EMR - Emerson Electric Co.

Operator: Greetings, and welcome to the Emerson Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Colleen Mettler, Vice President, Investor Relations. Thank you. You may begin. Colleen Mettler: Good morning, and thank you for joining Emerson's Fourth Quarter and Full Year 2025 Earnings Conference Call. This morning, I am joined by President and Chief Executive Officer, Lal Karsanbhai; Chief Financial Officer, Mike Baughman; and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with the slide presentation, which is available on our website. Please turn to Slide 2. This presentation may include forward-looking statements, which contain a degree of business risk and uncertainty. Please take time to read the safe harbor statement and note on the non-GAAP measures. Before we begin the presentation, I would like to highlight our upcoming 2025 investor conference on November 20. We are looking forward to presenting on our transformed company, a global automation leader set to deliver a differentiated value creation framework. We will discuss the drivers of our 4% to 7% organic growth framework, detail our plans for additional margin expansion and outline our capital allocation priorities. Additional information about this event is now available on our website. I will now pass the call over to Emerson's President and CEO, Lal Karsanbhai, for his opening remarks. Surendralal Karsanbhai: Thank you, Colleen. Good morning. 2025 marked the 135th anniversary of our company. The Emerson Electric Manufacturing Company was established in St. Louis, Missouri in 1890. The development of a reliable electric motor was the vision of 2 Scotland born brothers, Charles and Alexander Meston, made possible by the financial backing of John Wesley Emerson, a former union army officer, judge and lawyer. Throughout nearly 1.5 century of economic cycles, The Great Depression, 2 World Wars, significant technology innovations and a handful of iconic industrial leaders who navigated uncertain waters, our company completed 2025 stronger than ever. We have transformed. We have momentum in our markets. We have great people, and we are optimistic about our future. Thank you to the 70,000 Emerson employees around the world, to our management team, our Board of Directors and our investors for your trust. I am honored to work alongside each and every one of you in our value creation journey. Please turn to Slide 3. Emerson continues to see resilient demand as customers invest in automation technologies to drive digital transformation and enhance efficiency, reliability and safety in their operations. Underlying orders grew 6% in the fourth quarter, driven by sustained demand in our growth verticals and accelerating orders growth in Test & Measurement up 27% and exceeding our expectations. We had a robust finish to the quarter, and I will discuss more details on demand on the next slide. 2025 was another solid year from Emerson. Underlying sales in the fourth quarter were up 4%. Execution was strong in the quarter with adjusted segment EBITDA margin of 27.5% up 1.3 points. We delivered $1.62 adjusted earnings per share in the quarter, at the top end of our guide. For the full year, underlying sales grew 3%, slightly below expectations as Europe and China were softer than initially expected. Emerson delivered strong profitability with adjusted earnings per share of $6 up 9%; and free cash flow of $3.24 billion up 12% year-over-year. Annual contract value of our software grew 10% year-over-year and ended the year at $1.56 billion. For fiscal 2026 we are guiding sales growth of 5.5% with underlying sales growth of approximately 4%, supported by sustained investment in our growth verticals and robust performance in Test & Measurement. We expect to deliver adjusted segment EBITDA margin of approximately 28% and adjusted earnings per share of $6.35 to $6.55, reflecting strong operational execution. ACV is projected to grow 10% plus as customers further invest to advance their digital transformation ambitions. We plan to return approximately $2.2 billion of capital to shareholders, $1 billion in share repurchases and $1.2 billion in dividends including a 5% dividend per share increase. Please turn to Slide 4. Emerson delivered 6% underlying orders growth in the fourth quarter. marking our third consecutive quarter of mid-single-digit growth. This reflects sustained momentum across key geographies, and we are seeing broad-based strength in North America, India and the Middle East and Africa. However, demand in Europe and China continues to be soft. MRO spend across our $155 billion installed base remains resilient, supporting a healthy pace of business led by strength in North America. The capital cycle remains constructive and large project bookings in power, LNG, life sciences and aerospace and defense contributed to a better-than-expected finish to September. Momentum in power continues to build and orders in our Ovation business were up 18% in the quarter and 30% in the year, driven by greenfield projects and modernization. Test & Measurement orders were up 27% in the fourth quarter with robust growth in all regions led by semiconductor, aerospace and defense and a broad-based portfolio business. Please turn to Slide 5. Emerson continues to see success in our growth platforms. Our technology leadership and ability to deliver differentiated solutions are enabling us to capture large-scale opportunities and drive sustainable growth. And I'd like to highlight a few key wins from the quarter that supported our 6% orders growth. First, I will highlight 2 projects in power demonstrating strong adoption of our Ovation 4.0 Distributed Control System. In August, we talked about Ovation winning 2 greenfield combined cycle plants with Entergy. Ovation 4.0 has now been selected by Entergy to automate 3 more power generation facilities. Entergy today provides electricity to 3 million customers and the 5 facilities will provide approximately 3.1 gigawatts of generation capacity. In another win, Ovation 4.0 was chosen to replace the existing excitation system at the dual nuclear power station in Belgium, unifying the control systems across the site. Doel provides around 15% of the country's electricity, and Emerson will help ensure the delivery of safe and clean baseload power. Next, Emerson is excited to announce its support to Bechtel Energy and Woodside Energy in the automation of the Woodside Louisiana LNG project. The liquefaction and export terminal in Calcasieu Parish is a premier LNG project designed for safe, reliable and efficient operations, delivering LNG to global markets. This development can produce 16.5 million tons per annum with a permitted expansion capacity of up to 27.6 million tons per annum. Emerson is proud to be chosen as a key automation partner for Bechtel Energy. Last, Emerson was selected as the automation provider for 3 manufacturing facilities being built in Indianapolis by a large U.S.-based life science customer, a major step forward in their near-shoring initiatives and in advancing innovation and efficiency. Emerson will provide our leading DeltaV Control Systems & Software portfolio to enable reliable, scalable and data-driven automation. Through this collaboration, Emerson will deploy state-of-the-art DeltaV technologies designed to accelerate the time to market of next-generation weight management drugs, enhanced production performance and ensure regulatory compliance. These wins reinforce our position as a global automation leader and demonstrate the strength of our portfolio in addressing the challenges our customers face today. Our continued success is driven in part by our industry-leading innovation, and we are consistently investing to advance our technology, including investing 8% of sales in 2025. In the fourth quarter, we launched 2 AI-powered applications to unlock productivity and workflow automation. First, we launched Guardian Virtual Adviser to enhance our DeltaV life cycle management software. This solution combines Emerson's deep domain expertise and decades of data with conversational AI to help customers quickly resolve issues, optimize system performance and reduce downtime. Currently available for DeltaV, we are innovating it to expand across Emerson's automation platforms to support smarter decisions and operational excellence across the plant life cycle. We also introduced AspenTech's subsurface intelligence, a cloud-native AI-powered platform that accelerates decision-making for seismic interpretation. This AI platform automates workflows and improves collaboration across disciplines to help customers optimize production and reduce operational silos. Please turn to Slide 6. Emerson executed well in a fluid macroeconomic environment and continues to deliver excellent operational performance. Growth reflected sustained momentum in North America, India and the Middle East and Africa, offset by persistent softness in Europe and China. LNG, power and life sciences continue to attract significant investment globally and collectively were up 11% year-over-year. Sales in Test & Measurement accelerated sharply as we exited the year up 12% in the fourth quarter with broad-based strength. Our Test & Measurement business continues to gain market share driven by innovation and channel optimization. MRO for the company represented 65% of sales. Emerson achieved annual records for both gross profit margin of 52.8% and adjusted segment EBITDA margin of 27.6%. Margin expansion was driven by strong price cost, higher mix of software and the benefit of cost reductions in synergy realization offsetting a 20 basis point impact on gross profit from tariffs. We made meaningful progress integrating AspenTech, realizing $50 million of synergies in 2025 and now plan to achieve $100 million in run rate synergies by the end of 2026, 2 years ahead of plan. Earlier this year, we completed all the actions to achieve our commitment of $200 million of run rate synergies for Test & Measurement. Adjusted earnings per share of $6 was consistent with our guidance. Finally, we generated $3.24 billion in free cash flow, exceeding our August guidance of $3.2 billion and in line with our initial guidance as we offset approximately $200 million of acquisition-related headwinds. Our 2025 performance underscores our commitment to operating results and positions us well to continue investing in growth and returning capital to shareholders. Emerson's alignment with secular trends, leading technology and improving orders momentum reinforce our confidence in our 2026 plans. I will now turn the call over to Mike Baughman to discuss our 2025 results in more detail and expectations for 2026. Michael Baughman: Thanks, Lal, and good morning, everybody. Please turn to Slide 7 for a more in-depth look at our 2025 financial results. Underlying sales growth was 3%. Growth was led by Software and Control, which grew 5%; and Intelligent Devices grew 2%. Our process and hybrid businesses were up 4% and were resilient throughout 2025. Our discrete businesses finished the year up slightly at 1% with lingering weakness in automotive and factory automation. While our discrete businesses accelerated through the year, year-over-year volume was down and represented about a 1 point headwind to Emerson sales growth. Pricing contributed 2.5 points to growth as expected. Underlying growth was 5% in the Americas and 3% in Asia and the Middle East and Africa, while Europe was down 2%. Our backlog ended the year at $7.4 billion. Backlog was up 3% year-over-year due to second half orders growth of 5%, which positions us well for 2026. Adjusted segment EBITDA margin of 27.6% exceeded expectations and was up 160 basis points year-over-year. 50 basis points of this expansion was due to a favorable software contract renewal year in 2025 and the remaining 110 basis points of improvement came from positive price cost, the benefit of cost reductions and synergies from the Test & Measurement and AspenTech acquisitions, which more than offset inflation and tariffs. Adjusted EPS came in at $6, a 9% increase year-over-year, and I will provide more details on the next slide. 2025 free cash flow exceeded our expectations. The free cash flow growth was driven by higher earnings and improved working capital efficiency, which helped offset approximately $200 million of transaction-related costs. Our 2025 free cash flow margin was 18%, up 140 basis points from the prior year. Overall, these results underscore the strength of our portfolio, the resilience of our end markets, and our ability to execute in a dynamic macro environment. Please turn to Slide 8, where I will bridge 2025 adjusted EPS from the prior year. Operations delivered $0.62 of incremental EPS in 2025, which included a $0.15 benefit from higher software renewals in the year. Excluding this benefit, solid execution from operations contributed $0.47 reflecting continued margin expansion, segment mix and synergy realization from Test & Measurement and AspenTech. Nonoperating items were an $0.11 headwind due primarily to pension of $0.09 and stock-based compensation of $0.02. Please turn to Slide 9, where I will discuss our 2026 sales outlook by region. The resilient demand environment we are seeing informs our view for 2026 underlying sales. The Americas, India and the Middle East and Africa are expected to remain strong drivers of growth in 2026 with muted demand in Europe and China. The Middle East and Africa is planned to grow high single digits, supported by a healthy capital cycle and significant greenfield investments. The Americas are projected to be up mid-single digits driven by sustained strength in our growth verticals and MRO. Asia is forecasted to be up low single digits led by robust growth in India and momentum in Southeast Asia and Japan offsetting a flat China. Europe is expected to be flat year-over-year. We expect growth to come from the trends that are benefiting the power, LNG, life sciences, semiconductor and aerospace and defense markets, which comprise approximately $6 billion of our $11.1 billion large project funnel. Power, including nuclear, is projected to see robust growth as electrification, modernization of the grid and data center trends drive substantial investment. Energy security and self-reliance as well as energy transition commitments are supporting global LNG projects. Life sciences growth is projected to continue across greenfield projects and capacity expansions to meet demand for biologics and GLP-1s. Semiconductor is also expected to perform well in 2026, with expansions in North America driven by nearshoring investments and government incentives. Lastly, aerospace and defense is set to benefit from investments in new space projects and increased government spending commitments. Please turn to Slide 10 for an overview of our 2026 guidance. For the full year, we expect sales to be up approximately 5.5% with underlying sales up approximately 4%, supported by a healthy pace of business, meaningful growth in Test & Measurement and approximately 2.5 points from price. We project Europe and China to remain weak. The year-over-year growth is also negatively impacted by about 1 point due to a software contract renewal dynamic, which I will discuss in more detail on the next slide. Full year adjusted segment EBITDA margin is expected to be approximately 28% reflecting strong execution and continued margin expansion. Tax rate is modeled at 21.5% for the full year. We are guiding adjusted earnings per share of $6.35 to $6.55 and free cash flow of $3.5 billion to $3.6 billion. Turning to the first quarter. Sales growth is expected to be 4% with underlying sales growth of 2%. Adjusted segment EBITDA margin is guided to be approximately 27%, and we expect to deliver adjusted earnings per share of approximately $1.40 in the first quarter. Please turn to Slide 11 for additional details on 2026 guidance. I would like to take a few minutes to provide further granularity on sales growth and to explain some dynamics affecting margins and EPS growth rates. Our Test & Measurement segment is planned to have high single-digit growth in both the first half and full year, while the Control Systems & Software segment is expected to be down low single digits in the first half due to a $110 million headwind from a lower value of software contracts up for renewal in 2026. This headwind is projected to be $120 million for the full year. The underlying health of our Software businesses remains robust with ACV expected to grow 10% plus in 2026, but having fewer contracts up for renewal adversely affects GAAP revenues. This accounting dynamic does not affect cash flows and reverses through 2027 and 2028 when we expect to see tailwinds from renewals. The Intelligent Devices business group is projected to grow 3% in the first half and 4% for the full year with sustained strength in MRO across core verticals. Second half growth is supported by backlog phasing and the timing of project shipments. Overall, Emerson expects to grow approximately 2% in the first half and 4% for the full year. Excluding the impact of software contract renewals, Emerson's growth rate is approximately 4% in the first half, 6% for the second half and 5% for the full year. Please turn to Slide 12 for additional detail on adjusted segment EBITDA margin and EPS guidance. Our Q1 adjusted earnings per share guidance of approximately $1.40 reflects strong operational execution despite a softer sales growth quarter and a tough comparison to Q1 2025. We expect EPS contributions from operations of about $0.05 and nonoperating items of approximately $0.04, offsetting a $0.07 impact from the software contract renewal dynamic just discussed. As a reminder, Q1 2025 adjusted EPS of $1.38 included the benefit of several dynamics such as discretionary cost containment and favorable project closeouts in Control Systems & Software. It's also important to note that lower volume from renewals impacts Emerson's adjusted segment EBITDA margin by approximately 80 basis points in the quarter. For the full year, the renewal dynamic reduces adjusted EPS by approximately $0.15 and adjusted segment EBITDA margin by approximately 40 basis points. Operations is expected to generate about $0.50 of incremental EPS in 2026 with approximately 80 basis points of margin expansion from positive price/cost and the continued benefit of synergy realization from AspenTech and Test & Measurement. Please turn to Slide 13 for a few comments on cash flow and capital allocation in 2026. As mentioned earlier, we are expecting free cash flow of $3.5 billion to $3.6 billion in 2026, representing approximately 10% growth, which will come from higher earnings and working capital efficiency. During the portfolio transformation, our capital allocation was weighted towards M&A. Increasing the dividend has been a priority for the last 69 years, but the annual increases to dividend per share were minimal during the transformation. Now that the transformation is complete. In 2026, we plan to raise our full year dividend per share $0.11 or approximately 5%, which is a significant increase compared to prior years. This raise marks the beginning of our 70th consecutive year of increasing dividends and underscores that long-standing commitment. During the transformation, we consistently completed base share repurchases of $400 million to $500 million per year. 2023 and 2025 were significantly higher because we allocated a portion of proceeds from divestitures to share repurchase. For 2026, we intend to return approximately $1 billion to shareholders through share repurchase, which we have planned to be ratable throughout the year. We previously communicated our intention to pay down approximately $1 billion of debt in 2026. That is still the plan and reflects our commitment to maintaining our strong A2A credit ratings. We ended 2025 with a net debt to adjusted EBITDA ratio of 2.3x and expect to end 2026 at approximately 2x. With that, we will now turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Deane Dray with RBC Capital Markets. Deane Dray: Maybe just start with some clarification on the software renewal. Is this an accounting change that was impacting the guide here? Or is it really like the timing of your contracts that are up for renewal? And then related, you called out a benefit in your 2025 bridge of $0.15. Is that related to this? Or is that separate? Because you are expecting to recoup this in '27 and '28 that you called out? Michael Baughman: Yes. I'll start with the second half first, which is to say your understanding is correct. And thanks for the question on this contract renewal issue. It's an important dynamic that I want to make sure everyone understands. So we have a portfolio of multiyear term license contracts that have renewal dates over several years. And each year, there are so many that are up for renewal. And this year, we had more than normal that were up for renewal, and that's what drove the $120 million increase that we're calling out on the bridges. Next year, we revert to something more normal, but it represents about $120 million headwind in 2026, and it is an accounting dynamic. And remember, since these are multiyear term licenses, you recognize multiyears of the revenue at the time that you execute the renewal. And that revenue recognition pattern is one reason that the ACV or the annual contract value is so important, because ACV has the effect of smoothing out that accounting dynamic. And the other important reason to measure ACV is that it more closely approximates the cash that we can expect out of that portfolio in the next 12 months. So as ACV grows, the cash flows grow. So you have it right. That is the item that we're talking about. It's not a change in our accounting. It's not a change in the accounting rules. It's just an accounting dynamic that exists in revenue recognition for these multiyear term license contracts. Deane Dray: That's really helpful. And just to make sure I heard it correctly, there's no impact on free cash flow. Is that correct? Michael Baughman: That is absolutely correct. And you made another point that I would like to reiterate, which is that this is a dynamic that will reverse in '27 and '28 relatively ratably over those 2 years. Deane Dray: Great. And then just as a follow-up on the Test & Measurement. This was above expectations in terms of orders. You called out some of the verticals. Is there anything else in terms of -- have you really turned the corner here because this was an expectation that you would start to see this, and you did highlight some share gains. But just any other color on the dynamics of that business would be helpful. Surendralal Karsanbhai: No, Deane, there's significant momentum certainly across the 3 categories that I described: semiconductors; aerospace and defense, which has been relatively robust over the last 2 years to begin with. And then most encouraging has been the broad-based portfolio business and that's where the multitude of tens of thousands of customers sit. It touches just about every industry macro that you can name. And seeing that resilience in that business and the return to growth there gives us -- and broad-based geography gives us the confidence that momentum continues and that our guide on Test & Measurement for 2026 is solid. Operator: Our next question comes from the line of Andrew Obin with Bank of America. David Ridley-Lane: This is David Ridley-Lane on for Andrew Obin. Just a quick numbers question. Could we get the orders growth by process and hybrid, discrete, and Safety & Productivity in the quarter? And any color that you could give on how first quarter orders are shaping up? Ram Krishnan: Well, I think from an orders perspective, process fibrin orders, to your point, I mean, they stayed resilient at mid-single digits. Discrete recovered to driven by Test & Measurement, which exposed in the discrete markets into a high single digit and weights to that 6% orders growth that we reported. S&P orders remained flat to low single digits in the quarter. And we expect good momentum to carry through into the first quarter of this year. David Ridley-Lane: And then in fiscal '25, excluding this timing dynamic, which I completely understand is driven by ASC 606 and was a long-standing driver of how AspenTech's results were reported. But excluding that impact, you had core ops of 110 basis points margin expansion in fiscal '25. You're guiding for 80 basis points in fiscal '26. It would seem like you have faster revenue growth, less tariff impact, further Aspen synergies. Are there any offsets to consider thinking about for margins in '26? Michael Baughman: No, I don't think so. You've got it right. As we look ahead, we've got the drag of the renewals that's about 40 basis points. We've got some synergies and the operations continue to drive about 60 basis points, which is what the operations have been driving for really the last 2 years, right in that 50 to 60 basis points range and that's the margin expansion that we consistently talk about driven by the Emerson Management process and what we expect to continue into the future. Operator: Our next question comes from the line of Andy Kaplowitz with Citigroup. Andrew Kaplowitz: Lal or Mike, just digging a little bit more into that first half versus second half organic guide for '26. The growth in mechanics are what they are, but you also talked about the timing of shipments and how they support the second half growth. Are you expecting any sort of larger project order recovery and or change, for instance, in process markets to get you there? Or is it really just you have the visibility already in the back of the pipeline and everything is -- just talk about the visibility there? Ram Krishnan: Yes, Andy, Ram here. Yes, we absolutely have the visibility and the momentum that we had in terms of orders in the second half phases that backlog into the second half of 2026. That's point number one. Secondly, if you take out the software renewal dynamic, as Mike explained, the first half growth is 4%, the second half growth and for an overall growth of 5% minus the software renewal dynamic, which is the core growth you've got to look at and that sequential growth second half to first half versus that is about 11%, which is what we executed this year, albeit with a better backlog phasing going into the second half of next year. So we feel relatively comfortable around the second half, first half guide and the software renewal dynamic is what shows up as the 2% and 6%. But in reality, it's 4% and 6% for a weighted average 5% through the year. Andrew Kaplowitz: Thanks for that Ram. And there's obviously a lot of excitement about power markets. You gave us the data up almost 20% in orders in Q4 in Ovation, 30% for the year. But maybe you can give us a little more color on what you're expecting for '26. Obviously, there's a particular focus on nuclear. You guys have pretty good share there. Maybe you could remind us of that. And order growth was a little bit lower in Q4 than for the year, but do you expect acceleration in '26 in that end market? Surendralal Karsanbhai: Yes, Andy. Lal here. No, certainly, we're excited about what we're seeing broadly, not just across generating capacity, but transmission and distribution investments, which, as you know, impacts our Aspen business. We expect to continue to see investments across combined cycle in the United States. Coal and nuclear in China and nuclear broad-based across Eastern Europe and the U.K. I think the underlying dynamics of demand driven, of course, by data centers and by the age of the capacity that's in place today should give us a good, and we project a very good 3- to 5-year run in this segment of the business at high single digits to low double-digit growth. Operator: Our next question comes from the line of Steve Tusa with JPMorgan. C. Stephen Tusa: Just wanted to clarify. So is the first quarter -- the first quarter orders should kind of sustain this, I don't know, like the 5% to 6% type of momentum that you saw in the 4Q? Is that the messaging? Ram Krishnan: Yes. C. Stephen Tusa: Okay. Okay. Great. And then just on the bridges, it's hard a bit to parse out the software impact. But I think you have $0.50 of ops for the year, which I think is probably, I don't know, a 45% to 50% kind of core incremental. Am I getting into the right ballpark there? And then in the first quarter, you only have $0.05. Is there a reason why those incrementals may be a little bit weaker, kind of putting the software impact aside? Michael Baughman: Yes. I think your leverage expectation is about right when you look at the quarter that way. When you look at first quarter, it's really this dynamic of last year being as strong as it was with that discretionary cost and some of the project closeouts and the EBITDA margin that quarter, I believe, was 28%, and so it's sort of a comparison dynamic. Ram Krishnan: Yes, and Steve. Yes, we leveraged the 265% in the Q1 of '25, and it just puts us in a -- it's just a tough comparison, not just -- even if you take out the software renewal dynamic, it's a tough comparison for our base operations, just given the dynamics Mike described. Operator: Our next question comes from the line of Julian Mitchell with Barclays. Julian Mitchell: I just wanted to follow up a little bit more on the trends in Test & Measurement and discrete, automation. So I think in Test & Measurement, you're guiding still for high single digit growth later in the year despite the sort of pretty tough comp there. Maybe help us understand the visibility on that business. And then in the discrete world, any updates on some of the different end market trends, please? Surendralal Karsanbhai: Julian, Lal here, and I'll start and I'll have Ram add some color as well. Now certainly, we have a high degree of confidence in what we're seeing in 3 of the 4 test and measurement markets, aerospace and defense, semiconductor and then the broad-based portfolio business. However, and this bleeds over into your discrete question, the automotive business continues to be very weak. We're continuing to see weakness in the packaging machine making business, which is very Western Europe dependent, Italy, Germany and of course, impacted in China and the U.S. as well. So that segment, what has been a traditional discrete market has -- is in the flat to low single-digit range, and you've got Test & Measurement in the high range that brings up our broad discrete orders. Ram? Ram Krishnan: Yes. And you said it. And I think from a geographic cut on the Test & Measurement side, very, very strong Asia driven by semicon and portfolio; a very, very strong North America driven by aerospace and defense, semiconductors and portfolio business; and Europe is probably our most muted region because that's where we have a disproportionate exposure to automotive and the EV side. Though, the aerospace and defense piece in Europe as well as the portfolio business is strong. And then in the core discrete business, as Lal described, North America is probably the market where we have good low to mid-single-digit growth in the core discrete business, but Europe and China remain weak in the factory automation and automotive space, as Lal described. Julian Mitchell: That's great. And then just my follow-up question would be around, I know in the past, you'd mentioned some of the project funnel was tied to elements such as hydrogen, clean fuels, carbon capture and so forth. And I suppose domestically in the U.S., the outlook there is worse today because of the subsidy environment changing. I just wondered if that type of activity, if you are seeing pushouts there yourselves and if it represents much of your backlog or it was just something that was in the prospective funnel and never really came into the orders or backlog more fully? Surendralal Karsanbhai: Julian, thanks for the question. Nothing impacted in the backlog. These were projects that we've been highlighting as part of our funnel. there's been a significant reduction in the outlook of projects in this category on a forward basis. So we have adjusted our funnel accordingly, but none of it has been impacted in any backlog in the business. So to give you perspective, the funnel that we showed today at $11.1 billion has approximately a $1.5 billion reduction in S&D projects. And so we've removed a large number of carbon capture and energy management projects. We retained those customer engagements that are still relevant at that point, but that's a very significant reduction in the value of the funnel related to S&D. And that's broad-based across North America, Europe and Asia. Ram Krishnan: And then just to add to that, Julian, the reason the funnel stays flat as we have seen a significant uptick in power generation, certainly LNG, and then continued build-out of the funnel in aerospace and defense and certainly life sciences. So overall, the funnel remains flat. But to your question, appropriately adjusted for the slowness in sustainability and decarbonization project, mostly in North America, but some in Europe as well. Operator: Our next question comes from the line of Nigel Coe with Wolfe Research. Nigel Coe: I'm going to probably ask a steeper question on the accounting for AspenTech, so please bear with me here. Can you just explain why this is a onetime issue? And just confirm that this is more of a first half '25 renewal issue comping that as opposed to something this year. So that's my main question. And really, just maybe just talk about the difference in accounting for renewal versus a new contract and why renewals would have this kind of headwind? Michael Baughman: Yes. Nigel, it's not necessarily a onetime event. It's, again, just how the renewal dates stack up in the portfolio of these multiyear term contracts. And when you go into a particular year, there's going to be a number of contracts that are up for renewal. And whatever that is, is sort of the revenue opportunity for that year. And we are certainly, in fact, working a bit to smooth that out. But historically, AspenTech was not concerned with the wrinkles that happened because of this accounting dynamic. Again, I want to stress it's nothing new, and it's not a different accounting. It's just the gap that is used on accounting for these contract renewal dynamics. Ram Krishnan: And Nigel, Ram here. Just to add to that. Now as you rightly pointed out, this dynamic is largely driven by the software renewals within AspenTech. And one of the initiatives we will continue to drive going forward is to manage the renewal dates as we renew these contracts to smooth them out in a fashion where we don't see these dynamics repeat as we move forward. It's certainly going to be a tailwind in '27 and '28 given the reset in '26, but we want to make sure that going beyond '28, we don't have another year where we see these renewals build up in a favorable fashion to reverse in the next year. So it's an initiative now that we're driving the integration of AspenTech that Vincent Servello and the team at Aspen are driving. But it's a good question. Nigel Coe: No. It's a dumb question, I'm sure. And then just thinking about that in the plan, the acceleration within ID from 3% to 5%, first half, second half. You called out some backlog timing. Clearly, with that kind of timing, we're talking here about longer cycle projects. So I'm wondering, are these greenfield projects? And if you can give any details on some of the end markets that's driving that acceleration? Surendralal Karsanbhai: Yes, Nigel, Lal here. Again, I'll reiterate a point that Ram and Mike made earlier. It's important to note that adjusted for the renewals the first half to second half ramp is actually consistent with what we executed in 2025, which is a sequential 11% ramp-up. It would be 4% growth in the first half and 6% in the second half of 5% a year. So that renewal dynamic because it is first half, predominantly first half loaded, really impacts and skews that ramp-up on the underlying business. But to your point, we feel great about the backlog situation. We have good visibility in our Intelligent Device business to execute this plan that we put forward. Ram Krishnan: And just the projects that you referenced that are loaded into the second half that we won in the second half of '25 are in life sciences, in power and LNG, many examples that Lal had in his script. But these are the very same projects, primarily power, LNG and life sciences that will phase into the second half of '26. Operator: Our next question comes from the line of Amit Mehrotra with UBS. Amit Mehrotra: Sorry, I dialed in a little bit late, so excuse me if this has been asked. But I wanted to talk about power gen, how that funnel is progressing. I imagine there's obviously a lot of electricity demand. Wondering if you could just talk about that and how much visibility you have and kind of at what point does Emerson enter kind of that power gen life cycle versus, say, a turbine? Surendralal Karsanbhai: Yes, thanks for the question. We are certainly energized by what we see in the power generation, distribution and transmission markets. Just in context of the funnel and the visibility that we have to the business, we added approximately $1 billion of projects into the $11.1 billion project funnel. That is capturing broad-based modernization and new capacity coming online over the next, let's say, 3 to 4 years. The activity is very robust, not just in the United States, but broad-based into Europe and into China in this segment. That's one area of China growth that we did experience in 2025, and we expect that to continue into 2026. And just to give you perspective, Ovation today controls approximately 30% of all the power generated in the world: over 50% in the United States, over 30% in China, over 30% in Europe. And we have great visibility well ahead because, obviously, we're upstream around turbine and boiler controls to the construction cycle. So we're in those conversations today early with the utilities around the world as they plan out their investments. Amit Mehrotra: Great. That's helpful. And just one quick follow-up on software. I know you have this renewal dynamic happening. But I guess I just wanted to ask how software annual contract value is trending versus your installed base? How do you expect that to kind of perform going forward? How do we think about like attach rate trends there? Ram Krishnan: Yes. Our ACV, we shared the data -- finished the year at $1.56 billion, up 10%. We expect that to continue into another double-digit year next year. So very, very solid in terms of adoption of software and the cash flow trends are trending with ACV with double-digit growth, and we're operating at a Rule of 45 when you look at cash flow and ACV growth from a software perspective. So very positive trends and consistent with the long-range plan we laid out when we brought AspenTech in. Operator: Our next question comes from the line of Brett Linzey with Mizuho Securities. Brett Linzey: Just wanted to come back to the power discussion 1 more time. So you gave some great examples on the traditional side and talked about nuclear being robust. I know Emerson's valve and instrument content is about 90% of the world's nuclear reactors. Is there any way you can sensitize the content per new reactor or anything you can add on the aftermarket side that you can capture there? Ram Krishnan: Yes. So in a nuclear reactor or a nuclear power plant, I mean, Emerson, typically, if you get the full scope, which is obviously the control system, the instrumentation and the valves, we get $40 million of content for a complete greenfield nuclear reactor with an opportunity to deliver more than $40 million, $40-plus million over a 10-year annuity from an MRO life cycle services perspective. So that is kind of the scope we operate in nuclear, a lot of valves, instruments and control systems as part of that automation scope. Brett Linzey: Okay. Great. And then maybe shifting back to Ovation. You saw the strength in orders this year, greenfield modernization. Is this predominantly the power vertical driving this or are you starting to see some sales synergies between Aspen and the legacy Emerson as you mine that installed base? Surendralal Karsanbhai: No. Certainly, it's a good question. Certainly, as you may recall, in the GGM business, there are absolute synergies between Ovation, which is inside the valves to generating valves in the distribution and transmission networks that utilities owned throughout the world. So we are managing these on a broad account basis, covering both opportunities because very honestly, the distribution and transmission network is in a state of upgrade as well. And if you're going to put the generating capacity onto the grid that we're talking about, we certainly see the investments going into the data systems and the software systems to manage those loads within the grid. Ram Krishnan: Absolutely. And I think from a customer perspective, a lot of synergies of the same customers we deal with on the generation side are investing Monarch to upgrade their transmission and distribution systems. And then from a product perspective, we're developing Ovation, for example, in substation control that extends beyond generation into transmission and distribution and symbiotically works with monarch to deliver value for our customers. Operator: Our next question comes from the line of Andrew Buscaglia with BNP Paribas. Andrew Buscaglia: Yes. I wanted to drill down a little bit on the LNG side of the story. Are you able to quantify what portion of that backlog is LNG? And then do your broader comments around Europe and China weakening impact your view of what's likely to move forward in 2026? Ram Krishnan: Yes. Your first question was what portion of our $7.4 billion backlog is LNG? Andrew Buscaglia: I'm thinking -- yes, that the -- am I confusing with the $11 billion you've put out there? Ram Krishnan: Okay. Of the $11 billion, I think LNG is what, about yes, $2 billion is LNG since you asked of the $7.4 billion of backlog, about $350 million is LNG. And then your second question was dynamics around Europe and China? Andrew Buscaglia: Yes. The kind of the weakening... Ram Krishnan: At this point, obviously, when you talk about China, the core business that we do today, chemical, petrochemical, refining is really what's muted. But we're seeing pockets of opportunity. Certainly, power has remained strong. Our export business in China has remained strong. Shipbuilding and marine, which is a unique market for us, has remained strong. And then T&M, which has a decent-sized business in China, has seen strong recovery. So there are pockets of opportunity. I would say we're prudently and conservatively planning for a flat China. I think it's a wildcard on China recovery. There is a possibility it could recover into the second half of '26, but we haven't built that into our plan. Similarly, in Europe, I think the concerns around sustainability, decarbonization, bulk chemical, automotive and factory automation remain. We haven't seen a catalyst to indicate that those will turn in Europe. So again, a plan for a flat Europe. But certainly, activity around LNG, which is EPC driven in Europe, life sciences, power and specialty chemical is where we will see the opportunity going forward in aerospace and defense. Andrew Buscaglia: Got it. Maybe one more on your capital allocation in that pretty robust cash flow. Your stock is rather cheap probably relative to what you'd expect heading into the new year. So maybe can you talk about your balance between repo and expectations for M&A? Michael Baughman: Yes. We laid out the $1 billion expectation around repo. As far as M&A, that's opportunistic, and there's nothing right now that's in sight that we would say we're going to allocate to. So that's what 2026 looks like. Operator: Thank you. Ladies and gentlemen, this does conclude our time allowed for questions and will conclude our call today. We thank you for your interest and participation. You may now disconnect your lines.

Operator: Good morning, and welcome to the Emerson Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to your host, Colleen Mettler, Vice President of Investor Relations at Emerson. Please go ahead. Colleen Mettler: Good morning, and thank you for joining Emerson's Third Quarter 2025 Earnings Conference Call. This morning, I am joined by President and Chief Executive Officer, Lal Karsanbhai; Chief Financial Officer, Mike Baughman; and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with the slide presentation, which is available on our website. Please turn to Slide 2. This presentation may include forward-looking statements, which contain a degree of business risk and uncertainty. Please take time to read the safe harbor statement and note on non-GAAP measures. I will now pass the call over to Emerson's President and CEO, Lal Karsanbhai, for his opening remarks. Surendralal Lanca Karsanbhai: Thank you, Colleen. Good morning, everyone. I would like to begin by thanking the global Emerson teams for delivering yet another strong quarter. With the support of Emerson's Board of Directors, we are energized by the company we have created with highly differentiated technology, serving a diverse set of industries and customers and a compelling value creation proposition for investors. Please turn to Slide 3. In May, we hosted approximately 3,000 attendees from 51 countries at Emerson Exchange, where we showcased how Emerson is accelerating innovation to lead the future of automation. Innovation is integral to Emerson. And 3 key product developments demonstrate the notable progress we are making to advance our world-class industrial software portfolio. First, we announced a strategic collaboration with TotalEnergies, a significant milestone in realizing Emerson's boundless automation vision with our new enterprise operations platform. Building on a nearly 30-year relationship Emerson will deploy our industrial data fabric to continuously collect, store and contextualize millions of real-time data points from TotalEnergies facilities providing secure and unified access to data across the organization. The digital infrastructure, which also includes Emerson's advanced process control solutions, will enable TotalEnergies to optimize operational performance and accelerate AI implementation. This data fabric technology is foundational for Emerson's enterprise operations platform. The industry-first software-defined OT ready digital platform that seamlessly integrates and optimizes industrial operations. Next, we released the Ovation AI-enabled Virtual Adviser which is the first Gen AI adviser integrated into a control system for power generation. The Ovation Virtual Adviser as part of Ovation 4.0, enables advanced power plant diagnostics using Microsoft Azure OpenAI to increase productivity and operational awareness. This highly differentiated solution is driving strong traction with over 80% of upcoming modernization projects involving an upgrade to Ovation 4.0. For example, Ovation was selected by Entergy to automate power generation at 2 greenfield combined cycle power plants. Entergy today provides electricity to 3 million customers and is expanding in Texas and Mississippi with 2 754-megawatt generation facilities. Emerson was chosen for our leading technology, local presence and enterprise scalability across multiple sites. Third, Emerson unveiled Nigel AI adviser in its market-leading test software. This innovation is the company's first step in integrating test optimized AI technology into its trusted LabVIEW portfolio will aid engineers in unlocking the full potential of our world-class software tools to address the increasing complexity of test and measurement across industries like semiconductor, transportation and electronics. Nigel can analyze, code and provide recommendations for improvements when developing and executing tests through plain language prompts, enabling engineers to focus on their own innovation and business goals. Please turn to Slide 4. Investments in automation continue to drive resilient demand in Emerson's process and hybrid markets as customers seek to modernize and improve their operations. The discrete recovery progressed further, particularly in test and measurement markets. North America, India and the Middle East and Africa have been strong. And we expect these regions to remain growth drivers with sustained investment across LNG, power and life sciences. Our industrial software, ACV again grew double digits over the prior year and ended the quarter at $1.5 billion. Underlying orders grew 4% and led by Test & Measurement, up 16% and with our process and hybrid businesses again up mid-single digits. MRO remained strong at 62% of sales with software and cybersecurity upgrades driving increased activity in long-term service agreements. The dynamic tariff environment persisted and our exposure was less than expected in the quarter. As the quarter progressed, we decided to ease the scope of surcharges, which meaningfully impacted our third quarter sales growth. Underlying sales growth was 3%, and we delivered excellent profitability. Emerson's adjusted earnings per share of $1.52 met the top end of our guide and better-than-expected free cash flow generation led to a 21.3% margin. Mike Baughman will provide additional color on the results in a few slides. Our teams are committed to completing a strong 2025, and we are pleased to see the turn in our discrete end markets. In the fourth quarter, we expect underlying sales growth of 5% to 6%, driven by further improvements in Test & Measurement and sustained growth in our process and hybrid businesses. We project adjusted segment EBITDA margin of 27%, higher than previously planned due to the impact of lower tariff exposure with adjusted EPS of $1.58 to $1.62. As we look forward to fiscal 2026, we expect strong exit rates for underlying orders to support underlying sales within our growth framework. Additionally, we will be hosting an investor conference on November 20 in New York City. We look forward to talking about our transport portfolio and a differentiated value creation framework. More details will be communicated as we approach the conference. Please turn to Slide 5. Emerson's demand outlook remains healthy. As expected, underlying orders in our process and hybrid businesses grew mid-single digits in the quarter and are expected to maintain similar growth in the fourth quarter. The secular need for energy security and affordability is leading to significant activity in LNG across the globe and increasing electricity demand in the Americas and Asia is driving robust activity in power. For example, underlying orders in our Ovation business were up 40% in the quarter. and we expect to end the year up over 20%. We are also seeing strong demand in Life Sciences with customers investing in biomedicines and GLP-1 drugs. The capital cycle remains constructive, and we continue to see new investments, replenish projects booked from our $11.2 billion funnel. Underlying orders in our discrete businesses were up 6% in the third quarter, led by Test & Measurement, which was up 16% due to robust growth across all world areas. The recovery in these markets is building momentum, and we expect underlying orders growth in test and measurement to approach 20% in the fourth quarter, supporting double-digit order rates in our discrete businesses as we exit the year. Emerson has now posted 2 consecutive quarters of mid-single-digit underlying orders growth. In July with a strong start to the fourth quarter, the trailing 3-month underlying orders growth of 6%. As we exit the year, we expect underlying orders growth between 5% and 7%. Please turn to Slide 6. Our view for full year 2025 underlying sales remains similar to what we communicated in the May earnings call. Demand trends are favorable and support our fourth quarter outlook for underlying sales growth to accelerate to 5% to 6%. We expect fourth quarter underlying sales for our process and hybrid businesses in the mid-single digits, driven by global investment in LNG, power and life sciences. Our discrete businesses are expected to be up double digits in the quarter, reinforced by the recovery in Test & Measurement, which is expected to be up sharply with growth in the high teens. In the Americas, we expect broad-based strength in North America MRO and greenfield projects. We plan to see growth accelerate in Europe led by energy security and modernization projects, coupled with recovery in discrete markets. Robust investment is expected to continue in the Middle East, India and Southeast Asia, and we expect China to be up slightly, supported by power and marine with improving business fundamentals in Test & Measurement markets. We continue to see strength in customer adoption of our subscription software and expect double-digit ACV growth for the full year. Notably, ACV in AspenTech's digital grid management grew 26% in the third quarter with strong momentum across North America and Europe. Please turn to Slide 7. The tariff environment continues to be dynamic. Emerson's annualized gross incremental tariff impact is now approximately $210 million, which is down from our prior estimate of $455 million given the recent announcements. In the fiscal year, we are now expecting a gross tariff impact to be $130 million versus our prior estimate of $245 million. After our May earnings call, the tariff environment improved as announced tariffs were paused and deals were reached with a number of trade partners. Subsequently, due to the improved tariff environment and in consideration of our customers, we decided to ease a number of the surcharges we had in place. We now expect approximately $115 million of price actions for the fiscal year, which equates to 50 basis points of incremental price. This is a 0.5 point reduction versus our prior guide. We have implemented all the price actions and supply chain mitigations to completely offset the impact of this exposure. Now I'll turn the call over to Mike Baughman. Michael J. Baughman: Thanks, Lal. Please turn to Slide 8, where I will discuss our third quarter financial results. Underlying sales growth was 3%. And Growth was led by our resilient process and hybrid businesses, which were up 3.5%, and our discrete businesses collectively turned positive, up 2% year-over-year. Price contributed 2.5 points in the quarter, less than previously expected due to easing some surcharges. Our sales fell short of guidance driven primarily by this dynamic. Underlying growth was 7% in the Americas and 2% in Asia and the Middle East and Africa, while Europe was down 7%. Software and Control grew 2% and Intelligent Devices was up 3%. Backlog increased to $7.6 billion, and our book-to-bill for the quarter was 1%. Sequentially, backlog was up 2% in both our process and hybrid and discrete businesses. Adjusted segment EBITDA margin of 27.1% met expectations and was negatively impacted by 40 basis points due to tariffs, which primarily affected profitability in Intelligent Devices. We had strong profit contributions from software and control, including synergy realization at AspenTech and Test & Measurement. Operating leverage was 25%, and excluding the impact of tariffs, operating leverage was 38%. Adjusted earnings per share in the quarter of $1.52 grew 6% year-over-year, and I will discuss this in more depth on the next chart. On a year-to-date basis, adjusted earnings per share of $4.38 is up 9%, with strong operational performance, contributing an incremental $0.45. Finally, Emerson generated better-than-expected free cash flow of $970 million, resulting in a margin of 21.3%. The cash flow performance was led by higher earnings and improvements in working capital. Year-to-date, free cash flow is up 20% versus the prior year and at a margin of 18%. Please turn to Slide 9. Emerson executed well again in Q3. Operations added $0.09 versus the prior year adjusted earnings per share of $1.43. Software and Control added $0.06 and Intelligent Devices added $0.03. The AspenTech buy-in was slightly accretive in the quarter, driven by synergy realization. Nonoperating items netted to 0 as share count and other favorability offset a $0.02 headwind from FX and a $0.02 headwind from pension. Overall, adjusted EPS grew 6% year-on-year to $1.52. Please turn to Slide 10 for additional details on our fourth quarter and full year 2025 guidance. We expect fourth quarter underlying sales growth of 5% to 6%, supported by a meaningful acceleration in Test & Measurement, sustained healthy pace of business in our process and hybrid businesses, a strong backlog position as we enter the quarter and expected incremental tariff-related revenue. Adjusted segment EBITDA is expected to be approximately 27%, up 80 basis points over the prior year with operating leverage of approximately 40%. With this, we expect to land adjusted earnings per share between $1.58 and $1.62, a strong year-over-year growth of 7% to 10%. For the full year, we expect underlying sales to be up approximately 3.5%. Price is now expected to contribute approximately 2.5 points of growth versus 3 points in the prior guide due to decreased tariff exposure, resulting in lower surcharges. We are increasing adjusted segment EBITDA margin guidance to approximately 27.5% with operating leverage of approximately 70%. Adjusted EPS is increased at the midpoint to approximately $6 per share. Free cash flow was also increased to approximately $3.2 billion resulting in a margin of approximately 18%, which includes $200 million of transaction-related headwinds. With that, we will now turn the call over to the operator for Q&A. Operator: [Operator Instructions] And the first question is from the line of Jeff Sprague with Vertical Research Partners. Jeffrey Todd Sprague: I thought you were going with [ Geoffrey ] for the AI adviser. Could we just maybe just sort of touch on the margins again and sort of intelligent devices in particular. So I kind of get the tariff math, but dollar sales were actually up in the quarter sequentially and dollar profits were down sequentially. So can we just unpack that a little bit? Were you technically behind on price cost relative to tariffs in the quarter and expecting to catch that up in Q4 or maybe there's something going on in mix or else otherwise? Surendralal Lanca Karsanbhai: Yes. Jeff, thanks for the question. The Intelligent Devices, you're right, 24.4% and 25% with the adjusted EBITDA margin down about 1.1 points. And there was a meaningful impact of tariffs, which we expected, but there was also a meaningful impact with FX included in there that really wasn't expected that drove that down. When you take those 2 out, it's up 20 basis points. The other thing to bear in mind is that the tariffs largely hit that group. There isn't nearly as much tariffs in Control Systems and Software. So that's where you see all of that tariff math reading through for the most part. There's some in the other, but it's primarily there. So the unexpected piece was the FX, which is FX, to be clear, of balance sheet exposures that then get mark-to-market and that is in the segment EBITDA margins. Jeffrey Todd Sprague: Yes, great. Thanks for clarifying that. Yes, I was surprised that FX was a headwind on that bridge given you got a translation positive, but the hedge is working through. Understood. And then maybe just on Test & Measurement, the inflection that you're seeing there, how would you kind of characterize vertical markets that might be driving that? Is it broad based? Is it concentrated in a few areas, if there's any geographic color to add, I'd be interested in that also. Surendralal Lanca Karsanbhai: Yes. No, I'll comment, Jeff, and I'll let Ram add as well. No, we saw a very broad-based recovery across all segments, in all world areas in Test & Measurement. I would suggest that the most encouraging segment recovery has been in the portfolio business, which is the vast array of thousands of customers with a diversified end market basis and gives us the best indication of the recovery in the market. But in addition to that, aerospace defense continues to remain strong as it has been for a number of quarters now, but the recovery in semiconductor and of course, easy comparisons in automotive made it possible to have a positive order number across all 4 of the segments. Ram? Ram R. Krishnan: Yes. And just to add to that, from a world area or region of the world perspective, Asia being the strongest they went down first, so they're recovering, rebounding very strong. China has been actually very good in terms of recovery as well, followed by North America and then Europe. So I think as Lal said, every segment and every world area is strongly positive. Operator: The next question is from the line of Steve Tusa with JPMorgan. Charles Stephen Tusa: Can you just maybe talk about how you saw the quarter play out? I think you guys said the orders in April were up 7%. And I think you may have exited at a bit of a lower rate, maybe May was weak and June came back? Just maybe some color on how these orders trended in May and June. Surendralal Lanca Karsanbhai: Yes. We felt strongly about the mid-single-digit exit rate that we talked about at the beginning of the quarter. And there were some puts and takes as we went through in terms of timing speed, which you always have on some of the orders. You can see some of it slipped into July. Some of them might have been pulled for some just large capital bookings. What remains very consistent throughout the quarter was our MRO bookings. That -- there was really no fluctuation there and that gave us a really good basis. And then we had the capital fluctuations come in and out just based on timing. Charles Stephen Tusa: Okay. And then just as we move into next year from a kind of software perspective, always tough to -- for us to model that. Is anything next year with regards to the comps at Aspen or anything like that from a growth perspective that we should keep in mind? Ram R. Krishnan: No. I think from an Aspen perspective, certainly ACV continues in terms of high single-digit growth into double digits as some of the synergies come through. So nothing in terms of ACV from an Aspen perspective that is concerning. And then certainly, as it relates to our other businesses, the Process segment will remain pretty consistent at mid-single digits with recovering discrete. Operator: Our next question is from the line of Andy Kaplowitz with Citi. Andrew Alec Kaplowitz: Lal, just a little bit more on your core process and hybrid markets. I know you expected mid-single-digit order growth. That's what you got. If you look at the business or the end markets, you expect stability or maybe slight improvement moving forward. How do you get that? Is it all from power and LNG? And maybe you could talk about some of the weaker markets, what you're seeing like in chemical stabilization there, still getting weaker. How do you look at it? Surendralal Lanca Karsanbhai: Yes. No, certainly, LNG, power generation, and life sciences will continue to fuel process hybrid on a forward basis here, given the visibility we currently have. And we feel very positive about the underlying drivers across all 3 of those. Chemicals is a mixed story. We actually are doing quite well in specialty chemicals. The bulk chemical story is negatively impacted in Europe and in China, and we just have a demand condition and an overcapacity condition that impacts those end markets. And so those are negative for us. But just about as I look forward into 2026. Certainly, I expect the momentum to continue as capacity is invested, not just to meet the energy security needs, but also to nationalize localized manufacturing of drugs and of course, the enormous expansion we have in generation and transmission distribution capacity. Andrew Alec Kaplowitz: Got you. And then just back to Test & Measurement, I know, Lal, you've been working on sort of the commercialization of growth there. So maybe you can talk about how much of the improvement is the market, as you answered Jeff's question, but maybe just your own self-help and where you are in that process of improving the business. Obviously, you mentioned LabVIEW and the presentation is outperforming. So maybe you could talk about that as well. Surendralal Lanca Karsanbhai: Yes. I will, and I'll let Ram jump in here as well. Look, so much work has been done, Andy, as you know, by this team led by Ram and Ritu Favre, and they've done an exceptional job resetting this company to address and to be a quick, more nimble responding to market opportunities. So certainly, we have seen market recovery, underlying market recovery, which fuels, but we believe that we're outperforming the market. And that is based on not just the reset of the commercial focus in the company, but also in the new products that we're bringing to market. And the example I highlighted with LabVIEW is a new generation, new incremental product in the marketplace. And I think that's going to make a big difference across the segments. Ram? Ram R. Krishnan: Yes, you said it well. I think the focus on new products, I think, as Lal said, LabVIEW, the software suite, they're launching a new DAQ or a data acquisition product, which I think is a core capability that NI and NI customers were expecting. So I think that's going to be a net positive. But also on the commercial side, going back to the basics as it relates to country-specific growth plans. They have great exposure in many, many parts of the world and going back to the basics and developing go-to-market plans and growth initiatives. Simple things, but hugely important as the market recovers, where our management system deployed is helping NI grow faster than the market, and that's clearly evident in the pace of business we're seeing. Operator: The next question is from the line of Scott Davis with Melius Research. Scott Reed Davis: Let me talk a little bit about Ovation, if you don't mind. And just maybe some of this is just going to be reeducating us on kind of how this -- how you guys make money there. But when you talk about like orders up 40%. Is this all new projects? Is it a mix of retrofit new projects? How do you kind of guys think about what goes into a new -- does a retrofit go into a new order for example? And then I got a follow-up on that, too. Surendralal Lanca Karsanbhai: Yes. No. Certainly, there are a couple of categories there. There is new projects -- new construction, I highlighted the Entergy combined cycle plans as an example. Those typically have long lead times. You book, you do the engineering work, construction begins, you start driving the automation in. There are extension of life implants. That's a -- we're seeing that in combined cycle and coal and in nuclear in the United States and Asia. And then largely -- and then lastly, there are modernizations where -- whether it's for cybersecurity purposes, AI purposes or other plants put in new control systems and upgrade Ovation. All 3 of those, Scott, as you know, are bookings, they all have different implications to the ship ratio given the time it takes to implement and build. Ram, any? Ram R. Krishnan: Yes, you said it. I think traditionally, the power industry for us has been one of competitive displacement. As you know, greenfield opportunities have really picked up in the recent past. But over the years, we've owned this, it was a competitive displacement story. But what is certainly a net positive for us is the greenfield capacity investment in combined cycle happening in the U.S. to fuel the power needs for the data centers. But certainly, markets like China as well, there is a significant level of greenfield activity, and we're capitalizing on that with the technology position we have in Ovation. So all 3 aspects of the business: greenfield, modernizations as well as continued MRO and competitive displacement is fueling the order growth, which will convert to sales over the next couple of years. Scott Reed Davis: Okay. And are those installs profitable? I mean, how do you -- is it more of a loss leader and then you make money over time on the subscription? Or do you make money on the install as well? Ram R. Krishnan: We make money on the install. We make more money on the aftermarket. It's the standard formula we've described in the past. I mean, obviously, there's a margin delta between when we win the project, greenfield and modernization and then ongoing MRO is a very profitable revenue stream. Operator: The next question is from the line of Joe O'Dea with Wells Fargo. Joseph John O'Dea: Can you talk through Control Systems and Software a little bit. We saw really good organic growth there last quarter, this quarter, more in that kind of low mid-single-digit range. Just talk about kind of what you saw within Aspen and then Controls and how you're thinking about that growth into the fourth quarter? Michael J. Baughman: Joe, I'll start this one. Yes. Remember, last quarter, we talked about the Total deal pulling into Q2, which would have been in Q3 and Aspen's -- Emerson Q3, their Q4 was traditionally their biggest. So we have that movement. But underlying Aspen ACV growth and continued revenue growth, very strong this year. And then the systems business continues to do very well in the mid-single digits and continues to see all the dynamics that Lal and Ram have talked about. Ram R. Krishnan: Yes. Yes, I think you said it. I think overall, from a full year perspective, mid-single-digit growth plus in the systems and software business. But as Mike described, the lumpiness associated with how Aspen recognizes ASC 606 with the Total, for example, as well as project lumpiness and how we execute within systems and software will have variations from 1 quarter to the next. But overall, we feel very, very good about the high end of the 4% to 7% range for underlying growth in our systems and software business. Joseph John O'Dea: Great. That's helpful. And then just a little bit more color on the discrete side of the business and kind of contrasting Test & Measurement with legacy discrete. You did see order acceleration there in Test & Measurement. It looks like discrete orders may be pacing more flattish. And so what you're seeing in the different demand trends there and your expectation for kind of legacy discrete recovery? Surendralal Lanca Karsanbhai: I'll start off, and Ram can add some color. So there are 2 very important dimensions of the legacy discrete, Joe, that differ from Test & Measurement. The first is exposure to automotive and packaging businesses, particularly in Western Europe and China. And both of those markets continue to be relatively depressed and challenging and that certainly dampened the recovery there. Offset, of course, by some of the more traditional broad-based industrials which have impacted positively. But generally speaking, a much more muted. And you're right, slightly positive as they came out of the quarter, but significantly more muted than the broad-based applications and market exposures that the Test & Measurement business has. Ram R. Krishnan: Yes. And I think the outsized market exposure for us in Europe, which has been the slowest market to recover for our traditional discrete business, our factory automation piece, versus test and measurement points to the disparity in the pace and amplitude of recovery. But as Lal described, I think the automotive segment and then factory automation as it relates to Europe and China have more muted recovery than many of the markets in Test & Measurement. Operator: Our next question is from the line of Andrew Obin with Bank of America. Andrew Burris Obin: Lal, just a broader question on your power vertical. You sort of enter the power cycle with sort of very material endowment in terms of market share, the Ovation orders up nicely. Clearly, the Aspen Grid business is doing very well. What do you think is a sustainable growth rate going forward? Can it stay elevated for the next, I don't know, 12 to 24 months, given what's happening in the power gen industry broadly? Surendralal Lanca Karsanbhai: Yes. Thanks, Andrew. I'll comment and if Ram or Mike have something to add. I certainly believe it can based on the visibility we have of opportunity across both markets, generation and transmission distribution. And I think it's sustainable in the high teens kind of range over the next couple of years. As a matter of fact, we'll probably highlight this market. And when we all get together in New York City in November as a growth factor for the company because the dollar spend that we're seeing -- and it's not just a U.S. story, obviously, it is very meaningful and impact. And as Ram described, it's been a significant shift for this team, which had been, as you noted, it's a high participation rate company to begin with, but essentially grew over the last 20 years by driving competitive displacement. And now we've refocused the team really around project pursuit and expansion of market. And so we see that momentum. We're very close to our customers because of that very large participation in the business, and we are very optimistic about the next 24 months at high rates of growth. Ram? Ram R. Krishnan: Yes. To add to that, our customer intimacy in this business is very high. And based on -- I mean, Bob Yeager, who runs this business, has great relationships with a lot of the major power companies here in the U.S. And certainly, I think their plans for continued investment in capacity expansion in combined cycle. And then certainly, the digital grid management space on the T&D side who supports an investment cycle that goes well beyond 2 years. Now obviously, you can't call well beyond 2 years. But certainly, for the next 2 years, we feel that the funnel is very, very strong on both sides, both generation as well as transmission and distribution. And so we expect these type of growth rates to continue. Andrew Burris Obin: Excellent. And then just looking at where we are in the cycle, I think the narrative from a lot of companies back in the spring, early summer was that tariffs are really impacting the ability of companies to sign off on large projects. I think with 65% of U.S. trading partners sort of having some form of agreement with the U.S. How has the dialogue with your customers changed? Are you getting more visibility? What does the funnel look like? What's the likelihood of large projects actually being released into the calendar year and in early '26? Ram R. Krishnan: Yes. So Andrew, Ram here. We haven't -- from our perspective, certainly in LNG, power of life sciences, which is the majority of our project funnel that we continue to drive, we have seen no slowdown in decision-making or approvals to move projects forward. So I think that's the most important data point. Now certainly in terms of some of the sustainability projects in our funnel, and that's not necessarily tariff related. We have seen some project cancellations that have impacted the overall size of our funnel, but not in a meaningful fashion. But the most important thing is where we see the growth in LNG, power, life sciences. And certainly, even in the U.S. chemical, petrochemical projects and all of the activity in the Middle East, no slowdown, and we continue to yield $350 million to $400 million of project wins a quarter from our $11.2 billion funnel that has been consistent with what we've experienced in the last several quarters. Operator: The next question comes from the line of Nigel Coe with Wolfe Research. Nigel Edward Coe: And the [indiscernible], this is not the chatbot. This is the real person. Surendralal Lanca Karsanbhai: Yes, Nigel, we honored you with that. Nigel Edward Coe: There you go. It's great. I hope it's got a British accent. Okay. So look, I think that when we -- you've talked about the order push out. So I just thought maybe we could just double click into sort of the second half order rates, it looks to be mid-singles. I think you pointed to high single-digit order rates in the second half of the year. So just wondering if you can maybe just double click into where you've seen some of the pushouts. I'm guessing some of the energy transition projects have either canceled or pushed out. And then maybe talk about the North American greenfields. Clearly, power and some of the other verticals you talked about, but I'm wondering, are we starting to see some of these reshoring announcements bearing fruit in terms of orders? Surendralal Lanca Karsanbhai: Yes. So first of all, I did not talk about order pushouts, Nigel. That was not one of the elements that we experienced in the quarter. There are dynamics around timing of bookings. Some came earlier in the quarter. Some came in July, but we didn't see any dimension or pushouts on bookings on capital. And as I mentioned in the prior comments, the MRO activity and booking pace on MRO, which is, as you know, 62% of the business was very steady throughout the quarter. Ram, any comment -- why don't you comment on the greenfields? Ram R. Krishnan: Yes. I think the greenfields in -- which is LNG greenfields, power greenfield, life sciences greenfield and even activity in chemical and ethylene and methanol continue to be positive for us in North America. So no pushouts, no slowdowns there. I think you may have picked up on the point. In terms of our funnel, we've seen some moves in sustainability and decarbonization projects in the funnel, but these are not in the quarter or near-term type projects. So that was maybe the commentary you picked up. But in terms of greenfield activity, we stay very, very positive on the movement of these projects in North America. Nigel Edward Coe: Yes. Sorry about that, the chatbot gave me the wrong information. So moving on to the discrete automation, sort of the discrete and Test & Measurement outlook. Clearly, we're hitting some really deeply favorable comps here. So we've got a mathematical uplift on comps. But are we seeing a genuine increase in investment from your customers? That's the first part of my second question. And just maybe just touch on this FX pinch to margins. Do you think that's going to be a factor in 4Q as well? Michael J. Baughman: I'll take the second part of that, Nigel. We are not planning for the FX pinch on margins in the fourth quarter. Ram R. Krishnan: Yes. And in terms of the discrete markets, I mean, for us, obviously, the Test & Measurement growth rates certainly drove the majority of the discrete recovery in terms of momentum. And certainly, many markets within Test & Measurement is an inflection. For example, our largest single market is aerospace and defense. And that we'll see and as per the recent announcement, continued momentum in spending across the globe, certainly in Europe and North America, where we have the best presence. So certainly, that's an inflection. Semiconductors both RF and mixed signal, which is where we play, there'll be validation investment, R&D investment as well as capacity investment. And then the broad-based T&M recovery is more a sign of markets getting more confident about the pace of investments and our distributors and integrators restocking on NI. So -- now I would say many parts of our discrete market have inflection points and sustained recovery. But certainly, the ones we're watching are factory automation investments out of Germany and China where we haven't seen sustained inflection yet. Operator: The next question is from the line of Deane Dray with RBC Capital Markets. Deane Michael Dray: When we were at the Emerson Exchange in San Antonio, we saw that demo of Ovation AI? And can you just remind us, is this still in beta test? Has it been launched? And it was interesting, the first application, I guess, it's not surprising, is power gen. What's the plan for the rollout for other applications? Surendralal Lanca Karsanbhai: Yes. No. I noted that on Slide 3, Deane, that Ovation Virtual Advisor has been launched, and it's integrated in Ovation 4.0. So that's not in the marketplace, and it's off to a very good looking start already. I give an example of Entergy which is building 2 combined cycle 754-megawatt power plants in Mississippi and Texas, and they're using the technology. So there's a really good customer adoption there already on that product that you saw as a demo. Deane Michael Dray: Good to hear. And then in your Q this morning, there's a reference to the One Big Beautiful bill talking about the accelerated depreciation that you're saying it would not be a meaningful impact for Emerson. Can you just clarify, is that a reference to your own CapEx? And what about customer CapEx with all this reshoring, there could be some benefit there. Can you just clarify? Michael J. Baughman: You are correct. That is a reference to ours. And you're also correct that it certainly could be a benefit to our customers as they think about CapEx. And just to expand on that a little bit, the provisions of the One Big Beautiful bill are generally favorable for Emerson, avoiding some downsides that were in the outlook as part of TCJA and changing some rates there, that will be helpful -- modestly helpful as we move forward. Operator: Our final question is from the line of Nicole DeBlase with Deutsche Bank. Nicole Sheree DeBlase: Just wanted to ask about the order outlook for 4Q. I think previously, it was up high singles. Now we're looking at 5% to 7% growth. Was that driven by a revision in the factory automation outlook? Can you guys just elaborate a bit there? Surendralal Lanca Karsanbhai: No. Look, the process hybrid has remained very consistent for us in terms of outlook. We are still expecting that to exit in the mid- single digits as we were prior. Discrete recovery has been very, very encouraging as we went through the quarter and you saw in the call. So double-digit exit rate there still expected. And then safety productivity, there's some comps in there but lower single digits on that one. And so it's a mix of the different things, 5% to 7%, but it's -- I guess it's mid- to mid-single high. I don't not need to define it Nicole, but it still falls in that band of expectation that we have. Nicole Sheree DeBlase: Okay. Understood. Yes, that's fair. And then just a follow up on the margin outlook for 4Q, I think you guys said about 27% EBITDA margins. Usually, margins stepped down a little bit sequentially in the fourth quarter. Is the divergence versus normal seasonality just driven by the moving pieces around tariffs? Ram R. Krishnan: Yes. I think for us, in the fourth quarter, as of -- if you're talking versus Q3, the fact that we're holding at that 27%, clearly is an indication of tariff-related pricing getting more favorable in the fourth quarter versus the third quarter. We always planned it that way that we would implement the pricing actions in Q3. We have a little bit of a headwind as it relates to them fully offsetting tariffs, but then we'll get totally green, as we call it, into Q4 and hence, Q4 margin is very solid, up 80 basis points year-over-year and sequentially flat to Q3. Operator: At this time, this will conclude our question-and-answer session and also conclude today's teleconference. You may disconnect your lines at this time. We thank you for your participation, and have a wonderful day.

