Emerson Electric Co. (EMR) Earnings Call Transcript & Summary

All right. Great. We're going to move along here with Emerson, CFO, Mike Baughman. What's your title now? COO, I mean, you've done so much of this company. But COO, Ram Krishnan, from Investor Relations, Colleen Mettler of Emerson. All of you, thank you so much for being here. Really excited to have you.

And let's just start with the usual intro question, which is house business. And any updates that you guys wanted to give from a fundamental perspective here relative to the last time we talked?

Yes. So consistent with what we said in our earnings call, I think we feel pretty good about where we sit. I'll comment on orders. I think orders we exited Q1 with 4% underlying orders. We're going to do low single digits in the first half, strength in process, hybrid, strong funnel offset by weakness in discrete, which as it recovers into the second half. We'll get into mid-single-digit to orders growth and exit the year at around mid-single digits. So that's from an orders perspective. From an underlying sales perspective, 10% in Q1, Some liquidation of backlog as we go through the year, but our backlog overall remain at very, very good levels at about $7.6 billion. We built about $500 million of backlog in the core business and added another $500 million with NI. And the pace of business is -- we look very closely at the project funnel, which is a very healthy funnel at $10.4 billion. We built about $200 million into the funnel in terms of size. We're yielding about $400 million to $500 million from the funnel every quarter, which fuels our project business. KOB3 remains strong at about 65%. So we feel very good. The underlying trends, the secular tailwinds around reshoring energy security and affordability, the software trend in our customers as they digitize their operations and certainly, the spend around sustainability and decarbonization remains very positive. We believe the discrete cycle will certainly turn. We've had 4 quarters of down orders. This quarter will be another quarter of down orders and then will turn positive into the second half and into '25, and that should fuel some good momentum on the order side. But the process hybrid capital cycle has been very disciplined. And with the tailwinds I described, we expect consistent growth in the process hybrid side of the business.

As you've moved through the current quarter, is there -- everything seems on track. But is there anything that's -- anything have been around anything a little bit better, a little bit worse from an end market perspective?

No. I think consistent with how we laid out the year, I mean, if you look at our businesses, the business is exposed to process and hybrid, our Final Control business, our Measurement solutions business and our Systems business continue to operate with the high single-digit growth. Now some of the businesses like Measurement Solutions, which had a 28% sales growth in Q1, driven by improving supply chains and liquidating some of the backlog. So strength there. Certainly, the pace of recovery in the discrete business is consistent with how we laid it out. But we really need to get through Q2 and into the second half before we really see that recovery come through. From a world area perspective, our Middle East, India business is growing at double digit, strong double digits. Surprisingly, we're seeing good performance in Western Europe. Western Europe printed 10% underlying sales growth in Q1, and our Latin America business has been strong. China, printed a 9% Q1 growth -- sales growth, and we expect mid-single-digit growth in China. Majority of our China business is exposed to power and chemical, 2 industries that continue to spend. So we feel pretty good about China. And North America has been low single-digit growth. I mean we're watching the moratorium on LNG very carefully. It doesn't impact our business this year or next, but it's something we hope will turn around because it's a big part of our funnel and an important part of our funnel.

So just digging a little bit deeper into that. China now is roughly 10%, 11% for you guys?

11%, correct.

And then how big are Middle East and India kind of combined?

So $1.5 billion in Middle East and India. China at $1.9 billion. So I think that's the region we will see. And frankly, I was telling the group just before this meeting, that's really what makes us feel good is we see another robust region with capital cycle rival China in size, and we expect that investment profile in Saudi, Qatar and certainly India to continue ADNOC in the UAE to continue at a pace that can rival China. So China will still grow for us, but it's grown at high single digit in the last 10 years. It will slow to mid-single digits, but we expect double-digit growth in $1.5 billion region to somewhat balance out a slowing China.

And can we just dig into discrete a little bit like what do you -- people say recovery in discrete, everybody says recovery in discrete, but I think there's dramatic differences between what recovery means between different companies. So when you guys say you're expecting it to recover in the second half, like sequentially, what does that really mean because there are some companies out that are like strong double digit. And if you are counting on a meaningful pickup there sequentially, what are the verticals within discrete that you're kind of counting on and that we need to watch?

Yes. So we have 2 businesses with which -- so we have our discrete automation business and then we have NI.

Yes, putting NI side.

