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

Good morning. My name is Brendan Luecke, and I cover U.S. multi-industrials at Bernstein. I'm joined today by Blake Moret, CEO and Chairman of Rockwell Automation. Since taking the helm at Rockwell, Blake has made some big moves to advance the firm towards a digital future. and overseen tremendous growth over the past 2 years. It's an exciting time to be at Rockwell. Thanks so much for joining us again at DC this year Blake.

Thanks, Brendan. Very much appreciate it.

You've got some comments for us?

Absolutely. So thanks for the interest, everyone. For those of you who are new to the story, I'm going to take just a couple of minutes before we go into Q&A and give an overview of the company, starting with a great picture of Milwaukee, Wisconsin, which is our headquarters. So Rockwell is a pure play devoted to industrial automation and information we're bringing value to our customers through increased resilience, agility and sustainability. And we're doing it at a faster pace than we ever have in our history. So we're building on a rock-solid foundation, but adding new capabilities that are giving our customers more ways to win and are giving Rockwell more ways to win as well. When we look at our market access, we have today great access across the spectrum of industrial companies across discrete applications hybrid applications and process applications. This includes a broader reach into verticals that are particularly priced today because of their growth and profit opportunities, things like electric vehicles and batteries, semiconductor, warehouse automation, food and beverage, which is our single biggest vertical, home and personal care, pharmaceuticals, medical devices, energy; both renewable and fossil fuel, chemicals and mining, across all of those, Rockwell has great market access and is increasing share of wallet today. When we look at one of the factors in our success and our profitability, it's that we are a pure play in that we have a single control platform that has got great market readiness across all of those discrete hybrid and process applications. So our Logix control platform is a great starting point for that value. In the past, the connectivity between Logix and the other products that we provided, we spent a lot of time working on having a standard Ethernet interface to those other products. But today, the discussion also includes quite a bit more software and so standard APIs for being able to exchange information between our software applications, third-party software applications and having the ability to incorporate artificial intelligence as well. AI is included in all levels of our architecture and is providing value today. And obviously, we see it providing significantly more value tomorrow at the device, at the controller and at the cloud levels. In terms of go-to-market, we've made significant strides in these different areas, including talent by adding people who come from a software background to complement the lifers like me who understand the industrial automation world pretty well. Through our acquisitions like Kalypso that have given us a paved road to the C-suite that we didn't have in as broad a demonstration in the past. And then through partners, certainly, our distributors, which are the best in the business, through our technology partners like Microsoft and ANSYS and through that overall community, which includes machine builders, systems integrators, we think we're second to none with respect to the ecosystem that we built and that we continue to strengthen. We've been more active on the inorganic front. So over the last half dozen years, we've added companies in accordance with a well-developed transparent view of priorities as well as financial discipline to bring them into Rockwell in a way that contributes to our growth and performance. Our priority areas are Information Solutions and Connected Services, Advanced Material Handling and an expanded presence in Europe and in Asia. And so in summary, we're providing more ways to win. We're delivering on the commitments for accelerating profitable growth. We've got to scale in some of the newer areas of value like Software as a Service and high-value Connected Services like Cybersecurity Services. And we've also become more resilient through increasing annual recurring revenue, broader reach to industry verticals and new offerings such as independent card which disrupt many fields and many verticals that we're in today. And so with that, we can move to Q&A.

Wonderful. Thank you so much. So we love the long view, and I'd like to start off by taking a quick look back COVID is thankfully almost out of the picture. But we're still experiencing whiplash as we sort of work through the economic after effects. If you take a moment to recall the roller coaster. What would you say your biggest learnings are? And how does it inform your strategy looking forward?