Operator: Good morning and welcome to the Emerson Second Quarter 2025 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to your host, Colleen Mettler, Vice President of Investor Relations at Emerson. Please go ahead. Colleen Mettler: Good morning, and thank you for joining Emerson's second quarter 2025 earnings conference call. This morning, I am joined by President and Chief Executive Officer, Lal Karsanbhai Chief Financial Officer, Mike Baughman and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with the slide presentation, which is available on our website. Please turn to slide 2. This presentation may include forward-looking statements, which contain a degree of business risk and uncertainty. Please take time to read the Safe Harbor statement and note on the non-GAAP measures. I will now pass the call over to Emerson's President and CEO, Lal Karsanbhai, for his opening remarks. Lal Karsanbhai: Thank you, Colleen. Good morning. I'd like to begin by extending my gratitude to Emerson's employees for continuing to deliver differentiated results. I'd also like to thank the Emerson Board of Directors, our customers and shareholders for the trust you continue to place in us. Further, I'd like to congratulate the Test and Measurement team for an outstanding NI Connect last week, in which we introduced the latest technology to enable successful creation and innovation through open, flexible and modular platforms. The LabVIEW company is alive and well. Next, I would like to congratulate two individuals- Antonio Pietri, former CEO of AspenTech since 2013, for a successful 29 year career. I would also like to congratulate Vincent Servello, who will lead the business as part of Emerson. Lastly, I'm looking forward to Emerson Exchange on May '22 in San Antonio, Texas. We will showcase our latest innovative solutions across the entire portfolio of Emerson businesses alongside over 2,000 attendees. Please turn to slide 3. While Emerson continues to execute exceptionally well, we, like all companies, are operating in a period of unusual volatility and therefore, have factored a variety of outcomes into our thinking that inform the outlook I will share with you today. Emerson delivered a strong second quarter. Underlying orders growth of 4% exceeded our expectations, and all regions were positive, including China. Demand remains resilient for our Process and Hybrid businesses, which were up 6%, and our Discrete businesses collectively turned positive with Test and Measurement up 8%. Underlying sales came in at the top of our guide with record margin performance, and adjusted earnings per share exceeded our guidance by $0.06 We will go into more detail on the results in the following slides. We have conviction in our process and hybrid markets and are seeing strong indicators for a meaningful second half discrete sales recovery. Our long outstanding supply chain regionalization strategy and global footprint enable us to quickly respond to a variety of scenarios, including the recent tariffs. From these, we have a gross exposure of $245 million in 2025, which we expect to fully mitigate. Ram Krishnan will walk through the details in a few slides. Emerson had an excellent first half, and we are confident in our plans for the year. We are guiding underlying sales growth of approximately 4% and raising the midpoint of our adjusted EPS guide, now expecting between $5.90 to $6.05 per share. Our free cash flow guidance is $3.1 billion to $3.2 billion reflecting good performance and costs related to the AspenTech transaction, and we now expect to return $2.3 billion to shareholders through dividend and share repurchase. We're also marking the completion of the portfolio transformation we began in 2021. On March 12, we completed the buy in of AspenTech, which now operates as an independent business unit within our Control Systems and Software segment. We expect the transaction to be modestly accretive to adjusted EPS in 2025, and we are targeting $100 million of cost synergies by 2028, primarily through the harmonization of corporate costs and G&A as well as R&D productivity. Integrating AspenTech is a key priority in 2025, and the organization is energized by the future opportunities with Emerson as we accelerate to double digit ACV growth. Additionally, we have completed the integration of Test and Measurement and have executed all actions to achieve $200 million run rate cost synergies by the end of 2025. We are thankful for the hard work performed by our teams, and we will continue advancing operational excellence as this business returns to growth. Finally, following a strategic review of our Safety and Productivity business, which began in November, we concluded the best value for our shareholders is to retain the business. Safety and Productivity comprises approximately 8% of sales with market leading profitability and cash generation. This business is underpinned by demand drivers such as reshoring and domestic manufacturing, and we'll continue leveraging the Emerson Management System to create meaningful value. Please turn to slide 4. Our industrial software businesses continued to perform well, and the total company ACV is up 11% year-over-year with broad based strength. Demand was better than expected in the quarter with underlying orders growing 4% year-over-year. Underlying sales were up 2% with our Process and Hybrid businesses up mid-single digits. Emerson generated record profitability again in the second quarter with gross profit and adjusted segment EBITDA margins both matching the prior highs set in the first quarter. Gross profit margin of 53.5% was a 130 basis point improvement year-over-year, demonstrating how customers continue to recognize the value of our leading technologies. Adjusted segment EBITDA margin of 28% came in well above expectations and was a 200 basis point improvement versus the prior year. Adjusted earnings per share of $1.48 were up 9% year-over-year and exceeded our expectations. Emerson generated strong free cash flow of $738 million, a margin of 17%, up 14% year-over-year. Mike Baughman will provide additional details on our financials in a few slides. Please turn to slide 5. Emerson's trailing three month underlying orders of 4% highlight the strong demand outlook for our business. Process and hybrid markets remained healthy in the quarter with 6% growth and are expected to maintain mid-single digit growth in both the third and fourth quarter. We continue to see significant capital investment in energy and LNG projects to support global demand led by The Middle East and Africa, India, Southeast Asia and The Americas. Our large project funnel, which provides a three year outlook of capital activity, sits at $11.4 billion, and we were awarded approximately $375 million of content in the second quarter. We are also emerging from a prolonged discrete downturn, and our discrete businesses collectively turned positive in the second quarter, with underlying orders exceeding our expectations at 3%. Test and Measurement orders were up 8% with tailwinds forming across the broad based portfolio business, which traditionally has been a leading indicator. Aerospace and defense continues to perform well with large project wins in the US, and we believe the favorable macro environment will continue in the second half. While we are seeing sustained positive momentum in industrial and discrete MRO markets, factory automation continues to be a watch area, and we believe demand may be pressured by macro uncertainty in the second half. Overall, improving underlying demand fundamentals, coupled with easier second half comps, position our discrete businesses for accelerating year-over-year growth in the back half, and we expect to hit double digits as we exit the year. We are watching closely for signs of tariff induced impacts to demand, but we have not seen any widespread indications. April was a strong start to the third quarter with trailing three month underlying orders growth of 7%, and we continue to see significant demand for our Process and Hybrid businesses and recovery in discrete. Energy security, self-reliance and energy transition commitments are expected to sustain a favorable spend environment in LNG and power, while near shoring momentum is expected to drive further growth in Life Sciences. Strength in Process and Hybrid markets, combined with a nascent discrete recovery, reinforces our expectations for mid-single-digit growth in the third quarter and for high single digit growth as we exit the year. Please turn to slide 6. Favorable demand trends support our view for underlying sales to accelerate in the second half and reinforce our full year guide of approximately 4% growth. Beginning with Process and Hybrid. We saw growth across all world areas in the first half. First half growth was led by Asia and The Middle East and Africa, with robust investment in energy and LNG projects offsetting continued weakness in China, specifically bulk chemical. The Americas were up mid-single digits with solid MRO in North America and broad based strength in Latin America. Europe saw low single digit growth with continued momentum in Energy Transition and Life Sciences. We expect Process and Hybrid sales growth in the second half to remain in the mid-single digits, driven by sustained global investment in LNG, Life Sciences and Power. We are planning for gradual improvement in China, aided by easier comps and investment momentum in power and marine. Turning to discrete. Underlying sales were down low single digits in the first half with the most pronounced weakness in Europe and China. The orders recovery in the second quarter and a low base of comparison support our plan for high single digit underlying sales growth in the back half. We expect continued improvement in discrete MRO as well as test and measurement markets with regional growth led by The Americas and Asia ex China. We now see a more muted recovery for factory automation and continue to see declines in automotive. These dynamics are expected to prolong weakness in Europe and China, although we expect to see sequential improvement in both regions in the second half. The improving business fundamentals reinforced our expectation for low single digit sales growth for the full year. And lastly, Industrial Software ended the first half with ACV of $1.5 billion, a growth of 11%, driven by demand for AspenTech's digital grid management and manufacturing and supply chain suites. DeltaV software recorded double digit growth in subscriptions, and LabVIEW also contributed high single digit growth. For the full year, we expect double digit ACV growth led by a strong EPC project backlog across energy and energy transition with continued adoption for our industrial software across power, life sciences, semiconductor and aerospace and defense. I will now turn the call over to Mike Baughman to provide additional color on our financials. Mike Baughman: Thanks, Lal. Please turn to slide 7 to discuss our second quarter financial results. Underlying sales growth was 2%, led by our process and hybrid businesses which were up approximately 4%. Our discrete businesses continued to show sequential improvement but were still down approximately 1% year-over-year. Price contributed 1.5 points to growth. Software and Control grew 7%, driven by higher software sales, while Intelligent Devices was flat due to safety and productivity and discrete automation. Backlog increased to $7.5 billion and our book to bill for the quarter was 1.04. Sequentially, backlog was up 3% led by our process and hybrid businesses which were up mid-single digits while our discrete businesses were up low single digits. Adjusted segment EBITDA margin improved 200 basis points to 28% matching our record high from Q1 and exceeding our expectations. Margin expansion was driven by favorable price cost, segment mix and the benefits of cost reductions and synergy realization. Strong profit contributions from test and measurements and control systems and software, which includes AspenTech, accounted for a significant portion of the margin expansion. Operating leverage was 180%. Adjusted earnings per share grew 9% to $1.48 up $0.12 year-over-year. I will discuss adjusted EPS in more depth on the next chart. Lastly, free cash flow was $738 million, up 14% versus the prior year. This strong performance was led by higher earnings and favorable working capital. Free cash flow margin for the quarter was 17% and was burdened by $130 million of acquisition related costs. Please turn to slide 8. Q2 was another strong quarter operationally. Bridging from prior year adjusted EPS of $1.36 operations added $0.14. Excluding AspenTech, software and control added $0.04, Intelligent Devices added $0.03 and a full quarter of AspenTech ownership at 57% added $0.07. The completion of the AspenTech buy in benefited the quarter by a net $0.05, $0.07 from the incremental 43% ownership from March 12 to the end of the quarter, less $0.02 from interest expense for debt taken on to complete the buy in. AspenTech operations exceeded expectations, including $0.03 due to the timing of a key customer booking in France. This contract is the largest in AspenTech history and previously had been expected to book in Q3. Non-operating items including FX and pension were a $0.07 headwind. The $0.05 headwind for FX is primarily due to unfavorable balance sheet translation with some unfavorable impact on sales early in the quarter. Overall, adjusted EPS grew 9% year-on-year to $1.48. I will now pass the call to Ram to review our tariff mitigation plans before I finish up with our guidance. Ram Krishnan: Thanks, Mike, and good morning, everyone. Please turn to slide 9. I want to provide a clear picture of the estimated gross impacts of the current tariff situation, both from tariffs recently implemented on US imports and China's retaliatory tariffs on US exports. On an annualized basis in 2024, Emerson imported $1.6 billion into the US, representing 19% of our annual cost of goods sold as raw materials and semi-finished products for our manufacturing plants and finished products to our distribution centers. The gross incremental tariff impact on these imports driven by IEEPA, steel, aluminum and reciprocal tariffs amounts to $320 million on an annualized basis. Tariff assumptions for US imports are as follows: IEEPA enacted on February 4 and March 4 are held at 25% Section 232 on steel and aluminum remain at current levels. And excluding China, reciprocal tariffs are modeled at an average rate of 15% to estimate the annualized impact. As you can see, most of our gross impact is driven by the 125% reciprocal tariff on imports from China, while the Mexico impact is significantly mitigated as 80% of our supply into the US from Mexico qualifies for USMCA exemptions. In 2025, we expect the gross incremental impact on US imports to be $185 million, around 1% of sales. Now to quantify the tariff impact of US exports into our China operations, we exported $105 million of critical subassemblies and some finished product from the US to China in 2024 on an annualized basis. Under the third round of China's retaliatory tariffs, which went into effect on April 10, we are now exposed to $135 million of incremental cost on an annualized basis. This assumes no waiver or exemption mechanism and the country of origin for semiconductor fabrication will be based on the location of fabrication. In 2025, we expect the gross incremental impact to be $60 million, around 0.35% of sales. So in total, our gross impact in 2025 is expected to be $245 million and $455 million on an annualized basis, which is around 2.5% of sales. We are mitigating these impacts through targeted surcharges and pricing actions, production reconfiguration using our global manufacturing footprint and additional supply chain regionalization initiatives. In 2025, we're targeting $190 million of incremental price and surcharges in the fiscal year with another $55 million of operational mitigation benefits from inventory on hand and supply chain actions. These mitigation actions will completely offset the tariff headwinds in the fiscal year with carryover benefit to completely cover the full annualized impact we will encounter in 2026 under these assumptions. As stated in the February call, we had pricing actions ready to be implemented when the first IEEPA tariffs took effect. Pricing actions are underway across all of our businesses, and all increases will be completed inside the quarter, including surcharges to our backlog where applicable. The remainder of our mitigation center around leveraging our global operational footprint that gives us a lot of flexibility to move production capacity around. Clearly, our regionalization efforts over the years put us in a strong position to drive these actions with speed effectiveness. Mike, I will now pass it over to you. Mike Baughman: Thanks, Ram. Please turn to slide 10 where I will walk through the details of our 2025 guide for sales and adjusted EPS. As Lal and Ram discussed, the sustained momentum in Process and Hybrid markets, positive outlook on discrete, strong Q2 operational performance and ability to navigate tariffs put us in a position to guide underlying sales growth in 2025 of approximately 4%, holding the midpoint of our February guide. We expect the pricing actions we are taking to mitigate tariffs to add an incremental point of price. So we now expect total price of approximately 3% in the year. This is offset by pockets of reduced outlook for demand, including muted expectations in China, a slower recovery in factory automation and weakened demand and safety and productivity from continued softness in construction markets. We now expect FX to be flat for the year versus the February expectation of 1.5 points of unfavorable FX. Turning to EPS, we are raising the midpoint of our adjusted EPS guide and now expect to land the year between $5.90 and $6.05. We have an $0.08 benefit from the outstanding operational performance in the second quarter. And as Ram outlined, we expect completely offset the earnings impact of tariffs in 2025. The softer demand dynamics mentioned earlier results in an approximately $0.10 headwind for the year, while the impact of the change in our FX expectation provides approximately $0.05 of upside relative to the February guide. Please turn to slide 11 for additional details on our third quarter and full year 2025 guidance. We expect our Process and Hybrid businesses to grow mid-single digits for the year, supported by healthy backlog and pace of business. As discussed, discrete orders have turned positive and will benefit from easier sales comps resulting in a meaningful second half recovery and low single digit full year growth in our discrete businesses. Adjusted segment EBITDA margin for the year is expected to be approximately 27%, up 100 basis points over the prior year, but lower than the first half of the year due to the effect of tariffs and segment mix. Free cash flow guidance is now $3.1 billion $3.2 billion as we have rolled in the impact of the AspenTech acquisition. Strong operational performance in the first half helped offset AspenTech transaction related headwinds of approximately $200 million. Including these headwinds, free cash flow margin is expected to be approximately 17%. For the third quarter, we expect underlying sales to be up 3.5% to 4.5% and FX to be favorable approximately 1 point. Our growth reflects the continued positive environment for our Process and Hybrid businesses and a return to growth in our discrete businesses. We expect adjusted segment EBITDA margin of approximately 27% and adjusted EPS between $1.48 and $1.52. Please turn to slide 12. Emerson has remained committed to disciplined capital allocation through the portfolio transformation, and we will continue to have four primary capital allocation priorities. The first remains reinvestment in the business to foster organic growth, and Emerson will continue these high return investments to support our 4% to 7% growth framework. We are in our 69th year of increased dividends per share and expect to distribute $1.2 billion to shareholders through dividend in 2025. The dividend will continue to be a priority. Our A2A credit ratings are also a priority for Emerson and influence how we manage our balance sheet and capital allocation decisions. The decision to retain the S&P business makes debt paydown a priority over the next two years. We have updated our guidance for fiscal '25 share repurchase to $1.1 billion which was completed in the first half. As we look beyond 2025, we expect to have available approximately $2.5 billion of free cash flow over the next two years to allocate to share repurchase and strategic bolt on M&A. With this plan, we expect to bring our net debt to adjusted EBITDA back to approximately two times by the end of fiscal 2027. And with that, we will now turn the call back to the operator for Q&A. Operator: Thank you. We will now begin the question and answer session. And this morning's first question comes from Andrew Obin with Bank of America Merrill Lynch. Andrew Obin: Just a question on discrete automation. Clearly, you guys are seeing some momentum, right, you're highlighting test and measurement orders, but at the same time you're highlighting factory automation limited recovery. So what exactly is getting better in discrete, what end markets? Lal Karsanbhai: So a couple of things here. First on Test and Measurement. The recovery in the Test and Measurement business has been driven by the portfolio business and aerospace and defense. The portfolio business is a broad based business with tens of thousands of customers and is a great indicator of industrial activity across the world. We continue to be muted in semiconductor, although recovering, and certainly down on automotive. We saw those same negative trends in automotive across the traditional Emerson discrete business. That's predominantly impacting our China and Germany business, which has a higher exposure to automotive, although we see some of that in the US as well. Now in terms of positives and underlying discrete, we saw some green shoots across a number of industries, some of the packaging industries, MRO markets and applications, which turned positive for us as well in the quarter. So overall, certainly in a different place than we were a quarter ago at plus 3%, but very encouraged about the churn in test and measurement. We believe that is sustained as we indicated in our materials and accelerating as we go through the year. Andrew Obin: And just a follow-up question. If you look at the pharma announcements out there, right, I think Roche is talking about $50 billion in spend, Novartis $23 billion, J&J $55 billion, Eli Lilly $27 billion, I mean, these are like sort of semiconductor like numbers and you guys do have a very strong position in this market. Just from your perspective, how much of it is political posturing and how much of it you actually see in your discussions with the customers and when should we start seeing it at this activity if it is in fact real in your orders because clearly one of your strongest global franchises? Lal Karsanbhai: No, I think it's very real. I think companies are making serious commitments around reshoring the manufacturing. We've been speaking about life science reshoring, if you recall, Andrew, for a number of years now as one of the underlying drivers in our business. And we are seeing real activity. Now of course, it takes time. We're seeing some early projects come into our funnel, but early days yet. There's tremendous demand for some underlying treatments out there, weight loss, diabetes. There are new cancer drugs coming onto the market, large molecule drugs being introduced. And you're going to see that those manufacturing facilities and decisions on where to place those facilities are going to be heavily influenced by the current environment. So we're very excited about that. We're well positioned and working closely with all of those customers on their plans. Operator: And the next question comes from Scott Davis of Melius Research. Scott David: I just wanted to ask on AspenTech and just get a sense now that you've closed the deal. What do you feel like you can do with the asset now that you fully control the outcome that you really couldn't do before? Lal Karsanbhai: I'll start off and I'll give I'll hand it off to Ram to give his perspective as well. Look, first, we're very excited about completing that transaction. We have a great management team that we put in place, which much like we did at NI is a combination of Emerson folks and AspenTech folks. So I think we have a team that can execute on a plan, predominantly driven around growth. The opportunity here is to drive ACV into the double digit range and sustain that over time. We believe the technology is highly differentiated. And we further believe, Scott, as we'll highlight at Emerson Exchange, that to deliver our vision of boundless automation in the next generation of distributed control system around enterprise software, the AspenTech and DeltaV Ovation platforms collaboratively coming together is going to be critical. Ram Krishnan: Yes. And Scott, I would say we're obviously in terms of the accelerated momentum on the commercial engagements that we've already had with AspenTech, we're very encouraged by that and that should continue both in terms of greenfield pursuits as well as the opportunities we see in end markets like power and life sciences, as well as the installed base of DeltaV and our opportunity to collaborate there to sell more AspenTech software. And then certainly on the technology front, as Lal pointed out, our vision of a software defined automation architecture, this will enable faster execution of many of the roadmaps that we have been working with them on. But now as 100% part of Emerson, we will accelerate their roadmaps. Scott David: I just wanted to clarify on the sequentially the tariff impact. Do you expect to offset by the end of the fiscal year, calendar year? Can you do it faster than that? It wasn't entirely clear to me, but maybe I'm just missed it. Lal Karsanbhai: Yes. We will completely cover the tariffs by the end of 2025. We'll cover it obviously as the exposure in 2025 with the programs having momentum to cover it in 2026 as well, fiscal 2025. Operator: And the next question comes from Deane Dray with RBC Capital Markets. Deane Dray: Could you start with the decision to keep safety and productivity? It's got a great reputation, great brands. Did you not get the right multiple for it? It's just maybe it's not the right environment given the macro to maximize value. But just kind of what was the process? And would this be revisited? Lal Karsanbhai: Look, we did conduct a very thorough review of the S&P business. And through that review, obviously, the external environment has something to do with it. We ultimately concluded that the best value for the shareholders is to retain the business. And Dean, one of the things that this management team has been very focused on through the transformative transactions is value creation for shareholders in terms of not just the disposals but certainly on the acquisition side as well. So look, at this point, we feel really good about the opportunities. We do believe the business is well aligned to the macros of reassuring, in particularly US manufacturing. As you may know, this is entirely a US manufacturing business with manufacturing in Elyria, Ohio, with great technology to address those under secular drivers. So look, we will apply the Emerson management system. We see opportunities for value creation within a highly profitable segment leading margins and cash flow and are excited to go to manage on a go forward basis. Deane Dray: And then just second question, can you said no definitive signs of slowing, but you also call out pockets of softness in China factory automation and construction markets. If you just step back and say what are the data points that you're basing that on? Is it funnel? Is it kind of any sort of leaping indicators that you think that there's the slowing, the depth of it, the duration and so forth. So for those three pockets of softness, what are the data points that you're basing it on? Lal Karsanbhai: So I'll break it up into a couple of pieces. China predominantly softness in both chemical. We don't see project activity, spend activity to give us confidence in demand in that segment. Having said that, there are other segments in China that are interesting, particularly around power generation in coal and nuclear, and we're benefiting from those investments. We're also seeing nascent growth in China of export EPC business. These are Chinese homegrown EPCs that are now beginning to take their skills and capabilities around the world. So we are participating there. And then lastly in China, the marine business. Shipbuilding in China has become a very large segment, certainly not one that we've been participating in. In terms of factory automation, automotive has a big element to that for us, both in China and in Germany. And we're looking at, obviously, data around automotive spend, but mostly we see that as reflected in our daily orders and funnel activity in the area. Deane Dray: Great. And the construction? Lal Karsanbhai: On overall construction, outside of China, again, we don't see any underlying concerns here at this point in time. But again and some of that perhaps reflected in the recovery in discrete globally. So I don't have any commentary there, Deane. Operator: And the next question comes from Andy Kaplowitz with Citigroup. Andy Kaplowitz: Lal, can you give us some more color into the strength of your incrementals in Q2 and how you're thinking about incrementals in the second half. I know you've been talking about good material productivity versus cost and mix has been positive for you. But is there anything else going on? I assume you're keeping a significant lid on cost. Do you expect temporary costs to come back in the second half? Maybe give us some more color on what's going on. Mike Baughman: Our leverage for the first half was exceedingly high, about 220%. And there were some interesting dynamics there with FX effect on reported sales. So we had a lower growth at the top line, but we continued to drive all of the levers around profitability. We had some very good mix with AspenTech. The T&M synergies reading through cost controls, as you mentioned and we talked about last quarter. And then the hard work that was done last year around restructurings was in the second half of the year was reading through in the first half of the year. The second half of the year, this year, the leverage will probably look, in fact, a little lower than traditional. And there's a couple of things going on, mainly FX flips on us and the tariff impact, where we'll have a lot of sales coming through with no incremental profit but fully offset, as Ram talked about. And the profitability will be a little bit lower due to the AspenTech timing that we talked about. They had the large sale that booked in Q2 that was modeled in for Q3. So on balance, we're looking at a great year with 60%-ish expected incremental leverage in the full year. Andy Kaplowitz: And then I want to double click on Aspen for a second. Maybe just a little more color as it enters your portfolio. I think you're originally expecting Aspen to be neutral EPS for FY 2025. It's coming in mildly accretive. What exactly is outperforming your expectations? And I know you talked about greater than 10% ACV growth, but maybe you could elaborate on what you're seeing in the near to medium term in the business. Lal Karsanbhai: I'll say a few comments and then Ram, if you have something to add. So I think there are two predominant elements there, Andy. The first is timing. Obviously, we exceeded in the second quarter. The timing does matter in terms of the EPS accretion. And the second is our commitment around the opportunities of cost. And the management team has pursued that very aggressively off the bat, particularly around G&A and corporate costs. And we feel really good that this will contribute positively year-over-year. So an excellent start for the business. Ram Krishnan: And I think the pace of business across DTM continues to be robust and I think we'll continue to accelerate in terms of momentum and the core AspenTech suites continue to perform very well. So we haven't seen any slowdown in demand and you augment that with the synergy actions that Lal referenced, I think we feel very good about the contribution AspenTech will make this year and into 2026 and beyond. Operator: And the next question comes from Steve Tusa with JPMorgan. Steve Tusa: Can you just talk about maybe what's within process? What's holding up for you guys and where the strongest growth is and maybe how the MRO is playing in there with kind of the field device MRO side? Lal Karsanbhai: Look, MRO was about 62% of sales in the quarter, so it continues to be robust, which is important, and we watch that very carefully with our programs, as you know. But also the capital funnel continues to be important here. The awards at $375 million are relatively balanced. But the three areas that pick out in hybrid and process are life sciences, power and LNG. And we have not seen any arrest in the momentum in those markets and continue to be relatively bullish as we go through the remainder of this year into the exit of 2025 and into 2026. Okay. Steve Tusa: And then just lastly, any variability around like the end of the quarter? Any signs of pre buy or unusual customer activity? I know you guys are now guiding the second half for pretty decent order growth. And any kind of choppiness that you've seen out there in the last couple of months? Lal Karsanbhai: Yes. I look for that really carefully. And I wanted to put the April order number out there to give you some reflection. We did not see any of that across our businesses. As you know, we're not a big stock inventory business within across the portfolio, but we have not seen any signs of pre buys, get ahead of tariffs or surcharges across the business. This has been underlying demand that has continued to accelerate in the segments that we expected and continued resiliency in Process and Hybrid. Operator: And the next question comes from Joe O'Dea with Wells Fargo. Joe O'Dea: Can you expand on Test and Measurement a little bit? I think there were at least a couple of data points over the course of the past couple of months that pointed to some push outs that was more production side and the R&D side. Just talk about where you sit on the validation side and end market exposures and why the demand trends for you could be a little bit more insulated from some of the other pressure that's out there? Lal Karsanbhai: Yes. So in Test and Measurement, we have four segments, so equally weighted 20% to 25% of the sales mix. Two of those segments, Aerospace and Defense and Portfolio are seeing very, very strong growth driven by underlying demand fundamentals. Certainly, the portfolio business, which is a broad variety of end markets, 30,000 plus customers, and mostly sold through distributors and integrators represents the broadest exposure that we have to customers. And so, strength in that segment bodes well for the overall recovery in the Test and Measurement markets overall. And then the Aerospace and Defense piece is stimulated by focused customer spending at large accounts. So those two markets are very strong. Semiconductors, we are seeing recovery. We expect further recovery into the second half supported by earnings releases from the likes of TI, for example, that saw robust demand for their analog segment. We play in analog and mixed signal, RF and mixed signal. So we expect that trend to get positive in the second half. The only segment where we haven't seen any signs of a recovery is the automotive piece, which is primarily EV battery testing. That's the one part that we're watching. But certainly, three of the four markets that we play in, we see strong fundamental demand. Joe O'Dea: And then, Lal, just wanted to ask on the portfolio and the comments in the release about portfolio transformation is complete now with Aspen buy in. As you think about moving forward and capital available for bolt ons, how should we think about the sizing of that and thresholds that you think about where the types of deal values that we could see, but a threshold above which you just really wouldn't have an appetite for? Lal Karsanbhai: I think it's, as we talked about in prior quarters, going forward, we're really thinking about bolt on opportunities across the business. The way we scale those are sub billion dollars. But again, we have to balance that with the overall capital allocation requirements in the business. We're committed around share repurchase and the dividend. Of course, we have the debt pay down issue that Mike described. But with that said, we'll have ample room for those opportunities if they present themselves or they come into the market. But at this point in time, really a focus on running and delivering value with the company we've created, which I think can create the most value through organic growth and investment in the company. Operator: And the next question comes from Ken Newman with KeyBanc. Katie Fleischer: Hey, good morning. This is Katie Fleischer on for Ken. I was just wondering if you could give some more color around slide 5. Orders are up about 4% in 2Q and then mid-single digits in 3Q and high single digits in 4Q. So how does that translate to the second half sales that are expected to be softer? Is that just driven more by mix or higher conservatism? Any color on that, please. Lal Karsanbhai: I don't quite understand. So the order acceleration gives us confidence in the second half sales acceleration that we have in the plan, which then delivers approximately 4% underlying sales growth overall for the year. If you recall, we grew slightly under 2% in the first quarter at around 2% now in the second quarter, and we'll finish at underlying sales of 4% for the year. So it's an acceleration supported by the order ramp that we're seeing. Katie Fleischer: And then any color that you can give on the strategic project funnel? Noticed that slide wasn't included in the deck, so any additional details there would be helpful. Lal Karsanbhai: I shared that in my opening remarks. It's $11.4 billion in size. We were awarded $375 million of projects in the queue. That's generally consistent with awards over the last few quarters around that $350 million to $400 million range. And it was broad based across LNG, power, life sciences and sustainability decarbonization. Operator: And that concludes the question and answer session as well as the call itself. Thank you so much for attending today's presentation. You may now disconnect your lines.

Operator: Good day and welcome to the Emerson First Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Colleen Mettler, Vice President of Investor Relations. Please go ahead. Colleen Mettler: Good morning and thank you for joining us for Emerson's first quarter 2025 earnings conference call. This morning, I am joined by President and Chief Executive Officer, Lal Karsanbhai; Chief Financial Officer, Mike Baughman; and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with a slide presentation, which is available on our website. Please join me on Slide 2. This presentation may include forward-looking statements, which contain a degree of business risk and uncertainty. Please take time to read the Safe Harbor statement and note on GAAP measures. I will now pass the call over to Emerson's President and CEO, Lal Karsanbhai, for his opening remarks. Lal Karsanbhai: Thank you, Colleen. Good morning. Today marks the anniversary of my fourth year as CEO of Emerson. I reflect on this time with tremendous admiration and gratitude for what we have accomplished as a team to deliver on our collective vision. Thank you to the Emerson board of directors for your trust and support, to the management team for your commitment and energy and most importantly to the 70,000 Emerson employees around the world for your dedication and deep care for our customers, our communities and each other. All of you make me better. Yesterday, alongside the Emerson board of directors, employees, community leaders, local CEOs and Emerson retirees, we held the grand opening ceremonies for our new global headquarters in St. Louis. It was an exciting day. The modern offices align our work environment with the industrial technology company we created, an environment that fosters innovation, collaboration and inclusiveness. Thank you to the Emerson leaders, who brought our new space to life. I remain as energized as I was on February 5, 2021 about the future of our company. Please turn to Slide 3. We are excited about our Q1 performance and the outlook for the year as healthy market fundamentals and our Emerson management system have positioned us to capitalize on value creation opportunities. Our process in hybrid markets continue to demonstrate stable demand as secular drivers propel continued investment in automation technology to drive efficiency, reliability and safety. Energy security, nearshoring initiatives and energy transition commitments are driving sustained spend in LNG, life sciences, power and metals and mining. We saw sequential orders improvement in our discrete businesses although the amplitude was a little softer than expected as momentum in industrial, semiconductor and discrete MRO was offset by muted performances in automotive and factory automation. We are expecting discrete orders to turn slightly positive in Q2 with a more meaningful orders ramp in the second half. We saw robust underlying demand for our software solutions across the portfolio with 10% growth in ACV, or annual contract value, led by double digit growth from control systems and software. Emerson again executed at a world-class level and demonstrated the profitability of our transform portfolio as margin leverage, adjusted earnings per share and cash flow all exceeded our expectations. Q1 underlying sales were inside the guide. Now I'll go into more detail on the next slide. We remain confident in our ability to deliver our 2025 plans and are energized by the robust operational start to the year and sustained high level performance. We are pleased to reiterate our guidance for underlying sales, adjusted earnings per share and free cash flow with outstanding execution offsetting the profitability headwinds from the large movements in FX since our initial guide. Additionally, we are increasing our expectations for operating leverage for the year to the 70s from the mid-40s. The growth and profitability of the Emerson portfolio is evident supported by our exceptional team, world-class technology and differentiated Emerson Management System. Last week we took a significant step forward in the final phase of our portfolio transformation by reaching an agreement with AspenTech under which Emerson would acquire all outstanding shares of AspenTech common stock not already owned by Emerson for $265 per share pursuant to an all cash tender offer. You can find our comments regarding the AspenTech agreement and pursuant tender process in our January 27 press release. And we will not be commenting further until appropriate. The strategic alternatives process for safety and productivity is still underway and we will provide an update when appropriate. Now I want to spend a few moments to talk about tariffs. In 2018, the United States enacted Section 232 and Section 301 tariffs, primarily targeting exports from China. At that time, we acted immediately to use price and surcharges to protect profitability and we also embarked on a program to de risk our supply chain for raw materials, sub-assemblies and finished goods. The impact of those tariffs was de minimis due to our swift actions and ability to capture price. The current tariff situation is fluid, but based on our supply chain regionalization strategy, learnings from prior tariff responses and planned price actions, we feel very good about our position. Starting with China, we do not expect a material impact based on actions taken since 2018. Next, we expect the impact from Canada to also be de minimis as we do not have any material exposure there. Last, the situation in Mexico is evolving and we are prepared for a variety of scenarios. We are ready to implement price and surcharges to protect the P&L commitments of the company. And these assumptions are embedded in our guide. Please turn to Slide 4. Q1 once again showcased Emerson’s ability to consistently execute. Underlying orders were up 1% year-over-year, led by healthy processing hybrid markets, which were up low-single digits despite a difficult comp from the prior year, which benefited from the timing of mega project bookings. Orders growth was led by robust demand in the Middle East and strength in the U.S., both from MRO business and several project awards. We saw exceptional demand growth in our power business, as well as continued strength in energy and energy transition projects globally. Chemical in the Middle East and Americas continues to see strong investment from capacity expansion and modernization efforts. Demand in China remained muted as strength in power was offset by weakness in chemical and discrete end markets. Underlying sales were up 2%, led by sustained strength in our process and hybrid businesses, which were up mid-single digits. We saw healthy activity in power and energy markets globally with sustained capital project momentum as customers are moving to meet the demand for energy security and affordability, as well as increasing electricity demand. Robust project activity in the Middle East offset softness in Asia and we saw strength in North America, MRO; and Latin America broadly. MRO also performed well in the quarter, representing 64% of sales. Gross profit margin was a record 53.5%, reflecting the value of our transformed portfolio. We also delivered record adjusted segment EBITDA margins of 28%, a 340 basis point improvement driven by strong operational performance including price cost management, mix, and the benefits of cost reductions and synergy realization. This profit performance in addition to the impact of FX, drove our operating leverage significantly above our guide. Adjusted earnings per share exceeded expectations, as $1.38 was above the top end of our guide and up 13% year-over-year. Emerson also delivered strong free cash flow of $694 million, a margin of approximately 17% and up 89% versus Q1 2024. Additionally, Emerson completed approximately $1 billion of share repurchase in the quarter as guided. Mike Baughman will provide additional color on our financials in a few slides. Please turn to Slide 5. Emerson’s innovation and differentiated product portfolio continues to be recognized by our customers and industry experts. And I’d like to highlight two recent awards recognizing our DeltaV business. In December, Emerson’s DeltaV Edge Environment was one of 10 products recognized as a 2024 Processing Breakthrough Product. Processing’s annual award honors innovative technology solutions that made significant contributions to increase efficiency, productivity, safety and profitability in industrial processing operations. DeltaV Edge Environment was selected, because it is its first of its kind, integrated software solution to help customers access and contextualize data to improve enterprise operational performance. It also enables customers to run AI tools on the edge, moving the compute process closer to the intelligent field to make better use of their data. We also recently released DeltaV Edge Environment 2.0, which now supports batch data integration to help life sciences, chemical and other batch processing industries bridge the gap between OT and IT applications. DeltaV Edge Environment 2.0 provides secure contextualized DCS data to help customers deploy advanced analytics, AI and machine learning at the edge or in the cloud to make better operational and business decisions. This release is another step forward in our vision to bound this automation. As it helps to eliminate data silos and drive competitive advantage. Emerson was also awarded the 2025 IoT Breakthrough Award for industrial IoT innovation of the year for its DeltaV workflow management software. This year's program attracted more than 3,850 nominations globally. And the award recognizes Emerson's next-generation Software-as-a-Service solution to help life science companies more efficiently develop, scale and manufacture life-changing therapies. DeltaV workflow management provides a cloud-based solution with simple recipe authoring, execution and electronic data capture, which helps life science customers scale and deliver drugs to market safely, efficiently and quickly. Emerson has been recognized every year by the IoT Breakthrough Awards since their inception due to our industrial technology portfolio, driving innovation across the world's essential industries. Please turn to Slide 6. We see significant opportunity in front of us for LNG. When we announced LNG as part of our energy transition growth platform in 2022, we expect that the current wave to add approximately 250 million tons per annum of operational capacity, predominantly across North America and the Middle East and Africa. While we are approximately two-thirds through the initial 250 MTPA, we are seeing large incremental opportunities as additional projects are announced to meet the world's growing demand for gas. LNG will continue to play a large role as a transition fuel, and we will also benefit from a rising demand for power generation. An important milestone in the LNG project timeline is when an EPC is selected because this typically starts the process to award automation, which can take up to a year. In 2024, only 18 MTPA was awarded to EPCs, partly due to the U.S. moratorium on export licenses. The LNG project pipeline continues to see significant growth, and we have solid visibility into a potential 80-plus MTPA per year being awarded to EPCs over the next three years as the moratorium has been lifted, and the LNG wave is proving to be larger than we had initially expected. These are large, complex projects in which our differentiated portfolio, global scale and demonstrated project execution capabilities to enable a strong value proposition for customers. We continue to see an opportunity for automation content of approximately $10 million per MTPA of liquefaction across our leading valves, instrument and control system and software portfolio. We have continued to see a win rate of approximately 50% for the full portfolio and greater than 50% for control systems in large LNG projects and are seen as a premier automation supplier globally. For example, around 70% of the world's LNG flows through Emerson valves. And we have won control systems on six of the last 11 projects awarded. Given the incremental opportunity for projects expected to move forward and our projects go, we see a potential for greater than $1 billion in Emerson orders over the next few years. We were recently awarded one such key win, Cedar LNG, a floating LNG facility in British Columbia. Cedar LNG is a partnership between Pembina and the Haisla Nation is being executed by a leading EPC, Black & Veatch. Emerson will provide our leading technology from across the automation stack, including valves, instruments, control systems and optimization software. Emerson was selected through our demonstrated FLNG expertise and global reach. Please turn to Slide 7. As we communicated last year, power is an area where we have seen strong orders growth as the fundamental opportunities in this sector continue to accelerate. As such, we are now classifying traditional power as a growth platform for Emerson. Power and Renewables represented approximately 10% of sales in 2024, and Emerson is poised to capitalize on positive trends across the power landscape as global project investment continues to increase in response to rising electricity demand forecasts and grid complexity. Installed renewable capacity globally is expected to triple by 2030, taxing an aging grid developed for the one way flow of electrons. It is estimated that over $3 trillion of grid infrastructure investment is required by 2030 to support electrification and renewable energy. Utilities are also making large investments for incremental generating capacity to a mix of greenfield, brownfield and modernization projects. Emerson has leading solutions across the technology stack to serve customer needs for power generation, transmission and distribution, including our industry-leading Ovation Control Systems, control valves and AspenTech’s digital grid management software. Our Ovation Control System technology currently automates around 1.8 terawatts or 20% of the electricity generated globally, including 50% of power generated in the U.S. and we also have a large installed base in power across our instrument and valve portfolio. These projects include many types of generation and I want to highlight our strength in combined cycle gas plants and nuclear power, including a recent win in nuclear. Ovation automates 18 of the 20 largest combined cycle gas plants in the U.S. and approximately 100 nuclear reactors globally also use the Ovation technology. Our control valves were the first ever to receive ASME certification decades ago for use in nuclear facilities and have been installed in approximately 90% of the world’s nuclear plants. Emerson has the most complete portfolio of nuclear grade isolation, control, and safety valves and has been serving customers in the nuclear power industry for decades. With nuclear power sales of approximately $325 million last year. Emerson’s expertise in intelligent devices for the nuclear power industry was critical to recently winning an award for the Sizewell C project in the UK. Within the project, Framatome will deliver two pressurized water reactors that will generate 3.2 gigawatts of electricity, powering the equivalent of around 6 million homes for 60 years. Emerson will provide valves and instruments and was selected for our innovative technology and long history of high quality solutions. Please turn to Slide 8. We are in a resilient capital cycle with a healthy strategic project funnel and I’d like to walk through some updates to align with our current portfolio and market opportunities. As discussed on the prior chart, we are now reclassifying our traditional power funnel as a growth platform. Additionally, we have owned Tesla measurement for a year and integrated into our processes including how we pursue projects and manage the business. While semiconductor has been in a tough cycle, we see it as a driver of future growth supported by macro trends such as near shoring, advanced packaging and ubiquity of chips. We have included the large semiconductor project opportunities currently valued at $300 million and are classifying it as a growth platform. With this addition, our funnel now is at $11.5 billion. Excluding semiconductor, our funnel is $11.2 billion consistent with last quarter and up 7% year-over-year. Many verticals in the funnel were up double-digit year-over-year led by Life Sciences, LNG, sustainability and decarbonization, nuclear and traditional power. Combined with the approximately $400 million of project awards in the quarter that exited the funnel, this showcases a constructive environment in which customers continue to invest and advance projects. I’ll now turn the call over to Mike Baughman. Mike Baughman: Thanks, Lal, and good morning, everyone. Please turn to Slide 9 to discuss our first quarter financial results. Underlying sales growth was 2% led by our process and hybrid businesses, which were up approximately 5%, while our discrete businesses including safety and productivity were down approximately 4%. We continue to see strong performance from our growth platforms, which were collectively up mid-single digits, led by industrial software, energy transition which includes LNG and Life Sciences. Investment across greenfield, brownfield and modernization projects continues at robust levels. Price contributed 1.5 points to growth. Underlying growth was up 4% in Asia and the Middle East and up 3% in the Americas. Europe was down 2%. Software and control grew 4% while intelligent devices grew 2%. Backlog increased slightly to $7.3 billion, sequentially and excluding FX, total backlog was up 4% led by our process and hybrid businesses, which were up mid-single digits while our discrete businesses were up low single digits. Adjusted segment EBITDA margin improved 340 basis points to 28% a record high. Margin expansion was driven by favorable price and net material inflation, mix, the benefit of cost reductions and synergy realization. Operating leverage of 265% exceeded our guide due to outstanding profit performance and the effect of foreign exchange rates on margins. Adjusted EPS grew 13% to $1.38, up $0.16 and is a strong start to the year. I will discuss adjusted EPS in more depth on the next chart. Lastly, free cash flow was $694 million, up 89% versus the prior year. This strong performance was driven by higher earnings, improved working capital and tailwinds from the prior year cash outflow of approximately $100 million for acquisition related costs and integration activities. Free cash flow margin for the quarter was approximately 17%. Please turn to Slide 10. We delivered another exceptional quarter operationally in Q1. Adjusted earnings per share increased $0.16 from the prior year due solely to operations. Software & Control led the growth contributing $0.09 and Intelligent Devices contributed $0.07. Corporate and other items netted to zero as headwinds from stock comp and pension were offset by an FX tailwind from an unfavorable impact last year. Overall, adjusted EPS grew 13% year-on-year to $1.38. Please turn to Slide 11 for details on our Q2 and full year 2025 guidance. The sustained momentum in process and hybrid markets and our strong Q1 operational performance put us in a position to reiterate our full year 2025 guidance for underlying sales, adjusted EPS and free cash flow. Overall, we expect our process and hybrid businesses to grow mid-single digits for the year, supported by backlog and a resilient funnel. We have lowered our full year outlook for our discrete businesses to the low single digit range. Our discrete businesses have started the year slower than expected, but we expect a meaningful recovery against easier comps in the second half. As Lal mentioned earlier, China demand has been muted, but we are looking to see growth in the second half as we are expecting recovery in chemical and discrete with power continuing to be strong in the region. We are holding underlying sales at 3% to 5% but lowered GAAP net sales guidance to 1.5% to 3.5% due to a foreign exchange headwind of approximately $350 million as the U.S. dollar strengthened at the end of Q1. This FX movement unfavorably impacted adjusted EPS approximately $0.08, which we have predominantly offset with our strong Q1 operational performance to hold our prior guidance of $5.85 to $6.05 per share. We are increasing our expectations for 2025 operating leverage to the 70s versus the mid-40s guidance from November due to the operating performance in Q1 and the impact of FX on leverage. We are reiterating our free cash flow guidance of $3.2 billion to $3.3 billion. For the year, we expect to return approximately $3.2 billion to shareholders through dividends of approximately $1.2 billion and share repurchases of approximately $2 billion, of which we completed approximately $1 billion in the first quarter as planned. In the second quarter, we expect underlying sales to be up 1% to 2% and FX to be unfavorable by approximately 1.5 points. Our growth reflects tough prior year comps for our process and hybrid businesses and continued softness in discrete. However, discrete volumes are expected to be up sequentially and better on a year-over-year basis compared to the Q1 year-over-year change. We expect adjusted segment EBITDA margin of approximately 26.5% and adjusted EPS between $1.38 and $1.42. Consistent with November's guide, our current guidance includes safety and productivity and a 57% ownership of AspenTech. We have provided the contribution of safety and productivity as a reference for investors to understand when an exit of this business could look like. For the year, we continue to expect safety and productivity to contribute approximately $0.48 of adjusted EPS and approximately $200 million of free cash flow on flat underlying sales. Regarding AspenTech, we are expecting $0.11 in our Q2 adjusted EPS guide and $0.44 to $0.46 for the year, also the same as communicated in November. Finally, regarding the AspenTech transaction, while the effect of the pending AspenTech transaction is not part of our adjusted EPS guidance today, if we had assumed a successful close in the first half of calendar 2025, the minority buy in would not have changed our current guidance range of $5.85 to $6.05. And with that, we will now turn the call back to the operator for Q&A. Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Jeff Sprague from Vertical Research. Please go ahead. Jeff Sprague: Hey, thank you. Good morning, everyone. Just – and Lal thanks for the color on the geographic and congrats on the anniversary. I didn’t realize today was the day. Could you just be a little more specific on Mexico? Maybe the size of your COGS down there and what parts of your business are most highly exposed? Lal Karsanbhai: Good morning, Jeff. Thank you. Good to hear you. Now, look, I think we feel very comfortable obviously with the understanding of the exposure related to potential tariffs in Mexico. We’ve done the work with our businesses to assess the required price and surcharge activities that we’d have to put in place and we’re ready to go. But I’m not going to go into the details on COGS, et cetera. Jeff Sprague: And then on the discussion on discrete that Mike went through. Your commentary on discrete is collectively legacy, Emerson discrete plus test and measurement. Is there any distinction to be drawn between what you’re expecting for the remainder of the year in those two businesses in terms of their trajectory or other factors? Lal Karsanbhai: No, that’s a correct interpretation. As we referenced the end market, we are referencing those two businesses. The color I gave really applies across both as we have exposure in all markets obviously certainly one or two weighted one way or the other. Strength in semiconductor in the quarter, which was encouraging to see, certain elements of MRO were stronger, and industrial applications of those products. The offset there we’re watching very carefully is broader factory automation and of course automotive. Jeff Sprague: Great. Thank you. Lal Karsanbhai: Thank you. Operator: The next question comes from Steve Tusa from JPMorgan. Please go ahead. Steve Tusa: Hey, good morning. Lal Karsanbhai: Good morning, Steve. Steve Tusa: Just a kind of a question on like a little bit of a nit, which is the forex side. I think it was a headwind on sales but looks in the earnings bridge on in the slides that it was a benefit to EPS of like $0.04 or something. Can you just explain what’s going on there? Mike Baughman: Yes, Steve, it’s Mike. The benefit of $0.04 was largely some transactional FX that was in the prior year that didn’t happen in the current year. So we had a number of losses that didn’t emerge. And again, that’s not the translation of the P&L. That’s just translating the non-functional balance sheet pieces. And that’s the $0.04 that we’re referencing. Steve Tusa: Okay. Great. And then just one follow-up on the incrementals. I mean like super strong core incrementals here. A little bit tough to explain just by operations. Is there – did you guys have raw material deflation this quarter or is that just a mix impact? I mean it was pretty much across the board. So just curious as to maybe a little bit more on the bridge for the profits, whether that’s deflation or beneficial mix? Ram Krishnan: Yes, Steve, Ram here. Yes. I think we certainly had positive price, 1.5 points of positive price. We had favorable net material inflation, which is the deflation you referenced. We had strong mix, strong growth in AspenTech at good margins. So the mix was in our favor. So a lot of things went our way in the quarter as it relates to price cost, cost reductions and favorable mix to drive the incrementals that you saw. Steve Tusa: Okay. Great. Thanks. Operator: The next question comes from Andy Kaplowitz from Citigroup. Please go ahead. Andy Kaplowitz: Good morning, everyone. Lal Karsanbhai: Good morning, Andy. Andy Kaplowitz: Lal, so project funnel at $11.2 billion ex semi was pretty stable as you said versus Q4, but obviously there’s a lot of geopolitical and macro noise out there. So maybe just stepping back and opining on the ability of the funnel to continue to grow. I know you highlighted LNG and power. So did they for instance now lead growth versus let’s say clean energy type projects given the new U.S. administration’s focus? And then could you comment on your visibility into process in hybrid markets continuing to grow mid-single digits? I know you reiterated that, but confidence level on that. Lal Karsanbhai: Yes. Thanks, Andy. That’s a great question. Certainly we have not seen any abatement in the commitment of our customers to not just make investments to increase energy security and affordability efforts, but also to decarbonize their operations. They seem to be working hand in hand and that’s based on commitments that they have made to shareholders and employees and communities. So, we're continuing to see that across the world. Further, the investments in power generation seem to be relatively balanced. We certainly think that nuclear will have a – we're in the beginnings of a renaissance on the nuclear space with not just the extension of life of plants, but the recommissioning of – in the past mothball facilities. There's three such in the United States that have been publicly announced so far. But in addition to that, combined soccer will play a big role. So gas burning, which ties back to the investments made in the field. But we're continuing to see acceleration as well in hydro, wind and solar investments. And of course, the promise of hydrogen continues to be out there with significant investments being made in the Middle East, and use cases being developed in Korea and Japan for that energy. So watching all of those carefully don't really have a sense today or concern about a slowdown in a sustainability funnel and would expect that to continue to be robust through the quarter. In terms of process and hybrid. Yes, we are – we continue to be optimistic based on what we see in the marketplace. Not just driven by the capital, but also by the modernizations and certainly by the MRO. 54% of total revenue in the quarter continues to be a very significant driver of our business and the profitability in the business as well. Ram and I are going to be traveling around, Ram will be in India and Asia. I'll be in the Middle East next week. We'll continue to get a sense with our customers of the investment, but nothing that we've heard to date would give me concern on the strength of the funnel. Andy Kaplowitz: It’s helpful. Maybe a preview of your trip next week. Like in terms of geography, obviously you mentioned China is still a little slow. Do you think China grows in 2025 and if it doesn't, can you offset it, for instance, with continued Middle East strength? Lal Karsanbhai: That's exactly right. We're down mid-single digits in China in the quarter. We do expect it to better towards the second half, but growth is something we're going to be watching carefully there. The strength really comes from two world areas, the Americas being one, driven by North America and the Middle east and Africa region. That's the press. And then I will say on a tertiary basis, India and other parts of Asia as well. Ram, anything to add? Andy Kaplowitz: Appreciate it. Ram Krishnan: Yes, no, I think on China, certainly the one segment that we're watching very carefully, which is a significant part of our sales mix, is bulk chemicals. But there are pockets of activity in power, in exports. Certainly, we have a $20 billion installed base in China. We're driving that. But China overall to your point, I think if we can drive to a flat year in China, I think that's what's baked into a plan. And as Lal said, the upside for us or where we have to really press hard is North America and the Middle East. Andy Kaplowitz: Appreciate the color, guys. Lal Karsanbhai: Thank you. Operator: The next question comes from Joe O'Dea from Wells Fargo. Please go ahead. Joe O'Dea: Hi, good morning. Wanted to spend a little bit more time on the margins. It sounds like price cost was the biggest driver of the margin strength in the quarter and so maybe just confirmation around that and then as well, how you think about that dynamic moving forward is that easing and any color on the cost component of it that market-based costs or more Emerson actions? Mike Baughman: Hey Joe, it's Mike. On price cost. Yes, it was a driver as it consistently is for us. I would say this quarter cost reduction was actually a bigger driver. We did a lot of work last year in as you know, test and measurement with the integration and in the discrete business Measurement & Analytical. We did a lot of cost work that's reading through. We also got off to a great start on just discretionary cost control in the first quarter that I think we'll see some of that come back in the second quarter, and I'm really glad we did that given what we saw in FX and the FX headwind that we're going to face in the back half. The other thing that we thought that Ram touched on was mix. There's business mix in there. The Aspen contribution in the quarter was significant. They had a very strong quarter, which drove the adjusted segment EBITDA margin up quite a bit. Now again that impact in Q2 won't be quite as big. And then there was the FX that we touched on which also drove actually a full point of that 340 basis points in the quarter that we won't see. So, it was a combination of all of those things. We'll continue to see cost reductions in price as we do every quarter. And to give you a little more color, those are running ahead of inflation so it's accretive to the margin. Joe O'Dea: That's great color. And then, Lal just wanted to touch on your comment about being in the final phase of portfolio transformation, and how we think about that vis-à-vis sort of future M&A appetite. You think about sort of post portfolio transformation that we enter more of a bolt-on environment, but just overall what the future sort of portfolio priorities are? Lal Karsanbhai: Yes, thanks Joe. Yes. So, I'll reiterate what I said. I think three months ago. This was a very significant transformative effort for the company. A significant amount of M&A activity to put us in the position that we are in now. And so on a go-forward basis, our focus will be on disciplined M&A around bolt-ons. We believe there are continue to be billion – sub billion dollar opportunities to bring technology into the company and expand our customer relevance. But certainly returning cash to our shareholders through the dividend, share repurchase where appropriate as we committed to and investing back into our businesses. We have a great portfolio of technology opportunities for organic investment and that’s where the focus will be as we get through this transformation here, which is right in front of us. Joe O'Dea: Thank you. Lal Karsanbhai: Thank you, Joe. Operator: The next question comes from Nigel Coe from Wolfe Research. Please go ahead. Nigel Coe: Thanks. Good morning, everyone. Just want to come back to the second half inflection in the Discrete Automation and National Instruments. I mean easy comps I get and that’s very clear. But what about any sort of near-term KPIs you’re tracking? I mean, obviously, we’re seeing some good news on ISM, but are you seeing any kind of orders inflection or book-to-bill above one? Anything to kind of give you confidence that that’s actually playing out? Ram Krishnan: Yes, Nigel, here – Ram here. First off we saw sequential orders growth in the Discrete business in the first quarter. So that’s a positive sign. Certainly segments where we’re seeing inflection is semis for National Instruments on the Test & Measurement side and also the broader business, the portfolio business, which is again representative of our customers, the broad-based 35,000 customers stocking up and distribution and integrators putting stock back in. So that’s a good sign. Certainly, the North America activity in our traditional Discrete Automation business has been promising. So some green shoots, but again, the way the second half recovery for us will work is certainly sequential growth to the first half which I think is built in at a pretty nominal rate to the plan. But certainly on a year-over-year basis, the second half comparisons given the second half of last year will be more promising. And so I think it’s a thoughtful plan as it relates to how we expect the markets to come back. And the green shoots have certainly been semiconductors portfolio and North America in our Discrete business. Nigel Coe: Thanks Ram. That’s helpful. And then just switching to the LNG slides. Number one, did the moratorium have any impacts in terms of the – I mean, I’m sure it did, but how significant is the lifting of the moratorium on new LNG permits? And then the pipeline, 35% in North America is a stunning number. Does your win rates vary across regions? I’m just thinking do you have a stronger win rate in North America versus global? And do you expect any sort of big order inflection in the back half of the year? Thanks. Lal Karsanbhai: Yes. No, good question. No, certainly, the moratorium had an impact as investments paused. It was difficult, obviously, to think about financing – obtained financing in an environment where there was uncertainty on whether you could actually export the product. So we saw the delays in place there, which resulted in a significantly lower amount of awards to EPCs in 2024, as I described. In terms of the win rate itself, no, look, we put significant effort over the last 2.5 years to create an understanding and develop relationships in North America to ensure that we could be in a winning position. But our story is even stronger, to be very honest, if you look at Middle East and Africa where the early projects existed in Qatar predominantly. And so we feel really good globally and our teams continue to operate and pursue in a very consistent fashion, and we’re in a very consistent action around the world. Nigel Coe: Okay. Thanks guys. Operator: The next question comes from Brett Linzey from Mizuho. Please go ahead. Brett Linzey: Hey, good morning all. Lal Karsanbhai: Good morning. Brett Linzey: Yes. I wanted to come back to the power and renewables portion of the funnel, pretty healthy contribution in the first quarter there on the project wins. Any context you can offer on the elongation of the sales cycle there or when these wins might begin to convert to the order backlog? Lal Karsanbhai: Yes, no, not really a whole lot of color. You can imagine, I think much like LNG; these are large, particularly when you're talking about additional capacity. Those are long lead time projects that take time to work themselves through backlog. I will suggest, however, and I'll ask Ram to add some color that in the modernizations or capacity expansions those go pretty quick. They're a little faster to bring online. So it really varies when you're thinking about building a new combined cycle power plant, that's a five-year or six-year type of venture. Ram? Ram Krishnan: Yes, I think you said it. The modernization projects which actually had a significant impact in Q1 orders performance for us in power will go through faster in terms of conversion to sales. But certainly the nuclear projects which is a good portion of our funnel as well as the combined cycle greenfield plants take much longer to convert to sales. Brett Linzey: Okay, got it. And then just a follow-up on orders, so up 1% in the quarter. What are you assuming for order growth for the year as part of this operating framework on the sales side? And then any color on book-to-bill embedded as part of the planning assumptions? Lal Karsanbhai: Yes, Brett, we don't forecast the orders publicly, so we're not going to comment on that. Book-to-bill was greater than one in the first quarter. Book-to-bill was greater than one and we will see our typical seasonal book-to-bill with the first half being greater than one and the back half being under one. And for the full year, I'll tell you that we're expecting book-to-bill to be about one. Yes. Brett Linzey: Okay, great. Appreciate the detail. Best of luck. Operator: The next question comes from Deane Dray from RBC Capital Markets. Please go ahead. Deane Dray: Thank you. Good morning, everyone. Lal Karsanbhai: Good morning, Deane. Deane Dray: Hey, I signed on a bit late. I'm not sure if I missed this, but any comments on how January has gotten off? Lal Karsanbhai: The good news is being you didn't miss anything. We didn't comment on January. I'm not going to comment on it, but beginning of the quarter and we feel good about the guide we just put out there. Deane Dray: Okay. And I know there was a reference to mega projects and there's still lots of focus on where and how they play out. There was a reference to them in on the automation side. Just what's your setup? What's your expectation? How might there be some ways you benefit and some of the tarts that are coming, we think over the next 12 months? Ram Krishnan: Yes. Deane, Ram Krishnan here. On the project funnel, the areas where I think we are well positioned to certainly capitalize are twofold. LNG, which Lal described and in very much a detail and there's a big pipeline of new capacity – liquefaction capacity coming down the pipe, both in North America as well as in Qatar where we're well positioned and then certainly the power industry. But across the board, activity in terms of chemical modernizations in North America, greenfield chemical in the Middle East, certainly life sciences diabetes driven drugs investments in the U.S. So there's a plenty of activity across life sciences and metals and mining as well where we feel pretty good. So the $11.5 billion funnel, which if you take semiconductors out was $11.2 billion and up 7% year-over-year represents a pretty robust set of activities across a diversified set of industries we're pursuing. Deane Dray: Great. Thank you. Operator: The next question comes from Saree Boroditsky from Jefferies. Please go ahead. Saree Boroditsky: Thanks for taking the question. You mentioned some of the cost and synergy actions you realized in the quarter is driving the margin. Could you just talk about how that plays out over the remainder of the year? I think you talked about some discretionary costs coming back starting in the second quarter. So maybe if we should expect a less of a benefit going forward? Thank you. Mike Baughman: Well, yes, there will be a certainly compared to the first quarter; there will be a tempering of some of that cost reduction, but the cost reduction benefits will continue throughout the year. I think the other thing that we touched on that's important to think about is gross margin in the first quarter was particularly high due to mix and that will temper a bit as the year goes on as well. So, I touched on the other drivers as you think about moving forward in comparing the first quarter to the rest of the year, particularly around FX, which was the one point in the quarter. But we will continue to drive cost reductions throughout the year and that will be an uplift to the margin as we move forward. Lal Karsanbhai: Yes, you said it, Mike. I think price cost, which was positive in the first quarter, continues through the year. Cost reductions, which was positive in the first quarter continues through the year. What will change is fundamentally the mix dynamic, which was hugely positive and Q1 and drove the 28% EBITDA margin at the segment level will change. We've modeled that into the year as well as dynamics around discretionary spend, which was throttled in the first quarter. Some of that, as Mike referenced will come back. So that's how I would think about modeling margins for the rest of the year. Saree Boroditsky: Great. And just a quick one on the discretionary commentary you talked about factory automation and auto as markets you're watching. Just maybe comment on what you're seeing from both of those and how you expect those to potentially accelerate in the second half? Lal Karsanbhai: Yes, I mean both those markets have remained pretty depressed auto very depressed, particularly on the EV side. And then certainly on the factory automation though, we've seen pockets of activity in North America, Europe, Germany and then certainly China where we have that exposure, have been muted. We are not expecting significant recovery on an absolute basis as we move into the second half. But the power of easier comparisons in the second half will drive growth in both those segments and that's how it's modeled in for the rest of the year. Operator: The next question comes from Christopher Glynn from Oppenheimer. Please go ahead. Christopher Glynn: Yes, thanks. Just wanted to ask about the overall pace of control system competitive conversions. I think that's part of your story, a lot of end market focus today. But curious about win rate trends as you leverage the combined technology portfolio across Emerson for competitive displacement and any updates on any revenue model changes there in terms of the install value versus recurring maintenance with the control system side of the business. Lal Karsanbhai: Yes, I mean no major changes as it relates to, I think the K [ph] as the installed base win and the MRO conversions. That's pretty consistent with how we have traditionally operated in our control systems business, both with DeltaV innovation. I think the competitive displacements, particularly in our power business continue. That's been a strength of how we've driven differentiated growth in that space and certainly with DeltaV as well. But we couldn't point to any significant change in the level of activity there. I think it's consistent with how we've performed in the past and we continue to gain momentum. Christopher Glynn: Great. And then you talked a lot about margins on an overall Emerson level. I think in particular, Measurement & Analytical and Control Systems & Software hit kind of new threshold levels of profitability. And that doesn't get explained by AspenTech having a really strong quarter for Emerson's overall mix. So curious if you could talk a little bit about those couple segments profitability. Mike Baughman: Yes. So, for the systems business, they had a very strong gross margin quarter. They had some favorable closeouts of projects due to strong execution. And they also benefited quite a bit from the SG&A spend during the quarter. And then on the MSOL business, the Measurement & Analytical business, they had pretty consistent gross margins quarter-to-quarter, very good gross margins, but consistent and benefited from the SG&A. And that was in part due to the work that was done last year to take some cost out of that cost base. And they had some discretionary as well. So that's what was going on with those two. And we're really pleased with the performance there. Christopher Glynn: Sounds great. Thank you. Operator: This concludes our question-and-answer session and the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Good morning, everyone, and welcome to the Strategic Announcement of Q4 and Full Year 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note, today's event is being recorded. At this time, I'd like to turn the conference call over to our host, Colleen Mettler, Vice President of Investor Relations at Emerson. Please go ahead. Colleen Mettler: Good morning, and thank you for joining us for Emerson's strategic announcement and fourth quarter and full year 2024 earnings conference call. This morning, I am joined by President and Chief Executive Officer, Lal Karsanbhai; Chief Financial Officer, Mike Baughman; and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with both slide presentation we have prepared this morning, which are available on our website. Please join me on Slide 2. This presentation may include forward-looking statements, which contain a degree of business risk and uncertainty. Please take time to read the safe harbor statement and note on GAAP measures. Please turn to Slide 3. Today, we have two presentations that we will discuss. We will first go through our strategic announcements presentation and then we will go through our 2024 financial results and guide for fiscal '25. I will now pass the call over to Emerson's President and CEO, Lal Karsanbhai, to discuss the strategic actions we announced to complete our portfolio transformation. Lal Karsanbhai: Thank you, Colleen. Good morning, everyone. Please turn to Slide 4. 2024 is an exciting year where we closed our National Instruments acquisition, did excellent work driving synergies and integration and celebrated 80 years as a company listed on the New York Stock Exchange. Operationally, we performed at a high level and we'll go through our results in a few minutes. 