 16.8% a year ago. The increase from the prior year was driven by positive price cost, lower incentive compensation, and our cost reduction actions, partially offset by lower sales volume. Software and control margin of 23.6% decreased from 34.8% last year. The lower margin was driven by lower sales volume, partially offset by positive price cost, lower incentive compensation, and our cost reduction actions. As Blake mentioned earlier, software and control margin exceeded our expectations this quarter with better performance in Logix sales. Lifecycle Services margin of 19.3% more than doubled from the year-ago margin of 9.3%. The margin performance was driven by lower incentive compensation, higher sales, continued strong project execution, and ongoing savings from the prior year structural actions. Lifecycle Services book-to-bill was 1.0. The next, Slide 10 provides the adjusted EPS walk from Q3 fiscal 2023 to Q3 fiscal 2024. Core performance was down $0.80 on an 8.4% organic sales decline. The EPS decline was driven by lower volume and unfavorable mix and was partially offset by positive price cost. Cost reduction actions contributed 30 cents to the year-over-year increase. Incentive compensation was a 40-cent tailwind. This year-over-year increase reflects no projected bonus payout this year versus an above-target payout last year. The dilution impact from acquisitions was $0.10, and currency was a $0.15 headwind. Share count, interest expense, and tax were a combined $0.05 cent tailwind. Let's now move on to the next Slide, 11, guidance for fiscal 2024. We are lowering our guidance for fiscal 2024. We now expect reported sales to decline by about 8.5%, and organic sales to decline 10%. As Blake mentioned earlier, we continue to expect acquisitions to add 150 basis points to growth. And we now expect currency to be neutral for the year on continued strength in the U.S. dollar. We continue to expect price to be a positive contributor for the year. We now expect the full year adjusted effective tax rate to be around 16%. We are lowering our adjusted EPS guidance to $9.60, down 21% year-over-year. With lower sales, our improvements in inventory days will be delayed, and we now expect to end fiscal year 2024 with 160 days of inventory. As a result, we expect full-year free cash flow conversion of about 60% of adjusted income. Our free cash flow conversion for the year also reflects several non-recurring headwinds, including our second half restructuring actions, the timing of our cash bonus payout, and tax payments for both the TCJA transition tax and our prior year PTC gain. From a top-line perspective, we expect flat sequential sales in Q4 in each of our business segments. Sequentially, we expect margins in Q4 to be about 100 basis points lower than in Q3. By segment, we expect our Q4 margin in Intelligent Devices to decline about 100 basis points, and Lifecycle Services margin to decline about 200 basis points sequentially. In both segments, we expect the decline to be driven by a less favorable mix. We expect margin in software and control to be similar to Q3. A few additional comments on fiscal 2024 guidance. Corporate and other expense is still expected to be around $130 million. We're assuming average diluted shares outstanding of 114.5 million shares. We still expect to deploy between $600 million and $800 million to share repurchases during the year. Net interest expense for fiscal 2024 is now expected to be $140 million. Before I pass it on to Blake, I'd like to talk about how actions we're taking this year are going to benefit our results in fiscal 2025 and beyond. As you heard earlier, we expect our productivity and margin expansion actions to provide about $250 million in year-over-year benefit next year. These are expected to offset compensation headwinds next year, which includes merit increases and the reinstatement of incentive compensation. The $250 million in benefits is split about equally between improvements in gross margin and reductions in SG&A. We expect R&D spending next year to remain similar as a percentage of sales as we continue to invest in areas of highest growth. With my upcoming retirement, I'd like to thank Blake for this opportunity and to thank all of you for your engagement over the last several years. Thank you. With that, I'll turn it over to Blake for some closing remarks before we start Q&A.

