Rockwell Automation, Inc. (ROK) Earnings Call Transcript & Summary

Hello, and welcome to Rockwell's first and hopefully, last fully virtual investor day that is taking place during what we now call Automation Fair At Home. For those of you that did not participate in our morning session, let me level set you on this year's Automation Fair. As many of you know, Automation Fair is the event of the year for the industrial automation space. Last year, we had almost 20,000 people join us in Chicago, and it was a spectacular event, featuring all of our latest technologies and showcasing the tremendous ecosystem of best-of-breed partners. This year, we had to pivot to ensure safety. And so the event has been modified to take full advantage of the virtual format. I'm happy to report that even with this pivot, as of this weekend, we have approximately 30,000 people joining us for our week-long event. And we are hosting tons of virtual tours at our brand-new, state-of-the-art contactor line here in Milwaukee. This is something that we couldn't have done on a show floor. So it really is taking this virtual format and making something terrific out of it. Now turning to Investor Day. We, too, are trying to make the most out of this virtual format and show you something that would be hard to do any other way. We kicked off our agenda this morning with a global tour of our factories and showed you how we are using our technology to drive significant benefits to our business. I also had the honor of introducing Bart Talloen of Johnson & Johnson, who shared how we are working together to enable J&J's amazing supply chain transformation. And for those of you who have come to our investor days in the past, we typically do a show floor tour to show you what technologies we are featuring with customers. Well, even though you couldn't come to the show floor this year, we brought the show floor to you. Each of our business units did their own virtual tour stop and highlighted the greatest advancements in their business units that will drive growth for Rockwell. Next, we have Blake Moret and Steve Etzel who will review how we are bringing manufacturing to the next level and positioning ourselves for faster, profitable and more resilient growth in the future. With that, let me now pass it over to Blake.