2025 is a milestone year for Emerson as we commemorate our 135th year as a company. This longevity is only possible due to the talent, dedication and innovative spirit of our Emerson employees through the decades and I'm grateful for their continued contributions. Emerson has undergone many transformations during this storied history, and I'm excited to announce our final steps to complete our portfolio transformation, which started 3.5 years ago. Our intent has been unwavering in the execution of our vision to create a cohesive industrial technology portfolio. Transformation and evolution have been hallmarks of past Emerson generations. [indiscernible] Chuck Knight and David Farr all had visions and reinvented this great company. And now this is a trademark of this management team that I have the privilege to lead. Please turn to Slide 5. First, Emerson has made a proposal to acquire the remaining shares of AspenTech for $240 per share in cash, which values AspenTech at an EBITDA multiple consistent to our original transaction. Given our position as a 57% shareholder of AspenTech, our proposal must be made public and filed under our 13-D reporting obligations as and when delivered to AspenTech. We were prohibited from engaging in any take private discussions with AspenTech ahead of such public disclosure. Now that our proposal has been made public, we look forward to engaging privately with a special committee of AspenTech's Board to reach a definitive agreement that will benefit both Emerson and AspenTech shareholders. If we reach an agreement with the special committee, Emerson's proposal is that the transaction be affected by a tender offer that would be subject to a non-waivable condition that at least a majority of the AspenTech common stock held by minority stockholders be tendered in accordance with the MSW framework. I wish to emphasize that in our capacity as a stockholder of AspenTech, we are only interested in acquiring the shares of the Company that we do not currently own. And accordingly, we have no interest in a disposition or sale of our holdings in the Company. This is an exciting opportunity to bring two exceptional companies fully together and unlock significant value creation potential for shareholders, employees and customers. Since completing our initial investment in 2022, our partnership with AspenTech has been highly productive and has advanced our capabilities in software-defined automation. The success of our operating partnership with AspenTech over the last two years gives us confidence that the time is right to bring Emerson and AspenTech together. The combination of Emerson and AspenTech would advance key initiatives, create new opportunities through full integration as a single company and further accelerate Emerson's industrial software strategy. Additionally, as a single company, leveraging the proven Emerson Management System, we expect there to be immediate additional cost synergies from the transaction. Finally, we believe this transaction and the simplified structure would make it easier for our investors to value and model our company. Second, we have commenced a process to explore strategic alternatives, including a cash sale for our Safety & Productivity business to maximize shareholder value. This segment, which includes Emerson's legacy tools businesses, is approximately 8% of 2024 revenue and comprises the remaining businesses not related to automation in Emerson's portfolio. This business has industry-leading margins and cash flow, but does not fit our automation thematic. Third, we announced that we are increasing our return of capital to shareholders. We plan to repurchase approximately $2 billion of common stock in fiscal 2025, and expect to complete $1 billion by the end of the fiscal first quarter. Together with the dividend, we expect to return approximately 100% of our guided free cash flow in 2025 to shareholders. The repurchase underscores Emerson's commitment to driving shareholder returns as we believe the current multiple does not accurately reflect Emerson's strong outlook, significant free cash flow generation and benefits of the strategic actions announced today. It's important to note that post transactions, we expect to maintain our A2A credit rating. Please turn to Slide 6. AspenTech is a leading industrial software company that delivered $1.1 billion in revenue and $941 million in ACV in 2024. AspenTech's process simulation and optimization software delivers efficiency and productivity gains in mission-critical environments for its global customer base, including top EPC, utilities, chemicals and energy companies. AspenTech's innovative software product capabilities are critical to helping these customers address the dual challenge of maximizing production output while also achieving sustainability goals by enabling digital transformation at scale to optimize asset performance across its life cycle. Their software portfolio includes their heritage AspenTech businesses as well as the two businesses we contributed to the initial deal, SSE and DGM. Today, Emerson's leading Automation Solutions and AspenTech's industrial software capabilities provide our customers with an unparalleled portfolio of offerings. Our future vision as an integrated company would accelerate innovation to deliver significant value and move the industry forward. Please turn to Slide 7. We believe bringing AspenTech fully under Emerson's ownership at this time would enable us to combine technology capabilities to rapidly accelerate our vision of moving the control system landscape to a software-defined enterprise automation architecture. In today's typical manufacturing facility, there are clear delineations between different levels of the automation technology stack. Field devices send data through a variety of communication protocols into control hardware and embedded software in a distributed control system that runs the production and safety operations in the facility. This automation loop is the traditional strength of the Emerson portfolio. AspenTech's optimization software sits on top of this architecture providing design, operations and maintenance suites to improve overall plant performance. Today, even within a single plant, field devices and control hardware typically come from multiple manufacturers with complex web of connections that are designed to provide data up the stack to specific departments. For example, production and maintenance data are separately managed for those departments. This inherently siloed approach limits customers' ability to drive maximum efficiency, uptime and reliability in our operations. With a fully aligned portfolio and technology road map and use of the latest technological developments that Emerson is pioneering, we believe we can move the industry to a software-defined approach in which field devices for mobile manufacturers feed data seamlessly into edge controllers that make use of a unified data fabric democratizing operational data. That data fabric would then be available to a suite of control and optimization software modules that will vary depending on specific customer needs. We call the full suite of software modules, Emerson's Enterprise Operations platform, which will run production into our safety, reliability and optimization at the site regionally, and eventually at the enterprise level for all our customers. Please turn to Slide 8. Our customers continue to evolve their production to improve efficiency and apply the latest technologies to operational footprints. While today, they continue to value the traditional benefits of the automation technology stack including security, reliability and redundancy, they are increasingly looking to benefit from new technologies that enable step changes in the productivity and longevity of facilities and production assets. Emerson's Enterprise Operations platform will connect the field, edge and cloud across manufacturers to provide customers with the flexibility to manage the operations of assets from individual sites to the broad enterprise in whatever way is best for their needs. We will deploy this capability in phases, moving from foundational integration of our various software modules to site level and then eventually enterprise-wide control and optimization. Fully alignment of technology road maps between Emerson and AspenTech is crucial to realizing this vision. We believe this approach will move the existing $30 billion control system and optimization software TAM from its current construct of 1/3 software, 2/3 hardware and services for a predominantly software-based market, growing high single digits with a significant proportion of recurring revenue. Please turn to Slide 9. The breadth and depth of Emerson and AspenTech's software capabilities across engineering and design, operations, asset performance and data management is unparalleled in our space, providing a broad set of customers with unique value across the full life cycle of their assets. Customers use our suite of applications to design and simulate their processes, control and optimize production to maximize throughput and quality, proactively monitor their capital assets and take action before an issue emerges and more effectively utilize the wide variety of structured and unstructured data that they generate. By fully integrating AspenTech within Emerson, we'll be able to align our technology road maps more effectively and rapidly thereby accelerating the achievement of our vision of software -- automation and delivering significant value to our customers. Please turn to Slide 10. Across the key capabilities required to offer customers an Enterprise Operations platform, we believe the combination of Emerson and AspenTech would have unique offerings relative to our leading automation competitors as well as to nontraditional players like ERP and cloud providers. In particular, our extensive experience integrating software modules to our distributed control system suite, our leading approach to zero trust cybersecurity and our insights into native connectivity with field devices enable us to provide compelling value to our customers. For total clarity, AspenTech's suite of optimization software solutions would continue to be actively sold on top of third-party control systems as they are today. Turning to Slide 11. We believe this transaction would create significant value for our shareholders as well. We see meaningful opportunities to leverage Emerson's management system to improve operating margins, cash flow and innovation productivity as we have demonstrated with test and measurement. The primary areas for synergy targets include corporate costs and G&A where we would strive to streamline duplicative functions, leverage a regional best cost model, consolidate facilities, and use Emerson's scale to reduce third-party spend. For R&D, we can enhance the productivity of spend and leverage common capabilities while supporting accelerated investment as we build out the Enterprise Operations platform. We believe the transaction will meet Emerson's return thresholds, and we expect the impact to adjusted earnings per share to be neutral in fiscal 2025 with synergies. Please turn to Slide 12. Now is the right time to acquire all outstanding shares of common stock of AspenTech. The combination of Emerson and AspenTech would accelerate the achievement of our software-defined automation strategy and provide unparalleled value to customers. As a single company, leveraging the proven Emerson management system, there would be immediate additional cost efficiencies from the transaction in addition to opportunities to enhance operational performance at AspenTech. Lastly, a single integrated company reduces structural complexity for our investors. We are excited by the opportunity to bring AspenTech fully into Emerson. Please turn to Slide 13. Our second announcement this morning is that we have commenced a review of strategic alternatives for the Safety & Productivity business, including a cash sale. This business is a $1.4 billion global manufacturer of professional plumbing and electrical tools as well as wet dry and commercial vacuums with leading gross margins and strong free cash flow generation. Safety & Productivity is a technology-based business with premium brands, including RIDGID, Klauke and Greenlee that is exposed to attractive growth drivers such as reshoring and domestic manufacturing, but is not aligned to our strategic road map. There is no deadline or definitive timetable set for the completion of the strategic alternative process or assurance the process will result in any transaction. Please turn to Slide 14. We are focused on our value creation road map. And at the successful completion of these strategic actions, we will have created a highly attractive $16 billion global industrial technology company with a comprehensive portfolio of software-defined and hardware advantaged automation solutions. Our cohesive portfolio generates strong profitability and cash. And our growth platforms are aligned to underlying secular market trends, which will deliver significant growth going forward to support our 4% to 7% through-the-cycle organic growth framework. Industrial software is our largest growth platform, and software represents approximately 14% of post-transaction sales, which is well positioned to increase as we drive the software content in our business higher. ACV, which is an operating metric used to gauge the underlying health of software businesses is $1.4 billion and grew at 10% year-over-year. We will simplify the reporting segments with these transactions moving from seven to five as we intend to consolidate AspenTech into Control Systems & Software. We have conviction in the profit and growth potential of this premier collection of industrial technology assets centered on an automation thematic and we are excited to deliver further growth, margin expansion and shareholder value creation. The AspenTech proposal was made public today pursuant to regulatory obligations and we have walked you through our plan and why we are pursuing this transaction now. The next steps in both of the portfolio transactions announced today will be done privately. We do not intend to make any further public statements or announcements regarding the proposal or review of the strategic alternatives until such time as a definitive agreement is reached or a further disclosure is appropriate. We will not be taking or answering any questions on the AspenTech proposal today or until such time is appropriate. I will now turn the call over to Mike Baughman, to review our 2024 results and 2025 guidance. Mike Baughman: Thanks, Lal, and good morning, everyone. We will now go to the next presentation, shifting the call to the earnings press release and discuss our 2024 financial results and 2025 guidance. We will also share with you what we are seeing in our funnel and end markets. Please join me on Slide 16. We continue to deliver on our value creation framework. As you can see in this chart, 2024 was another excellent year that met or exceeded guidance. Underlying sales grew 6% and operating leverage was 47%, both in line with August guidance. Adjusted EPS was $5.49 at the high end of August guidance and free cash flow was $2.9 billion, which exceeded our guidance. Quarterly underlying orders growth exited the year at 2% and our full year growth is also 2%. This order's growth was led by our process and hybrid businesses, which were up mid-single digits for the year. Discrete Automation orders were down mid-single digits for the year, but turned positive in Q4 as we expected. Though not included in the underlying for 2024, Test & Measurement orders in the quarter were down 7% but improved 2-point sequentially, and we remain optimistic about a recovery in this business in 2025. Additionally, we executed approximately $435 million of share repurchase above the August guidance as we saw an opportunity to buy our 2025 dilution in advance at an attractive valuation. Our 2024 performance was another year of strong operating results and demonstrates the work of our transformed higher-growth, higher-margin portfolio. Please turn to Slide 17, where I will provide additional color on our 2024 performance. Underlying sales growth of 6% was led by our process and hybrid businesses, which were up high single digits for the year. Intelligent Devices grew 5%, while software and control grew 8% and price contributed two points of growth. Asia, Middle East and Africa led the growth of 8% with exceptional performance from the Middle East and Africa led by strong project activity in LNG and chemical. China was down 3% for the year as chemical and discrete were low amidst weak demand. Europe was up 7% with sustained strength in LNG, sustainability and decarbonization and life sciences. Americas also performed well, up 4%, led by power, LNG, metals and mining and life sciences. Test & Measurement, which was excluded from the underlying metric, contributed $1.46 billion to our net sales, down 12% for the year and within our expectations. Following our typical seasonality, backlog increased in Q4 from Q3, and we exited the year at $7.2 billion. Excluding T&M from this backlog figure, our backlog grew $150 million driven by process and hybrid investments that were slightly offset by the decline in our discrete and other businesses. Adjusted segment EBITDA margin was 26%, up 100 basis points from the prior year due to favorable price cost and cost reductions. Operating leverage, which excludes Test & Measurement in 2024 was 47%, reflecting the strong operational execution and profitability of our business. Test & Measurement delivered an adjusted segment EBITDA margin of 24%, including the realization of $100 million of synergies and a 130 basis point favorable impact from the timing of the acquisitions closed in Q1. Adjusted earnings per share came in at $5.49, up 24% from 2023. Operations contributed $1.06 of growth with a $0.01 offset in nonoperating items. Test & Measurement exceeded our initial expectations and delivered $0.45 as increased and accelerated synergies offset lower than originally expected sales volume. AspenTech contributed $0.35, slightly above our expectations of $0.32 to $0.34. Finally, Emerson delivered stronger-than-expected free cash flow of $2.9 billion, up 23% year-on-year despite a headwind of approximately $235 million from acquisition-related costs, higher CapEx. Higher earnings and inventory improvements drove the year-on-year improvement in cash. Free cash flow margin for the year was 16.6%, a 110-basis point improvement from the prior year. Please turn to Slide 18. Before discussing 2025's guidance, I'd like to review the exceptional financial performance of the Company over the last three years. Our portfolio transformation began in late 2021, and the gray bar shows the pre-transformation results for that year. The bars represent the results for the Company we have today, inclusive of Safety & Productivity from 2021 through 2024. We have delivered three years of underlying sales growth at the high end or above of our long-range framework of 4% to 7% through the cycle, which demonstrates a structurally improved and more cohesive Emerson that is aligned to secular growth drivers. Our differentiated technology and innovation leadership are evident in the remarkable gross margin performance. In 2024, we delivered gross margins of 50.8% for the year, a record for Emerson, and up nearly 1,000 basis points from our pre-transformation portfolio in 2021. We have also significantly improved adjusted segment EBITDA, closing 2024 at a record high of 26%. Our higher-margin portfolio, coupled with the processes driven by our updated Emerson Management System has enabled several consecutive years of outsized leverage performance. All of this has produced three consecutive years of adjusted earnings per share growth over 20%. We are proud of the leading industrial technology company we created and our accomplishments over the last three years. As we take the final steps in our portfolio transformation, we are energized to continue creating shareholder value. Please turn to Slide 20. I would now like to talk a little bit about our funnel and what we are seeing in our served markets. We continue to see strong project activity with our large project funnel exiting the year at $11.2 billion, up approximately $200 million from Q3. Customers are continuing to invest in areas aligned to our growth platforms. LNG, life sciences and sustainability and decarbonization drove the increase versus the prior quarter. The three-year visibility of projects within the funnel, size of the funnel and the continued growth give us confidence that we are in a capital formation cycle where our customers need automation content to meet their complex objectives. We performed well in the quarter, winning approximately $400 million of project content with nearly 60% in our growth platforms. Wins in LNG, chemical and sustainability and decarbonization led the conversion in the quarter, and I'd like to highlight a few notable lens. First, Emerson was selected to provide our leading instruments to Porthos carbon capture and storage project in the North Sea. Porthos will store approximately 37 million tons of CO2 transported from the Port of Rotterdam from customers such as Air Liquide, Air Products, ExxonMobil and Shell. Next, Emerson was chosen to automate a new world-class petrochemical complex in Saudi Arabia. Emerson will provide control and safety systems and software, asset management software and valves. Third, Emerson was recently awarded a large enterprise contract for Test & Measurement software with a semiconductor company that is a leader in the GPU space driving the proliferation of AI. This multiyear contract will support an enterprise-wide semiconductor and electronics production analytics platform to help maximize this customer's production capacity and product quality. Emerson will provide our OptimalPlus production analytics platform, along with customer engineering, operations and support capabilities. Both large project and MRO business performed well in the year, with MRO representing 64% of sales. Emerson serves an expansive set of customers in diverse industries demonstrating our relevance across the process, hybrid and discrete landscapes. Our top 20 direct customers made up only approximately 9% of sales with the largest being around $180 million. Emerson has consistently proven it can capture price in the market, driven in part by the long tail of the customers we serve. Turning to Slide 21. We will now discuss our outlook for 2025. We expect process and hybrid markets to be resilient with moderating growth, discrete markets to turn positive and sales growth in all world areas. We are seeing customers continue to invest in digitalization and automation technology to enhance plant efficiency, reliability, output and sustainability. We expect sustained demand in process and hybrid markets with the capital cycle remaining constructive, as shown in our project funnel with projects continuing to move forward at a healthy pace. We expect MRO to continue to perform well with stable demand in North America and Europe. The demand in both capital projects and MRO is driven by secular trends of energy security and affordability, sustainability and decarbonization, nearshoring and digital transformation, and we continue to see strong activity across many verticals, led by LNG and other energy transition segments, life sciences, power and metals and mining. Overall, we expect our process and hybrid businesses to grow in the mid-single digits for the year. We are still looking for a meaningful recovery in discrete market demand in the first half of 2025, which we expect will lead to a second half sales recovery and mid-single-digit sales growth for the year. The majority of our discrete served markets appear to have bottomed, and we have seen positive indicators of early-stage recovery in semiconductor, industrial and factory automation markets. However, automotive markets, particularly EV, remain weak, and we will continue to watch these closely. Additionally, our Test & Measurement business will benefit from further synergy actions in the year, and we are now targeting $200 million by year three from our previous target of $185 million due to faster execution of our overall synergy plan. We anticipate growth in all world areas led by Middle East and Africa, India, Southeast Asia and Mexico from continued investment in energy and energy transition projects. We expect China to return to growth by the second half for being down low single digits in 2024 as we expect investments in self-reliance programs and sustainability to continue, coupled with recovery in discrete markets, as we begin to lap easier comps. North America is expected to grow in the low single digits, aided by LNG life sciences and a strong outlook for power generation, transmission and distribution due to the significant demand growth for electricity related to AI and data centers. Finally, we expect mid-single-digit growth in Europe from continued investments in the energy transition. Please join me on Slide 22 for details on our guidance for the first quarter and full year 2025. It should be noted that our 2025 guidance is based on the current company without the impact of today's announced portfolio actions. We have provided the relevant Safety & Productivity contribution of the guide to help investors size the potential impact of the strategic review of that business, and we have continued to detail our expectations for our 57% ownership stake in AspenTech. Underlying sales are expected to grow 3% to 5% in the year. Safety & Productivity growth is expected to be approximately flat for the year. And because it is only about 8% of total Emerson sales, it is not expected to have a material impact on the overall growth rate for the year when it exits our results. Operating leverage, which now includes Test & Measurement, is expected to be in the mid-40s. We expect adjusted earnings per share for the year to be between $5.85 and $6.05. AspenTech's contribution is expected to be $0.44 to $0.46 for the year, and Safety & Productivity is expected to contribute approximately $0.48. Full year free cash flow is expected to be $3.2 billion to $3.3 billion with approximately $0.2 billion from Safety & Productivity. For the first quarter, we expect underlying sales to increase 2% to 3% with leverage in the mid-50s. We expect adjusted EPS of $1.25 to $1.30, of which $0.10 to $0.11 comes from AspenTech. As discussed earlier, we expect approximately $2 billion of share repurchase for the year and the current plan is to complete $1 billion in the first quarter. Finally, we expect dividend payments to be approximately $1.2 billion and our tax rate to be approximately 22% for the year. Please turn to Slide 23. Emerson remains committed to disciplined capital allocation and is increasing return of capital to shareholders in 2025 as we complete our portfolio transformation. We continue to have four primary capital allocation priorities. The first is reinvestment in the business, and Emerson spent approximately 8% of sales on RD&E in 2024 and we expect a similar level of spend in 2025. Both Test & Measurement and AspenTech spent around 20% of their sales on RD&E and growth opportunities in these businesses, which is a reflection of our commitment to realize these growth opportunities. As discussed previously, we are increasing our share repurchases to approximately $2 billion and expect around $1 billion in the first quarter. We are also entering our 69th year of increased dividends per share. And this quarter, we increased the quarterly dividend per share to $0.5275. Capital returned to shareholders through the dividend and share repurchase is expected to be approximately 100% of free cash flow in 2025. Over the past three years, we have been focused on portfolio transformation and allocated capital primarily to strategic M&A and paying down debt. We have also returned $6.5 billion to shareholders through dividends and share buybacks during that time. After the successful completion of the actions announced today, we expect our net debt to adjusted EBITDA ratio to be under two and well within the credit rating agencies' metrics to maintain our A2A credit ratings. As we move forward beyond 2025, we plan to maintain our A2A credit ratings. The Company's expected future free cash flows and debt capacity within the range of the A2A metrics provide sufficient flexibility to continue meaningful returns of capital to shareholders and execution of strategic bolt-on acquisitions. Finally, I would like to echo Lal's earlier comments and thank all the Emerson employees, the efforts are the real force behind these excellent financial results. It's your dedication to our company and our customers that will drive our customers' success and our shareholders' returns. I will now pass the call back to Colleen. Colleen Mettler: Thank you, Mike. As we turned to Q&A, I will ask that you please limit your questions to one, so we can get to as many folks as possible. Please also limit your questions to those related to the quarter and outlook with respect to Emerson. I'd like to remind you of Lal's earlier comments, we will not be addressing questions on the portfolio announcements beyond the information we shared today in our slides, prepared remarks, and press release materials. We will update the market as and when appropriate or required with respect to AspenTech's proposal and the Safety & Productivity strategic review. With that, I will now turn it over to the operator to start the Q&A. Operator: Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] And our first question today comes from Andy Kaplowitz from Citigroup. Please go ahead with your question. Andy Kaplowitz: Congrats on the announcements today. Well, so $7.2 billion of total backlog at the end of Q4 was down a little bit, as you said it would be, but your pipeline of new awards were up. So, can you talk about how you're thinking about Emerson's overall book-to-bill for '25? Do you think you could grow backlog? Could you elaborate on when end markets continue to drive process and hybrid markets to support your mid-single-digit growth expectations in '25? Lal Karsanbhai: Yes, Andy. Look, certainly, the backlog come down from Q3 is part of our seasonality as we see these higher volumes being shipped in Q4. We believe the $7.2 billion is a very healthy level and supportive of the guide for next year. So, my expectation is I think about the order environment that we expressed today and the sales environment is a book-to-bill have gone into 2025. So, really no meaningful change there and really well positioned. Andy Kaplowitz: And then process and hybrid, Lal, like it seems like you actually had more new -- well, you had more new wins in Q4 than Q3. Did you see reacceleration, just stability? Like what are you seeing in those markets? Lal Karsanbhai: Yes. No. Look, I think the projects continue to move in the right direction. As you know, LNG took a little bit of a pause on new awards in North America, but continue to expand globally in Africa and the Middle East predominantly, which was critical for us. But we continue to see very strong sustainability decarbonization activity in Europe, life science activity globally and power generation, particularly in the United States and Europe to support the data center requirements that are out there. So, feel very optimistic that we closed the year in the mid-single digits from process hybrid and that we have a strong outlook going into next year. Operator: Our next question comes from Deane Dray from RBC Capital Markets. Please go ahead with your question. Deane Dray: Add my congratulations. There's a lot of moving parts, but the slides were really helpful in the commentary. Look, it's -- this little bit of the dog that didn't bark, but you didn't talk about any sort of customer delays, push-outs, any hesitancy about committing on the approval process for projects. Did you see any of that? And then just separately, what's going into the assumptions about the second half recovery in China? Are you seeing any green shoots? Any specifics other than like an easier comp? Ram Krishnan: Ram here. Yes, we did not see any delays from customers. Certainly, nothing in the Middle East or North America or Europe. All of the project shipments that we had baked into our Q4 plan shift. So, we are not sensing any of that. And the capital cycle remains to be strong for us in energy, energy transition, power, LNG. So, the pace of business and process and hybrid continues. Obviously, the discrete recovery is what we're watching. Orders turning positive for our Discrete Automation business in Q4 is certainly a positive for us. And we're confident that Test & Measurement will see continued momentum going into 2025. And then what was your second piece of your question? Deane Dray: China. Yes, China. Ram Krishnan: In terms of China, obviously, the power segment in China is pretty good for us. It's really discrete and chemical recovery. Our hope is, obviously, there's a lot of stimulus. There's certainly some green shoots we're seeing in the chemical space we expect to manifest in the first half. it will come down, the pace of discrete recovery, which we're anticipating to happen in the second half of 2025. So, that kind of shapes up our China plan low to mid-single-digit growth for next year. Operator: Our next question comes from Nigel Coe from Wolfe Research. Please go ahead with your question. Nigel Coe: Lots to unpack here. That's for sure. So just on that last part, the DA kind of trends in the first half of next year. Do you think that -- are you confident that we're going to be sort of narrowing the declines in the first half of fiscal '25 from the exit rate from '24? And this is not a question on the transaction, but just maybe just clarify, when you talk about EPS neutrality, is that pro forma total synergies, i.e., not captured in FY '25, but those would be what was actually typically captured in FY '25? Lal Karsanbhai: Lal here. So, I'll take the first part and hand it over to Baughman on the second question. So, on discrete, certainly, we saw discrete turn positive in the fourth quarter, which is encouraging to see that bottom out and set for recovery as we go through '25. The elements of discrete in Test & Measurement sequentially were up as well quarter-over-quarter, down 7% orders in the last quarter, but that's a significant improvement. So, we continue to believe that we're seeing the early shoots, the green shoots of that market recovery, which gives us the confidence in the forecast that we put for the second half of 2025. Ram, any color? Ram Krishnan: Yes. And to add on the Test & Measurement, we're equally balanced across four markets: Semiconductors, ADG, transportation and our portfolio business, which addresses a broad spectrum of markets. Three out of the four, we see good momentum that supports the recovery plan that we've laid out to drive growth in the second half of 2025 -- orders in the first half of '25. The transportation piece, which is about 20% of our sales in Test & Measurement, which is exposed to the EV markets is one we're watching. That's where we haven't seen the turn, but three out of the four markets have turned. And if you saw some of the results are order pace reported by some of the players in Test & Measurement, the -- space, you can see that market has turned. So, it's supportive of a broad recovery in the industry. Mike Baughman: And Nigel, on your second question, just to be clear, you were asking about the comment with respect to AspenTech being neutral to '25? Ram Krishnan: Yes. Nigel Coe: Yes, neutral. Mike Baughman: Yes. Great. Let me do a couple of things to think about there, and we're obviously not going to talk specifics. But looking at models that have been out there, there are a couple of things to highlight for everybody. First is, synergies. As Lal mentioned, we are expecting synergies to come with this transaction. The second thing would be the seasonality of the AspenTech business. This is a process we've begun that will be one that takes months, not weeks to complete. And obviously, as AspenTech talked about on their call yesterday, and as their seasonality has traditionally been, it's weighted toward the back half of the year. And then the third thing that I would point out is that our modeling shows a closing balance sheet with increased debt, obviously, well within the metrics of the A2A ratings, but we do expect a significant portion of that increased debt to be short-term debt. And interest rates, while being persistently high at the long end of the curve, we do expect some decreases in the short end of the curve that we've modeled in. Operator: Our next question comes from Steve Tusa from JPMorgan. Please go ahead with your question. Stephen Tusa: Just a quick one on the details. The backlog, you said that was up $150 million sequentially for the core, ex-T&M, or was that sequential? Or was that year-over-year? Mike Baughman: That's year-over-year, Steve. That's year-over-year. Stephen Tusa: Okay. Okay. Got it. And then -- sorry, just can you just walk us to that like neutral impact from Aspen for this year? Lal Karsanbhai: I'll take that one, Steve. No, I'm not going to go into the details of outline categories of synergies in my previous comments, but I'm not going to walk through the details of the math there. Stephen Tusa: Okay. But it is just the core Aspen performance. It's not like dependent on like these other transactions and what you do with the balance sheet. It's really just like core Aspen, what you're losing and then -- or what you're gaining, and then the synergies associated with that. Lal Karsanbhai: Correct. Yes, that's correct. Stephen Tusa: Okay. So just where did the T&M backlog end? Mike Baughman: $400 million. Stephen Tusa: $400 million? Mike Baughman: $400 million. Operator: Our next question comes from Andrew Obin from Bank of America. Please go ahead with your question. Andrew Obin: You guys highlighted power as a growth vector in '25. I think it's been a while since you've been excited about this. Can you just give us more detail as to what are you seeing in your traditional power business? Maybe update us what the mix is? And then as a follow-up, lots to talk on nuclear upgrades, bringing back mothball capacity, SMRs. What exactly is your nuclear exposure? Do you have N certification on your valves? And what are you seeing into '25 on that business? Lal Karsanbhai: Yes, Andrew, Lal here. So yes, we did highlight that about two quarters ago in terms of the acceleration that we're seeing in power generation, transmission and distribution investments, particularly in that case, in North America, driven by data center investment and the requirements for power. It's been manifested in three ways, predominantly in the marketplace. Extension of life of existing facilities, the bringing back of certain nuclear facilities, which were mothballed years ago, and then the build-out of new combined cycle generating facilities. Alongside, of course, a very broad investment in the grid, which now needs to manage disparate sources of generation that impact what is a very aging infrastructure. Power generation represents approximately 9% of revenue in the Company today. It's -- we have seen order acceleration in that business into the mid- to high single digits over the year. That is a very differentiated performance for our ovation business, which today serves just about every segment of the power generation market from traditional power generation sources to hydro, solar and wind. And we expect that to continue as we go forward here in 2025. Lastly, on AspenTech, certainly, the GGM business has seen accelerated growth driven by the investments in the grid, and we're pretty excited about that. Let's say, low teens ACV growth that they've talked about and experienced. So together, that's a very significant portfolio of capabilities that we bring into a market that is reinvesting at a relatively high rate. Andrew Obin: How big is nuclear as a percent of power? Ram Krishnan: Nuclear is about 20% of our overall power business, the 9% that Lal referenced. We have a broad scope of capabilities for the nuclear business, obviously, instrumentation, valves, our control system through a particular channel, and then our solenoid valve category as well. And we have a leading position, particularly in our final control elements and instrumentation. And we have a very, very good presence across all of the nuclear facilities on a global basis. We participate in every region of the world. Andrew Obin: Congratulations on getting a lot done. Lal Karsanbhai: Thanks, Andrew. Operator: Our next question comes from Jeff Sprague from Vertical Research. Please go ahead with your question. Jeff Sprague: You guys have been busy. Just back one more on Aspen. It might have been Nigel's original question. But I just want to clarify, obviously, you're not going to own it for the full fiscal year. A month that's already passed. Does the neutral comment assumes kind of midyear closing? Or is it a pro forma for the full year? Can you just clarify that? Mike Baughman: We're not going to get into specifics around timing, Jeff, but the comment was intended to be for the year. And as I mentioned, there's obviously a seasonality element to that business that is helpful to the back half of the year. So not going to get into specific timing. Jeff Sprague: And then Lal, it was interesting your choice of words on Safety & Productivity, I think exploring an exit, including a cash sale sort of makes it sound like that's the least attractive option. I assume there would be a fair amount of leakage on a sale, given how long you've owned these assets. Can you give us some context to that? And have you had an opportunity to maybe explore more creative options, spin, RMT, things like that, that wouldn't come with tax leakage? Lal Karsanbhai: No. Look, everything's on the table at this point. I just want to be fully inclusive of all the opportunities that we're considering. And beyond that, until such time that we deem appropriate, I'm not going to comment any further on the structure there. Jeff Sprague: And I'm sorry, just one quick one. The second half timing of kind of discrete recovery, does that apply equally in your view in terms of both legacy Emerson discrete and T&M? Or do you see them on a little bit different schedules? Lal Karsanbhai: No. Legacy discrete turned positive in the last quarter on orders, and we expect that to be in the cycle and recovering alongside T&M. Operator: Our next question comes from Joe O'Dea from Wells Fargo. Please go ahead with your question. Joe O’Dea: Congrats on the news this morning. Can you talk about this evolution toward more software-defined automation and the time line that you envision for that and how that gets implemented across MRO versus brownfield, greenfield? I'm not sure in terms of the challenges in sort of transitioning an operating system towards software-enabled the way you're talking about as opposed to starting fresh. So, how we should think about the time line towards this evolution? Lal Karsanbhai: Well, it's a journey. What I outlined there, Joe, is a three-phase approach starting at the foundational level at the site. And that's really what we're seeing today in terms of addressing the market needs that exist at a customer level, whether that's digital transformation, this conversion that we've been talking about for a number of years now of IT and OT, the democratization of data that needs to be available and accessible across apartments, asset optimization, which is incredibly important to drive reliability and safety and ultimately remote or autonomous operations as well. The second level as you go through that foundation is to drive it at a site level. And against some of those technology implications, you can probably think about this as a -- each of these steps as a three- to five-year potential journey really depends on the rate of adoption. We're going to be very intentional in how we engage customers, be some that cross that chasm before others and are going to innovate with the technology. And then lastly, on the third phase, that's an enterprise-level opportunity. That's really the proof point operating at the site and those customers that see an opportunity to really drive the same -- those levels of efficiency across the entire fleet of their assets. Ram? Ram Krishnan: Yes. And just to add to that, our technology road map will have a scalable enterprise operations platform solution that can be applied certainly in brownfield-type environments as well as greenfield. So, we won't limit the applicability of the solution to just greenfield. It's very important to understand that there's significant number of facilities that will require a digital transformation road map and the applicability of the solution to brownfield is an important element of how we're going to design the architecture. Joe O’Dea: And then just quickly on megaprojects. We've heard a little bit more discussion of that this quarter. You talked about the pipeline. One of the markets you didn't talk about as much was chemicals in terms of accelerating. What we track is there could be an acceleration in those starts as well. Like Aspen's been still talking about some challenges there. But just overall, in terms of any acceleration on large project starts next year and then specifically within chemicals. Ram Krishnan: Yes. We've seen our chemical activity in the Middle East, for example, be particularly strong. We do expect chemical and petrochemical in North America post elections, obviously, going into next year, to return. We're watching China cautiously. It did slow in China, but we do expect with the stimulation of the economy that has happened that we will see chemical activity there as well as Southeast Asia. We haven't baked in a huge amount of chemical recovery, to be honest, in the plan. Our plan is really contingent more on energy, energy transition, LNG, sustainability, decarbonization, power, life sciences and metals and mining. If we have a strong presence in chemical, if chemical does surprise us to the positive, particularly in Europe, that's certainly promising to our three to five guide and then certainly China. Operator: And our next question comes from Julian Mitchell from Barclays. Please go ahead with your question. Julian Mitchell: Just wanted to follow up on the organic sales guidance for Test & Measurement because I think the total for the year is sort of up 3% to 5%. It sounds like processing hybrid's up mid-single and discrete is up, I think, mid-single as well. So just wanted to sort of check that and what's embedded for Test & Measurement and how we think about sort of any first half versus second half T&M dynamics, please? Ram Krishnan: So, you are correct, mid-single for process, hybrid. Mid-single for discrete into the 3% to 5% plan. Test & Measurement sales is also mid-single, but high single-digit orders. We consumed backlog this year. So, our plan is to get orders growing at faster rate sales, but sales guide for Test & Measurement is mid-single digits for 2025 and ramping in the second half. Julian Mitchell: And then just my second one around, synergies. I guess sort of two pieces of that. One is Test & Measurement. There's $100 million of synergies to go over two years. Do we just assume a slight majority of that in 2025 to sort of $60 million or so? And really just clarifying from the prior series of questions. Is it fair to say at this point, you're not going to provide that kind of synergy run rate assumption for Aspen? Just wanted to make sure I didn't miss it from earlier. Lal Karsanbhai: Yes, Julian. Yes, thank you. So yes, your assumptions on Test & Measurement is fair. And in terms of Aspen, we will provide that color once we have a definitive agreement, and we'll lay the details out for you. But until that time, no comment on the timing or the scale. Operator: And ladies and gentlemen, with that, we'll be ending today's question-and-answer session as well as today's presentation. We do thank you for joining. Please have a nice day. You may now disconnect your lines.

Operator: Good day, and welcome to the Emerson Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Colleen Mettler, Vice President of Investor Relations at. Ms. Mettler, the floor is yours, ma'am. Colleen Mettler: Good morning, and thank you for joining us for Emerson's third quarter 2024 earnings conference call. This morning, I am joined by; President and Chief Executive Officer, Lal Karsanbhai; Chief Financial Officer, Mike Baughman; and Chief Operating Officer, Ram Krishnan. As always I encourage everyone to follow along with the slide presentation, which is available on our website. Please join me on Slide 2. This presentation may include forward-looking statements, which contain a degree of business risk and uncertainty. Please take time to read the safe harbor statement and note on non-GAAP measures. All financial metric in this presentation are on a continuing operations basis. On June 6, we announced a definitive agreement to sell our remaining interest in the Copeland joint venture. We have included additional information and the accounting treatment of these transactions in the appendix of the presentation. I will now pass the call over to Emerson's President and CEO, Lal Karsanbhai, for his opening remarks. Lal Karsanbhai: Thank you, Colleen. Good morning. Please turn to Slide 3. I'd like to thank the 65,000 Emerson employees around the world for delivering another solid set of results. Your commitment to our vision and passion for our purpose comes to life every day. I am moved by our customer focus and the deep care you have for each other, and I am proud and honored to work alongside each of you. Thank you to the Board of Directors for your support of the management team and to our shareholders for your trust in us. Since I became CEO in 2021, we have talked openly about the transformation of Emerson driven around the three pillars of culture, portfolio and execution. We have moved rapidly to improve across all three. And before we discuss the quarterly financial results, I want to highlight the results of our latest employee survey to show our employees are with us on this journey as our culture continues to evolve. Our latest company-wide engagement survey, inclusive of Test & Measurement had a participation rate of 89%, up 1.4 points from our 2023 survey. We had an engagement score of 79%, a 1-point improvement and only 1 point from world-class levels of 80%. While this is an evergreen journey, and we still have work to do, I am excited about the tangible steps we have taken to create a more inclusive and engaged organization. Now let's jump into the operating results. Q3 was another solid quarter for Emerson. Orders in the quarter returned to growth and were up 3% year-over-year, driven by strong project activity in our Process and Hybrid businesses, especially across life sciences, energy and power. Notably, we won several large life science projects in North America and Europe focused on expanding production capabilities for advanced medicines. The Middle East and Latin America saw exceptional demand, and we were awarded several large projects in each. As we expected, Process and Hybrid markets remained steady at mid-single-digit growth as we continue to see investments, particularly in LNG, life sciences, energy and sustainability. While capital project investments continue to progress, MRO orders were slightly softer than expected in the quarter. Discrete Automation orders were softer than expected, down low single digits both year-over-year and sequentially as factory automation end markets remained weak. The green shoots we were beginning to see through April and May took a step back in June, and we are now expecting a slower recovery, though we expect Discrete Automation orders to be flat to slightly positive in Q4 on a low base of comparison. Excluded from underlying, Test & Measurement orders remained soft, down 11%. Additionally, for total Emerson, we saw a weaker demand environment in China across most of our business segments. We now expect low single-digit underlying order growth for the second half and for the full year. Emerson delivered strong operating results with margin leverage, adjusted earnings per share and free cash flow all exceeding expectations. Sales came in at the low end of our guide, and I'll provide additional color on the next slide. Due to weaker orders, Test & Measurement sales also came in slightly below expectations. However, profitability met expectations as we are seeing the impact of our synergy realization. Transportation and semiconductor markets remain weak, while aerospace and defense performed well, and we saw continued government spending and research. The European market was softer than expected amid lingering EV demand concerns, and China remains sluggish across most Test & Measurement segments. Due to this, we are looking into second half of 2025 for recovery in this business. With softer orders, we are adjusting our full year sales to be $1.45 billion to $1.5 billion, but the accelerated synergy actions we have taken will help protect profitability and position the business well for a return to growth. We continue to be excited about the value creation potential of our differentiated portfolio. Emerson's strong performance through the first 9 months and resolute focus driven by our Emerson management system gives us the confidence to execute on our 2024 plan. We expect underlying sales of approximately 6% and are increasing the midpoint of our adjusted EPS guide to $5.45 to $5.50 and we are raising our free cash flow guidance to approximately $2.8 billion. We look forward to a strong finish to 2024 and are energized to deliver continued value creation for our shareholders. Please turn to Slide 4. Underlying sales growth was 3%. Life sciences and power markets continue to perform well, both up double digit as we executed key projects across North America and Europe. Europe is seeing continued strength in energy, power and sustainability markets as well as our MRO business, particularly in Western Europe. In the Americas, broad-based healthy growth across Latin America was slightly offset by slower MRO in North America. Robust performance in the Middle East, driven by strong project activity was offset by broad-based weakness in Asia. Continuing the exceptional gross margin performance from last quarter, gross margins were 52.8% in Q3, a 230 basis point improvement from the prior year. Our gross profit percentage year-to-date is 50.6%, even with the acquisition and integration costs incurred in Q1. This gives us confidence in our expectation that this portfolio will deliver greater than 50% gross margins as we look forward. Operating leverage was 67%, significantly stronger than expected due to better performance from AspenTech, project mix and realization of more cost reductions than expected from actions taken throughout the year. Adjusted earnings per share exceeded expectations at $1.43, above the top end of our guide and up 11% from 2023. Emerson generated robust free cash flow of $975 million, up 27% year-over-year and with a free cash flow margin of 22.3% for the quarter. Mike will walk through additional details on our results in a few slides. We are pleased to deliver another strong quarter and are excited to continue demonstrating the value creation potential of our transformed portfolio. Please turn to Slide 5. We continue to see strong capital project investments with our strategic project funnel now at $11 billion, up approximately $200 million from Q2. The funnel growth demonstrates the strong sustained capital cycle aligned to our growth programs. As the increase predominantly came from projects supporting energy transition, life sciences, sustainability and decarbonization. In the third quarter, Emerson was awarded approximately $350 million of project content, consistent with prior quarters. We had wins in large traditional energy projects as well as additional awards from offshore vessels in Brazil, as mentioned last quarter. Our growth programs also performed well in the quarter, accounting for a little under half of the awards, and I want to highlight a few key wins. Emerson was selected to automate Nemaska Lithium Whabouchi Mine at the Bécancour lithium conversion facility projects in Quebec, Canada. Based on our proven ability to provide a differentiated solution, including a common control platform across sites. This mine is one of the largest high-purity lithium deposits in North America. Fueled by hydroelectric power, the Bécancour facility will convert to spodumene concentrate to lithium hydroxide. This is the first such conversion in Canada and Nemaska Lithium projects will play an important role in the North America battery value chain. Emerson will provide much of our leading technology to automate both facilities, including DeltaV control systems and software, reliability solutions, valves and instruments. This example highlights the breadth of the Emerson portfolio and demonstrates how we are well suited to serve this emerging market. Next, I'd like to highlight Emerson was selected to support one of the largest renewable energy park projects in India, spearheaded by one of India's largest and most prominent renewable energy companies. Emerson will provide our Ovation Green SCADA solution, including pitch control and park power management for the wind turbines. Emerson was chosen for our scalable automation software and technologies that enhance wind turbine performance as well as our comprehensive local support capabilities, including engineering, fuel support and production. Finally, Emerson was chosen to automate a key green hydrogen project in Uzbekistan, which will use a 52-megawatt onshore wind farm to produce 3,000 tons of green hydrogen annually, which will be used to manufacture 500,000 tons of ammonia fertilizer. ACWA Power, a first mover on green hydrogen and part of the NEOM Green Hydrogen project will operate the plant and H-TEC [ph] will design and construct the facility. Emerson was selected for our advanced technologies and domain expertise and will provide several technologies from our hydrogen portfolio, including instruments, control valves and our Ovation Green control system. Turning to Slide 6. We remain focused on driving our strategic priorities, including accelerating innovation for profitable growth and enhancing our position as a global leader in automation. One of our breakthrough innovation priorities is software-defined automation. Our industry-leading Ovation Automation platform just launched a software-defined AI-ready platform for the power and water industries. The Ovation Automation Platform 4.0 builds upon our boundless automation vision to bring a unifying data fabric across the organizations to optimize operations from device to enterprise. Ovation 4.0 brings customer-focused innovation, such as secure generative AI models to offer prescriptive operations and maintenance guidance together in a robust solutions portfolio. It also offers integration with our Ovation Green software to improve holistic awareness across traditional and renewable power generation and storage to aid customers who have an increasingly complex mix of generating assets. Customer-focused innovation is a hallmark of Emerson, and I wanted to highlight one of the key methods we have for formal engagements. Our Ovation business recently held their 37th Users Conference in Pittsburgh, Pennsylvania, with 70% of U.S. power utilities participating in a multi-day event focused on the power and water industries. This conference featured interactive technology exhibits, customer case studies and collaborative industry sessions focused on emerging technical and business topics. Ovation Users Group creates a world-class engagement as users provide direct input for potential product enhancements, which helps inform our strategic product development plans. We also took a key step forward in our transformation and simplification journey in Q3 as we announced a definitive agreement to sell our remaining interest in the Copeland joint venture. Private equity funds managed by Blackstone will purchase the equity stake, while Copeland repurchased the sellers note. The transaction involving the Copeland note receivable closed on August 2, with pretax cash proceeds of $1.9 billion, which will be used to pay down debt. We expect the equity portion to close by the end of August. With that, I'll now turn the call over to Mike Baughman to walk through our financial results in more detail. Mike Baughman: Thanks, Lal, and good morning, everyone. Please turn to Slide 7 to discuss our third quarter financial results. Underlying sales growth was 3%, led by our Process and Hybrid businesses and partially offset by continued softness in discrete. Price contributed 2 points of growth. Underlying growth was similar across regions, with Europe up 4%, the Americas, up 3% and Asia and the Middle East, up 2%. Intelligent Devices grew 2%, while software and control grew 7%. AspenTech sales were stronger than expected, growing at 7%. Discrete Automation was down mid-single digits, lower than expected due to a slower pace of recovery amidst continued market weakness. Test and Measurement, which is not included in the underlying metric contributed $355 million to our net sales, slightly below expectations for the quarter. As expected, backlog decreased slightly from Q2 and exited Q3 at $7.4 billion. Adjusted segment EBITDA margin improved 20 basis points to 27.1% due to strong gross margin performance, favorable price cost and the benefit of cost reductions. This quarter's adjusted segment EBITDA margin of 27.1% is a record high compared to 26.9% last year in Q3, which was the previous record high. Test and Measurement adjusted segment EBITDA margin was 21.4%, sequentially flat on slightly lower volume as we continue to see the benefit of our synergy actions. Operating leverage, excluding Test and Measurement was 67%, exceeding expectations. This outperformance was driven by a higher portion of software revenue and fewer lower margin project shipments than expected, offset by negative geographic mix. Strong quarters from AspenTech and Control Systems and Software benefited leverage. Discrete Automation had sequential margin improvement from cost actions we took as we saw market conditions continue to decline. The operating leverage from our measurement and analytical business was dilutive in the quarter, primarily due to geographic mix and slower MRO. Adjusted earnings per share grew 11% to $1.43, and I will discuss that in more depth on the next chart. Finally, free cash flow was $975 million, up 27% versus the prior year and above expectations. This was driven by earnings and improvements in working capital, especially in inventory and receivables. Free cash flow margin in the quarter was 22.3%, inclusive of $40 million of cash outflow for acquisition-related costs, integration activities and elevated capital expenditures. To date, we have incurred $210 million of the anticipated $250 million headwind we discussed last November. Please turn to Slide 8. Our adjusted earnings per share increased $0.14 from the prior year. Strong performance from operations, especially in our software and control businesses contributed $0.16. Corporate was a $0.02 drag due to a higher income tax rate caused by an earnings mix skewed toward higher rate jurisdictions. AspenTech contributed an incremental $0.03 versus the prior year, higher than expected due to outperformance in GACV and higher revenue. Test and Measurement contributed $0.09, slightly below expectations driven by lower volume. We also had a $0.01 headwind to expectations in Q3 as we stopped accruing interest income from the Copeland note receivable when we reached a definitive agreement to sell it on June 6. Please turn to the next slide for details on our updated guidance for 2024. Fiscal year 2024 underlying sales are now expected to grow approximately 6%, in line with the midpoint of our May guidance, which is supported by our process and hybrid businesses, which continue to perform well amid a delayed discrete recovery and a weaker China. Reported net sales growth is expected to be approximately 15%, with Test and Measurement contributing approximately 9.5 points of growth, offset by a 0.5 point drag from FX. We are increasing our operating leverage expectations to the mid- to high 40s, driven by the strong leverage performance through the first 9 months and strong leverage expected in Q4. We are raising the midpoint of adjusted EPS guidance and expect $5.45 to $5.50. Test and Measurement is now expected to contribute $0.42 to $0.44. Test and Measurement is a business with very strong leverage, so the impact of our synergy actions are helping maintain profitability despite a weaker volume environment than initially planned. For the full year, we expect Test and Measurement's adjusted segment EBITDA margin to be approximately 23%, a couple of points above the prior year benefiting from the synergy realization. With AspenTech's strong results in Q3, we are bringing their expected EPS contribution back up to $0.32 to $0.34. We are also raising our free cash flow expectations for the year to approximately $2.8 billion, driven by the working capital improvements and Q3's performance. Dividend and tax rate expectations are unchanged, and we now expect approximately $300 million of share repurchase. We have been focused on debt pay down, particularly with short-term interest rates staying higher for longer, and we retired €500 million of term debt that came due in Q3. Our performance through the first 9 months has exceeded expectations, and we are excited to continue delivering strong results. Our transformed portfolio has meaningfully improved with higher profitability driven by gross profit margins above 50% and higher organic growth driven by secular trends, and our Emerson management system is driving operational excellence. With that, I'll turn the call over to the Q&A portion of our call. Operator: Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] And the first question we have will come from Jeff Sprague with Vertical Research. Please go ahead. Jeff Sprague: Hey, thank you. Good morning, everyone. Two questions, one big picture and one smaller picture, I guess. First off, kind of the big picture stuff. Lal, this idea of kind of software-defined automation and what you're doing with Ovation. I think this is also sort of instrumental to better collaborating, integrating whatever you want to say, between DeltaV and Aspen's offerings. Maybe you could kind of address that, if I'm correct in that assumption and where you're at and sort of kind of propagating that change in technology posture across rest of the portfolio. Lal Karsanbhai: Yeah. Good morning, Jeff, good to hear from you. No, you're absolutely right. As we laid out that vision, it certainly is designed to accomplish a couple of factors. The first being to liberate the data that exists in silos across operations in broad industry. And the second then is to actually use the analytics power to drive productivity, efficiency, higher levels of safety and efficiency with analytic packages inclusive of much of what AspenTech can bring to the table to optimize facilities and production. So that vision certainly exists. We are on the path to bring compute out of centralized siloed data approaches into the edge, which is the first step with products that have already released in the marketplace with DeltaV, and we'll continue to move forward to deliver on the vision. But this step with Ovation was very critical as well because, as you know, that serves the power and water industries exclusively and to be able to bring that capability into those markets was critical. Jeff Sprague: Great. And then kind of more near term, and I may have missed it. I was on 5 or 10 minutes late. But kind of the shorter-cycle elements of the portfolio, just your view on when discrete bottoms when NI bottoms, you brought down the order outlook a little bit for the year, which is probably tied to those end markets. But maybe just what you see as we start to look into 2025 and the eventual bottoming and turning in those end markets? Lal Karsanbhai: Yes. No, certainly. So the discrete cycle recovery has been slower than expected. We certainly believe that we can get to close to positive orders in the last quarter of the year here on discrete, but that will be, of course, based on some very weak comparisons. But that will start us on the path to recovery into 2025. Test and Measurement, a little slower. We're watching our customers very carefully there, speaking, engaging with them. We're watching our peers in the marketplace as well and their performance. And we foresee sales turning positive there in the second half of 2025 with orders turning positive in the first half of 2025. And then lastly, Jeff, I'll just add that offsetting a lot of that is what continues to be a strong capital cycle formation cycle here with process and hybrid markets and also momentum in what we see at AspenTech. And so those offset a little bit of how we're thinking. Certainly, I believe that as we think about 2025 and start to guide that we will be probably towards the lower end of that range that we've given on our through-the-cycle expectations, but well within that. Jeff Sprague: Great. Thank you. Operator: And next, we have Nigel Coe with Wolfe Research. Nigel Coe: Thanks. Good morning, everyone. Thanks for the question. Just want to pick up on the last question from Jeff there. The $1.45 billion to $1.5 billion range for Test and Measurement in 4Q is obviously quite wide. I think just given the expectation that we don't get to revenue growth until the second half of the year, it seems that we're tracking towards the lower end of that range. Just wanted to make sure that was correct. Lal Karsanbhai: We guided because we still have confidence that we can hit within that guide, Nigel, I certainly don't -- wouldn't write it up to the low end of the range at this point. This is the best guide that we feel we can commit to as a management team. Obviously, at some point in the midpoint is how you can think about it. Nigel Coe: Okay. Great. And just to kind of zooming out a sort of a general comment on the environment out there. Obviously, we've seen deterioration in sort of general industrial markets, it feels like some projects are again delayed with some of the uncertainty, maybe higher rates. Just give an overview in terms of what you're seeing out there from customers, maybe a bit more of an end market overview. And just wondering, obviously, the funnel remains very vibrant, increased slightly Q-over-Q. But what about this funnel to order kind of conversion process? Are you starting to see longer decision-making? Lal Karsanbhai: Yes. Thanks, Nigel. Yes, I'll comment. Of course, the funnel did grow, as you noted. We booked approximately an equal amount that we've been booking historically on a quarterly basis, $350 million in value. The mix changes a little bit depending on end market timing, and we shared that with you as well in the deck. So I continue to look at this the funnel and the capital formation cycle in a positive manner. I haven't seen degradation of projects or projects being eliminated. I haven't seen any slowdown in the expansion of the journey -- the sustainability projects or the LNG, particularly as it relates to the Middle East and Africa. So I'm still very optimistic there. Now what we do -- we are watching very carefully is that projects that have been booked, the pace at which our customers are willing to accept product whether there are delays that are being implemented around inspections and other areas, we're watching that very carefully, and we have experienced some of that in the quarter, which obviously contributed to our lower sales 3% versus the low end of our guide versus the expectation. But that -- there's some of that going on, which obviously we're watching very carefully. Mike Baughman: I would just add to that, Nigel, some of that read through in the leverage this quarter. We talked in the comments about some projects that did get pushed out, which was a little addition by subtraction because those projects are generally lower margin. So it was part of the 67% in the quarter. Lal Karsanbhai: That's a very good point. And of course, lastly, Nigel, to the question. Our process and hybrid orders are still up mid-single digits, and that's important to recognize. Nigel Coe: That's great. Thanks, Lal. Lal Karsanbhai: Thank you, sir. Operator: And next, we have Scott Davis with Melius Research. Scott Davis: Hey, good morning, everybody. And congrats on navigating through the choppiness here. I kind of curious, I mean you're going to have a fair amount of cash on hand. Once you get this Copeland thing done, seem kind of in a good spot from a leverage. Do you feel like you -- I mean, I guess my question really is, what do you plan to do on the proceeds, but I guess more explicitly is, do you feel like you have the capacity to do M&A? Or are we still digesting NATI [ph] this point and want to focus on that? Lal Karsanbhai: Yes. No, certainly, I feel great about the balance sheet and what we have to do in terms of maintaining our investment grade. And I think that's very important. We are working very hard to integrate National Instruments and feel really good about the progress that, that team continues to make. It's a set of markets that we like that will drive differentiation and through the cycle growth for our company. And I think that's -- that we feel very good. Now having said all that, we will have the capacity, if we wish to put that balance sheet to work. And that's something that, Scott, as you know, will continue to evaluate the time and what the right move would be in terms of the majority position that we own in AspenTech. Scott Davis: Okay. Fair enough. And then I wanted to follow up on Jeff's question on Ovation because I think it's -- you put it on a slide, and it's not a product line. I think historically, you guys have talked about it a lot, but it is a pretty powerful installed base that you have. I mean how big a deal is this 4.0 upgrade? And is there a way for us to think about like what percentage of your installed base you would expect to upgrade? Or is there some sort of kind of way to tangibly think about the impact of this iteration? And is iteration even the right word to use? Is it a step change, a meaningful step change where you kind of hit that tipping point where people -- like you said 70% of the people came to your event, where people just generally hit the bid on that more so than maybe they did in the past. Any color there would be helpful? Lal Karsanbhai: Yes. From an Ovation perspective, we've continued to have significant releases in the capabilities of that technology over time. And this is certainly a significant one, which incorporates a lot of technology from Aspen and fundamentally from an optimization perspective, from an analytics perspective, from -- in terms of copilots provides capability that we've not had innovation before. And I think it is significant given the fact that the investment in the power generation infrastructure in this country and globally is at a tipping point. And just given the boom in AI and data centers, and we talked about it in the last earnings call, we expect the power generation investments as well as transmission and distribution and renewable to be a very, very important growth vector for us. Innovation 4.0 certainly positions us very well in that capacity. And frankly, on greenfield, our modernizations are lifetime extensions of power plants, but also the opportunity to go in and upgrade existing systems with the new capabilities that we have in 4.0. So that's really what we're very excited about. Mike Baughman: And I think the step change here to your question, Scott, lands on the use of the AI models, which will enable planning purposes around maintenance, taking down assets for turnaround activity. It will give a higher probability that you're actually going to work on the maintenance records and elements that are -- that most needed in the plant. And I think that's incrementally new and different in the marketplace. And then lastly, Scott, we're highlighting this innovation, but innovation is a core pathway as we've talked in the past, of how we drive differentiated growth at Emerson. Accelerated innovation across our businesses is critical. And we've seen that. You see that as we report R&D spend as a percent of sales, then we have stepped that up, and this is an element in one of the results of that. Scott Davis: Okay. Appreciate the color. Thank you, guys. Mike Baughman: Thank you, Scott. Operator: And next, we have Deane Dray of RBC Capital. Deane Dray: Thank you. Good morning, everyone. Lal Karsanbhai: Good morning, Deane. Deane Dray: I'd like to go back to Page 5 and ask whether you're seeing much demand or overlap with the mega projects. I guess the latest count is 440 projects over $1 billion. If -- how much does this funnel overlay to those? And what kind of visibility do you have? Lal Karsanbhai: So in terms of -- I'm not quite sure the reference you made, Deane, can you clarify the mega projects you referenced? Deane Dray: Yes. This has been a big focus across the industrials for the past year, looking at North America, non-res construction projects over $1 billion, and it encompasses everything from software to batteries. But it's just -- it's a way for us to look at all these secular drivers and how are they translating actually into projects. So it's become this benchmark indicator that we're using now. And so that's the reason I'm asking. You're looking at this funnel, it's a global funnel, I get it, but within -- for North America, how much overlap do you have with these so-called mega projects or maybe you have that information. Lal Karsanbhai: Yes, we'll go back and map that, but what I will tell you is in terms of LNG, in terms of energy, in terms of life sciences and frankly, also semiconductors and EVs, we have our own map of all the project activity in North America. We'll go back and map it with what you're referencing, but I will tell you that we are certainly participating and every one of those projects are in our funnel with very, very good win rates. And -- but it's an action we'll take away and work with Colleen and get that map. But our participation in North America on those large projects remains very solid. And we had a very good level of project activity in North America, particularly in life sciences and power in the control systems business even in the current quarter. Colleen Mettler: Yes. And as a reminder, that funnel represents our automation content versus what the entirety of a project is out there in the universe. So that's also to keep in mind. Deane Dray: Of course. All right. So we'll be looking forward to that. And then second question is a bit of a follow-up from Scott on the balance sheet and the cash. Just can you talk to the decrease in buybacks? I know you said that your use of capital was buying back the Copeland note, but all cash is fungible and just directionally to be pulling away from buybacks. Just maybe -- I know it's early to talk about '25, but just where do buybacks fit in your priorities? Mike Baughman: Deane, it's Mike. Yes, buybacks are definitely still in the priority along with the dividend and returning capital to shareholders generally. We will exit the year with the commercial paper paid off and 3.5 - $3.5-plus billion [ph] of cash on the balance sheet. But our capital allocation will remain the same. We will continue to focus on funding our organic growth initiatives, we'll be continue to be committed to the dividend and bolt-on M&A that improves the portfolio. And then, of course, there'll be share buybacks. So yes, we will continue with share buyback. We'll be in the market this quarter at, we think, roughly $125 million, which gets us back to that roughly $500 million a year pace. Deane Dray: Thank you. Operator: Next, we have Steve Tusa of JPMorgan. Steve Tusa: Good morning. Lal Karsanbhai: Good morning. Steve Tusa: Could you just talk about like the seasonality of your underlying cash flow putting Aspen aside Typically, I think you have a pretty strong 4Q historically. And you're raising it this year. I guess, how do we think about cash in the fourth quarter and then into next year? Mike Baughman: Yes. So we took the guide up to 2.8 and -- which would imply about $800 million coming through in the fourth quarter, which I think is reasonably consistent seeing a fourth quarter increase. So this third quarter was particularly good. And remember, that has Test and Measurement in there, which they had a great quarter and peeled [ph] about $50 million off the balance sheet, which did skew the numbers this year. So we feel good about the 2.8 for the year and looking at the 800, it looks pretty in line with some of the prior years. Steve Tusa: And then just looking out to next year, anything in the bridge that's more mechanical that you know of today, whether it's merit increases, bonus payments or anything that's kind of outside the normal operating leverage dynamics that we should be aware of? Mike Baughman: I can't think of anything in the kind of run the business. But at corporate, I would say we are looking at a headwind and a tailwind that will largely offset and be a slight headwind. And we will have an increase in pension expense, all things equal, just given the way the deferral accounting works. And then we'll have a lower interest expense because of the Copeland proceeds that come in. Lower interest expense overall with more cash yes. So that should net to a pretty small headwind at corporate. Steve Tusa: Okay. And then one last quick one for you guys. What are the plans for Aspen? Are you guys planning to move on that this year? Lal Karsanbhai: Not in this fiscal, as I said, we'll continue to evaluate Steve as we go through time here. Steve Tusa: Sorry, sorry, I'm already on the 25. I meant fiscal '25. That's I'm already thinking about next year. Sorry about that... Lal Karsanbhai: And forward-looking... Mike Baughman: No comment there. Steve Tusa: Okay, thanks. Operator: Next, we have Andy Kaplowitz of Citigroup. Andy Kaplowitz: Hey, good morning, everyone. Lal Karsanbhai: Good morning, Andy. Andy Kaplowitz: Well, operating leverage for Emerson has continued to be impressive. And obviously, you raised your guidance for this year to mid-40s, which is higher than the algorithm you gave us at your last Investor Day. We know price maybe is fading a bit as a help, maybe supply chain wins are less likely to help in FY '25. I think you just answered Steve's question about sort of other puts and takes, but can you sustain incrementals in the 40s in '25 from what you see today? Mike Baughman: Yes. Thanks for the question. We believe we can. We have a significantly higher margin portfolio today with a 1,000 basis point move over the transformation of Emerson to plus 50% GP portfolio. And I think our expectation certainly is that next year will be very similar to the leverage rate of this year. Andy Kaplowitz: Great. And then, Lal, you mentioned you have decent visibility towards, I think, the low end of your 4% to 7% due to cycle revenue growth as an initial read into FY '25. I guess what do you need to see to achieve that kind of growth for instance? Lal Karsanbhai: Yes, go ahead, Ram. Ram Krishnan: Yes. So I mean, obviously, what we're seeing right now is based on the order rates that the second half of this year will generate and that points to the low end of the 4% to 7%. Now what has to change, obviously, at the areas we're really focused on is pace of discrete recovery, the amplitude of the recovery and then China. And now the North American KOB3 or the pace of business is something we're watching. We're not really concerned. Our process hybrid business continues to have order rates of mid-single digits. The capital cycle still remains strong. So that we feel very good about. It's really the pace and amplitude of discrete recovery in China is going to dictate how we guide into next year as we come off that low single-digit order growth we've seen in the second half of 2024. Andy Kaplowitz: Lal, you've seeing China stable at low levels? Or is it getting worse? What's China... Lal Karsanbhai: I'd suggest stable, Andy, at this point. Andy Kaplowitz: Excellent. Thank you. Operator: Next, we have Julian Mitchell of Barclays. Julian Mitchell: Hi, good morning. I think... Lal Karsanbhai: Good morning, Julian. Julian Mitchell: Good morning, Lal. Maybe where I wanted to start was just around the different end market verticals because I suppose the lowered orders guide and the slight miss on sales in Q3. Was that solely tied to discrete automation? Because I suppose listening to an automation peer half an hour ago, they do talk about weaker energy transition CapEx, weaker chemicals and mining spend and Aspen last night referred to some weakness in those types of process verticals as well. So just trying to understand that element of sort of process versus discrete the outlook there? Lal Karsanbhai: Yes. No, I'll answer and let Ram add some color as well from his perspective. Certainly, we continue to see strong capital formation cycle here, particularly as it relates to energy, energy transition, power generation, life sciences, metals and mining. And that is relatively broad from Western Europe through the United States and into Middle East and Latin America. And I -- so I haven't -- I don't have a whole lot of concern today around those markets. We -- I highlighted a few specific wins, but there are others in that $350 million bucket that we won. So mid-single-digit order growth in process and hybrid in the quarter, low single digit for the company impacted by the discrete automation business in the discrete orders, which remains negative to the quarter. Ram? Ram Krishnan: Yes, you said it. I mean I think the cap for us, energy, power, life sciences is driving a majority of our capital project wins as well as the momentum in our process hybrid business. Certainly, we are not a big player in hybrid markets like food and beverage, which could be the dynamic you're referencing in terms of some slowdown. But our life sciences business continues to be very good. Our metals and mining business continues to be very good. So no slowdown, we're not seeing any kind of slowdown in that area. But the area we're watching very carefully, as I referenced, is the pace of discrete recovery, particularly markets like semiconductors and EVs which impact NI, but also our markets like automotive, which impact our broader discrete automation business. Now the one segment of Test and Measurement, where we've seen good momentum is aerospace and defense, driven by government spending. It's 25% of their overall mix. So that certainly come out strong, and that's driven growth in North America, but we are yet to see sustained recoveries in semis and EVs, which are markets we're watching closely. Julian Mitchell: Thanks very much. And then just my follow-up, somewhat related. But if I look at your backlog, I think that was $7.4 billion at the end of June, so sort of down a little bit sequentially and down a little bit from where it was in December as well. When you think about that backlog, it's moving around entry-year [ph] on seasonal factors as much as anything else. Do you still feel confident about sort of decent backlog growth as you enter fiscal '25? Mike Baughman: Yes. Yes, we do. That backlog reduction for us, frankly, about $100 million, it was all in Test and Measurement. Our backlog in the base Emerson business held effectively flat. Now we typically see a backlog reduction in Q4, but it will be up year-over-year, and we feel pretty good about backlog levels as we enter 2025. Lal Karsanbhai: And I would add to the earlier comment about the capital formation, Interestingly, in the quarter, the control systems business actually had a book-to-bill above 1 record order... Mike Baughman: Record levels. And for the full year, we expect Emerson at right around 1... Lal Karsanbhai: Book-to-bill. Mike Baughman: Yes. Julian Mitchell: That's great. Thank you. Operator: And next, we have Brett Linzey of Mizuho. Brett Linzey: Hi. Good morning. Thank you. Just wanted to come back to the discrete comments around pace and the amplitude of the recovery. As that business comes back, should we think about the operating leverage above the 45% framework given some of the cost containment and some of the actions you've taken there? Mike Baughman: Yes. I would say for our discrete automation business, it will be right around in the 40s. Certainly, the other business that's exposed to the discrete end markets, Test and Measurement, given that 75-plus percent GPs will be much higher. Brett Linzey: Okay. Got it. And then just on power generation. So you've talked about some of the momentum there in that business. I think the grid results at Aspen look pretty encouraging. Any update on the strategic funnel and how that tracked through the quarter and some of the activity you're working on there? Mike Baughman: Yes. I mean I think our -- so Aspen clearly referenced the capital formation in grid modernization, which is fundamentally transmission and distribution investments. So our exposure to the T&D side is through OSI at Aspen. On the power generation side, which is the Aviation business, that project funnel continues to build both in North America, Europe, but also we're having a very, very strong year in China interestingly. So overall, the generation capacity that is being invested in across the globe continues to be robust and the innovation that we're driving with the likes of Ovation 4.0 as well as our Ovation Green that is positioned for renewable investments. The activity there is very robust. Lal referenced that one project in India with a very strategic investment that's happening in India and the renewable space is just an example of the types of activities we're involved in with the Ovation platform. Brett Linzey: Okay, great. Appreciate the color. Operator: Next, we have Christopher Glynn of Oppenheimer. Christopher Glynn: Thanks. Good morning. I had a question on the MRO. Curious if -- how that performed specifically in the quarter, sorry if I didn't catch it. But wondering if there's an impact of some customer inventory rebalancing, if you're seeing any of that from maybe accelerated lot sizes in prior years? Or if end markets are mainly what you're seeing on the MRO side? Lal Karsanbhai: Yes. This is Lal. I -- certainly, in totality, MRO didn't really change a whole lot. It remains at 64% of the revenue in the quarter, which is relatively consistent with where we've been and well within our expectation for the year. Having said that, there were a few ebbs and flows, as I discussed on the call, European MRO was very strong in the quarter. North America MRO was softer in the quarter. We haven't seen anything there that is alarming in any way. We're not a heavy inventory-driven company from a distribution or customer level perspective. Our equipment is generally bought and put into operation shortly thereafter. And so consequently, and nothing alarming on the MRO side. But again, strength in Europe, weakness in North America or softness in North America characterized the quarter for MRO. Mike Baughman: Yes. And just to build on that a little bit. The North American softness, you'll recall in prior quarters, we had talked about how, particularly in the measurement and analytical business, there was some strength, and we saw a little bit of that reverse in the quarter. But as Lal said, nothing concerning. Christopher Glynn: Got it. Thank you. Operator: Next, we have Nicole Deblase of Deutsche Bank. Nicole Deblase: Yeah, thanks. Good morning, guys. Colleen Mettler: Morning. Nicole Deblase: Maybe just starting with the T&M business. It sounds like the synergy progress is going a bit better than planned. Are you guys actually raising the synergy guidance there? Or is it more about timing, like coming through faster than expected? And maybe any updated thoughts on synergies in fiscal '24? Lal Karsanbhai: Good morning. No, look, we raised the guide a few quarters ago. We continue to execute across that pace. So no change to the synergy guide, but we are maintaining the pace certainly to be able to deliver these results. Nicole Deblase: Okay. Got it. Thanks, Lal. And then if I could ask a bit of a detail -- a little bit more detailed question. The discrete automation comps do get a lot easier in the fourth quarter. Is it possible that organic revenue could turn positive? Or do you think that that's more of a 1.25 [ph] event at this point? Lal Karsanbhai: Go ahead, Ram. Ram Krishnan: Yes, it's a 1.25. I think orders turned positive in Q4. At this point, we're planning on a first half 25% recovery in sales for the discrete automation business. Nicole Deblase: Thank you. I'll pass it on. Lal Karsanbhai: Thank you. Operator: Well, this concludes our question-and-answer session and today's event. I would like to thank the management team for their time today, and thank you all for attending today's presentation. At this time, you may disconnect your lines. Thank you, and have a great day, everyone.