Thanks, Nick. This will be Nick's last earnings call with us. I'd like to thank him again for his commitment to Rockwell's mission over the last few years. He's working closely with Christian for a smooth transition, and we wish Nick and his family the very best in retirement. Christian will join me in leading the fourth quarter earnings call and Investor Day in November. As always, Investor Day takes place during our Annual Automation Fair. Last year, over 8,500 customers, distributors, partners, and investors joined us in Boston. Registration opens tomorrow for the 2024 event in Anaheim, California, which takes place during the week of November 18. This year, the fair offers an expanded four days of show floor access, showcasing major new hardware, software, and services offerings. Rockwell's technology portfolio, domain expertise, and unmatched ecosystem uniquely position us to help customers in our home market of North America and around the world. We look forward to seeing you in Anaheim in just over three months. Aijana, we will now begin the Q&A session.

Thanks, Blake. We'd like to get to as many of you as possible, so please limit yourself to one question and a quick follow-up. Julian, let's take our first question.

Our first question comes from Scott Davis from Melius Research. Please go ahead, your line is open.

Hey, good morning, Blake and Nick and Aijana. Congrats, Nick, on your retirement…

Thanks, Scott.

Hope we all keep in touch. But hey, guys, I hate to climb into minutiae, but just to kind of clarify the $250 million a little bit. Normally I think I recall your bonus pool something like $160 million ballpark. So would we think for 2025 something we wanted to model conservatively, would it be $160 million or so in incentive comp that comes back and to kind of cut into a little bit of that $250 million or is the number bigger than that?

Scott, the $250 million is exactly as you said, as a year-over-year benefit from the productivity and cost margin actions we're taking. We expect the bonus expense next year if we're delivering to plan to be between $160 million and $170 million. Other things on top of that where I'm saying it's largely being the $250 million in total cost and margin benefits are being largely offset by bonus and other compensation. I'm including our anticipated merit increase for fiscal year 2025 which will round that out to about $250 million when I add in the bonus. Is that clear, Scott?

Yes, that's clear. Thanks, Nick. When you consider incremental margins for 2025, assuming we recover growth with easier comparisons, do you expect those margins to be somewhat higher than historical levels due to SKU rationalization and other factors mentioned on Slide 7? Would that be a reasonable expectation?

Our goal is to enhance the conversion on incremental revenue. Last November, we mentioned a target of 35%, indicating that it wouldn't rely on mid-single-digit top-line growth. We're taking a more aggressive approach. While we aren't ready to specify our expectations for core conversion just yet, rest assured that improving the incremental conversion on revenue is a priority for us.

Okay, fair enough. I'll pass it on. Thank you, guys.

Thanks, Scott.

Our next question comes from Andy Kaplowitz from Citigroup. Please go ahead, your line is open.

Hey, good morning, everyone. Thanks again, Nick.

Hey, Andy.

Blake, can you give us a little more color into your comment that you expect to see continued order growth sequentially and into next year, despite manufacturers taking a pause in adding capacity. Where does that confidence come from? Do distributors still expect to clear their channels in the next quarter or two? How much in incremental orders could the end of de-stocking be versus maybe the $2 billion that you're guiding to for Q4? And how are you thinking about the order and revenue landscape in 2025? Do you think $2 billion is a quarterly trough that Rockwell bounce off of?

Sure. Andy, to provide some context, in the third quarter, we discussed our expectation for mid-single digit sequential order growth. We've experienced sequential order growth throughout the year, and we noted that ongoing excess inventories at distributors and machine builders were leading to this mid-single digit order growth. However, as this coincides with some weakening in end markets, we observed low single-digit sequential order growth in Q3, and we anticipate that trend will continue. Instead of a sharp bounce back in one or two quarters, we anticipate a gradual recovery. Inventories are decreasing at both our distributors and machine builders, but we have noted some weaker conditions in end markets. I would categorize this in a couple of ways. There are areas affected by consumer demand, such as automotive, where consumers are slowing their adoption of electric vehicles. Additionally, we see it in food and beverage and home and personal care sectors, where consumers are becoming more selective about their purchases of packaged goods, as noted by brand owners. Furthermore, we are experiencing some pressure due to policy uncertainty moving forward. Questions surrounding the allocation of CHIPS and Science Act funds are impacting semiconductor manufacturers, along with issues relating to the energy transition. These factors temper our outlook on the positive side as we enter next year. We will be facing quarters in the upcoming year that were significantly affected this fiscal year by inventory levels. Notably, there will be much lower inventory at distributors and machine builders in Q1 of fiscal year 2025 compared to Q1 of fiscal year 2024.

