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

Good morning. My name is Brendan Luecke, I'm the multi-industrials analyst at Bernstein. I'm very excited to welcome you to this morning's session with Blake Moret, the CEO and Chairman of Rockwell Automation. Blake, I believe you got some opening comments.

Fantastic. Thanks, Brendan. Well, first of all, thank you for the interest in Rockwell. I'm going to make a few brief comments about the company since I know some of you might be a little newer to the name. And then we'll talk a bit in the Q&A. So to start with, Rockwell Automation has been around a long time. You may know us through some of our iconic brands, probably chief of which is the Allen-Bradley hardware brand. We're headquartered in Milwaukee, Wisconsin. And we're fortunate to be benefiting from a number of secular trends that are impacting the U.S. and the world right now, we'll talk a little bit about those in a minute, as well as a very strong position to benefit from those trends. We're strengthening the core, but we're also adding new ways to win through our Information Solutions & Connected Services. These are our trusted brands. They're known in industry throughout a number of the end markets. And we focus on customer outcomes by applying a combination of the hardware and the software and the services to focus on what our customers need to become more resilient and agile and sustainable in the various manufacturing operations. We have 3 business segments: Intelligent Devices, those products are primarily the Allen-Bradley brand; our Software goes to market under the FactoryTalk; and then Lifecycle IQ Services for our services and solutions. We really are taking manufacturing to the next level. We're helping manufacturers pick up the pace of their journey. As we see IT technologies and business practices come down to the factory floor, it's also bringing a quickened pace to manufacturing. Manufacturing has traditionally been a slow-moving process. When people are able to get a process working, they generally stick with it for a long time. But we're seeing that pace pick up, and we're right there with them. We've also seen over the last couple of years, in particular, just how crucial we are in manufacturing processes. You can't bring 5 billion doses of vaccine to the world without automation. It is impossible to do that through purely manual means. You can't make an electric vehicle without a high degree of automation intensity, you can't package food and make toilet paper. All of those things require a high degree of automation, and we're right in the middle of those processes. When we look at the resilience and the agility and the sustainability that we're bringing to customers, think of examples like this. So in terms of resilience, we have a thriving cybersecurity business. And cybersecurity resilience looks different on the factory floor than it does in the carpeted part of the enterprise. And we have great capabilities of our own, and we have the best ecosystem in the business, and that's why cybersecurity for us is perhaps our fastest-growing line of business. When we look at agility, it's creating digital twins and applying simulation tools to help manufacturers try out and compress the commissioning phase of bringing new technology to their plants, being able to do more of that virtually rather than requiring people to be shoulder to shoulder for weeks or months on end in the same physical space. So that agility is something that we're finding is in very high demand. And then in terms of sustainability, helping reduce energy use, being more efficient stewards of those resources, treating water, reducing waste through recycling and repair. All those things are meaningful ways that we can help companies in their sustainability efforts. We have a clear framework. We introduced this at our Investor Day back in 2019, which in some way seems a lifetime ago. This has served us well, and we remain on track. And I talk about getting to $9 billion in profitable revenue. It's not so much the significance of that number, but it's the pace at which we go there and beyond, and it's the financial framework that we do it with as well. And we are taking that vision, which at the time was a vision to an operating plan. So at the time we announced that $9 billion, it was several billion dollars off. And as we see our order rate and as we look to supply chain constraints easing, then this becomes an operational imperative where we have plans, in some cases, completed projects to make sure we have the capacity, the business systems, the go-to-market resources to get us there and beyond. Some of the foundational things that we're doing in the current environment are deepening supplier relationships, making sure that as we add capacity, we're doing it efficiently and, importantly, that does not mean adding additional rooftops around the world. It's adding some equipment, but it's also being -- using our own technology in our own plants to be as efficient as possible. It's adding new products. We're introducing a really unprecedented amount of new products, both hardware and software, over the coming months. And we expect that pace to continue, particularly as we start broadening our cloud-native software portfolio, which frees us from the more annual releases of new functionality. When you're in the cloud, you're able to add new functionality for customers and generating new interest pretty much as often as you'd like. And we're getting on that path with software that we've developed as well as what we acquired over the last couple of years. And then talent, making sure that we have really strong talent practices and that we're a net beneficiary of the war on talent. It's a tough market out there. It certainly favors talent, and we're also fortunate because we're a great destination to work at. So in summary, we see very high demand around the world and around our end markets, but particularly in our home market here in the U.S. We're adding new functionality across our portfolio, the core products as well as some of the newer offerings. We're demonstrating our resilience, and we're building that resilience for the future. And we're also increasing our customer intimacy as they're seeing how crucial we are to their operations in times like these. And so with that, we'll go into the Q&A section.