Putting NI aside. So in the discrete automation business, I mean, we have baked in very modest sequential recovery in pace of orders in the second half. That will translate to orders growth because we had a dip in the second half of last year, and that's really how we've modeled it. So modest sequential gain, which is obviously driven by automotive, semiconductors, some of the industrial and commercial accounts we have exposure too. And so we feel pretty confident about that. We haven't built in a huge recovery in China. So we're very -- we have a very cautious model laid out, but that will lead to orders recovery and growth into '25.

You guys are really good at the macro work around the funnel and the projects that are out there. Lots of valid concern around the EV build-out here in the U.S. as far as the factories. There has been some pushouts of semiconductor plants which in my mind is that's like when you say U.S. manufacturing reshoring like that's the bulk of it. So what's your -- how are you seeing those projects move at all? Or are they still pretty rock solid from what you can see?

So I'll take semis first. Our semiconductor business with NI now is about a $550 million business. NI brings the big element of about $350 million to $400 million in semis. It's important to understand where we play in semis is RF and mixed signal. We're not big into memory and logic. And so the modernized chips that were the reshoring and the investments around 3 nanometers and the modern chips, that's not where our exposure is. Our exposures and the likes of TI and ADI building chips for companies like Emerson on the industrial side who consume them in industrial sensors and PLCs and DCS. So that we believe is going to -- that capacity continues to be added at a very reasonable pace. There's reshoring happening. TI, for example, has a huge capital budget, and they're betting big on being the analog company of choice. So we feel good about the pace of recovery. Now it will come later than when memory and logic recovers and capacity, whether it's in Sherman or certainly in Oregon, that's been added for the RF and mixed-signal pace, the investments Qualcomm is making, we feel pretty comfortable about that. On the EV side, EVs are about $175 million business for us. So it is an important business, but not of the scale of a semi or life sciences or metals and mining. There, we do a lot of the work on battery validation. It's not contingent on a plant being invested in. It would be good if that's a follow-through, but a lot of the companies like GM and Tesla are working with us on the battery validation side, which is where NI plays, and we expect that is a temporary pause. We'll expect that business to come back and we feel pretty good about it.

So then in the core discrete business, like what are you counting on? Is that some of the machine builders in Europe? This modest sequential uptick, like what -- it doesn't sound like it's semis or EVs. What are you counting on in that for that sequential uptick?

Primarily machine builders. It's the machine builder.

It's the term machine builders. So what are you seeing there? What are you -- I think that business was very strong. It went down. It's kind of stable. Any signs of life from those guys at all?

Yes, pace of orders in Q2 are marginally better than Q1, still down year-over-year. And when we talk to our customers in Germany, which is a big piece of our market, they're bullish about the second half. Now we haven't baked that into our plans because we want to see it come through. I mean these are OEMs, obviously, and where they provide us forecast. So that's what we're watching cautiously. Now the part of their business that they built to serve Europe, we feel very comfortable with. A part of their business that is built in Europe exported into China is what we're watching cautiously on what impact the Chinese economy will have on the German machine building industry.

Got it. On the funnel, how do we expect that to kind of play out over the next couple of quarters? And then, I guess, translated into backlog, where do you see kind of funnel and backlog ending the year?

Yes. So I think the funnel at $10.4 billion, we feel pretty good about. I mean we'll continue to add to the funnel at a marginal rate, $200 million. I mean we'll have -- obviously, we had about $400 million of project wins this quarter, we had about $500 million in the prior quarter. 4% to 5% yield on that funnel is what we expect and new projects will continue to fuel it. It is a very diversified funnel with about $5 billion around energy transition, $3 billion on sustainability and decarbonization. So it is pretty balanced, and we see that continue to slowly move up at that level. Backlog levels currently, we sit at a very good level at 7.1% in the core Emerson, $500 million from NI. So at 7.6, we expect that to remain at high levels through Q3. We typically liquidate about $200 million of that as we go to Q4. That's kind of the plan we have. We'll see how orders manifest in the second half. But irrespective of that, it will still be a very good level of backlog as we go into next year.

And within that funnel and backlog, I mean, you mentioned LNG, maybe talk about how big that business is currently as a percentage of revenues? And what your view is -- I know there's a lot more going on than just the administration and dealing with projects here. It's a global business. So maybe just help us put the LNG issue in the proper context.