Thanks, Jessica, and thank you for joining us today. I know you heard from Jessica that we had over 30,000 people who registered for Automation Fair At Home this week. But I have to tell you, the last update I saw indicated that we had over 36,000 people who registered for Automation Fair. And they did that because they're looking to learn how to solve their problems across industries, from electric vehicles to medicine making, to mining across multiple countries around the world. So it's a new way of getting the message across and helping to solve problems, but so far, it's been very effective. During the next hour, we're going to explore challenges that industrial companies are facing, our solutions and the benefits of our unique approach. Our strategy is working as a pure-play company focused on our customers' productivity and sustainability. The pandemic has thrown into even sharper focus the importance of resilience, agility and sustainability for ourselves, in our own operations and also for our customers. We are well positioned to accelerate profitable growth as we help the world recover. Our unique approach remains centered around understanding our customers' best opportunities for productivity and describing our value in their language. We're going to talk a lot about how we combine innovation and expertise to bring about positive business outcomes. And finally, we simplify the business of integrating automation into production and simplification drives productivity for our customers and also for us, and that's manifested in our best-in-class margins. You heard Johnson & Johnson and Norbord talk earlier today about their business, our role in it and you also saw our virtual plant tours. Even long-time customers like Norbord are discovering what we can do as we become a bigger part of their business solutions and move beyond being a traditional hardware supplier. I've heard from a number of our big customers, customers who have known us for a very long time who have said that we're moving beyond our traditional role and playing a bigger role in their digital transformation efforts. We continue to address verticals within discrete and hybrid and process. We're focusing on the high-growth areas within each of these segments within the vertical. So within discrete, the electric vehicle part of automotive is particularly exciting, and we'll talk a little bit more about that. E-commerce, we have great solutions for e-commerce. And hybrid, we're, of course, going to talk about life sciences and also about our eco industrial offerings, along with food and beverage, which remains our single biggest vertical. And then finally, process. Process still has bright spots. Mining, the OpEx portion of oil and gas, where Sensia has a great digital software offering, it's a SaaS-based offering we call Connected Production, and it's already adding value even in these tough business conditions for oil and gas operators. Let's talk a little bit about electric vehicle production. Rockwell's had a long history of expertise and performance for traditional production of internal combustion engine-based vehicles, cars and trucks. But on top of all of the traditional processes in those plants, the stamping, the paint shop, the body, the trim and the chassis operations, those don't go away when we talk about producing electric vehicles. But what you have in addition is the battery assembly and other aspects of an EV drivetrain that Rockwell has a particularly good readiness to serve. Some of our new technologies like independent cart are a perfect fit for electric vehicle production. We're providing this value for Rivian as they retrofit an old Mitsubishi plant in Normal, Illinois to start producing pickup trucks and SUVs. They're going to be producing these next year with the help of our technology. We helped retrofit presses. We're adding our software and controlling the basic processes in the plant. And I can tell you that's personally important to me because I'm in the queue for one of those vehicles, and I'm looking forward to driving it when it comes off the line later next year. Another area that's important to me, I think it's important to all of you as well is life sciences. You heard from Johnson & Johnson earlier today -- the trends that we're showing here are all from Bart's presentation, and they're all important to the production of coronavirus treatments and tests and vaccines. By the way, we're involved with virtually all of the major suppliers in these areas. We provide technology that turns the manual processes that can create excess work in process and in the worst case, waste, and turning it into more rapid turnaround and adding traceability that's so important in the cold chain for these sorts of medicines. In mining, customer challenges are not just in the traditional power control that we have a long history of performance in, but it's increasingly in the digitalization of the assets in mining You heard from Metso a few years ago. We talked a couple of years ago about Codelco. This is an example of a customer that's using our software to help in their decision automation. These are processes that take some of the guesswork out of ensuring that they're maximizing the production and the transport of bulk iron ore. We're providing powerful outcomes from innovation and domain expertise together. I'd like to change pace a little bit now and talk about our internal development. This is a slide that we showed last year, and it talked about the major projects that we had underway internally. I'm happy to say that we've delivered on our fiscal year '20 R&D targets, which included some major projects like investing in a new automation software platform and in products that allow us to strategically press in areas where we have lower market share, like Europe and Asia. These include items like high-performance drives, lower cost motion control. We're taking this innovation, and we're turning it into business outcomes. We also got a head start on a number of our fiscal year '21 and '22 deliverables with products launched this month for Automation Fair. These include expanded logics functionality for robot control as part of our universal control initiative and even more cost-effective motion offerings for emerging markets. Process control. We continue to add functionality in our logics processors targeted specifically at those continuous process applications. You'll continue to see new functionality coming out over the coming months and years. Despite the cost constraints we put ourselves under, we continue to aggressively hire software development talent and North American sales talent with specific expertise in software. We're complementing the expertise of existing resources with the fresh perspectives and capabilities of outside talent. And that's really another way that we demonstrate OT and IT coming together. While others were retrenching, we were hiring and have picked up some great talent, including a few new faces that you'll see today. Software is clearly a focus for our customers, and they're voting on our competitiveness with their wallets based on our recent order growth. Our total software business is now over $500 million. I'm not including firmware in there or hardware. That's software and the related support over $500 million. Our IS/CS bucket of information software and the associated delivery and high-value connected services is right around $400 million at the end of fiscal year '20 with strong growth prospects based on the order momentum entering the coming year. I'd like to now turn the show over to Tessa to talk a little bit about that software portfolio.

Our entire FactoryTalk software portfolio is built so that operational performance can be optimized for our customers starting right from the design phase when they're designing their automation and equipment all the way through the complete life cycle of their assets and operation. We have 4 powerful suites in FactoryTalk that we bring to market to help our customers. DesignSuite helps our customers simplify the design of their automation systems. Our OperationSuite has capabilities to help our customers confidently operate and manage their production, quality and uptime of their operations. Our MaintenanceSuite helps our customers maintain equipment health to prevent unplanned downtime, and it helps them quickly restore when a downtime event occurs. And InnovationSuite helps our customers harness information to make faster and more informed decisions. This week, we are announcing a substantial extension of the FactoryTalk capabilities, FactoryTalk as a Service. Early next year, customers will have access to something new, a cloud-native software environment where they can explore and utilize a variety of tools that are focused on all phases of the life cycle. This is just one result of our partnership with Microsoft. The Design Hub will allow customers to simplify workflows, maximize the investments of what they've already installed in their factories and in their plans. We'll extend this later in the year with our next generation of automation software. The Operations Hub is all about reducing the complexity and accessing the real-time data our customers need to gain insights to run their operations. Maintenance Hub will bring our capability of operating asset health and life cycle data together with digital models and analytics to help our customers optimize asset performance. We're really excited about the announcement today of our acquisition of Fiix, an AI-enabled asset management solution, which will be core to our Maintenance Hub moving forward. Now Blake, back to you.