Well, people are at the absolute foundation. I think we'll start there. It's without the resilience of our people we would not have come through COVID and then the supply chain challenges that we're immediately on the heels of that as well as we have. When you looked at the prospect when you're looking at the prospect of plants being shut down at the beginning before people understood how important we were at a critical infrastructure like food and medicine, when you're looking with those almost existential threats that come with the worst of the chip shortages without people who hold up, keep their spirits up and are looking at doing things where they have no playbook. Unprecedented is a word that was used a lot during those times, but it really is accurate. And without having that flywheel of people who truly care about the company and are willing to go that extra mile than I think we would have been in much worse shape going through. So I'd say that's probably at the top. I would say from a personal standpoint, don't ever discount a risk factor just because it's never happened before. We've seen lots of things that have happened that never happened before. And I don't think you look at those things just on their own, you look at that as a lesson that there'll be more. There'll be more things that we can't conceive of right now that will happen in the future and you got to keep your eyes open and your ears wide to make sure you're ready to react.

Makes sense. Yes. Now growth has been a great story for you guys for the last 2 years. I'd love to dig in here a little bit there. FY '23 shaped up to be a great year and FY '24, maybe as well. Do you think that we're in a place where maybe you can do more than sort of that 2x industrial production run rate that you've talked about historically?

Well, we are. I mean, when you think about what our guide is this year and where IP is, then clearly, we've decoupled from that traditional gearing. And just in a little bit of a retrospective, when we look back over the majority of my career, we grew at a ratio as a company of less than 2x industrial production over that long period of time. In 2019, at our Investor Day, we said we're going to accelerate profitable growth, and we're going to do it in 3 main ways. We're going to increase the growth in our core from that traditional 1.8x IP to 2x IP. We're going to do it with disruptive new technology with more penetration into process applications and a more assertive posture with respect to Asia and Europe. We said we -- in addition to that core growth are going to grow double digit in this new but promising area of information solutions and connected services. And we said that we're going to use our balance sheet to create more ways to win through acquisitions, and we're going to grow a point or more through those acquisitions. We look back and from 2019 to present day, we're doing all of those things, and we're doing it profitably as we go well on our way to $9 billion. You can expect at our Investor Day in November, that will kind of roll out some parameters for the next leg of our journey. We'll look at next 4 or 5 years and what you can expect. And then on a little bit further. What are the big bets? What role does AI play in that? Some of the other areas that are important to us today, but that we might seek to double down on going forward. So I think there's a lot of room to run, and I think there's a lot of room to do that profitably.

Excellent. Looking forward to that.

Yes.

So the big debate that we have is reshoring versus a post-pandemic CapEx boom, maybe EVs, maybe ship something else, but more specific. When you talk to your customers, what do you hear that supports the shoring theme? And what inning do you think we're in?

Yes. So I do -- I like the use of the term shoring because it's not so much reshoring something that is happening in another part of the world. It's that as people are looking for new ways to win in their own lines of business and their own redundancy, the U.S. is an outsized beneficiary of that new CapEx. And objectively, you can look at the numbers electric vehicles for batteries, for semiconductor, it's much higher as a percentage of the total worldwide spend in the U.S. than it's ever been, and we expect that to continue for multiple years, and it's reflected to some extent in our backlog and the orders that we're taking. Now to be sure, some of that huge backlog that we have is also due to machine builders, in particular, super sizing their orders because they need to provide more coverage for more months of machines that they have since the lead times are longer. So that's definitely a piece of it. And it's also a factor as we're seeing orders normalized a little bit over this year. But the bottom line is that as it normalizes because of the spending trends because of the general increased interest in automation to address labor shortages and high cost labor, we see that order pattern leveling out at a level well above pre-pandemic levels.

Excellent. Now on orders. So in H2, you've guided to some deceleration, which certainly suggests the moderation in your top line over time. Can you offer any color around maybe the end markets where demand is holding up or a place where you've seen a pullback or perhaps even a trial?