It's helpful. And, Nick, last quarter you suggested, I think, that two-thirds of your cost out program this year would be in Q4 and one-third in Q3. So it's a little strange to see that you're estimating lower margin in Q4 versus Q3 just based on mix in Intelligent Devices and Lifecycle Services. So maybe just give us a little more color on how the cost program this year is divided between Q3 and Q4. And then the comments on Logix getting better. Do we see Logix continue to get better from here in Q4?

Yes, there are a couple of things to note, Andy. First, the cost savings we expect to achieve, which total $100 million, have shifted between Q3 and Q4. Previously, I mentioned a one-third to two-thirds split; it's now more like 40-60. We made some good progress in Q3, achieving our goals sooner than anticipated, resulting in a smaller difference between Q3 and Q4 than we thought three months ago. Regarding margins for Q4, we saw some positive impacts in Q3 that exceeded our expectations. We initially forecasted a 20% decline in our software and control business, which we believed would bring margins down to the mid-teens. However, due to strong Logix orders and sales in Q3, the decline was only 10%. This additional revenue and the mix it created significantly boosted our margins in software and control beyond our previous estimates, which was the main factor in our margin overperformance in Q3. Looking ahead to Q4, we'll benefit from the extra cost actions taken. In software and control, we don't anticipate a significant increase in Logix sales for Q4; we believe it will mirror the performance seen in Q3 for both revenue and margin. For Intelligent Devices and Lifecycle Services, we expect a sequential decline in both. In Q3, both had favorable mixes, but we anticipate some reversal of that in Q4. In Lifecycle Services, specific customer and project mix benefited us in Q3, but we expect that to diminish in Q4, contributing to a decrease in margins of a few hundred basis points sequentially. Nevertheless, we are still on track to more than double our margins for the year compared to last year. For Intelligent Devices, we expect a margin drop of about 100 basis points, also influenced by our product and project mix.

Appreciate all the color.

Our next question comes from Jeff Sprague from Vertical Research. Please go ahead, your line is open.

Hey, thank you, good morning. Good luck, Nick.

Thanks, Jeff.

Hey. The term normal might be difficult to apply here. However, looking at Q4 revenues, they seem to be flat or perhaps slightly up sequentially, as you mentioned. That appears to resemble a sort of pre-COVID typical pattern. Our main task as analysts this morning is to anticipate your 2025 guidance and make an informed prediction. How do you perceive this Q4 2025 as a starting point in relation to what has been historically typical? And how should this shape our expectations for 2025?

Jeff, I'll offer some comments on that. I think to start with, what is largely back to normal is orders and sales of our products kind of coming back right on top of each other. So getting back to historical pre-COVID levels of book-and-bill. When you get an order for a drive or a Logix controller in the quarter, being able to ship it down and recognize the revenue in the same quarter. Back to very high percentage conversion, operational performance is good. Customers are looking for that material in about the same time frame that they were previously. So that's really good news and puts orders and shipments back very similar from quarter-to-quarter in terms of products. As we look at next year, we're going to be lapping some extremely low order rates. And so, beginning with the fourth quarter, as we start thinking about year-over-year rates again, you're going to see some big numbers in the fourth quarter and likely going into next year. And we do see continued investment. We talked about project delays, but we're winning projects as well. We are seeing the impact of higher than traditional levels of investment, despite the uncertainty for North American manufacturing plant. So I think looking at Q4 as a jumping off point is inevitable, but as we said, we expect continued gradual sequential increases into next year and then we'll certainly be given a lot more detail in November.

