Good morning. We're on day three of the Wells Fargo Industrials Conference and very pleased to continue the discussions with Rockwell Automation and thank you very much to Matthias Bulo, who is the SVP of Software and Control, and Ajana Zellner, who is the Vice President of both Investor Relations and Market Strategy. Thank you for being here. I really appreciate it. We're going to jump right into the Q&A. And let's just start on the demand backdrop. And so we've seen really good organic growth, particularly in intelligent devices and software and control. That growth actually seemed to accelerate from Q1 to Q2. A lot of focus on pull forward or what exactly is contributing to some of the acceleration. And so maybe just set the stage for us on what you're seeing out there.

Sure, I can start. So in terms of the outperformance, products have been outperforming the longer cycle business for several quarters now. So that's how you see ITD, intelligent devices, and software control continue to see good growth. and so in our most recent quarter q2 we saw good growth across many industries still a lot of focus on smaller modernization projects efficiency productivity overall effectiveness of existing facilities with that said we did see kind of broadening of the demand and larger projects across a number of additional industries and so when we talk about semiconductor data center e-comm and warehouse automation and parts of energy. That's where we saw a combination of brownfield projects, but also more larger projects. So that was certainly very encouraging. We increased our outlook for those end markets for the full year. And if you look at other industries, food and beverage, automotive, they performed well in Q2. We saw good activity, but mostly tied to smaller initiatives, smaller modernization projects. And so we don't count on larger CapEx activity in those end markets for the rest of our fiscal year. But overall, we do continue to see good growth. And we increased our guide to 7% for the full year. And just that last comment, kind of rest of the fiscal year, when we think about larger projects, what does the pipeline look like on the larger project side of things and conversations that you're having with customers right now sure well we can start with discrete industries if you look at um e-comm and warehouse automation we continue to see good projects could be large brownfield retrofits there are a lot of warehouses and sortation facilities that are still pretty manual today and they will continue to invest um you know labor scarcity labor cost continues to be a good driver for that increased automation need and so we see that uh acceleration and that spend across different customer segments within e-commerce and warehouse automation. Parcel companies, e-commerce players, traditional retailers, all of them are investing in their facilities. So we do see continued expansion there. Data center, a lot of it is greenfields. We of course have an opportunity with retrofits as well, but with a lot of new data center build out and the AI workloads that are driving the need for our offerings, including our PLCs, we do see continued durable demand there. And then semiconductor as well, you know, we did see some pickup there and it's both on the core semi with the legacy fabs, but increasingly also with the AI related data center related investments as well.

Got it. Yeah, we'll get into data center a little more low single digit of percent of revenue, but probably two-thirds of our discussion last night at dinner on customer spend and when we think about product spend versus larger project spend what what is the average spend for intelligent devices or software control versus something in life cycle services or configure to order is there a spend threshold that you're seeing customers not really willing to move forward on those bigger bill of material projects it's not necessarily a particular dollar threshold but it's really what uh what the customer is trying to do so if you look at the dynamic of uh the smaller modernization projects it's where customers feel um that they have a scope they have a clear roi and they can

get it done uh and it's going to drive that efficiency and it's going to affect effectively increase their existing production capacity by increasing their throughput increasing the quality what they're uh kind of holding off on is there's larger longer ranging uh you know capex projects because trade uncertainty is still very persistent, right? We don't have clarity on USFCA. There's still a lot of changes on a policy front. Geopolitical volatility is not helping get customers more confident with those decisions. So that's kind of broadly what we're seeing. Now, with the particular strength we saw in Q2 with bigger projects, if you think about data center, semiconductor, warehouse automation, those are good products that come from intelligent devices and software control segment, right? So we can talk about it later, but it's our Logix PLC, it's our control architecture, it's our cloud-native software, it's our variable frequency drives, it's our sensors, it's our AMR portfolio. So it's really a lot of different pieces that come together. Now, the reason Lifecycle Services as a segment is not seeing that uplift that ITD and software control are seeing is just so happens that there's not a lot of solutions content that goes into the business of data center or e-commerce warehouse. So there we predominantly sell product and software and then someone else largely solutions it for the end user.

Got it. On the channel inventory side of things, just in terms of your assessment of how those inventories look, but also how the tools have evolved that you use to track this and sort of help with that comfort level.