Operator: Good day, and welcome to the Emerson Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to our host, Colleen Mettler, Vice President of Investor Relations at Emerson. Please go ahead. Colleen Mettler: Good morning, and thank you for joining us for Emerson's Second Quarter 2024 Earnings Conference Call. This morning, I am joined by: President and Chief Executive Officer, Lal Karsanbhai; Chief Financial Officer, Mike Baughman; and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with the slide presentation, which is available on our website. Please join me on Slide 2. This presentation may include forward-looking statements, which contain a degree of business risk and uncertainty. Please take time to read the safe harbor statement and note on the non-GAAP measures. I will now pass the call over to Emerson's President and CEO, Lal Karsanbhai, for his opening remarks. Surendralal Karsanbhai: Thank you, Colleen. Good morning. I'd like to begin by thanking the Emerson's global team for yet again delivering very strong operating results. It is a testament of the strength of our people, the culture we are building, the portfolio we have created and the value of the Emerson Management System. I would also like to thank the Emerson Board of Directors for your continued support of the management team and to our shareholders for the trust you place in us. The second quarter was characterized by strong operating performance, which exceeded our expectations. We continue to have confidence in the underlying market conditions, driven by demand in the process and hybrid markets, aligned with secular macro trends: energy security and affordability, sustainability, nearshoring and digital transformation. The P&L execution was nearly flawless in the quarter. Underlying sales grew 8%, operations leveraged at 54%, expanding EBITDA by 140 basis points to 26% and delivering 25% EPS growth and 32% free cash flow growth. 2024 is the year of execution with no major portfolio moves planned. And through the first half, we feel confident and have raised our outlook for the year. We are energized about the power of our differentiated automation portfolio. Our NI team, led by Ritu Favre, continues to drive the integration plan and have again accelerated cost-out activities in response to a slower-than-anticipated market recovery. We will now deliver $100 million of synergies in 2024. Further, I'm excited about David Baker's appointment as CFO of AspenTech. Dave is an experienced global automation CFO and a 27-year veteran of Emerson. He will bring a degree of structure, forecasting accuracy and work with Antonio Pietri to reinforce a diligent management process. Lastly, I remain excited about what we can accomplish at Emerson. Our technology stack, comprised of intelligent devices, control and software, is highly differentiated in the marketplace, delivering scaled value to our customers. Further, innovation is alive and well at Emerson. And we continue to stretch the boundaries of the possible in automation. Please turn to Slide 3. Emerson and our Board are committed to ongoing Board refreshment. And today, we have the privilege of announcing the newest member elected to our Board of Directors. Calvin Butler is the President and Chief Executive Officer of Exelon, the nation's largest utility company by customer count, and a member of its Board of Directors. As part of Exelon and its operating companies, Calvin has held senior management roles in executive management, operations, corporate affairs and regulatory and external affairs. He is a passionate advocate for community equity. And his unique expertise in reliable, clean and affordable energy solutions will benefit Emerson as we continue to enable the energy transition and decarbonization for our broad customer base. He also has a local connection as he was born and raised in St. Louis and graduated with a law degree from Washington University School of Law. Calvin will officially join our Board on August 1, 2024. This will expand Emerson's Board to 12 members, half of whom are women or people of color. Having the right skills represented on Emerson's Board is critical to our continued success. And we are excited to have Calvin join us. Please turn to Slide 4. The second quarter exceeded our expectations and strong results highlight our continued focus on execution. Sales, operating leverage and adjusted earnings all exceeded Q2 expectations. Stronger volumes were driven by outstanding operational performance and more backlog conversion than expected. Price/cost and business segment mix were also more favorable than expected. Orders in the first half met our low single-digit growth expectations with a book-to-bill greater than 1. For the first half, process and hybrid saw mid-single-digit growth while, as expected, discrete saw a decline of mid-single digit. The demand environment for process and hybrid markets remains favorable. Discrete Automation orders were down year-over-year on a tough comparison but were up sequentially low single digits. And we now expect their orders to turn positive in Q4, a quarter delayed from our original expectation. While not impacting underlying, Test & Measurement orders were softer than anticipated in Q2, down 15%. For the second half, we expect mid-single-digit underlying growth in orders and low single-digit to mid-single-digit growth for the full year, led by process and hybrid resilience with delayed discrete improvement. Test & Measurement continues to perform and delivered slightly better-than-expected Q2 results for both sales and earnings. The turn to positive orders in this business is now expected in the first half of 2025, 2 quarters delayed than our original expectation. We are seeing continued softness in transportation and semiconductor demand driven by constrained CapEx environment while aerospace and defense is expected to be positive due to continued strength in government research and defense spending. This extended downturn enables another acceleration of synergy actions. And we now expect to realize $100 million of synergies in 2024, up from our prior expectation of $80 million as we pull in additional actions that will begin this quarter that were in the plan for 2025. Our differentiated portfolio is driving value creation for our shareholders. While we remain cautious on the timing of a recovery in discrete end markets and were slightly impacted by AspenTech's latest guidance revision, Emerson's first half performance, stable process and hybrid demand and additional self-help actions provide confidence to increase our full year guidance. We are increasing our underlying sales guidance to 5.5% to 6.5% and raising our adjusted EPS expectations to $5.40 to $5.50. We will remain focused on execution and integration this year, leveraging our Emerson Management System. And we are energized as we look ahead at the strength of our new portfolio to deliver differentiated results. Our leading technology and exposure to secular growth markets paved the way for continued value creation. Please turn to Slide 5. Emerson's Q2 exceeded guidance in underlying sales and profitability. Underlying sales for the quarter grew 8% with our process and hybrid businesses again exceeding expectations and better backlog conversion than initially expected. Energy security and affordability and sustainability commitments drove strong performance in energy, LNG, chemical and power. Hybrid end market strength continued with life sciences project momentum in North America, Europe and Asia and robust metals and mining activity. Factory automation demand remained soft with continued weakness in China. Europe, Asia and the Middle East were particularly strong in the quarter with persistent strength in process markets, driven by energy transition and traditional energy markets. One noteworthy example is India, which has seen double-digit growth in 5 of the last 6 quarters, including this quarter, driven by broad economic expansion across multiple segments. Our growth platforms also continued to perform strongly, underlying sales up double digit in the quarter. Our profitability continues to reflect the strength of our new portfolio. Gross margin has significantly improved since we started our portfolio journey when I took over as CEO in 2021. Gross margins at that time were in the low 40s. And in this fiscal year, we expect to achieve gross margins over 50%, nearly a 1,000 basis point improvement. In Q2, gross margin was 52.2%, a 430 basis point improvement from the prior year. Operating leverage was 54%, stronger than our expected low to mid-40s, again due to stronger volumes and favorable price/cost and mix. Adjusted EPS also came in ahead of plan at $1.36, $0.10 above the top end of our guide and up 25% from 2023. Emerson generated free cash flow of $675 million, up 32% year-over-year. Mike Baughman will go through additional details on our results in a few slides. We are pleased with our Q2 performance and the persistent strength in our process and hybrid businesses, giving us additional confidence as we look to the rest of the year. Please turn to Slide 6. Our strategic project funnel continues to grow and now sits at $10.8 billion, up approximately $400 million from Q1, with our growth programs up by $300 million and representing nearly 2/3 of the funnel. The funnel growth is in line with the constructive CapEx environment for our process and hybrid customers. This also reflects our exposure to robust secular trends as the increase primarily came from projects supporting sustainability and decarbonization and energy security and affordability. In the second quarter, Emerson was awarded approximately $350 million of project content with the increase in traditional energy stemming from the award of several large offshore vessels in Brazil. Our growth programs continue to demonstrate success. And I want to highlight three key project wins. First, Emerson and AspenTech were awarded an automation pilot project for a large chemical company in China. This is an important synergy win as the customer is developing a pathway to software-driven autonomous operations. The multiyear agreement is an integrated solution for Emerson and AspenTech software that will provide high-fidelity hybrid models and control automation for optimizing process operations based on real-time production data to increase product yield and reduce energy consumption. This example showcases the unique ability of the integrated Emerson and AspenTech portfolio to provide differentiated solutions for our customers. In the energy transition space, Emerson was selected to support Shell's proposed Polaris carbon capture project in Canada. Polaris, subject to final investment decision by Shell, would capture CO2 from the refinery and chemical plant located at the Shell Energy & Chemicals Park in Scotford, Alberta. Emerson is providing much of our leading technology, including instruments and valves. And finally, Emerson was chosen to automate a $4 billion manufacturing complex being built in Indiana by a large U.S.-based life science customer. Emerson will provide our leading DeltaV control systems and software portfolio, including a 5-year subscription agreement for our DeltaV MES. Please turn to Slide 7. This is a transformative moment for the U.S. power industry as data centers are driving electricity demand increases not seen since the early 2000s. At the same time, power producers are retiring carbon-intensive assets in a drive to decarbonize their operations and investing in the resilience and optimization of the grid. The grid is also experiencing an unprecedented shift from the unidirectional grid of the past to a bidirectional intelligent grid of the future, which will be increasingly supported by intermittent power sources. There are multiple factors driving this generational increase in U.S. electricity demand. And data centers alone account for nearly 1/3 of all new U.S. electrical demand. AI data center racks consume significantly more power than traditional data centers with a search on ChatGPT consuming 6 to 10 times the power of a traditional search on Google. Hyperscalers are revising CapEx estimates upward and increasing annual CapEx significantly in 2024 and build their AI infrastructure. This is expected to continue for multiple years. The increase in demand is real. And it is happening today. Utilities in key regions across the U.S. are revising low-growth estimates upward materially from recent years' estimates. Georgia Power issued a revised assessment in which projected load growth was 17 times greater than previously forecast, resulting in approximately 30% greater total winter peak demand for the 2030-2031 winter. Dominion Energy has been a key beneficiary of traditional data center growth and forecasting another tailwind for AI data centers more than doubling their 10-year average annual summer peak load growth from 2022. The North American Electric Reliability Corporation recently put out their annual 9-year growth forecast with new demand more than doubling from the prior year forecast. While Emerson does not have material content in data centers, Emerson is a key player in the power industry for generation, transmission and distribution, all of which are set to be beneficiaries. Approximately 9% of Emerson sales are in power. And while we have a strong portfolio across our technology stack, I want to highlight the software and control layer, which is relevant across the power landscape from generation to transmission and distribution. The Ovation automation platform and Ovation Green portfolio of renewable solutions are purpose-built for power generation greenfield builds and plant modernization applications. Together, our Ovation automation technology and Green solutions automate approximately 50% of North America and 20% of global power generation. Emerson's strategic project funnel in power is up 45% year-over-year, reflecting the emerging potential. And I'd like to mention a key win from the quarter. Emerson was selected by a large Midwest utility to modernize nine sites with the latest Ovation hardware, software and cybersecurity solutions. We were awarded based on our demonstrated ability to execute plant modernizations while ensuring safety, quality and reliability, all vitally important in the power industry. With the increasing mix of generation sources and rise of distributed resources and microgrids, utilities must now also manage the integration of varying and bidirectional power flows. AspenTech's Digital Grid Management, or DGM, software also plays a critical role in managing the ever-increasing complexity of today's grid to maintain stability and control through real-time power management and demand-side management software. DGM is a strong participant in these markets with approximately 40% share in North America and approximately 20% globally. The necessity of grid digitalization is driving investments in the advanced capabilities that software provides with the market forecasted to grow in the high-teens. Emerson's leading products and application expertise across the power landscape make us well positioned to capture the coming investments both in the U.S. and globally. And we are excited to watch the future of power generation, transmission and distribution unfold. With that, I will now turn the call over to Mike Baughman. Michael Baughman: Thanks, Lal, and good morning, everyone. Please turn to Slide 8 to discuss our second quarter financial results. Underlying sales growth was 8%, led by our process and hybrid businesses. Price contributed approximately 3 points of growth, slightly higher than expected due to the mix of our shipments this quarter. Growth was led by Europe, which was up 12%, and Asia, Middle East and Africa, up 11%. The Americas also had solid growth, up 4%. Intelligent Devices and Software and Control grew by 6% and 14%, respectively. AspenTech sales increased significantly over the prior year, up 21% on an underlying basis. Discrete Automation was down mid-single digits as expected due to continued market softness and against a tough prior year comp. Test & Measurement, which is not included in the underlying measure, contributed $367 million to our net sales, exceeding expectations for the quarter on stronger backlog conversion. Backlog was essentially flat to the prior quarter at $7.55 billion. Adjusted segment EBITDA margin improved 140 basis points to 26%. And as Lal mentioned, gross profit margins of 52.2% contributed to this margin expansion. Leverage on volume, favorable mix, price, net material deflation and productivity programs all contributed to the margin improvement. Operating leverage, excluding Test & Measurement, was 54%, exceeding expectations. Test & Measurement adjusted segment EBITDA margin was 21.4%, above expectations, driven by leverage on slightly higher sales volume, mix and higher cost actions. Adjusted earnings per share grew 25% to $1.36. And I will discuss additional details on adjusted EPS on the next chart. Lastly, free cash flow improved 32% to $675 million, exceeding expectations, driven by earnings and improved inventory levels. Acquisition-related costs, integration activities and higher CapEx reduced the quarter's free cash flow by approximately $70 million. Please turn to Slide 9. Adjusted EPS growth of $0.27 was driven entirely by operations as other nonoperating items netted to 0. Software and Control led the growth, contributing $0.18, and Intelligent Devices contributed $0.09. Overall, adjusted EPS grew 25% year-on-year to $1.36. Please turn to Slide 10 for details on our updated guidance for Q3 and 2024. Underlying sales are now expected to grow 5.5% to 6.5%, which raises the bottom of our February range. Our process and hybrid businesses are performing well and support the outlook for the rest of the year. We still expect underlying sales of our Discrete Automation segment to turn positive in Q4. And we are watching the orders progression, which we believe is now delayed by 1 quarter. Reported net sales growth is expected to be 15% to 16% with Test & Measurement contributing approximately 10 points of growth or approximately $1.5 billion in sales, the low end of the February guide, offset by a 0.5 point drag from FX. Incremental margins are held at low to mid-40s, which suggests mid-30s incrementals for the second half. The second half will see a change in mix with higher project-related shipments and changes in segment and geographic mix. Adjusted EPS has increased to $5.40 to $5.50. Test & Measurement is still expected to contribute $0.40 to $0.45 as we accelerate synergy activities. We now expect to have $100 million of synergies realized this year. AspenTech lowered their guidance yesterday afternoon. And we have incorporated the latest revisions into our guide. We now expect AspenTech to deliver $0.30 to $0.32 for the year versus the $0.32 to $0.34 in our February guidance. Free cash flow performance in the first half of the year and our updated earnings projections support free cash flow for the year of approximately $2.7 billion. Share repurchase, dividend and tax rate expectations are unchanged from February. For the third quarter, we expect underlying sales growth between 3% and 4.5% and leverage in the mid-30s due to the project and geographic mix I described earlier. Adjusted earnings per share is expected at $1.38 to $1.42. And finally, Test & Measurement sales and earnings per share contribution is expected to be at similar levels we saw in quarter 2 as we watch orders carefully. Our first half performance exceeded expectations, and we are excited to continue delivering strong results. Our transformed portfolio is meaningfully improved with higher profitability driven by gross profit margins above 50% and higher organic sales growth driven by secular trends. And our Emerson Management System continues to drive operational excellence. With that, I'll turn it over to the Q&A portion of our call. Operator: [Operator Instructions] The first question is from Davis, Scott, Melius Research. Scott Davis: A lot of good detail in the slides. But I wanted to start with just a sense of the synergies that you're seeing and just get a little bit more color on what you're getting as far as structural cost-out, what may have to come back when revenues recover and how we might think about what really that asset looks like in kind of a more normalized situation from a profit perspective. Surendralal Karsanbhai: Yes, Scott. I'll say a few words and let Ram add some color to this. First and foremost, we're very excited about the company. It's a far better company than we expected in terms of the quality of people, the quality of the technology, the loyalty of the customer base and the opportunity to grow and expand as a leader in the industry. So we're very pleased. We have a great management team in place. And we're most pleased about is the responsiveness of that management team to the market conditions. This is now being run as an Emerson company. And they've gotten ahead of the activities around cost takeout in a very diligent way, this was all laid out prior to close with the teams. So we're essentially working down a playbook. We've now moved into some of the actions, as I referenced, that were outlined for 2025 that have been moved forward. But none of these are elements that we believe we necessarily have to add back. This is really driving around efficiency in the company and position it to the SG&A structure to be more competitive, a little leaner on a go-forward basis. Ram, if you don't mind? Ram Krishnan: Yes. And just to add to that, I think the balanced approach around G&A, the optimization of the go-to-market, optimizing and focusing the R&D efforts on critical growth vectors that are going to pay a lot of benefit for us as the market recovers. And that's really what we've been focused on. Obviously, we are seeing opportunities in logistics and supply chain, which is additional to what we had originally planned. But net-net, the $185 million we've committed to is a programmatic approach that is divided across these 4 segments. And we've been able to accelerate these actions just given the environment we're in, mostly because they were all well planned out and we are able to pull forward these initiatives, given that they've been thought out and the teams are actioning them at a rapid pace. Scott Davis: That's helpful. Guys, I'm looking at Slide 7 at the DGM and the Ovation. And give us a sense of how this upgrade cycle works. The power demand, obviously, and grid, I think we're all quite aware of what's going there. But does it require -- and I mean, maybe just a little bit more color on how these two, DGM and Ovation, kind of -- do they integrate? Do they sell together? Is there any way to kind of get more benefit, I guess, from having the two assets versus the one? And it's a little bit of an open-ended question. I'm just trying to get a sense of the materiality in the upgrade cycle here. But maybe the best way to start with that is just to understand if those assets actually can integrate and work together and if that's a benefit to the utility. Surendralal Karsanbhai: Yes. No, certainly would be happy to comment. I think there's three very important elements. I think element of materiality relates to the high growth in the outlook of projects and activity. We saw that 45% expansion in the funnel. We haven't seen that level of activity in power generation in a long time with a positive growth in North America again driven by the data center demand that we outlined. Secondly, inside of the generation capacity, there certainly are opportunities for optimization software. That is an area that really is untapped. And that's a synergy opportunity that exists between Ovation and AspenTech. And then thirdly, certainly, the leverage of a strength in our utilities, the customer base, takes us outside the walls of the plants into the transmission and distribution. And even though there are not technology synergies between DGM and Ovation per se, there certainly are significant customer synergies and credibility that has been built with Ovation that takes us into the transmission/distribution software. Operator: The next question is from Coe, Nigel of Wolfe Research. Nigel Coe: So just wanted to dig into the operating leverage assumptions in the back half of the year. I think you said mid-30s on sort of mix changing. And I think we've had this MRO mix now of 65% or so for the last couple of years. Are we starting to see that mix changing notably in the back half, maybe getting towards maybe, I don't know, 60% MRO? And does this -- do you expect this to continue in 2025? It feels like it should be. But do you think 2025 is more like a mid-30s? Or do you still think you can maintain 40%-plus operating leverage in 2025? Michael Baughman: Yes. Nigel, it's Mike. So as we look to the back half of the year, the mix change is meaningful. And you're correct, we've been at the 65% MRO, which is about where we were for the second quarter as well. That is going to drift down on us as we go into the second half. We also benefited this past quarter quite a bit from price. We'll continue to get the roughly 2% price, but it won't be the 3%, we don't believe, that we saw in the last quarter. So those are the big things. There's also a geographic mix element to this with the U.S. growth moderating relative to other geographies. And then if you start to think about the 54% that we printed this quarter versus what we're expecting in the second quarter, there was an uplift this quarter from AspenTech, which had a great quarter, that will moderate in the back half of the year. So you need to put that into your thinking as you go forward as well. Nigel Coe: Okay. I'm guessing no comments on '25. But if you do think that continues, I'd appreciate that comment. But on National Instruments, it just feels like -- so just to paraphrase the way you've set this up for the second half, third quarter looks pretty flat sequentially on sales, call it, $360-ish million of sales and then we're picking up towards $400 million in the fourth quarter. I just want to verify that, that pickup in the fourth quarter is entirely seasonal. I think when you go back in time, we typically see that coming through in that quarter. So it doesn't feel like we're taking a huge cycle call there. And then with the synergies, do we expect the margins to continue to move higher sequentially through the back half of the year? Ram Krishnan: Yes. I think you summarized it well. Yes, sequentially, margins would be up, correct. And to your '25 question, I mean, it's early for us to plan '25. But at the end of the day, we don't expect leverage rates in '25 to be materially different from what we're going to deliver in '24. Operator: The next question is from Andy Kaplowitz, Citigroup. Andrew Kaplowitz: Well, I know you're still expecting mid-single-digit order growth in the second half after the negative 1% in Q2. So maybe you could discuss how you start off Q3 in April. Give us a little more color into visibility regarding that mid-single-digit growth in the second half. Do you have visibility in the process and hybrid staying at that mid-single-digit level? And then is the mid-single-digit organic growth kind of weighted to Q4, given the turn in discrete then? Surendralal Karsanbhai: Yes. Certainly, Andy. Look, we're off to a good start in Q3. April over April of last year is up double digit, 10%, on orders. Certainly -- and the 3 months has turned positive as well. So we flipped that to the low single digits on a 3-month basis, trailing 3-month basis. So feel good about the start, feel good about the funnel and the conversion and the markets. And it's again driven by the process and hybrid environment across most of the world areas. Discrete, we're watching very carefully. As we said, we expect that to turn now a quarter later than originally expected. But we're seeing green shoots that started developing in March and into April, particularly in Western Europe, in Germany around machine makers and some of the discrete industries. So optimistic start for the quarter, again gave us the confidence as we tested our businesses and worked out process that exiting the year in that mid-single digit, low single-digit type of range on orders is very, very feasible. Andrew Kaplowitz: Lal, just a quick follow-up to that last comment. Did you just get a couple of larger projects in April? Is that kind of what happened to swing that? Surendralal Karsanbhai: No, no, no. There's funnel conversion, Andy, but nothing exemplary there. Andrew Kaplowitz: Okay. And then maybe what are your customers telling you on the NATI side as to sort of why the recovery is still delayed there? And if NATI is still slower to turn than you currently expect, do you still have more flexibility to sort of continue to push the envelope on integration cost-out? And then ultimately, I know Ram said you're still targeting the $185 million. But could you do more than that? Surendralal Karsanbhai: No, certainly. Look, I think the team has a great set of ideas on their walls in terms of opportunities to drive efficiency and productivity in the business. But we believe that ultimately, this is a growth business. And while we're doing this, we're driving investments in core technology programs so that we hit the ground running. We're working on customer demand, both Ram and myself, alongside the management team at National Instruments is well engaged with the customers. Ram will actually speak at NI Connect in a couple of weeks, along with Ritu, which will be a pivotal moment for us. And we have a very successful event in Dallas, I believe, with Ram this year. So look, we're very excited about the potential in the business and this business turning positive in early 2025. Ram, a few words? Ram Krishnan: Yes. And I think to answer your specific question as it relates to customer, what we're hearing from customers, certainly segments like the defense segment, or what they call aerospace, defense and government segment, are positive. I think we're going to get into easier comparisons. Frankly, April was also a very good month for -- given the expectations for T&M, which was positive for us. And I think really the only two segments we haven't seen the turn, which is why we believe it's at least 1 to 2 quarter delayed in T&M, is semiconductors and Asia. North America actually turned positive in April. Europe has turned positive. We feel good about the ADG segment. And we're cautiously optimistic about transportation. But the portfolio segment, particularly driven by Asia, and then semiconductors is where we still have to see recovery. We're watching that very carefully. Operator: The next question is from Deane Dray, RBC Capital Markets. Deane Dray: This came up a couple of times in the prepared remarks, and maybe just if you could walk us through what's different. But you said that there was better backlog conversion than expected. So is this on -- because of a customer request, they want it earlier, that you were able to have better productivity or throughput? Just how did that differ from what the original plan was on the backlog conversion? Ram Krishnan: Yes. So Deane, simplistically, responsive supply chains. We had -- our supply chains continued to improve, our plant output has continued to improve, particularly in our measurement solutions business. There was backlog conversion in Test & Measurement as well. So the simple answer is we overshipped what we thought we would in the quarter primarily because our supply chains responded much better and lead times are down to pre-COVID levels, which is a very good sign for us. Michael Baughman: Sorry, Deane, just to build on that a little bit, relatedly, those being two higher GP businesses helps the profitability in the quarter as well. Deane Dray: Yes, it tells you how far we've progressed on supply chain normalization, where that wasn't the first thing I'm thinking that you were able to ship more. So that's all good news. And then just a follow-up on the Test & Measurement, NATI, on the orders visibility, is there maybe some color on the demand and whether -- did you miss any orders? Was the demand out there and you missed orders? Or is the demand not there? Are you engaged in any more selectivity? Just some color there would be helpful. Ram Krishnan: No, we did not miss any orders. I think orders came in as per expectations. And I think the way we've actually baked in the plan is even if orders stayed flat to slight sequential growth from what we did in Q2, given the easier comparisons, will improve in the second half and then go positive into '25. Certainly, as Lal mentioned, the green shoots in the defense part of their business, we've been very strong. We're starting to see projects unlock on the battery testing side from an EV perspective. So we're starting to see activity come through. Again, the one segment which hasn't seen the recovery, which typically we play in, RF and mixed signal in semiconductors. The memory and the logic piece is not a big piece of our business. We expect that to come back first followed by the activity in RF and mixed signal chip testing. So that recovery is really what's pushed out by 6 months. But outside of that, everything is coming in as expected. Operator: The next question is from Steve Tusa, JPMorgan. C. Stephen Tusa: So I'm just trying to kind of calibrate the second half a little better. I think you guys, typically from a seasonal perspective, more or less accelerate sequentially as you move through the year. This year seems like it's a bit more kind of flat just from a quarter-to-quarter sales perspective and then with much less of a ramp from 3Q to 4Q. Anything on the top line seasonally that is not as -- is not normal, is a little slower than usual on the core business, outside of NATI and outside of Aspen? Ram Krishnan: No, actually -- and the way I see it is our second half versus first half will be up high single digits sequentially from a sales perspective. So it is consistent with the normal seasonality of how our core business minus NATI, minus Aspen performs. Now obviously, Aspen is lumpy and that's in the underlying number. So that could mask the normal seasonality that we see. But in the core base Emerson operations, the second half to first half is up high single digits sequentially from a sales perspective. C. Stephen Tusa: And I guess, given the mix of MRO is so high today and the growth really isn't that strong, is the mix really changing that much? I mean, is the -- how much is the kind of lower-margin project stuff going to be up in the second half more than MRO, you know what I mean? Like can this change that much quarter-to-quarter? Surendralal Karsanbhai: No, Steve, it doesn't. So look, we were at 65% in 2023. In Q2, we're at 64%. So there was 1 point shift. That may move yet another point as we go through the year. But no, you're right. And the underlying strength of MRO in our process and hybrid business is still intact. And as certainly we go through the summer and approach the fall outages and STOs and turnaround opportunities, we look at, at least from this point in time, rather positively as well. So that's what's going to play into this as we go through the second half and, hence, gives us confidence also on that exit rate on orders for the year. C. Stephen Tusa: And then just one last one on NATI, I don't -- I haven't done the math on this 3Q guide. But is that down sequentially and then up sequentially in the fourth quarter? It looks to me like the revenue run rate now, at least for the second half versus 2Q, is basically flattish at around $370 million or something like that. Is that the right construct for NATI in the second half? Ram Krishnan: So flat Q3, sequentially up in Q4. C. Stephen Tusa: Yes. So it's bottomed, the revenues have bottomed there? Ram Krishnan: Yes. Operator: The next question is from Joe O'Dea, Wells Fargo. Joseph O'Dea: Can you dig in a little bit on the growth trends in Measurement & Analytical and Final Control? I mean, it seems like Measurement & Analytical organic, low double digits, maybe even touch low-teens this year, Final Control, mid-single digits. Just some of the differences in those growth rates, what you're seeing on the measurement side versus what you're seeing on the Final Control side. Ram Krishnan: So measurement solutions this year, you're spot on there, it's going to grow faster than Final Control primarily because that was the business that suffered the most from our backlog build due to lead times. Those -- that backlog is coming down. So the delta in growth rates between Final Control and measurement solutions from a sales perspective is purely that backlog dynamic. Order rates for both businesses, which is a signal of the underlying demand with both businesses being exposed to process and hybrid markets, relatively the same, mid- to high single digits. Joseph O'Dea: Got it. And then it looks like on AspenTech, the fourth quarter EBITDA is implied down something in the neighborhood of kind of $20 million year-over-year. Is that more revenue-related, margin-related, just to understand kind of line of sight into that if that's sort of ballpark what we're looking at? Ram Krishnan: Yes. So ballpark, that's what we're looking at. It is lumpy, given the ASC 606. And we'll continue to work the Aspen fourth quarter. But at this point, yes, it's forecasted to be down from Q3. Operator: The next question is from Brett Linzey, Mizuho. Brett Linzey: Wanted to come back to the power franchise. So I imagine there's an opportunity on the newbuild but also the retrofits on the installed base as some of these LTSAs expire with some of your peers out there. Is there a way to frame the content per unit or megawatt? And then any runway on some of the retrofits? Surendralal Karsanbhai: Yes, we'll give you some perspectives and some guidelines. On a 1,200-megawatt combined cycle plant, the project opportunity, or KOB1 opportunity, is approximately $20 million. It's $5 million in the control system, approximately $15 million of instrumentation and valves. The lifetime MRO opportunity over a decade is another $20 million of upgrades. And that lives through about a 10-year period. So it's very significant. And you can just calculate then off the megawatts, depending on the size of the plant. So certainly, there are upgrade opportunities. That's what -- a lot of what we're seeing in the revamps. We see also on the nuclear side, extension of plant life, which is very meaningful for us, not just from an Ovation perspective with Westinghouse but certainly from an instrumentation perspective and valve perspective. So all dynamics in the global power market are pointing very positive right now. Brett Linzey: Very helpful. And then just on inventory levels, I know your channel dynamics are a little bit different than peers, but maybe you could just frame where you see inventories in some of those sort of channels. And specifically at machine builders, inventory levels, I think, are a bit elevated. But just curious what your assessment and characterization is for the near term here. Ram Krishnan: Yes. For our discrete business, our Discrete Automation business, I think inventory levels have certainly normalized in the channel. So we see no dynamics around that. The Test & Measurement business at NI, there is still some elevated levels of inventory in our portfolio business-related channel partners' distribution that should bleed out over the next quarter, which will be helpful for order rates in the portfolio business to turn. But net-net, we don't see any major dynamics around channel inventory that would impact our orders momentum. Operator: The next question is from Julian Mitchell, Barclays. Julian Mitchell: Maybe just wanted to start off with the Discrete Automation business. Ram, you touched on the inventories at some of the customer levels just now being normal. So when we think about your discrete business, is it in the third quarter sort of flattish sales, down a little bit year-on-year and in the fourth quarter in discrete, you're up year-on-year and sequentially? Is that the recovery slope? Ram Krishnan: Yes, sir. Yes, quarter-over-quarter, flat in Q3, slightly positive in Q4 is kind of how we're looking at orders. We saw a recovery in the fourth quarter, correct. And then for Test & Measurement, which is also exposed to the discrete markets but a different type of discrete market exposure, recovery into the first half of '25 primarily because of the heavy play in semicon and a bigger portfolio of business in China. Two of those markets are seeing slower recovery than our broader Discrete Automation business within the core Emerson. Julian Mitchell: That's helpful. And maybe just on the Aspen side of things, Lal, you'd mentioned the CFO change and reiterated there's no big portfolio actions at Emerson this year. Maybe just characterize sort of with Aspen in general, how you're thinking about your discussions with them on their capital deployment plans. I've seen they've continued to do the share buybacks. And when you look a little bit further out beyond this year, the appetite on kind of software acquisitions, please? Surendralal Karsanbhai: No, sure. No, first, very -- continue to be very excited about the partnership that we have with AspenTech. I do believe, Julian, that together, we have a highly differentiated tech stack that we bring to the customer base. And I think that's been highly substantiated by the synergy wins, the level of customer engagements that both Antonio and I have around the world. And we continue to believe in the premise that 1 plus 1 equals 3 here. In terms of the CFO, rightfully, I think you said it right, I'm excited from a perspective of the processes and structure that can be brought in. I think there will be a really good working relationship between Antonio and David Baker. And he brings a lot of the Emerson Management System into AspenTech with him, which we believe is important from an operating perspective. And then lastly, look, no, no comment on the go-forward. We're going to operate the structure as is, keeping in mind, Julian, that we're only in the second year of this journey. And we believe that there's value to be created out there in the structure. So for now, no change. Operator: And the last question is from Andrew Obin, Bank of America. David Ridley-Lane: This is David Ridley-Lane on for Andrew Obin. Just wanted to circle back, I know that there was some pull-forward of orders last quarter. How does that -- if you kind of normalized your first quarter and second quarter for that, what did that trend look like? And just to put a little finer point on it, should we be expecting low single-digit orders growth in the third quarter before stepping up in the fourth? Ram Krishnan: Yes. So we were plus 4% in Q1, down 1% in Q2. So low single digits for the first half, greater than 1 book-to-bill. And then in the second half, you are right, low single digits in the third quarter and arguably, the fourth quarter which is, at this point, baked in better than the third quarter. Let's put it that way. David Ridley-Lane: Got it. And then on the sustainability and decarbonization project funnel, I know that's nearly doubled over the last 18 months. Are these projects kind of getting closer and closer to final investment decisions, kind of like the carbon capture when you cited with Shell this quarter? Ram Krishnan: Yes. I mean, in certain segments like biofuels and carbon capture, the hydrogen projects, which are large, are probably slower movement through the funnel. But I think we see considerable activity globally, certainly big in Europe, here in North America as well. But the pace of progression of these projects through the funnel is varied depending on the segment. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to the management for any closing remarks. Colleen Mettler: Thanks so much for joining the call today, and we look forward to callbacks later this afternoon. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Good morning and welcome to the Emerson First Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to our host, Colleen Mettler, Vice President of Investor Relations at Emerson. Please go ahead. Colleen Mettler: Good morning, and thank you for joining us for Emerson's first quarter 2024 earnings conference call. Today I am joined by President and Chief Executive Officer, Lal Karsanbhai; Chief Financial Officer, Mike Baughman; and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with the slide presentation, which is available on our website. Please join me on Slide 2. This presentation may include forward-looking statements which contain a degree of business risk and uncertainty. Please take time to read the Safe Harbor statement and note on the non-GAAP measures. I will now pass the call over to Emerson's President and CEO, Lal Karsanbhai, for his opening remarks. Lal Karsanbhai: Thank you, Colleen and good morning. I'd like to begin by thanking the Emerson team for delivering a strong start to 2024. I'd also like to extend my appreciation to the Emerson Board of Directors and to our customers for your continued confidence in us. Our first quarter results demonstrate, the underlying strength of the markets we serve, the meaningfulness of our differentiated technology and the relentless execution of our global teams. Please turn to Slide 3. Q1 was a strong start for Emerson. As we continued our focus on executing and driving value creation for our shareholders. The demand environment remains healthy for process and hybrid markets. We continue to see projects moving forward at a healthy pace in markets like chemical, LNG, life sciences, metals and mining and sustainability and decarbonization. Even in the face of higher interest rates, ongoing geopolitical challenges, and upcoming elections in key global markets, including the U.S. Our customers 2024 CapEx budgets are shaping up constructively, and are largely supportive of the demand environment we are experiencing. This robust environment, along with continued execution by our teams is a key contributor to the Q1 performance. Q1 orders, sales, operating leverage and adjusted earnings, all exceeded expectations, providing confidence to increase our full year guidance. This performance reflects our ability to win with a focused approach to our growth platforms and through continued investments in innovation. It is also a testament to our new differentiated portfolio with leading technology, strong profit margins, and exposure to the important global secular growth markets. This is exhibited by our gross margin and adjusted EBITDA expansion since 2021. Our business is well positioned to capture investments in areas like energy security and affordability, sustainability and decarbonization, digital transformation, and nearshoring. Regarding our portfolio, we continue to reiterate that the large parts of our portfolio transformation are complete, and we do not expect any sizable transactions in 2024. This is a portfolio we designed from the beginning, and we are excited to be executing with this set of businesses. On that note, test and measurement is executing well and had a strong first quarter ahead of our expectations. The quarter performance and an acceleration of synergies provide more confidence, for our full year expectations from the business. Please turn to Slide 4. Emerson's Q1 exceeded all expectations. Underlying orders continued to grow in the mid-single digit range, with 4% growth in Q1. Processing hybrid markets were strong and discrete orders remain down as expected. Multiple LNG projects booked in the quarter, specifically in Europe and the Middle East. Life sciences activity was also strong across the globe, with large project wins in the U.S., Canada, Europe and Asia. The Q1 growth was also supported by some project activity shifting from Q2 to Q1. As you all know, orders can move around quarter to quarter, but we still expect low single digit order growth in the first half of 2024 and mid-single digit order growth for the full year, as discrete demand improves in the second half. Underlying sales for the quarter grew 10%. Again, led by process and hybrid markets, exceeding our expectations. Energy transition markets and metals and mining will both bright spots in the quarter, as we executed numerous projects across Europe, Latin America and Australia. This volume combined with favorable price cost and a strong operational execution resulted in 41% operating leverage in Q1, ahead of our mid 30s expectations. Adjusted EPS was $1.22 up 56% versus 2023. And free cash flow was $367 million, up 51%. Mike Baughman, will go through this specific shortly, but we are excited about our first quarter performance. On Slide 5, our current strategic project funnel grew by approximately $200 million to $10.4 billion, and our growth programs continue to represent nearly two-thirds of this funnel. The continued expansion of the funnel is promising, with existing customers and new entrants continuing to plan and budget for capital projects in the coming years. In the first quarter, Emerson was awarded approximately $400 million of project content, with a little more than half from our growth programs, including three noteworthy deals in energy transition. First, Emerson was selected by DG Fuels in Louisiana, to provide our comprehensive automated automation portfolio, including advanced sensing, control systems, and optimization software for the production of sustainable aviation fuels. These fuels can be used in existing aviation and vehicle engines, and DG Fuels has previously announced agreements with aviation leaders, including Air France, KLM, Delta, and Airbus. Next, Emerson was chosen to automate a lithium ion recycling process based on our metals and mining expertise and experience throughout the lithium value chain. Emerson will provide SungEel HiTech, a specialist in lithium battery recycling in Korea, with advanced automation solutions, for safe and reliable operations at its newest facility that is capable of supplying materials for approximately 400,000 electrical vehicle -- electric vehicles each year. Lastly, Emerson and AspenTech were jointly selected for a large scale LNG liquefaction facility in the Middle East. The project will win represents Emerson's strong presence in the region, including an already sizable LNG installed base. The win is also recognition of the collaboration in synergies between Emerson and AspenTech. As Emerson's DeltaV was selected, along with AspenTech's high simulation, showing the power and differentiation of our combined portfolio. As we look at the continued needs of Europe, and its reliance on gas imports, the Middle East and Africa will play a pivotal role in gas exports. Emerson is uniquely positioned with our local expertise, manufacturing and installed base to serve the region in its LNG growth. These are just three examples of Emerson's continued leadership position in energy transition markets, spanning from established markets like LNG to newer markets, like sustainable aviation fuels. Turning to Slide 6. We remain focused on accelerating innovation for profitable growth. Our recent innovations and our continued technology leadership were recognized by IoT Breakthrough, who named Emerson its 2024 Industrial IoT Company of the Year. IoT Breakthrough received over 4,300 nominations for the 2024 competition, and Emerson was selected based on our unique ability to effectively leverage decades of expertise in digitalization and automation to help the industry transform operations. Among the innovations recognized were Emerson's Ovation green portfolio for manning renewable power assets, Florida cloud solutions to continuously monitor critical production and energy efficiency data in factories, one-click transfer software capable of accelerating the life sciences drug development process, and numerous releases focused on enabling the boundless automation vision, including the DeltaV edge environment. As you recall, boundless automation is Emerson's vision for a cohesive automation ecosystem from device to enterprise. Integrating operations with a flexible automation architecture allows users to have access to all their data, enabling analytics and performance improvements across numerous domains like production, safety, reliability and sustainability. All these innovations will be on display at Emerson's upcoming Users Exchange at the end of February. Emerson Exchange in Dusseldorf, Germany will feature customer case studies, industry sessions and a technology exhibit demonstrating Emerson's leading automation portfolio for process and hybrid industries. New this year are industry-focused exhibits showcasing Emerson's complete solutions for emerging industries like hydrogen, biofuels and carbon capture in addition to growth markets like life sciences and metals and mining. Please turn to Slide 7 for an update on our synergy progress in test and measurement. We effectively use the time between signing and closing to plan all integration and synergy activities, utilizing a world-class M&A methodology as part of our Emerson Management System. Given the strong team collaboration in current market environment, we have accelerated those synergy activities. In the first quarter, we worked closely with the new test and measurement leadership team to aggressively address public company and corporate costs while rapidly implementing Phase 1 of our sales and marketing and research and development transformations. We are also leveraging our Emerson Management System and best practices to progress operational execution and commercial excellence at test and measurement. This includes trade working capital, price realization and procurement efficiencies in logistics and direct materials. These efforts put test and measurement ahead of schedule and give us the confidence to increase the cost synergy target to $185 million, which we now expect to achieve by the end of 2026, two years faster than originally expected. This includes approximately $80 million expected to be realized in 2024. Our planned cost to achieve these synergies increases slightly to $165 million with the majority of the spend expected in the first two years. We still expect adjusted segment EBITDA to reach approximately 31% by year five, as sales grow on the reset cost base. I'll now turn the call over to Mike Baughman to go through more detail on the quarter performance, including test and measurement and our updated 2024 guide. Mike Baughman: Thanks, Lal, and good morning, everyone. Please turn to Slide 8, where we have summarized our first quarter financial results. Underlying sales growth was 10%, led by our process and hybrid businesses. Intelligent devices and software and control grew 11% and 9%, respectively. Discrete automation was down low single digits as expected. All world areas were strong with Asia, Middle East and Africa up 15%, Europe up 10% and the Americas up 8%. Price contributed approximately 2 points of growth. Test and measurement, which is outside of the underlying sales measure, contributed $382 million, exceeding expectations for the quarter. I will discuss test and measurement performance in more detail on the next slide. Backlog is now $7.6 billion, which is up $500 million versus September 30, when excluding test and measurement. Emerson adjusted segment EBITDA margin improved 190 basis points to 24.6%. Volume, margin-accretive price-cost, which included net material deflation, ongoing productivity programs and the test and measurement performance, all contributed to the margin improvement. Operating leverage excluding test and measurement was 41%. Adjusted EPS grew 56% to $1.22, up $0.44 and is a strong start to the year. Double-digit sales growth and 41% operating leverage contributed to the $0.33 of operational improvement year-over-year. Non-operating items contributed $0.11 year-on-year, mainly due to lower stock compensation, which contributed $0.08 versus Q1 of 2023. As a reminder, all legacy mark-to-market stock compensation plans are now complete. Also contributing to the non-operating items were interest income of 4% and share count, which contributed $0.02. Tax was a $0.03 headwind. Lastly, free cash flow for the quarter of $367 million was up 51% versus the prior year. This was in line with our expectations for the quarter as we saw modest improvement in work capital year-on-year. Headwinds related to acquisition fees and restructuring impacted the quarter by approximately $100 million, and CapEx was up $18 million year-on-year. AspenTech sales and ACV were slightly weaker than our expectations for Q1 driven mainly by a delay in renewal from one customer. This slight miss, however, did not have a material impact on total Emerson results versus our expectations. For the quarter, ACV grew close to 10%. And the AspenTech team continues to see strong market dynamics in power transmission and distribution and sustainability and decarbonization while at the same time utilizing Emerson relationships to win in LNG, life sciences and power generation. Turning to Slide 9, we will dive deeper into the first quarter performance of test and measurement. Orders were in line with our expectations, down 17% year-over-year but showed high single-digit sequential improvement led by the strength in aerospace. There was continued softness in semiconductor and automotive markets and ongoing weakness in China. We continue to launch orders as a key indicator and still expect to turn in the second half on easier comps. Sales for the quarter were $382 million, beating initial expectations. This was driven by stronger backlog conversion, lower-than-expected sales during the 11-day stub period prior to closing and a little conservatism in the guide given the timing of the close. Sales were $401 million, including the sales in the stub period. Test and measurement adjusted segment EBITDA margins was 26.5% in the quarter, beating expectations due to higher sales, better-than-expected gross margins and slightly higher cost synergies. The Q1 adjusted segment EBITDA margin benefited from lower-than-expected sales in the stub period against ratable fixed costs. Test and measurement contributed $0.13 in the first quarter, including stock compensation expense and using the test and measurement tax rate, which is in the mid-teens. The stub period dynamic discussed earlier benefited the adjusted EPS contribution by approximately $0.02. Test and measurement's March quarter end sales volume has typically stepped down from its December quarter end. We expect similar seasonality with second quarter sales of approximately $350 million. Second quarter adjusted EPS contribution is expected to be $0.07 driven by leverage on the lower seasonal sales volume, partially offset by synergy savings. Turning to the full year. We have increased our expected adjusted EPS contribution from test and measurement to $0.40 to $0.45 to account for some of the Q1 upside. We still expect sales to be $1.5 billion to $1.6 billion as we continue to watch for the orders turn. Sales volumes are expected to ramp from Q2 to Q4, turning positive in Q4, consistent with our prior expectations. While we expect to sales to be down versus 2023, we expect modest adjusted EBITDA expansion as we recognize the cost synergies. Finally, I would like to thank the test and measurement team for an excellent quarter. The integration work has been performed exceedingly well, and your embrace of the Emerson Management System is very much appreciated. Thank you again to the entire test and measurement team. Please turn to Slide 10, for details of our Q2 and full year 2024 guidance. After our strong Q1 performance, we are increasing our full year 2024 sales and adjusted EPS guidance. We now expect underlying sales growth of 4.5% to 6.5% driven by our process and hybrid businesses. We expect both intelligent devices and software and control, to be within this guidance range for underlying sales. We continue to watch the discrete automation recovery closely, and we now expect sales to turn positive in Q4 consistent with test and measurement. Full year discrete automation underlying sales are now expected to be down in the low single-digit range. FX is expected to be approximately flat versus 2023 compared to a 1-point headwind embedded in our November guidance. Operating leverage, excluding test and measurement, is now expected to be in the low to mid-40s in 2024 versus the mid-to high 40s guidance from November. A modest reduction in our full year target is solely attributed to the move in FX as the 1% increase in sales volume comes in at a lower margin. Our adjusted EPS range increases from $5.30 to $5.45 driven by our Q1 performance. AspenTech is still expected to contribute approximately $0.32 to $0.34. Lastly, we are maintaining our free cash flow guidance of $2.6 billion to $2.7 billion. Share repurchase is expected to be approximately $500 million, of which $175 million was completed in Q1. For the second quarter, we expect underlying sales to increase 3.5% to 5.5% with leverage in the low to mid-40s. Tougher comps in discrete automation are expected to have an impact on reported sales growth for the quarter. However, volumes are expected to improve sequentially from Q1. Adjusted EPS is expected to be between $1.22 and $1.26. And with that, we will now turn the call back to the operator for Q&A. Operator: [Operator Instructions] The first question comes from Andy Kaplowitz of Citigroup. Please go ahead. Andy Kaplowitz: Good morning, everyone. Lal, I think your backlog at $7.6 billion, it was up relatively significantly, even excluding test and measurement addition with the orders, as you said, a plus 4%. Can you talk about organic order visibility going forward? It seems like process/hybrid has been relatively strong as you thought. Can you sustain that mid-single-digit kind of order growth going forward? And then have you seen an inflection yet in NATI-related orders? Lal Karsanbhai: Hi, Andy, no, happy to give you some color on the orders. So obviously, as you know about our business, orders can fluctuate on a quarter-to-quarter basis, which is why we guided in that lower single-digit range in the first half of the year, but finishing the year in the mid-single-digit range, as we are now. We have a high degree of confidence about that based on two factors, Andy, the first being our MRO business continues to be relatively strong. It represented approximately 65% of the revenue in Q1, and we expect that to remain robust as we go through the remainder of the year. And that provides us a strong base of order activity. Secondly, the conversion in the funnel. We booked approximately $400 million that represented almost a little over 90 projects that we won out of the funnel in the first quarter. The funnel grew despite that. And we continue to see activity, particularly in energy transition driven by the Middle East and Africa, in the sustainability area, life sciences, and of course, a tremendous amount of activity in metals and mining. So from an underlying Emerson perspective, the focus really is process and hybrid to continue to provide that underlying strength through the year. Now what we will see is a recovery in discrete in the second half, and that's what we've got baked in here. We are still in the lower single digits negative right now in our discrete markets. It's really demand-driven, as we've been talking about for the last couple of quarters. We do expect a recovery in orders into the second half, of course, between comps and obviously some demand elements there. As far as NI is concerned, it's very much on plan to what we expect in terms of orders. We do also believe that there's a second half positive return on the order activity. And we're starting to see early signs in markets, particularly like semiconductor, as you see these companies come out and report. So very much on plan on both ends and which gives us confidence in the underlying strength of the order activity, Andy. Andy Kaplowitz: Helpful. You obviously had a good quarter and raised the outlook. But maybe just on free cash flow, you didn't change your guidance despite the better quarter and outlook. Did you raise your acquisition-related costs? Is CapEx going up? Anything that you could talk about on that side or on the working capital side? Mike Baughman: Andy, it's Mike. I'll take that one. Yes, the guide was maintained at $2.6 billion to $2.7 billion. And with respect to the $250 million that we called out in November, that's tracking right on plan. About $100 million in the quarter plus the cap, that's on the operating cash flow items, mostly integration-related. And then we did see a little bit elevated CapEx, again, very much in line with expectations. We thought a lot about the guide, obviously. And just to go through a little bit of the math, we -- while we took up the earnings, we took up the sales, the net of that is about $50 million in cash flow, still within the $2.6 billion to $2.7 billion. So we elected not to take it up given where we set first quarter. But certainly sitting here today, I can tell you we feel better about the cash flow guide than we did three months ago, and it's all going to plan. Andy Kaplowitz: That’s great. Appreciate the color guys. Operator: The next question comes from Steve Tusa of JPMorgan. Please go ahead. Steve Tusa: Hi, good morning. Can you just talk about the -- just maybe the bridge, a little more clarity there from the $0.13 you did for NATI to the $0.07? It doesn't look like all of that account was accounted for by a $30 million sales decline. And then, I guess, on a -- just when you look out to this $1.55 billion guidance, going from what you've done in the first half, do we expect that to be kind of linear from the $350 million in Q2 in sales? Or is it kind of heavily loaded in the fourth quarter? Mike Baughman: Yes. Steve, it's Mike. I'll talk a little bit about the test and measurement performance and the EPS performance in the quarter. We talked a little bit about this stub dynamic, which really was simply the early 11-day period that we didn't own them the first part of the quarter. The sales were much lower than we expected. We expected something more ratable. They were not ratable. And that drove about $0.02 of improvement from what we expected. And the business leverages, as you know, really nicely. So pushing those sales out into the quarter drove part of that $0.13 performance. Now of that, there was also some Q1 sales that we were expecting in Q2. And so when we thought about the guide, we took that $0.08 beat and we rolled $0.05 forward, and that's where we landed. So great performance on test and measurement, and we're really off to a great start there. Ram, do you want to talk about the... Ram Krishnan: The second part of the question, yes, I think it's not all in Q4. So you'll see evenly distributed in Q3 and Q4, it will step up from the $350 million. So we feel pretty good about the $0.40 to $0.45 as we sit here. Steve Tusa: Right. And just one last one, just on the discrete. You guys have been a little more steady on that discrete performance. So you're -- relative to some of your peers who had a very strong backlog liquidation in the second half of last year, you guys kind of started to see some of that weakness. So the comps start getting easier in the fourth quarter, correct, the year-over-year comps? Ram Krishnan: Yes, actually, in the third quarter from -- and third and fourth quarter should be good quarters for us from a discrete perspective, correct. Mike Baughman: And orders. Ram Krishnan: And orders. And then sales will turn positive in Q4. Steve Tusa: Right. On an easier comp. Ram Krishnan: Correct. Steve Tusa: Yes. Okay, great. Thanks a lot. Appreciated. Operator: The next question comes from Jeff Sprague of Vertical Research. Please go ahead. Jeff Sprague: Hello. Good morning, everyone. Lal, two for me. First one, just on LNG. Obviously, it's a global business, and you talked about the Middle East. But just give us your perspective on what the administration has done on approvals in the U.S. and how that might impact your business, the funnels and anything related on your mind. Lal Karsanbhai: Yes. No, certainly, we're disappointed with the administration's decision to hold permitting -- export permitting regarding LNG, not just from an Emerson perspective, from an overall -- as an American, to be very honest. But it is a global business. We have significant activity ongoing in Qatar, of course, in Mozambique and in Guyana, which will provide ample activity and gives us confidence in the forecast that we have in the funnel movement. In terms of the projects we're executing in North America, we don't see any meaningful impact to 2024 at this point in time. The projects that we have won have the approvals required, not just for construction, transportation, but ultimately for exports. And our partners, Bechtel and others that we've discussed on these calls, have given us the confidence, Jeff, that we are -- that 2024 is relatively solid. Then as we go forward, we'll see. We continue to see accelerated strength in the East Coast of Africa and in the Middle East, and there's some activity up in Canada as well. So we'll see where that goes related to the U.S. decision. Jeff Sprague: And then just to be totally clear, Lal, the project funnel that you illustrate for us quarterly, does some of the non -- I guess, pending approval U.S. projects, are they in that funnel? Lal Karsanbhai: Yes, they're in the funnel. Depending on the year that we had, expectation of funnel looks at about a three-year lens of activity. So they are in the funnel there. And as you know, in the construction of a liquefaction -- excuse me, Jeff liquefaction plant is a 4- to 5-year event. So certain decisions will continue to be made based on assumptions of export licenses being awarded down the stretch, Jeff. Jeff Sprague: Right. And then just shifting on NATI real quick. Certainly suspect that your synergies initially laid out were somewhat conservative. But I wonder if you could address the 3-year versus the 5-year. So kind of the underlying cost synergies, I'm not surprised they're going up. I think part of the reason that you talked about 5 years was really treading carefully on salesforce, R&D organization and that sort of thing. So just give us your thoughts on where that is and maybe the cultural side of the integration, I guess, is the heart of the question. Lal Karsanbhai: Well, I will start with this, Jeff. We have a phenomenal management team by Ritu Fabre and a great integration team here at Emerson that works very closely with the business. The team spent a significant amount of time between signing and close to do the work so that we could hit the ground running. But of course, as you can imagine, this is a very large transaction. We bought this company because we believe it can grow and it can run better. And we wanted to have a degree of caution in how fast we could go, what we could accomplish. And to many degrees, we've been pleased with the degree of execution, the speed at which it's been done and the energy that the team has had around the effort, which then gave us confidence, not just to increase the number but to increase the time of execution -- to decrease the time of execution to 3 years. Ram, any color on that? Ram Krishnan: Yes, you said it. I think the team, as we both reviewed the plans, felt very, very good in the quality of the opportunities that we had identified, and there is a shared vision around, trying to get this done faster and moving the business along. And that's where we've been very pleasantly surprised, the cultural similarity between how we both think, the customer-centricity and how we apply the rules to do the synergy actions. I think there -- we feel very confident that we could move faster. And that's the reason we raised it, and we also believe we can get it done by the end of year 3. Jeff Sprague: Great, good luck. Thanks. Operator: The next question comes from Nigel Coe of Wolfe Research. Please go ahead. Nigel Coe: Thanks. Good morning, everyone. So obviously, a lot of questions on NATI so far, National Instruments, I guess. You've obviously accelerated the time line for the synergies. As Jeff mentioned, you raised it by $20 million. But you kept the 31% margin targets. Just wondering if there's anything kind of offsetting the upside to cost synergies we should consider there? Mike Baughman: All right. Nigel, it's Mike. No, there's really on plan. And remember, that's five years out that we were talking about, 31%. We are on track. I think the important thing for the near term is that our expectation around that adjusted EBITDA margin will be that it's a little bit up year-over-year on down sales, reflecting the synergy actions. And moving forward, no, there's really no change to our longer-term expectation around the profitability of test and measurement. Nigel Coe: No, no. But the $20 million gives you an extra point of margin. So just wondering if there's anything to offset that. It doesn't sound like there is, but just that's the spirit of the question. Mike Baughman: There isn't. I mean at the... Nigel Coe: Yes, go ahead. Ram Krishnan: No, there isn't. There isn't necessarily anything we've identified to offset the $20 million. I mean the 31% margin targets 5 years out. I mean, obviously, what we are finding is good investment opportunities. And right now, we're focused on executing the synergies by year 3. If we find good investment opportunities, we'll make that because I think 31% is the target we've set, and we feel pretty comfortable getting there. But if the $185 million comes through with no additional investment opportunities, maybe the number goes up, but that applies your outnumber. Nigel Coe: Okay. No, that's fair. I know I'm being counting, but just this worth question. And then you had some extraordinarily strong growth numbers within ID. I mean the 28% within measurement analytics. It looks like it's just an easy comp. So just -- maybe just talk about that a little bit. But more importantly, there's a theory out there that the process and hybrid markets are on a lag of discrete. And therefore, the spot part we've seen in discrete automation right now is sort of like a precursor for what you might see six months down the road. So can you just maybe address that point? And just anything unusual or concerning that you're seeing? It doesn't sound like it, but certainly, just maybe address that concern out there. Lal Karsanbhai: Yes, happy to, Nigel. I've been speaking and been asked about this for the last three quarters or so. And again, what we experienced in the quarter continues to be very consistent with our initial commentary. The drivers around process and hybrid are being supported by the secular macros that we've been discussing, whether it's energy security, affordability, nearshoring, sustainability to digital transformation. And I think those macro secular drivers are robust enough and secular in nature that they will go through a different type of cycle than we've seen historically. Secondly, we did not experience a boom and bust environment in the process space in over the last cycle. This is a much more moderated capital cycle that we experienced. So we don't have the overcapacity situations and the overbuild situations that we have typically experienced. There was much more discipline in the capital layouts by our customers. And that's a benefit as well. So our business continues to be very robust, obviously. We continue to have confidence in the order runs and in the execution through the year. Ram Krishnan: Yes. Just to answer the first part of your question, measurement solutions up 28%. That's a function of that the supply chains coming back in that business. If you remember, it was an easier comparison. Q1 of last year, we had significant challenges on the electronics front, which have alleviated. So our orders are up high single digits, sales up 28% driven by improving supply chain. So it's clearly a data point driven by weaker -- easier comparisons, I would say, with Q1 of last year. Nigel Coe: Right. That’s perfect. Thanks. Operator: The next question comes from Scott Davis of Melius Research. Please go ahead. Scott Davis: Hey, good morning, everybody. Congrats on a good start. I wanted to back up a little bit when you talk about R&D transformation at test and measurement. What do you mean? Is it like an 80-20 type thing that you're going to refocusing? Or just -- I know they're -- those good folks at NATI always spend a lot of money. But was it generally unfocused, do you think? Or how do you guys think about it? Ram Krishnan: Yes. I think it's purely on prioritization of the projects. I think we've gone in with our management system on how do we focus on the critical few priorities that can move the needle from a growth perspective. I mean there's lots of opportunity. The beauty of what we're finding at NATI is a culture of innovation, plenty of opportunities across 4 very important market segments where we can move the needle, macros around those markets like EVs, ADAS and semiconductors that are supportive of strong innovation. But I think we're bringing some discipline into how do we prioritize, how do we look at where do these resources need to be in order to balance cost capabilities, particularly in software versus Austin, for example. And I think these are prudent moves that will allow us to drive more innovation at a better cost from an R&D as a percent of sales. Lal Karsanbhai: And I will just add, Scott, to that. I think a company like NI with the market position it has in the space and the legitimacy of its technology will always have a role in the research element of innovation. That's always going to be a responsibility that we have in the space to continue to move that needle forward. And we will, by all means, as we do in all our businesses, continue that. But having viable commercial programs is important. And that's where parking some cars and investing heavily in the ones that we believe and management