Yes, right. But so putting the order comps aside, right, if book-and-bill are kind of linked up and they're still channel inventory, we should have some quarters for the year of your order comps look good, but kind of sequential revenue patterns don't sound like we should expect anything too unusual. And perhaps there's even, I don't know, some risk if the economy ends up getting weaker here than we anticipate.

There's certainly risk with that, Jeff, but there's also the amount of business that we didn't ship in the beginning of the year because there was inventory sitting at distributors and that was a meaningful number throughout the year and it's far less as we move into next year. So you get some tailwind from that.

Our next question comes from Andrew Obin from Bank of America. Please go ahead, your line is open.

Thank you. This is David Ridley-Lane on for Andrew. On that point about de-stocking, it sounds as though you are mainly done with it in North America. How's the visibility for regions outside of there?

Yes, so our visibility into distributor stock is very clear for the distributors on our DMI program, which is 100% of the distributors in North America. And it's not all the way gone, but the vast majority of it has dissipated there. We see continuing stubborn inventory in China, and we'll call that out, and that's going to take a little while to get to the bottom of that because if you think about it, what paces those inventory levels has a lot to do with the end market demand. And so, if that is weaker, then it's going to take longer to burn through that stock sitting on distributor shelves. But we have very clear visibility in the US where the vast majority of our business goes through distribution. I painted the picture in China and then we have a higher amount of direct business with machine builders in Europe, there it's basically talking with them about what their levels are. And we have consistent questions that we review with them on a monthly basis. We're confident it continues to go down, but it's not all the way there yet.

Thank you. And then a quick follow-up on Lifecycle Services margins, if we take a third quarter and what you're expecting for fourth quarter, would you expect margin progression from that sort of blended second half margin as you go and continue to add volumes?

Yes, our Lifecycle Services margin has shown a noticeable improvement over fiscal year 2023, with our full-year estimate more than doubling. Part of this year-on-year improvement in margin is due to the lack of any bonus or incentive compensation this year. The majority of our gains come from enhanced profitability in our Sensia joint venture, structural productivity implemented late last year, and improved project execution. We believe these factors will continue to strengthen into fiscal year 2025. However, I want to emphasize that we do not expect the benefits from incentive compensation to recur in fiscal year 2025. If incentive compensation had been paid as scheduled, it would have reduced the Lifecycle Services margin for the full year by about 200 basis points.

Thank you very much.

Our next question comes from Nigel Coe from Wolfe Research. Please go ahead, your line is open.

Thanks. Good morning and good luck, Nick. So obviously, good news that sell-in to distribution is sort of being matched by order rates, et cetera. But any color in terms of how the sell-through from distributors into their customers is tracking for Rockwell products? I think that the message has been that distributors have been cutting inventory levels. It seems like the actual end user demand is weaker for the reasons you cited. So I'm just curious how your intelligence on days of inventory on hand, on shelves, has been tracking through the quarter. And then just maybe just talk about how you've seen this progressing into FY 2025? I know, Jeff, had a crack at 2025, but do you think that we're still in the status now until we get past the election?

I have a few comments to make, and then I believe Nick will offer some additional insights. During the quarter, we saw a notable decrease in inventory levels at our distributors. We are closely monitoring this through our DMI program, focusing on high-demand items, including A, B, and C categories. Overall, there has been a reduction in inventory levels, and in the first part of the year, we experienced positive year-over-year growth in shipments from our distributors to end users. Our discussions with them indicate that they are having a relatively good year, particularly as they ship to end users who are not managing excess stock with machine builders.

Yes, Nigel, I have a couple of points to add. Firstly, we monitor the number of new orders being placed with our distributors, and we are observing a continual increase. However, in our updated estimate for Q4, we note that this growth is not at the level we had anticipated, suggesting that end demand is not as strong as we believed three months ago. Regarding your inquiry about visibility into 2025, I assume you were referring to revenue, but I will also discuss margin factors we are considering for next year. We have mentioned headwinds such as compensation-related costs, including bonuses and annual merit increases, and we anticipate ongoing investments in new products and digital services. On the positive side, we expect around $250 million in margin expansion from cost reduction initiatives, which should support our margins next year. We also foresee a positive price-cost balance and expect further margin improvement from our recent acquisitions over the last couple of years. Additionally, with no new mergers and acquisitions anticipated, we believe this will also slightly enhance our margins in 2025.