Yes. So LNG, obviously, is a very, very global business. Just to quantify it off the $10.4 billion, 17% of that funnel is LNG. So it's a pretty healthy funnel. This wave, which is the third wave we've had, if you go back in the history of LNG, LNG started its journey in 2000. 2000 to 2010 was the wave in the Middle East, primarily Qatar. 2010 to '20 was the U.S., both Canada and the U.S., Russia and Australia, Shell Gorgon was a big capacity addition. This wave is primarily Canada, Texas, Louisiana, Mexico, East Africa and Qatar. That's a 250 MTPA wave, 150 to 170 MTPA of that is already in flight. There's another 100 MTPA which will depend on future approvals and future capacity being added. So we feel pretty good. It's -- on an annual basis, it's about a $300 million to $400 million business, primarily driven by projects and then the annuity stream around KOB3. I think the U.S. moratorium impacts 3 or 4 projects for us, Venture Global Calcasieu Pass or couple of Sempra projects. It's not a big piece of the funnel, and we're winning a lot in Qatar and East Africa. But we're pretty confident that come November and going into '25, LNG is going to come back in a big way.

One thing that is very clear is that we are likely to need more baseload capacity, a power gen capacity here in the U.S. if we want to realize these AI dreams. Maybe talk about your exposure to the utility sector with Ovation. And is that at all -- are there at all like discussion being dusted off on any of that as of yet?

Yes. I mean so obviously, as you know, Ovation, 50% of the power generated in the U.S., the control system is Ovation. We have great relationships with all of the power generation companies. It is a business that's growing low single digits in the U.S. as most of it driven by modernization and KOB3. At this point, it's a great question. I would say it hasn't manifested into a huge power capacity expansion in the U.S. yet. But at some point, that's going to come to light. And if that happens and when that happens, we're going to be well positioned with Ovation. Where we are seeing the investment obviously is in the build out of the grid in terms of the transmission and distribution network, which will manifest itself on the $200 million OSI DGM business that sits in Aspen and consolidates into us. That's really where we are seeing utilities of today fuel their capital dollars. But the point you make is a good one in terms of if electrification has to manifest the power infrastructure or capacity in this country has to get built out. If it does, Ovation is well positioned with the relationships we have to capitalize on.

Okay. Moving to NATI. The business has obviously been through a bit of a downturn here. Maybe talk about the end markets. The orders are down I think...

17%.

17%, but up quarter-to-quarter. What's kind of the trend? And then maybe just talk about the different end markets there, what's growing and what's not? And what the visibility is to more of a bottoming and an easing of the comps there?

Yes. So just NI, from an industry mix perspective, 31% of NI's business is what we call the portfolio business that is sold to universities and research and academia, life sciences and energy. It's a broad spectrum, 35,000 customers sold predominantly through distribution. 23% is exposed to semicon, RF and mixed signal, 19% to aerospace and -- or 19% to transportation, which is fundamentally EVs and ADAS systems into the automotive companies like GM, Tesla, Ford and then 23% to aerospace and defense companies, fundamentally defense but commercialization of space and new applications around space technology. So it starts to make up. So diversified. Q1 ADG, which is the 23% of the sales mix is up 12%, and that is going to have a nice run through this year and the foreseeable future. The other 3 parts of the business are down 20-plus percent. We expect semicon to certainly be the first to recover, easier comparisons plus investments into RF and mixed signal by the likes of TI and ADI. TBU, which is the transportation business next and then eventually easier comparisons and GDP-driven dynamics, PPI-driven dynamics around the portfolio business. So that will be the sequence of recovery around the NI businesses. Sequentially, orders will improve in the second half. But even if they do remain flat, we'll see orders growth into the second half. So on a full year basis, orders will be down low single digits for NI. That's what we're baking in with orders growth into 2025.

And then what about on the revenue side because the revenue is obviously lagging, you guys are working off of backlog. How do we think about revenues here for the next couple of quarters?

So we guided $1.5 billion to $1.6 billion in terms of revenues for the full year, we're going to be in that band. So we feel pretty comfortable about that. So again, I guess, I don't know the math of $1.6 million, so I think will be down low single digits. You can do the math on the $1.5 million versus prior year. But that -- we feel pretty good of landing the ship there. And then as we see orders recovery, we'll plan out '25.

And how do we differentiate this business when we look at either Keysight or Fortive, Tektronix business. How are you guys differently positioned? Because I know there's always read across from those companies. How do we...

So Tek is -- it's pretty -- Tek is purely very much on the upfront R&D side. And I predominantly 60-plus percent of the business is design validation. So it's between R&D and production. Keysight is across the board, but a lot more on the production side. Industry mix, Keysight heavy into telecom. It's not an industry replaying, they got the 5G wave. Tek is more like our portfolio business, broad-based, multiple customers. So NI is a little different from Keysight, but probably closer to Keysight than Tek.

