Q1 2021 Rockwell Automation Inc Earnings Call
Thank you for holding and welcome to Rockwell automation and quarterly conference call and.
And remind everyone that todays conference call is being recorded later in the call. We will open up the lines for questions.
If you have a question at that time. Please press star one on your telephone at this time I would like to turn the call over to Jessica Caracas, and head of Investor Relations. Mr. <unk>. Please go ahead.
Good morning, and thank you for joining us for Rockwell automation is first quarter of fiscal 'twenty 'twenty. One earnings release conference call with me today is Blake Moret, our chairman and CEO and Steve have some of our CFO of.
Our results were released earlier this morning, and the press release and charts have been posted to our website.
The press release and charts include and our call today, we will reference non-GAAP measures. The press release and charts include reconciliations of these non-GAAP measures of webcast of this call will be available and that website for replay for the next 30 days per year.
Convenience of transcript of our prepared remarks will also be available on our website at the conclusion of today's call and supplemental information related to our new business segments can be found and the Investor Relations section of our corporate website.
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 and described in our earnings release and detailed and all of our SEC filings.
So with that I'll hand, the call over to Blake. Thanks.
Thanks, Jessica and good morning, everyone. Thank you for joining us on the call today.
Before we begin discussing our results and outlook I'd like to make a few opening remarks.
On the leadership front, we have two exciting announcements today.
First we've hired Scott General as our new Chief revenue Officer, Scott build strong executive level customer relationships and the spend most of his career, leading global sales forces and major enterprise software and hardware companies.
These include Oracle and most recently Veritas and we're thrilled to bring him onboard and this newly created role.
Scott will be responsible for all worldwide sales and marketing efforts, leading our global go to market strategies, and accelerating rockwell's growth, including software sales and annual recurring revenue.
The second important announcement is that Brian Shepherd has been higher and as the new leader of our software and control business segment, and Brian has extensive experience and the industrial software space and joined the Scott and bringing proven knowledge about ways to drive faster recurring revenue growth and our business prior to joining us.
And was president of production software and Smart factory solutions for hexagon AEP and before that was a longtime executive of PTC.
Where he led strategy and operations for their enterprise software segments. The is.
Strong technical expertise across the design operate and maintain phases of the customer journey and how industrial software can maximize customer value.
We're excited to have him on board.
Scott and Brian and begin on February one.
Finally, I'm happy to report and we're well along and our CFO search and expect to make that announcement shortly.
Kind of busy few months, but I am very pleased with the new talent and fresh perspectives, we are adding to our leadership team.
And other news this quarter, we had a very important win on the legal front and.
Q1 ran well international was found liable for trademark infringement and false advertising relating to its resale of Rockwell products and theirs.
Latest legal victory underscores our commitment to protecting our intellectual property as well as our authorized distribution network.
And we're using a portion of the gain that resulted from this ruling to make additional investments. This year. This includes investments to pay forward software product launches that will increase recurring revenue and fiscal 'twenty, two and beyond as well as sustainability related investments to drive our ESG goals.
With that let me now turn to our Q1 results on slide three.
And Q1 total reported sales declined 7%.
Organic sales were down 10% versus prior year.
Total sales included a two point positive contribution from our OSM and Calypso acquisitions.
Note that strengths.
And is now included in our organic results.
During the quarter, we saw a sharp acceleration and order intake, especially for our products.
Total orders were back above the pre pandemic levels.
And the increased demand was broad based and well above our expectations and the higher order rates will benefit sales for the balance of the year.
More on that in the moment.
I'll now comment on our new business segments.
Intelligent devices organic sales declined 8% and the quarter, we saw positive year over year growth and motion, where we believe we are gaining market share.
Orders in this segment returned to positive growth a quarter ahead of our expectations.
Software and control organic sales declined 6%.
And the quarter, we saw year over year growth and network and security infrastructure.
Lifecycle services organic sales decline of 16% was led by continued weakness in oil and gas, we did see of 25% sequential uptick and lifecycle services orders and the quarter, which will drive sequential sales improvement during the balance of the year.
And the information solutions and connected services organic sales were down slightly in the quarter, primarily due to Covid related project delays. However, we saw a double digit organic orders growth and ISS as well as strong demand and the cyber security portion of connected services.