One of the most exciting things that Tessa said in her presentation was about the brand-new acquisition of Fiix. Fiix software spans the divide between manually entered keystrokes and real-time production data. And I can tell you as somebody who spent a lot of time on a variety of different types of factory floors. This is a big deal to be able to have software that allows you to bring together in a common data model the inputs from those transactions that are entered on keystrokes and the torrent of real-time data that's coming from devices like programmable controllers. That's a big deal to be able to harmonize that and link the worlds of maintenance and production. We're thrilled about offering the Fiix software. We're thrilled about bringing that talent into the Rockwell family, and you're going to see more from this space. It's not huge from a revenue standpoint, but it is very, very strategically important, and I'm excited about the months to come as we integrate these offerings. I'd like to now introduce Scott Miller, who will talk about another new as a service offering, how it unlocks tremendous value, and then we'll talk about how our overall go to market is evolving to accelerate software sales. Scott's going to talk about the result of the CEO co-innovation summit with Microsoft that we held earlier this year in Redmond and how it's leading to cloud-native software for faster design of industrial automation projects. Here's Scott.

Hi, I'm Scott Miller. I'm the Director of Technology Management here at Rockwell. I've been with the company for 20 years, and my current role is focused on incubating new technologies for use across our entire product portfolio. I'm excited to share with you some details about one of our most important strategic partners and our work with them, and that is Microsoft. We've been partners with Microsoft for a number of years. As a software vendor, we use their tools, we use their training, and they've been a great help to us as we've developed our product portfolio. However, earlier this year, something special happened. We were invited by Satya Nadella, the CEO of Microsoft, to participate in what Microsoft calls their CEO co-innovation program. The co-innovation program is designed for Microsoft to work with select partners for strategic innovation in joint investments. So once we got the invite, we pulled together a team on the Rockwell side of business leaders and technology leaders, and we partnered with our counterparts at Microsoft. We got together. We did a lot of brainstorming and a lot of collaboration. And then we've put together a couple of concepts that we were then able to pitch to the 2 CEOs in a shark tank-like setting. So after pitching our ideas and our concepts to both Satya and Blake, we were really excited by their reaction. They both gave us the go-ahead to go forward. We're collaborating right now with Microsoft on some exciting new initiatives. And I'm really excited to share with you some more details about both of them. Internally, we call this Project Le Mans and the focus for us is really around ecosystem. It's really around how we can bring our ecosystem partners together more effectively and to allow them to collaborate. And if you think about the ecosystem in industrial automation, it's actually fairly complicated. It's a little bit different than some of the ecosystems and some of the user communities that you might see in other places within the software world. We've got machine builders that are building very complex assets delivering them to end users, system integrators that are working with the machine builders and the end users to pull it all together, and then Rockwell and other vendors and our partners kind of participating to kind of help drive some of that innovation as well. And if you think about the kind of collaboration between those parties, it's often challenging and it's often kind of difficult. Our focus for the innovation with Microsoft is how we take cloud technologies based on the Azure platform and apply them to industrial automation use cases. And so everything that we're doing will be offered by the cloud, through the cloud, and it's really focused on driving value in that ecosystem.