Yeah, so we have much better visibility into inventories out there than we had relative to pre-pandemic. Pre-pandemic, we were primarily a book and bill business, so we didn't have as much attention into this space. But since then, we've kind of built out quite a few muscles to help us prevent and avoid, to the degree we can, any type of pre-buy and excess inventory out there. So there's quite a few areas. At Rockwell, we manage our distributor inventories, so we have a good understanding of what they ship and what they place on us, so we have a good sense of the terms that they're operating with. We've also put in place controls around unusual order patterns where we evaluate based on historicals, and we probe for more details when we see something that's unusual that's not just on the magnitude of orders but also in the composition of certain orders because we know uh how systems are generally composed so we see if we see a significant mismatch between different parts of the system we'll also inquiry uh and uh and evaluate and to be frank in some cases in quite a few cases we've rejected and cancelled orders based on that what we don't have as much visibility into is into the demand that goes into our end customers like the oems and so on so to compensate for that we have been executing now for quite some time surveys that are out against the proxy sample of customers and a proxy sample of industries where we evaluate based on their feedback and so far we don't have any any indications that pre-buys are any meaningful contribution to the results and then on on middle east you did note that some activity in life cycle services had had been pushed out just what what you're seeing there any

quoting activity how you think about a timeline for folks to re-engage yeah as we mentioned on our q2 earnings call we do have some exposure it's very limited to the middle east it's now even smaller with the dissolution of our since a joint venture we do still have opportunity on the recovery and rebuilding um if you look at our portfolio our ability to serve um it's it's more of a longer cycle business so the impact will be really most likely in fiscal 27 and beyond But we do have, we do see opportunities in that region, but also broadly in energy, as we talked about, you know, energy is 15% of our total revenue, you have traditional oil and gas, you have power generation, you have renewables, including carbon capture and wind, solar, and we're well positioned to play there because our technology is used across the same technology is used across all of those different applications. And whether it's LNG, whether it's, you know, gas-powered microgrids, whether it's building out infrastructure for data centers, whether it's, you know, energy resilience, right, closer to where we are, we're well positioned. And so that's part of why we increased our outlook for energy as an end market for the full year. We expect to grow high single digits, and we do think there's an opportunity there beyond that.

And then moving to pricing, you've got, I think, 2.5% of price in the guide for this year. There's some tariff-based pricing tied to that, but just how the pricing strategy at the company has evolved, different tools that you're using, do you feel like you have more that you can do there on the pricing side?

Absolutely. You know, Rockwell has been a premium pricer and supplier in the industry for quite some Historically, we've been realizing about a point of price, and if you look back many years, we certainly, during the last supply chain, during the supply chain crisis where we had a really kind of inflationary chip environment and it was important to increase prices very quickly we have changed our methodology and we became much more agile so we put different mechanisms in place like for example moving from fixed contracts to fixed discounts so we're able to actually instantaneously increase prices across our customer base to respond to different things that's been very helpful right so we become much more resilient much more agile we invested in software and optimization to give us more visibility into pricing by customer by region by industry by application so we can be much more surgical about how we do price and then of course driving more price discipline across our customer base so that when we when there are discounts when there are negotiations it's really for the customers and the areas and initiatives that make the most sense and increasing that yield we certainly have had much higher price we had much higher price realization in fiscal 25 than we've had you know over the longer periods of time this year in fiscal 26 we're guiding to 250 basis points of price of which 100 basis points is tariff related and then 150 basis points is underlying price we think uh well there's continued room to to grow over the coming years we have the differentiation we have we have the ability to to to realize price the current environment in terms of inflationary cost and tariff certainly it impedes our ability to continue driving higher underlying price beyond what we're doing but we think brought the longer term we're well positioned and pricing is a great lever one of many levers for us to continue expanding our margins and then just related to the chip side of things in terms of availability any challenges out there as well as how you're approaching the pricing side of that yeah we talked about input costs for us we don't have as much exposure to commodities raw materials but we have some the biggest really uh element for us is memory chips and it just so happens that a lot of it goes into matthias's business software and control uh so as we all know the cost for memory chips continues to increase and we talked about uh you know expecting double digit millions of headwind in our second half um so that's that certainly uh is inflationary and it continues to escalate we have great mechanism in place to offset and mitigate these these increases with price as we've demonstrated you know over the last you know several years the challenge is as really the timing as we mentioned in our q2 earnings call will offset this cost increase with price but it's not going to necessarily align perfectly in any particular quarter which partly explains why we expect q3 margins and especially in software control to not be as high as they were in Q2, but we feel like we have it under control.

And moving to software and control. And so let's just start a little bit of background in terms of what exactly it is, the value that you're delivering to customers, why customers are choosing Rockwell over competitors.