Sure. Just for review at the last earnings call, we gave what I would say, an unusual level of disclosure about what we expect for the year. We said at the midpoint of guidance, sales about $8.9 billion, which is significant high teens growth over the previous year. we said orders would be about $9 billion. So we're seeing that convergence of orders and shipments that we've been talking about for over a year now. But importantly, we also said we're going to exit this year, our fiscal year ending September 30, with $5 billion worth of backlog. So $5 billion worth of backlog is over 2 quarters worth of full shipments. And so that's going to color any of the guidance and set the stage as we go into fiscal '24 and perhaps even beyond. So I think it's strong. Now when you look for the individual color by verticals, EV battery. We talked about it before. We're going to keep talking about it because it's going to take many years to build out the capacity to build electric vehicles where they reach and go beyond parity with internal combustion engine-driven vehicles on the road. Semiconductor as people are looking to mitigate risk with having so much of the semiconductor base sitting in places like China, where there's tension today and being able to create more security by bringing that into the U.S. Personalized medicine as we look at we found over the last few years to be maybe an excessive dependence on other parts of the world for drugs, particularly generics, I think we're going to see a continued interest there. Energy transition as people recognize that energy independents or something close to it is an important part of U.S. security and along with it, the need to decarbonize the production process. I think that's a positive read for continued investment in even fossil fuel. And certainly, in renewables like wind and solar, we've talked a lot about what we're doing and with First Solar, for instance, and other companies in that space. Now on the other side, it doesn't look like there's a lot of new fulfillment centers for e-commerce that are being built now. there's opportunities, and we continue to participate in general warehouse automation, even with the consumer product companies as they're looking for efficiencies and bringing material to and from the make line, the production line, but e-commerce would be an area that's not growing as fast now. So I think that's a quick survey of what's out there. But the REIT is generally positive. We're taking a cold-eyed view of the macro conditions. We're not tone deaf to that. But for automation, we're in a pretty good spot for these factors.

Excellent. That's some great color, thank you. So you mentioned machine builders earlier and some supersized orders. shorter lead times do seem to have contributed to the slowdown. Do you have a feel for how much of deceleration in H2 is really driven by market or cycle or PMI at 46 this morning versus lead time normalization?

Yes. I think lead time normalization and probably today is a little bit more of a factor. About half of our product lines have returned to what I would say, acceptable lead times. And we'll see in the coming months, more products every week, every month, join that list where the lead times are recovering. The backlog is coming down. But with continued strong orders in certain of these industries that I've talked about and contributing to a still very strong backlog at the end of the year.

Excellent. So I'd love to talk on price a little bit. Price cost, huge story in 2022. Price volume, maybe a bigger story in 2023. And it's been a material growth driver for you this year, probably about 5%, I think, was your guide versus 1% to 2% historically. If you were to go back to pre-COVID norms, do you think your price will come back to that historical range? Or have you found pockets where maybe you have more pricing power than you thought previously?

Yes. So we're going to continue to see good price for a while to come because there's a lot of price in that backlog that's still going to be shipping out for some time. I don't think you should expect the continued addition of new price increases at the same magnitude that we've seen for the next -- that we've seen for the last 1.5 years. But I also think going forward that the price algorithm for Rockwell changes a little bit as Software as a Service becomes a bigger part of what we're offering. And so the ability to restack to be able to get ongoing increases in that respect. In the past, that wasn't a really meaningful part of the equation. But now on top of what we're able to do with products, I think that's favorable going forward.

Excellent. And then late last year, I believe you shifted to a fixed discount model for pricing. Could you offer some color on what motivated that and perhaps how it's impacted channel partners?

So a lot of you remember, when the input costs were skyrocketing at the beginning of last year. We found ourselves in a situation where while we could get price, we were having to wait for pricing agreements to come do with our customers. So it introduced to lag that created an uncomfortable quarter or 2, we made changes with our pricing agreements to move to a fixed discount model, and we're pretty much through the bulk of that transition, where it's a fixed discount where we have the ability to change a list price and the customer continues to get the same discount in their pricing schedule, which means that the lag time for us realizing the price is going to be much less. And we did this in concert, as you said, with our distributors where the bulk of our business is resold through. And that's been fairly smooth so far. It was an important change. It was something that wasn't as big a deal for the decades before this time because we didn't see this kind of volatility in this kind of fluctuation in input costs and the need for big price increases. Hopefully, we're going to see this kind of as a regular part of cycles to come, but it was something that we needed to do to make our own internal processes more robust, ours and those of our distributors.