Thanks so much for the overview. And thank you again for joining us this year. It's great to see you.

Sure.

So I guess to kick it off, I'd love to start with the big picture. I mean it's been 12 months since we last sat down in a very tumultuous year in the rearview mirror. As you look back at the business and your customers and the markets, what have been the biggest surprises for you to the upside or downside? And where have you seen the greatest learnings?

Sure. Well, let's start with the downside. We have seen supply chain constraints, in particular, semiconductor shortages linger. A year ago, we were seeing material shortages. But in a lot of cases, they were things like resins. There were -- there was bad weather in North Texas that put a crimp on the resin supply. And there were suppliers around the world who were struggling with the early stages of a recovery. But what has come on to be the most acute shortages turns out to be the semiconductors, and that certainly affected us in the second quarter. We see a gradual easing of that, but that was one that would fit more in the negative column. On the positive side is the unbelievable demand across our markets, so across regions, across the verticals, across our various offerings from hardware to software to services. And we've seen that continue quarter after quarter. So I would say, one, that's testament to demand as all manufacturers are trying to come out of the pandemic with new lines of business and new capabilities, but it's also our position in it. We see our order growth rates. We look carefully at that compared to our competitors, and we're very confident about our value in the market.

Excellent. And I guess looking at the quarter real briefly, and it's hardly a Rockwell question, across companies, we sort of see this H2 acceleration. When you look at your business for about 2 months in, what gives you confidence in the financial year? And even beyond that, I mean, how do you think about conviction for the long-term story as we're seeing so much instability and volatility?

Yes. Well, in our earnings release, of course, we talked about a little bit the first month, and then I won't update with 2 months in. But what we are seeing is a gradual easing of supply chain constraints. We have what we believe is good visibility. There continues to be volatility. And for sure, there will be some surprises going forward. But we think the better visibility as well as our own resilience efforts. Whether it's engineering around the most acute shortages, it's reengineering to provide alternate sources of components for some of our high running products, the impact of price as that goes towards positive in the second half, those are all things that contribute to our outlook for the second half.

Outstanding. And I guess turning to markets real briefly. So I mean the demand story is, of course, outstanding. The question in everyone's mind is, well, is it going to slow down? So we sort of have these cross-currents. We see outstanding backlog numbers, continued strength in orders, but then there's recessionary noises. As you talk to customers and you look across your end markets, where are you seeing signs of flagging demand or perhaps even continued acceleration?

