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

Okay. Great. We've got Aijana Zellner and Christian Rothe from Rockwell. Guys, thanks so much for being with us today. We usually just like to do a bit of an intro and state of the union as a start. If you'd like to kick it off with any kind of comments on what you guys have been talking about in the last few weeks and what you're seeing out there. we can just start there, and then we'll go into it.

Sure. I can do that. Thanks, Steve, happy to be here, and thanks for having us. So yes, we reported Q1 earnings. So for us, we're in a fiscal year. So the first quarter for us was a good quarter. We performed better than our own expectations on the bottom line, kind of in line with expectations on the top line. The book-to-bill was a little bit better than what we would have expected. So we got over $2 billion in orders for the first time in what, I think, 7 quarters. So that was really strong performance, and it was pretty broad-based. And certainly, we had a lot of discussion on the conference call and days afterwards around, "Hey, is there any preorder, prebuy going on." I'm sure you're going to ask us some more of those questions as well. The discussion on our conference call, though, was around the fact that, no, it really felt like it was pretty broad-based, and it was all aspects of our business and on top of that around the globe. And so areas that you probably -- if you were going to see a prebuy, you wouldn't be seeing it there. So that part was good, but it's one quarter. We've got a full year ahead of us. I'm sure you're also going to talk, Steve, about some of the ramp that we have, as the year goes on, and we want to make sure that we continue to grow incrementally and gradually during the course of the year, both on the sales side as well as the margin side, and we're focused on executing against that.

Great. Let's just kind of like jump into the -- what's been happening here, first of all, on the demand side. Most of the companies here have not -- CapEx remains solid and kind of stable, sluggish, but hasn't really softened. The ISM print, I thought, was pretty weak. Aijana, you've been around for a little while. Some of the companies we cover have decoupled from the ISM. Is the ISM still something you guys look at as an indicator? And how does that kind of inform your views going forward?

Sure. I would start. Well, Steve, as you know, we look at a lot of different indicators, when we do forecasting. Historically, we've correlated the most with industrial production over longer periods of time. But we do, of course, look at a lot of different things, PMI, ISM, IP. It's one factor. And we talked about PMI getting above 50% was a good indicator. We do look at our customers as well, what's going on with their pipeline, what's going with our win rates, what are we hearing from individual industries that we serve. So certainly, a lot of things factor into our surveys of our distributors and machine builders. So we take it all in as we look at how do we forecast our orders and sales and run our business. It's not a particular one factor like ISM or PMI.

Got it. Is it -- the step down to 48 in new orders, I mean, is that something that when that happens, you kind of like go out and canvass your customers and try and figure out if there's a change or that's not really that material enough of a change to start to react.

Yes. So we have a pretty normal cadence for us. And so we're doing periodic surveys of the OEMs and machine builder side of the business, and we're also in constant conversations with our distributor partners. So really, there was nothing that we react to around that. But let's be honest, we are a short-cycle business. So we are just as interested as anything else to see what the orders were yesterday.

So are we? Any comments?

No, no comments.

Okay. 3M was here yesterday, and they talked about orders holding up okay, but they actually took their sales down by a moderate amount, 2% to 1.5%. I don't know if that's the channel basically just being a little more cautious about when they want to take the product. Is that what you guys kind of saw in orders that the channel is just a little more cautious about wanting to have the product? Or was that more of just like a timing like, hey, this is when I really need it. So like maybe just explain that disconnect a bit between the orders and the timing of the shipments.

Yes. So just to make sure we're level setting on that. This is really going back to again our first quarter...

Yes, the first quarter. That's right.

Where we talked about the fact that book-to-bill was greater than 1 and that really the delta around that had to do with the delivery dates on some of the projects. And really, it was more related to the project activity and the demand date of those customers. And so if there was anything we were going to see when it comes to distributors not wanting to take the stock, right, hesitation around that, you would see them put in some different delivery dates on the standard product portion of the business, and we didn't see that at all. They were taking it at the lead times that we were offering. So there was no real manipulation around that, that we saw. So generally felt fine with it, probably just to confirm that we are not actually giving interim updates on our view right now. Understand that maybe 3M did that yesterday, but for us, we're not feeling like this is a moment for us to do that.

Yes. And that's standard practice for you guys. Totally understand. We still have to ask and kind of get it...

Absolutely, yes.