ISC spilled backlog by about 30% versus prior year, and we expect <unk> to have a great year overall growing double digits and fiscal 'twenty, one with the organic sales exceeding $500 million.
Total backlog grew strong double digits on an organic basis, both year over year and sequentially.
Lifecycle services book to Bill reached a record $1, one eight reflecting a significant improvement both sequentially and year over year.
Turning to profitability segment operating margin performance of 20% and the quarter was roughly flat with last year on lower sales and a testament to our increasing business resilience.
Adjusted EPS grew 11% versus prior year, including the legal settlement gain.
Excluding the gain adjusted EPS came in above our expectations for the quarter.
Let's now turn to slide four where I'll provide a few highlights of our Q1 and market performance.
Yours are for organic sales.
Our discrete market segment sales declined by approximately 5%.
However, we saw strong broad order momentum in the quarter, particularly in North America and should benefit sales performance for the remainder of the year.
Automotive sales declined approximately 10% versus prior year with mid single digits growth and EMEA offset by tough comparisons and other regions.
Our EV business significantly outperformed the rest of automotive and included key wins from major auto brand owner in Europe and is building a new line for EV battery manufacturing.
We also won at of European Tier, one OEM, who chose our independent cart technology for the precision motion control necessary to build new electric vehicles.
These were both hard fought wins, where our strong customer support and technology differentiation were important factors and our success.
Semiconductor grew low single digits and the quarter and is expected to improve significantly over the balance of the year.
The strong secular tailwind and this vertical of prompting some of our largest semiconductor customers to increase their capex spend this year.
As a result, we are raising our semiconductor outlook to high single digit growth for the year up from our original guidance of mid single digit growth.
Another highlight within discrete was our performance and E commerce.
The sales growing approximately 40% versus prior year.
This is obviously another industry with secular tailwind and we are well positioned to provide value that will continue to support its tremendous future growth.
Our independent cart technology as the long term differentiator here as it is and battery assembly and the packaging of consumer products.
Turning now to our hybrid market segment. This segment grew by low single digits and accounted for 45% of revenue this quarter and food.
Food and beverage grew low single digits.
In addition, packaging Oems delivered another quarter of double digit growth versus the prior year.
Life Sciences grew about 10% and Q1, well above our expectation for the quarter led by strong broad based demand in North America.
Thermo Fisher is an important part of the vaccine ecosystem and we were very proud of this quarter to be awarded of significant multi year enterprise software order to supply of software and professional services to enable the farm of 4.0 initiative and drive their COVID-19 readiness and response.
They chose Rockwell is factory talk innovation suite, which uniquely integrates mes Iot analytics and augmented reality and the single software solution to drive productivity.
<unk> and combination with strong pharma industry expertise full lifecycle services and best in breed digital partner ecosystem.
Key factors and why Thermo Fisher selected Rockwell.
Well Theres a lot of focus on a roll and vaccine formulation. We're also working with the broader vaccine ecosystem to support packaging and distribution requirements for every.
The one pound of vaccines being shipped 20 to 30 additional pallets of vaccine and accessories are required.
Based on the broad based increase and life Sciences demand, we're now expecting life sciences to grow mid teens and fiscal 'twenty one.
Process markets were down approximately 25% and weaker than we expected led by larger declines in oil and gas price.
This vertical is typically lag our discrete business by about half of year.
Turning now to slide five and our organic regional sales performance and the quarter North America organic sales declined by 11% versus the prior year, primarily due to sales declines and oil and gas and automotive.
Business conditions improved significantly through the quarter and were reflected in strong product orders.
EMEA sales declined 8%.
Led by oil and gas sales.
Sales from food and beverage and water customers was strong and the quarter.
Sales and the Asia Pacific region declined 7% largely due to declines and process industries that were partially offset by growth and mass transit and semiconductor.
Asia Pacific backlog reached a record high and the quarter and we do expect strong sales growth and the region for both the upcoming quarter and full year.
And China, we saw growth in auto for some important Greenfield EV battery wins sequential orders growth and Q1 and double digit year over year growth and backlog support our full year sales growth outlook and China to be above the company average.
Latin America declines were led by oil and gas and mining.
And the region, we saw good growth and food and beverage and tire.
Let's now turn to slide six to review highlights for the full year outlook.
Orders momentum and the first quarter is expected to drive strong growth and the balance of the year.