Got it. And then you also have a decent-sized software business here as well. I mean I assume that -- is that -- do those attachment rates kind of move with the equipment? Or is that business holding up and pretty stable?

It has been pretty stable. In some ways, it is a business where they are moving it from perp to subscriptions. We are in the midst of that. So there is some choppiness around revenue associated with that. But net-net, that's going to be -- that's about a $250 million business, high margins, and we want to build out a subscription-based model. They have great capability around test software that is test sequencing, test orchestration, certainly LabVIEW, which is more the design piece of it. It's the graphical programming environment. And then they have an analytics capability with an acquisition. They did an ISRO called OptimalPlus that takes test data from validation or underlying testing, analyzes it and then drives actionable insights to improve product designs or up production yields, mostly in semicon. So we want to build all that out into an integrated test software that does the graphical programming design that LabVIEW has for designing test systems, but also a linked software offering that can then provide higher-level capabilities around orchestration or data analytics.

So revenue-wise, you'll be exiting on a year-over-year basis for this business up on revenues in the fourth quarter?

Yes, fourth quarter revenue, yes.

Yes. Okay. And then on the cost side, maybe going to the synergies you recently raise the synergies, how are we -- so visibility there and things clearly seem to be going better than expected?

Yes, very good. You saw that in the margin numbers. We upped the synergy to $185 million by year 3. We're holding on to our 31% adjusted EBITDA margins by year 5. So it's a logical question you raised, pull forward the synergies held on the 31%. It's a 5th-year number. We want to execute on the synergies and then look for opportunities to invest in the business to up the growth rates. That's kind of the thesis, but we'll relay that out as we execute on the synergy actions. $80 million will be recognized in year 1. We feel good about that. Corporate cost out, optimizing the go-to-market model. Prioritizing R&D investments and obviously a set of actions associated with that, opportunities in direct materials, which is semiconductor, ICs, interconnects, IT purchases, logistics. So we're looking at the entire speed. Airfreight is another opportunity. We see great momentum, great team good leadership. We infuse some Emerson talent in there, a culture, which is customer-centric, focused on innovation. Very collaborative, but most importantly, they've bought into the Emerson value creation playbook in our management system, which is great. That was an unknown coming in. We feel very good. The team is executing at high levels. As the orders turn, I think we'll get the business positioned to continue to perform at a very high level going into '25.

So you're raising the -- you're missing the sales target this year, but your -- you upped your accretion target for NATI. How does that reflect on the incrementals on the way up? Is there any reason to believe that as volumes improve and revenue improves, that you're not going to -- in the first couple of years, you're not going to leverage this, are there going to be costs you have to add? Or is there anything that will be a drag on those margins as you -- as the revenues come back?

No, I think we'll make prudent investments. But at the end of the day, if you do the math, GP is at 75%, synergies coming through business in the low 20s EBITDA margins today. By '26, if you just do the math, we'll be in the high 20s. That's the number you look for and then the 31% by year 5. So the leverage will pretty good.

Yes, like you mean 100% incrementals type of thing.

Yes. Colleen will do the math for me. But yes, pretty good numbers.

And just to clarify, too, we are holding our target for sales at $1.5 billion to 1.6 billion, so you're taking it down...

We're lower than that, but we've actually, I think, better accretion because I think you guys are sandbagging on the synergies.

On the price cost side, what level of pricing are you expecting this year? And what's your latest view on inflation?

2% price, a percent of favorable NMI, 3 points of spread. Last year, it was 4% price, 1 point of unfavorable NMI, 3 points of spread. So it's a changing dynamic. Less price, favorable NMI, 3 points of price cost, green, very confident.

And the incremental margin that you're getting off of that, I mean, that kind of spread would suggest that you maybe should be a little bit better on the incremental margin performance? Is there anything in there like investments or anything like that, that's offseting I know 4x can have a bit of an impact? You guys are conservative on your 4x forecast. Anything you can think of the offsets?

The foreign exchange was a big delta as we came out of first quarter, about $150-ish million. So that certainly is a headwind, as you say.

And down discrete. So I mean, this year, the dynamic, last year -- so mix.

Yes. Okay. And as far as pricing going forward, is 2% now like the right sustainable level? Or are we back to more of a 0 to 1, which is, I think, is what it's been historically?