believes will ultimately result in customer success is really important. So really good work and thoughtful work being done by the team here led by Ram, of course, and Ritu. Scott Davis: Helpful context. If we back up a little bit again, you cited the SAF win with DG Fuels. Can -- what is the scope when you classify something like a win like that? Are you talking full meters, valves? Is there controls? Is there -- is it kind of across a full suite of offering? Or is there more specific stuff that you target for those types of projects you would class as a win? Lal Karsanbhai: Yes. No, this was a -- if you think about our -- the automation stack, this was pretty much across the entire stack, the final control elements, the muscle in the plant, the sensing elements that we use both flow, pressure level and temperature, the DeltaV control system and then the analytics packages alongside it. So this was a holistic full package, 100% Emerson win, which really proved out the value of the portfolio and how it all comes together at a customer site. Scott Davis: Helpful. Thank you. Congrats. I’ll pass on. Operator: The next question comes from Julian Mitchell of Barclays. Please go ahead. Julian Mitchell: Hi, good morning. Just wanted to circle back to the discussion around sort of process investments by the large customers, particularly in the sort of oil and gas and energy world. Because it does seem as if there's an understandably a clear effort on that part is sort of shovel more of their cash to shareholders, whether they're government in the Middle East or public shareholders in the West. So just wondered your thoughts, Lal, on the kind of sustainability of that high single-digit orders growth in process that you saw in Q1. Should we expect that to moderate over the next sort of 12 months or so? And does that then pull the backlog down with it? Or the book-to-bill was so high that the backlog can still grow with moderating orders? Lal Karsanbhai: Yes. It's a great question, Julian. I just returned from the Middle East where our team spent -- India and the Middle East, so our team spent time with significant customers in Saudi Arabia, Abu Dhabi, Qatar. And I can tell you that the environment is very robust, predominantly around sustainability and energy transition, those 2 elements. And I think there's enough demand-driven activity that will give us confidence in the sustained mid-single-digit kind of exit rate on process on the total company orders at the end of the year. So at this point, we've been thinking and analyzing this now for about three quarters or so. But we haven't seen any kind of deceleration in the process, particularly in the spaces that you're asking about. As a matter of fact, we continue to see very disciplined spending, very intentional around core elements of automation that can differentiate production around reliability, efficiency, productivity, of course, and safety. And that hasn't waned yet. And I don't -- we don't foresee that as we go through the year. Julian Mitchell: That's helpful. Thank you. And then just a much more sort of near-term fiddly question. Just looking at the second quarter guide on Slide 10, so the EPS at the midpoint is going up maybe $0.02 sequentially from Q1 despite a decent revenue and volume increase sequentially. Partly, that's the test and measurement earnings falling sequentially. But just wondered if there was anything else like in the base business changing in terms of mix or something like that as you move from sort of Q1 to Q2. Mike Baughman: No, you hit it right with the test and measurement comment. And the leverage in the low to mid-40s coming through reflects no big change in mix or trajectory. So no, really nothing there on the Q2 guide. Julian Mitchell: Great. Thank you. Operator: The next question comes from Chris Snyder of UBS. Please go ahead. Christopher Snyder: Thank you. I also wanted to ask on National Instruments. Q1 came in about $80 million above the guide. But you guys are now talking to a full year of $1.5 billion to $1.6 billion. All the commentary on the last call was $1.6 billion. So I guess, why that range following the beat? Is it just a rounding error? Or is National Instruments maybe turning a little bit slower than you thought previously? Thank you. Colleen Mettler: Yes. Chris, if you go back to November guide, that range has remained consistent. I think it was just a round in $1.6 billion that was being spoken about. Christopher Snyder: Yes, thank you. And then I just want to ask on margins. It's been a real bright spot for the company over the last couple of years. You guys beat the incremental guide again here in Q1. But I believe the full year guide on the incrementals was lower, I think, from -- to low to mid-40s from mid- to high despite the Q1 beat. Is there anything there on mix or something that we should be aware of? Thank you. Mike Baughman: Yes. Chris, the -- in the comments, we talked about the effect of foreign exchange. We changed assumption there, and it had a 1-point increase on FX, which comes into the leverage number with a much lower profitability attached to it. The drivers around leverage remain the same with volume and leverage and price/cost, and then we continue to drive the Emerson management process with cost reductions to offset inflation, so yes. But to answer your question specifically, the change in the guide was really solely attributed to that FX element. Christopher Snyder: Thank you. Operator: The next question comes from Deane Dray of RBC Capital Markets. Please go ahead. Deane Dray: Thank you. Good morning, everyone. Look, there's been a lot of focus on the progress you're making on the cost synergies front in National Instruments. Can we talk a bit about expectations for revenue synergies? It might be too early, but just timing and size and where it might come from? Is it cross-selling? Are there new customers you've been opened up to? But just what's the expectation? Lal Karsanbhai: I'll let Ram add a little bit of color. But certainly, it's something that we're keenly working on. Obviously, the focus was on the commitment on cost. And we do believe alongside management that, that is a -- had been and is an evident opportunity. Having said that, we are -- I'm not going to suggest that we're 3 or maybe even 6 months away to come out publicly with some sales ideas, but we're certainly working on customer-specific ideas on sales synergies. Ram and I and Ritu have held a number of customer meetings jointly and thinking through opportunities that we have across the Emerson portfolio as it comes in with NI. Ram? Ram Krishnan: Yes. And just the 2 end markets are clearly going to be EV batteries where -- on a holistic basis where we play on the production automation and NI plays on the validation and test systems on the R&D side and then similarly in semiconductors, 2 markets where I think there's enough customer overlap and a joint capability that provides meaningful value to our customers from R&D through validation, through production is where we will see the opportunities. We're working it. We're not ready yet to commit and quantify the sales synergies, but these are certainly in focus, and we're working through the process. Deane Dray: Great. And then just second question, I joined a bit late, so I apologize if you've covered this, on China. A lot of anxiety about the macro there. It doesn't look like you're positioned in the areas that -- like real estate that are having the most pressure. But just what are the expectations? What are the opportunities over the near term? Lal Karsanbhai: Yes. We grew high single digits in the quarter in China sales. We expect in that high -- mid- to high single digits for the year. Our business continues to be relatively robust, again, aligned, Deane, to those same macro secular drivers that we're seeing globally. It's no different in China. Perhaps the end markets are slightly different, specialty chemicals and a few other things. But our position is very strong. Our regionalization strategy has been very strong. And we expect to continue to win in China as we go through the year. Ram, anything? Ram Krishnan: Yes. No, you said it. I think in our core process hybrid business, power and chemical will drive the growth. I mean, obviously, what's not in the underlying numbers is test and measurement. Test and measurement is consistent with discrete. Off to a tougher start in China, but expecting a second half recovery, consistent with what we're seeing with the discrete business. Deane Dray: Thank you. Operator: The next question comes from Joe O'Dea from Wells Fargo. Please go ahead. Joe O’Dea: Hi, good morning. Just in terms of the remaining 9 months of the year and the guide, obviously off to a strong start. But organically, any change in how you're thinking about that versus 3 months ago? It seems like not much change in what's implied in the organic growth rate. If anything, I think the math would suggest the margins could have ticked down a touch. But I just want to make sure, is the message that the last 9 months of the year, no real change in kind of the organic side of the expectations? Lal Karsanbhai: No. We remain Joe, very positive on the environment. Obviously, we couple that with the strong execution by our teams. But in terms of the organic outlook, no change really. Joe O’Dea: Okay. And then related to the strength in measurement and analytical, I understand some commentary on easier comps, but the stacks did improve sequentially. And so as it relates to supply chain, where are you on a normalization? You know, the orders up high single digits is a pretty encouraging number. Are you at a point now where there's still some pent-up backlog to ship out? Or do you view it as having gotten pretty close to more normalization at this point? Ram Krishnan: Yes, the supply chains have normalized. So in terms of our ability to procure electronics and load factories and drive production out of factories, we feel that's normalized. Now certainly, in the measurement and analytical business, there is some overdue backlog that will ship through Q2. The easier comparisons and our ability to ship that backlog is what drove the 28% in Q1. You'll see that in the measurement and analytical business. That's the last business normalizing from a supply chain perspective. But the demand environment for that business still remains very healthy with orders up in the high single digits. Joe O’Dea: Got it. Thank you. Operator: And the next question comes from Brett Linzey of Mizuho. Please go ahead. Brett Linzey: Hey, good morning. Thank you. Wanted to come back to the project funnel. I was hoping you might be able to give some color on the profitability of the growth platforms. And is there anything different or unique about the aftermarket or service attachment rates and the way those deals were structured and Emerson's wallet share there? Lal Karsanbhai: No, nothing really different. Look, the profitability certainly varies between MRO and project activity, but that's well known. I think you know that well. But in terms of the mix within the funnel, there's not really a significant difference between a growth platform and traditional project work there. Of course, we have a $150 billion installed base around the world. And with that, some of that is obtained through and managed through service contracts, a large portion of it, where we have commitments for replacement and maintenance with many of our global customers. And others are upgrades, activities and things of that sort. Brett Linzey: Okay. Great. And then just shifting to price/cost, I think the original guide was about 2 points. You had 2 points in the quarter. Has the expectation changed at all for the year? And then any movement on material or non-material inflation that is shifting expectations at all on the cost side? Ram Krishnan: No, price is 2 points in the quarter, 2 points for the year. We feel good, no change there. In terms of our net material inflation, I think we're seeing continued opportunities that we're driving on the direct material side. The logistics costs have come down. We don't see any impact in terms of inflation or it's de minimis from the dynamics around what's going on with -- in the Red Sea or the Panama Canal. So we see NMI or net material inflation continuing to improve as we go through the year. Brett Linzey: Okay, great. Appreciate the insights. Best of luck. Operator: This concludes our question-and-answer session, and the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Good day and welcome to the Emerson Fourth Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Colleen Mettler, Vice President of Investor Relations. Please go ahead. Colleen Mettler: Good morning, and thank you for joining us for Emerson's fourth quarter and full year 2023 earnings conference call. Today I am joined by President and Chief Executive Officer, Lal Karsanbhai; Chief Financial Officer, Mike Baughman; and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with the slide presentation, which is available on our website. Please join me on Slide 2. This presentation may include forward-looking statements which contain a degree of business risk and uncertainty. Please take time to read the safe harbor Statement and note on the non-GAAP measures. I will now pass the call over to Emerson's President and CEO, Lal Karsanbhai, for his opening remarks. Lal Karsanbhai: Thank you, Colleen. Good morning. 2023 was an exceptional year for Emerson. The management team, alongside the Board of Directors, boldly delivered across the three dimensions of our value creation strategy. Firstly, culture. Our management team just completed a trip around the world where we had the opportunity to engage with our customers and our teams. It was an energizing trip and it was evident to me that the changes we are driving in the culture of Emerson are embraced as evidenced by our engagement survey. 2023 was an important year. We made significant progress across multiple dimensions of culture. We rolled out an employee value proposition, advanced our diversity and inclusion metrics, and made significant strides in our sustainability targets as well as launching a differentiated talent engine program. Second, our portfolio transformation is largely complete. The Copeland divestiture and more importantly, the acquisition of NI have enabled us to create an Emerson focused on automation with a cohesive, higher growth, higher profit margin, diversified portfolio aligned to the critical macro secular drivers, energy security and affordability, near assuring, sustainability and decarbonization, and digital transformation. I would like to welcome Ritu Favre and the NI family to Emerson. This is an exciting time. With NI, our technology stack is unequaled, and we are in position to continue to push the boundaries of automation to meet our customers' needs. Thirdly, execution. The Emerson management system is delivering differentiated results. Underlying sales for 2023 grew 10%. GPE expanded 330 basis points to 49%. And adjusted Segment EBITDA expanded 220 basis points to 25% after delivering yet another year of over 50% leverage. Adjusted earnings per share in 2023 grew 22% to $4.44 and free cash flow was $2.4 billion. Orders growth exited the year at 5% and we grew across all world areas. We had strong price realization in the business at 4% for the year. And MRO represents 65% of our revenue with now a $150 billion installed base around the world. And we exited the year with $6.6 billion of backlog, up 12% year-over-year. We delivered on innovation in 2023. It was a year of significant releases in our DeltaV platform, Aspen models, and intelligent devices. Our R&D spend as a percent of sales rose to 7% in 2023. Cost management is the way of life at Emerson. The differentiated leverage of 53% is reflective of aggressive cost actions across our business. We also delivered on commitments of no stranded costs related to the Copeland transaction, and will be delivering on the $100 million corporate cost takeout by the end of 2024 through significant transformational activities driving certain functional activities to centralization and best cost locations. I am humbled by the exactness of our performance And I'm certainly optimistic about the future of our company. I'd like to express my appreciation to our customers who increasingly place their trust in Emerson to solve the world's most challenging problems. And lastly, in my opening remarks, I'd like to say I am but one of over 70,000 Emerson team members around the world. I'd like to thank our global employees for your passion, hard work, and energy that you bring to Emerson every single day. Please turn to Slide 3. As I said earlier, and it bears repeating, 2023 was an exceptional year. We are excited to run this cohesive high growth and diversified portfolio. The financial performance was differentiated with double-digit underlying sales growth, 53% operating leverage, and 22% adjusted EPS growth. As we look ahead, 2024 is expected to be another strong year. Operating leverage, excluding NI, is expected to be in the mid to high 40s, and adjusted EPS is expected to be $5.15 to $5.35, including roughly $0.35 to $0.40 contribution from NI. We hit the ground running on October 11, as soon as we closed the transaction, to begin executing the synergy plan and we expect it to provide early benefits in 2024. We are expecting 4% to 6% underlying sales growth, driven by our focus and commitment to winning in our growth platforms, and leveraging our innovation. Energy transition, industrial software, life sciences and metals and mining are expected to remain resilient parts of our portfolio and we are utilizing our leading technology, customer relationships, installed base and expertise to capture investments in these markets. While discrete markets are down in both our factory automation business and test and measurement, we are expecting recovery in the second half of the year. Turning to Slide 4 for some additional details on how we finished the year. 2023 was a remarkable operational year for Emerson. Starting with the orders performance, our teams executed exceptionally throughout the year. We won in the marketplace. We won in markets like LNG, hydrogen, renewables, life sciences, and metals and mining, resulting in 5% orders growth for the year. This shows our portfolio relevance and leadership position for our customers. Orders were also up 5% in Q4, led by double-digit order growth in China and the rest of Asia. Underlying sales were up double digits for the year, exceeding our initial expectation of 6.5% to 8.5% last November and in line with our August guidance. The strength was widespread across the organization with all world areas growing 9% to 10% and both business groups growing 10%. I am most proud of our performance around operating leverage this year. 53% is differentiated. It is a testament to our Emerson management system and our operational talent, which drove strong performance. Adjusted EPS ended the year at $4.44, beating the midpoint of our original November guidance by $0.37 and near the top of our August guidance. Lastly, free cash flow of $2.4 billion was up 35% year-over-year and above our August guidance. Turning to Slide 5. Our 2023 performance caps three strong years of execution, demonstrating the power of our Emerson management system and its ability to create value for our shareholders. We embarked on a transformational journey of Emerson in 2021 and remained focused on execution. Underlying sales growth of 7% and 10% in 2022 and 2023, respectively, shows the leadership position of our automation technology and our world-class sales organization. It is also indicative of our market share expansion within the $160 billion served automation market. Our ability to both leverage our $150 billion installed base as evidenced by our MRO sales in 2023 of 65%, and win new projects are strengths of this company and critical to the long-term success of this business. As we invest more in digital technology and software, we are also seeing the benefits to gross margins, which have expanded 470 basis points to 49% since 2021. Strong price discipline and differentiated technology have also provided positive contributions, and the addition of NI will further expand our gross margins. This enabled strong operational leverage across the business. Over 50% leverage for 2022 and 2023 is distinguished amongst industrials. Cost discipline remains part of the DNA at Emerson, driving further cost productivity and margin expansion. Put all this together and Emerson has delivered back-to-back years of 20-plus-percent EPS growth. Please turn to Slide 6. I want to provide a couple strategic updates on our business. In October, we hosted Emerson Exchange Immerse in Anaheim, California. The event showcased our control systems and software technology and highlighted our integration with AspenTech throughout different solutions and industries. Featuring over 1,400 attendees and over 100 customer presentations, the week was spent discussing the exciting roadmap of our Delta V, Ovation, and AspenTech products and working with customers to solve their toughest challenges. This was all reflected in our keynote presentations from three important customers, Syzygy, a provider of electric catalyst reactor technology, Biogen, and Tesla, who discussed their automation challenges in partnership with Emerson. These types of engagements not only help our users understanding of our current products, but also provide important inputs into our next generation products and innovation. Throughout this event, we highlighted our boundless automation vision, the next generation automation architecture that Emerson is uniquely positioned to deliver based on our leadership position in intelligent devices, control systems, and software. This vision empowers our customers to unlock and access all their operational data, enabling better decisions through analytics and optimization. It also enables customers to balance their production and sustainability goals through enterprise management and a unified software platform. On Slide 7, as part of this vision, we continue to accelerate innovation across four priority domains, disruptive measurement technologies, software defined automation systems, self-optimizing asset software, and our sustainability portfolio. Each of these areas provide stepping stones to enable the boundless automation vision. At Immerse, we introduced many significant new products to our leading DeltaV portfolio. First, DeltaV Version 15 Feature Pack 1 is one of our biggest rollouts in recent history. The package includes enhancements to software like DeltaV Live, the most advanced DeltaV HMI ever developed, and the introduction of a subscription controller, PK Flex. It also includes the DeltaV Edge Environment, a first-of-its-kind edge solution, allowing users to securely move data into their enterprise environments. As we look at the next generation of software solutions and automation platforms, this is a key enabler to unlocking data that users previously discarded. Throughout the rest of the organization, we are also making focused investments in strategic areas. This includes next-generation intelligent devices to further cement our leadership position in our measurement and analytical portfolio, and relevant additions to our sustainability portfolio. At AspenTech, many of the new releases are focused on enabling sustainability and energy transition segments, in addition to further building out capabilities like AI and DataWorks to enable self-optimizing asset management. Please turn to Slide 8. On October 11, we closed the acquisition of NI and announced we will report the business as a new test and measurement segment in 2024. We are very pleased with the progress already in the first month with NI and are excited about the opportunities in this business. We remain committed to the $165 million of synergies by the end of year five, resulting in approximately 31% adjusted segment EBITDA when moving stock comp to corporate. As we have openly stated, NI completes the significant portion of our portfolio transformation, and we are excited to execute as a new company. We will, however, continue to be active with bolt-on acquisitions that fill technology gaps in our business, and we have the balance sheet flexibility to do so. These will be prioritized in four segments we introduced a year ago, industrial software, test and measurement, factory automation, and smart grid solutions. In the fourth quarter, we completed two of these bolt-on acquisitions. Flexim is a global leader for clamp-on ultrasonic technology measuring liquids, gases, and steam. The business is highly complementary to our existing leading flow portfolio consisting of Coriolis, DP Flow, Mag & Vortex, and will also serve attractive growth markets in the energy transition. We also completed the acquisition of Afag in the fourth quarter, a highly strategic asset in the factory automation market. Afag’s electric linear motion solutions, combined with our existing pneumatic motion offering creates a leading motion portfolio for discrete industries in a $9 billion TAM. Please turn to Slide 9. As I mentioned, the large pieces of our portfolio transformation are behind us. And this slide shows that we were able to accomplish what we were able to accomplish over the last few years. We have three main objectives that I communicated when we started this journey. First, cohesiveness, which we now have with an unmatched technology stack. Second, diversification. Discrete is now our second largest end market with further opportunities to expand into attractive diversified industries. And third, our growth is aligned to secular growth drivers. This alignment to energy security and affordability, sustainability and decarbonization, near-shoring, and digital transformation will allow Emerson to move to a more secular and less cyclical business profile. $36 billion worth of transactions. Disposing of assets with low single digit growth profiles and adding businesses we expect to grow cumulatively in the high single-digits to low double-digits. The profitability improvement is also remarkable. Trading 30% GP businesses for those that operate 70% plus gross profits, which are already seeing -- which we are seeing the benefits of today. We are all energized by the opportunity we have with this new Emerson. Please turn to Slide 10. Our current strategic funnel is now over $10 billion in opportunity, with nearly two-thirds residing in our growth platforms. We're also encouraged by the activity of projects already in the funnel, considering the interest rate environment and global uncertainty. In the fourth quarter, Emerson was awarded over $500 million of project content, with over 60% of those in our growth platforms. This includes strategic wins in LNG, carbon capture, hydrogen, life sciences, and metals and mining. These successes are indicative of our team's focus and our technology's relevance within these markets. As we look at further diversifying our portfolio into hybrid and energy transition markets, 2023 was a fundamental foundational year. Specifically, there were three highly strategic projects to highlight. First, Emerson was selected to automate five different plants for Samsung Biologics as it standardizes on our DeltaV automation platform. The Emerson solution provides control for both production skids and for plant-wide operations. We are also currently engaging with a customer on the potential to leverage AspenTech software for future expansion. Secondly, in the third quarter, we highlighted Emerson's selection for the Port Arthur LNG project with Bechtel Energy and Sempra. This quarter, we are pleased to announce we were also selected for another large-scale world-class LNG facility in the United States. The Rio Grande LNG project from Bechtel Energy and NextDecade, located in Texas, will be capable of producing 17.6 million metric tons per annum of LNG across three liquefaction trains. Emerson is providing much of our leading technology, including analytical and measurement technology, and control, pressure relief, and isolation valves. And finally, AspenTech was awarded a Synergy win in the most recent quarter with a world-leading pulp and paper producer. Emerson's DeltaV system is already installed at the site, and through this relationship with the customer, Emerson was able to bring AspenTech to the table. Through this engagement, the customer chose to displace the current incumbent provider of adaptive process control software and instead move to AspenTech. This example demonstrates the power of our Emerson AspenTech integrated solutions and the opportunity to expand AspenTech utilizing our global sales channel. These wins and the continued evolution of the funnel provide a strong foundation as we head into 2024. With that, I will now turn the call over to Mike Baughman. Mike Baughman: Thanks, Lal, and good morning, everyone. Please turn to Slide 11 that summarizes our fourth quarter financial results, which were in line with our expectations. Underlying sales growth was 5%, growing off a tough comp in 2022 when sales shifted from the third quarter into the fourth quarter due to China shutdowns and electronic component shortages. Price contributed approximately 4 points of growth. As expected with our typical seasonality, backlog declined sequentially about $300 million to $6.6 billion, up 12% versus where we entered 2023. Software and control sales grew 2% on an underlying basis, which now includes AspenTech as we lapped a year of ownership. The control systems and software business came in largely as expected and it was comparing against a very strong prior year Q4. AspenTech tends to see lower sales volume in our fiscal Q4 due to the timing of renewals and its sales can be more variable due to ASC 606 accounting. The sales were on forecast and importantly ACV showed strong growth at 10.9% year-over-year. Intelligent devices grew 6%, led by process and hybrid exposed businesses, mainly measurement and analytical and final control. Our discrete automation business was down in the quarter with softer-than-expected demand and Europe and China weakness impacting this business. Emerson adjusted segment EBITDA margin improved 80 basis points to 25.5%. Operating leverage excluding AspenTech was 45%. Volume, margin accretive price cost, which included net material deflation and ongoing productivity programs contributed to the margin improvement. Adjusted EPS grew 21% to $1.29. Lastly, free cash flow for the quarter of $838 million was up 17% versus the prior year. Please turn to Slide 12. As Lal summarized, 2023 was an exceptional year for Emerson. Underlying sales growth was 10% with 4 points of price contribution. Software and control and intelligent devices both finished with underlying sales growth of 10%. All geographies reported strong sales growth with Americas up 10%, Europe up 10%, and Asia, Middle East, and Africa up 9%. Emerson adjusted segment EBITDA margin improved 220 basis points to 25%. Operating leverage excluding AspenTech was 53%. As we've talked about throughout the year, this was driven by leverage on double-digit sales growth, strong execution by our operations teams, margin accretive price cost, and favorable product and project mix. Adjusted EPS grew 22% to $4.44 with $0.27 of contribution from AspenTech. Lastly, free cash flow of $2.4 billion was up 35% versus the prior year. This includes approximately $100 million from the interest on undeployed proceeds from the Copeland transaction. For the year, free cash flow conversion of adjusted earnings was 88%, slightly ahead of our expectations. This also represents a 15.6% free cash flow margin, a metric we plan to utilize moving forward. Slide 13 details the drivers of adjusted EPS growth from the prior year. Operational performance was exceptional. 10% underlying sales growth and 53% segment level operating leverage contributed $0.77 of year-over-year EPS growth. FX was a $0.12 headwind. Stock comp was a $0.16 headwind versus the prior year, due primarily to the mark-to-market accounting for the company's old stock compensation plan, which was mostly offset by pension and other corporate items. The reduced share count resulting from the $2 billion share repurchase contributed $0.14, and the Copeland note receivable interest contributed $0.05 to adjusted EPS for the year. Overall, adjusted EPS grew 22% year-over-year to $4.44. Please turn to Slide 14. We believe 2024 is shaping up to be another good year of financial performance. Our end markets remain generally resilient, evidenced by 5% underlying orders growth in Q4 and for all of 2023. This has resulted in healthy backlog levels, which were up 12% versus where we entered 2023, giving us good visibility into 2024 sales. We also have good visibility through our MRO business, which was 65% of 2023 sales. This day-to-day replacement business gives us good perspective on pace of business and remains constructive. Lastly, we are entering 2024 with a $10 billion-plus funnel, up $3 billion from where we entered 2023. This all feeds our 2024 outlook. Process and hybrid end markets remain strong, driven by secular trends like energy security, sustainability and decarbonization, nearshoring and digital transformation. We expect process and hybrid sales growth of mid to high single-digits in 2024. We continue to see investments moving forward in energy transition markets like LNG, nuclear, hydrogen, carbon capture and renewables. We continue to see nearshoring investments here in the US and around the world in life sciences and metals and mining, especially midstream metals processing and refining, which is being expanded to the United States and Europe. These secular trends in process hybrid end markets and our ability to help customers be successful give us confidence in our 2024 outlook. Discrete markets are obviously in a different part of the cycle, which impacts both our discrete automation and test and measurement businesses. Orders have been negative for two to three quarters but we expect this to begin to turn positive in the second half of 2024. We expect underlying sales to be flat to up low single-digits in 2024 for our discrete businesses -- for our discrete business. From a world areas perspective, it should continue to be a balance, and we expect each world area to grow in the mid-single-digit range. Please turn to Slide 15, where we have outlined our 2024 guidance. Our later cycle exposure, robust backlog and continued orders resiliency support our 2024 guidance for underlying sales growth of 4% to 6%. We expect both intelligent devices and software and control to be within this guidance range for underlying sales. Test and measurement is excluded from 2024 underlying sales and is expected to add another 10 to 10.5 points to reported growth or approximately $1.6 billion of sales. FX is expected to be a 1 point tailwind. We remain committed to driving differentiated incremental margins through our operational execution. Operating leverage, which now includes AspenTech, but excludes test and measurement, is expected to be in the mid to high 40s in 2024, which includes cost savings from our corporate and platform rightsizing. Price/cost will continue to be margin accretive in 2024 and ongoing productivity and cost savings will drive further benefits. We expect adjusted EPS to increase from $4.44 in 2023 to between $5.15 and $5.35 in 2024, an 18% increase at the midpoint. This includes approximately $0.35 to $0.40 from NI, inclusive of stock compensation and approximately $0.32 to $0.34 from AspenTech. There are some movements below the line in stock compensation, pension and other corporate items, which roughly offset year-over-year. This detail can be found in the appendix. As a reminder, stock compensation from NI is now reported in our corporate stock compensation line item. Net interest expense is expected to be approximately $105 million. Lastly, free cash flow is expected to be $2.6 billion to $2.7 billion, which we will discuss in more detail on the next slide. For the first quarter, we expect underlying sales to increase 6.5% to 8.5% with leverage in the mid-30s. Adjusted EPS is expected to be between $1 and $1.05, a 31% increase at the midpoint. NI is expected to contribute approximately $0.05. As I mentioned, we will discuss some additional details on Slide 16 regarding our free cash flow. We ended 2023 with free cash flow of $2.4 billion or 15.6% of sales. This included just over $100 million of after-tax cash from interest on the undeployed proceeds from the Copeland transaction, which will not repeat in 2024. Taking this into consideration and starting from a foundation of approximately $2.3 billion of free cash flow, we expect approximately $300 million of contribution from NI operations and another $350 million increase from base operations. This would have resulted in a free cash flow margin of approximately 16.8% or $2.9 billion of free cash flow. However, we have two headwinds in 2024. First, we expect approximately $200 million of acquisition-related cash payments associated with the NI and bolt-on acquisitions. Second, we are expecting an elevated CapEx spend related to facility expansions, which will increase our CapEx to approximately 2.5% of sales, up from our historical and future expected rate of approximately 2% of sales. Including these two headwinds bring us to our guidance of $2.6 billion to $2.7 billion of free cash flow or 15.2% to 15.4% free cash flow margin. Before we turn the call over to Q&A, I will quickly discuss capital allocation on Slide 17. We remain committed to disciplined capital allocation. Internal development and organic growth investments remain a high priority. This accelerated in 2023 with R&D spend now representing 7% of revenue and NI will further mix this up in 2024. This increase was driven by increased innovation in our four priority breakthrough domains, disruptive technologies and measurement, sustainability, software-defined automation systems, and self-optimizing asset software. We also remain committed to the dividend and announced today, we are beginning our 68th year of consecutive increased dividends with our $0.525 per share declared dividend this quarter. The right side of this chart is where we have flexibility. We will continue to be active in pursuit of strategic bolt-on acquisitions to strengthen our portfolio in targeted areas and we will remain committed to strong returns on these investments. Finally, we plan to have approximately $500 million of share repurchases in 2024. We are energized as we enter the new fiscal year, and we are focused on the execution of our plans. Thanks for your attention. I will turn it back to the operator to open the call for questions. Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jeff Sprague with Vertical Research. Please go ahead. Jeff Sprague: Thank you. Good morning, everyone. Just a couple specific NATI questions if I could. Some noise with the bolt-ons. So could you just be clear for NATI revenues in 2024? And also, if you could provide any color on how their orders progressed in the fourth quarter? And finally, maybe a little bit of around how much of that synergy target happens in the first year. Lal Karsanbhai: Yeah. Hi, Jeff. Lal here. Good morning. So on the revenue, as Mike stated, $1.6 billion is the assumption. It's not in the underlying sales as we reported. Orders in the environment, as I expressed in my presentation, are still challenging in the business, exiting the quarter at down 16% NI which is very much aligned to the plan that we had in place. And we do expect much like in our core discrete markets, orders to flatten out as we get into the second half of the year. So feel very much that they're under in plan from an orders perspective, although still in a challenging environment. And then lastly on synergies. Look, we got off to a really good start, day one. The team's executing very, very well. We haven't given guidance on year one. What I did, I will say is that about half the synergies will be delivered in the first two years. Jeff Sprague: Right. And just as an unrelated question, maybe it's for Mike. But just thinking about the organic guide for 2024, you're exiting here at 4% price with 5% order growth, right? It feels like there's a little bit of room in those organic numbers. Maybe just share how much price is embedded in that 4% to 6% for 2024? Mike Baughman: Yeah. Jeff, the 2024 price assumption is 2%. Jeff Sprague: Great. Thank you. Operator: Our next question comes from Steve Tusa with JPMorgan. Please go ahead. Steve Tusa: Hi, good morning. Lal Karsanbhai: Good morning, Steve. Steve Tusa: Can you just talk about within the cash guidance, what you're assuming on working capital. And then that $250 million that's kind of running through this year, how does all that trend kind of into '25? Mike Baughman: Yeah, I'll start with the second half -- or the second part of the question first. The $250 million is really one-time and in the year related to the acquisitions and some of the higher CapEx that we've got. Steve Tusa: Great. And then just working capital? Mike Baughman: Working capital for the year. Yeah, we exited working capital, trade working capital at about 20.5%, and we're expecting about 50 basis points coming off -- 20.5% of revenue. So we do expect to have a little bit of balance sheet goodness in 2024. Steve Tusa: Great. And then just one last one, just on orders. How do you guys kind of see the funnel stepped up a bit, the backlog, [you had in the] (ph) backlog seasonally, but how do you guys going to see orders and backlog trending over the course of the year here? Lal Karsanbhai: Yeah, I'll comment, Steve. Obviously, we exit at 5%. So we have optimism, and we have momentum out there. Obviously, we have some challenges in discrete, as we talked about in the business. I think as you think about the start of the year, my expectations are flat to low single digits. But as we get into the second half of the year, my expectation is exiting at -- in the mid-single-digit range. And for the full year, somewhere in the low single to mid-single-digit orders. Steve Tusa: Great. And, thanks a lot. Mike Baughman: And then Steve, just on backlog. There -- that pattern holds, there shouldn't be a meaningful change in backlog as we exit 2024. So the backlog should remain healthy. Steve Tusa: Great. Thank you. Operator: The next question comes from Julian Mitchell with Barclays. Please go ahead. Julian Mitchell: Hi, good morning. Maybe first off, just looking at Slide 15, so I wanted to understand why the operating leverage steps up after Q1 when the organic sales growth steps down? Is there any one segment or subsegment or something happening with mix that's driving that? And should we assume that that organic sales growth just steadily decelerates through the year? Mike Baughman: Hey, Julian, yeah there is a little bit of mix and I would say the discrete automation softness that we are expecting in the first half of the year plays in on that. There's -- we've been ramping up our spend around growth platforms and innovation. And so as you come into the first quarter, there's a little bit of a year-over-year comparable that plays into that first quarter leverage as well. Julian Mitchell: I see. So it's really discrete, sort of getting better, and that pushes up the op leverage balance of the year. Mike Baughman: That's correct. Again, obviously we're driving restructuring in the discrete business given the trend in the orders and you will see that margin expansion come through in the second half which would drive up the leverage rates. Julian Mitchell: That's helpful, thank you. And then just a quick follow-up would be around, I suppose, historically process cycles in automation followed discrete by around 12 months, and we see discrete is soft now. Are there any sort of specific reasons why process should hold up differently this time versus history instead of following discrete lower later this year? Lal Karsanbhai: It's a good question, Julian. One that we've thought a lot about and been watching very carefully. The fact of the matter is that we have some very unusual secular trends going on in the world right now. I think a lot of our process activity is driven by two -- three critical areas. The near-shoring activity, which impacts life sciences and the metals and mining value chain. The energy affordability and security, which is impacting significant continued investment in liquefied natural gas and nuclear. And thirdly, equally important, sustainability. I think we're past the tipping point in terms of the -- our customers' commitment around sustainability, and we're seeing continued investments there. So whether we believe those will transcend certain economic cycles and that will impact how we should think about the strength of process as we go through 2024. Ram, you have something to add? Ram Krishnan: Yeah, and the other point I'd make, Julian, is the capital spend in the process hybrid industries has been pretty disciplined. There hasn't been a boom in capital to cause a correction as we move forward as opposed to the prior cycles we saw. So I think that disciplined capital spend plus obviously the trends that Lal identified where the sustainability investments provide that tailwind, we expect process to continue to run for a lot longer. Julian Mitchell: I see, so you… Lal Karsanbhai: Process and hybrid -- and hybrid, yeah. Julian Mitchell: Got it. So the process and hybrid orders growth should stay fairly steady through 2024. Lal Karsanbhai: That is our expectation, yes sir. Julian Mitchell: Fantastic. Thanks for the help. Lal Karsanbhai: Thanks, Julian. Operator: The next question comes from Nigel Coe with Wolfe Research. Please go ahead. Nigel, your line is now live. Nigel Coe: Okay. The line is live, but I'm not, so sorry for that. So National Instruments, I think that the 4Q fiscal sales were down, I think, high single-digit, organic. Is that the right number? Is my math correct? And it looks like the guide implies flattish to maybe slightly down organic. Just wondering what the profile is on that and anything on orders there would be helpful. Ram Krishnan: Yeah. So, Ram here, Nigel. From an orders perspective, as Lal indicated, the last quarter, which is our fourth quarter, down 16% in orders, we expect orders to remain down for the first half and turn positive in the second half. And you are right, the $1.6 billion that we're guiding will translate to down 5% to 6% for the year from a sales perspective. And sales should turn positive in the fourth quarter. So we'll have down sales for the first three quarters and positive in the fourth quarter. Nigel Coe: Okay, great. I'm sorry I missed the order number. Thanks for clarifying that. And then on the backlog, backlog down from $6.9 billion to $6.6 billion QoverQ, maybe just clarify, I don't think that's unusual from a seasonal perspective. I think it's normal to see 4Q backlog consumption. Was there any FX revaluation impacts there? I just want to make sure that I understand the organic movement there. Mike Baughman: No, that's on a consistent GAAP basis. Nigel Coe: Okay, great. Thank you. Operator: The next question comes from Scott Davis with Melius Research. Please go ahead. Scott Davis: Hey, good morning, everybody. Congrats on all the stuff done. Lal Karsanbhai: Good morning, Scott. Lal, it sounds like you were just in China, if you were around the world, and it seems pretty topical to get an update from what maybe you saw there. I'll just leave it there. Lal Karsanbhai: Yeah, I actually, on this particular trip, did not hit China. We'll do that later in the year. I was there in May. But having said that, look, we had a very good year in China. We exited orders at 11% in China. So feel good about the momentum there again. The investments there really around energy security and nearshoring are very significant. Sales were in the mid-single-digits for the year, and -- but we continue to see robustness in our core process and hybrid spaces. And not unlike what Europe and the United States struggling on the discrete side, but certainly the process hybrid strength will continue as we expect into 2024. Scott Davis: And then the discrete in China is negative I'd assume this quarter? Lal Karsanbhai: Yes, it is negative in the quarter. Yes, sir. Scott Davis: Okay. I'll pass it on. Thank you, guys. Lal Karsanbhai: Thanks, Scott. Operator: The next question comes from Joe O’Dea with Wells Fargo. Please go ahead. Joe O’Dea: Hi, good morning. Thanks for taking my questions. One, just on the NI earnings contribution for the year, $0.05 in the first quarter would be kind of running, I guess, $0.10 a quarter or a little better for the rest of the year. But any more detail on that cadence? Anything that's sort of cost heavy up front and then the progression through the course of the year as you're thinking about that earnings contribution? Lal Karsanbhai: No, I don't have anything else to add, Joe. I mean, obviously, there's a -- as Ram expressed, a volume expansion as we get to the second half of the year that will drive leverage and incremental profits, but that's really what the tale of the tape there is. Joe O’Dea: Okay, and then on the R&D side and the step up to 7%, it sounds like it goes even higher in ‘24. Any context on that? And then sort of an additional insight on sort of the products and verticals that are getting outsized investments, as well as what your returns focus is on R&D, the prioritization around share gain or sort of the revenue dollars that you want, returns on R&D investment, any sort of context around that? Mike Baughman: From a dollars perspective, yeah, we get the benefit of Aspen coming in, that mixes us up, and then NI comes in, and that also mixes us up. So you'll continue to see that commitment to growth, innovation, accelerate and increase as we move on. And in terms of where the investment is going, a lot of the investment really is across the four technology areas we've consistently showed you guys. It's disruptive measurement which is the sensing technology in our measurement technologies business, our automation system, the next generation automation system that Lal referenced in the presentation, and also collaborative technology development with Aspen around asset performance management. So those are the areas where we see lots of opportunity in terms of new-to-the-world type innovation that we can drive as an automation company and that's where the investment is going. Joe O’Dea: Thank you. Operator: Next question comes from Christopher Glynn with Oppenheimer. Please go ahead. Christopher Glynn: Thank you. Good morning. I was curious about the funnel conversion comments. I think last quarter you indicated that the conversion rates of those are picking up as the size of the projects ramps and some of the newer technologies and applications. So, just curious, trend line if you see in further acceleration and how much of that notion is baked into the fiscal ‘24 guidance or could that be an opportunity? Lal Karsanbhai: No. Hey, Chris, Lal here. No, look, we continue to see the funnel expand organically to begin with. So it did grow from quarter over quarter, which is why we thought it was important to show you. But what's most interesting, it's growing in the right spots for us. It's growing along the growth platforms that were -- where we have the focus of the organization. So that comprises about $6.6 billion of the funnel today, of which energy security and transition is a big part of that. Sustainability and decarbonization is a large part of it. If you look at the wins, they are very much aligned in the same way as the funnel, winning at about 60% aligned on the growth platforms-ish with energy transition a big part of what we are converting here. So feel really good about it. I -- we're watching it carefully, of course, in terms of movement through FID and other elements, but at this point in time, continue to have optimism, particularly products that are purely connected to national security, nearshoring, or energy affordability elements. So, feel pretty good about what we see in front of us. Christopher Glynn: Thanks. And if I could ask another on discrete, what kind of impacts are you seeing in terms of channel versus end demand? Ram Krishnan: From a channel perspective, I mean, if you're referencing destocking, we're not seeing that. The discrete slowness is purely market driven, certainly European machine builders, China is an end market, and an overall slowdown in the factory automation segment in North America. And you see that with obviously a lot of our peers that have a lot more exposure and discreet. Frankly, versus our peers, we're holding our own in terms of the order rate decline in discreet, and we do expect to see a second half ‘24 positive orders for the business. Christopher Glynn: Great. Thank you. Operator: The next question comes from Andy Kaplowitz with Citigroup. Please go ahead. Andy Kaplowitz: Well, I think last quarter when you began to talk about FY ‘24, you mentioned more normalized incrementals in the mid 30% range, but you're guiding to mid to high 40% ex-test and measurement. So could you give us a little more color into the assumptions? I know you get price for ‘24 and you're starting off a little lower, but it seems like you're still getting supply chain tailwind benefits. Andrew, how would you assess your performance versus your longer term algorithm of 35%? Is it possible that that algorithm could be a bit conservative? Lal Karsanbhai: It's possible. Yes, Andy. We've been operating in the mid-50s over the last couple of years. There's a significant amount of momentum around cost in the business. As I mentioned, we have tailwinds that will be delivered through the actions we're taking, not just within the segments, but also at corporate as we go through 2024. Now having said that, on the supply chain side, we're on the positive side of most of the measures. Obviously, logistics environment is flipped. And on material flow, generally significantly better. Of course, we fight spot shortages as you'd expect in any business. But generally, we are in a very different world on the supply chain. So that's all very positive. So it's really around execution. Look, we have a -- the gross margins of the business are 49% in 2023. They'll expand further, as Mike described, in 2024. And with that comes an expectation of a higher leverage and a higher incremental for the business. So at this point, feel very comfortable with the guide we put out there for the year in that mid to high 40s which is, I think, differentiated. And we'll really think through what we talk about and guide on a longer-term basis from a financial plan perspective as we go through the year. Mike Baughman: Just to amplify that a little bit, Andy, we've also been talking about this $100 million of corporate platform cost takeout, which has been reading through in the businesses, and we'll read through in the business in '24 as well, which is an uplift for the year. Andy Kaplowitz: It's great to hear. And then I know you want to retire the KOB 1, 2, 3 names, but when we think about ‘24, I think you've been averaging something like 65% KOB3. Would you expect that to hold up at around that level? And what are you seeing on the KOB3 side? Is there just a lot more activity that could also help with margins given that tends to be higher margin work? Lal Karsanbhai: Yeah, no, we certainly expect MRO in the 60% range for 2024, Andy. You're absolutely right. It's the most pricing elastic portion of our business. It's typically replaced like for like within processes. And so we feel we have a great understanding of where the $150 billion of install base is located and we have specific programs across our service organizations and selling organizations to ensure that we mine that and that we keep that product evergreen. So I feel good about that, but in that 60% range, I think would be the right expectation. Andy Kaplowitz: Appreciate it guys. Lal Karsanbhai: Thanks, Andy. Operator: The next question comes from Tommy Moll with Stephens. Please go ahead. Tommy Moll: Good morning and thank you for taking my questions. Lal Karsanbhai: Hi, Tommy. Tommy Moll: Well I wanted to start with a follow-up on discrete. You've called out the weakness there previously. Obviously it's been front and center today. So I'm just curious, were there incremental pockets of weakness you picked up through the last quarter and then as you look through to the second half of the coming fiscal year where you expect a return to growth, is the visibility there more just a comps issue or are there some green shoots in terms of the real underlying demand that you can call out at this point? Lal Karsanbhai: No. So a couple of things. What we're experiencing through the quarter or we have experienced through the quarter is demand-driven weakness. As Ram accurately portrayed, it's not as the stocking element. As a matter of fact, a very small percentage of our business runs through stocking distributors in the discrete side. But nevertheless, it's demand that we really focus on, and it's global weakness across the key markets. Now having said that, the comparables do get easier as we get into the second half. We're not counting on underlying demand conditions in the discrete market significantly improving in the second half. What we're benefiting from is obviously the [competitors] (ph) for us. Tommy Moll: Makes sense. And then if I look at the consolidated outlook you've provided for the first quarter and then the full year, you're starting the year in the high single-digit range, full year in the mid-single-digit range. So there's some deceleration implied there. Is there some conservatism around there, just given the issues you've called out on the discrete side? Are there comp items that you would point out for us? Lal Karsanbhai: There's nothing extraordinary other than we've got to be cautious on the discrete cycle. Tommy Moll: Great. We appreciate the insight, and I'll turn it back. Lal Karsanbhai: Thanks, Tommy. Operator: This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Good morning and welcome to Emerson Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note that this event is being recorded. Now I'd like to turn the conference over to Colleen Mettler, Vice President of Investor Relations. Please go ahead. Colleen Mettler: Good morning and thank you for joining us for Emerson's third quarter fiscal 2023 earnings conference call. Today, I am joined by President and Chief Executive Officer, Lal Karsanbhai; Chief Financial Officer, Mike Baughman and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with the slide presentation, which is available on our website. Please join me on Slide two. This presentation may include forward-looking statements, which contain a degree of business risks and uncertainty. Please take time to read the safe harbor statement and note on non-GAAP measures. I will now pass the call over to Emerson President and CEO, Lal Karsanbhai, for his opening remarks. Lal Karsanbhai: Thank you, Colleen, and good morning. This quarter's results are a testament to the tremendous people of Emerson. I am humbled by what you do every day. Thank you for the passion and energy and the effort you bring to our great company every single day. Two and a half years ago when I became CEO, we expressed our vision for accelerated value creation, culture, portfolio and execution. I am proud today more than ever before of the progress we have made. The Emerson management system has empowered our leaders and open the world of possibilities for our company in the field of innovation and commercial excellence with a higher growth, more cohesive portfolio. But above all, the Emerson management system is the tool that enables our team to continue to deliver differentiated financial results. The work never ends, but I am proud of how far we have journeyed and a clear road ahead. Please turn to Slide three. Q3 was an exceptional quarter, and our teams continue to perform well and deliver for our shareholders. We made tremendous progress on our strategic priorities, closing the climate -- the Copeland transaction, launching new-to-the-world products and winning several key projects in our organic growth platforms; energy transition, industrial software and priority discrete and hybrid markets. We have once again increased our expectations for the year based on our continued operational execution. We now expect double-digit underlying sales growth, approximately 50% operating leverage and over 20% adjusted EPS growth for 2023, top quartile performance. As we look ahead, we are energized by our value creation opportunities. Emerson is and will continue to benefit from our significant exposure to secular growth trends like energy affordability and security, sustainability and decarbonization, digital transformation and near-shoring. Over 30% of our sales are directly aligned to these trends, as we discussed at our investor conference in November. Our technology and solutions are highly differentiated in these spaces, positioning our business for growth. We are also innovating for these markets, helping customers solve their toughest challenges with disruptive technology and solutions. Our portfolio transformation is paying off as we have aligned our cohesive portfolio to these secular trends. And our favorable value drivers combined with our Emerson management system, provide the road map for future success at Emerson. Turning to Slide four; this quarter exceeded expectations across the board. Underlying orders were up 3%, led by high single-digit process and hybrid demand growth. We continue to see secular trends driving the demand strength. As an example, LNG projects continue to move forward and customers' energy transition and sustainability budgets are growing, improving resilience, both for greenfield projects in hydrogen, clean fuels and renewables and for brownfield, decarbonization opportunities like emissions reductions and carbon capture. Renewables is a particular area of strength we are winning based on our superior technology and breadth of capabilities, which we'll discuss shortly. Nearshoring is also driving incremental investments around the globe in areas like life sciences and metals and mining. It is still early stages of global stimulus for programs like the United States IRA, chips and IIJA are driving additional conversations with our customers, which we expect to turn to funded projects down the road. Our strong performance in process and hybrid was partially offset by demand in discrete, which continues to slow. Orders were down in Q3 against tougher comparisons for this piece of the business. As we mentioned previously, Europe, especially Germany, continues to slow and we have seen some softening in the U.S. and Asia. Looking at the overall business and given continued robust demand and strong underlying growth drivers, we still expect mid-single-digit full year order growth. The continued demand and improving supply chain environment, which includes improved availability of electronic components, enabled 14% underlying sales growth in the quarter, above our expectations. The Americas and Europe were up 11% and 13%, respectively, while Asia, Middle East and Africa were up 20%, strong performance of last year's impact of the Shanghai COVID shutdowns. Intelligent Devices and software and control were both up double digits. It is clear when we speak to customers and compete for projects that our technology is winning in the marketplace. We are proud of what we have built and confident this will continue. Software and control growth of 19% is a testament to our leading control systems, DeltaV innovation, which are well positioned where our customers are spending, areas like life sciences, metals and mining, hydrogen, clean fuels and renewables. Within the quarter, we won large projects in life sciences, metals and mining, including lithium and LNG. Intelligent Devices grew 13%. Final Control and measurement and analytical are the de facto standards for traditional energy, transition energy, chemical and power markets across the globe. This later cycle exposure and the business's continued technology leadership in areas like control valves, actuators, regulators, pressure, temperature, flow level and wireless; our differentiators for Emerson and are leading to strong financial returns. This strong sales performance and the continued operational execution of our teams led to 59% operating leverage in the quarter, excluding AspenTech. Favorable impacts from price cost and mix also drove accretive margin performance. Adjusted EPS was $1.29, beating our guidance, again driven by the strong sales and operational performance. Free cash flow was up 83% year-over-year and is up 47% year-to-date. Please turn to Slide 5. We continue to accelerate progress on our strategic priorities. On May 31, we closed the Copeland transaction. Emerson received $9.7 billion in upfront cash or approximately $8 billion after tax for the transaction. We also have the future proceeds from the $2.25 billion Copeland note receivable and our 40% common equity ownership with a transaction value of $1.7 billion. Post closing, Emerson has a net cash position and taking into consideration the NI acquisition, Emerson expects to have a net debt-to-EBITDA ratio of less than two. I also want to provide a quick update on our corporate and platform rightsizing activities we announced at the beginning of the year. As planned, we did not have any stranded costs due to the Copeland sale and are well on track to achieve our $100 million annualized cost savings by 2024. We also released our ESG report in June, highlighting a 42% reduction in greenhouse gas emission intensity from our 2018 baseline. This achievement surpasses our 20% target six years ahead of schedule. In the report, we also highlight numerous examples of how Emerson is helping customers navigate the energy transition and the application of our technology to reducing emissions and energy usage. Lastly, before moving on to some exciting innovation and customer wins, I wanted to provide a quick update on the NI acquisition. We remain on track to close the acquisition in the first half of our fiscal 2024, and the teams are actively working on integration planning as we're prepared to be ready for day 1. In late June, NI shareholders voted in favor of our acquisition. HSR was once again approved and all necessary regulatory filings have been made. And I released their earnings last week with another record sales quarter, up 5% year-on-year and strong margin performance. They, too, are seeing supply chain constraints easy, which helped drive their sales performance by converting backlog despite the negative orders environment, which was down 17%. The demand environment for the business is playing out largely as we expected with discrete and semiconductor weakness expected to improve as the calendar year goes on. Please turn to Slide 6. As the rate of our customer sustainability and digital investments continue to accelerate, Emerson is ensuring that we are positioned to capture this spend. Part of this is through our strong dedication to innovation, and new-to-the-world products. Recently, Emerson has had numerous impactful innovations. First, ASPEN 1-V14 is the next step in helping customers on the sustainability journey. Not only does V14 offer more than 100 sustainability-specific models, it also provides solutions to help customers manage emissions and design new hydrogen processes. V14 also further incorporates artificial intelligence, which, when combined with first principle models, helps users reach optimal production, increasing profitability while reducing emissions. Emerson also recently launched enhancements to our AMS device management software platform, now aligned for more seamless integration with AspenTech solutions like Mtell. This allows users to have more access to critical intelligent device data for use in advanced analytics and models. This example shows the differentiation of the Emerson plus AspenTech portfolio and technology synergy opportunities together. Emerson has long been a trusted partner of utilities around the globe, as evidenced by the fact that Ovation controls approximately 50% of the electricity generated in the United States. This leadership uniquely positions Emerson to support our customers' transition to renewables. And we are doing so through our new integrated renewable energy control solution, Ovation Green. Ovation Green allows customers to manage their renewables assets like solar, wind, hydro and hydrogen, all in one platform, and we are already seeing early success with some of the largest utilities in the United States. Lastly, our measurement and analytical business recently launched a new-to-the-world noncontacting radar device that is ideally suited for a range of applications in chemical, life sciences and food and beverage. With advanced capabilities like Bluetooth and a built-in historian to store process data and insights, the transmitter is optimized for ease-of-use and simplicity. This device incorporates RADAR technology, a fast-growing technology in the measurement space. As we look at continued growth in our measurement business, this innovation will serve as a foundation to building LEVEL as the next technology pillar, accompanying our leadership in pressure, temperature and flow. As one of our key drivers -- growth drivers, Emerson is committed to accelerating innovation and meeting the rapidly evolving needs of our customers, like the ones highlighted here. Turning to Slide 7. At our November investor conference, we outlined our through-the-cycle growth strategy, which includes our strategic focus on organic growth platforms. These markets, including life sciences, metals and mining, factory automation, industrial software and energy transition are areas closely aligned to the secular growth trends that are driving incremental customer investment. This is demonstrated in the evolution of our funnel over the past nine months. Not only have we successfully expanded our funnel to $9.7 billion, over this time frame, up from $7.1 billion, but nearly all of this growth can be attributed to our growth markets, namely energy transition, life sciences and metals and mining. Our energy transition funnel is now nearly $5 billion, up from $3.5 billion in November. This expanded funnel is driven by new project announcements in hydrogen, clean fuels, carbon capture and EV batteries, all where we are actively engaged in our technologies well suited. We have also continued to expand our metals and mining and life science funnel, and we are now capturing additional strategic projects in our funnel as we dedicate more time and resources towards pursuing these engagements. In the third quarter alone, we added over 300 projects to the funnel and were awarded a content in over 50. This indicates a solid pace of project announcements as near-shoring and sustainability trends spread globally. We expect these organic growth platforms will grow double digits through the cycle, and we are off to an excellent start in 2023. Please turn to Slide 8, where we'll highlight a few key wins across these segments, which underscore the power of Emerson's highly differentiated portfolio of solutions and the opportunity ahead for Emerson. The LNG wave continues to progress, and Emerson is winning our share of opportunities. Of the projects that have moved forward over the past two years, Emerson has been awarded content in 7, demonstrating our continued leadership in this space. These are large projects with ample automation opportunity. On average, approximately $10 million of automation opportunity per million ton per annum of liquefaction. Our unmatched portfolio of measurement devices, valves, control systems and now optimization software, differentiates Emerson as the only automation company capable of providing a holistic solution. Emerson's leading project execution is also a key differentiator for these large and complex projects. Through our project certainty approach, Emerson helps customers expedite project time lines and reduce project costs, key measures to reaching profitability faster. One of these seven projects was the Port Arthur LNG project. Emerson is excited to announce it will be supporting Bechtel Energy and Sempra Infrastructure in the automation of the Port Arthur LNG Phase 1 project. This liquefaction and export terminal in Southeast Texas is a premier LNG project designed for safe, reliable and efficient operations, delivering LNG to global markets through two trains capable of producing up to 13.5 million metric tons per annum. Emerson was chosen as a key automation partner for Bechtel Energy, providing our leading DeltaV control system, final control valves and measurement technology. Further, on Slide 9, the next market we'd like to highlight is the battery value chain. This is an area where we are winning projects based on the breadth, depth and strength of Emerson's end-to-end capabilities from the mining of lithium and copper through refining and processing and finally, to EV battery manufacturing, assembly and recycling. In 2022, Emerson technology helped produce over 65% of global electric vehicles. We are excited to continue supporting companies around the world as production expands across each of these high-growth segments. Recently, Emerson was selected to automate two very strategic projects in mining. First, the Ganfeng Lithium project in Argentina. Emerson's DeltaV control system was selected to automate the large-scale lithium mine, a strategic win in the lithium triangle between Argentina, Chile and Bolivia that holds much of the world's lithium reserves. DeltaV was selected because of its differentiated and flexible architecture and commissioning savings with Charms. The next project success was for CODELCO in the Andina copper mine in Chile. CODELCO is the world's largest producer of copper, and Andina site will represent over 10% of CODELCO's overall output. Emerson's DeltaV and control software were selected to help automate the treatment of water on the site, allowing CODELCO to accurately control water quality, efficiency and recycling. Emerson recently won a contract with one of the largest EV manufacturers because of our unique ability to support production across multiple processes in the value chain. With this project, Emerson will be the trusted automation partner to support two facilities: a lithium refining project and cathode production facility in Texas. DeltaV was chosen for both projects due to its robust software architecture and ability to bring together previous islands of automation. As the customer continues to grow operations globally with numerous expansions in new operations, Emerson is well positioned to be the supplier of choice given the unique nature and value of the capabilities that we can deliver. Emerson was also recently awarded a large project with a leading German EV manufacturer to help automate the battery cell assembly process. As we look at future opportunities, NI has a leadership position with many of the largest EV and battery manufacturers in the world. And I've differentiated hardware and software solutions help customers with the R&D, testing and validation of batteries and vehicles, and we look forward to leveraging those relationships to expand our current factory automation business and build upon our recent successes. As you can tell, we are energized by these projects and our relevance with customers. We will share our progress as Emerson continues to partner with leading EV manufacturers around the world and benefit from the strength and differentiation of our portfolio of assets. I'll now turn the call over to Mike Baughman. Michael Baughman: Thanks, Lal, and good morning, everyone. Please turn to Slide 11. Our third quarter financial results were outstanding. And before talking about that, I want to thank our global teams for their hard work and execution. Our Emerson management system is driving value as evidenced by our continued sales growth, margin expansion, earnings growth and free cash flow performance. Turning to the results, underlying sales growth exceeded our expectations at 14%. GAAP sales were also up 14% for the quarter and price contributed approximately five points of growth. Backlog of $6.9 billion, remained flat quarter-over-quarter. Software and control performed better than we expected, growing underlying sales 19% due to increased availability of electronic components and our ability to convert more of the backlog in this business. Intelligent Devices grew 13%, led by process and hybrid exposed businesses, mainly measurement and analytical and final control. These two businesses are leaders in later cycle markets and have a large installed base, which, along with the continued backlog conversion, contributed to strong growth in the quarter. From an industry perspective, process and hybrid remained healthy with double-digit growth in the quarter. As Lal mentioned, discrete activity has continued to slow, but still exhibited mid-single-digit sales growth due to backlog conversion. Emerson adjusted segment EBITDA margin improved 370 basis points to 26.9%. Leverage, excluding AspenTech was 59%. Strong sales growth, margin accretive price costs and favorable product and project mix, all reflect the excellent execution by our operations teams and contributed to the margin improvement. Adjusted EPS grew 40% to $1.29, and I will discuss the details of that growth on the next chart. Lastly, free cash flow of $769 million, was up 83% versus the prior year quarter. For the quarter, free cash flow conversion of adjusted earnings was 97%. The strong earnings growth and working capital improvement helped contribute to the free cash flow growth. Please turn to Slide 11 for the details of adjusted EPS and bridge from the prior year. Most importantly, the strong 14% underlying sales growth and 59% segment level