Yes. So let me start with just the math of it. We have $4.5 billion of backlog. So that's -- if orders stopped dead, then that's over 0.5 year of demand, and orders have not stopped dead. So I think the shape of any sort of recession would impact us differently because what we have that was not in place in the past was this enormous backlog. So let me just start with that context. When you look at the different verticals, let's go vertical by vertical, electric vehicle and battery. I think we continue to see announcements for EV, for battery around the world, but especially in the U.S. And it's just hard to imagine how people would take a big pause in those efforts. If you're a start-up, you don't give any of your investors a return on their investment unless you're producing vehicles. So there's not much of a choice but to get those factories up and running and getting jobs per hour out the door. If you're a big brand owner, a big existing brand owner, then you're worried you're losing sleep because you're thinking about your competitors being able to transform their fleet to electric faster than you. And so again, it's just hard to imagine that Ford or GM or Stellantis or VW are going to take a pause there. And similarly, with battery, everybody's talking about battery as being the next bottleneck, battery materials and so on. So I think that one is going to continue to invest. Let's look also in the discrete space, that's semiconductor. Hard to vote against semiconductor capacity expansion given what the market is doing today and the expectation that people are going to continue to want to make everything that they produce smart in some ways. We're certainly seeing that reflected in our own demand. So the semiconductor CapEx announcements are a matter of public record, and that's hundreds of billions of dollars. E-commerce has taken perhaps a little bit of a pause, but a lot of our work in that area is not just in e-commerce. It's also in automating and helping the big-box retailers, the Walmarts of the world be more efficient. So some of our biggest orders in that space for automated warehousing are not necessarily for the Amazons of the world, therefore, the retailers, and as they're contracting with parties who are helping them manage their material receipts and so on. So those are a few of the discrete industries. And then you move over into our hybrid end-market segments and you look at food and beverage, you look at pharma, it's just hard to imagine that people aren't going to want to live longer, healthier lives and continuing to put demand on pharmaceuticals, medical devices as well, which is a good market for us. And then food, as more people continue to enter the middle class, they want more choice and food, more packaging formats, and the manufacturers are looking to move rapidly. That's one of the areas where the agility that I talked about in my prepared remarks is particularly evidenced to be able to react quickly to what's trending and to be able to package your food or your beer or your beverage to meet that demand. So those are a few of the markets. If we see a pause, we could. But on the other side, on the opposing side are some of the secular trends that I just talked about.

Outstanding. It's easier to forget sometimes that headlines move a lot faster than CapEx decisions. Kind of pointing on that thread a little bit, when we look at the orders and particularly that backlog, how would you describe it as sort of net new CapEx versus the recurring MRO side of the business? And if we take that slug of CapEx, because there's a lot in there, can we draw a line and think about what that would contribute to your business on a run rate basis?

Yes. So I can't give you specific percentages of MRO versus CapEx versus enhancements to existing brownfield locations. But there's a higher degree of CapEx. Given some of the trends that I just talked about, there's a higher degree of CapEx in that backlog than there would be on average, let's say. And just in addition to some of the trends I mentioned, we're doing a couple of new photovoltaic panel facilities for First Solar. And I've talked about that at Investor Day. And those are the types of projects that are moving through our backlog as well. And we work with them on a weekly basis to make sure that we're meeting their needs in terms of timing and their equipment suppliers around the world, and that's typical. Those are the kinds of interactions that we're having with customers as they're building new capacity in some of these areas.

Excellent. And we've been fairly vocal around the potential for acceleration of manufacturing investment in the U.S., particularly on the back of all these supply chain struggles. It seems like the longer China is closed, the more sense it makes. When you talk to your customers and you look at the decisions coming over the line, do you see evidence of that?

Well, yes, we talk a lot about shoring rather than reshoring. So I don't see as much evidence of people shutting down capacity and whether it's China or Southeast Asia, other parts of the world, and bringing it to the U.S. Rather, I see the U.S. as being an outsized beneficiary of new money that's going out. And it's companies that are looking to get closer to the consumers. The U.S. remains the largest consumer market. And so you're going to see, I believe, more distributed manufacturing around the world rather than having one huge plant in a place that was perceived to have low labor costs feeding the world, for instance. I think that model is under a whole lot of pressure right now.

Excellent. And I just got one quick incoming from the audience here. Can you discuss the KPIs used to assess the health and growth of Rockwell? How those changed over time? I know ARR is a new one.