Higher topline guidance is primarily related to improvements and the outlook for life Sciences, and E Commerce, and North America, as well as and our global outlook for semiconductor growth.
Our new reported sales outlook assumes 10% year over year growth at the midpoint, including 6% organic growth.
We expect our new software offerings and expanded services will drive double digit ADR.
Our growth and fiscal 'twenty, one and a new hires will be focused on this objective.
Our new adjusted EPS target of $8 90 at the midpoint of the range represents 13% growth over the prior year.
A more detailed view into our outlook by end market as found on slide seven.
And we'll go into the details on this slide but as you can see we expect positive organic sales growth and all of our key end markets. This year with the exception of oil and gas.
A market uptick in orders for Cimzia and the latter part of Q1 sets the stage for improving sales later in the fiscal year.
With that let me now turn it over to Steve who will elaborate on our first quarter performance and updated financial outlook for fiscal 'twenty one Steve.
Thank you Blake and good morning, everyone I'll start on slide eight first quarter key financial information.
First quarter reported sales were down seven 1% year over year.
Organic sales were down nine 7% acquisitions contributed one eight points of growth and currency translation increased sales by 0.8 points.
Segment operating margin was 19, 8% slightly below Q1 of last year.
This is the second quarter in a row and segment margin was about flat year over year, despite lower sales. So the good results.
Corporate and other expense of $28 million was down about $5 million compared to last year last.
The last year's amount included transaction fees related to the formation of the sense of the joint venture.
Note that previously we referred to this line item and as general corporate net.
The adjusted effective tax rate for the first quarter was 15, 4% compared to eight 3% last year the.
Increase and the tax rate is primarily due to a large discrete tax benefit recorded in Q1 last year related to the formation of Cynthia and other discrete items.
Moving onto EPS.
As a reminder, beginning with this quarter, we changed the definition of adjusted EPS to also exclude the impact of purchase accounting of depreciation and amortization expense.
First quarter adjusted EPS was $2 38.
And as Blake mentioned earlier. This result includes 45 cents related to a favorable legal settlement.
Adjusted EPS, excluding the legal settlement was $1 93 identical to last quarter and better than we expected.
We are pleased with this result, since compared to last quarter, we weren't able to overcome of 30.
Headwind from the reinstatement of incentive compensation and the reversal of temporary cost actions as of the end of November.
I'll cover the year over year adjusted EPS Bridge for Q1 on a later slide.
Free cash flow was $319 million and the quarter, including the $70 million legal settlement.
And free cash flow conversion was 115% of adjusted income.
One additional item not shown on the slide.
We repurchased 356000 shares and the quarter at a cost of about $88 million.
This is in line with our full year placeholder of about $350 million at December 31, $766 million remained available under our repurchase authorization.
Slide nine provides for the sales and margin performance overview of our operating segments.
As a reminder of this is the first quarter, we're reporting under our three segment structure of the news of $3 segment structure.
The intelligent devices segment had an organic sales decline of seven 9% and the quarter segment margin was 19, 4% of 130 basis points lower than last year, mainly due to lower sales, partially offset by temporary and structural cost savings.
As Blake highlighted earlier, we had a strong order performance and the quarter and particular in the product businesses and.
<unk> and devices orders grew low single digits year over year and high single digit sequentially.
Software and controls segment organic sales declined six 2% and the quarter.
Acquisitions contributed two 7% to growth and segment margin was 32%, which was 80 basis points lower than last year's strong margin performance, mainly due the lower sales, partially offset by temporary and structural cost savings.
Software and control orders also grew low single digits year over year and high single digit sequentially.
Organic sales of the lifecycle services segment declined 16, 3% year over year as the recovery and this segment's offerings tends to lag of our products businesses.
Acquisitions contributed three 9% of growth and.
And operating margin for this segment increased 50 basis points to eight 9% versus eight 4% of a year ago, Despite lower sales.
Contributing to the lower year over year margin improvement I'm, sorry, and contributing to the year over year margin improvement were temporary and structural cost savings and the absence of essentially of onetime items recognized in the first quarter of fiscal 2020.
First quarter book to Bill performance for the lifecycle services segment was $1 1 million a strong start for the year.
The next slide 10 provides the adjusted EPS walk from Q1 fiscal 2020 to Q1 fiscal 2021.