Okay. That's great color, Nick, just a quick one on M&A contribution for the quarter. Came in quite a bit lighter than what we were looking for. Just wondering if there's any seasonality or timing of shipments we should bear in mind then?

Yes, I mean the biggest contributor to the M&A this year is Clearpath and the mobile robots. That's project business. I mean those are fairly expensive sales. And so, it's going to be lumpy through the year. We're seeing very strong year-over-year growth overall for that business, but it's going to move around a little bit from month-to-month and quarter to quarter. We remain very optimistic and proud of the accomplishments of that acquisition as well as the verb on the cybersecurity side.

Great, thank you.

Our next question comes from Julian Mitchell from Barclays. Please go ahead, your line is open.

Hi, good morning. Maybe I just wanted to start off with inventories, but more around your own inventories than perhaps the customer level. I think your own inventories are only about 8% off the sort of all-time highs, and sales in the current quarter look like they're maybe 20% off the year ago level. So I'm curious why your customers and distributors it seems have gotten inventories down a lot but you haven't. So I'm trying to understand why there's been that discrepancy or disconnect. And sort of allied to that, often I think at Rockwell and others when you get a sales shortfall, you get supernormal free cash flow conversion, but for you we're getting cash conversion guide coming down with the revenue guide coming down. So that's just very unusual for this kind of business model. So maybe any sort of highlights around that please.

Sure, Julian. Thanks for asking. So from an inventory standpoint, given where we have been in the last 2.5 years in terms of ensuring that our customers are getting the products they need. We have been very focused on making sure that we have the stock we need in place to be meeting our customers' requirements. As we went through the – our plans for fiscal year 2024, as we went through the year, is that we expected that in the second half of this year we would be seeing increased demand on us depleting quite a bit of that excess inventory that we ourselves are holding. As we're seeing the demand on us not having that ramp up, but more of this gradual increase that we're talking about, that's leaving us with noticeably more inventory in terms of days of inventory at the end of our fiscal year than what we were estimating earlier in the year or even three months ago. And that's the most significant part of our cash conversion story. In terms of our prior guide of 80%, now bringing it down to 60%, we've known all along we have these one-time non-recurring headwinds, things like our extra tax payments that we'd be doing well in excess of our tax expense. We also knew that we'd be having the cash payments for our restructuring actions. So those things are contemplated as part of that 80%, but we were also counting on a noticeable roll down in that working capital and inventory in the second half of the year. And while it's still going to come down in the second half of the year, it's not going to come down nearly at the pace. That's really going to be more of a 2025 development for us.

That's great. Thank you. And maybe just one follow-up on the broader demand environment. So it seems as sort of a couple of things happening. I think one is, Blake, as you mentioned, sort of orders sequentially are improving. So the overall backdrop sequentially looks a little bit better as we move along. But you also highlighted CapEx reductions at customers and project delays, which I suppose is something new versus say six months ago when the talk was only about destocking headwinds of inventory. So it seems we've moved sort of seamlessly from de-stock into CapEx cuts. Just wondered sort of when did those CapEx cuts start to become evident to you in earnest? And any kind of thoughts around demand cadence in the last month or two in general?

We previously mentioned a decline in capital expenditures, especially in the food and beverage and automotive sectors regarding new capacity. We noted that while food and beverage clients are continuing to invest in resilience and efficiency, they are holding off on expanding capacity. We are also observing a slight slowdown in electric vehicle projects. Although there are delays and pushbacks in some projects, we are not seeing cancellations, and we hope it remains that way. We are closely monitoring the situation and are aware of the factors influencing these delays, such as consumer demand, interest rates, and policy uncertainty. Major projects are still being awarded this quarter from various industries, but at a slower pace than we anticipated three or four months ago. The key issue for the beginning of this year was the inventory challenges faced by distributors and machine builders. Now that those issues are easing, we are noticing a slowdown in capital spending in manufacturing.