I mentioned before that we're complementing these new offerings with a performance-based partner program that's part of our overall go-to-market evolution. It accelerates software sales, but it also sets very clear expectations on our traditional channels to market as well. Our channel knows that they have to evolve with us to continue to be the premium provider of solutions at all levels of the value chain and all across the world. And so we're aggressively evolving our go to market from distribution to integration to our machine builder programs, to solution providers and alliance partners to make sure that there are clear expectations that are set on what performance is expected and what good looks like. One of our most visible partnerships is, of course, what we're doing together with PTC. We recently announced the extension and the expansion of that program. We added 2 years to it. We changed the key metric to annual recurring revenue because that's one of the important things that we're after from a financial standpoint. And we added products that are adding new value to customers like their SaaS Onshape offering as well as Emulate3D. Along the way, we added separately a great delivery partner in Kalypso, which was a great PTC partner, and we're already seeing the value that Kalypso is providing in these engagements because it's not just about the technology. It's about combining that technology with expertise to ensure great business outcomes. And that's why we're winning. And we're winning on top of installed bases of Rockwell product as well as competitive installed bases. These partnerships are hard to do, I can tell you, but it's working because both sides see the value that they're getting from the combination. We'll now see a video where Jim Heppelmann and I are talking about the extended and expanded partnership. [Presentation]

Well, Jim, welcome to Automation Fair perspective. So really appreciate you taking the time to join us.

Yes. It's great to be back at Automation Fair with you again virtually this time around.

Yes, yes, yes, unlike any others, for sure. It was 2.5 years ago that you and I stood on the stage together to announce the beginning of the partnership, and it seems like a lifetime ago. Since then, just with respect to our partnership, we had our first order that we're all eagerly looking forward to. Then we had our first sizable rollout. And over the last couple of years, we've added additional industries. So I think we've seen some pretty good progress.

Yes, for sure. And Rockwell really has risen to become PTC's biggest and most important partner, really in just those 2, 2.5 years. So I think the partnership has been great from a PTC perspective. There's a lot we get out of it. And what we really have is a partnership that works for customers. And certainly, it works well for PTC, and I believe as well for Rockwell.

Yes. I think so, too, and now we're moving forward. We've added additional time to the formal contract. And I really think we've added some measures that make this even more of a shared effort in terms of working together in integration of the technology that we each have as well as sales efforts; and over time, we've also added additional capabilities. Rockwell has made the recent acquisition of Kalypso, which was a good partner to PTC as well. You've acquired Onshape since then, which is a really exciting SaaS offering. And so the offerings are expanding as well.

Yes, for sure. I mean, if you look at what it takes for an industrial or manufacturing company to really go [ through a ] digital transformation is just a [Audio Gap]

Emulate3D simulation tools can work together. And I think we'll continue to see that as well as making sure that we have the expertise to ensure the great business outcomes, which are why customers are investing in the technology in the first place.

Yes, for sure. I mean, I think we originally conceived the partnership to be about smart factories or Industry 4.0. But suddenly, we're not just taking factories and making them smarter. We're actually helping customers to design and engineer and plan smarter factories with Onshape and Emulate3D working together. And we're also thinking a little bit more about the product being made in those factories and trying to connect the digital thread from engineering upstream to the factory and then downstream as well to -- down to service and customer support and expanding the partnership to include PLM from PTC and Onshape. And then as well the acquisition of Kalypso you made, these are just critical ingredients to really bring that whole digital trend, cradle-to-grave digital transformation story to life.

I'd like to now switch gears a little bit and introduce Frank Kulaszewicz, who's going to talk about our Lifecycle Services offering. That offering has evolved unbelievably since I started in this business, focusing on the high-value expertise that shows up in both the delivery of projects as well as the ongoing support. It leverages our technology, and it's a strong contributor to our growing recurring revenue. On the other side, the technology offerings, the new SaaS technology offerings will help scale our services business exponentially with that framework. So let's hear from Frank.