operating leverage contributed $0.29 of EPS growth year-over-year. Stock compensation was a $0.06 headwind due to lower stock comp expense in the prior year, but that was more than offset by other corporate items and tax, which were an $0.08 tailwind. The reduced share count resulting from the $2 billion share repurchase completed in the first quarter contributed $0.04 to adjusted EPS. Lastly, now that the copeland transaction has closed, we are including the interest from the Copeland note receivable and adjusted results and guidance moving forward. The Copeland note interest contributed $0.02 to adjusted EPS in the third quarter, and it is important to note this was not included in our May guidance. Overall, adjusted EPS grew 40% year-over-year to $1.29. Turning to Slide 12. And as we look ahead to the rest of the year, I'd like to highlight a few key things. In general, end markets remain resilient. We have increased our expectations for process to double-digit sales growth with meaningful contribution from secular growth segments, energy transition and energy security. With continued strength in life sciences and metals and mining, we now expect hybrid to grow low double digits in 2023. We are discussing nearing initiatives with more and more customers. This is not just a trend in the United States, and we see near and long-term benefits around the globe. For example, our team recently visited Australia and China where we spoke to customers about their plans to make investments in new markets like life sciences. As a global leader for providing automation for this market, these customers are tapping Emerson to support their investments. Discrete demand is continuing to slow, especially in Europe, and we are beginning to see the impacts in the United States and Asia. Sales growth expectations when combined with our Safety and Productivity commercial exposure, are in the low single-digit to mid-single-digit range as we have worked through backlog. The supply chain environment has continued to improve, allowing us to work through our backlog as we head into Q4. Price cost has been a significant tailwind in 2023, a reflection of our commercial excellence. We expect price for the year to approach four points, and we will remain diligent on price as a key performance level. As we look to the future, we are excited by our growth opportunities. Emerson is uniquely positioned to support our customers' investments in key areas we expect to grow double digits through the cycle. We've demonstrated our leadership in energy transition markets like LNG, nuclear, hydrogen, clean fuels, carbon capture and renewables. We are well positioned to capture the long-term investments driven by near shoring. And finally, we have a leading and differentiated software portfolio that is expected to have double-digit ACV growth through the cycle. These are all trends we expect to continue to augment Emerson's growth for the foreseeable future. Please turn to Slide 13. As this chart shows, our performance this year has been exceptional. We have successfully executed on our portfolio transformation while continuing to drive strong results across the business and exceed on our commitments. Strong operational performance, improved price/cost management and more favorable mix as we went through the year gave us the ability to increase our expectations throughout the year. For 2023, underlying sales growth is now expected to be towards the top end of our previous 8.5% to 10% guidance range. We expect both intelligent devices and software and control to be on par with this overall updated guidance. As a reminder, AspenTech will begin rolling into our underlying sales in Q4 and as we lap a year of ownership. We are also increasing our expectation for segment operating leverage based on the strong Q3 result, sales strength, favorable price cost and continued strong operational performance. We now expect segment operating leverage to be approximately 50%, excluding AspenTech. Adjusted EPS has been raised to $4.40 to $4.45 and a 22% year-over-year increase at the midpoint. Please note this includes $0.06 of interest from the Copeland note receivable that we are now including in our adjusted results, $0.02 from Q3 and approximately $0.04 in Q4. AspenTech is still expected to contribute approximately $0.25 for the year. Post Copeland transaction closed, please note we have now included an estimate for the Copeland equity loss in our GAAP guidance numbers which, in addition to the undeployed proceeds is being removed from our adjusted results and guidance. We have also adjusted our expected tax rate to approximately 22% for the year. Free cash flow is expected to be $2.2 billion to $2.3 billion for the year, of which AspenTech is on approximately $300 million. Thanks for your attention. I will now turn back to Nick to open the call for questions. Operator: [Operator Instructions] First question will be from Nigel Coe, Wolfe Research. Please go ahead. Nigel Coe: Thanks. Good morning. Thanks for the question. I thought maybe just to set off on the obviously very strong operating performance, but margins were the real standouts. So I'm just wondering, as we go into '24, I mean, is anything we should think about in terms of maybe some headwinds to margins? I'm thinking here, but measurement analytics very strong sequentially up 20%. Are you confident that you can grow off these margins going forward? Michael Baughman: Nigel, yes, we're very excited about the leverage that we've had with 40%, 53% and then 59% in the quarter. You do see that operating leverage tipped down a little bit in the fourth quarter, and we're going to exit the year around 50%. So yes, we feel good about the operating leverage, and we're not really in a position to talk about '24 at this point. But we certainly are pleased with the current year performance. Lal Karsanbhai: And I'll just add a little bit of color. Thanks, Mike. I do believe that the underlying work that we've been doing around price, cost management, thinking about how we bring our differentiated technology to market will be sustainable into -- through the cycle as we talked about. And we look at the leverage targets as we go to '24, and we'll talk about that later in the fall. But I feel very good about the momentum in the business and the executional elements that are going to impact our ability to deliver differentiated margins on a go-forward basis. Nigel Coe: That's great. And then my follow-up question is on the Control Systems organic growth in the high teens, that's a longer cycle business. And I don't really think about that as necessarily cycling up big or down big. So mean how much of that is coming from sort of created backlog conversion with lead times, maybe some chip lead times coming down? And sort of how do we think about that going forward? Do you think you can maintain above-average growth rates in control systems and software? Ram Krishnan: Yes. Nigel, Ram here. Yes, I think this particular quarter end this year, I think in the second half, the lead times catching up and better supply chains and shipping backlog is what is driving the significant growth in our systems business. But with that said, the project funnel is very good. The KOB 3 is very good. So our expectations are the momentum in that business should continue into 2024. Operator: Next question will be from Andy Kaplowitz of Citigroup. Please go ahead. Andy Kaplowitz: Hey. Good morning, everyone. Well, so you reiterated your mid-single-digit order growth forecast for this year and you came in at 3% this quarter despite the discrete market slowdown, you obviously gave us the new funnel of opportunities. with mid-20% organic growth. So does that mean that Emerson's orders could reaccelerate from here? Or how do you think about that given the markets that you laid out? Lal Karsanbhai: Yes. Certainly, Andy, we feel confident in that mid-single-digit guide that we laid out a quarter ago and believe we'll exit the year in that rate. The process in hybrid orders are in the high single digits as we exited the quarter, and that's where a significant amount of the momentum lies not just in the capital expansion but related to just everyday business activity. Of course, offset by the discrete markets that we talked about through the quarter. We still feel very confident that we'll inch up from where we ended the quarter here slightly. Andy Kaplowitz: Lal, and then maybe I could ask you a more philosophical question on AspenTech. I know at this point, it announced its guidance for FY '24, low double-digit ACV growth and he agreed not to buy Micromine and announced a big repurchase. Are there any lessons learned as you and Antonio have worked together now for a little over a year? And given AspenTech FY '24 guidance, do you see a nice uptick in APM's contribution to your EPS in '24? Lal Karsanbhai: No. Look, we continue to deliver on the synergy plan. I think that's point number one, not just in terms of pursuit of business collaboration between the selling organizations. But most importantly, as I highlighted in the presentation around technology. And it's that technology tie-in that ultimately will differentiate our offerings in the marketplace. Number two. Look, over the quarter, we did a lot of work together. I think I feel really good about the plan that AspenTech laid out, the way it was communicated yesterday. I thought it was very succinct and clear. And I think they'll execute very well as we go through the quarter. There's a lot of collaboration ongoing between our joint teams and momentum continues to build a year into a little over a year into this. Andy Kaplowitz: Thanks a lot. I appreciate it. Operator: Thank you. Next question will be from Josh Pokrzywinski of Morgan Stanley. Please go ahead. Josh Pokrzywinski: Josh. So well, I'd love to kind of dig in a little bit on backlog here. So flat sequentially. You highlighted the funnel of activity growing pretty materially here. So presumably, the conversion rate starts to pick up a little bit here. Do you think we're sort of in this backlog zone for a while? I think a lot of your other peers out there in multis are starting to dip into backlog with lead time normalization. Just wondering whether you guys sit on that or anything you'd want to call out for the next few quarters? Lal Karsanbhai: Josh, yes, we certainly expect the backlog to come down a few hundred million to the fourth quarter. And it's important to note that its year-over-year at the end of the year, we expect that to be up a little over double digits. So yes, the supply chain easing has certainly helped. But as we look ahead, we see that backlog coming down a little bit in the fourth quarter. Josh Pokrzywinski: Got it. That's helpful. And then just kind of going back to Nigel's question, maybe thinking about some of the factors, whether it's '24 or maybe more broadly than that on mix. It seems like with a lot of these large projects, we're going to see more KOB 1, which I think maybe in the older days of Emerson was a bigger mix headwind. But how do you guys think about that now given the change in project composition, et cetera? Michael Baughman: Yes. I think first off, I think just to add to what we said related to Nigel, the KOB 3 business performance has been very strong. Right now, we're running at 65% plus KOB 3 rates with strong performance in North America. So that has really contributed to the outsized leverage we saw in the first three quarters. And we don't expect that to materially change in the next two quarters. But you are right, as our project backlog has built up, and we see project shipments go into '24, that will throttle leverage down to the mid-30s or high 30s rates we've guided to you in the past. So that's really a dynamic you should look for in 2024. Lal Karsanbhai: Yes. I think you're absolutely right. I think we're -- there's a fixed handle on the MRO and replacement business. We don't expect that. I think you're absolutely right to change as we go through the year. There's a lot of positive activity there. So feel good about that mix despite a very robust capital project funnel. Operator: Next question will be from Steve Tusa of JPMorgan. Please go ahead. Steve Tusa: The incrementals getting back to Nigel's question, I guess, given what happened this year, is there any view on how you view kind of the long-term trajectory on those incrementals. Can you just remind us of what your long-term view on that is and how that kind of plays out? And maybe how the mix may impact that over the next couple of years as perhaps the MRO stuff slows and the project stuff comes on. Lal Karsanbhai: Yes. Look, we guided in November, Steve, at 35% through the cycle. Obviously, we're in a very positive point in the cycle at this moment in time. And look, as we look at our mix of business, our tech, geographical mix, as we go into November, we may assess that, but that's the guide that we put out last November. Obviously, we're outperforming that number today. Steve Tusa: And then what is the contribution from kind of price cost this year, just roughly? Lal Karsanbhai: Yes. Well, on price in the quarter, we have nine points of volume and five points of price. Price will moderate as we go into the fourth, I think, for the year to 3.5, approaching four points of price in the full year guide of 10% underlying sales. Operator: Next question will be from Andrew Obin, Bank of America. Please go ahead. Andrew Obin: I guess the KOB terminology just refuses to die. Lal Karsanbhai: I'm trying to kill it. Andrew Obin: I'm aware of that. So just a question on supply chain. Are you guys -- some of your competitors are talking about deflation or disinflation, are you seeing an opportunity to extract discounts from your supply chain? Just trying to understand, right, people are talking about inflation subsiding. Are we going to see bottom line benefit for a company like Emerson over the next six to 12 months? Ram Krishnan: Simple answer is yes, Andrew. And we look at, obviously, direct material, indirect material and logistics. So we are going to see deflation or positive NMI or favorable NMI. We are seeing that already in the second half of this year and should see that continue into next year. So it will be favorable for us. What I will say, though, is if you go back to pre-COVID levels, logistics cost, for example, are already there. So we've seen a lot of the logistics benefit already come through on the direct material front, particularly castings, machine parts, electronics we will see deflation in '24 versus '23, but still not back to pre-COVID levels. So maybe the opportunity there for us is continued deflation over the next several quarters as the market eases. Andrew Obin: Excellent. And just a question on Aspen and Emerson. Can you just talk a little bit more about channel integration, because we're hearing that you guys are driving Aspen and Emerson closer together and the relationship is evolving. Just trying to understand how much upside you think or how much margin of safety there is, given that historically, Emerson sales force has been very, very commercial. By incentivizing the salespeople seems like the relationship is going outside the initial channel. Just talk a little bit more about the opportunity. Michael Baughman: Yes. So you are spot on. I think over the last year and certainly in the last six months, the collaboration and the refinement of our go-to-market or joint go-to-market approach, whether it's our project or the white spaces has certainly improved. Yes, you are correct. In certain markets, China, for example, we're collaborating a lot more in terms of having the channels work together, incentive plans for both channels to support each other have been put in place, and that's really stimulating the right behavior, if you will, as both teams go out and pursue competitive displacement opportunities or Aspen, for example, selling on our DeltaV installed base. So yes, I think we'll continue to evolve and progress that. We're being very careful and we're taking it market by market and doing what makes sense. I don't think there's a one-size-fits-all approach to every market. But certainly, the collaboration and the incentives for our sales organizations to collaborate have improved over the last six months. Operator: Next question will be from Chris Snyder from UBS. Please go ahead. Chris Snyder: And congrats on a strong quarter. I guess I wanted to follow up on some of the prior conversation and communication on margins. If our math right, the guide seems to imply a pretty material sequential decline in margins into the fourth quarter despite a step-up in revenue. I guess, is that right? And what's driving that? Pete Lilly: Yes. We will see a decline in margin in the fourth quarter. And if you think about the third quarter that was driven by price and leverage, both of those things will be a little bit lower in the fourth quarter. As we mentioned, the pricing for the full year will be about 4% relative to the five in the fourth quarter or in the third quarter rather, and the mix will also have an effect there as we close out the year. Chris Snyder: I appreciate that. And then just maybe I was looking for some more color on the pipeline of big process projects. Are there some concern in the market that with oil and gas kind of commodities down pretty well off the high, and that includes LNG that there could be some slowdown or pressure on these projects seem to have really good momentum on there. So can you just maybe talk about what you're seeing there and particularly on the traditional energy and the LNG side? Lal Karsanbhai: Yes. I'll make a couple of comments, and if Rob wants to add color here. Look, the bulk of what we're seeing is gas. It's not oil where we do see activity in the oils around sustainability, conversions, carbon capture, et cetera, and emissions reduction. But it's the gas activity that I think is very relevant. And that is entirely tied to Europe, to energy security and affordability. And we have not seen any slowdown in the activity, as a matter of fact, an acceleration through the quarter in terms of funding processes. There are seven projects currently out of nine funded and moving forward aggressively and we've booked seven of the nine -- in seven of the nine already. So I haven't seen any evidence, and we have not felt within the business any evidence of any potential pullback in the gas infrastructure build-out or LNG infrastructure build-out. Ram? Ram Krishnan: Yes. And just to add to that, as it relates to our traditional markets, outside of LNG, as Lal mentioned, Chemical is another area where we see continued momentum on projects, certainly in markets like the Middle East, U.S. and China. In terms of our two traditional energy business, FPSO activity in Brazil, Guyana and Asia still continues to be good and moving forward. And then obviously, as we've said, activities in metals and mining, life sciences and nuclear continue to progress. So funnel is diversified. That's what we like about the funnel, and it's not really dependent outside of LNG, not really dependent on one large market, and we feel very confident that on the LNG side, particularly in Qatar, and in the U.S. and East Africa, those projects will move forward. Operator: Next question will be from Deane Dray, RBC Capital Markets. Please go ahead. Deane Dray: I appreciate the spotlight you put on the battery value chain, and we see this as linked to the whole array of these powerful mega projects that are going on now. In fact, battery is one of the biggest there. But just can you give us -- and it's all tied to the reshoring, nearshoring phenomenon? Give us a sense of what kind of win rates you're seeing there within the battery, but also on other projects there's more than 50 different projects over $1 billion. Just if you could cut across those, where else are you winning like in the semiconductor side, other automation projects and so forth? Lal Karsanbhai: Yes. No, I'm happy to. So I'll start with LNG, which has been very important, we're winning at a rate higher than 50% so far. We feel really good about continued differentiation in the marketplace and really becoming a de facto automation supplier there. In the hydrogen space at 50% right now, in terms of win rate to the funnel. And across the battery ecosystem, feel very, very strong that very, very confident that, that sits in the 45% to 55% range as well. in fields like life sciences, it's much higher. And that is due to the very strong position of Delta V and the various instrumentation technologies that we bring to bear. So overall, I feel really good about the execution to the projects in the funnel. The pursuits are funded by internal teams. There's multi-vary calling points between engineering companies, end users and contractors. And it occurs at all levels within our organization from Ram and I, down into the card pairing salespeople. Deane Dray: Good to hear. And then second question would be for Mike. Just can you share with us some of the actions on the working capital side? There was really good free cash flow in the quarter. I would imagine you're still in this sort of interim period prior to NATI, where there's only so much you can do on the working capital side. But just give us a sense of what actions near term, how that translates into free cash flow for the year and then into early '24. Michael Baughman: Yes, Dean, we have been really focused on inventory with the supply chain challenges, and we've seen some improvement, and we expect to see some continued improvement as we move into the fourth quarter around inventory. On receivables, with 14% growth, there's going to be a growth in receivables, and I'll tell you that DSOs have stayed flat, and the execution there has been really, really good. If we look ahead, we're expecting for the fourth quarter operating cash flow around $800 million to $900 million and CapEx around $150 million, which should put us in around $2.2 billion to $2.3 billion for the year. So I feel good about the actions that we're taking. There's been a strong focus on inventory with the backdrop of the supply chain moving around and settling, which is good, but that's been our focus. The past new performance has continued to come down on the receivables side, which has been really helpful as well. Deane Dray: Yes. But just let's be clear, a growth in accounts receivable is a high-quality problem. Michael Baughman: That's true. Operator: Next question will be from Jeff Sprague, Vertical Research. Please go ahead. Jeff Sprague: I apologize if this was addressed. I was on a little late. But Will, can you just give us I thought your updated thoughts on how we're progressing towards regulatory approvals on national instruments and I know your view on 2024 was more subdued than what -- the Street consensus was, but they did post some soft orders here in Q2. So just any thoughts on maybe the trajectory of that business as you work towards close. Lal Karsanbhai: Yes, Jeff. Yes, I did cover it in my script, but I'll be happy to repeat the key points. So on the regulatory, we have HSR approval and all the filings have been made, some already obviously obtained. So we feel very confident on the time line to close in the first half of our fiscal 2024. In terms of the business performance, look, it's largely playing out as we built into our model. Orders are down 17% end of the -- that's largely driven by weakness in semiconductor and discrete, but we expect that to improve as the calendar year goes on, and that's how we built into the business case. Having said that, Jeff, had another record quarter. Their sales were up 5% year-over-year. The profitability continued to improve and is very strong, particularly with GPs at very high levels. So we feel excellent about the execution in the business, and we'll continue to stay close on our collaboration to be in our integration planning so that we can hit the ground running on day 1. Jeff Sprague: Great. And then a few things I did here on the Q&A. It was a lot of discussion here on margin leverage, mix and et cetera, just kind of drilling in on price costs specifically. I would imagine we're maybe at or near kind of peak positive gap on that metric. I just wondered if you had opine on that. And maybe more importantly, though, my question is your ability to kind of maintain a poling pricing cost as we kind of look forward here the next several quarters? Lal Karsanbhai: Yes. Yes. Ram, why don't you give a... Ram Krishnan: I think we're very confident in maintaining price cost green going into next year. However, price/cost in terms of margin point contribution or the spread will be lower as we go forward. I mean we've had an exceptionally good year here in terms of price performance and obviously, NMI coming down in the second half. That will continue. I mean we will be green price cost, but the margin point contribution from it will be lower in '24, which will have an impact on leverage rates. Operator: Next question will be from Tommy Moll, Stephens Inc. Please go ahead. Tommy Moll : Good morning and thanks for taking my questions. Well, I think it was a quarter ago maybe before you called out some of the softening on the discrete side. That was originally, I think, in Europe, primarily Germany, but then you highlighted some evolving trends in the U.S. and Asia as well. Can you give us any more insight there? Lal Karsanbhai: Yes. We saw that develop through the quarter, Tommy. You're absolutely right. A quarter ago, we talked about weakness that we began to see, particularly in automotive and in packaging OEMs, which, as you know, in Germany, not only serve the German market, but export throughout the world. That did spread into the United States and into parts of Asia. And that developed through the quarter that drove more weakness in that discrete business, which again, makes sense from a cycle perspective for us, but that really developed over the last three months. Tommy Moll : I appreciate it. Well, I also wanted to ask about culture. It's something that you've highlighted throughout your entire tenure as CEO. At the same time, pro forma for NATI, you'll have a much larger organization including pieces that had their own cultures before they were folded into Emerson. So situate us on that journey and give us some insight into what the consolidated approach will be once your portfolio is more mature? Lal Karsanbhai: Yes. No, I appreciate the question, Tom. As you know, that's pillar number one and continues to be pillar number one for the organization. We're very excited about the journey we're on. As you know, culture is not something that you change immediately, but as you have to journey. And there's been a lot done in -- across Emerson. What I particularly am excited about is the culture that exists today at National Instruments. It is something that is familiar to us. It is a very attractive place to work, a culture based around learning, curiosity, and that is felt in every engagement that we've had with that team. they have moved ahead in many of the dimensions that we are looking to do here at Emerson, and we're going to be learning from NI and applying a lot of their lessons to what we implement here in our company. So I think there's an accretion there. and an accelerator there from what they've done and. But at the end of the day, it's a company of engineers, who are curious who lean forward, think about tech in differentiated ways, and that's essentially who we are today. Tommy Moll : Thank you. I'll turn it back. Operator: Thank you. Next question will be from Joe O'Dea of Wells Fargo. Please go ahead. Joe O'Dea: Hi. Thanks for taking my questions. I guess one more just related to the price cost dynamic, I think, pretty clear in terms of what you're seeing on the cost opportunity side. But just overall, how you think that filters through on the price side. So I appreciate that still a positive margin spread even if narrowing. But in conversations you're having, are you seeing a little bit more discussion around that? Are you seeing areas where price is actually moving down? Michael Baughman: No, we expect price to remain positive. The magnitude of the price will be. Obviously, it's not as part -- if on the increases won't be as positive as we saw in the inflationary times of the last couple of years. But our automation business, we have a leadership position in all the markets we play in. We bring a lot of technology to our customers. Obviously, KOB 3, which is the replacement cycle is 65% of our sales. So we'll be positive price going into 2024, even as we execute on the favorable deflation that we will see on purchases like electronics, castings, machine parts. Joe O'Dea: Got it. And then also wanted to circle back, a couple of comments on near-shoring and I think kind of a broadening out maybe of the trends there. And so if you could expand on that a little bit and just touch on sort of the evolution of what you've seen, maybe kind of led in North America, but just sort of what inning you think we're on? Are you seeing any kind of stabilization in those trends in the U.S., but you're seeing kind of growth budding in other regions. And so if you can touch on those regions and verticals a little bit more? Lal Karsanbhai: I'll say a few comments and have asked Ram to add a little color as well. Look, I think we're in early innings, certainly early innings in terms of the infrastructure, chips, near-shoring activities, and it's broad-based. it's driven clearly in the EV value chain that I've described in Life Sciences, semiconductor, which will benefit in National Instrument significantly as well. But it's Australia, it's Europe, it's the United States with very robust activity across all world areas. But I have to say, based on just the pace of activity, I do believe there are many innings yet to be played here. Operator: Thank you. This concludes our conference today. Thank you for attending this presentation. You may now disconnect.

Operator: Welcome to the Emerson Second Quarter 2023 Earnings Conference Call. Please note today's event is being recorded. I would now like to turn the conference to your host, Colleen Mettler, Vice President of Investor Relations at Emerson. Please go ahead. Colleen Mettler: Good morning. And thank you for joining us for Emerson's second quarter fiscal 2023 earnings conference call. Today, I'm joined by President and Chief Executive Officer, Lal Karsanbhai; Chief Financial Officer, Frank Dellaquila; and Chief Operating Officer, Ram Krishnan. Also joining us today is Mike Baughman, who was announced earlier this morning as our chief financial officer effective May 10. As always, I encourage everyone to follow along with the slide presentation, which is available on our website. Please join me on slide 2. This presentation may include forward-looking statements, which contain a degree of business risk and uncertainties. Please take time to read the safe harbor statement and note on the non-GAAP measures. I will now pass the call over to Emerson's President and CEO, Lal Karsanbhai, for opening remarks. Lal Karsanbhai: Thank you, Colleen. And good morning. Please turn to slide 3. I'd like to begin by thanking the global Emerson team for a tremendous performance, our board of directors and shareholders for the trust that you place in us. It has been a busy first 26 months as CEO as we reinvented Emerson. The second quarter performance was exceptional. It was a quarter in which we significantly advanced our strategic agenda across the three dimensions of our value creation model. First, culture. In the last two months, we announced two important leadership changes. Vidya Ramnath was named as the company's chief marketing officer, replacing Kathy Button Bell, who had a distinguished career at Emerson and put Emerson's brand on the map while working for three different CEOs. Vidya is the right person to accelerate our journey as a pure play automation company. She brings deep technical knowledge and customer exposure, is an engineer, and for the last four years, has led Emerson's Middle East and Africa business. We believe this is a highly differentiating move for us as a company. Secondly, this morning, we announced Frank's planned retirement and Mike Baughman as Emerson's CFO. I'll say a few more words about this later in the presentation. Lastly, we completed our first digital employee engagement survey. We heard from 85% of our global employee base and received a high quartile net engagement score. This gives us a stake in the ground and now great perspective on the areas of strength and opportunities to better the talent experience at Emerson. Second, the portfolio. We will be finalizing the Climate transaction in the current quarter. The CEO for the joint venture has been named, Ross Shuster, and we are excited by what his leadership and experience brings to the business. I'd like to thank Jamie Froedge for the work he did in the business and for his contributions, over 16 years of service at Emerson. In addition, we signed a definitive agreement to acquire National Instruments. We're very excited about the company, the technology and, most importantly, the people. This is an important point. The large portfolio moves are now complete. As an investor, you now have clarity that an investment in a share of Emerson is an investment in the leading global automation company serving a diversified set of end markets with a high growth, high profitability and cash flow, cohesive and differentiated tech stack made up of intelligent devices, control and software, led by AspenTech. Our focus on a go-forward basis, as we did this quarter, will be on creating value with this tremendous company. Lastly, our third pillar – execution. None of the work we've done would have been possible without it. The phenomenal results and momentum we have in the business is a testament to the quality of our global teams and to the strength of the Emerson management system. Underlying order were up 7% with late cycle process markets continuing to exhibit strong demand. Hybrid also remains robust, driven by reshoring investments globally. From world area perspective, Americas orders led, with China returning to growth as expected. As we look to the remainder of the year, we still feel confident in continued mid-single digit quarter growth. The strong demand and steadily improving supply chain environment enabled 14% underlying sales growth in the quarter, well above our expectations. All world areas were up double-digits, led by the Americas up 15%. Intelligent devices and software and control were also both up double-digits. This strong sales performance and the continued operational execution of our teams led to 53% operating leverage in the quarter, excluding AspenTech. Favorable impacts from mix and price costs also drove a 320 basis point improvement in adjusted segment EBITDA to 24.6%. Adjusted EPS was $1.09, beating the midpoint of guidance by $0.11, again, driven by the strong sales and operational performance. This is a 25% increase versus Q2 of 2022. Free cash flow was up 64% year-over-year and up 23% year-to-date, which is on track to meet our full year expectations. Turning to slide 4. Our value creation priorities and growth initiatives around innovation and secular growth platforms that we outlined at our investor conference in November 2022 are yielding meaningful results. First, Emerson was recognized by Fortune magazine as one of America's most innovative companies. The recognition is a testament to our innovation history and dedication from our employees to create leading technology and software for our customers. We are extremely excited to be recognized for this award and are working continuously to accelerate our innovation engine for future growth. Similarly, Emerson continues to differentiate as a leader in growth markets, like energy transition, metals and mining, and software. In the second quarter, Emerson was awarded the software and automation contract for Intermountain Power Agency's renewed power plant. The Utah project transforms a retiring coal-fired power plant into a clean energy plant running on hydrogen. At first, the plant will use a mix of 30% hydrogen, 70% natural gas before transitioning to 100% hydrogen by 2045. The hydrogen will be supplied by the Mitsubishi Power Advanced Clean Energy production and storage hub, another greenfield project that Emerson was awarded in 2022. When complete, the Intermountain project will supply six Western states with carbon free power, a critical step towards a net zero world. With our integrated end-to-end renewables and power generation platform, Emerson was chosen because of our industry expertise and proven experience in hydrogen and complex projects. Secondly, Emerson and AspenTech were jointly selected to automate and optimize the Golden Triangle Polymers facility on the Texas Gulf Coast. The $8.5 billion project is a sister facility to QatarEnergy and Chevron Phillips Ras Laffan project that we highlighted in the first quarter Emerson will provide its leading DeltaV control system and intelligent devices, and AspenTech will provide its leading simulation software. This technology will allow the facility to operate with approximately 25% lower greenhouse gas emissions than similar projects in the US and Canada. This is a great example of the differentiating strength of Emerson and AspenTech. Turning to slide 5, we remain energized and excited by our recently announced acquisition of National Instruments. National Instruments will expand our leading automation business into the attractive test and measurement space and provide important industry diversification into discrete markets. NI's leading portfolio of technology and software are well positioned to capitalize on secular trends within semiconductor and electric vehicles, and we expect the transaction to be accretive to our long-term underlying growth. Inclusive of $165 million of synergies by the end of year five, that transaction meets the financial criteria we have communicated. We will work to complete the customary regulatory and closing conditions and expect to close in the first half of Emerson's fiscal 2024. We had the opportunity to meet the extended management team and to do a global town hall with NI employees last week while visiting Austin. From that meeting, we came away even more confident in the potential opportunities of our combined company. The technology is differentiated and has ample room to expand and the talent – well, it's simply exceptional. But most importantly, I was energized by the warm reception we received from the leadership team and all the employees we met. In a way, I am proud to be an NI-er now as well. Please turn to slide 6. The past 26 months have been fast paced and an exciting journey for Emerson. We moved from a $17 billion two platform business to a cohesive $16 billion automation leader. It took a lot of hard work to transform this business, and we now have an outstanding opportunity to create value for shareholders. It is a portfolio that is exposed to secular growth trends that are expected to drive growth for years to come and we'll remain committed to our 47% through-the-cycle underlying growth target. Our new portfolio is higher margin at approximately 49% gross profit and 23% adjusted segment EBITDA margin. Our industry mix is more diversified than two years ago, focused on automation and with the discrete markets now our second largest customer end market. While we will continue to pursue bolt-on acquisitions, we're now turning our focus to executing the strategy we laid out at investor conference in delivering the synergies we have committed to for AspenTech and NI. Please turn to slide 7. Emerson and our board are committed to ongoing board refreshments, and yesterday, we had the privilege of announcing two new board members to our board of directors. Leticia Gonçalves is the President of Global Foods for ADM, and a member of the company's Executive Council. As part of ADM, Bayer and Monsanto, Leticia has held roles in digital solutions, commercial operations, international management, and technology development, and is a longtime advocate and driver of diversity and inclusion. Her experience in these areas and accelerating change make her an excellent addition to our board. Leticia is originally from Brazil. She's a chemical engineer, and has a tremendous passion for innovation. Speaking of innovation, Jim McKelvey is a successful entrepreneur who founded Block, Invisibly and Fintop Capital. He brings a unique, innovation-focused perspective to Emerson, and will serve as a key collaborator as we continue to accelerate innovation and invest in technology and engineering. Jim has expertise in many areas, including software, cloud and cybersecurity, which will benefit Emerson as we provide customers with leading digital solutions. They are energized and so are we, and we are excited to have both Leticia and Jim join our board of directors. Before I turn the call over to Frank, please turn to slide 8. I would like to congratulate Frank for a distinguished career of over 32 years at Emerson and the past 14 years as CFO. Frank, I met you 28 years ago, and it has been an honor to be your colleague. Please know that you created a legacy here at Emerson. We could not have accomplished what we did over the past 26 months without you. And I would not have been able to lead this company without your wisdom, confidence and support. You made us better. You made me better. Thank you for the lasting impression you left on me and the impact you made on all of us. I'm also excited to announce Mike Baughman as CFO of Emerson, effective May 10. Mike has over 35 years of experience in finance, operations across Baxter, Emerson, of course, and PwC. I'm excited about what Mike brings to the role. And please join me in welcoming him. Mike, congratulations. Michael Baughman : Thanks, Lal. And thanks to you and the board for giving me the opportunity to serve as Emerson's next chief financial officer. I'm very excited to get into the role. Good morning, everyone. I've had the opportunity to meet several of our investors and analysts, and I'm looking forward to meeting more of you and working with you in the future. And to my Emerson colleagues listening in, thank you for a fantastic quarter. As Lal just talked about, it's been a productive 26 months with respect to reshaping our portfolio and we're on track to achieve what we set out to do. The impressive result is a more cohesive $16 billion automation company expected to grow 4% to 7% through the cycle, with peer-leading margins and a more diversified end market exposure. I think of the portfolio transformation as a great start. And now we get to operate in this new environment. Execution has always been a hallmark of Emerson. And we're building on that to focus on accelerating profitable growth, integrating NI, and growing our cash flows as the supply chain normalizes. I certainly expect successful execution in these areas to result in increased shareholder value. While I'm excited about our future, transitioning to the CFO role is a little bittersweet for me personally. Frank was a major reason I joined Emerson a little over five years ago. And during that time, I've come to know Frank as a great finance professional, and more importantly, a wonderful person. I'm confident we'll have a smooth transition over the coming months. Lal Karsanbhai : Thanks, Mike. And now, I'll turn the call over to Frank. Frank Dellaquila : Mike, thank you so much for the kind words. When I showed up here 32 years ago, I never – didn't really know what to expect and I never could have imagined the opportunities that I would have, the things I would get to do, and above all, the people I would have the privilege to work with. The last 13 years have truly been a privilege, leading a world class finance organization, who I respect, I trust implicitly, never let me down. And I thank them from the bottom of my heart. The last two years working with Lal and Ram and the people in this room and our extended team on the portfolio transformation have been truly special, and just a wonderful capstone to my career. And I will always be grateful for that opportunity. Thank you, Lal. I'm truly grateful for that. It's been a heck of a run. Emerson is well positioned for the future. This is a perfect time to turn it over to Mike who I've come to know well as a person, respect as a leader over the last five years. I am confident he's going to provide the right leadership for the challenges we have again. The future is very, very bright, and I'm so happy to have been a small part of it. I've enjoyed working with all of you over the last two years on the phone with our analysts and our investors, and I couldn't think of a better way to go out and I'm very grateful and I just am so thankful for that. Thanks everybody. And there is no crying on earnings calls. Lal Karsanbhai : Thanks, Frank. And to you on chart 9. Frank Dellaquila : Okay. Here we go. Good morning again, everyone. Please turn to slide 9. Our second quarter financial results were outstanding, reflecting our strong end markets and operating execution. Lal summarized the results for you, so I'll provide a bit more color. Additional details are in the press release and in the slides and in the appendix to this presentation. Underlying sales growth exceeded our expectations at 14%. All world areas in both business groups were up double digits, reflecting the strength in our end markets, our positioning in them and our geographic presence. Demand was broad based, with later cycle process markets up high teens and hybrid markets also up double digits in the quarter. Discrete demand has begun to moderate after several quarters of strong growth, but sales were still strong in the quarter, up high-single digits. Safety and productivity returned to growth, up 3% in the quarter. Net sales also up 14% for the quarter, with a 3 point drag from currency which was essentially offset by acquisitions and divestitures. We did close our Russia divestiture in March and we now report the business we had on the divestiture line of our net sales bridge. Our businesses continue to realize significant price. In the quarter, price contributed approximately $150 million and 5 points of growth. Backlog also grew $300 million, reflecting the strong orders backlog of approximately $6.9 billion to end the quarter. AspenTech revenue was below expectations for reasons they explained on their call and I'll briefly summarize those here. Please keep in mind that AspenTech reports revenue under ASC 606. So the factors affecting GAAP revenue are complex, as explained on AspenTech's earnings call. There were three factors in play. The first was longer-than-planned project execution in the OSI business, which pushed out the recognition of project revenue milestones. This is mainly a timing-related dynamic, and we continue to see strong demand trends from the power transmission and distribution market. AspenTech also experienced shorter term contract lengths within the SSE business. Overall, the shift from perpetual to term contracts is progressing well, but some customers are choosing shorter contract lengths than we expected, and that has a direct impact on upfront revenue recognition. And lastly, AspenTech is seeing some weakness in OpEx then in the bulk chemical market, which is impacting heritage AspenTech. For further clarification, Emerson's chemical exposure is more diversified across both bulk and specialty chemical and both OpEx and CapEx spend. Adjusted segment EBITA margin improved 320 basis points. Leverage excluding AspenTech exceeded 50%. Strong sales growth, favorable business and world area mix and margin accretive price cost all reflect exceptional execution by operations and contributed to the margin improvement Adjusted EPS grew 25% to $1.09, and we'll discuss that on the next chart. Lastly, free cash flow was up 64% versus the prior year quarter and up 23% year-to-date. The strong earnings growth and slight improvement in working capital contributed to that growth. AspenTech contributed $129 million to free cash flow. Please turn to slide 10. Most importantly, 14% underlying sales growth and 53% segment level operating leverage contributed 26% of our EPS growth quarter-over-quarter. Of that, AspenTech contributed $0.04. Currency was a $0.03 headwind and other items, mainly income tax because we had favorable discrete items last year, were a net $0.05 headwind. The reduced share count, resulting from the $2 billion share repurchase that we completed in the first quarter, contributed $0.04 to earnings per share. So again, overall adjusted EPS grew 25% year-over-year. Please turn to slide 11, and we'll talk about our revised 2023 market outlook. We continue to see broad-based strength in most key end markets. In particular, we've updated our expectations for both process and hybrid markets. We have increased our expectation for process sales to a high-single digit to low-double digit growth range on the back of continued energy, energy transition and chemical market momentum. This market was strong in the second quarter and our customers continued to signal favorable spending plans for the rest of the year. Within chemicals, we continue to see strong CapEx spending, particularly in the US, the Middle East and Asia. Within the hybrid space, life sciences and metals and mining continued to be strong. And we expect this market to grow high-single digits in 2023. Reshoring continues to be a prevalent topic among our customers and we expect near and longer term benefits from this trend. As I mentioned, discrete demand is beginning to moderate as these earlier cycle markets have been strong for the last few years. We are seeing this first in Europe as industrial production is affected by rising input costs. Still, we continue to hear optimism about spend on factory automation and productivity improvements from our customers. Please turn to slide 10 and we'll talk about our revised guidance. Based on the market strengths I described and our continued expectation of mid-single digit orders growth, we are increasing our sales and earnings guidance for the year. For 2023, underlying sales growth has been increased to 8.5% to 10% year-on-year and net sales to 9% to 10.5%. We expect Intelligent Devices to be near the top of this range and Software Control nearer to the lower end. We are also increasing our expectation for segment operating leverage based on the strong first half achievement and our second half outlook. Continued sales strength, favorable price cost and continued operational performance give us confidence in increasing this guide. We now expect segment operating leverage to be in the low to mid 40% range excluding AspenTech. Adjusted EPS guidance has been raised to a range of $4.15 to $4.25, up to $0.15 at the bottom of the range and $0.12 at the midpoint. AspenTech is expected to contribute approximately $0.25 to this improved guidance. The strength in core Emerson operations is more than offsetting the reduced AspenTech expectation, which is incorporated into our guidance. Free cash flow is expected to be approximately $2.2 billion for the year, of which AspenTech contributes approximately $300 million. This is consistent with our prior guidance of approximately 100% free cash flow conversion on GAAP net earnings and is equivalent to approximately 85% on an adjusted net earnings basis. In the future, we will express free cash flow conversion on an adjusted net earnings basis, consistent with our other key non-GAAP metrics, adjusted EBITA and adjusted earnings per share. The business we have today has strong cash conversion characteristics that we expect to convert over time at an average of 100% on an adjusted basis. We now expect AspenTech adjusted segment EBITA to be slightly below 40% for the year. As a reminder, Emerson's third quarter is AspenTech's seasonally strongest quarter due to the timing of contract renewals. We believe the operating items that affected AspenTech's third quarter results reflects transitory operating and market challenges. We are as confident as ever, about the long term strategic opportunity afforded by our ownership of AspenTech and in the $110 million year five synergy commitment that we made. As a reminder, all of this guidance excludes the impact of Climate Technologies operations, interest income, and the financial impact of the sale, which we expect to close, we hope, May 31. In the appendix, we have provided information on the post-closing financial reporting treatment of Climate Technologies. Briefly, to turn to the third quarter, that guide also reflects the strong outlook for the year. We expect underlying sales growth of 10% to 12%. We expect leverage to be in the mid to high 40s in the quarter, and adjusted EPS to be between $1.07 and $1.11. This represents an 18% increase at the midpoint versus prior year. We should point out, for context, that last year's third quarter was negatively impacted by China shutdowns and serious supply chain challenges around electronics, which at the time, we estimated reduced third quarter sales by approximately $150 million, with the China impact being pushed into the fourth quarter. Thank you for your attention. I'll turn it back now to the operator to open the call for questions. Operator: [Operator Instructions]. And this morning's first question comes from Andrew Obin with Bank of America. Andrew Obin: I guess my first question is a lot of debate with investors about the impact of improving lead times on orders, backlog, and free cash flows. Clearly, you're starting releasing working capital. But if you're releasing working capital, perhaps you're ordering less stuff. And if you're ordering less stuff, maybe somebody else is ordering less stuff. How do you think this dynamic will play out over the next 6 to 12 months? Lal Karsanbhai: Well, I'll start off with some comments just on the underlying environment, which we're still optimistic about, as you heard on the call, Andrew. Mid-single digit order run rates, we came out of the quarter at 7%, and expect that that range to continue through the remainder of the year. So the demand environment based on our see is strong. And as Frank outlined correctly, and there's some puts and takes out there, and we're watching those carefully, but as a whole, we feel very good about that. Having said that, we have a very robust backlog as well. We did build backlog in the quarter, and we continue to work through that which gives me further confidence, obviously, in the performance of the company for the second half. Naturally, with supply chain challenges largely alleviated, of course, there's still a few issues out there, but largely alleviated. Lead times have started to come down. But we haven't seen that reflected in any slow in orders. And very much, as you saw quarter-over-quarter and sequentially, our order pace continued to be very consistent. Ram, anything to add? Ram Krishnan: I would say again, Andrew, I think from a lead time perspective, distribution, for example, is less than 20% of our overall sales. So, we can – frankly, even with distributors, as our lead times have come down, we haven't seen any change in ordering patterns. Our KOB3 business, which is the other piece that is lead time dependent, continues to be strong. So no fundamental change for us as it relates to ordering patterns from our customers, as lead times across all categories of products for us have come down. Now, I know others have mentioned that. But to date, we haven't seen the impact. Andrew Obin: Just maybe a follow-up question on aligning Aspen and Emerson sales channel. You guys clearly highlighted Golden Triangle's success of going to market together, you've affirmed the synergies. But I guess the question I have, as you work closer with Aspen, one of the opportunities to improve visibility at Emerson because you have access now to a lot of CIOs, but also what are the opportunities at Aspen to benefit from deep and broad relationships that Emerson has? Was there key clients, for example, in the chemical space, right? You said our relationships are much broader. What can you do to improve visibility at Aspen in key verticals? Lal Karsanbhai: It's a great question. And it goes back to the heart of the very robust commercial agreement that we have with AspenTech. There is world area alignment in leadership, there is sales force alignment and incentives, and very honestly joined pursuit in two areas, capital projects, which was the example that I shared with you and then a very robust analysis on an industry by industry basis of the whitespace opportunities that exist, particularly for our control system and for AspenTech. And that's more of a systematic approach by the selling organizations, but one that will prove to be – and is proving to be quite a large opportunity as well. Ram? Ram Krishnan: Just to add, I think the customer landscape is really the way we really want to drive more seat for AspenTech. Certainly, the momentum on projects is there early. But as we shared with you before, 70% of the control systems that we have, DeltaV innovation, don't have level three software capability at many of our customers. 9,000 of those are in markets like life sciences and metals and mining. So those are the unique type of opportunities, the AMS systems that we have where we can bring Aspen, that's the approach we're taking through our commercial agreement. We are very, very geographically focused as well, where we look at markets where Aspen doesn't have the strength, and that's really where a lot of the effort is being put. So we'll see that benefit come through. It's three quarters in, obviously, in the relationship. The momentum is early on projects, but more will come as it relates to the whitespace that I described over time. Operator: And the next question comes from Deane Dray with RBC Capital Markets. Deane Dray: My first question is maybe take us through what you're seeing on the discrete side with some of the demand moderating? How did it progress through the quarter? Is it isolated to some specific verticals or geographies? Because we are hearing elsewhere slowing in Europe, especially on the chemical side, but appreciate the color there, please. Ram Krishnan: Deane, Ram here. From a discrete order activity – now the discrete business from a sales perspective, we had good strong growth in the quarter, 9.5%, close to 10% growth in the quarter from a sales perspective, which was driven by backlog reduction. Orders did go slightly negative this quarter, primarily driven by slowdown in Europe. Frankly, we haven't seen much of a slowdown in North America, but a slight slowdown in Europe, particularly in Germany and the segment around machine builders. We do serve the machine builder segment in Germany, which is both domestic German market as well as these machine builders export. So that's really probably the one segment, a little bit of slowdown in the UK. Frankly, Asia is holding up, and China remains good. So that's the color. We do expect discrete to get into tougher comparisons as we get through the second half of the year, and we expect orders to remain negative before they turn positive into 2024. Deane Dray: Just a follow up. And also, I just want to hear Frank one more time here. Free cash flow difference between GAAP and adjusted this year, that difference, how much of that is either working capital needs given kind of supply chain? Or is it more from climate? Frank Dellaquila: No, none of these differences – the difference is simply the calculation, the denominator. Deane, we're just talking about the $2.2 billion guide of free cash flow and whether we use GAAP earnings or we use adjusted earnings as the denominator and that's the difference between the conversion ratio, there's no difference at all in the calculation of the cash flow itself. Operator: And the next question comes from Scott Davis with Melius Research. Scott Davis: I don't want to fixate on AspenTech, we can do that later, perhaps, but I will anyways. The bulk chemical OpEx, is it typically that? Volatile? Is it something that they've experienced in the past and perhaps you might see in the future? Or is this a kind of an unusual circumstance? Ram Krishnan: No, I think the bulk chemical dynamic because you see many of the chemical customers say, at the end of the day, with a little bit of slowing demand there and the utilization rates being optimized, but the portion of the AspenTech business which typically gets impacted is their manufacturing and supply chain software suite. So in terms of new purchases or new contracts around that, which we have built into the forecast, that's where we're seeing slowdown. So that's pretty normal. Obviously, refining for them continues to remain strong, upstream and midstream continues to remain good. It's really the manufacturing and supply chain suite in bulk chemicals where we have seen the slowdown, and we've seen that in the past when the large chemical customers slow down spending on the OpEx side. Scott Davis: Guys, it's assuming your stock price works and I know AspenTech is down quite a bit from its highs, but is there any interest in – I know there's some restrictions, but those things can always be discussed in taking an even larger stake in the entity and perhaps, over time, integrating it fully into Emerson. Lal Karsanbhai: No, look, we're still very committed to the model that we set forward a year – closed it nearly a year ago now. It works. We're seeing the commercial value. We're working the technology piece as well. And like I've said in the past, it's at a point in time that changes and we have impetus to then address that through the change in the ownership structure of the vehicle. We'll think about it then, but not at this point. And then furthermore, as you know, and you noted, we are in a standstill period for another calendar year from now. Operator: And the next question comes from Andy Kaplowitz with Citigroup. Andy Kaplowitz: Lal, could you give us a little more color into your incremental margin performance both for Q2 and 2023? I know the new Emerson is supposed to record higher incrementals well in the 30s, but what's changed for Emerson in 2022 that's allowing you to record low to mid 40s, over 50% in Q2, is it mostly the 5% price that Frank mentioned and much improved supply chain environment? Is maybe underlying Emerson able to sustain incrementals in the 40% plus excess over the longer term and how you're thinking about price versus cost moving forward? Lal Karsanbhai: I'll let Ram add some operating color. As we went through the quarter, we certainly believe in the strong guide that we put together on the 40 leverage for the full year given the early performance in the first six months. Look, there were a lot of things that were positive. Obviously, the execution was exceptional. I think the operating executives in the businesses performed very, very well and exact. The volume was important, as we noted, growing the underlying sales at 14%. But furthermore, mix and price cost were beneficial as well in the quarter. So a lot of things went our way there. But honestly, working within the management system that we've designed is a very important parameter that enables our businesses to perform at a very high level. Ram? Ram Krishnan: Other dynamics that certainly went our way is strong North America in the quarter, strong performance in our instrumentation and final control businesses and the leverage we got there. So dynamics are on mix, certainly the price-cost element that Lal mentioned, but, fundamentally, the 14% sales growth in the quarter does help leverage. So all of those dynamics went in our favor. Andy Kaplowitz: Maybe you can give us a little more color into what you're seeing by region. I think China was relatively weak for you in Q1. It seems like it's better in Q2. I think, Lal, you mentioned easy comparisons in Q3. So how do you think about regional demand moving forward for the rest of the year. Lal Karsanbhai: Really good. It was a very robust quarter globally for us in terms of sales performance, and very honestly orders, as Frank outlined. China flipped for us. It was down in the mid-single digits a quarter goes. It's up high single digits, and in sales in the mid-single digits. So we feel very good. And we feel good about what we see in China for the remainder of the year as well. So that's a positive. Look, North America, very robust growth, broad strength, a lot of it driven by the nearshoring elements and core strength in hybrid and processed, with growth of 15-ish percent in sales. Europe, that's been very honestly, Andy, the biggest surprise of the year. It continues to be very strong for us with growth in the mid-teens, 14% in the quarter in sales, and orders that are very strong. And very honestly, highlighted by energy, sustainability and life science investments. And then the rest of Asia, driven by India, Southeast Asia, and then an incredibly strong Middle East and Africa region as well, with significant investments in sustainability and LNG across the region. So at this point in time, with the exception of the discrete weaknesses that we've already talked through, continue to see very strong global momentum as we go through the quarter here into the rest of the year. Operator: And the next question comes from Steve Tusa with J.P. Morgan. Steve Tusa: What was price capture in the quarter? And what do you expect it to be for the year? Frank Dellaquila: It was 5 points in the quarter and we expect to be 3% to 4% for the year. Steve Tusa: Lal, I'm just curious from a governance perspective, the Aspen results, there's a lot going on there. I guess, I get a high level, some of it sounds like execution on some of these contracts. Perhaps in the, I guess, I call it, the integration phase of what they're doing, even though it's not really an acquisition by them, I guess, it seems like that there were a couple things that surprised them about the assets that you guys are contributing. How does that conversation work in the boardroom there because those are like assets that you guys knew. I'm not sure how surprising that was to you. But it was clearly surprising to the market the way this has played out. So, I'm just curious. Like, a little more color from your perspective on the integration that's going on there and perhaps how that kind of discussion and how to move forward plays out when that type of thing happens. Lal Karsanbhai: Yeah, no. Absolutely, Steve. I'll give you some color here. Maybe there's three or four here critical points. Let me first begin by saying that I continue to be and we collectively continue to be very optimistic about the business and the differentiation that it provides as a technology solution across a diverse customer base. That's very important. Secondly, the execution of both the commercial and the technology synergies is progressing ahead of pace. We have alignment across our selling organizations, the technology teams, and I highlighted a capital project that we worked on and we're working on many across the world, and we have a joint funnel of pursuits. So what happened in the Q? And I think they're important dimensions here to talk about. The first, the company continues to perform extremely strongly. It's a rule of 50 software business, with ACV growth exceeding 11% and strong cash flow. But there were three challenges in the quarter. And these are challenges that we have a robust communication process, not just at the board level, but at an operating level. And we speak with Antonio and Chantelle who's the CFO on a regular basis. The first is shorter term contracts on subscriptions at SSE, which obviously was one of the one of the assets that we contributed to. The assumption in the plan was on a three to four year basis of subscriptions, that was we converted – AspenTech converted those from perpetual license to subscription. The reality is that they came in more in the one year level. So that had an impact on revenue recognition, just the nature of that conversion journey and as those customers in that market space accept subscription contracts over the perpetual traditional licenses. The second, you also referenced is OSI. It is a differentiated business in a high growth segments, as you know, but the integration has been slower. It's a business that came with a heavy service component to it. And very honestly, that migration and conversion, ultimately, from perp to sub on the software is taking longer than expected. But we continue to be jointly very optimistic about the business. The orders in the business are strong. And we will work through the next few quarters to execute there. And then lastly, as Ram described earlier, the heritage AspenTech business in the slowdown related to the bulk chemical segment there. But having said all of that, look, the plan has been reset. It's embedded in our results here. It's embedded in the outlook that we provided in the guide. And the investment is – I still believe there's a tremendous amount of value creation opportunity here for Emerson shareholders. And we continue to be very committed. And I think we have the processes, both operating which is CEO to CEO, CFOs and through the Emerson management process as best we can here and through the board of directors in which to manage and to be part of the conversations and discussions with that team. Steve Tusa: Are you assuming a bounce back in your fourth quarter in those results? Lal Karsanbhai: Of course. No, look, I think we've embedded their perspective, which they shared with their investors on their call into our guide. Operator: The next question comes from Nigel Coe with Wolfe Research. Nigel Coe: Maybe just picking up off Steve's question there. Maybe this is a question to you, Frank. Maybe just talk about some of the moving pieces in the guide. Clearly, the bulk of the uplift is driven by much better revenue conversion, margin conversion, but maybe some of the moving pieces. AspenTech, how's that changed in the guide? Maybe stock comp. Any of the sort of major discrete lumps would be helpful. Frank Dellaquila: The main driver is obviously the improved outlook for operations. The uplift in the sales as well as the operational execution with strong price realization, all the things that drove the strong leverage in the second quarter, we expect to have in the third quarter and throughout the rest of the year. So, that is mainly the story. And that is strong enough to overcome the reduced AspenTech guide. As Lal said, we essentially incorporate their guide into our numbers. And they took the guide down for the year. So we've overcome that headwind as we move from the February to the current guidance and those are those are the main pieces. Nigel Coe: And that's what, $0.06, $0.07, mark-to-market on AspenTech? Frank Dellaquila: For the year roughly, yeah, in that range. Nigel Coe: Maybe picking up off Ram's comment on the sort of installed base of DCS. You said 70% don't have level three software capability. Does that precipitate in an upgrade cycle? I know we've talked about upgrade cycles in the past, but are we at the threshold now where we might see an install base upgrade cycle? Was it more just patching around that with some of the capabilities around software? Ram Krishnan: I don't know if we're planning for a major upgrade wave. But I think it's more a disciplined approach with each one of our customers to address the optimization benefits and the APM benefits and some of the capabilities that Aspen brings to improve the performance of the overall automation system that is installed in many of these customers. And we're going across the board, across industries, power and life sciences being the focus area. Everybody is very interested in digitally transforming their assets. And we're seeing more and more interest from our customers to launch digital transformation programs across the automation stack where level three software has an important role to play, primarily around optimization on the manufacturing suite, and then more the asset performance management and the reliability software on uptime of assets in their infrastructure. So that's the journey. I think you're going to see more and more of that. Sustainability is another area where software gets deployed. But I don't think it's a big wave. I think it's more a disciplined wave over time, and we have the opportunity to drive it. Operator: And the next question comes from Jeff Sprague with Vertical Research. Jeff Sprague: A lot of ground covered. I just wanted to touch back on capital deployment. And Lal has just said the big moves are done and that certainly makes sense. But you did indicate that you're working bolt-ons and it looks like you also maybe have a six month gap or so between the Climate proceeds and National Instruments closing. Just wonder how that might play out over that timeframe? Is there room for some more share repurchase? Are there actionable bolt-ons that could be happening kind of over the summer period? Or just what we should expect there? Lal Karsanbhai: I'll let Frank comment as well here. But, no, look, we obviously work towards the closing of National Instruments over those six months aggressively. It may come sooner. We'll see. Depends on the regulatory approvals. That's going to be the key pacing items, as you know, Jeff. The bolt-ons, we work them aggressively within the businesses. And some are competitive processes, others not. And we have two or three of those that we're looking at at any given point in time. It will continue to do so. These are sub billion dollar purchase price type of deals, and we have a small number we're looking at right now and evaluating. Look, we will continue to be very committed to return cash to our shareholders, whether that's through the dividends or share repurchase. And as we go into 2024, we'll lay out what the appropriate plan there is, and communicate that. Frank, anything to add? Frank Dellaquila: Jeff, I wouldn't view share repurchase decisions in the context of kind of the gaps between closing Climate and closing NI. I would view it more broadly as part of the capital allocation strategy. After we close NI, we'll have a balance sheet that's well below 2 debt to EBITDA and a tremendous amount of financial flexibility. So we'll just continue to make those decisions in that context. Jeff Sprague: Just back to chem and I do understand you have a more diverse business than Aspen, but why shouldn't we kind of view this as an early warning sign of pressure in the core business in chem. And maybe just a little bit more color what you're seeing there because there are. obviously, CapEx and profitability issues kind of across a lot of that industry right now. Ram Krishnan: For us, the capital cycle in chemical, particularly specialty chemical, is as good as we have seen it, particularly in Middle East, Asia Pacific and ethylene and methanol investments in North America. So, for us, we haven't seen the capital cycle slow. However, what Aspen is referencing is the OpEx spend in chemical customers as they throttle their production in response to slowing demand, and therefore that translates to MSC purchases, the manufacturing supply chain suite purchases, is really the dynamic that's impacting them. It's a small impact to them at this point, but given it's 18% of their sales mix, I think they've referenced that. But to be honest, we haven't really seen any KOB3 slowdown or KOB2 in chemical. And then certainly many of our major project wins to date that we have been sharing with you have been in the chemical/petrochemical space, particularly in the emerging markets. So at this point, we don't see that as an inflection point or a slowdown in the industry, despite the higher feedstock costs. Operator: The next question comes from Joe O'Dea with Wells Fargo. Joe O'Dea: I wonder just on the discrete, if you could elaborate a little bit on North America and the interplay between some of the structural and it sounds like continued strength that you're seeing in sort of battery electric and semiconductors. But then the flip side of that, anything that you're just seeing from sort of a general industrial cyclical standpoint, whether the macro uncertainty is having any impact or whether it's more just kind of natural digestion of what's been ordered over the last few years? Ram Krishnan: In North America, to be honest, on the discrete side, we haven't seen – we obviously don't play in a big way in semiconductors and batteries yet. We play in a smaller fashion with our DeltaV business. But obviously, we'll get a lot more exposure to that dynamic with National Instruments. In the core machine automation business that we play in North America, we haven't seen a significant slowdown to date, but it is obviously slower than the momentum we're seeing in the process markets. Joe O'Dea: Also, just wanted to ask about Natty and integration planning and sort of what efforts are currently underway that you're standing up, say, over the next six months to ensure a successful launch of the integration process there. Lal Karsanbhai: This is Lal. We kicked that off last week in Austin over a day and a half with the management team. We've assembled a team with steering committee. And then we have functional integration leadership across the eight value drivers or so that have been identified. Obviously, on the steering committee basis, I participate as does Eric Starkoff and we've each named a leader on the integration team. In our case, Vincent Cervello [ph]. So that's off and running. Meetings are taking place. We will have a in-person kickoff with a large group here in St. Louis coming up, and then we'll be off and running on all the full integrations. But really good start. Great organizational discussions already have taken place. And now we are excited about this work ahead of us as we head to close. Operator: Thank you. This concludes both the question-and-answer session as well as the event itself. Thank you so much for attending today's presentation. You may now disconnect your lines.