Excellent. Thank you. Why don't we shift briefly to competitive dynamics. So today, I mean, when Rockwell is winning new projects, why are you winning? Is it price, product availability solutions? And is it different? Has it changed over the past couple of years?

Yes. I think we've given ourselves more ways to win. In the past, a lot of that would have been around the support in our strong end markets like the U.S. and Canada, Latin America and so on. It would be because we've got this really versatile Logix control system a single platform, as I mentioned in my prepared remarks, that's good for discrete automation, hybrid and process all with the same basic technology platform. . But we've given ourselves new ways to win with Kalypso, with the creation of digital twins and the ability to simulate an entire manufacturing process and debottleneck it without running the first bit of real product through it, that's time savings, that's efficiency that's using contemporary tools. With the Independent Cart Technology, which gives us a disruptive motion control technology that's being used in battery assembly in packaging of pharmaceuticals and medicines and vaccines. Packaging, end-of-line food and beverages that is really unmatched in the market, and that's a true differentiator. The software, Plex, you've heard a lot about it. You've seen it. Cloud-native software that has an ERP system for small and medium-sized businesses, has amenities, has quality, has supply chain management. These are new areas for Rockwell, and we're proving that we are, in fact, the best owner of that kind of technology with asset management software, cloud-native again, Importantly, these technologies can run not only on top of Rockwell hardware, but they can run on top of our competitors' hardware systems as well. So it gives us more reason for being at those customers even when we haven't won the program will controller yet.

Excellent. And where you see yourself taking share? Are there specific end market stories that we should be excited about or maybe priority segments where you can aspire to more?

Yes. I'm usually pretty cagey when it comes to declaring victory in certain share areas because share is something that needs to be measured over a period of time and particularly during a time of volatility like this, then things move around a lot. All that being said, I think we're taking share in a lot of really important areas. Life Sciences is one that we've talked about in the past. Independent card as a horizontal technology. Our programmable controller share continues to be quite strong. So there's a number of areas, I think, that we're doing quite well. And we're looking not only for finding new ways to win in traditional areas. But looking at new disruptive technologies to be able to win in a more open field where the whole market might be growing, and we have the opportunity to grow even faster than that. Independent Cart would be an example of that, and we'll look for more of those type of areas.

Okay. Very good. I'd love to chat on supply chain and backlogs real briefly, very much du jour. Supply chain has been a real wild card in the business for last year. Quick check, how close do you think we are to normal?

Yes. It's improving every day. We're seeing the supply of chips ease up, and you see that reflected in our shipments. They're still isolated pockets in bottlenecks. And as you know, you got to have all the chips to be able to ship a product out, just like our machine builders have to have all the pieces, all the IO cards, all the drives to be able to shift their machines out. So we're not out of the woods yet, but it's improving. And I think, in particular, over the next couple of months, continue to see an inflection point where that improves even more.

Okay. And on those chipsets specifically, are we in a world where there's still going to be broker buys until new capacity comes online? Or is Rockwell in a position where they're able to redesign their way around the problem?

Yes. Yes. I think broker buys are always going to be kind of a last-ditch opportunity where we're needing chips, but it's not going to be something that's a regular part of our game plan. It's not going to be something that we're going to have to cause as a cost item going forward. I think that moderates and I think the ability to work with the suppliers that are in it for the long term with us and to be able to have tighter agreements and relationships directly with those suppliers, whether or not we buy through distribution, but the ability to continue to talk and stay close to the actual suppliers of the chips, that's something that's here to stay for the long term. And I think more long-term supply agreements, so they know what our needs are going to be, and we know what we can expect, the ability to have redundant sources of supply. All of those things, I think, are going to contribute as well as just the basic increased capacity that you're seeing from some of the suppliers for whom business like ours with the legacy process nodes in industry, that's an important part of their business model.