Great. Thank you.

Our next question comes from Noah Kaye from Oppenheimer. Please go ahead, your line is open.

Thanks. So I'll just bundle a couple of questions here to keep it moving. First, can we actually quantify the revenue impact of the inventory de-stocking in the channel as contemplated in full year guidance. What is the actual revenue headwinds, just so we can level set for next year? And two, thinking about sort of the routability of the cost actions benefiting the P&L. When we get the reinstatement of bonus comp and merit increases, presumably those are fairly routable throughout next year, quarterly. Should we think about the same for the cost actions that you're announcing today?

So I'll take the first one and then Nick will chime in on the calendarization of the cost actions. We haven't given a specific figure in terms of the inventory at distribution and machine builders, but it's hundreds of millions of dollars. And it's a larger factor, as I've said before, than some of the investments that we've seen in North America. So it's a bigger number than the business on the good side that's been won this year based on investment in North America. It's dissipating, we're seeing a smaller contribution in each quarter, but it's been stubborn. And as we said, we expect that there's not going to be one month all clear where suddenly it's gone. And that's why we say gradual sequential improvement in orders in this quarter and then into next year.

Yes. And then, Noah, as far as the quarterization or calendarization of the benefits of that $250 million. Well, first let me say, you are correct about the bonus, that that will be like largely equal throughout the four quarters of fiscal year 2025. But in terms of the calendarization, of course, we'll add that kind of information in the November meeting for more detail. That said, what I can tell you is the restructuring benefits are more front half loaded, the things that we started in Q3, whereas those additional margin expansion benefits that we talked about that go on top of that, that is more second half loaded. But the actual calendarization of all of this, we'll share more of that in November.

Very helpful on both fronts. Thank you.

Yep, thanks.

Our next question comes from Steve Tusa from JPMorgan. Please go ahead, your line is open.

Hi. Good morning.

Hey, Steve.

Good morning.

Nick, I guess for the second time, thanks for all the help and congrats. I just wanted to make sure I understood the bridge items for next year. So you're basically saying that next year is relatively clean when it comes to all these moving parts. I guess, he didn't talk about growth investments, but I would assume you kind of toggle those with the volume picture. So can you just clarify if there is anything else outside of those, the $250 million and then the merit and incentive comp, anything we're missing?

So I'll start with the general comment and then Nick can add detail. But you're right, Steve. The productivity that we're looking at, the combination of the actions that were primarily reductions in force on the second half of this year, and the items in the more comprehensive program offsets the headwinds from compensation into next year. We expect our R&D spend, which is part of that overall operating spend. If you add R&D and SG&A together, that's our operating spend. And we expect R&D to be roughly similar as a percentage of sales next year.

Yes, and I think what I'll add to that, this $250 million that we're projecting for next year, that is roughly half of that that we see as benefiting gross margin and roughly half of that that we see reducing our SG&A spending. We're striving to keep our ongoing investments in R&D in light of the opportunities we see there as a percent of revenue relatively flat.

Right, but basically, like, whatever I want to assume on volume is what the picture is as far as earnings drop through is concerned. Like, simple as that, it sounds like. There aren't too many other bridge items.

Yeah The five I shared on Nigel’s question, those are big five there.

Yes, okay. Great. Thanks all for the color, as always, and enjoy retirement, Nick. Thanks.

Thank you.

Our next question comes from Joe Ritchie from Goldman Sachs. Please go ahead, your line is open.

Thanks. Good morning guys. And Nick, wish you the best in retirement. Thanks for everything.

Thanks, Joe.

My first question is regarding 2025. I understand that your business operates on a relatively short cycle. However, if I look at your two largest markets, which are food and beverage and automotive, it seems that in the fourth quarter, you might face another challenging comparison. Blake, as you consider the discussions you're having with your customers and the current environment, is there a possibility that you may not see growth in 2025? What would be a realistic expectation moving forward?