Give it a try. So maybe just expanding the lens a little bit from a demand perspective, and you guys have guided for -- you have provided forecast for the verticals. So maybe what informed those forecasts? And let's just kind of like walk through some of them here and what you're seeing. So I'll start with food and bev because that's -- people don't talk about it a lot, but that's your biggest single end market. I'm sure some of that comes through European machine builders. But maybe what informed your forecast on food and bev? How does that decouple from your CapEx budgets? Maybe just an update on the vertical there.

Sure. So first of all, let's talk about what happened in Q1 for us, fiscal Q1. So food and beverage -- and broadly hybrid industry segment, that has food and beverage, home and personal care, life sciences did better than we expected. Food and beverage, we're not seeing a lot of greenfields there. Now we are winning some of them here and there, but the majority of the spend is really customers' investments in their productivity, efficiency, resilience, cyber security. So we're seeing spend there. What we see with machine builders, especially with packaging machine builders who serve predominantly or in a big way, food and beverage and home and personal care, kind of the broader consumer packaged goods sector, we're seeing some green shoots there. And it's encouraging, and you might notice, Steve, that especially HPC, those machine builders are viewed as a leading indicator on the recovery side. Now it's only one quarter. So that was kind of an early green shoot, but that was one of the things that gave us confidence. We haven't changed our expectations for the full year for food and beverage, but certainly, it's a great data point. We talked about European machine builders. As you know, this is where we had a lot of our excess inventory last year, especially with our Logix controllers. So we are seeing that destocking coming to an end. So that's great. We see a stabilization and especially with the Italian machine builders. But overall, food and beverage and HPC came in better than we expected.

Yes. And maybe I'll add to that just to say that we do obviously have sales teams that are focused on verticals. And part of their process is to actually go engage with those end-user customers and talk to them about their CapEx and OpEx budgets. And the view that they got from those customers around the projects they had planned for this year, it supported our overall view for what we thought the -- our performance was going to be for fiscal '25.

I'll just add, Steve, we are expecting a gradual sequential improvement. So when we look at our forecast, for the full year, whether it's by industry or for the company, it's one view from a year-over-year standpoint. Remember, first half of last year, we still had some product backlog. But it's really more of a quarter-over-quarter story, and we do expect a gradual improvement in food and beverage, certainly is one of them.

And did you -- I would assume that a lot of those guys, you said Italian, the European OEMs. Any -- do they talk at all about kind of cross-border risks and reciprocal tariffs or anything like that? This -- your customers coming -- not necessarily you guys coming cross-border, but the customers coming into the U.S. Have they talked about that at all? I mean I'm sure it's pretty fluid, but...

Yes, I think it's pretty fluid. Obviously, they're -- when they're talking to us, they're asking us questions around what does it mean for them from a pricing perspective because, of course, they want to have predictability in their business. And then, of course, there's -- it's happening on the other side for them, too, which is, okay, what's the potential impact on their business and how exactly are they going to be in a position to recover, if there are additional costs. As we all know, it's a fairly dynamic environment, and there's some difficulty to have predictability around it right now. And so I think the key for us at least and with our discussions with all of our customers, whether they be OEMs or distributors, is that we are putting in place a process to say, hey, look, if we're going to actually incur a cost that our intention is to recover that, and here's our process for doing it.

And on these OEMs, you talked about that being the biggest aspect of destocking. So basically, you're saying that like the growth there is actually for them is not that great, but you guys are now kind of like recoupling to that trend line and that's kind of a...

I think a good word is stabilization.

Yes. Where are you when it comes to that? Will we be more normal and in line by kind of year-end with those guys? Or we still have a ways to go?

I think the most important part is for the whole company. We're talking about really end demand is starting to be represented in our sales, right? And so we are -- as we go through the year -- this is why we are not really going to talk too much about orders going forward because we're back to that normal environment pre-pandemic where orders and sales are kind of sitting on top of each other. So that's, I guess, a good way to just to explain where we are...

Yes. That's been my view as well, but obviously, everybody likes orders. So that's kind of the food and bev. And any signs of longer-term food and bev -- what is the -- what's kind of the natural growth rate you see in that industry?