Yes. So at a high level, the KPIs are those that were in that we internally call it the swoosh slide, that framework titled accelerating profitable growth. And so that talks about continued strong ROIC. It talks about conversion on incremental revenue of between 30% to 35% through the cycle. It talks about our acquisition criteria in terms of free cash flow yield in excess of our weighted average cost of capital and a risk premium no later than year 5. So those are the types of KPIs that we look at. Annual recurring revenue is a more recent addition. We'll be about -- we'll have a little over 8% of our business as ARR, which is not everything, but I want to make sure that both internally and externally, people recognize that having contractually bound recurring revenue is very achievable even in a business like ours that we're still more hardware than software, but to look at recurring revenue as a real important element of resiliency. And so those are a few of the factors. You double-click on that, you go a level lower. And we have a set of integrated business objectives that I review regularly with my management team, and they, in turn, cascade it to their teams of metrics across the company, several dozen of these metrics that we review on a regular basis, compensation is tied to that, that basically create a fishbone leading up to those high-level KPIs around accelerating profitable growth. And what I want to do is to create a clear line of sight between virtually every employee in the company and what they can do, what they're expected to do to contribute not only to the business outcomes, but to the development of our culture as well.

Excellent. And on that recurring revenue theme, just one more here, I mean Rockwell feels less cyclical than it was. I looked at 2009, I think you were down 19%; in 2020, you're 7% to 8%. Is that the result of the strategy? Or would you think -- would you describe that as end markets simply being end markets and you guys have gone for the ride?

That is the result of the strategy, period. And a few of the things that we did was to broaden our end-market penetration. So for instance, currently, automotive for us is about 8% of our total business. In 2009, it was something higher than that. When I started with the company a long time ago, it was way higher than that. But you see fast movers coming on the scene, e-commerce, a meaningful part of our business, semiconductor, life sciences, all of these areas are important contributors. We have a couple of big ones in double digits like food and beverage, and oil and gas with Sensia is in around 10% or 11%. But then you have a very long tail of businesses that are in the 5% -- 4%, 5%, 6% of our total revenue, and I think that contributes to our resilience. Adding additional subscription-based software and services adds to our resilience, managing our global workforce in a more efficient way. So all of these things are very much a explicit part of the strategy to increase our resilience to the cycle.

Excellent. So I guess shifting real briefly, supply chain in China, what are your expectations for reopening now? We've heard different things from different folks. Everyone is pushing it back a little bit. What are you seeing on the ground? What are your customers saying?

Well, we're ramping rapidly to fully reopen at this point. I mean, just this week, we got that news. Now we never closed completely. Rockwell was listed -- white listed as a critical infrastructure participant. And so we were on a relatively short list of manufacturers that never had to completely close. But with some of the announcements here in the last 48, 72 hours, then we're ramping back to full strength there. I would say we've got 2 plants in China. So we have one outside of Shanghai, and then we have one in the northeast in Harbin. We have a distribution center as well. But in general, I would say our direct manufacturing operations are less exposed. We have relatively less footprint of manufacturing ourselves in China than our competitors do. The bigger concern are the kind of secondary and tertiary suppliers that ultimately feed into that. And I think that's similar for everybody, but we're happy to see that things are ramping back up.

Excellent. Now we still get a fair number of investor questions around double orders and pull-in. I know you had a great slide last quarter with the 1% cancellation rate. But you did mention something around ERP sort of automatically re-upping. How much of a concern is that in terms of pulling in? Are we still seeing end-market demand? Or do you think there's something more of a cliff on the back end of this?

No, there's still strong end-market demand. And as we've talked about on the earnings call and in other forums, we watch closely the amount of cancellations. We think it would be a fairly efficient market. And so if customers decided they didn't need what they had ordered or they found a much better place that could get a much faster delivery, I think we would see that, but we haven't. And when I talked about it on the earnings call, it was a little bit just a natural process of when customers are setting the order, reorder points and quantities in their material requirements planning systems, then if lead times are way out, 30, 40 weeks in some cases, then they're going to buy more because they're going to fill their need in the space between today or even going back to what they needed and haven't gotten to what they need over that period of time. As lead times pull in, there's less ground to cover. There's less coverage that's needed for all that interim period of time. And so you'll see quantities reduce, particularly with machinery builders who have a set amount of machines. They themselves have huge backlog and they're looking at, so how much material am I going to buy? Maybe in the past, if it was, let's call it, 4 months' worth of coverage to put on their machines, they might have doubled that to 8 months' worth of coverage. And so we'll see some natural process there that's not indicative of waning demand. It's just a function of those business systems. But again, with the backlog that we have, if shipment volume starts to converge with order volume, that's a good thing because that indicates that those lead times are coming back into a more sustainable time frame.