Yeah, yeah. So there are quite a few vectors there of value creation. I'll point to a few here, but, you know, I'll start with the, you know, today what we do, We are 100% focused on production systems, so all of our employees every day, that's what they're dedicated to. And we feel pretty good. We have a full stack. There are no major holes in our portfolio. And that's important because, increasingly, the challenges that our customers face, they are system concerns. They're system problems. So you think about things like cybersecurity, functional safety, data. even AI so if you if you're coming into a system and you're only contributing to a piece of that system you don't have as much opportunity to create value and differentiate so we are uh set to disproportionately benefit from uh from that from that need across our customer base and and we have been continuing to win against some of the more niche you know smaller suppliers because because of this this trend. The other significant value creation we provide to our customers has to do with how we've approached and modernized our portfolio. So things for example the fact that we've been first to cloud in many of our offerings has allowed us to kind of incorporate technologies that create significant value for these customers such as AI a lot earlier you know literally you know months after they've been they've been made available for consumption by us we already had solutions out there that were creating value for these customers so our speed to innovation has significantly increased because we put ourselves in a position where we can continue to grow there the third piece is you know especially in this in this region we have We have the deepest relationships with the customer base. This is the place where the workforce is trained in our technology. This is the place where we are essentially providing the lowest risk for anyone making investments in this region. So the strength we have with our partnerships across not just the customer base, But our channel has created a significant advantage for this company, and we're disproportionately benefiting from that.

And what about the go-to-market approach? How siloed is that approach within software control as opposed to partnering and intelligent devices and how you're doing that?

So we have one sales organization that approaches our customers as a system. And it's very common that in a system you have contributions from our segments, not just one. So, for example, a typical, at a higher level, a typical automation system has input devices like sensors, like push buttons, things that are sensing what's going on in the system. All of those come from intelligent devices. Those inputs, they get fed into a control system that is actually processing those inputs. It's also exposing data and interfacing with operators, operator decision support and operator interfaces. The networking infrastructure that's there, all of that is software in control. And then once that's resolved, it gets reflected back into actual physics that have to be controlled and actuated. So things like motor control, robot control, output devices, power distribution, all of those are back into ITD. And then obviously we have our service organization that partners with these customers sometimes in the delivery of those solutions. We're happy to partner with others that deliver the solution themselves. And then we come in after the solution is installed to manage and support that installation with lifecycle services. So it is very common that a particular system includes all of our offerings.

And then you're offering both software and hardware. We've heard in the past, Logix, around 50% of the mix. Talk about that other 50% and the software and hardware that sits within that.

Yeah, so specifically in the software and control segment, you know, the majority of our revenues are coming from hardware. The hardware includes a significant amount of embedded software. You know, a lot of the differentiation comes from what the hardware does, and what the hardware does is governed by the embedded software that's there. But the majority of that gets delivered as hardware integrated with that embedded software. And then, yes, we do have a meaningful software business. And as I mentioned before, you know, full stack when it comes to a production environment. So today, our software, part of our portfolio is used to design production systems. So things like digital twins, things like how you program the automation. And then once the automation is in place, you have software that's used, as I mentioned, to support the operator. So visualization systems, human machine interface, operator interface, decision support there. On top of that, you have software that's used to execute production, things like our MES, you know, they take orders and they execute and orchestrate the utilization of resources in any particular production system. And then we obviously have software that is used to maintain these systems, so things like disaster recovery, you know, our CMMS on how we manage work orders for maintenance organizations and not just reactive maintenance, but increasingly and preventative and predictive maintenance capabilities. So we feel pretty good about the, you know, full stack software capabilities across the spectrum there.

Well, we'll talk about the opportunities that AI present for you, but also to address the potential challenges or threats that are out there. And so what is it that you're watching out there in terms of that software stack and what new entrants could potentially even have an opportunity at?