We haven't shared that just for that particular industry, but there are a lot of areas within Food and Beverage segment because there are a lot of areas there. There's agricultural processing, there's protein, there's confectionery and all those things. We are working with the leaders in all of the different segments on their next-gen platforms. Production logistics, what we're doing with autonomous mobile robots, is a source of a lot of conversations and pipeline there. They're investing in software. We might talk about it later, but a lot of what we're doing with AI and how -- for them, really, it's more -- if they're not building out capacity right now, it's how do they increase their production volume and yield and improve their quality. And we're doing a lot more with our advanced technology, with our AI, with our software offerings. And so it's an attractive market. Food and beverage has kind of been the fastest growing, but it also has been very resilient through the years. We expect -- and it's 20% of our total revenue. So it's our single largest vertical within that. And this is why it's one of our focus industries. We see a lot of areas, submarkets that are slated to grow faster than average.

Right. And then just lastly, on the hybrid side, life sciences, seems like it's a bit of -- there are some waves here. There's a big wave and then it settles in and now it seems like there's a bit of a pickup there as well on the life sciences side, maybe just the same conversation.

We had -- yes, we actually increased our forecast for the full year in life sciences. So we see a lot of good activity. Similar to food and beverage and HPC, a lot of customers are investing in their resilience and overall kind of efficiency -- production efficiency. However, we do see some greenfields there, especially on the GLP-1 side, and we have good presence there. As you might know, we have a very strong software offering, especially in MES and digital, a lot -- that helps a lot with life sciences companies. We had a pretty large win with a European life sciences company just last quarter, we talked about. So we are -- it's a combination of our core automation and some of our newer software offerings, but well positioned. So we expect it to do better than we thought coming into the year.

And when it comes to that 5% to 8%, I'm sure the long-term growth rate, I'm sure life sciences is at the high end of that when you think about it longer term?

So when we introduced that 5% to 8% longer-term framework growth target, we talked about 5 focus industries. Life sciences was one of them. So we talked about it for a reason.

Okay. Turning to discrete and auto, just talk about what's going on underneath the surface there. There's obviously the EV stuff, not the biggest market for you guys, but still important and growing, but obviously, some concerns there that -- around the future of that capacity. Just talk about the difference between EVs and the traditional OEMs.

So automotive is about 10% -- it's a little bit less than 10% of our total revenue, of which EV is about 1/3. In our Q1, automotive actually came in as expected. Yes, it's challenged. We expect it to be challenged. But especially if you look at automotive brand owners, they're not -- they're kind of delaying their CapEx plans right now. They're still spending on their OEE and productivity. This is where, again, our auto AMR business is doing well because these customers are trying to complement their scarce labor with technology with autonomous mobile robots. There's growth. If you look at historically, automotive for us has been driven by both model changeovers and MRO. These model changeovers are not going anywhere. Customers -- these automotive companies will need to continue to innovate to get more models out there, which drives business for us. For sure, we have a great readiness to serve the EV market. We've talked about it. But regardless of the powertrain, whether it's ICE, hybrid, battery, we are well prepared to serve these customers. So longer term, we think it's going to be good. EV growth is going to be there. It's more subdued. It's less than we all expected a few years ago, but it's still growing. And so we think longer-term, we're well positioned, but it certainly is being impacted by some of the trade and policy uncertainty this year as well.

And I guess on those mega projects that you guys had highlighted 2 years ago, semis, we could also throw in there from a discrete perspective. Are you seeing any signs of life in those projects that have been delayed that may be coming back on or -- what's kind of the time line -- the reset time line of some of those?

We do see projects. In fact, when we talk about projects or mega projects, semiconductor is one of the verticals that has a lot of those projects in the pipeline. This year, we expect to be challenged. If you look at the excess inventory, especially in the industrial and EV markets, if you look at the trade and policy uncertainty similar to automotive, that's certainly weighing on this customer's plans.

Right. So there's not a lot of visibility in those things reaccelerating?

Not in fiscal '25 in a big way. But like I said, quarter-over-quarter, we do expect kind of a gradual improvement for the overall company.

And then one last one on discrete. Warehouse automation was very strong. What's driving that organically?

E-commerce and warehouse automation. So we kind of combine both the e-commerce, but also a more broader warehouse automation application space, continues to be strong. It's a combination of new fulfillment centers on the e-commerce side, and we serve the whole ecosystem. So the end user, the SIs, the machine builders who serve that customer segment, so that's going strong. And we have a great combination of our core automation, but also some of the newer offerings, including our Emulate3D, our digital twin software to help us there. On top of that, just really broadly, if you look at the infrastructure for warehouses today, it is not sufficient to meet today's and tomorrow's needs. And so that's driving a lot of modernization of existing warehouses for other customers. We're talking about global logistics companies, parcel companies, traditional retailers who are -- who want to have a competitive advantage and they want to use the opportunity to upgrade. And so it's both. And one more thing, we did talk about our data center business. It's also grouped in that as well. So all 3 are doing well. That's right.