I mean, again, we'll see how the markets behave in '25, but I think 2% is a good number for us. I think given the quality of the businesses, the technology, I mean, certainly, the pricing power and Final Control and Measurement solutions, we lead in each of these markets. So we will be a price leader. And yes, I see 2% is a good number.

65% MRO. We'll stay above 60%, we believe, and that gives us good pricing pressure.

Yes. You guys tend to get decent amount of price on that. One last one on the businesses, and I have to ask it just to get it out there. But I think if you pull up a very rudimentary analysis in a chart, it looks like process markets follow discrete markets. We get this question a lot. Just to reinforce why this cycle may be a little bit different than the chart would suggest on that front?

I think capital discipline. I think it goes down -- Mike and I were talking about it in the plane, over the last 20 years, if you looked at our automation business, you take out the 2 black swan events of the financial crisis and COVID, there's only been one decline in '15 and '16, and that was -- that followed a capital surge in 2010 to '14. Shale, Gulf of Mexico, North Sea, [indiscernible]. We haven't seen that. We haven't -- we've seen very, very disciplined capital behavior by our customers. And then all of the secular tailwinds reshoring. Energy security and the role of gas in shoring up economies, investments in software and then the prudent investments in sustainability and decarbonization. So we don't see it, the capital budgets of all our customers, weighted average low single digits to mid-single digits. Saudi Aramco just put out a 7% number. So again, I think it's a different environment in terms of, there hasn't been a surge in capital for a correction. And so I think that's why we believe that I think momentum will continue in the process market.

Yes. I mean, I go back to like '15 and '16 when all these commodity markets corrected and discrete bumped along because it was at a relatively low level as well. So I think sometimes the people pick and choose what data they want to live by. But on the free cash flow front, it's been tough to tease out conversion of the core. I mean, you're consolidating Aspen, you don't really have access to the cash. So then you bring in NATI, there's some restructuring in there. What are some of the hurdles to getting the core business, including or excluding NATI, the core business to 100% conversion?

Yes. The only big headwind there is tax related. So we have part of the TCJA included this capitalization of R&D, which is costing us about $100 million, $125 million a year, that's a headwind. And as you pointed out, we have the headwinds this year of the $250 million around NI costs, cost to achieve and then the $50 million for CapEx. What we're looking at to kind of gauge how the business cash flows, particularly relative to peer is free cash flow margin. . And we've said we'll be in that 15% to 18% range. If you look at peer, a group of companies in that 16 range, not many over. We believe we'll get over that 16 -- over 16 being the 17/18 range pretty quickly, which would be a better indication really of our cash flow generation. And I like it better because it's all GAAP numbers. It's not an adjusted concept. Everyone has a different adjusted concept for earnings. So -- that's the way we are thinking about it. But yes, we -- the headwind I would call out would be this the tax.

And then as far as NATI is concerned, I think there were working capital opportunities there. Have we seen the fruits of that labor? Or is that out in front of us, the NATI -- core NATI cash opportunity?

Out in front of us. Early days. But that's an important element of how we're going to have to drive value here.

So -- but if I wanted to stick with conversion, it's really that tax number is probably like the best one that's out there?

That's the biggest single headwind, yes.

Yes, it makes sense. I mean it's kind of hard to control that one. Okay. Any questions out there? I mean this whole last 2 days is like literally one question for these companies. I don't know what -- how that reflects on anybody, maybe me. On Aspen, maybe talk about the strategy there and the decision to bring it in fully to the portfolio or you like it the way it is. Maybe just give us an update on your guys' strategic mindset around Aspen.

Yes. I'll give you my perspective. I mean, obviously, I sit on the board and then I'm part of the Emerson team. I mean we like the structure. We like where we sit. I mean there are 3 very important levers we're pulling. One is growth through the commercial agreement. Two is the unlock of the value as we transform the business model at OSI or DGM and SSE. And then most importantly, the technology collaboration as we look at ways in which Aspen and the DeltaV business or the Ovation business can transform into a software-defined automation architecture, which can fundamentally move the industry to a different tier of automation. The commercial agreement is working well, Aspen double-digit ACV growth. 40% EBITDA margin, rule of 50 companies. So the performance is good. I mean, would we want to grow better at a faster pace? Yes, but at this point we like where we sit on how that's manifesting both on greenfield as well as the white space opportunities. The unlocking of value got off to a tougher start in DGM now they're through that. So we feel pretty good about where SSE and DGM are as it relates to subscriptions and tokenizations and getting customers in the utility space to buy into that. Where we're making a lot of investment and will be a longer-term play is to integrate Aspen and the Emerson suite into a software-defined architecture at the enterprise level, where you can design, process design, designed the operations, run control, optimization, supply chain, asset optimization as well as an integrated software offering and a data lake that can collect, visualize, contextualize, democratize the data and drive actionable insights. And that's going to be probably the catalyst to determine whether current structure is the optimal structure where we can do M&A and can we collaborate around that? Or is that a capability we need to have in order to realize the true power of the technology. We're nowhere close to making that decision. I think we're going to continue to execute in the current construct. And at some point, that will be the debate. But the pace at which the industry can move and the pace at which we can drive the industry there will be the pacing item.