Starting on the left core performance had a negative impact of about 25, <unk> driven by lower organic sales.
Temporary cost actions, partially offset the sales impact by 'twenty.
These were the salary reductions and for one came out of suspension that we implemented in Q3 of fiscal 2020, which remain in effect through the end of November 2020.
Incentive compensation was the year over year headwind of about 10.
Tax was a headwind of about <unk> 10, primarily due to the sense of it related tax benefit recorded last year and other discrete items and.
Acquisitions contributed about <unk> the.
This represents a positive contribution from acquisitions that we completed in 2020, and so far and 2021.
As a reminder, since it has now reported and core <unk>.
Finally, as mentioned earlier the legal settlements contributed 45 to adjusted EPS.
Moving to slide 11 monthly product order trends.
This slide shows of order daily order trends for our software and control and intelligent devices segments, excluding the longer lead time configured to order offerings.
The trend shown here accounted for about two thirds of our overall sales.
Order intake for products improved again this quarter as the recovery continues.
As you can see there was a sharp acceleration and demand in November and December.
Orders for the lifecycle services segment also improved in the quarter, but our recovering slower than product orders.
The strong order performance resulted in record total company backlog, alright, and over 20% year over year and double digits sequentially.
Our quarterly product, where the trends are shown on slide 12. This is the same data and as the prior slides summarized by quarter.
Our order levels and the first quarter and are now clearly above pre pandemic levels, both for products and the total company.
This takes us the slide 13 updated guidance.
We are increasing our organic sales growth outlook by one point the new range is for 5% to seven 5% with the midpoint of 6%.
Given the weaker U S. Dollar we now expect currency translation to contribute about two 5% of growth, we expect acquisitions to contribute about one 5% and.
In total of the midpoint of our reported sales guidance range is 10%.
We have also updated the adjusted EPS guidance range to $8 70 to $9 10.
I'll review the bridge from the prior guidance midpoint to the new $8 90 midpoint on the next slide.
Segment operating margin is now expected to be about 19, 5%.
And the lower margin compared to prior guidance reflects the software investments the Blake mentioned earlier and the impact of the fixed acquisition.
These will primarily affect the software and controls segment and will be weighted towards the third and fourth quarters.
Our adjusted effective tax rate is expected to be about 14% for the same as prior guidance as mentioned last quarter of this includes the 300 basis point benefit related to discrete items, which we expect the realized late in the fiscal year.
We continue to project free cash flow conversion of about 100% of adjusted income of.
A few additional comments on the fiscal 2021 guidance corporate and other expense is expected to be between 105 and $110 million.
Purchase accounting amortization expense for the full year is expected to be about $50 million.
Net interest expense for fiscal 2021 is still expected to be between 90% and $95 million.
Finally, we're still assuming average diluted shares outstanding of about 117 million shares.
This takes us to slide 14, the slide bridges, the midpoint of our November adjusted EPS guidance range to the midpoint of our new guidance starting on the left.
There is of higher contribution from core operating performance, primarily due to the higher organic sales guidance.
Currency is projected to add about <unk> <unk> compared to prior guidance.
Next given the increase and guidance there was about a <unk> <unk> impact from higher bonus expense.
Finally, there is the 45% contribution from the Q1 legal settlement, partially offset by about 35 of.
Of the incremental investments and the impact of the <unk> acquisition.
The new midpoint of the guidance range of $8 90.
And finally, a couple of quick comments regarding fiscal Q2.
Given our strong order performance in Q1, we expect Q2 sales to grow sequentially and to be about flat year over year.
We expect second half year over year organic sales growth and the mid to high teens.
As a reminder, as we mentioned on the last earnings call Q2 will have the largest year over year headwind from the reinstatement of the bonus and the range of $50 million.
With that I'll hand, it back to Blake for some additional comments thanks, Steve historically, the pace of recovering demand for our products. After a recession has come faster than we predicted when we were still and the downturn.
This recovery is looking similar so far and we will see Q2 sales and earnings begin to reflect the torrent of orders. We received in November and December with significant double digit year over year of growth expected in the second half of the year.
The rate of infections and the each region around the world has had a direct impact on the timing and rate of their respective economic recoveries. The.
The Americas were last in.
And seemed to be the last of recover with our sales most highly correlated to this geography, given our revenue there.