Blake mentioned the enhancements we're making to several of our technology and service offerings. Our Lifecycle Service team has experts around the world to help customers turn these new capabilities into value for their business. This year, we introduced a new brand, Lifecycle IQ Services. Lifecycle IQ Services is uniquely positioned to pair our customer engagement model with our portfolio of services and domain expertise. It's about building a partnership with our customers and together, turning ideas into realities. Our portfolio contains a comprehensive set of professional services. But today, I'd really like to focus our time on our connected service offering. Our Connected Services business is the primary delivery mechanism for our cybersecurity strategy. And together with partnerships like Cisco and Clarity, we provide services leveraging world-class technology, helping customers on their cybersecurity journeys. Our Connected Services business continues to deliver strong growth. This past year, we focused on resiliency and agility to minimize production disruptions. We also accelerated our use of secure remote access software allowing customers to provide remote access to employees and suppliers. The journey begins with a security posture assessment. It really helps us identify the greatest risk and design a managed service solution to mitigate them. Most of the solutions begin with a secure network infrastructure, followed by threat detection and other services. This year, we made 2 exciting cybersecurity acquisitions, Avnet and Oylo. Each brings great domain expertise and experience on to our team. We'll use these capabilities to enhance our incident response, secure remote access and managed services through a new secure operations center. We're really excited about our new brand, the expansion of our service portfolio and the work we're doing with our customers and partners. Blake, I'm going to hand it back to you now.

Even with last year's challenging environment, we delivered on acquisitions. We delivered almost 4 points of growth in fiscal year '20 and it will be well over 1 point that we see from acquisitions already announced in fiscal year '21. Sensia is still playing a big role in driving the productivity, safety and sustainability for our oil and gas customers. We talked about Kalypso a little bit earlier; ASEM, the Italian industrial PC provider, already delivering significant value. You heard from George and Sujeet earlier about Kalypso and the opportunities there. And now today, we've announced Fiix. We're going to continue to acquire to give us more ways to win and to accelerate the execution of our strategy but within a well-defined financial framework. With all of these movements, all of these advancements, all of these strengths and an ecosystem that's second to none, Rockwell is best positioned out of all companies in the world to capitalize on the convergence of IT and industrial operational technology. It's that simple. With that, I'd like to turn to what is really the foundation for all of this success, and that's our people. When I talk about our culture, I talk about the importance to employees and people who are considering working for Rockwell in terms of some fundamental things and I think all employees, really, at all stages of their career, think are important. First, you want to feel that the work you're doing is important. You want to have the tools and the environment to be able to succeed. And you want to have a chance to get ahead in your career. And that's what we're focused on, to be able to create an environment where every employee can and wants to do their best work. Here's Becky House to talk a little bit more about our culture, the fit of our culture with our ESG goals and our commitment to a sustainable company and sustainable communities.

Thanks, Blake. We've been talking about how we're accelerating our business strategy. The foundation of that strategy and our success is our people, our culture. There are 4 elements to our culture: first, a willingness to compare ourselves to the very best. Our customers, employees, investors all have choices, many choices. We want to be their very best choice. So we measure customer loyalty and employee engagement, and we take action based on what they tell us. We partner with companies like Microsoft, PTC and Cisco, who offer complementary products and expertise because we know we don't have a monopoly on great ideas. Second, our culture is focused on increasing the speed of decision-making. We know we'll get better results faster when our people are empowered to act and make decisions that are good for our customers and good for our business. Our new business segments reflect our focus on speed. By aligning our products and services to the value we deliver to our customers and sharpening our industry focus, we're going faster. Third, our culture is all about having a steady stream of new ideas. It's about innovation. We're driving innovation with our existing talent, including through our development programs that allow them to bring fresh perspectives as they assume new roles across our global company. And we're adding to that innovation by bringing in new talent with background and experience in cloud architecture, Software-as-a-Service business models and subscription software sales. We're also adding innovation through acquisitions of companies like Kalypso, Oylo, Avnet and coming soon, Fiix. It's the combination of new perspectives and experiences with the deep knowledge of our tenured employees that's fueling our innovation and business growth. Finally, it's our deep-rooted culture of integrity and inclusion. We're creating a place where all people can and want to do their very best work. The power of a culture that has trust and belonging has been demonstrated through the COVID-19 pandemic. Our people have been doing amazing things in very difficult circumstances, and we're building on the agility and resiliency they've demonstrated. But as you heard from Blake, we always win the right way, and we never compromise our integrity. Our culture is also driving our sustainability strategy and helping to define our areas of focus. Over the last year, we undertook a materiality assessment. We got input from a broad array of stakeholders: customers, investors, partners and employees. We worked with a consultant to identify best practices and define what's truly important to us and our stakeholders. Our strategy is focused on 3 areas: sustainable company, sustainable communities and sustainable customers. Sustainable company is all about our own operations and culture. What we learned from the materiality assessment is that we prioritize the right things, things like ethics and integrity, good governance, and health and safety. And we have well-established programs and successes in most of these areas, like our industry-leading safety program, on which we're doubling down in light of the COVID-19 pandemic. But we're renewing our focus in 2 critical areas: first, diversity, equity and inclusion because we know that diverse teams make better decisions, drive innovation and deliver superior business results; second, we're accelerating our work to reduce our impact on the environment. We're proud that we met our prior greenhouse gas emissions goal 4 years early. But coming out of the materiality assessment, we know we need to do more. So I'm excited to announce today our commitment to be carbon neutral in our Scope 1 and 2 emissions by 2030. Our fiscal year '21 guidance reflects investments being made to achieve this goal, building on work we already have in place. Next, sustainable communities. We support the communities where we live and work. This is even more important now. Finally, sustainable customers. Everything we do is focused on helping our customers be more sustainable and productive. Because our technology and services help our customers achieve their own sustainability goals, we're uniquely positioned to have an exponential impact on the world around us. With that, I'm going to hand it back to Blake, who's going to talk about some ways we're helping our customers be more sustainable. Blake?