So nowhere close. So that means that you likely won't be buying in the rest of it in 2025, when you say nowhere close?

I'm not going to comment on that. I would say definitely not in '24. How is that?

Right. Right. Right. Okay. All right.

Because we move fast, so we could -- you never know.

Yes, nowhere close seems like longer than 2025. All the things move pretty quickly. So I have 2 pretty like generic stupid questions to finish this off. U.S. election, are you guys talking at all in the boardroom about any kind of change in how you're investing, if there's a new administration? And how that would impact some of your business, whether it's from tariffs or changes in stimulative policies...

So I'm going to take a crack at it.

How active is that conversation, if at all, you can say no, too.

No. I mean, we think about it, but I think for us, I'll give you the logic on why it's net-net neutral to slightly positive. I mean I think 3 big pieces, right? I mean, obviously, there's the Infrastructure Act and the CHIPS Act, which I think there's consensus are on both sides. That's going to continue. That's pretty well defined. And the benefits of that will be there, whoever, whether it's Biden or Trump. The piece that will get debated is the IRA because it's early, somewhat confusing and people want to know, okay, what happens to that because there's investment dollars going in. In the case of a Biden win that continues as usual, the green initiatives will continue, we'll benefit from it. In the case of a Trump win, if you look at where the IRA money is going, it's in red state. So we believe that, okay, there might be some slowdown, but it's not a significant change, but the positive is the LNG moratorium or the pivot towards traditional energy investments will be a net favorable dynamic for Emerson. So overall, we feel pretty good that it's worst-case neutral, best case slightly better than neutral. On the tariff side, the regionalization, we've driven the impact of the tariffs will be de minimis on us. But if they -- if we do get tariffs into -- from Mexico or in China, we have enough pricing power to offset it. So we're not concerned. The dynamic around tax...

Taxes, you could argue one way or another, but who knows.

Yes. Yes, that's a tougher one to call. It's all really tough to call. But lastly, on AI. Putting aside your products, which I'm sure some of the process stuff has some AI embedded, but at the corporate level, where are you as far as testing out different use cases from a productivity perspective? I'm sure consultants have been in and shown you a bunch of stuff. Where are we in that process?

So I'll take a crack and then have Mike talk to it. I think it's a broad topic of discussion, we're spending a lot of time thinking about it, and I think we'll catalyze all that in our annual meeting this year as we lay out the road map. But fundamental areas where it can have benefit -- and most of it inside will be in collaboration with the software providers we have, whether it's Salesforce or Oracle. What is the AI capability they build in to significantly enhance productivity in our inside sales or customer service. Our finance transformation journey, what elements of finance can completely transform as our finance modules get workflows where AI can generate a lot of our charts and analysis and data. HR is an element where the copilots and software modules can generate a lot of productivity. So we're looking at and the fourth area is supply chain and the connectivity of the supply chain and the optimization of S&OP and MRP. So that...

I thought you're going to say investor relations.

That's true. Nobody can -- I mean, AI model tried to model the Colleen, it went into a hallucination, it couldn't.

Not going to comment on that one.

But the biggest piece -- so those are in partnerships with the likes of Oracle and Salesforce and others to say what do they build in that we can then deploy. But the biggest piece where we have the opportunity in-house, which is somewhat consistent with the capabilities, we're building into DeltaV, Ovation as copilots is we have a large engineering organization that fundamentally gets specs in from customers and configures a DeltaV system for a particular project. There is obviously AI models that can fundamentally take a customer spec and customer engineer the DeltaV without human intervention. So that is probably an engineering productivity opportunity that most companies will look at, but that's the copilot capability we'll build into DeltaV for a third party who's looking to configure DeltaV. So we are exploring it. It's early, but there are a lot of use cases that apply.

All right. It sounds like things are pretty good.

Yes.

I read that the right way?

That's right.

Okay. All right. Things are good. Thanks, guys. See you.