So is it fair to assume we'll probably see somewhat elevated inventories in the channel and across your customers for the same reason?

Well, right now, I mean the inventory levels are low in terms of what we see in our channel because it's coming in and then going right out the door. We have some increased inventory based on WIP. In some cases, where we prebuild certain parts of the product waiting for a critical component just to make sure that there are going to be no other critical-path items as soon as the chips come in the door, we run those boards, assemble that and then complete, test the product and ship it out. So you'll see some impacts on our inventory, particularly around WIP there.

Okay. And looking forward, it still feels like a story of the grand normalization rather than an air pocket, yes?

Yes.

Great. Excellent. And then one more question around supply chain. I mean we've been in this environment for a while. If it were to continue, are there specific things you would do to run the business differently? And are there any big decision points operationally as you look towards the future?

Yes. And so if we were in a period where chip shortages did not wane, did not ease and we continued to see that, I think what you would see would be continued price increases, right? To respect or in light of the supply shortages, then you would see continued use of price based on lower volumes than they would otherwise be if supply was not constrained. I think you would also see a larger percentage of our engineering spend on redesign and qualifying additional components. So today, that's already a lot more than it was, say, 2 years ago, but I think you would see even more of that if we were in an environment that you weren't going to see chip shortages ease in the near future.

Makes sense. And then one question on just that price/volume point around chips. When you look to the quarter or Q2 specifically, we talked about pullbacks and de-commits, is that the sort of thing that you could solve by paying more? Or is it just no availability?

Yes, it's really about the lack of availability. I mean we've paid what we consider to be crazy prices on the broker market already for chips. But it's not like, hey, if you're just willing to spend more, you can get all your need, that's not the case.

Great. And then shifting to price cost for a brief moment. Could you walk us through -- and we've heard about the price increases, 4%, 4%, 9%, and we're building over time. How do you expect those to play through the P&L over the next 12 months?

Yes. Well, what we expect is the second half in Q3 and Q4 to reflect the increasing impact of that pricing as the annual contracts with the annual agreements with our customers come due. And more of that pricing flows from announcement to what's being applied to shipments every day for their orders. We see that impact ramping up in our Q3 and Q4 and into fiscal year '23. So that is expected to be a tailwind going into '23. That being said, we're continuing to watch inflation closely, and more pricing actions are certainly possible as well.

And that pricing structure where you've got the book, it's annual, you re-up it every year, is that typical for the industry? And how is that model changing over time?

Yes, I think it is. Now it's important to remember that we have kind of a unique distribution model in that we have limited distribution as opposed to saturation distribution. And so working with those distributors, the pricing model has worked very well for us for a long time. We've had positive price realization every year for over a decade with the possible exception of 2009. But other than that, we've seen good price realization every year, including in fiscal year '21. However, with the kind of rapid inflation that we've seen recently, we have responded, but we're also going to update our processes to be even more agile to be able to react to these sorts of events in the future. We -- I don't think anybody saw the rate of inflation coming a couple of years back. But the last 2 years have taught us to never say never, and so we're making changes to our pricing processes to be more agile there, working with our current distributor model. And they're aware of that and they understand the need. Obviously, very publicly on the earnings call, that need for being more agile there was expressed.

I mean that channel is a real source of strength for you in North America.

It continues to be.

Is your ability to take price or the playbook different when you look at across disti and direct sales?

I'm sorry...

When you look across distribution and direct sales, how does that price play vary across the 2 go-to markets?

Yes. I mean there's a little bit less of a lag, I would say, when you're working with direct customers, but the majority of our product sales are through distribution. And so that's where the real leverage is, is to have the best processes there to be totally aligned with our distributors to get maximum realization on price and maximum speed, and that's what we're working on.