Operator: Good morning, and welcome to the Emerson First Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Colleen Mettler, Vice President Investor Relations. Please go ahead. Colleen Mettler: Thank you. Good morning. Thanks for joining us for Emerson's first quarter fiscal 2023 earnings conference call. Today, I'm joined by President and Chief Executive Officer, Lal Karsanbhai; Chief Financial Officer, Frank Dellaquila; and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with the slide presentation, which is available on our website. Please join me on Slide 2. This presentation may include forward-looking statements, which contain a degree of business risks and uncertainties. Please take time to read the safe harbor statement and note on the non-GAAP measures. I will now pass the call over to Emerson President and CEO, Lal Karsanbhai, for opening remarks. Lal Karsanbhai: Thank you, Colleen. Good morning, and thank you for joining us. I'd like to begin by thanking the global Emerson family for delivering yet another strong operational quarter. I'd also like to extend my appreciation to our Board of Directors and the shareholders of Emerson for your continued confidence in this management team. We remain confident about the strength of our markets from both a geographic and an industry perspective. This is exemplified by our project funnel that continues to grow, exceeding $7 billion at the end of the quarter. Before I turn the call over and discuss the quarter's performance, in review of our strong outlook for the second quarter and the year, I'd like to say a few words about our headquarters announcement this morning. We conducted a comprehensive three-month review of location options. St. Louis was selected following this rigorous process, and we look forward now to finding an appropriate location in the region. Please turn to Slide 3. Operationally, the first quarter was very strong for Emerson. End market demand remains strong as first quarter order trajectory played out largely as planned. 5% underlying orders was as expected as broad automation strength was weighed down slightly by a double-digit decline in safety and productivity orders against tough comps. Sequential underlying orders were also up 6% versus the September end quarter. Sales met our expectations at 6% underlying growth, slightly impacted by shutdowns in China. Our business performed very well operationally, displaying the strength of our Emerson management system. Operating leverage, excluding AspenTech was 40% and ahead of our mid to high 30s expectation. Adjusted EPS was $0.78 for the quarter and was impacted by two main below-the-line items. Stock compensation was a $0.09 headwind versus 2022, driven by a 31% stock price increase throughout the quarter and its subsequent impact on the remaining mark-to-market plan. While we expect a slight headwind from the addition of AspenTech's stock comp rolling into our financials, the overall stock compensation headwind was 8% worse than anticipated. Frank will provide more color on this in his section. Similarly, FX was worse than originally expected. However, despite these headwinds, operations performed above guidance as our business continued to execute. Lastly, we completed our committed $2 billion of share repurchase in the first quarter. Turning to Slide 4. I'd like to walk through some exciting successes and the strong momentum we see in the value creation priorities we laid out on November 29. First, in late January, we visited the Middle East and had the opportunity to break ground on our new state-of-the-art innovation and manufacturing hub in Saudi Arabia. This investment is designed to not only spur innovation for the region, focusing on the transition to clean energy segments like hydrogen and clean fuels, but also demonstrates our commitment to our regionalization strategy and best cost manufacturing. Pillars of our operational excellence. As an example of the projects our investment will supply, Emerson was chosen to provide automation for the world's largest green hydrogen facility by NEOM. The plant will provide 600 tons a day of green hydrogen using Emerson Automation technology throughout production processes and renewable power generation. Emerson's local support and installed base in the Middle East were key differentiators. Secondly, Emerson and AspenTech continue to succeed with our joint customer solutions. In the first quarter, we were jointly selected to automate the Middle East's largest ethane facility by QatarEnergy and Chevron Phillips, Ras Laffan. Emerson will serve as the main automation contractor for the $6 billion facility, providing our leading DeltaV control system with AspenTech engineering and simulation products. The project is a scale example of our commercial agreement with AspenTech and how it successfully provides an expanded differentiated product offering to customers. Lastly, Emerson continues to diversify through life sciences and metals and mining markets. In the first quarter, Emerson was awarded the automation contract for FUJIFILM Diosynth Biotechnologies in Europe. The expansion project will include multiple bioreactors and processing streams, one of the largest CDMOs in Europe. These three projects are a clear demonstration of Emerson's commitment to the growth platforms we discussed at our investor conference, and our continued success differentiating as an automation leader in these markets. Before I turn the call over to Frank, I wanted to briefly discuss our proposal to acquire National Instruments for $53 per share in cash. As you know, we made our offer public on January 17 and our correspondence with NI since 2022, May, is available on maximizing value at ni.com. Emerson is committed to an acquisition of NI and is participating in the strategic review process. We believe our premium all-cash proposal with no financing conditions or anticipated regulatory concerns is compelling and in the best interest of Emerson and NI shareholders. We look forward to continued engagement with NI and its advisers and moving swiftly towards an agreed transaction. That said, the focus of this call is our performance for the quarter, and we're not going to be commenting further on our proposal for NI at this time. Be assured that we'll continue to execute financial diligence as we review these opportunities. With that, I will now turn the call over to Frank. Frank Dellaquila: Thank you, Lal, and good morning, everyone. Please turn to Slide 5. As Lal mentioned, we had a very strong operational start to 2023. Underlying sales were within our expectations for the quarter at 6%, driven by 10% growth in software and control and 5% in Intelligent Devices. Net sales were up 7% with a four-point drag from currency and a five-point contribution from AspenTech. World area growth was led by the Americas, which was up 13%, driven by strong process sales, particularly in energy and chemical. The continued energy crisis in Europe, affected demand as underlying sales were below prior year by 2%. However, sales were up 7% after adjusting for the impact of Russia. Sales in Asia, Middle East and Africa were flat versus prior year, as strength in the Middle East, driven by chemical and energy investments was offset by dam sales in China, mainly due to challenging year-on-year comparisons and sporadic code-related shutdowns. By industry, we continue to see strength in later cycle markets like energy and chemical. Chemical investments and plant modernization and sustainability remains steady in North America and Asia, but we are keeping a close eye on this market as we assess our outlook for the balance of 2023. Overall, first quarter process industry sales were up high single-digits. Similarly, hybrid sales were up high single-digits, led by continued investments in life sciences reshoring and metals and mining. Discrete sales were up mid single-digits as this earlier cycle business starts to lap more difficult comps. The growth in discrete was offset by weakness in our commercial business in safety and productivity, which was down 10% for the quarter, but with early signs that we are bottoming out. Overall, we feel confident about the health of our end markets and our conversations with customers indicate continued growth in investments during 2023. Price during the quarter contributed four points as our pricing actions from 2022 and additional actions taken at the beginning of 2023, are driving strong price realization. Backlog grew approximately $700 million during the quarter to $6.6 billion, giving us ample opportunity to execute on the rest of the fiscal year plan. Adjusted segment EBITDA margin improved by 130 basis points and leverage was 40%, excluding AspenTech. North America mix contributed to the margin expansion and price was accretive to margin in the quarter. Software and control margins were up 200 basis points, led by AspenTech. Intelligent Devices performance was strong with 110 basis points of adjusted EBITDA expansion. Adjusted EPS was $0.78, and I'll discuss the details when we move to the next chart. Lastly, on this chart, free cash flow of $243 million was down 20% year-over-year, mainly due to trade working capital, including the impact of supply chain performance, which is improving, but is still challenged. We are focused on improving trade working capital as we progress through the year, and we reiterate our expectation of 100% free cash flow conversion for the full year. Turning to Slide 6. This is our adjusted EPS bridge versus the prior year. First, I wanted to say that we had very strong operational results, again, reflecting low-40s leverage on incremental sales, which delivered $0.15 to adjusted EPS in the quarter. There was an unfavorable impact due to stock compensation as Lal said of $0.09 and an additional $0.09 due to currency. The stock comp impact was primarily due to our legacy long-term incentive plans, which required mark-to-market treatment on recorded expense of the 31% increase in our stock price during the quarter. The last of these plans will run off in 2023 and the new plans do not require mark-to-market accounting. So going forward, the variability from stock comp will be dramatically reduced in 2024 and beyond from what it has been historically. Currency in the quarter was primarily driven by the accounting treatment of our long-term contracts in addition to customary translation and transaction impacts. Other non-operating items and share repurchase contributed $0.02 through the quarter. Please turn to Slide 7. Turning to our 2023 outlook. We continue to see strength across our end markets. As we communicated in October, process, hybrid and discrete markets are all expected to grow mid to high-single digits in 2023. The long-term secular trends we discussed in November continue to be relevant for our business and are driving growth and successes in 2023. Energy transition spend continues to be strong as evidenced by the successes Lal highlighted a few minutes ago. Energy security investments, including LNG continue to accelerate especially in North America and the Middle East. In hybrid, life sciences investments due to reshoring continue to move forward and metals and mining spend is centered around electric vehicles and electrification value chains. Those value chains are also benefiting discrete markets, especially in the U.S. The one weakness we see in the business today is our commercial exposure within the Safety and Productivity segment, which was down 10% in the first quarter. We expect these sales to improve as we move throughout the year as we face easier comparisons and we see early signs of a turn in demand. Please turn to Slide 8. We’re maintaining our full year guidance based on the underlying strength in our end markets and robust backlog. The guide for underlying sales growth remains at 6.5% to 8.5%. We now expect currency to be less of a headwind at 2 points, and AspenTech is expected to contribute 3.5 points. Therefore, we are increasing our net sales expectations to 8% to 10% of a point from the previous guide. We are holding operating leverage, adjusted EPS and free cash flow conversion for the year at the previous guide. Within that guide, we intend to cover the unexpected stock comp headwind that we had in the first quarter with excellent operational performance. For the second quarter, we expect underlying sales growth of 8% to 10%. Currency continues to be a headwind, reducing sales growth by approximately 3 points. AspenTech will contribute approximately 5.5 points and net sales are expected to be 10.5% to 12.5% up. Leverage expectations again are in the mid to high-30s. Adjusted earnings per share is expected to be between $0.95 and $1, which is a 13% increase at the mid-point of the guide. We’ve included quarterly data for 2022 on a continuing ops basis in our press release and in the 8-K that was filed this morning. Thank you for your attention, and we’ll now turn it over to the operator for Q&A. Operator: We’ll now begin the question-and-answer session. [Operator Instructions] Our first question will come from Scott Davis with Melius Research. You may now go ahead. Scott Davis: Hey, good morning, Lal and Frank and Ram and Colleen. Lal Karsanbhai: Hey Scott. Frank Dellaquila: Good morning. Colleen Mettler: Good morning. Scott Davis: Couple little clean up items since I think these slides are pretty clear, but was price predominantly – you think about the total growth in the quarter, 6% was price. Does price make up most of that? Lal Karsanbhai: Hey Scott, good morning. Lal here. Yes, in the quarter, price accounted for 4 points approximately out of the 6, 2 points of volume. Scott Davis: And did that cover costs, Lal? Lal Karsanbhai: Yes, sir. Scott Davis: Okay. And just a quick follow-up here on life sciences. I know some of your peers have seen some weakness in life sciences, but you guys made some pretty positive comments relating to that end market. Can you be – or just give us a little bit more color on what your customers are spending money on. You mentioned localization, but perhaps a little bit more color there would be helpful. Thanks. Lal Karsanbhai: Yes. No, a very active quarter in life sciences globally, Asia, Southeast Asia, United States, East Coast and Europe, a variety of projects we chose one to highlight with you today. It’s predominantly around automation. It’s expansion of capacity. It’s driven by the trends that we discussed at our investor conference, whether it’s personalized medicine, or capacity derisking in the world areas. We have yet, Scott, to expand with a full offering of AspenTech into the space that’s in development and will be released to you shortly, but that will give us another avenue as we bring optimization software into that space. Scott Davis: Okay. Helpful. Best of luck this year guys. Thank you. Lal Karsanbhai: Thanks, Scott. Frank Dellaquila: Thank you. Operator: Our next question will come from Josh Pokrzywinski with Morgan Stanley. You may now go ahead. Josh Pokrzywinski: Hi, good morning, everybody. Lal Karsanbhai: Good morning. Josh Pokrzywinski: Just a couple of questions, both relating to kind of orders pipeline backlog and the conversions there. I guess while backlog has not had kind of this enormous surge that you’ve seen maybe in some other names that had a tougher time on supply chain, but how do you think about backlog conversion in your guidance? Is the expectation that orders start to moderate versus accelerate? Where would you be pleased to see backlog over the next 12 months? And then sort of a second related question, how do you feel about kind of the pipeline of projects today and the pace at which things are looking out of those? Lal Karsanbhai: Yes. No, backlog did increase in the quarter as we went through. Look, I do feel very confident with the order pacing in the businesses with the weakness only in the Safety Productivity segment that we described throughout the call. Beyond that, the funnel is very robust. It actually grew almost $500 million in terms of size, as we went through the quarter to about $7.3 billion globally, a large number of sustainability projects, large number of energy transition projects. And we’re executing very well in that capital formation cycle. So feel very good about that. So look, I think from an orders perspective, my expectation is we continue to see a very positive environment as we go through the year. And our job here, and I think it’s embedded in our second quarter guidance to convert the backlog that we have in the business. Josh Pokrzywinski: Great. If I could just get one little follow-up on there. How do you feel about kind of the margin that you guys are seeing on some of these larger projects? I know people think about mega projects and margin erosion aggressive bidding. Has that been your experience with this wave? Lal Karsanbhai: No. You see the leverage that we gained in the quarter, about 40 points. There were project shipments within the quarter embedded in it. We feel very, very good about our differentiating capabilities with our technology stack. Yes, there’s competitive bidding, but it’s nothing out of the ordinary that we’ve seen and nothing that we can’t manage within our pricing models. Josh Pokrzywinski: Correct. Great. Appreciate the color. Best of luck. Operator: Our next question will come from Andy Kaplowitz with Citigroup. You may now go ahead. Andy Kaplowitz: Good morning, everyone. Lal Karsanbhai: Good morning. Andy Kaplowitz: Lal, I just want to follow-up on the last question in terms of when I look at orders, have you seen any bigger signs of deceleration activity anywhere outside of Safety and Productivity? I know you mentioned you’re watching chemicals. I think Antonio also mentioned that. Would you expect orders to hold in chemicals? Or any of the other process markets? And orders continue to be focused in the Americas, as you’ve said in the past. Lal Karsanbhai: Yes, good question. We had a really good Americas quarter and strong momentum there, a very strong Western Europe quarter with great momentum there. Of course, Eastern Europe is relative weakness because of Russia, of course, as we walked away from that market. So the comparables there were pretty tough. And then Asia and the Middle East, very strong. Of course, China was down for us in the quarter, but we see that coming back here in the second quarter and expect high-single digits as we finish out the year. So generally, Andy, based on what we’re seeing beyond the Safety Productivity segment, I feel very confident about not just the second quarter guide we put out there, but the full year at this point. Ram, any color? Ram Krishnan: Yes. I think Western Europe being resilient is very positive for us. And then the KOB3 business, which is now close to 65% of our total sales mix in the new company has been very strong. So that’s a good sign and Andy, the project funnel is building. So at this point, in the core business outside of Safety and Productivity, no signs of weaknesses. Andy Kaplowitz: Very helpful, guys. And then you talked about this a little bit, but you delivered incrementals of 40%. You mentioned the major reason is that positive mix from strength in the Americas. Is there any reason why that would change as you go throughout the year? And I know you talked a bit about price, but did price versus costs come in a little bit better than you would have thought for Q1? And could that continue for the year? Ram Krishnan: Yes. I think we’re going to see strong price cost through the year. And frankly, with fundamentally price holding at high levels and like we saw in the first quarter, but also coupled with commodities softening as we go into the second half as we see both commodities as well as logistics turn favorable. So I think really, the margin performance in Q1 is, yes, Americas mix, but also strong price cost, which should continue through the year. And we don’t expect North America sales to soften through the year. So the dynamics we saw in Q1 should continue through the year. Andy Kaplowitz: Appreciate it guys. Lal Karsanbhai: Thanks, Andy. Operator: Our next question will come from Deane Dray with RBC Capital Markets. You may now go ahead. Deane Dray: Thank you. Good morning, everyone. Lal Karsanbhai: Good morning, Deane. Deane Dray: Look, I know it’s a happy day in St. Louis. Emerson has had such an important presence in the community for so many years. So I’m sure that’s great news for everybody. Lal Karsanbhai: Thanks, Deane. I think we’re all pretty excited about the decision and the process that we went through. Deane Dray: And it also avoids the logistics and disruptions and so forth. So that’s great to hear. My question, it would be for Frank. For reaffirming the free cash flow conversion, 100% for the year, what has to change in working capital? We’re still seeing such across the industrials. The buffer inventory required with supply chains are still chewing up enough of working capital that you’re seeing lots of underperformance on free cash flow. So how do you see this playing out? Frank Dellaquila: Yes, good morning, Deane. Mainly, it’s an inventory story. It has to be around getting the backlog out in order to get the inventory down and supply chain is adjusting and improving but in ways that aren’t always helpful in terms of difficulty and timing, receipts of materials. So that’s the fundamental thing that needs to change is that we need to get the inventory out over the next three quarters. And a big part of that will be shipping the backlog that we have, and we certainly have a robust backlog level. So it’s about execution now going forward. Ram and I discuss that in detail with our businesses when we had our quarterly ops reviews and I’m sure Ram can comment a little further on the supply chain implications. Ram Krishnan: Yes. Frank, you said it. I mean at the end of the day, I think right now, we were somewhat positively surprised at the pace in which the supply chain delivered in the first quarter. So I think that was one of the reasons inventory built, but that’s, in some ways, good news that positions us to execute on the backlog in the remainder of the three quarters and that remains the focus. And obviously, we’ll make slight adjustments in optimizing how we drive material in from our supply chains, given that they’re performing better. But ultimately, it will come down to execution of the backlog, which we’re poised to do. Deane Dray: Great. And then just as a follow-up, and I know there’s not been any specifics provided yet is what’s the potential for other portfolio moves more in the way of cleanup we could point to some businesses that would be less core under the new automation pure-play framework. It’s just – maybe you can just comment on the willingness of the Board to look at this and potential timing in terms of monetization of those businesses. Lal Karsanbhai: That’s great question. We’re – we voiced in our November 2019 Investor Conference that we’re going to be active managers of the portfolio, and that is inclusive of both the opportunities to build on the cohesive automation company, but also to continue to prune where and when necessary. At this point, we don’t have an impetus to do so, but we’ll continue to pursue critical bolt-on acquisitions. Of course, the NII pursuit that I – that you’re aware of. But we’re also continuing to look at the existing portfolio. But I would not expect anything of scale there after a very busy 2022. Deane Dray: Got it. Thank you. Lal Karsanbhai: Thank you. Operator: Our next question will come from Julian Mitchell with Barclays. You may now go ahead. Julian Mitchell: Hi, good morning. I think we’ve had sort of good top-down color. So maybe trying to look at some of the segment pieces a little bit. Maybe on safety and productivity, just starting there. I realize it’s quite a small business for you, but I guess two questions on it. One was just talk a little bit about how you see the slope of the organic sales playing out the balance of the year? And then secondly, the margins were up, I think, 100 points in that business year-on-year despite a weak revenue performance. So maybe help us understand how you delivered that and is it sustainable? Ram Krishnan: Yes. Julian, Ram here. In terms of the buildup of the sales, I think Q2 will be negative, but we anticipate it going positive in the second half or close to a flat year for the full year. That’s kind of how we’re looking at safety and productivity. The margin improvement clearly driven by – we had some focused restructuring that we executed in that business, anticipating the slowdown second half of last year and then favorable price cost performance, certainly strong price in the business close to 9 points of price in Q1. Obviously, the cost savings flowing through and then softening materials or material costs as we get into the second half should drive continued strong margin performance in the business through the year. Julian Mitchell: That’s very helpful. Thank you, Ram. And then secondly, just on the discrete business. You grew, I think, 6 points in the quarter. Maybe remind us kind of what your main areas of strength are in discrete, whether it’s by vertical? And I assume there’s a lot of domestic business and also Europe in there. And also, I think you mentioned briefly some early cycle elements softening. So maybe expand on that a little bit and whether you see the discrete business kind of holding that 6% growth rate through the balance of the year? Lal Karsanbhai: Yes. We have a very balanced business from a global perspective, Julian. We saw a broad strength in the United States, both into direct OEM business as well as through our distribution networks. That continues to be very robust. No signs of weakness there, although we’re watching that very carefully in terms of stocking levels and other elements. Our Western European business, which I cited earlier, was very strong in the quarter, heavily driven by – within the discrete business as well. It’s particularly in places like France and Germany, which are critical markets for us. And then lastly, in Asia, outside of China, a very strong market. And now with China recovering feel that we are well positioned there. From a technology perspective, again, very good growth on the automation on the control side, PLCs and industrial PCs, and of course, with the various devices around material movement in the plants. Ram, any color for Julian? Ram Krishnan: No. I think – I mean, from a segment perspective, we broadly have factory automation and industrial automation segments within the business. So both those continue to do very well. And frankly, I think we anticipate mid to high single-digit growth for the year in that business overall. The 6% was somewhat impacted by shutdowns in China, which that business experienced. So frankly, we expect that to improve as we go through the year. Julian Mitchell: That’s great, thank you. Operator: Our next question will come from Jeff Sprague with Vertical Research. You may now go ahead. Jeff Sprague: Hey, thanks. Good morning, everyone. Lal Karsanbhai: Good morning. Frank Dellaquila: Good morning. Jeff Sprague: Maybe a housekeeping one for me first and then I want to come back to some of the projects, but just can we put a finer point on comp and FX? So the $0.09 headwind, it seems like you expected the $0.01 headwind. Can we just clarify what was – what is assumed for the entire year and how that’s changed versus your original expectations? And then on FX, so you’re saying in addition to just kind of normal translation headwinds, there was some contract or other backlog adjustments. Could you just elaborate on that a little bit? Frank Dellaquila: Yes. Good morning, Jeff. It’s Frank. Yes. So on FX, I mean, we originally had low double-digit impact on current – on the – from currency for the year in the guide back in October. That’s moderated. It’s probably in the $0.05 to $0.10 range now. So I mean, we have a little bit of an improvement there based on the turn in the dollar. And then you asked again about stock comp as well. So yes, there, we had built in a little bit of an increase in the addition of AspenTech and more or less flattish for the quarter for Emerson, and then we had the mark-to-market impact that was driven by the 30%-odd increase in the stock price on the legacy plans. So that was entirely incremental to what we had in the guide, $0.09 year-over-year and kind of $0.07 or $0.08 versus the guide. So that’s the big headwind we had there, which we are – which is now kind of embedded in the year, and we will just absorb that and overcome it within the year guide. Jeff Sprague: And just on the projects law, interesting couple you call out here. Could you just maybe give us a sense of kind of the dollar scope of some of these large benchmark product – project like this, maybe the green hydrogen project, what your content looks like on the front end and maybe what the tail of a project looks like? Lal Karsanbhai: Yes. No, these fall very much within the parameters, Jeff, that we laid out in terms of automation dollars per gigawatt as we think about hydrogen, for example. 600,000 – I think it’s – I believe it’s 600,000 per gigawatt is what we laid out, if I’m not mistaken, Ram? But on the petrochemicals – and for example, ethylene, again, KOB1, very significant there in the $20 million to $30 million type of scale. And then, of course, there’s all the downstream and the instrumentation business to come. So, some of these are very sizable. The specific one that we highlighted, of course, about $50 million in first purchase, which is the DeltaV system and then there’s further instrumentation to come. So they’re very sizable in terms of scale, but in line with how we think about dollars of automation per capacity, depending on the market they’re in. Jeff Sprague: Got it. Thank you. Operator: Our next question will come from Steve Tusa with JPMorgan. You may now go ahead. Steve Tusa: Hi. Good morning. Ram Krishnan: Good morning. Steve Tusa: Can you guys just talk about maybe some guidance for Aspen in particular, especially the cash flow coming in the next couple of quarters? How confident you are in that? And where you see that coming in? Frank Dellaquila: Yes. Steve, you cut out a little bit – this is Frank. You cut out a little bit at the beginning of your question. I mean, again... Steve Tusa: Aspen free cash flow. Yes, Aspen free cash flow and how confident in moving forward… Frank Dellaquila: We didn’t hear or I didn’t hear. Ram Krishnan: Yes. I mean, Steve, I think – go ahead. On plan. Frank Dellaquila: Yes, on plan, very seasonal. So their fourth quarter, our third quarter will be a big cash flow quarter. And we see and we – based on the plan, we think they’ll deliver it as they have in the past, so it will be heavily in that quarter. Ram Krishnan: Yes. On guide, Steve, I think – and third quarter for them will be – or our third quarter will be the big quarter. Frank Dellaquila: Yes. I mean, obviously, they can provide the color and the background on that. But I mean, that is the seasonal pattern for their cash flow, and we would expect that to maintain. Steve Tusa: Right. Yes, it does influence your cash. So just curious if you guys – the owners have a view on that. When it comes to NATI, how coveted is this asset for you guys? I mean it doesn’t seem like they’re going to take anything below $60. Is – are you guys really willing kind of go to the wall for this? Lal Karsanbhai: I can be very clear with you, then we’re not going to be the purchaser of the asset. Steve Tusa: That is a definitive answer. Thank you very much. Appreciate it. Thanks, guys. Operator: Our next question will come from Nigel Coe with Wolfe Research. You may now go ahead. Nigel Coe: Okay. Thanks. Good morning. Okay. I won’t be asking questions on the NATI purchase price, so I’ll move on from that. Just want to go back to FX, if I can. I think you mentioned long-term contract marks, and it’s not something I’ve heard from Emerson before. So I know we’ve had some backlog revaluation. So just maybe talk about what caused that to that mark on FX? And maybe just on the below line stuff, what is the normalized stock comp beyond this year once we roll off this plan? How should we size that? Frank Dellaquila: Okay. So Nigel, hi. This is Frank. So the – yes, we had a significant – of the currency that was in the quarter, a significant portion of it was due to the impact of the accounting on long-term contracts. So you have to mark-to-market long-term contracts. Typically, these are to EPCs, and they tend to be in places like Korea and other markets where we typically are in talking about currency as opposed to translation currency when we talk about Europe and China. And the accounting basically brings those marks to zero when the contract closes out, but during the life of the contract, you mark-to-market up and down. And depending on where you are in the life cycle of a contract and what the backfill is for those contracts, you’ll get a mark most quarters, it’s not big enough to matter. This quarter, it was $0.04 or $0.05, so it was big enough to matter and that’s what drives it. And we try not to talk about it, the word – it’s embedded derivatives. We don’t talk about embedded derivatives because it’s just not helpful, but that’s specifically the accounting that drives that mark on long-term contracts. Nigel Coe: Okay. Yes, embedded derivatives, above my pay grade. So let’s move on from that, but we’ll follow up offline. But on the – just on the guide, so there’s some moving pieces here. So it feels like FX is very neutral. The weaker dollar offset by some of these marks probably got some share buyback benefits relative to plan, well, certainly versus our model and then we have the stock comp offset. Is that sort of the major moving piece? Is there anything else you’d highlight? And then maybe just talk about the sales acceleration. We’ve got some China noise in the back half of the year with the lockdowns in the prior year. But what kind of macro environment you’re planning for, especially in second quarter fiscal, some of your short-cycle peers are highlighting some inventory corrections, et cetera. What do you see in discrete markets and some of the other relevant markets? Ram Krishnan: Yes. So I’ll take a crack, Ram here, on the sales. From a sales perspective, obviously, we have acceleration built in to the year, fundamentally with orders holding in the mid-single digits and us shipping backlog that we described with improving supply chain. So certainly, Q2, Q3 and into Q4 we’ll expect the ramp-up in absolute sales as we execute on the backlog. In terms of distributor destocking, we haven’t seen it in any of our businesses. Certainly, a lot of our discrete businesses go through distributors. Some of our process businesses go through distributors. We haven’t seen it and nor do we anticipate it just given the dynamics of what we’re seeing. And then to top it off, price will remain strong through the year that will contribute to growth as well. Nigel Coe: Thank you. Operator: Our next question will come from Joe Ritchie with Goldman Sachs. You may now go ahead. Joe Ritchie: Thanks. Good morning, everyone. Lal Karsanbhai: Good morning, Joe. Joe Ritchie: Hey guys. Can you just touch on AspenTech a little bit? I know, Lal, you mentioned some of the wins [indiscernible] that was interesting. But like how is that going thus far? And then I noticed that the adjusted EBITDA margin was a tough lighter than what you guys expect for a full year basis. Maybe just provide some color around seasonality in that business as well. Ram Krishnan: Yes. So AspenTech, I think for us, from a synergy perspective, going according to plan. And frankly, a lot of the early synergies we’ve built in is on projects like Ras Laffan where Aspen won some very, very good content. I think the sales channels and the engagement of our sales channel and selling their capabilities continues as planned. Now really what we’re driving there is in terms of perpetual licenses and bundling them on projects, a lot of success converting our wins into ACV type of revenue for AspenTech is a work in process and should pick up momentum as we go into the second half of the year. So we feel pretty good about the synergies. We certainly feel pretty good about the sales forecast we’ve built in for AspenTech. Obviously, the plan they presented and the plan we’ve built in into the consolidated Emerson numbers, and then no concerns on the margin performance, the EBITDA performance. Seasonally, their third quarter or their fourth quarter, our third quarter is the biggest quarter. It was last year, and it will again be this year. Joe Ritchie: Super helpful, Ram. And then maybe my follow-on question. While, at the Investor Day, you guys highlighted all of these big opportunities in automation technology and you talked about your pipeline extending. I’m just wondering where have you seen the most movement recently in terms of your pipeline and those opportunities? Lal Karsanbhai: Yes. No, it’s a good question. Of course, we did have a very active quarter in terms of the project funnel and particularly not just in projects that were booked and hence exited the funnel, but also in the build-up what we saw in terms of activity. I would suggest that the predominant element of growth came in two areas: One is life sciences, which grew significantly in the funnel in the quarter; and secondly, the energy transition, which continues to be very robust, both here in the U.S. and in the Middle East predominantly and became additive to the funnel. And that funnel grew not just in terms of dollars by about $0.5 billion, but also in terms of number of projects, but only by eight projects, which tells you that the average size of projects are getting larger, which is also a dimension here. Ram Krishnan: And the only thing I would add is the LNG size of the funnel remains large, meaningful. And what we saw in the last quarter was a good momentum on the FID progress associated with many LNG projects in the U.S. where we’re very, very well positioned. A lot of these are going through Bechtel, in Texas and Louisiana. And our expectation is, we will ramp up order booking activity in those – on those projects as we go through the second half of the year. Joe Ritchie: Great. Nice to hear. Thank you. Operator: Our next question will come from Joe O’Dea with Wells Fargo. You may now go ahead. Joe O’Dea: Hi. Thanks for taking my questions. I wanted to start on sort of price and price cost. On the price cost side of things, can you size the margin impact in the quarter? And then what you’re thinking about for the cadence of that impact over the course of the year? And I think you also noted some price increases to start 2023. Is that broad-based? Are those more concentrated in parts of the business? Frank Dellaquila: You want to talk about the price increases? Ram Krishnan: Yes. So from a – I’ll take a crack at the price increases. I mean, we did have a good price increase in October, we typically do as we enter the fiscal year. Select product lines had price increases in Jan. We have a few more product lines slated for midyear price increases around the April time frame. In general, though, I think pricing was 4% realized price in the first quarter. We expect it to stay at those levels as we go through the year. So pricing will remain strong. Frank Dellaquila: As we go through the year, we expect those price increases as they roll through will continue to be accretive to margin. Through the entire year, it was bigger in the first quarter than it will be [ph] as we go through the year. Again, then we’ll see what incremental price increases we might put through. Net material inflation also should become a tailwind in the back half of the year. So all in all accretive, somewhere between half point and the point, it really depends on how it rolls through, but certainly a good story from a margin standpoint as we go through the year. Joe O’Dea: Got it. And then I wanted to circle back on some of the Discrete questions and just kind of bigger picture macro. And I think that the industry outlook for Discrete up mid-single digits. I assume that’s sort of a combination of kind of low-single digit price, low-single digit volume would expect areas like batteries and semiconductors are growing faster than that. But when we think about what we’re seeing on sort of the PMI side of things and then thinking about sort of Discrete just growing through a PMI slowdown. I mean, can you touch on as the expectations sort of outside of some of these structural growth areas that we just continue to see some kind of low-single digit volume growth and sort of no kind of connection there between some short cycle macro indicators of slowing, but not really seeing it in your end markets? Ram Krishnan: Yes. So you said most of it. I think that the plan really is LSD, low-single digit price, low-single digit volume, the growth vectors – semiconductors, battery manufacturing, frankly from a sector that we are cautious on automotive is something we’re going to have to carefully watch. We have had good performance so far. But automotive is an area that we have to watch very carefully. And then our stocking levels in terms of distribution, again, we haven’t seen any slowdown yet. But certainly to your point, based on the PMI forecast and what is anticipated there could be slowing in that sector. So if you put all that together, I think we feel pretty good about our mid-single digit forecast. Joe O’Dea: Got it. Thanks very much. Operator: Our next question will come from Christopher Glynn with Oppenheimer. You may now go ahead. Christopher Glynn: Thanks. Good morning, everybody. Just wanted to tie a little bit the organic outlook versus backlog growth up $700 million suggests the 1.2 book-to-bill which seems a little incongruous with 5% orders growth. But I suppose that’s a function of the prior year book-to-bill. So just wondering if you could comment on that book-to-bill interpretation and how do you characterize backlog size versus what you might consider normal in a moderately expanding net end market mix? Ram Krishnan: Yes. So I think the $700 million is a GAAP number. The 5% is an underlying sales number. But net-net, you are right. If you looked at the first quarter of last year and calibrated versus orders and sales, I think the 5% makes sense with the $700 million build in backlog. I think our expectation for a normalized level of backlog in this business. We’re probably at least close to $800 million to $1 billion too high in terms of where we could normally be – if the supply chain were optimal. And that’s what we’re going to have to execute through the year. And as the supply chain continues to improve, that’s the normalized level of backlog for this level of sales. So to answer your question directly, it’s about $800 million to $1 billion higher than what we would’ve anticipated. Christopher Glynn: Great. Thank you. Operator: Our next question will come from Gautam Khanna with Cowen. You may now go ahead. Gautam Khanna: Yes. Thank you. Good morning, guys. Ram Krishnan: Good morning. Lal Karsanbhai: Good morning. Gautam Khanna: I was wondering if you could talk a little bit about the aftermarket, the KOB 3 stuff. I think you said it was 65% of sales in the quarter. But where do you see that trending over the next year or year and a half because it seems like it’s been on full tilt for quite a while? Just what do you think the new normal is? Frank Dellaquila: Yes. No, I think we’ve had a concerted effort across our business to maximize the value of the $130 billion plus installed base. And those are programs that we’ll put in place that drive service MRO and replacement opportunities. We’re sitting at, you’re right, right around 65%. I expect that to remain within that range. And it’s supported by the business programs that we have in the operating companies. Ram Krishnan: And I would add that’s the segment of the business where the pricing flows through at higher levels. So obviously that will remain robust through the year. Gautam Khanna: I appreciate it. And then just to follow up, any change the timing of the divestment out there on Climate Tech, anything noteworthy? Lal Karsanbhai: No, we’re still thinking about the first half of this calendar year and everything’s on track in terms of the regulatory approvals and standing up the business. So that’s all well underway, so we’d expect April may shifts as a guideline there. Gautam Khanna: Thanks, guys. Lal Karsanbhai: Yes, sir. Operator: Our next question will come from Tommy Moll with Stephens. You may now go ahead. Tommy Moll: Good morning, and thanks for taking my questions. Lal Karsanbhai: Good morning. Ram Krishnan: Good morning. Tommy Moll: I wanted to start on the industry outlook you provided across process, hybrid, discrete, little variation across the three, but essentially all growing nicely in the single digit range. There are others in some of these markets that have double digit outlooks versus the singles that you provide, I am well aware there’s often apple and orange impacts here in making comparisons. But I was just curious, is there any conservatism embedded in these outlooks you’ve provided? Is there anything you would do to help us reconcile some of what we’ve heard elsewhere? Thanks. Lal Karsanbhai: In terms of the market outlooks, Tommy, we feel that we’ve given a very balanced view of what’s out there. The blend of the different types of businesses that we cover in terms of capital modernizations and replacement. We’ve also taken into account that the various geographic trends. But no, I feel that what we’ve put there ties into the guide for the quarter and of course our expectations for the year as well. And again, within each of the segments, as you recognize, there are big pluses and smaller pluses clearly in the Discrete space, which we’ve been speaking about to a significant amount today. EV semiconductor elements like that, of course have a significantly higher growth than some others. But overall, I feel that the indications we’ve given are fair based on what we’ve seen this in the marketplace today. Tommy Moll: Thank you. That’s helpful. I also wanted to ask about the repurchase activity. Is it fair to say that the deployment of the full 2 billion in the quarter was an acceleration versus the original plan? And if so was that – should we view that more as an opportunistic decision where your stock was under pressure for a period of time? You decided to lean in and to the extent that… Frank Dellaquila: Yes. I’m sorry, Tommy, this is Frank. No, not really. When we communicated the 2 billion, our intent was to get it done as quickly as possible. And we were able to get it done in the quarter. So it was not really driven by market events so much as a desire to just make good on the commitment and do it quickly. Tommy Moll: And any possibility that you might revisit the potential for more later in the year, or should we think about 2023 is pretty well spoken for at this point? Frank Dellaquila: There’s really no current intent to do any more share repurchase. We’ve got another, other irons in the fire right now. So, obviously circumstances change. We can always revisit, but we have no current plans to revisit it right now. We said we do 2 billion and we’ve done that. Tommy Moll: Great. Thank you. I’ll turn it back. Frank Dellaquila: Thank you. Operator: Our last question will come from Chris Snyder with UBS. You may now go ahead. Chris Snyder: Thank you. I wanted to follow up on safety and productivity. You guys mentioned that you’re seeing early signs of things bottoming out. I understand comps get easier, but it sounds like you’re also starting to see demand turning, so just hoping for more color on what you’re seeing to give you confidence that demand is turning there? Ram Krishnan: Yes, so I – first off, I think a majority of what we’ve baked into the plan is comps getting easier. So, absolute levels stay the same with where they sit today. Price comes through and comps get easier. We’ll have a better read of it as we go through the current quarter. And I think we’ll have a better expectation of the second half if demand were to improve, which is not baked into the plan, we should get better numbers in safety and productivity. But at this point, it’s staying at the current levels and comps getting easier. Chris Snyder: I appreciate that. And then just to follow up on China, the presentation called out a headwind from China shutdowns on organic growth in the quarter. Could you provide some more color on how China performed in the quarter? And then maybe how it’s exiting into the fiscal second quarter with the reopening? Thank you. Ram Krishnan: Yes, so China was down mid-single digits, both incoming orders as well as sales performance in the quarter. And we expect China to be mid-single to high-single digits for the full year with high-single digits in the second half. Chris Snyder: Thank you. Operator: This concludes our question-and-answer session and the conference. Thank you for attending today’s presentation. You may now disconnect.

Operator: Good morning and welcome to the Emerson Fourth Quarter and Full Year 2022 Earnings and Climate Technologies Announcement Conference Call. [Operator Instructions] Please note this event is being recorded. I'd now like to turn the conference over to Colleen Mettler. Please go ahead. Colleen Mettler: Good morning, everyone and thank you for joining us to discuss our Q4 and full year 2022 earnings and an exciting milestone in our portfolio transformation. Today, I am joined by President and Chief Executive Officer, Lal Karsanbhai; and Chief Financial Officer, Frank Dellaquila for the presentation. Also here with us is our Chief Operating Officer, Ram Krishnan. I encourage everyone to follow along with the slide presentation which is available on the Investor page of our website. This presentation and responses to questions may include forward-looking statements, including the company's outlook for the remainder of the year. Information on factors that could cause actual results to vary materially from those disclosed today, is available on Emerson's most recent annual report on Form 10-K as filed with the SEC and subsequent SEC filings. After our remarks, we will hold the Q&A and appreciate you limiting your questions to one. With that, I will now turn the call over to Emerson's President and Chief Executive Officer, Lal Karsanbhai. Lal Karsanbhai: Thank you, Colleen. Good morning and thank you for joining us today. Please turn to Slide 4. Allow me to begin by saying that I'm very proud of Emerson's global team for the results delivered in 2022. Thank you. We had a strong finish to the results in 2022, with underlying sales growth of 9%, operational leverage of 36%, an adjusted EPS of $5.25, representing a 16% increase over prior year. As we will discuss during today's call, most importantly, we have a strong outlook for 2023, supported by end market growth and excellent operational execution. Shortly after becoming CEO in February of 2021, we embarked on an ambitious journey to accelerate value creation for Emerson shareholders. This required a bold transformational agenda, inclusive of culture, portfolio and execution. Alongside our Board of Directors, we underwent a comprehensive assessment of Emerson's portfolio and identified potential new market segments for investment. We designed the path forward based on a vision to create a pure-play automation company. Today, we achieved a significant milestone in this portfolio transformation by announcing the sale of a majority interest of the Climate Technologies business to Blackstone. Emerson, going forward, will be a unique automation company with a cohesive higher-growth portfolio exposed to diverse end markets and aligned to the world's secular trends, including digital transformation, sustainability, energy security and near-shoring. We have ample room to invest both organically and through disciplined capital deployment in M&A to build automation capabilities along our technology stack which is industry-leading and is composed of intelligent devices, control and software, serving leading customers in process, hybrid and discrete industries. We will do this while maintaining our commitment to return cash to our shareholders through share repurchase and the dividend. In 2023, we enter our 67th consecutive year of increased dividends per share. I’m excited and cannot think of a better time during my 27 years at Emerson to be optimistic about our future. To provide more details on our results, I’ll now turn the call over to Frank. Frank Dellaquila: Thank you, Lal and good morning, everyone. Please turn to Slide 5. As Lal mentioned, the fourth quarter was a strong finish to a very good year. Underlying sales grew 12% with Automation Solutions at 13% and Commercial & Residential at 10%. Segment EBITDA margins improved by 260 basis points on 54% adjusted EBITDA leverage, excluding AspenTech. Within the total segment margin improvement, Automation Solutions improved 190 basis points year-over-year and commercial residential improved 250 basis points. Operational performance was exceptional with incremental margins exceeding 50% in both platforms. Price realization accelerated in the second half of the year, peaking in the fourth quarter as both businesses delivered on the price plans we communicated on previous calls. In particular, Commercial Residential realized more than 10 points of price in the second half, driving sequential improvement in leverage and margin. Adjusted earnings per share of $1.53 grew 16%, including a $0.04 contribution from AspenTech and despite a significant currency headwind, $0.05 in the quarter that will continue into 2023. Orders continue to be solid, up 6% in Automation Solutions and 7% in Commercial Residential on a 3-month roll. Automation Solutions backlog was reduced by $400 million in the quarter but remains robust at $5.8 billion and supports our sales outlook for 2023. AspenTech contributed $251 million of sales in the quarter at nearly 33% adjusted EBITDA in what is typically a seasonally low quarter for the business. Please turn to Slide 6 and we'll review the full year in more detail. We believe we delivered excellent financial performance in 2022 despite widely known operational and geopolitical challenges. Underlying sales were up 9%, meeting our full year guidance. Adjusted segment EBITDA improved 140 basis points for the year with incremental margins of 36%, well ahead of our 30% target. This performance was enabled by favorable product and geographic mix, focused cost management and the ongoing benefits of our cost reset program mainly in Automation Solutions. That program which we initiated in 2019, achieved its goal of 24% adjusted EBITDA for Emerson a year earlier than planned. Portfolio actions, primarily the addition of AspenTech added 50 basis points to the margin improvement. Adjusted EPS was $5.25, up 16% versus prior year, exceeding the high end of our guidance by $0.10. Free cash flow was down 20% versus the prior year, mainly due to higher working capital from strong sales growth and supply chain constraints that we experienced throughout the year. Nonetheless, free cash flow conversion was nearly 100% for 2022 after adjusting for the impact of nonoperating items, divertive and TOD gains and the exit from Russia. Turning to the business results. Automation Solutions underlying sales were up 7% for the year. Demand for the year played out much as we anticipated and the business delivered excellent profit performance despite ongoing electronic component challenges. Traditional process markets gained momentum as the year progressed, while hybrid and discrete markets remain strong throughout. Each of these markets grew in the mid- to high single-digit range. Underlying sales were led by 14% growth in the Americas and 11% growth in China. Automation Solutions adjusted EBITDA improved 190 basis points versus the prior year, with 70% incremental margins. Commercial & Residential Solutions underlying sales grew 13%, including 10 points of price realization. The business delivered the price actions we committed for the second half and drove favorable price cost. Sales were supported by Climate Technologies broad-based demand in North America and Europe. Tools & Home Products growth moderated as the year progressed but profitability was cushioned by continued price realization. Adjusted EBITDA margins for Commercial Residential ended the year at 20.9%, down 70 basis points, as expected but with significant improvement in the second half, largely due to achievement of the planned pricing actions. AspenTech contributed $656 million of sales at 38% adjusted EBITDA. Commercial initiatives and business integration are proceeding as planned. And as a reminder, 2022 financial results include a full year of Emerson's 2 contributed businesses and heritage AspenTech results from the closing date of May 16, 2022. Please turn to Page 7 for the EPS walk. As I said, 2022 adjusted EPS was $5.25, up 16%, driven primarily by operations which contributed $0.68. Nonoperating items and share repurchase each contributed $0.03. We are very pleased with our 2022 financial results which were achieved in a challenging environment. Now, I will turn it back to Lal to provide his perspective on the significant portfolio announcement we made this month. Lal Karsanbhai: Thank you, Frank. Please join me on Slide 9. Our portfolio journey has been guided by a clear road map to transform Emerson into a pure-play automation company. And today marks a significant and definitive step on that journey. Our announcement to divest the majority interest in Climate Technologies to Blackstone is a milestone transaction for Emerson with compelling financial benefits. Emerson will monetize the majority of our Climate Technologies business and an attractive valuation of 12.7x 2022 EBITDA, providing approximately $9.5 billion of upfront pretax cash proceeds to invest in growth. The transaction structure also enables additional cash proceeds from the future exit of our noncontrolling ownership. With the exit of Climate Technologies, we are creating a company with a cohesive portfolio, higher growth and profitability. Our leading technology and software will be positioned to capture secular growth trends in digital transformation, sustainability, decarbonization and near-shoring. The proceeds from the divestiture will focus on strategic automation acquisitions that will strengthen our business and diversify our end market exposure and to return capital to shareholders. We are excited about the long-term value creation opportunity this transaction unlocks which we will have -- we will spend time discussing in a moment. Before that, I'll have Frank go over the details of the transaction and timing. Frank Dellaquila: Thanks, Lal. Please turn to Slide 10. Before I walk through the highlights of the transaction structure, I'd like to provide some background on the decision process that brought us to this point. When management and our Board made the decision to transform Emerson into a pure-play automation company, we began a rigorous analytical process with our external advisers to determine how to divest Climate Technologies in the most efficient and value-creating way for our shareholders. We explored the full range of alternative transaction structures to accomplish a separation, weighing all the relevant factors, including valuation, complexity of execution, timing and where we are in the market cycle for both the business and for public equities. We are confident the sale to Blackstone under the terms I will describe in a moment, provides the best execution for our shareholders, achieving an attractive multiple with certainty in an unsettled financial market environment. The upfront proceeds enable opportunistic capital deployment in the near term while retaining meaningful upside in the potential of the business under Blackstone's control, together with our sale of InSinkErator, at a multiple of 18x EBITDA which is expected to close today, we can assure you that we are intently focused on maximizing the value of these world-class businesses most efficiently in the current market environment. With that as background, I will go through the headline elements of the transaction. Emerson will sell a majority stake in its Climate Tech business to Blackstone valuing the business at $14 billion, representing a 12.7x multiple on 2022 EBITDA. In addition to the pretax cash proceeds of approximately $9.5 billion, Emerson will also receive a note of $2.25 billion at closing and will retain a 45% common equity noncontrolling interest in a new joint venture that will own Climate Technologies. The upfront cash consideration will be funded by $5.5 billion of fully committed debt financing and $4.4 billion equity contribution from Blackstone, including both common equity and convertible preferred. The entity will continue as a joint venture between Emerson and Blackstone until its sale or IPO, at which time Emerson would receive additional cash proceeds from its note and ultimately, from its 45% common equity ownership. Climate Technologies will be managed by Blackstone and Emerson will not be responsible for the operation of the business post-closing. The transaction is expected to close in the first half of calendar year 2023 upon satisfaction of customary closing conditions. Our management team is working to identify the actions required to rightsize our corporate and platform functions. These actions will be sufficiently implemented by the time we close this transaction, eliminating any stranded costs that would have resulted from the sale. In addition, management is working on actions to streamline the corporate and platform structure consistent with our new scale, targeting approximately $100 million of run rate savings by the end of 2024. Additionally, Emerson is selling ownership of the St. Louis, Missouri headquarters campus to the joint venture. Terms include a 3-year lease back with an option to extend an additional 2 years. During that time, Emerson will undertake a comprehensive assessment of potential headquarters locations, including in the St. Louis area based on the company's long-term interests. With that, I’ll turn it back to Lal for additional insights. Lal Karsanbhai: Thank you, Frank. Please turn to Slide 11. Climate Technologies is a leading $5 billion global manufacturer of HVACR compression products related solutions and controls. The business has leading positions in its segments and upside potential but is not aligned with our strategic vision for Emerson as a cohesive automation portfolio serving higher growth markets. Blackstone has a strong track record of growing businesses and we are confident Climate Technologies will continue to thrive under their ownership. Please turn to Slide 12. Today's announcement is certainly our largest step, as I mentioned previously but there were many others along the way. The work required creativity. And I am proud of what we have achieved in a very short time. We've invested approximately $9 billion in intelligent automation technology and software. This includes our recent acquisitions of Fluxa and Mita-Teknik and our 55% ownership of AspenTech and its announced acquisition of Micromine. These companies accelerate Emerson's growth profile, profitability and end market diversification into areas like renewable power, life sciences and metals and mining. We've also realized approximately $18 billion in gross proceeds from divesting noncore and slower growth assets at attractive valuations, like Climate Technologies, InSinkErator and Therm-O-Disc. Turning to Slide 13. This transformation positions Emerson as a $14 billion automation leader with an attractive growth profile, diverse end markets and leading technology. Emerson has the most complete portfolio of intelligent devices, control systems and software in the industry. This includes 13% of our sales from software inclusive of AspenTech, representing a leading percentage among industrial peers. These differentiated solutions and our expertise help customers solve their most complex challenges, including optimizing operations, protecting personnel, reducing emissions and achieving sustainability goals. Emerson is able to do this across a broad and diverse set of end markets within process hybrid and discrete and on a global scale. Turning to Slide 14. These end markets are experiencing key secular growth trends, as I mentioned earlier and these are aligned with many of the world's most pressing challenges. First, through digital transformation programs, customers are spending more on sensing and data, software, digital twins and other intelligent solutions to gain more visibility into their operations. As we discussed during our AspenTech transaction announcement, we continue to see our customer share of wallet shift towards software and digital solutions. Next, as the world pushes to net zero, sustainability and decarbonization investments are growing at a rapid pace. This includes the decarbonization of existing infrastructure through optimization, energy efficiency and emission reductions projects. It also includes the introduction of new energy sources like clean fuels and hydrogen. Lastly, near-shoring trends around the world have widespread effects on many industries. Underpinning each of these secular growth drivers is the need for increased automation, creating an incremental prolonged investment period for the solutions that Emerson provides. We look forward to discussing these organic growth programs at our investor conference in November. I'll now turn the call back over to Frank for more details on Emerson moving forward. Frank Dellaquila: Thank you, Lal. Please turn to Slide 15. This slide highlights Emerson's enhanced financial profile on several key metrics as we become a focused automation business. The transformation Lal discussed will position Emerson to increase its through-the-cycle growth rate to mid- to high single digits from historical low single-digit levels. Benefits from the pervasive secular growth trends that Lal mentioned and an emphasis on innovation will be important factors in this transformation. Our more concentrated exposure to these growth trends, our management process and wide-sized fixed cost structure will drive higher levels of profitability, reflected an expected incremental margins in the 35% range. Structurally, Emerson's new portfolio will have higher margins based on increasing software content and high-margin recurring aftermarket and subscription revenues. Emerson will be less capital intensive at approximately 2% of sales and cash conversion will continue to be strong at approximately 100% of net income. Please turn to Slide 16. We want to reiterate our commitment to a disciplined capital allocation strategy that balances growth with return of capital to our shareholders. The proceeds received from the Climate Tech and InSinkErator divestitures will enhance our ability to drive internal growth programs and expand our portfolio while continuing to provide robust cash returns to our shareholders. Driving organic growth will be a priority as we invest to accelerate innovation through new processes and higher R&D spend focusing on breakthrough technologies. Our balance sheet capacity will enable us to pursue strategic acquisitions in defined automation verticals to accelerate growth and enhance end market diversity. And we remain committed to providing meaningful cash returns to our shareholders through our dividend and share repurchases. We announced this morning that in 2023, we will increase our dividend for the 67th consecutive year. And we intend to repurchase $2 billion of our stock during the fiscal year. Please turn to Slide 17. We believe this transaction is a critical step in the process of unlocking value for our shareholders. This slide walks through the multiple levers that we believe support value creation potential. First and importantly, is the value of the new Emerson, a company that benchmarks favorably against our automation peers in terms of growth outlook, profit margins, free cash flow conversion and software content. The second lever is our controlling ownership position in AspenTech, a premier industrial software leader whose market cap has increased 40% since we closed the transaction on May 16. As a part of Emerson, AspenTech enables significant strategic benefit to our business through the synergies we have discussed in the past and also provides a high multiple vehicle for further investment in industrial software. Third is the approximately $10 billion in cash net proceeds from the divestitures of Climate Tech and InSinkErator which enables capital deployment at scale for organic growth and M&A and return of capital to shareholders via share repurchase. Finally, this transaction structure allows us to retain a noncontrolling investment in Climate Tech through both our $2.25 billion note and $2 billion in common equity which will be monetized over time, providing additional resources for strategic investments. We believe all of these factors result in a compelling story supporting shareholder value creation. I hope you can see why we and our Board are excited about this transaction and the value potential we believe it will unlock for Emerson shareholders over time. Now please turn to Slide 19 and we'll discuss the outlook for 2023. We intend to report Climate Technologies, InSinkErator and Therm-O-Disc financial results as discontinued operations starting in the first quarter of 2023. This slide includes the 2022 reported results I discussed a few minutes ago on the left side. On the right side are the components of the reported results that will comprise our continuing operations in 2023. To continuing operations data for 2021 and the first quarter of 2022 are also included in the appendix for your reference. Continuing operations consist of Automation Solutions, AspenTech and our safety and productivity business which is a rebrand of the core capabilities of our professional tools business after the InSinkErator divestiture. We will provide guidance for 2023 continuing operations and that is how we will communicate about our business in the future. Also, we are in the process of determining the reporting segments for our new automation focused business and we plan to provide additional information on segments at our Investor Day on November 29. If you would, please turn to Slide 20. We continue to see strong market dynamics in 2023. Process, hybrid and discrete markets are all expected to grow mid- to high single digits. Specifically, LNG, hydrogen and clean fuels will all benefit from energy security, resiliency and sustainability trends. Life Sciences continues to be a growth opportunity for Emerson as ongoing investment support drug vaccine and medicine development. We expect 2023 to be another strong year for our discrete business coming off accelerated growth in the previous 2 years. We continue to be optimistic about the long-term prospects for discrete, especially within semiconductor, electronics and EV manufacturing markets. From a world area perspective, we expect Americas growth to continue to be strong, led by energy investments. European growth will likely lag as demand resulting from the energy crisis is expected to be offset from downside effects on our discrete and chemical businesses. We continue to keep a close watch on developments in China but at this point, we still expect mid-single-digit sales growth in 2023. Please turn to Slide 21. Expected strength in our key end markets, together with our robust backlog support our guidance for underlying sales growth between 6.5% and 8.5%. Acquisitions, mainly AspenTech are expected to add another 4 points to reported growth, approximately offset by a currency headwind from the strong U.S. dollar, equating to negative 3.5 points of sales growth and approximately $0.09 of EPS headwind at current exchange rates. We remain committed to driving our business to mid-30s incremental margins through our operational execution with additional leverage from AspenTech. We expect adjusted EPS to increase from $3.64 in 2022 to between $4 and $4.15 in 2023, a 12% increase at the midpoint. Please note that the adjusted EPS guide does not include any interest income from undeployed divestiture proceeds which could exceed $100 million at current interest rates if we close halfway through the fiscal year. Free cash flow conversion is expected to continue to approximate 100%. For the first quarter, we expect net and underlying sales to increase between 6% and 8%. Currency will be a substantial headwind in the first quarter, reducing sales growth by approximately 6 points and earnings per share by about $0.03 at current exchange rates. Adjusted earnings per share is expected to be between $0.85 and $0.89, a 10% increase at the midpoint. Before we head to Q&A, I’ll pass it back to Lal for some closing comments. Thank you. Lal Karsanbhai: Thank you, Frank. We hope you share our excitement about the future of Emerson and the tremendous value creation opportunities ahead. The Climate Technologies transaction marks the biggest step in our portfolio transformation to a cohesive high-growth company. The $9.5 billion upfront cash proceeds from the transaction provides financial optionality as we look to strategically build out our leading automation portfolio. We are a great company and we will never rest on trying to be better. I'm excited about the future of Emerson. We look forward to speaking with all of you again at our investor conference in November, where we will share more about our ongoing value creation strategy. Thank you for joining us today. Colleen Mettler: Thank you, Lal. We will now turn it to Q&A. As mentioned at the top of the call, we will ask that you limit your questions to just one. With that, I will turn the call over to the operator. Operator: [Operator Instructions] Our first question comes from Andy Kaplowitz from Citigroup. Andy Kaplowitz: Congrats on the deal. Lal, so I know it’s early but maybe you can give us a little more color into you’ll use the $10 billion of cash you’ll have post the transaction. You talked about spending $2 billion on share repurchases but can you talk a little bit more about the priorities for spending the cash? Is Aspen is spending number one on that list? And any more color you could give us on the new growth pillars that you’ll talk about in a month. Lal Karsanbhai: Yes. I know, Andy. Certainly, obviously, the $2 billion share repurchase is very important. But equally important is our discipline that we put in place around M&A. The work that I described alongside our Board to identify 4 priority industry segments is very important. We'll go into a lot of detail when we meet in November at investor conference on each of those 4 segments. But I will say that work continues -- is underway -- as we speak in potential activity in these segments. So we'll -- what I can tell you about each and every one of those is they're consistent with the automation stack. They are consistent with our perspective that we need a higher growth and end market diversification within our business. And I think we'll have a good discussion about that when we meet. Operator: The next question comes from Andrew Obin from Bank of America. Andrew Obin: I know you guys are going to have an analyst meeting but I’m still going to probe on use of proceeds. You sort of stated that – well, not stated but my understanding was that you would have a plan for deploying the capital if you were to monetize the assets and you have been very active monetizing the assets. So I just want to understand the visibility on the funnel that you have because you have plenty of capital. If I think what’s available, there is a private company that doesn’t want to sell. There was a target that didn’t want to sell that was public. So I’m just wondering sort of – it seems like you’re looking for a sizable target in automation space. And just what does the funnel look like? Lal Karsanbhai: Thanks, Andrew. Obviously, I know you want me to start listing names of the companies. I can't do that. Andrew Obin: I would love it. Lal Karsanbhai: As I've said, Andy. So a couple of things. Number one, clearly, we're looking for sizable opportunities in large markets. There has to be relative strength in market position for it to be relevant and impactful to the Emerson shareholder. We're looking for exposure in higher growth. We're looking for profitability and differentiated technology. And we certainly are going to be very diligent on the alignment to the technology stack and automation solutions. So those are the guiding principles. And I will tell you, the funnel is robust. It's very active. And our team in M&A led by Ram and Vincent Servello is doing a great job with it. Operator: The next question comes from Steve Tusa from JPMorgan. Steve Tusa: Congratulations. Lal Karsanbhai: Thank you, Steve. Steve Tusa: Yes. Busy start for you, Lal congrats on that. First of all, can you just walk us to the $14 billion valuation? It’s like not quite clear to me how you guys are getting to that just based on the numbers you’ve given, like what kind of leverage the JV will have? And did the structure was just a tad bit, not 100% crystal clear. Frank Dellaquila: Sure. Steve, this is Frank. So there is a -- if you get to the $14 billion, basically, you've got about $4 billion, $4.3 billion being contributed by Blackstone in the form of common equity and the convertible preferred. That $5.5 billion of third-party senior debt, basically bank debt and debt from other parties. So if you add that up, you get to the -- including our PIK note, $2.25 billion PIK note and our retained contribution, our retained equity, you get to $14 billion and we can walk you through the exact numbers but that's how you get there. Steve Tusa: Okay. And then just the tax implications on an after-tax basis? And then just one quick follow-up. Frank Dellaquila: Sure. So the upfront proceeds on an after-tax basis, we expect will be around $7.8 billion; [indiscernible] pretax, about $7.8 after tax on the upfront proceeds. Steve Tusa: And then one last one on the guide. The underlying orders are up about 6%, I guess, for the core kind of A&S business. You're trending at about that number exiting the year but you're guiding to something higher than that? I mean, what's giving you the confidence that, that actually accelerates? Is that just backlog conversion going forward? And how do you expect these orders to trend as that lead time kind of normalizes? Ram Krishnan: Yes, Steve, Ram here. Yes, you’re spot on, I think, underlying orders are around 6% and then we’ve got $5.8 billion plus of backlog in the automation business that will convert into next year. So we’re pretty comfortable with the sales guide. Operator: The next question comes from Josh Pokrzywinski from Morgan Stanley. Josh Pokrzywinski: Congrats on the deal. Just maybe a follow-up on the ‘23 outlook and with Steve’s question, how should we think about that volumetrically? Because I would imagine of that 6 point of order growth that you had that you got a lot of price in that. You said you got about 6 points of price, I think, in the core business this quarter. Just wondering how we should think about kind of the different pieces of the volume equation for ‘23? And then how much of that backlog draw you’re baking into the guidance? Ram Krishnan: Yes. So from a price perspective, 2, 3 points of price, the rest will be volume. And I think we've got the $5.8 billion of backlog is high for the automation business. So we'll have backlog conversion baked into the plant. So I would say 3% to 4% volume growth, rest price plus the backlog drawdown. Josh Pokrzywinski: Got it. That’s helpful. And then this might be hard to pin down but because Russia, Ukraine is so recent and it takes a while for your customers to move their feet on this, does that have any appreciable uptick from these new energy investments or LNG that would be specifically done as a result of Ukraine? Or is that still premature? Lal Karsanbhai: No, I think it's very active, Josh. The activity, particularly in Louisiana, Texas and Mexico is incredibly robust. The number of projects that have been engineered and are going through funding and we're very engaged in through engineering contractor such as Bechtel [ph] are significant. And they're vastly in response to the energy security of Europe. And so we're pretty excited about what we're seeing right now. Operator: The next question comes from Nigel Coe from Wolfe Research. Nigel Coe: You guys are really busy. So congratulations on the deal. I just want a quick clarification. First of all, the [indiscernible] adjustments to continue operations. I’m guessing about $0.10 or so I was trying to call it if you just maybe just confirm that. And then just dictate on the crack of the proceeds. When you think about automation, I mean, how you define that? Is that more software-centric automation companies? Or are you looking at more installed base type of opportunities? And within the mix, it’s buying in the minority of AspenTech a possibility in the minimum options, is that even the possibility? Lal Karsanbhai: So I'll take Parts B and C and I'll turn it to Frank for the first part of your question, Nigel. So on AspenTech, we are in a 2-year standstill which we announced at the time of that transaction. So from that perspective, we are going to continue to operate under the current ownership structure that we have which we feel very comfortable with how that's working. Secondly, in terms of future automation investments and M&A, it's consistent across the stack. We'll continue to look at intelligent devices. We'll probe around the control system area. And then obviously, you're absolutely right. There are opportunities around software as that market continues to move aggressively. Those investments will occur predominantly within the AspenTech structure. But we look across the entire stack with an eye towards growth and diversification. Frank? Frank Dellaquila: Nigel, this is Frank. On Part A, I'm going to need you to help me out again with that question. I'm not sure I got it. Nigel Coe: Yes. Okay. So let me take to correct this. So you just did – continuing EPS is about 3.64, I think it is which is about adjustments. So I’m getting about 1/3 contribution from some PP, about contribution from InSinkErator and then [indiscernible] that’s trying to cost. Frank Dellaquila: In the ballpark, I mean, we'll have to come back to you on that. I don't have the pieces exactly on that right now but it's close, roughly in the mid-130s as you walk across from -- as we are to continuing ops for Emerald and $0.25 give or take between InSinkErator and Therm-O-Disc. Operator: The next question comes from Jeff Sprague from Vertical Research Partners. Jeff Sprague: Congrats. Lal, just wondering on tools. I guess I heard it kind of framed as part of productivity solutions which I guess maybe that could be an adjacency to automation of sorts? Or how should we think about that particular piece of the portfolio? Lal Karsanbhai: Yes, we did rebrand the tools business as safety productivity. So you have that right. It is, as you know, what we're talking about here is a technology-driven industrial and commercial application business at this point. So that's the way to think about it. There's a significant safety element around it and leverage within Automation Solutions, be it voltage detection, gas detection which we do across that entire platform. Having said that, as you think broadly about the portfolio, we have accomplished a lot in a short amount of time. Our belief and our board's belief was that Climate was the most significant move to unlock the potential. But look, portfolio management will continue to be active for -- across this company. And -- but we're very excited about the progress that we've made to date. Jeff Sprague: And then maybe just a follow-up, if I could, just again on the deal structure and the economics. At this EV and you guys pulling so much out upfront, I’m just trying to think about with the note being a PIK note and you got 45% of a highly leveraged entity, just how you expect that back end to actually ultimately play out? Frank Dellaquila: Jeff, this is Frank. Actually, we're very optimistic about the back end. The $2.25 billion PIK note is senior in the cap structure. So we feel very confident that we're going to get paid out on that on the accreted value at the appropriate time. So we have no concerns about that. And we think the prospects for the business are very good. So at the time that the monetization event occurs, we think that our common equity interest as well is going to be very good for us. So -- and there's a cap on the leverage as well. So we feel good about where we are on the PIK debt and the cap structure and about the overall leverage and cap structure for the business is 4x leverage is what we have going in and that is as high as it's going to go. Operator: The next question comes from John Walsh from Credit Suisse. John Walsh: Congratulations. Lal Karsanbhai: Thank you, John. John Walsh: It’s come out in a couple of different ways, looking at the guidance for next year but maybe can you talk a little bit about the inflation side of the equation and maybe tie it all together on kind of price cost expectation for us as we go through next year, first half, second half? Or you going to talk about it? Ram Krishnan: Well, I think for us, as we were green in the fourth quarter and we expect to be green on a price cost basis as we go into next year. Certainly, the automation business was green throughout last year and '22. And so the expectation will be to expect to continue. And we're not going to give you exact numbers right yet, possibly as we go into the year, we will. But I think you can bake in positive price cost for the automation business or Emerson continuing ops going into next year. Operator: The next question comes from Chris Snyder from UBS. Chris Snyder: I wanted to follow up with a quick one on capital deployment. So the company has spoken a lot about further M&A on the automation side to build out the portfolio. Will the company look at deals over the near term? Or should we assume that further M&A will come after deal close and the liquidity injection? Lal Karsanbhai: No. Look, these deals take time. Things take time to consummate. We're always working and building relationships and thinking about markets and studying markets. So it's an ongoing process for us. And whether it comes well aligned with close prior or shortly after there may be some activity but I can't predict timing to be honest with you. Operator: The next question comes from Joe Ritchie from Goldman Sachs. Joe Ritchie: My first question, Slide 13, just a clarification question. So software and control systems, intelligent devices, this is how you guys are going to be segmenting going forward. And then I guess within that, the old like tools and Home Products business is like roughly, what, like $1.5 billion, $1.6 billion in revenues, excluding InSinkErator? Frank Dellaquila: Yes, correct. That's correct, Joe. Joe Ritchie: Okay, great. That's helpful. And then secondly, just AspenTech, I'd be curious, I think the implied, I guess, the EBITDA from this quarter was roughly, call it, $80 million, $85 million. It's a little bit lighter than our expectations. I'm just -- I'm curious, like what's embedded in your guidance for 2023 for AspenTech EBITDA? Ram Krishnan: First off, I think the -- as Frank mentioned, this quarter is seasonally low for AspenTech. So I think the 33% EBITDA on the $251 million is consistent with our overall plan. Frank, I'll let you comment on what we have baked in from an overall... Frank Dellaquila: Yes. I would expect, Joe, this is Frank. I would expect it’ll be in the mid-40s, 50s, EBITDA percent over the full year for AspenTech. It’s very seasonal. And as Ram said, this is a low quarter but the business is very profitable when it leverages. Operator: The next question comes from Brett Linzey from Mizuho. Brett Linzey: Congratulations. Just want to come back to the operating leverage. So you’re guiding mid- to high 30s for the continuing ops in ‘23. Could you maybe just unbundle that in terms of how we should think about the volume incrementals versus price cost and other maybe any efficiencies that are getting ironed out for next year. Lal Karsanbhai: No, I think Ram had voiced this correctly earlier. We expect somewhere around 2 to 3 points of price, the remainder of this coming from volume and then that mid- to high 30s on the leverage. That's a significant move up from our historical guidance which has been at 30% on that operating leverage and we feel comfortable with this new portfolio to guide significantly higher. Brett Linzey: Okay, great. And just a quick follow-up. I wanted to come back to the sales outlook, too. So it looks like you're guiding Q1 at 7%, full year, 7.5% at the midpoint. So that does suggest you expect that rate of growth to build despite the comps getting a little bit difficult in the second half. Is this just backlog timing or something about mix we should be thinking about in the model? Frank Dellaquila: No, it’s primarily the timing of the backlog and how it comes through the conversion process, so we do expect some moderate acceleration as we go through the year. Operator: The next question comes from Joe O'Dea from Wells Fargo. Joe O'Dea: I wanted to ask on the pipeline of reshoring activity. And if you could go into a more detail across the end markets, maybe where you see the strongest opportunities there, things outside of batteries and semiconductors and also just vis-à-vis kind of elevated macro uncertainty, whether you’re seeing any pause in some of that planning and how you’re thinking about the sort of timeline around that pipeline? Lal Karsanbhai: No, great question. Thank you. In terms of nearshoring, I think you mentioned 2 very important ones, battery manufacturing and semiconductor. But the third that I would ask you to consider it will be life sciences, particularly around drug reshoring personalized medicine. We're seeing significant investments, not just in the United States but in Europe, that development and manufacturing comes in from Asia. In terms of the macro environment, I think the one caution I would express is Europe and that is really around energy costs in Europe and the challenges, particularly to energy-intensive industries such as discrete or in the chemical industry as examples. Operator: The next question comes from Nicole DeBlase from Deutsche Bank. Nicole DeBlase: Congratulations, guys. Just a quick one on AS end market trends. So orders did fall a little bit this quarter. I’m sure comps is a big part of that. But – if you could talk a little bit Lal or anyone about what you’re seeing in the business with the key end markets, definitely oil and gas, too. Lal Karsanbhai: Yes. No, good question. Yes, comps have gotten more challenging, clearly but we have tremendous momentum in the business in terms of orders as we go into the year, particularly in North America. And that's really the big driver which gives us even more confidence, Nicole to guide aggressively as we go into 2023. The North America growth is driven by energy investments that I talked about earlier, particularly LNG is driven by sustainability in new energy sources, conversions, refineries into clean fuels, new hydrogen investments and overall decarbonization work that's been done across multiple industries on the continent. And then secondly, the second category would be the near-shoring industries we just mentioned, semiconductor investments, life science investments, battery EV investments drive a significant amount of that growth. Operator: This concludes our question-and-answer session and the conference. Thank you for attending today's presentation. You may now disconnect.