[indiscernible] business, you report the data center stuff like that, yes. So that's very strong, obviously. And then just lastly on process. That's a market that has been coming back, but pretty slow. Any comments there on how that's going to trend?

Sure. We haven't changed our outlook for process. We think -- if you look at within that, energy is about 15% of our total revenue. And it's a combination, of course, traditional oil and gas, but also what we're doing with carbon capture, decarbonization, renewables. Q1 was a tough year-over-year comp. So that kind of informs what happened there. Overall, we're well positioned. There's still customer investment in oil and gas and where we play is really getting more out of the existing wells. It's using software and automation to expand that a lot more in upstream, but we're also working with direct air capture, CCUS broadly, renewables. And so we think it's a good business. And for us, we have been investing in our process architecture, process technology and expertise. And so that's been paying off. Process is our largest industry segment, if you look at our revenue breakdown.

For a lot of these end markets, I mean, can you significantly decouple from customer CapEx budgets? I mean, are there any where you see an opportunity to really like outperform customer CapEx budgets?

I mean broadly in the process?

And any of these industries you highlight, hey, the CapEx budgets are here, but like we have something that's really going to drive a plus 3%, 4% growth relative to CapEx budgets, kind of outgrowth?

Yes. I mean if you look at what's going on right now, whether it's food and bev, whether it's automotive, whether it's life sciences, the customers are optimizing their offerings right now. They're not -- they're reluctant to make any large capital outlays right now, but they're investing, whether it's AMR, whether it's software, it could be MES, it could be our digital twin. It's really cyber security and the recurring revenue we have through that in addition to other managed services, not to say completely decoupled. CapEx still drives a big part of our business, but we have been investing in diversifying our revenue streams to give us more access to some other things that are more resilient.

One last question on demand, more higher level. I think in November, when all this happened, new administration, I'm sure that there were some customers that saw the writing on the wall and wanted to get ahead of things. Did you have any conversations or have you had any conversations where people are kind of like proactively looking at reshoring and bringing it back to the U.S.? Have you seen an uptick in those conversations, the translation from tariffs and all the noise out there into the actual kind of on the ground, bringing stuff back to the U.S.?

Yes. I don't know if I would necessarily specifically index it to an administration or the election or anything like that. But it's been an ongoing conversation for sure around folks that are looking for bringing their production closer to their end user customers, taking out some of the issues that they may have seen during the supply chain crisis, labor efficiency, labor availability continue to be issues. And so the ability to maybe invest closer to where their customers are and taking labor out of the equation, I mean, that's where Rockwell lives. That's where we can help them.

So a bit more evolutionary than kind of an inflection?

Right.

Okay. Just moving away from demand and to the margin side, this is a topic that's near and dear to your heart, I'm sure. How is that progress coming along? I know you've only been here for a relatively short period of time, but some big expectations out there. What are maybe some of the things that have surprised you early on here, any challenges, opportunities?

Yes. I think just to go back in time a little bit. So I've been with the organization for 7 months. Before I joined, there was a cost-out program that was underway. And so that started in the second half of fiscal '24. The first wave of that was really more focused on SG&A and bring more efficiency into our organization. And so that was primarily headcount related, and that was mostly done in the second half of fiscal '24. If you go from kind of 1 year ago or a little bit more than a year ago to today, we're down, I think, 12% in headcount in that time frame, part of it from reductions and part of it through normal attrition and just being conservative on our add-backs. So that is -- really, we're seeing the kind of the annualization of that through the first half of this year. The second wave is underway right now. That wave is really more focused on the COGS area. And looking at our direct material spend, our indirect materials, our logistics spend, trying to bring more efficiency into our operations, our SKU count and rationalizing that, which is really where I've dug in a lot more. And so I like the program a lot. I think it was -- it's a great opportunity. And it's not to say that the Rockwell team had been doing anything wrong. It was really more of the fact that over the last 3, 4 years in the supply chain crisis, it was all hands on deck and working really hard to get the materials in the door to get them converted and get them out the door as fast as possible. When you're doing that, right, you're spending a bunch of extra money on the logistics side, doing things via air freight instead of ocean freight. You're spending money on overtime. You're probably not being super-efficient in your operations. We weren't doing a lot of productivity projects in our factories during that time frame. So it's a really good opportunity to have that reset. And so that should yield us about $250 million of savings in fiscal '25. And then, of course, we're going to get the annualized benefit of that into fiscal '26. And on top of that, if volume does continue to grow, then we're going to get that benefit just because it's a really hard program to implement when you're talking about a low to no volume growth environment. And so when you actually do get some volume growth, then you really yield the benefits of these kind of programs.