Yeah, we, we, AI is a tremendous opportunity for automation, you know. but just to address first your point on some potential concerns there we feel pretty strong about very very durable durable modes and I'll point to I'll point to three here the first is as I mentioned earlier a big part of our software portfolio is deeply integrated with the embedded system. Okay, so it's highly integrated. And there are many reasons for that, including the resiliency and cyber concerns and safety concerns. So you use AI, but it has to go through our software. Okay, so that's one strong moat that we have there. Another part of our software is software, as I mentioned earlier, that is running production, that's executing orders and orchestrating resources, those are deterministic systems. You know, those are systems that are applied in regulated industries. They need performance and they need consistency. It is not acceptable in manufacturing for you to have outcomes that are approximately right. It's not acceptable for you to build cars or to create drugs or food that are approximately right. And they have to be consistent over time. So inherently probabilistic outcomes are unacceptable. Not just not desired, they're just plain not useful. And then the third mode we have is open source software that has existed for a long time. And the reality is in automation, you need a tremendous amount of domain to be able to understand what software needs to do, how it gets used. And then on top of that, you know, the real cost in software used in production system is not much to do with the creation of the software itself, but it has to do with the lifecycle management of that software. So those are pretty strong, durable modes that have sustained. But just to touch quickly on the opportunity, you know, AI is a tremendous opportunity to do many things across the stack of an automation system, but the biggest opportunity really is in simplifying what it takes for people to consume automation, consume in the form of designing, operating, and maintaining. The single largest barrier to more automation density is complexity, you know, is the complexity of deploying and maintaining and supporting. And AI with these virtual workers, if you will, are there to help you lower that barrier so more automation can be used, you know, in more production systems over time. So we feel very, very good about AI as a, you know, as a tailwind and as a significant propellant of more automation demand and across the industry.

What are you seeing in the cyber threat environment in terms of an acceleration of instances of threats, higher sophistication as people are using AI in that realm, what you're doing with your business to defend? Yeah.

So, you know, we have been investing for a very long time in the resiliency and the robustness of our products. It's a significant part of our spend. It's also why I say what I said before, that increasingly these are system concerns. The reality is the cost to play in automation continues to go up. I wouldn't be surprised if you see some degree of consolidation, because not only you can compete if you're just a little piece of the system, but for you to sustain. And a good example of that is, you know, what's about to come online in Europe with Cyber Resiliency Act, you know, where there are specific requirements for what level of security strength your system needs to have for you to just be able to supply, you know, in an automation system. So, we welcome those because they disproportionately benefit Rockwell. We build capabilities not around just the strength of our products, but also, as you've seen, capabilities around our lifecycle services organization and security assessments, including acquisitions we've made to enhance our ability to support our customers and, frankly, bringing resiliency. We expect that certain industries will see higher pressure to strengthen their industrial systems earlier. Things like critical infrastructure, food and beverage, life sciences. And we expect that will continue to propagate, and we see that as a good thing.

And then to touch on data centers, you've talked about hyperscalers increasingly adopting the industrial logic platforms from traditional shift from traditional kind of DDC type of Explain to us kind of what that shift means for those customers, what you're able to provide and what the revenue opportunity is like for you.

Yeah, I mean, this has been a very good business for us and frankly, a no brainer value proposition to our customers. You know, the shift is strong from traditional controls. DDC controls, you know, have been designed primarily to manage general buildings. These are things like this particular building that we're in today, and that's okay. But data centers are increasingly more critical, mission-critical operations, more like factories, where you care a lot about the availability of the system. So with our system, we have an order of magnitude greater availability. So what we call five, our logics runs today 5.9, so 99.999% availability. And you can imagine what the cost of downtime, we've always dealt with cost of downtime in any type of production system and in data centers, the cost per minute is significant. So just on the merits of availability, Logix has been easily justified. justified. But there are many other reasons as well. One of them is cyber. You know, a lot of these traditional systems, they use networks that are relatively old, that don't employ capabilities like encryption even in their communications. There's also an element of performance. You know, the certain data centers and server racks can swing, you know, in the magnitudes of megawatts in the span of a minute and you need response and you need some degree of real-time control there and there's also a component of longevity because these industrial systems are designed for longer life than commercial technology out there so there are many but and we'll continue to see growth there I think the way you've framed it is data center today is a low single-digit percent of revenue for ROC in the not-too-distant future could be around 5%.

When you think about that growth path, is that more on the software and control side or is that more with something like Cubic on the ITD side?

Yeah, so today you can think about there's a few offerings that we provide. One of them is what I just described, you know, logics being used to manage the the infrastructure, the building. The other strong vector we have is with our acquisition of Qubic. Qubic has a fairly innovative modular system that is used to package gear, essentially switch gear packaging technology to be completely transparent we made that acquisition way before this data center boom and we have a line of motor control centers that we've we've participated in the market for a very long time and that's innovative technology that has also helped us modernize and innovate in Motor Control Center, but is strongly, it's a great fit for data center technology there and we've seen good growth. And then obviously because Logix is also there in controlling and managing the building, there are certain parts of the equipment used in building management, things like chillers and fans and pumps that also leverage ITD technology like our drives that are used to control those systems. So it's a good, it's a good amount of scope there.