Okay. Excellent. Now a few times, I think we've heard that backlogs are expected to stay elevated for some period of time. But if I go back before COVID, you usually had around 20% in the next 12 months backlog. If I recall correctly. Is this longer-term view, the higher backlog? Are they a function of just extended supply chain snarls? Or is something more fundamental shifted in this business?

So I think you're going to see backlog as a higher percentage for quite some time. I mean, given the very high levels that we're at now, I think it's safe to say through '24, we're going to see higher backlog levels. A couple of contributing factors. One is the continued strong product orders that we've talked about. So it's not like we're just reducing backlog. We're seeing new orders come in, of course, as well. We're seeing our Lifecycle Services business continue to grow, which has always had about 5 months of backlog as an average that's healthy. So that's been the one part of our business that we have talked through the use of exposure of [indiscernible] to bill there and directly talked about backlog there in Lifecycle Services. And then we do have a growing part of our intelligent devices business that is configured to order, which includes things like independent car technology, which come with a little bit of additional backlog. So it's not going to change the whole dynamic of the company but rather than 20% of a year, it will be something north of that. So think about maybe between 1 or 2 quarters worth of backlog as we see the expected terminal value of that backlog terms.

Excellent. And I do have a quick customer -- a quick client question here. Pigeonhole is open. If folks do want to jump in, we'll try and work these in as we go. The cancellation rates in backlog. So those have been fairly steady low single digits I think. And every time period I've ever asked about I've asked a couple of times over the years. I assume we're still in that LSD range and then how defined cancellation when you look at backlog?

Yes. So cancellations remain low single digits, as we talked about at the last earnings call, and that's a percentage of canceled orders with the denominator being the orders in that quarter, and that's low single digits, and that's within historical levels. So we watch that. And I think we would have seen evidence if there was that concern about double orders or things like that. The customers I'm talking to want their stuff.

Good place to be.

Yes.

One more on backlog, and I promise I'll move on. Price and backlog. So how much price do you see baked in here? Obviously, price cost has moved a lot. Some of this stuff must be pretty old. When you think about forecasting the business, is pricing backlog a tailwind? Is it a headwind? Are you kind of at par?

Well, it's reflected in the guidance for the year. So -- which is -- so which I think is pretty good. And we can see, again, with $5 billion backlog going into next year, we see that as a pretty positive read in '24 as well.

Fantastic. All right. Well, let's get to the fun stuff. Digitization and innovation. A big area of focus for Rockwell, lots of really interesting projects going here. So ARR, a highlight last quarter, 15% growth. Can you offer some color on what's driving that? Are there particular products or end markets where you've seen traction really take off?

Well, ARR for us, annual recurring revenue is a mix of recurring software as well as services. So think of Plex with their smart manufacturing platform that we talked about before, super high customer retention. It's a very sticky set of software modules in that platform. Think about our tech support. So these are customers that are buying support contracts, so that they can get in touch with someone smart at the other end of the phone, they can chat. They have self-help tools to be able to troubleshoot their systems all around the world. And that's an important profitable I might also say part of our annual recurring revenue. So those would be a couple of highlights. Increasingly, with our cybersecurity services, we do the initial consult. We look for the vulnerabilities, we remediate the problem. And then wherever possible, we step on a recurring basis, health checks and in some cases, we'll install our industrial data centers which is actually an example of Hardware as a Service with installed software and attached services to be able to monitor network traffic to add an additional level of security for networks on the plant floor.

Very good. And then investment spend. It's really helpful to get disclosed on that over the last year or so. Can you give us some color on how you're prioritizing these dollars? And how are you measuring your progress?