So the 30% to 35% incremental margins you guys have talked about, I think that's still the...

35%.

35% incremental margins you guys have talked about. Is that still the number? Or should you expect -- if we get a little bit of volume, you should be above that early in that cycle? Are you -- is there an upside bias to that number?

Yes. I mean -- so we are -- generally, we're holding that 35% just because -- at least the way I look at it. First of all, from quarter-to-quarter, it's probably not going to -- it's not going to be as simple and easy as that. And that overall through that cycle, we should be looking at a 35% number. Now theoretically, if we continue to execute this really well, you continue to expand your gross margins, then you should be in a position to build off of that, not quite ready to sign up for that one.

Got it. And is there a wave 2 of this perhaps on the COGS side next year or more? And what I mean by that is a more kind of official plan as opposed to just getting the volume leverage? Or is this -- are we kind of done with the kind of...

No, I appreciate you asking the question because it's really important. And so I'll go back even to before I started at Rockwell. One of the first discussions I had with Blake in the interview process was around, well, okay, this is great. I understand it's a really good initiative. But what's the organization doing to make sure that a framework is put in place to turn this into something that's not event-driven, but it's really more of a way of life. And so -- and it was already in process, and there was work being done on it, but that's how we ended up on the Rockwell operating model and taking all the learnings, all this good work that the organization has done, using this opportunity for a reset and then taking that and building off of it and turning it into a really strong continuous improvement and operational excellence program, which we talked about at our Investor Day in November. And so it's not necessarily another wave to come behind this. It's really more of a how do we institutionalize it, have it so that it continues to evolve regardless of who the leaders are of the organization or any individuals and make it so that it's really part of our way of living.

And so the way we'll see that is not necessarily like, hey, on October 1 or whatever, we've got another $50 million plan that's going to result in this much in savings. It's just more like, hey, we're guiding to 35% plus incremental margins, that's the way we would -- it would be much more just organic and part of the business as opposed to another item of the bridge?

Yes. I think it probably will be more just part of the business and not really part of the bridge. And you may see us take some of that yield off of those and use it to reinvest in the business.

That makes a ton of sense. Turning to tariffs. Maybe just remind us...

Can I pause you for a second? So can we -- I want to take a moment and just talk about investment in the business...

100%, yes.

If we can because you've had an underweight rating on Rockwell for quite some time, you've been fairly critical of our investment spending during the last half a dozen years or so. And so we should take the opportunity, right, to your conference, we should talk about it, which talk about the investments that Rockwell is making in our business, in particular, in new product development. And so just to give the facts out there. So about 6% of our sales are plowed back in new product development every year. That's NPI specifically. We feel comfortable with that number. That number is heavily from the software and control side. Software is a much bigger investment number, right? So that's in the low teens for us. For intelligent devices, that's a kind of mid-teens percentage. And intelligent...

Mid-single digits.

Sorry. Mid-single digits, pardon me. It's a mid-single digits number. And that is a business that has a heavier configure-to-order portion of the business, which is not something that needs R&D spend, labor specifically -- yes, exactly, it's labor. And so for the product portion of that business, it's also getting an outsized spend. And Lifecycle Services, again, is more of a project-type business, which doesn't need that kind of investment. So I've read your reports. I've seen the questioning around our investment level for sure. At the same time, ultimately -- especially when you're talking over half a decade or longer time frame, this should ultimately manifest in an answer in things like market share.

100%.

So from our data points and what we look at, and our data points are pretty broad-based around -- we look at industry data points, we look at what's happening with our win rates, we look at what's going on with the competitive environment and our peers and what we can see from the detail around that. We feel like during that kind of half a dozen years that we've held on or gained share in most of our product categories. So we feel like our investment level is pretty good. But at the same time, again, your conference, your floor. So we talk about it?