We are working overtime to meet this demand and staying close to our component suppliers around the world.
We're actively hiring and additional capacity for logics is coming online this month.
The new Milwaukee manufacturing Center is working two shifts of day to keep pace with this increased level of orders activity.
Turning to slide 15.
We're also investing and software development to drive our future growth.
Last November at our Investor Day, we talked about how we will be releasing software as a service within our factory TARP portfolio to add value and the design operating and maintenance phases of the customer's investment lifecycle of the.
And the recent legal settlement gain will allow us to advance these deliverables.
Recent acquisitions are playing an important role and these offerings as well with fixed software central to factory talk maintenance hub within the software and control business segment.
It is already showing great momentum and just book their first million dollar annual recurring revenue contract.
The leadership is already of part of the larger plans for accelerating our SaaS offerings.
And it all begins with great people and I continue to be immensely proud of our employees and all parts of the organization and around the world.
We continue to hire top talent and the two new members of the team we announced today will add to an already great leadership team.
With that let me pass the baton back to Jessica to begin the Q&A session. Thanks.
Thanks, Blake before we start the Q&A I just want to say that we would like to get to as many of you as possible. So please limit yourself to one question and the quick follow up thanks, Michelle let's take our first question.
As a reminder, I would like to.
Adjusted Your press Star one on your telephone keypad to ask a question. Please press star one.
The first question comes from John inch from Gordon Haskett. Your line is open.
Hi, Good morning, everyone, It's Karen Lau dialing in for John Good morning.
Hey, Karen.
Hey, I was wondering are.
Are there have you guys seen any signs of them you.
You know maybe the order of sales comes from Eric and slowing down given the renewed flare up and Covid cases around the world and you.
The of China.
And U S. Obviously.
Have you seen any moderation in sales conversion and understanding that the trends that's been very strong, but curious if there is any underlying moderation.
And you know beneath maybe some sort of a budget flush and the year and give you can comment on that.
Yes, so a couple of a couple of pieces of that first of all the orders continue strong.
And the early part of January So we don't see significant.
Causal for what we saw last quarter.
And tailing off because of any sort of budget flush. So we see those trends continue we do obviously continue to see challenges, particularly with our longer cycle solutions business due to continued mobility challenges as infections of stayed high and.
Around the world, but we havent seen any new.
<unk>.
Obstacles placed with the with increased infections.
Okay, that's great to hear and.
And then my other question is on E. Commerce, I don't recall, you guys and the past calling out of this end market in particular.
And he obviously has been the very strong market for some time, so I'm curious if the.
And if you're positioning or anything has changed over there and.
Can you comment if you can comment on how big it is and what's like how is your positioning and the potential and so forth.
Yes, so so our role and.
Distribution of fulfillment centers has always been good we've always had.
Strong presence and the core automation there in terms of conveyors and sortation of great fits for our core technology, what's changed and why we're talking more about it is first the explosive growth of the end market itself, which I don't think shows much sign of slowing down and two we do have.
Even improved offerings too.
Be able to serve that market.
Independent Cart technology as an example, where we really differentiate we talked about that last quarter with respect to that Navy win.
<unk> and E commerce, as well and some of the potential opportunities there and make the Navy order looks small with respect to independent cart technology, and it's a form of precision motion control. So it's really a combination of the market expanding as well as our readiness to serve going even.
Higher.
It's still a relatively small small part of our total business, but we expect that to increase as a percentage of our total sales and the.
The quarters and years to come.
That sounds great. Thanks for the color.
Your next question comes from Julian Mitchell from Barclays. Your line is open.
Hey, good morning, and this is Jason on for Julian and so maybe just a couple of questions on the extra 35 cents and the investment spend.
Maybe a little bit more color on the timing of how we should expect that throughout the year and then if this is the new run rate of investment standard that should step down in 'twenty and 'twenty two and then just more of a program margins are.
Apart from the temporary cost of very soon is there anything abnormal to call out.
So.
I'll make a couple of comments and then Steve Steve will add the investment spend is expected to pull forward. Some of the development programs that we've been working on and our software area and specifically.
And with an eye towards increasing the contribution of software as a service to our annual recurring revenue next year, but it is expected to be one time investments that we can make to accelerate it not that automatically go into our run rate and so the investments we're.