Yes. So obviously, digitization, software control is going to continue to be an outsized beneficiary within the company of investment dollars, along with customer-facing resources. Now our sales and marketing organization gets helped by our Kalypso acquisition in the form of what is largely billable resources. They've proven to be a real boon to our sales and marketing efforts in the area of consultative selling to help customers look at the benefits, quantify the benefits of digitization and then take steps to create the digital twins and to actually act on those. So that's not only a source of profitable revenue within life cycle services, but it's also a real benefit to our salespeople out there and it's being done with large billable resources.

Interesting. And then you mentioned Fiix a moment ago, I just wanted to ask briefly. I remember at that deal, you talked about AI and the application of predictive maintenance plus control systems is very interesting. How has that progressed? .

Nicely. When we look at Fiix and some of you may have seen some of the demonstrations, the past automation fares and you'll certainly see it this November, where we, again, host automation fair it will be in Boston. And during that time, we'll have Investor Day as well. But Fiix in a couple of ways, continues to be a larger part of the Rockwell family. We're taking smart objects from our programmable controller, so data that's generated in a real-time basis and making it easy to ingest data models within Fiix to be able to share data between Fiix and Plex. We have common business management now between the two. And including some of the enterprise-wide resources in terms of people, the person leading our high velocity inside sales activity for the company comes from a Fiix background. So I think in a variety of ways, that continues to be a good business for us. It's growing good well on its own merit, but it's also becoming a larger part of the enterprise plans for information management.

Great. And if we take a step back and just look at the industrial software landscape more broadly, over the last 15 years, we've seen consolidation. It's mostly players similar to yourselves in controls and automation, acquiring industrial software. And the industry has reorganized itself quite dramatically in the last 3 years. Do you feel like you've got all the pieces you need today?

I'm very happy with the progress we've made. But I will also say software is never done, right? There's going to be new applications to come out, new big things. Obviously, everybody is going to I feel like they need to talk about AI as part of their software strategy going forward. So it's never done. It's going to remain an important part of our acquisition pipeline and what we fund internally to build. But I'm very happy with the progress we've made. And when we look at what we've done in the -- what we've called the connected enterprise production system in visualization software with FactoryTalk Optics built on awesome software, which was an acquisition. We look at operations management software, where Plex and Fiix fit, where we look at the data management where we have the relationship with Cognite and FactoryTalk data mosaics for a data hub. When we look at analytics, and we look at the incorporation of AI and some of the things we've done internally. And then when we look at production systems modeling where emulate 3D is such a great fit. I'm very happy with the progress that we've made in terms of building and buying and partnering in all of these areas. And there'll be more, but I don't feel that there's some huge gaping hole that we have to address at all costs in a quick fashion. We're going to take a thoughtful approach, but we are going to go further in these areas.

Would you say your software positions are helping you sell more hardware?

Yes, absolutely. Absolutely. I mean we see in multiple verticals where MES software, the scheduling software that helps people schedule jobs most effectively. That's becoming a need to have versus like to have. And we've got not only the on-prem solution with our FactoryTalk production center, but we also have the cloud-based offering primarily with Plex. And we're seeing that help us win because we have a larger portfolio because we can talk about not only the basic control system, but also where that data lands in terms of an information management system.

Great. And you mentioned both -- in fact, we're talking Plex, I always wondered there's 2 MES systems. Are those cannibalistic at all? Or you seem as complementary across different verticals?

I see it complementary. And just to clarify, FactoryTalk is the brand for all of our software. So actually, Plex is part of the FactoryTalk operations hub. So just as Allen Bradley is the brand hardware, and I still have to explain that Allen Bradley is, in fact, part of Rockwell sometimes. But Allen Bradley hardware, FactoryTalk software, Lifecycle IQ Services. Those are our 3 primary brands. And -- when we look at the choice that we have to your direct question, FactoryTalk production center for the on-premise MES software, we had some customers who like an on-prem solution. They like it because they're worried about data possibly being compromised in the cloud. They want a system that they can customize. Cloud-native software brings a lot of advantages. But one of the things you don't get is the ability to customize base code because in a multi-tenant cloud situation, it just doesn't lend itself as easily to customization for rapid deployment, if you don't have a large IT resource on site, those are good reasons to use it. But generally, customers have made a decision what they want currently while considering what the best of both worlds are for our future, and that's what we're looking at as well.