Then on software and control margins, you reach 35% in the second quarter. I think the guide embeds that it's not going to stay at that level as we move into the back half of the year. But talk about that progression as we move forward and some of the puts and takes on the margin side.

Yeah, we had a stellar quarter in terms of margin performance for the whole company and, of course, in software control specifically. The biggest driver for the company and for the segment was really volume, so we have volume, we had really good price cost, inclusive of productivity and all the work we've been doing to drive structural cost out, whether it's on a direct cost to produce, whether it's our logistics mode, manufacturing efficiencies across our operations that are helping every segment. So, good productivity also in SG&A, functional spend. So we saw good contribution from that and mix, even within software control, we saw good growth in logics as we talked about over 20% and high single digit growth in software. So those are higher margin offerings within software control. So it was a confluence of a lot of great things that happened and it was a great quarter. However, as we look to Q3 and Q4, and specifically Q3, we talked about increasing input cost inflation, specifically on memory chips, that does disproportionately impact software control. And so while we do expect to offset and mitigate those cost increases with price over time, as we mentioned, it might not be perfectly aligned in any particular quarter, especially in Q3. And so we do think it's prudent for us not to expect that same level of perfect storm of everything going right for us in Q3, so we expect sequentially margins to be slightly lower, but for the full year, still expecting software control margins to expand several hundred basis points year over year, so we're really on a good trajectory there.

And going through a multi-year history where there was a period of stocking and a period of destocking and now an environment where you're comping against some of that, but moving forward, the comps will get tougher. I think expectations out there for something like mid-single-digit, high-single-digit organic growth and software in control as we move into the back half of the year. Does that roughly align with the guide? Anything that you observe in that that you would call out?

We talked about our expectations of low double-digit growth for the full year and software in control. So that implies, you know, sequential, moderate sequential growth, and we'll see where we are.

But yeah, low double digits, so certainly the fastest growing segment for the company yep um the uh at the investor day last year um company outlined a two billion dollar investment plans over a multi-year period of time talk about um software controls kind of role in that what the opportunities are do you know do you see a higher percentage of that spend as the company's looking at the multi-year investments yeah yeah so um yeah Yeah, we did communicate that, indeed.

The majority of that investment is in Capex, and frankly, a lot of that is in the U.S., and that includes investment in our people, investment in technology, we're ourselves transforming our operations into more autonomous systems, and frankly, also brick and mortar. So we're building a new capacity as well there. You know, the reason we're making that investment is largely in the service of continued margin expansion and customer service. You know, we feel very strong about achieving the targets that we have already communicated. You know, you talk about software and control, we have this margin, a corridor of 31 to 34. We have already been, you know, in that corridor for the last four quarters, if you will. We haven't put the full fiscal year yet in that, but we feel pretty strong of doing that independent of this investment. And we have, obviously, our enterprise operating margin target of 22%. So all of this is in the spirit of fueling further margin expansion beyond that, and indeed transforming manufacturing for ourselves so we can continue. And to your question around, you know, all of the self-help initiatives we've put in place, including our productivity, all of those items, including what we do in sourcing, what we do in transportation, logistics, what we do in more automation and reducing our cost to produce, all of those are directly applicable to software and control just as much. So both are, frankly, all three businesses, including lifecycle services, because we have solutions that include panels and things like that that we construct. All of the three segments benefit from those quite strongly.

I think maybe time to squeeze one more in, but really on capital deployment and opportunities there, because you talked about there could be pockets of the market where there's an opportunity for consolidation. Rockwell has said, you know, back in the game in terms of M&A. But then also software and control spends a high percentage of revenue on R&D. And so it's the organic opportunity versus the inorganic. And where are your priorities?

Yeah, so R&D is the lifeblood of the company. We have full intentions to continue to innovate. I know we run at about 8% of revenue as a company. And as you stated incorrectly, so software and control, as you would expect, is higher than that in the teens and low teens. And we'll continue, we'll continue that investment. And in terms of acquisition, absolutely. You know, we are very open and interested in series about continuing to evaluate opportunities that fit in our channel. But we'll likely focus on profitable acquisitions that we can, if not accretive, that we can make accretive in a reasonable amount of time. And also acquisitions that help us continue to propel and expand share gains in, frankly, in regions where we may not be as strong.

Perfect. I think that brings us to the end of our time. Thank you very much. Thank you very much.