<unk> selected specifically for that reason to increase revenue beginning as soon as next year, but but without going into and ongoing run rate.
And then and as it relates to the 35%.
Of about 10, or so of that related to the fixed acquisition the dilution from that and the remainder of two the software investments that Blake just described and as it relates to the timing you can think of it mostly affecting the third and fourth quarter.
And of both items and as well, it's all on the software and controls segment.
That's very helpful. Thank you and then maybe switching gears and Asia sales down 7% seem to underperform and factory automation and peer company can you just talk more about what's going on that reason and maybe what the business did specifically in China.
Sure.
So in general.
Position and China is.
And really strong with later cycle businesses, we've talked before about the higher percentage relatively towards longer lead time solutions.
Targeted at the end users as opposed to earlier cycle business that would be centered on indigenous machine builders and I think youre seeing some of that play out with respect to China now in China, We still see great opportunities and we've had some exciting wins.
Recently, and the EV mass transit and water wastewater and our software is a differentiator there so I like our position there, but we're going to pick up the pace as we as we go after that market with new opportunities new go to market.
Strategies to complement what we're already doing there.
Got it thanks.
Thank you.
Your next question comes from Steve Tusa from Jpmorgan. Your line is open.
Hey, guys good morning.
Hey, good morning, Steve.
Can you just.
Just remind us of on on the kind of the product.
Order trends.
And what's kind of the cycle time on those orders turning into sales.
Okay.
So those are typically characterized as weeks.
And those trends, we excluded the longer lead time configure to order lineups of power control. So when you look at those trends those are typically turnaround that are measured in weeks and an average of lot of that of course hits on our distributor shelves, so when and end customer places an order.
And for it and then it can be fulfilled within hours or a few days.
So are you confident that this is and if that's the case of your competencies and like a restock.
We are because we have good visibility into our distributors' inventory management practices and their buys are based on underlying and customer demand. So they'll be buying on us based on what they see from end users and integrators and panel builders.
And the other point is that we saw continued strong orders into the first part of January So we're not seeing any evidence that there's a large portion of this due to distributor restock due to our visibility into their inventory management practices got it and then just one last one.
And kind of the raise of the organic guidance and the.
The cut to the margin.
You May have mentioned this earlier, but just curious as to you know what.
What's driving that.
And that kind of lower leverage if you will.
So.
Some of it and I'll ask Steve to the top this up but some of that is due to the investments we did decided to make from a portion of the gain from that legal settlement. We mentioned so we made the decision to make investments that would be one time investments in fiscal 'twenty one to pull for.
Word the recurring revenue that we can get from certain strategic software development projects. So we expect to be releasing software as a service for automation software for information management through the next year and we expect that to impact our revenue next year, but.
This does not go into the run rate so those increased investments where do to accelerate that but theyre not necessary.
Part of our recurring spend base, that's the great thing, Steve the other thing as well and the.
The segment P&L.
The settlement gain is outside of the segment operating earnings, whereas these incremental investments and the <unk> impact our and segment operating earnings of <unk>.
We're seeing basically the one side effect come through the margin.
Alright, thanks for the color appreciate it.
Yes.
And your next question will come from Andrew Kaplowitz from Citi. Your line is open.
Hey, good morning, guys.
And Andy.
Blake, it's not really of surprise that you took up your discrete and hybrid organic sales expectations of maybe took down process a little bit but you did mention that you saw a pick up but since you had towards the end of Q1, and obviously, we've seen the spike in commodity prices. So as you see the stable stabilization now overall the process related bookings and have you seen any bigger uptick.
And especially on the mining side.
So the.
The fundamentals for for mining, particularly of copper are.
<unk> given the the price per pound of copper well above $3.
And while that presents a little bit of pressure on price for our materials. We don't use of lot of raw materials like that so the benefit the potential benefit of new projects by the miners.
Ways and.
And any near term cost pressure on us.
I think there were some big projects out there that we're looking at I know of a few that we're tracking in Latin America.
We haven't seen it yet in terms of mining, but I would say, we're more optimistic about that and then in terms of quick oil and gas recovery on oil and gas I did mention that we saw some.
Good orders and sense of towards the back half of Q1. So the latter part of Q1, we did see some orders that will support the sequential sales improvement through the balance of the year for oil and gas.