Makes sense.

Yes.

And when you go to market, are you bundling software together for sort of solutions bid?

I would say it is bundled, it's separable, but many times the customers are looking for an overall proposal that we can provide there. And oftentimes, with the engineering to bring it all together as well.

Fantastic. And then one more quick one on the PTC partnership, just offer a brief update and perhaps some color on the growth over the years, what the big drivers might be here?

Yes. So I think about the benefit of the PTC partner in 3 ways. The resale of the IoT software, their ThingWorx software as well as the Vuforia augmented reality software, and we've seen growth in that area. It's contributed to both companies' annual recurring revenue, and we expect to continue that relationship. . We also see the synergy, the pull-through of additional Rockwell business. And similar to my comment to your previous question, we've seen it pull through bigger deals, which pull through additional of our MES software, and in some cases, influence projects that include hardware as well. And then finally, in addition to the resale of that software and the synergy is the appreciation on the investment we made. And while that's not going to be a regular play in our capital deployment, we're happy to see that investment in the money. We've monetized a portion of it. And so we're happy with [indiscernible].

Very good. And then turning to M&A. So over the past 5 years or so, you've really stepped up the pace on deals with some nice tuck-ins and some bigger swings as well. What are the strategic boxes you're trying to check with your acquisitions? And can you offer 1 or 2 examples of how it's played out?

Sure, absolutely. So priorities are this. Information Solutions and Connected Services. So in Information Solutions, think of Plex, think of Fiix. In Connected Services, think of Avnet and Oylo for cybersecurity. Think of Kalypso for digitization, digital twin creation, digital transformation management within a company. Kalypso has been a good one. Knowledge Lens is another one that fits in that category, MES Tech, another one. Material handling, advanced material handling is another one. So think of our independent card acquisitions like Jacobs Engineering and MagneMotion. And I think there's some opportunities there. I think there's some aspects products that might be introducing to us as well. And then think of increased presence in Asia and Europe. So think of ASEM, the Italian industrial PC manufacturer which also I mentioned before, makes pretty good software and is becoming the backbone of our visualization system selling successfully versus all the usual suspects in Europe to German machine builders as well as Italian machine builders, but we're also reselling it through our distributors back here in the U.S. with quite a bit of success. So those would be a few examples of those priorities. And then, of course, we apply once we establish the strategic fit, we apply our performance, our financial performance model to that to maintain discipline there.

Very good. And I mean, since Plex, you levered up on that deal. A bit more of the balance sheet now and there's been a real pullback in valuations for a lot of software assets. Should we be expecting maybe the larger software deals are back on the table again?

We do have software in our pipeline, but you should not expect some Plex or larger type of deal imminently. I mean we paid over $2 billion for Plex. It was the biggest acquisition that we've made I'm happy with it, but you shouldn't expect something like that in the near future.

Got it. Makes sense. I've got a couple of inbounds here from the audience. So first off, growth in China. Has it been lower than peers in your view? And if so, why or why not?

Yes. Well, we're about 6% of our total business in China. And I mean, when you look at the growth recently, I think our growth in general in Asia and in particular, in China, it's been pretty good. I think there's a lot of opportunity there. Obviously, there's some additional complexities for a U.S. company selling into China. It's important to us. China is the world's largest manufacturing economy, but we're going to take a thoughtful view to what we do there. But by doing the basics without doing something that incurs unnecessary risk, I think there's a lot of outsized growth that we can continue to get in China, but maybe as importantly in other parts of Asia as well.