Joe, I want to avoid making large projections for next year. However, our discussions with customers, particularly in the automotive and food and beverage sectors, show that they are still investing in these areas. We are focusing not only on the potential capacity they are adding but also on enhancing resilience and efficiency in their current facilities. We are particularly excited about mobile robots because they are mainly being integrated into existing operations. Customers, including Rockwell, are striving to improve their efficiency and reduce costs, regardless of external circumstances. We are well-positioned to support these efforts. As we begin to see year-over-year growth in orders, we will provide clarity on what that means for shipments in the upcoming year, but I am very confident in our situation.

Okay, that's helpful. And then maybe lastly, just a near-term question as we think about the fourth quarter. In the Intelligent Devices segment, it seems like historically we've seen this uptick in the fourth quarter on revenue. It seems like you guys are implying that that business is going to be down a bunch. If any color around that would be helpful for 4Q.

Joe, we are indicating that Intelligent Devices revenue will remain nearly the same from Q3 to Q4. We do not anticipate any significant increase or decrease in revenue for intelligent devices.

Okay, just not the typical seasonal uptick that you would normally see?

Not a seasonal uptick there.

Okay, great. All right. Thank you both.

Julianne, we'll take one more question.

Certainly, Aijana. Our last question will come from Joe O'Dea from Wells Fargo. Please go ahead, your line is open.

Hi, thanks for fitting me in. I wanted to start on the margin expansion and productivity in terms of: one, understanding the structural versus temporary components of this; and then two, just in terms of understanding the breadth of it. Obviously, a lot of different elements all rolling up to the savings here. And so just the genesis of this and how these opportunities have developed over time in terms of greater manufacturing efficiency or sourcing efficiency or SG&A efficiency. It seems like there's a lot out there. And so just kind of understanding how that opportunity came to be.

Sure, Joe, broadly, we've spent a lot of the last few years adding some capabilities that I felt we needed to move faster in, things like software capability, high-value services like cybersecurity, and some particular technologies like mobile robots, independent car technology, industrial PCs. At the same time, we've been playing a lot of defense with COVID, with supply chain volatility that has introduced inevitably some inefficiencies into our own processes. And so for several reasons, now is the time to integrate the parts, to bring together the things that we built and bought over the last few years, and to drive out some of the inefficiency that's built up with programs like this. And it necessarily involves headcount reduction, as well as actions aimed at reducing our cost of goods sold. And so it's a broad-based approach that will yield benefits in this year as we talked about into next year. But then it gets rolled into a continuous operating model of continuous improvement that continues to drive these costs out and be vigilant to make sure that new costs don't creep in. The benefits, of course, are for an investor standpoint, expanding margins to go with the higher growth levels. For customers, there's also a benefit. Things that we're doing to reduce that long tail of SKUs can actually increase customer service for the more frequently bought items. And when we reduce the cost of goods sold, we have the opportunity to be even more competitive on the projects that we choose to go after. So for a variety of reasons, integrating the parts and driving inefficiency out is the right time in our journey to introduce this as we started last November at Investor Day and will certainly be given more of an update in just a few months.

And so primarily structural in terms of how we think about the cost coming out?

Yes, it is primarily structural. These aren't one-time things to address a particular year. The idea is that the savings that we're making, the costs that we're reducing persist regardless of what the top line growth is going to be.

And then just one more on demand. I know a lot of focus on that already, but just trying to understand the past few months. When we look at the end market expectations, I think things came down in nearly every end market relative to three months ago. And so, trying to understand the degree to which things have gotten worse versus the degree to which things just aren't getting better quite as fast as you expected.

Yes, I think that latter is probably the best way to characterize it. We've seen sequential order growth quarter-on-quarter through the year and we expect it again in the fourth quarter and into next year, but it's at a more gradual pace.

Got it. Thanks a lot.

All right. Thank you for joining us today, everyone. That concludes today's conference call.

At this time, you may disconnect. Thank you.