Makes sense. And real briefly, coming back to backlog, so $4.5 billion is just an outstanding number. To what degree can you reprice that if you have to?

Yes. There's limited ability to reprice that backlog. There are some solutions orders, the big -- probably the biggest projects in our Lifecycle Services business that have escalation clauses tied to inflation or CPI or whatever, but the vast majority of that backlog is not going to be repriced.

Got it. So I mean it does feel like that introduces a bit of a timing question. If you sell the product and you realize it's a year later, how do you think about managing that gap when you've got both pricing and costs moving pretty significantly?

Yes. Well, it's factored into our outlook. So we have looked at the backlog. And if you think about that in different tranches of when those orders entered the backlog and what price increases were in place when that happened, then we think we have a good outlook on what we should expect in Q3 and what we should expect in Q4 and what that means for us leading into next year as well. So we do expect that. But increasingly, in fiscal year '23, the result of our pricing process changes will mean that more of that backlog, whatever it is, will reflect the full price increases that we've announced, if that makes sense.

That makes sense. And I understand there's a richer margin mix of the [ product ] backlog that's historically as well. When you think about the timing to burn off that backlog, I'm sure it's hard. But how long does it usually take? How long does it take in a day, if you've got a view?

Well, historically, Rockwell didn't talk much about backlog, not since the days that we were a defense subcontractor a long, long time ago. And so it's only been recently that the amount of backlog across the business has been meaningful enough to talk about it explicitly. But it is now because of the longer lead times, and so we have -- we're still going to have elevated backlogs we expect through fiscal year '23 for the fact that orders remain very strong. So even as we're able to get increased chip supply and are shipping out current backlog, orders are still at very high levels.

Excellent. Very good. Well, let's pivot and talk about some of the fun stuff, digital. I know Rockwell has been pushing to be the digital solutions player for many years. I think it's an outstanding strategy. Why don't we start with PTC? I'd love to hear a bit of an update on the partnership. How do you measure progress within the current balance of the partnership? And do you think there is scope to integrate more closely or perhaps add additional areas of collaboration?

Yes. Well, let me take a half step back and talk about the strategy in general, and then I'll go specifically to PTC and others. So for years, Rockwell has provided automation equipment that fulfills core manufacturing process needs in a wide variety of plants. And so we're running a conveyor to certain speed. We're blending product in a certain consistency. We're controlling temperature and moisture in the air and so on. Those are the core automation processes that we fulfill. There's a ton of data, nonscientific term, a ton of data that gets generated from these processes. And so finding a landing spot for that data to be turned into information and useful insights is really important in manufacturing today. It unlocks a whole new level of productivity. And so we said we were going to add both in terms of organic development as well as inorganic investment more of the software that allows you to process those insights and also simplifies the user interaction with these automated systems. Automation has traditionally been a pretty complex process. Software can actually help to simplify the way that an operator or a maintenance technician interacts with that automation, help speed commissioning and so on. The PTC investment gave us some important tools in being able to expand the places that, that data could be put to additional work with a great IoT platform in ThingWorx as well as augmented reality applications through Vuforia. Those were the primary interests in our investment back in 2018 in PTC and the commercial agreement, which remains the most important part of that relationship. So it is interesting that they have PLM and CAD, and we certainly have learned more about the interaction between those design tools and the production systems. But I don't think we necessarily need to own those types of tools. The commercial relationship continues to grow. We continue to deepen it. I continue to sit on the Board, and we have regular interaction, as we've talked about, as PTC has talked about, at all levels of the company. And so growth in terms of annual recurring revenue for us and for them, it's probably the single most important direct KPI. But it's also the way that we're a larger, more meaningful, more early participant in our customers' digital transformation plan. So you take what we have with PTC, what we've developed ourself, what we bought in Plex and Fiix, and we have a lot to talk about as customers are considering broadly multi-hundred-million or even billion-dollar digital transformation plans, and PTC was an early part of that puzzle.