When we talk about what we're doing to help our customers with their sustainability goals, then it's a broad field that we can help them with. When you think about the resources that they're looking to sustain, it includes water, air, gas, electricity, steam, material and personnel; and we have offerings in all of these areas. One of the most important ways that we can help companies and really the world be sustainable is through the offerings that we have in water. SUEZ Water is an example of that. It's an ongoing continuing water treatment customer that's benefiting from all of our strengths in safety, power control and information management. In general, water is a multibillion-dollar available market, either as part of other industries or, on its own merit, fast growing. It includes applications like desalination, water treatment, industrial water management. And we have a great readiness to serve this part of the overall market. Another example, not shown here, is what we're doing to remediate old sites in West Virginia. Being able to treat the water from old coal mines is a particular application that we've had a lot of success in. It's good for us financially, but it's really important for the environment to be able to remediate these sorts of sites. Again, we have a great readiness to serve. Stewardship of resources like water is a necessary part of resilience. As we transition to a discussion specifically about business resilience, here's another voice from a good partner. [Presentation]

Well, Chuck welcome to Automation Fair Perspectives and looking forward to chatting a little bit about our partnership. Any successful partnership really begins with an understanding of how we add value together to customers; and in our case is as we bring the Connected Enterprise to life, it's really about creating that strong foundation for taking data and turning it into useful information. And customers are looking for that as a way to increase their resiliency and their agility, particularly now during these times. And really, what we're seeing is that our customers are demanding that the 2 of us work together on their digital transformation plans. And I wondered if you could talk a little bit about what you're seeing in terms of customer requirements.

Yes, Blake. First of all, thanks for having me. And I think everything that made our relationship a good idea, I think 13 years ago, has been reinforced and probably accelerated here in the last 9 months. But all of our customers, I think, went through the same thing we all did, where we did the best we could to get our employees functional from home and working from home effectively, and then we went into this mode of really trying to reprioritize and think about our future. And as the pandemic has continued to stay with us longer than we -- any of us certainly would hope, I think it really has highlighted this notion of business resiliency, and it's really led our customers to think very distinctly about their priorities and the things that they're focused on, and in many cases, it's around smarter industrial systems, more connected industrial systems, the integration and bringing together of the operational capabilities with classic IT, thinking about security and how do I actually move on some of the transformational projects now because I feel like we need to. And so I think the great news is we have a strong foundation in our partnership, and I think that allows us to be even more effective today with our customers.

Yes. When we talk about the technology, the security of it, for us, is very often the first and the last question that our customers ask as we bring these things together. And certainly, as IT is trying to create a holistic process and creating defense in depth across the whole organization, that's really an important part of this, is to be able to provide security that enables the ability to, with confidence exchange the data. Can you -- and we're doing some things together in terms of our technologies and our services that were integrated. But can you offer some thoughts about where this is all going?