That's helpful. Blake and then just stepping back obviously, you talked about orders picking up maybe faster than you expected could you talk about how much of the pick up and you think is just sort of normal cyclical recovery versus the secular trends. We've been talking about here you know re shoring step ups and resilience to improve the single source of failure you talked about.
The comments, a little bit, but also focus on ESG and energy transition how much is all the stuff sort of helping with the order recovery.
And I think it fortifies the strength of the recovery, we have more ways to win so it's not just the recovery of the general core automation and MRO spend.
Being a larger software portfolio services cyber security services, that's in the neighborhood of $100 million for this year. These are offerings that we didn't really have in past downturns and so I think we can participate more fully as customers try to accelerate out of the curve and.
Terms of their digital transformation plans.
Thanks Blake.
Thank you.
And your next question will come from Rick Eastman from Baird. Your line is open.
Yes, good morning, and thank you.
Blake.
Could you maybe speak to the per minute or two we've seen some fairly aggressive kind of EV expectations for the number of models here over the next three years and.
And I'm and I'm curious your perspective, there around the investments and bringing those models to markets the market around Evs and how do you view that as is that more than a zero sum game versus investment and trailing ice models.
So maybe that's my first question and then just the follow on with that are you starting to see some order growth around the significant EV model build forecast, where does where does that spend kind of been a and a pipeline if you will.
So.
We've always said debt.
Our auto business in general is it's based more on model changes new models, new cockpit designs and things like that then the the raw Saar count.
And if you think of the EV launches as new models.
And then that's positive and I think it is above of a zero sum game. So I think the opportunities are higher than just ice going down EBIT going up at the same amount. These are new projects.
Projects as we've also talked about we can participate in all of the traditional ways.
And of.
That automation is needed to build a vehicle in terms of body and paint and stamping and and so on but we also have a higher readiness to serve and the drivetrain with our capabilities in terms of battery Assembly and so on so there is a mix opportunity.
And our customers share opportunity there as well as the increased reliance on software to schedule the units and these EV plants. The mes offering that we have is being looked at as more market serving as opposed to a nice to have it's being looked at as somewhat of an essential.
Part of a modern automobile factories. So those are all very positive things for.
For Us I would also say if.
The the focus on made in America.
Pertains to fleets being made and the U S. That's obviously, a good thing for us as well.
Given our strong position with with within that geography, and within many of the EV brand owners.
Very good and then just as a follow up for.
And life Sciences, and again, we saw the strength and the in the book to Bill There and just.
And maybe a thoughtfully go round.
Content greater within the life Sciences marketplace, where are we seeing just the accelerated spend.
Kind of the pandemic if you will.
The defensive spend that we're seeing across the board, whereas our content also greater there as well.
I think it is and it is expanded customer share as well as the as the market.
For automation and information expanding and you think about the things that we're providing to these companies. So it certainly includes the core automation and our capabilities in terms of formulation as well as packaging track and trace but then when you look at additional.
And <unk> that we can provide the software that we're providing and again in this space. It's not just on top of our core automation. It's on top of competitive control platforms. So it's another way to win the augmented reality that we have through our relationship with with PTC is being used and many of.
These facilities and then cyber security services.
The fast growing part of our offering is something that's critically important to these life sciences customers.
And now more than average.
Great. Thank you thank.
Thank you.
And your next question comes from Joe <unk>.
Daniel from Cowen Your line is open.
Hey, guys good morning.
Hey morning for Jim.
Just curious on auto obviously of a big ramp and the rest of the year.
And with the shortage of going on and semiconductors. Obviously, you are not on the production of vehicles side of things, but what's the risk that if that drags on longer and that has delayed some of the investment spend and putting putting equipment in place.
I think particularly on the EV side. These companies know they need to get units out and the market and and offering to begin to get revenue. There. So I think it's it's given them a lot of headaches, but I still see.
Pretty dramatic uptake and the size of the project funnel that we're looking at and automotive. So when you look at that funnel of Capex projects.
And the auto our folks are telling us that they are really seeing a pretty market increase and that funnel I think that again the.
Semiconductor.
Shortages that they are fighting with.
We're going to be of hassle for them, but I don't see it causing them.
And to add significant additional delays to to these major projects because they know they have to get their brands out there and the EV market.
Okay, Great and then just last for me.
The temporary savings was the benefit this quarter does that flip to a give back starting next quarter.