Okay. Fantastic. And then one more here, specifically on PLCs. And I wouldn't expect you to comment specifically on margins, but the Logix business is quite well known, I think it's a great one.

Yes, me too.

I'm sure. What gives that business staying power?

Yes. Well, Logix is unmatched against any of our competitors in some important ways. Logix is generally considered the easiest processor to do business with to work with out there. It is a single platform that is versatile enough to use the same basic technology in electric vehicle assembly in the production of medicine and a pipeline and being able to have a single platform that can do that, drives efficiency for our customers who want to just train 1 set of maintenance people on a single technology, and it creates efficiency for us as well because maintenance of line is an expensive task for a big platform like that. And if you have to do it for 4 or 5 platforms, it's more expensive. And so I think those are some of the things that kind of set Logix apart. The diversity of the IO, the way that it handles data and can look at those end basis as bundled of sensors and then able to take that data and pass it up to software applications like Plex or Fiix or other third-party applications. There's just a lot of things that have given Logix its staying power. I mean the original incarnation of Logix was introduced when I was still selling back in the '90s and customers are looking for that kind of consistency because it's not uncommon to have machines that are working out there for that period of time and longer, 23 years and even longer. And so to have a process that you can continue to upgrade without having to physically rip it out is really important. And one of the things that we've done to add many more years of life into Logix is we introduced in November, this past November, a cloud-native programming application for Logix. So for all those years, we've been programming Logix on-premise, on a desktop. And now you have the ability to browse to an application. And you and your colleagues around the world can collaborate in a cloud-native multi-tenant application to program Logix and then to export it to the processor. And that's a first, and that's going to be a game changer over time.

Fantastic. So 30 years, so that's a long time. I always worry about the modernization industrials goods. It sounds like this is simply a case of continued ...

It changes to have a moat, it does. And I'll go further -- and it's not just where a standard hardware appliance that Logix is sold on today. Logix will continue to retain its value when we have it introduced in the ability to run on an industrial PC that's using -- that's not necessarily a PC that we build, and it's still going to have quite a bit of value there because it's going to perform the same functions. And ultimately, this whole idea of a soft PLC. We're not afraid of that. We'll embrace that because we think we can compete and win continually regardless of the form factor.

And then one more on Logix specifically, I get this a lot. Is there a risk from cloud players or disruptors to the PLC business?

Well, I just mentioned that we're leaning into the uses of the cloud, particularly in the design time and the programming. I think for the foreseeable future, you're going to still close the control loop, the fundamental run time operation of a controller on-premise. And that's going to be due to the need for very low latency that you can't guarantee when you're closing that loop from the factory into the cloud through a firewall and so on, you're going to keep that on-premise where you have safety requirements where you have a high degree of synchronization where this output has to turn on before this other one, and you have to have deterministic time, and the cloud is not great for that at this point in that run time. We're going to continue to see more uses to the cloud, and we're going to be a strong advocate of that. But the idea that you're going to be able to do all that functionality of a programmable controller in the cloud in a way that spurs mass adoption of that, let's say, form factor. I don't think you're going to see that for a while.

Makes sense.

Yes.

So we have a couple of minutes left here. Blake, if you look forward, what are you most excited about in this business? And what are the 2 or 3 points you'd love to leave our investors with today?

Well, I'm excited about the pace at which we've created more ways to win. When I sit back and think of what are the things we could work on, what are the things that I know that we can grow profitably in. There's a huge number of vectors that we can pursue. And so I think it's a good problem for I and the leadership team and ultimately, the Board to have is to pick the ones that absolute best, the ones that we can be the best in the world at, that we can grow the absolute fastest in and profitably. And I think it ends up in an algorithm that looks a lot different than the traditional Rockwell. This concept of a business that is very profitable, reliable I like to think that we're both of those things, but also now growing faster and doing some disruptive things as first movers as well.

Outstanding. Well, thank you so much for being with us again this year. That's been a great discussion.

Yes. Thanks so much.