Yes. That was actually one of the first areas that you and I worked on together, was the -- our security portfolios and capabilities. And I think, look, I'm pleased to hear that your customers is the first thing and last thing that they asked because that probably wouldn't have been the case 8 to 10 years ago. And I think it is really important, and it's becoming even more important. I mean if we think about what's going on. First of all, just bringing more of these industrial systems on to the IP network just increases the threat surface, right? And it just exposes more critical infrastructure, critical capabilities to hackers or those who would want to do harm. And at the same time, we're operating in a world where our users are all remote or a lot of them are remote. Our applications, frankly, are running in private data centers, public clouds. They're running as SaaS applications. And so the data, the traffic flows and the number of systems and the things and the people and the devices that are all connected have really created a complex scenario for us to work together to secure. So it is important, I think, to bring together people who have expertise in both the industrial side with what you, your customers, your ecosystem does for you every day, then the experience we have and really working to create that holistic solution. And I think in the future, it's going to have to be dynamic. It's going to have to learn in real-time what's going on. We're going to have to make sure we're taking information about an authentication that we see in one part of the network and how we ought to characterize an authentication we see in another one based on what we saw on the other side. There's a lot of a really interesting correlation that's going to have to take place in the future. And so we're working on a lot of that technology. And I think the real key, again, is our partnership and what we can bring to your customers.

You heard Chuck talk about OT cybersecurity, and you've heard us talk about OT cybersecurity. We conducted a customer survey of Automation Fair attendees. And of course, we expected a lot of those attendees are expecting automation investments over the coming year. What surprised us a little bit was how many of those respondents talked about OT cybersecurity as a priority for spending in the coming year. It's important. It's important to protect intellectual property, ours as well as those of our customers. And I'm happy that our recent acquisitions have significantly increased the expertise and the geographic reach of that fast-growing offering within our Connected Services business. As a side note, I have to tell you, if you heard that southern twang a little bit in Chuck's voice, Chuck and I grew up about 15 minutes away from each other just outside of Atlanta. So now let's have Steve Etzel talk about how resilience shows up in our financials.