So year over year, the temporary savings should should now be of net zero basically for Q2.
We've restored the.
The salaries and the four one K match so.
So that's that's a.
That's basically and that's the year on year over year now we have talked about the bonus.
<unk> is a big year over year headwind in Q2, and it's about $50 million.
Last year, we reversed all of our bonus accruals and the.
The second quarter due to the downturn and this year we're accruing.
All of above target now.
Okay. Thanks, guys.
Thank you.
And our final question for today will come from Noah Kaye from Oppenheimer. Your line is open.
Good morning, Thanks for taking the question.
And that's really just on the software.
The accelerated investment here and just want to understand and kind.
Kind of combining this with your of bringing in a chief revenue officer, and how much of that spend and there's really for actual product development.
Versus the go to market change or you know and investment and the selling infrastructure.
Do you feel you have the rights for the sales infrastructure in place.
To accelerate the adoption of of software as a service any kind of changes do you think you need to make and sort of of the selling strategy.
The business model there if you can talk about that would be helpful.
Sure.
And the vast majority of the additional spend that we're making is and the development of the software. So it's and software as a service that will be.
<unk> two released in the coming months and over the next year or so and it's our automation software and so this is right at the core of what we do.
Interfacing with our intelligent devices and leveraging that Homefield advantage that we have really right at the convergence of it.
And operational technology, so, it's mostly going into the software development.
Because as I said, it's mainly of one time investment that doesn't go into our ongoing run rate. We've previously talked about doubling the number of our software of specialist assisting our general account managers, that's not a one time cost that's an investment that we've previously talked about and that is.
Increasing our approach is really two fold with respect to selling more software we have a large and growing number of software of specialists as well as technical consultants to assist with those sales and then we've got our general account managers, who more and more are coming in.
With inherent software understanding as well and they've got big portfolios to sell to our customers, but I like that I like having a single account manager of that can draw of these various resources because it simplifies how our customers interact with us and it also puts an emphasis on solutions because we sell our.
Software, but it is part of a collection of offerings that provide outcomes to those customers. So we typically involves hardware and it involves software it and of all services and sometimes we're actually integrating the project ourselves one of the things that Scott brings into the CRO role is a really.
A good understanding of how all of those things come together and how it is provided to the customer as the solution and how to describe that to increasingly senior levels of our customers because it's not just selling the plant engineers planet plant managers and design engineers were of.
Bigger part of our customers' digital transformation with this expanded portfolio and so we're talking to people higher up and the company.
Yes that makes a lot of sense and thank you for the color and I wanted to just touch lastly, you mentioned there is a portion of the.
The investment of your practice and that is for ESG and spend and I was curious if you could give us a little bit of details on debt I don't know if you would.
Care to quantify it but.
In general what is what does that spend driving force.
Sure. So a couple of things I mean, we announced our carbon neutral goals during Investor day, and so that's what we're doing within our own facilities and so we are spending.
And sizable amount of money I mean, and the millions of dollars to make sure that we're going out of fast pace in terms of advancing those the ESG goals and our own shop, but maybe even more important as it as an overall impact is what we can do for customers. We've always had a big impact on their energy.
And <unk> C and their plants, but there are other areas like recycling and our role and the circular economy.
Renewables those are things that we're looking at new offerings and to be able to help our customers meet their own ESG goals.
Alright, Thank you very much I appreciate it thank you.
This brings us to the end of our Q&A session and I will turn the call back over to the presenters for closing remarks.
Thanks, Michelle I'll now turn it back for Blake for a few final comments. Thanks, Jessica in summary, we're very pleased with our very strong orders performance in the quarter and recovery and manufacturing is clearly happening at a much faster pace and we were anticipating and we expect that to result in strong revenue growth for the balance of.
Of the fiscal year.
Very excited about the new software product launches that we have lined up over the next 12 to 24 months and the new talent, we are bringing onboard with fix and or low as well as our new leadership additions that will accelerate our growth and drive higher recurring revenue and the future.
Nobody is better positioned and Rockwell and our partners to bring information technology and industrial operational technology together.
It's an exciting time to be aligned with Rockwell and we thank you for your interest and ongoing support and be well.
Thank you everyone. This will conclude today's conference call you may now disconnect.
Okay.
And.
And.
And.
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