100%. So what I've seen in the numbers and the bridges you guys have given, there was a $2 billion investment account. You guys would talk about how much that was either going up or down year-over-year. And you could see whether that was tracking with sales or not, i.e., falling in the margin or not. And in times where you guys were seeing volume declines, that number was being toggled back and effectively being used to defend margins, which is your strategy and your prerogative. In addition, if you then translate that and go to the field and the field work we do, we go to conventions, we visit with your competitors and look at the different booths and the offerings. You go to the other companies' booths, and they are certainly a lot more fancy than what you guys are presenting from whatever it is, software perspective. In addition, going to PACK EXPO, visiting with several of your machine builder partners that you've introduced us to over the last 15 years, Chris introduced us a while ago. The feedback from some of those customers is that you guys are losing sockets on some of those products. So again, I've never said in my reports that I can see in the revenue numbers that you guys are losing market share. I've always talked about it as a risk because I can't see it, and I agree with that. And I've never said that Siemens is substantially outgrowing you guys, but that's the mosaic that I see. And as a smaller company with a much smaller R&D budget, Siemens has obviously invested, I don't know, $5 billion, $10 billions of dollars in software to come over the top. Clearly, a more -- they were early on that. They were much more focused in that strategy versus you guys, where it's been definitely more fragmented. That's the mosaic I see so...

Sure, Steve, if I may, 2 things. One, really quickly, and the old version of investment spend that was a big base, as you know, had SG&A and R&D in it. And that's what we used to report. We went away from it because it was really obscuring the true NPI spend. You can look at our R&D spend through the years, and it matches what Christian said, about 6% of sales. With an investment, when you do have some years, you have to drive productivity, and we always drive productivity in the functions. That functional spend wasn't that $2 billion spend. So it was not really true new product development that you're looking at. Going forward, we're going to talk only about R&D, so then you can see what we're doing. So that's more of, I guess, reporting structural characterization. On the share part, especially you mentioned Siemens or fancy or industry booth. Listen, at the end of the day, it's what we're doing for our customers in our production automation space. Yes, Siemens is spending a lot of money in the production design -- in the product design and product automation space. The recent acquisitions, the R&D, we are focusing -- we carved out production space. And in that space, we've made significant investments organically and inorganically over the last several years, as you know. And we think we have a leading portfolio actually. And I'll be happy to talk about whether on the software front or on the devices front, but there's a big difference, there's PLM, there's CAD, there's PDA and then there's actual production. Those are very different areas.

Well, they also have a virtual PLC that they're pretty excited about, and it's like-for-like versus your virtual PLC, just it's hard to -- I'm not a technical expert, but at face value, it's kind of hard to...

I'm glad you brought it up actually. And you were at our Investor Day and our automation fair. When you look at virtual controller -- by the way, we do have our version...

And again, this is like 0.001% of revenue...

Right. No, the most important part is really it's software-defined automation and virtual controller is only one part of it. What we're doing is so much broader than that, which is really how do you take and define and design application content and then you can just be hardware agnostic. It's not just a PLC. It's visualization, it's I/O, it's how you deliver all the content. And what we have with our cloud-native platform, we're better positioned than anyone else to do that. And so we can talk about virtual PLCs, we can talk about software, we can talk simulation all day long. And so we didn't mean to kind of ambush you here, but I think it's an important conversation to have because R&D is there, and we are developing leading technologies in our space.

And to be clear about this, I'm not sure like bullet 1, 2 and 3 of my thesis has been about market share. And just factually, the Street had like $14 a share of earnings, as their forward estimates and you guys are doing $9. So I think like that has nothing to do with market share. That has more to do with almost like 75% to do with how the cycle played out and where people's expectations were at that time. So I don't want the message to be like I'm underweight Rockwell because you guys are like losing share left and right. And things picked up tomorrow and the cycle changes, like I don't think you guys are going to sit there and not participate. Just to be clear...

Understood, but I'm glad we cleared up the R&D part -- R&D and investments, I think...

Maybe one other data point just to make sure we're -- that we all are on the same page around this. That new product development investment amount, that 6% number, that actually excludes any of our sustaining R&D. So sustaining spend for engineering is about another 2 points to 3 points that we're spending. So total engineering spend is upwards of high single digits. So we are spending a fair bit. And again, really overweight as a percentage on the software side of the business.

Yes. And to be clear, if the economy picks up and CapEx picks up and we start building a bunch of plants in the U.S., I don't think you guys are going to sit that out. And obviously, share in this industry changes very slowly over time because you're leveraging installed base and nobody really rips and replaces unless something is wrong. So...

The installed base is a great powerful tool for us.

It is, for sure. I really appreciate this conversation. This is actually a ton of fun.

Yes, me, too.

I love it.

All right. Thank you.

That's it. That's all we got time for. Thank you.

Great.