Excellent. I've got an incoming question from the audience here. So it seems there's many companies who are making the investments in these digitization processes, digital twins, digital threat, pick your name, really. How do you think about your right to win there?

Yes, because we understand what the manufacturer is actually trying to do. We're not coming down with a great software application, but without real understanding of where the data comes from or what, in the end, they're trying to get done. Let me give you an example. We're working with that same photovoltaic cell manufacturer to help them lay out their manufacturing process by digitizing their operation and applying our simulation tools like Emulate3D to be able to give them greater throughput. If we can improve their throughput by a couple of percent, that's enormous because these plants just run and run and run 24/7. And so working with them, we're already in their facilities, we understand these processes. And for us to be able to apply this technology intelligently and understand when they talk about where the pinch points are, to understand what that means and the depth of domain expertise gives us a right to win there that is second to none.

Excellent. And you mentioned the partnership versus some of the things you've done internally. When I look across the automation landscape, various strategies here, some people have bought a lot. You've taken a somewhat more measured approach. How do you think about the decision to buy, as in M&A, versus build versus partner across your software stack?

I don't think anybody in the world can own it all. An ecosystem is really key here, and it's another thing that contributes to our right to win. We respect that customers are almost never starting from a totally blank sheet of paper. They have existing suppliers that are doing pretty well for them. And I think it's arrogant to go in and to say, well, to really get the benefit, you need to rip out the stuff that's actually working okay for you and put everything in that has one brand on it to get the full benefit. So taking a multi-vendor approach is something that's been reflected in our acquisitions as well as our internal development. When we bought MAVERICK Technologies back 2016, 2017, they do a lot of work on competitive control systems. But we recognize that the world is not homogenous. Kalypso, one of our best acquisitions ever in terms of digital consultancy and implementation, they have a point of view about what works best, but they work with a wide variety of software and hardware vendors. And some of the software, the cloud-native tools that we're developing or that we bought, again, can sit on top of other control systems. It gives us a reason for being there even when we don't have an installed base. So commercially, it's a good thing. But it's also important for customers because they won't have to listen to someone coming in telling them what they have to rip out that's actually working pretty well for them. We find out, we listen carefully to where they are in their journey and then we prescribe the best tools to be able to give them the outcomes that they're looking for. And I think that's one of the reasons that we're priced a prized partner as we work on these digital transformation plans and, quite frankly, why the size of the orders in that space are getting larger for us because customers are entrusting us with larger scope because they trust us.

Excellent. So I mean even in, I'd say, a greenfield facility, and I understand a lot of automation, that's an archaeological dig, there's layers, it's the nature of the world. Either in a greenfield facility, would you see yourself as disadvantaged because you don't have the soup-to-nuts solution in-house?

I really don't see that. With the capabilities that we've added to be able to bring together multiple vendors, the relationships that we have with the Microsofts of the world, the capabilities that we have with Kalypso, the tools, ANSYS, Accenture, we've built a great ecosystem. And I think bringing that together is what customers expect. The other thing that's a practical consideration is just having the same brand on more applications, more hardware. It doesn't mean that it's all going to work together. Some of our competitors have acquired this software over more than a decade. And so the tech stack of one application, going back to the early 2000s, is going to be totally different than a cloud-native stack today. And in some ways, we actually have an advantage in that our primary development efforts with respect to cloud-native design tools and our acquisitions of Plex and Fiix, all those things have really hit their stride over the last 24, 36 months. And so they're built on more similar technology, which affords us some efficiencies as we're looking at ways to create the APIs to be able to exchange the data between those applications and other third-party applications. So doing this all in a more compressed period of time as opposed to the way some of our competitors have acquired these things over many years actually gives us some advantages. Because trying to turn a tool that was architected back in the '90s, say, and try to make it really efficient at running in Azure or AWS or whatever, most people would tell you that that's hard, if not impossible, to do really efficiently.