Thanks, Blake. Many of you probably remember us talking about an increasing focus on business resiliency at our last Investor Day. Since then, we made a lot of progress. We've been successfully managing through COVID, and we have positioned ourselves well for the future. Before I get to what progress we've made since last year, let's level set on what we mean by business resiliency. The main metric we're looking at when we discuss resiliency is free cash flow. We want our free cash flows to grow. We want them to become more stable. And of course, we also want them to be more predictable. There are 3 key areas where we're focusing on to achieve that: first, revenue resilience; second, cost resilience; and finally, maintaining a strong balance sheet. So what have we done since last Investor Day? From a revenue perspective, we launched new business models, including a number of SaaS offerings. We have introduced annual recurring revenue as a new metric to track our progress. And we've invested in enterprise digitization to enable more cloud-based offerings and simplify customer experience and engagement. We've also evolved our partner programs to drive more visibility and sustainable performance. We continue to lower our structural costs, while at the same time, prioritizing strategic investments to drive growth even with the challenges caused by COVID. And we generated strong free cash flow this year, reinforcing our strong balance sheet. This enabled disciplined capital deployment toward acquisitions, dividends and share repurchases. Five transactions in fiscal '20 drove almost 4 points of inorganic growth. As we announced on last week's earnings call, we're adopting annual recurring revenue, or ARR, as our metric to track our progress toward increasing recurring revenue. Recurring revenue is a revenue stream that is contractual, typically for 12 months or more, and has high probability of renewal. ARR is the value of all active recurring revenue contracts normalized to a 1-year period as of a particular point in time. We have a variety of revenue streams that comprise ARR, ranging from software subscriptions to multiyear service contracts. We have added ARR as an element of our incentive compensation program in fiscal 2021. We are targeting double-digit growth in ARR in fiscal 2021, and we're targeting recurring revenue to be over 10% of revenue in fiscal 2025. Let's talk a little bit more about financial resilience. This slide compares our performance in the fiscal '16, fiscal '17 time frame to where we are now. In the last downturn, in fiscal '16, our organic sales were down about 4%, with core decremental margins of about 40%. This was followed by about 6% organic growth in fiscal '17 but with incrementals in the mid-teens. In fiscal '20, organic sales were down about 8%, with core decrementals of about 35%. Our guidance for fiscal '21 has us growing at about 5% at the midpoint of the range, with core incrementals between 30% and 35%. So this is much better performance compared to the last downturn. Our free cash flow performance has been very strong for a long period of time through multiple cycles. Here you see our history of consistently generating strong free cash flow whether in absolute terms, as a percentage of adjusted income or as a percentage of sales. It's our objective to continue that trend and for free cash flow to become even more resilient and predictable going forward. This is our financial framework, and it has served us well, and this is the framework we will continue to use going forward. It starts with generating 30% to 35% operating earnings conversion on mid-single-digit organic growth. We target to convert 100% of our earnings into free cash flow. You also see here what we continue to target in terms of EPS growth and return on invested capital. Moving on to capital deployment. Our capital deployment priorities remain the same. Our first priority is organic growth and enhancing the long-term sustainability of our business. This includes capital and operating expenditures on initiatives such as enterprise digitization infrastructure and manufacturing redundancy and resilience as well as new carbon neutral investments to help us meet our 2030 goal. After that, we focus capital deployment on inorganic activities. Then we focus on capital returns to shareowners through our dividend and then share repurchases. So on to capital structure. We continue to target an A credit rating, and we believe we can run the company with about $500 million of cash, and we're making progress toward that target. For fiscal 2021, our intention is to deploy about $1.2 billion of capital. Of that, dividends will be about $500 million, and we have a placeholder of about $350 million for acquisitions, and the same amount for share repurchases. Importantly, our capital structure framework provides us with plenty of flexibility to redeploy even more capital, including for larger strategic acquisitions if we see that opportunity. Here's our guidance for fiscal 2021, which we introduced last week with our earnings release. At the midpoint of the guidance range, we expect about 5% organic growth and 10% growth in adjusted EPS. Finally, beginning with our fiscal 2021 first quarter, we will be reporting under our new statement structure, which we announced earlier this year. This new structure will better align us with the evolving needs of our customers, and simplify our structure around essential offerings.

Thanks, Steve. Let me summarize some of the high points of what you've heard over the last few hours. There is a well-defined path to accelerating our top line growth to $9 billion in a reasonable time frame as the world recovers, with a sense of urgency and a great balance of organic and inorganic growth and given our high incrementals, even better EPS growth. We have value coming from all parts of the company, focused exclusively on a single set of customers. We've also integrated our objectives on clear definitions of what good looks like. It's share gains in our intelligent devices. It's high single-digit growth in software and control, double-digit annual recurring revenue growth and attachment of services to all large projects. We're starting the year with a strong sense of purpose, with momentum, and we're confident of more ways to win. With that, I'd like to bring Jessica to the stage as we begin Q&A.

Hello, everyone, again. We can bring Steve Etzel, our CFO, back on the horn, and we can get going with the Q&A. And I urge everyone, please use the chat function in the Intrado platform. And that way we can make sure that we incorporate your questions. Okay. With that, let me get started. Hey, Steve?

Jessica.

Okay. Great. I just want to make sure you were there. Blake, we've seen a much more expansive software offering than we've seen out of Rockwell before. It's exciting. But do you feel like your sales force is ready to effectively sell the software you're developing?

I think we're getting better every day. It's a great question. I mean software is not a totally new subject for Rockwell. Way back when I was in sales, we had software offerings. But as we dramatically expand, as you say, the portfolio of software that we have, it's going to require marrying the expertise that we have and the access we have to our customers with the specific software selling motions and the comfort with selling subscription and as a service types of offerings. We're adding a tremendous amount of people in our sales force with that specific background. And in fact, we have a specific project to double the number of software salespeople around the world. That's going on now. And one of the benefits of continuing to hire over the last 8 or 9 months is that we're seeing great talent. There's a buzz about what we're doing in the market. And so we're getting talent that might have been more competitive under different circumstances. So I'm very happy with the progress, and we're not done yet.