Makes a lot of sense. And then I guess coming back to the hardware side of the business. I mean, in theory, the solution, if you got the digital solutions, you should probably see some pull-through on hardware demand. Do you measure that? Are you targeting that? And do you see that yet?

We do see it. We do see the pull-through now. We won a multimillion-dollar cybersecurity engagement, one of our biggest competitors, most entrenched hardware installations. That doesn't mean that we're going to be selling hundreds of PLCs into that location the next year. But it gives us a reason for being there and to put our competitor on defense a bit. In other places, and we've talked publicly about this one, Fiix, the asset management software at Ardagh Packaging, which produces metal cans, has a very large recycling operation, we saw millions of dollars in pull-through business of hardware because we were there, we were participating at a higher level in their digital transformation discussion. So they put the software in, and we were awarded the hardware part of the project as well. We see it. It's a part of the deal models. We track it on a regular basis with every one of our acquisitions in terms of the synergies that we see there.

Excellent. And I've got one incoming question for you from the audience here. So I'll fold it into our digital conversation. Can you comment on market share trends for major products? And then I'll come over the top and say, do you think that digital is moving the needle there?

Yes. So I typically am restrained when it talks about announcing market share gains or contraction in a given quarter because market share takes more time there. But we think that we have expanded our competitively served market with the digital capabilities that we have added. So let's start there. We've created a bigger piece -- a bigger pie in terms of the overall competitively served market. Certain areas that we think that we are ready to say we are gaining share, independent cart technology. I talk about those on our earnings calls, and the volume is through the roof. We have commanding share around the world already. And it's such a great technology across multiple end markets, warehouse automation, battery assembly for electric vehicles, pharmaceutical, just across multiple verticals. And we believe our share is big and getting bigger. Life sciences in general, we think that we're taking share there and particularly with really strong software offering in that regulated industry. We think we're gaining share in life sciences. So there's a few examples like that. But again, we try to be a little restrained in terms of declaring when we have a particularly good quarter, saying we're taking share everywhere without seeing a trend over a period of time.

Excellent. And I've got one more from the audience here. I mean it's tough to take a hardware business and turn it into a solutions business, a lot of software and services. How decentralized are you? And how do you manage that change through the org?

Well, you got to have -- it is hard, let me start with that. I think a lot of the hooks are in place. I mean we've talked about the need to move to solutions for many years that predate my time in this role. But to be able to get the people who have been there, who have the experiences is partly why we made some pretty substantial changes in our organization structure as well as the people leading on my staff, bringing new perspectives of people who had been there in some of these areas to complement the lifers like me who really have a pretty good understanding for what manufacturers are trying to accomplish. And so bringing that together, in some cases, turns into an individual-by-individual basis. You got to select the right leaders who then, in turn, can get 2 and 3 and 4 levels deep in the organization to create the case for why we're doing these things. Not that the things we were doing in the past were bad, it still is the majority of our business, and I understand how the math works and where the money is made, but it is not sufficient going forward. It's a necessary part of what we do. It's a rock-solid foundation, but adding those new capabilities puts us into an even more differentiated place.

Fantastic. Well, I guess I'll finish with one more. What are the key messages you'd like to leave with our investors today? It's a complicated environment, exciting journey for Rockwell. How do you see it?

Yes. The secular trends that really look favorably -- speak favorably to automation in general, but more specifically, Rockwell is positioned in it. We are the U.S. automation company, and that's where an outsized amount of the investment is being made. And the industries that we serve really well are the ones that are making some of the biggest investments. So I think those are important things to be looking at. I would also pay attention to the new product introduction, both hardware and software that you're seeing coming out through the balance of this year. And now I'll put a plug in, if you can make it to Chicago in November to our automation fair, it's going to be a big one. It's going to be a big one in terms of attendance. We have 15,000-plus people typically at our automation fares when they're in Chicago. And in terms of new product introduction, there are going to be some major new technologies and services that we present that customers are going to be excited about.

Fantastic. Well, thank you so much again for joining us. It's a great conversation today.

Yes. Thank you very much.