Operator: Good morning, and welcome to the Emerson Third Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Colleen Mettler. Please, go ahead. Colleen Mettler: Thank you, and good morning. Thank you for joining Emerson's third quarter fiscal 2022 earnings conference call. Today, I am joined by President and Chief Executive Officer, Lal Karsanbhai; Chief Financial Officer, Frank Dellaquila; and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with the slide presentation, which is available on our website. Please join me on Slide 2. This presentation may include forward-looking statements, which contain a degree of business risks and uncertainties. Please take time to read the safe harbor statement and note on the non-GAAP measures. I will now pass the call over to Emerson's President and CEO, Lal Karsanbhai, for opening remarks. Lal Karsanbhai : Thank you, Colleen, and good morning, everyone. I'd like to begin by thanking the nearly 90,000 Emerson employees around the world for their tremendous effort, passion and commitment to deliver the solid results we will speak about today. Over the past four months, I've had the opportunity to travel to several U. S. sites, including Houston, Chicago, Ohio and Pittsburgh as well as visiting investors, customers and our teams in Germany, Denmark, Brazil and Mexico. I have to be honest, there is no substitute for being with our teams in person. I'm looking forward to this month's trips to India and Singapore. And I'd also like to thank our Board of Directors for their support and our shareholders for your trust in us. As an organization, we continue to make significant progress on all of our strategic imperatives aimed to accelerate value creation, culture, portfolio and execution. Our culture evolution continues in earnest. We are launching our efforts with new listening tools, a modernized employee value proposition and a new reinvigorated talent engine. To this end, on August 1, we hired our first Vice President of Culture, [Kelly Clark], who joins our company at a crucial point in time and brings unparalleled experience and cultural transformation. Turning to Slide 3. Emerson's portfolio transformation is well underway. And in the quarter, we made significant progress to create a higher growth, more diversified cohesive portfolio. We took five important steps: Number 1, on May 16, we closed the AspenTech transaction. We are very excited about the synergy opportunities, which are sized at $160 million in the funnel and the projects won to date; Number 2, AspenTech announced an agreement to acquire Micromine, the first transaction under the new structure. Micromine is an Australian-based exploration to optimization software offering, well positioned to benefit from the minerals required to fuel the renewable revolution; Number 3, we announced and closed the acquisition of Fluxa, a critical life science process knowledge business, highly synergistic with our industry-leading DeltaV system; Number 4, on May 31, we closed the TOD sale; and last, 5, yesterday, we announced the sale of InSinkErator to Whirlpool Corporation for $3 billion or an 18.1 multiple of adjusted EBITDA. Prior to turning to Slide 4, allow me to say a few words about our execution. This was a solid quarter, and I feel incredibly positive as we go into the fourth and into 2023. June trailing three-month underlying orders were plus 10%, driven by Automation Solutions at plus 13%. Third quarter underlying sales grew 7%, driven by the Americas, which grew 14%. This performance occurred despite lockdowns in Shanghai, which impacted six plants for two months and continued challenges with electronics availability. Together, the two factors resulted in a $180 million sales impact in the quarter or 5 points to the Automation Solutions segment sales. Adjusted EBITDA improved 20 basis points with improvement in both platforms. Operating leverage in the quarter was 27%, and we are well on track to exceed our 30% target for 2022. Adjusted EPS was $1.38, including $0.08 contribution from AspenTech. Although free cash flow conversion in the quarter was 100% adjusted for non-operating and onetime items. Operating cash flow was down driven by working capital investments in inventory and receivables. Let's now turn to Slide 4, please. In addition to the portfolio, Emerson has also made tangible steps in our ESG journey. Recently, we have established a target to reach net zero greenhouse gas emissions across our value chain by 2045. In the near term, our objective is to reach net zero in our operations and reduced our Scope 3 emissions 25% by 2030. Our 2021 ESG report, which can be found on emerson.com, includes more detail on our target, which is aligned with the net zero standard set by the science-based target initiative. Our goals are bold, and we have incredible credible road maps that include many of the solutions, technologies and expertise we offer our customers and the critical industries we serve. Please turn to Slide 5. I am particularly excited about the opportunities in the renewable space. As I said, our portfolio is broadly relevant as an enabling technology across a broad segment of the world's economy. This includes electrification efforts such as heat pumps as well as sustainability -- a strong sustainability funnel in Automation Solutions that has grown to $1.5 billion, inclusive of decarbonization, energy efficiency, emissions management and new energy investments in wind, hydro, solar and hydrogen. I'll share a few examples on this slide. First, starting on the left. Emerson was recently selected at Mitsubishi Power to automate the world's largest green hydrogen production and storage facility. The Advanced Clean Energy System hub will convert renewable energy into storable hydrogen, which can subsequently be dispatched and converted to electricity when required. Emerson Automation and Software Solutions were selected based on industry expertise in our leading digital portfolio. This is a first-in-kind facility, and we'll be capable of producing 100 tons of green hydrogen per day for storage capacity for 300 gigawatt hours of energy. That's equivalent to 150x the current lithium battery storage in the United States. Next, in the middle, along with Neste Engineering Solutions, we were chosen to provide automation technologies and software to Fintoil for the world's third largest tall oil biorefinery. The advanced biofuel and biochemical facility will refine a byproduct of the wood pulping process to produce sustainable feedstock for biofuels, chemicals and pharmaceuticals. The expected annual capacity of 200,000 tons will create a 400,000-ton reduction in carbon emissions. That represents roughly 1% of Finland's total emissions. Lastly, Emerson was selected by Albioma, a French energy provider to enable the transition of its flagship coal-fired Bois Rouge plant to 100% renewable energy. Emerson's automation system and software will help convert the existing coal-fired power plant controls to utilize biomass feedstock. In doing so, this project will result in a 640,000 ton reduction in carbon emissions, part of Albioma's plan to reach almost 100% renewable energy by 2030. These projects and our net zero targets represent our continued progress in our greening up and green by framework that Mike Train has introduced. And lastly, before I turn it over to Frank, on Slide 6, I'd like to highlight a few exciting investments we've made in operations around the world. Our regionalization strategy and operational excellence served us well through the pandemic and in the current challenging supply chain environment. We continue to drive operational excellence with investments like the three shown here. Starting on the left. Earlier this month, Emerson officially opened our officially opened our new professional tools facility in Ash Flat, Arkansas. This is a 277, 000 square foot facility, which will be used mainly for our Greenlee tools for electrical applications across North America. It currently employs 150 employees, and we will double the employment over the next four years. I'm very excited about this investment, and we were honored to have Governor Asa Hutchinson, join us for the ribbon cutting. Next, in the middle, Emerson recently opened its Mahindra City Chennai, India facility for fluid control and pneumatics. This is a 145,000 square foot facility which will help serve process, hybrid and discrete customers in India and surrounding Asian countries. And then lastly, we introduced a new Saltillo, Mexico manufacturing facility for our specialty valve technologies, assemblies and actuators using life sciences, metals and mining and other key industries. As with all these facilities, Saltillo will use state-of-the-art factory automation capabilities, environmental designs and include our own Emerson technology. As we close out 2022, I feel extremely positive about where we are as a business and where we are going. Our goal is accelerated value creation and we are executing on all the critical dimensions. With that, I will now pass the call over to Frank Dellaquila, who'll go through our detailed financial results in the third quarter. Frank Dellaquila: Thank you, Lal, and good morning, everyone. If you would please turn to Slide 8. Before I comment on the third quarter, I'd like to take a minute to ground everyone on three significant events that affected the reported results. First, on May 16, Emerson completed its transaction with AspenTech. We contributed our two software businesses, OSI and GSS, to AspenTech in addition to $6 billion in cash in exchange for a 55% ownership position in the new AspenTech. Please note that GSS has been renamed to Subsurface Science & Engineering or SSE for short. OSI and SSE, which were previously reported in our Automation Solutions platform have now been moved to a newly created reporting segment within Emerson called AspenTech. For accounting purposes, our contributed businesses will the acquiring entity. Therefore, our third quarter is the sum of our contributed businesses for the entire quarter and heritage AspenTech results from the May 16 closing date. Stated simply, our third quarter results include a full quarter of our contributed businesses and approximately 45 days of heritage AspenTech. As a result, year-over-year comparisons are not meaningful as the prior year includes only our contributed businesses. I encourage you to review the slides Colleen and her team have included in the appendix, which show the details of the sales by quarter and map the AspenTech financial results into our financials. As a reminder, AspenTech's results are fully consolidated with Emerson line by line with the 45% non-controlling interest deducted from earnings used to calculate earnings per share and reflected in a single line in the equity section of the balance sheet. And finally, on that subject, our contributed businesses are no longer included in our usual metrics for Automation Solutions. The second significant item is the Therm-O-Disc divestiture, which was previously reported in Commercial & Residential Solutions. The transaction closed on May 31 and the business is no longer included in underlying orders, underlying sales or backlog calculations. We reported a $428 million after-tax gain equivalent to $0.72. And finally, we announced on the May call our decision to exit Russia. At that time, we absorbed several cents operationally within the guidance that we gave. This quarter, we are reporting a $162 million charge which is a $0.29 earnings per share impact, and we are debooking $132 million of orders that will not be converted to sales. The impact of the TOD gain and the Russia related charge will be removed from adjusted earnings. So with that background, if you would please turn to Slide 9, and we'll talk about the quarter. As Lal said, we believe we had a very good quarter. There are operations challenges we could not anticipate or building to the guide, but looking through them, we are very pleased with the underlying operational performance and we believe we can deliver results for 2022 that are in the range of what we told you in May with the exception of cash flow. Demand continued to be strong and broad-based and consistent with our previous comments around our key end markets. We missed the underlying sales guidance entirely due to the extended lockdown in Shanghai and some continued challenges around electronic components, neither of which we expected when we guided in May. Together, we estimate these two headwinds reduced sales by about $180 million in the quarter, which equates to 4 points of growth for total Emerson, and we estimate that the leverage on those sales was about 40%. Our guide for the balance of the year incorporates our expectation that our manufacturing capability in China and our component availability will support our sales plan for the remainder of the year, and Ram will talk about both of these subjects in more detail in a few minutes. As a result, underlying sales were 7% falling short of our third quarter guidance by 3 points at the midpoint. There's a lot of good news within these numbers. The business has implemented the planned pricing actions realizing 6 points of price overall and price less net material inflation significantly improved versus our prior quarters according to the plan. Adjusted segment EBITDA improved 170 basis points, driven mainly by the addition of AspenTech, which added 150 basis points. Operations improved 20 basis points, as Lal mentioned, despite the $180 million of missed sales and the deleverage on them as price realization and ongoing cost containment measures more than offset elevated inflationary pressures from wages and freight. Adjusted earnings per share was $1.38, up 16% versus prior year, and that includes $0.08 from the AspenTech segment, and I will provide details in a moment. Free cash flow was down 36% versus prior year mainly due to higher working capital from increased sales and continued supply chain constraints that cause more investment in inventory than we would have expected. In May, we reduced our cash flow guidance modestly with the expectation that the balance sheet release of working capital would occur during this fiscal year, but the continued operational challenges pushed this release in our estimation into 2023. Nonetheless, free cash flow conversion was 90% in the third quarter, excluding the non-operating items from net income, specifically, the TOD gain and adding back the impact to net earnings of the Russia exit write-offs. Turning to the business results. Automation Solutions underlying sales were up 4%, and as Lal said, up significantly more, another 5 points of growth if we were to adjust for the loss of the sales in China and due to the supply chain disruptions. Process hybrid and discrete sales were all up, led by energy, chemical and power and renewables segments. Sales in the Americas were up double digits, while Europe mainly due to Russia and Asia mainly due to the Shanghai lockdowns were down year-over-year. Price realized in the third quarter was 3%, driven by programs instituted earlier in the year and accelerated last quarter to address sustained electronics inflation and continued wage and freight increases. Backlog increased by $100 million in the quarter to $6.2 billion. This elevated level of backlog will support our sales plan for the fourth quarter and into 2023. As I said at the beginning, backlog has been revised to reflect $132 million e-booking in Russia and removal of the businesses contributed to AspenTech. Automation Solutions adjusted EBITDA improved 70 basis points versus the prior year due to price, leverage, favorable mix and cost controls despite the lower-than-anticipated sales volume. Turning to Commercial & Residential Solutions. The business continues to grow strongly, up double digits. Underlying sales increased 13%, including 12 points of price realization. Sales were up in all world areas, except China due to the COVID-19 lockdowns and softening demand. As we expected, Climate Technologies aftermarket and commercial strength offset moderating demand in the residential portion of the business. In Tools & Home Products, non-residential project activity remains strong. However, weakness in the retail segments continues. Backlog was flat in the quarter at $1.3 billion, after removing the impact of the divested Therm-O Disc business. Adjusted EBITDA for the platform was down 50 basis points, consistent with our expectations for the quarter. Within that, Climate Tech was approximately flat as 9 points of price realization and ongoing cost reductions drove a significant improvement in sequential leverage and profit margin for that segment. The AspenTech segment contributed $239 million of sales at nearly 54% adjusted EBITDA. Once again, these sales represent a full quarter of results from Emerson's contributed businesses in addition to heritage AspenTech from the May 16 closing date through the end of the quarter. The heritage AspenTech sales for the period covered the second half of AspenTech's fourth fiscal quarter and reflect strong revenue growth based on normal seasonality in the business and the applicable revenue recognition rules for software sales. Together, we're off to a great start and we look forward to driving the synergies we identified and the diversification that we envisioned for our combined businesses. If you would, please turn to Page 10 for the EPS walk. As I said, adjusted EPS was $1.38, up 16%. There are several non-operating balance sheet items that net out to $0.02, notably stock compensation. We still have two plants that are on a mark-to-market and they were a significant favorable item in the quarter. Automation Solutions and Commercial residential operations leveraged at nearly 30% and contributed $0.09 to adjusted earnings per share versus prior year. AspenTech contributed $0.08 and driven by the strong fourth quarter in the heritage business, net of $0.01 of interest expense attributable to the transaction. We continue to deal with various operational challenges, returning to supply chain, logistics and labor. I'm going to hand off to Ram to comment on these issues as they affected the quarter and how we think we can navigate them for the balance of the year. Ram Krishnan: Thank you, Frank. Please turn to Slide 11. Consistent with previous quarters, the operating environment remained challenging in the third quarter, especially in terms of electronic component availability and the impact of the China COVID-19 lockdowns, which lasted much longer than we anticipated going into the quarter. Starting with the positives. Freight and labor costs and commodity prices are all trending in the right direction and provided some relief to the overall environment. Labor, which is primarily an issue for us in our Midwestern U.S. plants has improved from the winter months and the COVID-related challenges we have experienced. And commodity prices, mainly steel, copper and plastic resins have all continued to decline as we had anticipated. However, the two most impactful items in the quarter were the extended China lockdowns and the electronic component shortages. As we discussed in May, our expectation was China would begin reopening in the middle of May with full operation near the end of the month. As it played out, reopening was delayed until the end of May with full operation not until early June. During this time, we did not expect our employees to work in closed loop operations, which would have required extended overnight stays in our factories. Therefore, we had little to no operation during the lockdowns. This delay in reopening represented roughly $100 million in lost sales in the quarter, primarily from our six manufacturing plants in the Shanghai area. We expect most of these sales to be made up in the fourth quarter. The China lockdowns and other supply constraints contributed to further electronic component availability issues. While lead times remain stable at elevated levels, capacity challenges at our critical suppliers led to more decommits in the quarter, and we were forced to go to the open market to procure components more than we had anticipated. This drove elevated purchase price variances and challenges in converting our backlog to sales, leading to an $80 million sales miss in the quarter, primarily in Automation Solutions. Six critical suppliers for us account for about 90% of the component shortages we experienced in the quarter. Our supply chain teams have stabilized the situation growing into the fourth quarter using a structured approach to expedite, participating in supply assurance programs and driving purposeful executive engagement with these critical supplies shoring up what is necessary for the end of the year. Finally, our global operations and supply chain teams continue to do an outstanding job, effectively managing the ever-changing landscape, allowing us to execute successfully for our customers. I will now turn the call back over to Frank to take us through the '22 outlook. Frank Dellaquila: Okay. Thank you, Ram. If you would, please turn to Slide 13. As we look towards the rest of the year and into 2023, demand continues to be strong with Emerson trailing three-month underlying orders up double digits versus prior year. June trailing three-month orders for Automation Solutions were up 13% versus prior year, indicative of broad continued strength across the business. Sustainability, decarbonization factory automation, modernizations and reshoring secular trends continue to drive investment decisions in key industries. We expect growth to continue in key process end markets like energy, chemicals and power and renewables and also expect favorable conditions in the life sciences and metals and mining markets, all of which will support growth into 2023. In Commercial & Residential Solutions, June trailing three-month orders were up 5%, led by Climate Technologies, which was up 9%. Commercial, industrial, food, retail and other non-residential end markets remain strong as project activity continues. Residential Climate business is showing some signs of moderation as we've expected and communicated, while our residential tools and home products business continues to soften as we first mentioned during the May call. This can be seen in the retail data, inflation weakens demand in the housing-related and home improvement markets. Aftermarket sales remained strong due to record high temperatures globally and the European heat pump market is propelled by energy efficiency imperatives as well as the unusually warm weather as well in Europe. You would please turn to Slide 14. We'll talk about the guidance update. So the revised guidance considers the continued robust underlying demand and balances it with the impact of the third quarter headwinds that we experienced. Emerson's underlying sales guidance has been moved to the low end of the range, updated to remove Therm-O Disc and to remove the businesses that we contributed to AspenTech as part of the transaction as well as the continued supply chain constraints that Ram mentioned. Automation Solutions 2022 underlying sales growth is now expected to be between 6% and 7%. We reduced the range modestly again to remove the businesses contribute to AspenTech and to recognize the third quarter impact of the ongoing challenges of supply chain constraints, principally in electronics. As Ram said, the China sales miss is expected to be recovered, but the challenges with electronics will extend beyond the end of the fiscal year. Recalibration of the sales outlook is based on our projected ability to convert orders along with the strong underlying demand backdrop, both of which should be supportive going into 2023. In Commercial & Residential Solutions, we have raised the bottom end of the guide to reflect our confidence in the outlook for the balance of the year. The guide reflects continued strong price realization across the platform. The fourth quarter is expected to be strong for both platforms, Automation Solutions and Commercial & Residential Solutions supported by the solid demand and the record backlog. Inflationary pressures remain, but our pricing actions are expected to more than offset net material and other inflation. The guidance assumes no further impact on production of COVID-19-related lockdowns in China. And as Ram described, we believe we have secured adequate electronics supply to deliver the sales guide for the year. Regarding the AspenTech impact on the guide, heritage AspenTech's fiscal fourth quarter which was included in our fiscal third quarter is its seasonally strongest quarter due to the timing of contract renewals and the revenue recognition rules that apply. Therefore, we expect AspenTech's contribution to revenue and earnings to be a bit lower in our Q4. The business continues to drive the synergy plan, and there is active joint project engagement between the two companies. AspenTech solutions simultaneously help customers meet sustainability and operational excellence targets, which are top investment priorities for both their customers and Emerson's traditional customers. Our combined product portfolio is well positioned to be the digital partner for process and hybrid end users. We've updated the net sales guidance to account for the AspenTech transaction by 1 to 2 points and the incremental FX impact, which is now a 2 to 3 point headwind as well as the Therm-O-Disc divestiture. The InSinkErator transaction will close after the fiscal year, it has no impact on the 2022 guide. Share repurchase is expected to be $500 million. There's no change to the tax rate and dividend assumptions that we gave in the May guide. We have reduced the operating cash flow guide to $3 billion reflecting the balance sheet impact of the operational issues that we're seeing. CapEx has reduced to approximately $525 million. Free cash flow has been updated to $2.5 billion accordingly. After removing the impact of the three significant non-operating items, the former is divestiture gain the Russia exited in the third quarter and the significant further gain that we had in the first quarter, our free cash flow conversion for the year will be nearly 100%. We still expect total segment operating leverage to be in the 30% range, as we have said all year, and as we have said in previous calls. EPS is expected to be between $5.25 and $5.35 and adjusted EPS is now expected to be $5.05 to $5.15. Please turn to Slide 15 for the EPS walk. Starting on the upper left, the May guide for GAAP EPS was $4.77 to $4.92 due to the revised sales look for Automation Solutions and the TOD divestiture we’re lowering the top end of the guide by $0.05. The $428 million after-tax gain on the TOD divestiture and the Russia charge are now incorporated into the guide. The revised EPS guide on a comparable basis to May is $5.20 to $5.30. AspenTech adds $0.13 operationally, partially offset by $0.08 of net intangibles amortization that results from the purchase accounting on the transaction. So the resulting revised GAAP guide for EPS is $5.25 to $5.35. The right side of the chart walks the May adjusted EPS guide to the current guide. The guide was $4.95 to $5.10. We have the same $0.05 operational-related reduction, AspenTech operations at $0.13, in this case, offset by $0.03 of interest expense on debt that is attributable to the transaction. So the new guide is $5.05 to $5.15. For your reference, I won't go through it, but on the next slide, there is a bridge from GAAP to adjusted EPS for the fiscal year. The customary adjustment items are there along with the three unique items that I've discussed. So before turning to the Q&A, again, I would encourage you to review the slides in the appendix that we've included that explain some of the accounting details of the AspenTech transaction. With that, thank you for your attention, and we will open it up for Q&A. Operator: [Operator Instructions] The first question comes from Andrew Obin with Bank of America. Andrew Obin : Lal, Ram, Frank, Colleen, good morning to all of you. Just I guess my first question is going to be about Aspen. One of the things that Aspen has is this incredible rolodex of clients. Can you just talk about if you have had any interaction with some of their customers on the hardware and system side? And if you could talk about any sort of early success in terms of engaging some of Aspen's customers on the Emerson side? Lal Karsanbhai : Yes. Andrew, thank you. This is Lal. Sure. Look, we have a very active project funnel to begin with, and we worked very closely in conjunction with on world area selling organization and the AspenTech channel. It's sized at $160 million today, and it's balanced in three ways: by world area, by industry and by the technology. We've won to date slightly over $6 million of synergy projects, that’s AspenTech into traditional Emerson customers, and Emerson into traditional AspenTech customers. So it's growing. And there's line of sight for another, I would suggest $10 million or so this fiscal year, depending on how things move over the next quarter. We have been awarded but not booked a very large projects as well that size that $40 million with a full automation suite and AspenTech in addition. So there's a lot of commercial activity. We have individuals at both AspenTech and Emerson that are responsible for delivering the synergy value and a lot of engagement. Just one last anecdote, Andrew, last week, I met with the CEO of Ascend Chemical, who is not just a very strong DeltaV customer but a very loyal AspenTech customer and again, spent time with Phil McDivid simply to lay out to the opportunities that we have as an organization as they digitize their plants and move to a top quartile performance. So a lot of great activity working at many different levels across the organization. and very excited about the synergies. Andrew Obin : And just a follow-up question. I think before you sort of talked about potential visibility on capacity coming, I think, particularly in North America, but maybe some worldwide as well. I'm talking specifically about semiconductors because we know that sort of talking to chip brokers, industrial chips are still in very, very short [indiscernible], how has this visibility evolved over the past quarter? Has this moved out to the right? Are there delays in terms of this capacity coming on? Or do you still feel confident that this capacity started to come online late this calendar year, early next year? Ram Krishnan : Yes, Andrew, Ram here. In terms of capacity coming online, we've really worked with our top 6 suppliers, and we have a very good understanding of how this capacity will come online late '23 and into '24. TI as an example, two particular facilities, one in Lehi, Utah and the other in Richardson, Texas, where we buy a lot of our components from that capacity expansion is expected to come online somewhere in the next six to 12 months. At this point, on track. But frankly, the challenge is that most of our suppliers are seeing is equipment that they will need to bring this capacity online is getting delayed. But at this point, at least as it relates to capacity specific to Emerson, I think we feel pretty good that this capacity will come online late '23 and into '24, which was the plan. Operator: The next question comes from John Walsh with Credit Suisse. John Walsh : Just wanted to follow up on kind of how we should think about the incremental leverage here in the fourth quarter. I mean, I know you kind of talked about that 30% target. But I guess, the first half of the year, Auto Sol's running much higher. You obviously had the China disruptions in this quarter. Those reverse kind of any more granularity you can give us there on how you expect that business to leverage in the fourth fiscal quarter? Lal Karsanbhai: Look, I think, John, good question. Embedded in our guide is an assumption for -- if you just back into it about 32% operating leverage in Q4 for Emerson as a whole. That's of approximately 27% in Q3, up to 32%, I believe, in Q4, a little higher perhaps. So we feel really good about how the businesses are executing and the conversion. Obviously, we're working off a very attractive cost structure in automation, which should benefit us as we go through the quarter. Go ahead, Frank. Frank Dellaquila : John, yes, just to add just a little bit more to that. The Automation Solutions leverage in the first half, as you said, was very strong. We said it would normalize in the second half of the year, and it will, but it will be very strong for the full year off kind of a normalized level in the fourth quarter. And then in Commercial Residential Solution, the leverage is accelerating as the price actions kick in, which is what we said. Second half would be stronger sequentially, both from a margin and a leverage standpoint, and that's exactly what we're seeing. Lal Karsanbhai : And just to stand correct, the 32% leverage would be the full year calculation, 35% approximately in Q4. Sorry, John. John Walsh : Great. No, that's super helpful. And then obviously, congrats on announcing the transaction around InSinkErator Just curious if you can give us any more granularity on the timing if it might be able to get done by this calendar year just based on some things whirlpool set? And then just any more color on when that business will either go disc ops or if it will just get taken out of the business once it's sold? Frank Dellaquila : Yes. John, this is Frank. In terms of the timing, we and Whirlpool, both hope it will close as soon as we possibly can, but it's subject to the normal regulatory approvals. So I would expect it will be some time early in 2023, but we just don't know at this point. In terms of the disc ops, we're looking at that, we may not at that point clear the bar for disc ops. Although it's a very significant business to us, may not be big enough to qualify for disc ops treatment. So at this point, I would expect not, but we're going to revisit that. Operator: Our next question comes from Andy Kaplowitz with Citigroup. Andy Kaplowitz: Well, so several of your peers saw a relatively big step back in growth in China towards the end of the quarter. Did you see anything like that? And could you update us on what you're seeing on the ground now in China? How much electronic related or lockdown-related headwind, if any, are you baking into Q4? And then just thinking with the regional focus, how are you thinking about the resiliency of your European business? Lal Karsanbhai: Sure. Good question. Yes, obviously, the quarter was challenging in China for us. The lockdown had a significant impact in both demand and execution. And that was reflected in the sales results that we shared with you. Having said that, we rebounded very aggressively in the month of June in terms of economic activity, and that has continued through early part of this quarter as well. So I am relatively optimistic about particularly the Automation segment, which had been on a very significant run in China that, that continues as we go through Q4. There is a very attractive funnel of projects in China, driven by availability of for lack of a better term, cheap Russian oil and gas coming into the country and investments into sustainability and renewables that are also being driven, including, I think, [John], the largest electrolyzer project in the world is actually in China. In terms of Europe, look, our Western European performance was actually quite positive through the quarter. We obviously had -- it was offset by Russia and parts of former Soviet Union that were impacted, obviously, during the war. But the Western European climate continues to be relatively resilient with growth in the quarter and expect the growth as we go into Q4. Andy Kaplowitz : And Lal, can you give us more color into how you're thinking about Commercial & Residential Solutions going forward? I know order growth actually improved a bit in June, which I assume is easier comps, but comps do continue to get easier. So could you continue to see steady or even improving order growth in the business? And then I know you've been relatively cautious on residential HVAC. And I think Frank mentioned some continued growing in that market for given the pun, but has that market continue to be a little better than your expectations? Lal Karsanbhai: There is no doubt that the market has been better than expectations, John. I think if you went back to when we first talked at the beginning of the year, we expected that orders to moderate significantly. In climate, that hasn't occurred to the pace that we expected. So that's a pleasant surprise. There's a lot of resiliency with upcoming changes in regulations that are driving now investments in this space as well. So I feel better than I did at the beginning of the year, and there's a proven resiliency there across all segments of the business, of course, watching the residential demand very, very carefully. Operator: Our next question comes from Steve Tusa with JPMorgan. Steve Tusa : Can you just give us an update on where you stand on price/cost? And then how that plays through for the year, just in your updated guide? Frank Dellaquila : Yes. Steve, this is Frank. So on the last call, we talked about broadening the definition of price/cost to include material and wage -- I'm sorry, in addition to net material inflation to include wage and freight. And we said that we would basically implement enough price in the third quarter to cover everything that we're seeing, and we did. We covered it and then some in the third. So we turned that returned favorable and we expect to be more favorable in the fourth quarter as we work through this. The pricing actions are being delivered as planned, and we're seeing some moderation in the NMI, the net material inflation, as well as kind of a leveling off in the wage and freight inflation as well at somewhat elevated levels, but it's not continuing to accelerate. So the overall price, less material, wage, freight inflation in the equation is improving as we go through the year. Steve Tusa : Great. And then just 1 kind of nitpicky one on corporate was a lot lower than we were expecting. What's the guidance on corporate for the year? I guess there's some stock comp influence in there that you have. Is there any carryover into next year? Or is there something going on there with regards to the Aspen reporting. I don't think it's Aspen, maybe it's the stock comp stuff. Frank Dellaquila : No, it's not. I mean it's -- there were some one-timers in there last year, but I mean it's essentially the significant move to the stock comp in the quarter. We still have 2 of the 3 outstanding LTI programs that are mark-to-market. So that when the stock price went down temporarily, there was a significant mark-to-market on that. So no, there's nothing unusual going on in corporate other than the volatility that gets introduced by that mark-to-market. Operator: Our next question comes from Josh Pokrzywinski with Morgan Stanley. Josh Pokrzywinski : So maybe just to start us off, while on kind of the totality of the funnel, obviously, a lot of things have changed from especially the process world over the past, call it, six months. Obviously takes a while to book some of that stuff out. Any kind of dimensioning that you would use on funnel size and where you're seeing the lowest activity build maybe over the last three to six months? Europe sort of comes to mind first and foremost. I know you talked about that, but maybe more broadly as well. Lal Karsanbhai: Yes. No, I'll be happy to. So the total project funnel is sized at $6.8 billion. That consists of about 440 projects between now and at the end of 2024. So that's kind of the visibility that we have today. As you're absolutely right, there was a lot of movement within the funnel as we went through the quarter, including projects that were booked, projects that were added. And then, almost $0.5 billion of projects value that we removed from the funnel, about 13 projects. The majority of which were impacted in Russia with a Baltic Chemical Complex and a Baltic LNG project that were in the funnel. So those are the big removals. But in terms of the project basically funnel size, essentially flat, but what did get relatively larger within it was the renewables value of the funnel, which grew from 1 to approximately 1.5 today. So it's very encouraging to see and our activity continues to increase significantly in that segment. Josh Pokrzywinski : Got it. That's helpful. And then just following up on CapEx, pretty decent sized kind of especially on a percentage basis, I understand free cash flow is sort of impacted for yourself and for all your peers early around the working capital situation. Just trying to gauge how much of the CapEx cut is just sort of protecting the cash plan versus more of a slowdown. A lot of the talk around growth has been pretty constructive. So just trying to marry those two phenomenon? Frank Dellaquila : Yes, Josh, no slowdown of any kind of key investments that we're making for both growth and to improve our cost position. There's always room in sustaining CapEx. And given the challenges on the operating cash flow line, we've squeezed down the sustained CapEx. But I can assure you, everything that needs to get done is getting done. Operator: Our next question comes from Scott Davis with Melis Research. Scott Davis : We talked a little bit about this Mitsubishi contract that you won on Slide 5. I'm just trying to get a sense of the scope of these types of things in materiality. And I guess it's -- when you say win an automation contract, you mean winning the control side, does it include things like flowmeters and stuff like that? Or perhaps you can kind of address that. Lal Karsanbhai: Yes. Scott, good morning. Lal here. Absolutely. It's not too similar to an automation scope that we would discuss relative to a traditional carbon-based projects. So that would include control, it includes now the opportunity for AspenTech on the analytics and optimization. But of course, at the core, we have our funnel control elements, which are very relevant here and our sensor elements. So flowmeters, pressure transmitters, level. So it's the full automation scope that we bring to bear. A project like this can be as sizable as high as over $50 million, potentially as we execute it but it has that type of an opportunity. Scott Davis : Okay. That's helpful. And then just on the conversation of FX, I mean, big changes here in the last few months. And you guys are obviously global. But are we just still mostly talking just translation impacts here and no real competitive dynamics as far as some competitors using currency is a bit of an advantage, et cetera? Frank Dellaquila : Yes, Scott. Yes, correct. We are really talking about the impact on sales growth and translated profit. We typically don't have a lot of competitive issues around currency, our businesses position themselves defensively around currency and then they very conservatively hedge cash flows where it makes sense to do that. So no, we're not hearing anything from the businesses about being at a competitive disadvantage relative to somebody else's cost base being in a weaker currency. Operator: Our next question comes from Jeff Sprague with Vertical Research. Jeffrey Sprague : Well, you've been pretty busy as illuminated in those 5 items you started with to start the call. I wonder if you could just give us a little bit more of a thought process here now and where we're at in the transformation? And maybe specifically, just thinking about what you've called disconnected assets, not expecting to name segments or businesses by name. But how far along are we in that process of taking action on disconnected assets? And how much longer should this process take? Lal Karsanbhai: Jeff, good to hear from you. No, I think it's a good question. We are on a journey and across all three of the strategic imperatives that I described. And along all three of them, I think we've made significant progress, and I appreciate you recognizing that. In terms of the portfolio, my commitment to our shareholders has been that by the latest on November 29 at our investor conference, we will portray the future state of the business and what we envision to be the end state of this journey. In the meantime, we will continue to look at opportunities and execute along a few dimensions, which I'm not really free to speak about at the moment. Jeffrey Sprague : And then just maybe on price, and I was just thinking automation, in particular, I think you said 3% price there with 12 in CRS, I back into 2, the question isn't really where it heads if it's 2 or 3. But the question is more just about the ability to get additional price in that business. I certainly understand CRS is where you need it most and some that you've gotten it pretty actively. But is there more positive price momentum coming through the system in Automation Solutions? Maybe a comment on price and orders relative to price and revenues. Could you give us some context there? Lal Karsanbhai: Yes. I'll give you some -- I'll ask Ram to add some color as well. I feel really, really positive about the price realization in Automation Solutions. And as you know, Jeff, this is almost a decade now within that business segment that we've had positive price. The products and solutions continue to be highly differentiated from a customer perspective. The installed base at over $120 billion is very relevant and that replacement market has significant pricing elasticity in it and drives our ability to take price forward. Having said that, obviously, we have been in an incredible inflationary environment. We will continue to drive price where we can across the product families. But we also have to drive operational improvements so that our customers can realize value from improved activity. But I feel good about the environment we're in and ability to capture the value that's out there. Ram, color? Ram Krishnan : Yes. And I would add that in terms of price/cost, which includes the wage and freight inflation, that business has always remained green and the magnitude of price we get in that 2% to 3% range. Our list price increases obviously are a lot higher. We realize a percent of the list as we go into the market and execute. That will continue to remain positive in Q4 and certainly into 2023 and well ahead of the net material inflation as well as wage and freight. Operator: Our next question comes from Julian Mitchell with Barclays. Julian Mitchell : Maybe just the first question around the free cash flow. So I think with your guidance here around sort of 80% conversion to adjusted net income this year. Maybe help us understand sort of how quickly they get back to 100% in fiscal '23. And as you work down the inventory often that can carry some margin headwind in the P&L. So just wondered kind of any thoughts around that dynamic and also what the contribution of Aspen is to the free cash flow in flow in the current year. Frank Dellaquila : Okay. Julian, this is Frank. The -- we would expect the balance sheet to normalize. I would hope in the first half of fiscal '23, I mean, we had a big sales quarter in the fourth quarter. we would expect growth when we start to talk about '23, I think we have pretty good robust growth expectations for '23. The inventory is actually in good shape. I have no concerns about what it is we have on the books. It's just simply a matter given all the operational challenges. I would expect to be in better shape on the conversion aspect of it by the middle of fiscal 2023. Margin headwinds do I take a point in terms of having some absorption issues, but I mean the businesses consider those, and I believe those are manageable. So even inside the guide that we have for the balance of this year, there's some of that, but it's more -- it's well considered within the guide in terms of that. It's just something we have to manage as we go through the adjustment on the balance sheet. AspenTech for this year, the 2022 cash flow, there was basically 0 contribution to cash flow in the third quarter, and it will be minimal as well in the fourth quarter, and that is a function of some -- some specific items having to do with the transaction, they had a final short period return as part of the transaction, and they accelerated a significant tax payment, which basically negated the free cash flow that they would have had in their fiscal fourth quarter and their fiscal first quarter is their -- appears to be their lowest quarter of the year on that score, and it also is the normal timing for their incentive comp payments, which basically absorbs much of the free cash flow. So inside of our number is minimal impact from AspenTech on free cash flow. Julian Mitchell : That's very helpful. And then maybe just following up on Aspen, specifically. So it looks like, to your point, because of some of these one-timers I think Aspen itself is not really earnings accretive in the fourth quarter when we leave aside OSI and SSE earnings. So just wondered if you could confirm that that's the case, how do you think about the... yes? Frank Dellaquila : No, I'm sorry, Julian, to interrupt. No, it is in fact earnings accretive, I mean it was $0.08 accretive in the third quarter. We've built $0.10 into the guide for the year, which obviously implies it's at least $0.02 accretive in the fourth quarter. So yes, it will be -- it will, in fact, be accretive. I'd point you to on Slide 15. We've got AspenTech operations contributing $0.13 for the year. So -- and then we deduct the interest expense attributable to the debt, and we get to $0.10 net contribution for the year, $0.08 of which we had in the… Julian Mitchell : That's helpful. And maybe, Frank, just on that point, when we're trying to think about the sort of think about the sort of non-controlling interest, that was a big number in Q3. How do we think about that for Q4, just as that sort of jumping off point for next year? Colleen Mettler: Julian, we'll follow up with you. Frank Dellaquila : Yes, let us follow up on that one with Julian, okay. Operator: Our next question next question comes from Nicole DeBlase with Deutsche Bank. Nicole DeBlase : Can I just start with a couple of clarification items on the quarter and the guidance? First of the China impact of $100 million, is that completely incremental versus what you guys had expected for 3Q? Or had you expected any impact? And then in the $0.05 of reduction in core operations plus Therm-O Disc, for the full year, how much was Therm-O Disc versus core operations? Frank Dellaquila : So the -- yes, it was incremental. Those are sales we expected to have in the third quarter when we guided in May, that we lost entirely as a function of the extended lockdown, and that $0.05 is mainly the operational issues around the -- around supply chain. Therm-O Disc is maybe $0.01 or $0.02 of that. Nicole DeBlase : Okay. Got it. That's clear. And then can we just talk a little bit about what you guys are seeing with respect to oil and gas customers, KOB 3 versus what was the project activity given all the movement we've seen in the oil price recently? Lal Karsanbhai: Yes. Sure, Nicole. So KOB 3, the quarter set at 62% of automation. So it's been relatively consistent in that 60% range. We expect it to be right in that 60% range as we go through the year. The project activity is very robust and continues to be. We have active engagements across EPCs, particularly Bechtel, who's taken a significant number of the new LNG jobs in Texas and Louisiana, and those are in design phase and engineering phase right now. But again, it is combined with a significant investment in the sustainability efforts as well along emissions, carbon capture and energy efficiency. And then the last one is the North America shale environment is improving, and that's driven by gas demand. It's just very positive. And that's both for U.S. capacity in chemicals and for Mexico as well. Operator: This concludes our question-and-answer session and conference. Thank you for attending today's presentation. You may now disconnect.

Operator: Good morning and welcome to the Emerson Second Quarter 2022 Earnings Conference Call. All participants are in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brian Joe. Please go ahead, sir. Brian Joe: Good morning and thank you for joining us for Emerson's Second Quarter Fiscal 2022 Earnings Conference Call. Today, I am joined by President and Chief Executive Officer, Lal Karsanbhai; Chief Financial Officer, Frank Dellaquila; and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with the slide presentation, which is available on our website. Please join me on Slide 2. This presentation may include forward-looking statements, which contain a degree of business risk and uncertainty. Please take time to read the safe harbor statement and note on the non-GAAP measures. Turning to Slide 3. As noted in our press release, Emerson officially announced the date and location of our 2022 investor conference. The conference will be held in person November 29 in New York City. More details will be distributed as we approach the conference later this year. I'll now turn the presentation over to Emerson's President and CEO, Lal Karsanbhai, for his opening remarks. Lal Karsanbhai: Thanks, Brian. Good morning, everyone. I would like to begin by thanking the global Emerson team, who again delivered very strong results amid challenging operating conditions. I'd also like to thank and extend my appreciation to Emerson's Board of Directors for their energy and support of management. And lastly, to all our shareholders who believe in our value creation proposition, thank you. A lot has changed since our call three months ago. Operating conditions clearly worsened, the war in Ukraine, COVID lockdowns in China, resulted in a return to inflationary commodity environment, lead time extensions and shortages in electronics and logistics challenges. All this resulted in challenging variances across our businesses. But in spite of this, our business performance was strong, and we delivered differentiated results in our ability to execute. Orders grew 13% on a March ending three-month underlying basis, led by 17% growth in Automation Solutions and 7% growth in commercial, residential. Our underlying sales accelerated to 10% growth with conversion in Automation Solutions improving sequentially to 7%; and commercial, residential, very strong at 14% growth. We have broad world area strength across our business. Price activity was very robust in the quarter, and it is sticking. But it is largely offsetting inflationary impact of materials, labor and freight costs. We delivered incremental profitability of 24% in the quarter and remained committed to our guideline of 30% for the year. Earnings per share on an adjusted basis grew 21% to $1.29, $1.21 excluding an $0.08 impact that came in the quarter. Bottom line, yes, it is challenging, but our operating diligence, our management process enabled this performance. I'm very proud of the team. Going forward, we see a robust industrial environment, led by energy investments in North America and the Middle East. The war in Ukraine and sanctions on Russia has brought North America gas back to life. Reshoring, which many of us have talked about, which at this point has been largely discussed in relation to discrete manufacturing, can and should be now fully valued as it relates to energy, specifically LNG. And Emerson is uniquely positioned to capitalize on this trend. However, I should state that our perspective on energy remains unchanged. We will continue to divest, commoditized, upstream oil and gas businesses. We have two processes currently in the market. Sustainability investments are core to our customer success, and the unprecedented gas wave will serve both to shore up gas as a transitionary energy source and eliminate European dependence on Russian gas. Lastly, the technology stack that we can now bring to market, the best-in-class intelligent devices, a highly differentiated control system topology and the industry's leading software offering with AspenTech, place Emerson in a unique position to succeed. Our KOB 1 funnel grew to nearly $7 billion in the quarter, up almost $0.5 billion, with sustainability projects reaching $1 billion in value within that funnel. Demand in our climate business remained strong across most segments in the mid-single-digit range. We continue to work closely with our HVAC OEM customers, as we navigate through challenging inflationary environments. And I appreciate the efforts that carrier and train, in particular, have made to enable us to pass along price actions. The future of this business is bright. We will watch the current residential cycle carefully, but over the medium term, we're well positioned to capitalize on our ESG trends through more efficient systems, new refrigerant standards and the acceleration of heat pump adoption in Europe. Our professional tools and home products business continued to benefit from strong commercial demand, although residential demand has weakened in the quarter. And we attribute much of that to the fact that household disposable income cannot readily be applied to other activities in lieu of home improvements, and we're watching that carefully. Nevertheless, we have strong backlog positions in that business, which will enable us to deliver strong results for the year. Our confidence enables the raising guide we gave today of $0.05 on the bottom, which is at $4.95 or 10% growth and the top to $5.10 or 13% growth over 2021. Regarding cash flow, we remain committed to 100% conversion in 2022. Within this guide is the operational impact from our decision to exit our Russia business, which we announced today. This includes the sale of our Metran subsidiary. We will also continue to make progress on our portfolio journey, with the TOD divestiture expected to close in this current quarter and Aspen shareholder meeting scheduled for May 16, with close expected the same day. We're very excited and I remain excited about working with Antonio to build a unique, highly differentiated industrial software company. Lastly, I would like to say a few words about our people. Our culture work is underway and we are developing a talent philosophy, which will be highly differentiated and enable Emerson to attract and retain the best. A lot of great work on the way by the team on this front as well. With that, please turn to slide 5. We continue to see strong levels of demand across both platforms, as I indicated. I'll start with a few comments on Commercial & Residential Solutions, which trailing three-month orders were up 7%. We are still seeing broad strength across both Climate and Tools and Home Products as we hit both comparable results versus -- hit strong comparable results versus a year ago. Within Climate Tech, European resi and commercial heating markets continue to be strong, and Asian decarbonization trends are gaining momentum from government support. As expected, US resi demand began to moderate and as we went through the quarter, but remains positive in the Americas as we entered the peak cooling season. For the tools business, as I mentioned, commercial and industrial momentum continues, while residential began to slow. And we'll watch that very, very carefully, particularly the DIY rates as we go through this quarter. The trailing three-month orders for Automation Solutions were up 17% from the prior year, and that's indicative of the continued strength across process, hybrid and discrete. Within hybrid, life science investments remain strong globally, while metals and mining investments and resurgent -- are resurging, particularly in the southern cone of America, of Latin America and in Africa. In the discrete space, supply chain driven segments like semiconductor and electronics are on track for 20-plus percent year-over-year growth, while factory and machine automation maintained strong momentum. Process markets continue to gain momentum with chemical utilization improving and power market strength through renewables and grid modernization. We also see continued oil and gas spend, as I mentioned, led by US shale investments. Upstream CapEx is up double digit year-over-year despite reinvestment rates near record lows at 40%. We're in the beginning of a strong growth cycle. And I expect to see continued investments in key regions and in decarbonization initiatives. As oil prices rose, we saw more activity around key energy segments such as LNG, clean fuels and renewables. And let me share a little more color with you on these markets on the next slide, page 6. Just to give a perspective on what we're seeing in terms of LNG, which we highlight here, the US opportunity on the left side of the chart. If you think about the LNG way from 2000 to 2010, which is predominantly driven by the Middle East, we saw 125 MTPAs of invest, one million tons per annum capacity come online during that wave. In the 2011 to 2021 wave, which had a US component, a Russia component and an Australia component predominantly, another 125 MTPAs came online. We currently expect a 2022 plus forward a wave that we're now entering and is being funded to result in 250 MTPAs of investment, of which 150 already underway with an incremental 100 coming online over the next few years. So a very exciting period of time here as we think about gas, not just liquefaction, which will impact Middle East and US predominantly, but then the regasification and tanker investments that are required to get the gas into Europe through this segment. On the right-hand side of this chart, Emerson continues to play a pivotal role as traditional energy players and new entrants begin to focus on new energy segments such as clean fuels and renewables. Our decarbonization and sustainability funnel grew to $1 billion in the quarter as energy companies are dedicating roughly 15% of their CapEx budgets to these projects. In clean fuels, Emerson was recently chosen as the main automation partner for the world's largest renewable diesel facility and will supply key digital offerings as part of this project. Emerson also expanded its role in renewable energy through its acquisition of Media Technique and American Governor acquisitions, which also have and also through some technology investments in the core portfolio. In the second quarter, Emerson Geological Simulation Software was selected to provide its geological and reservoir modeling software to HITA, a geothermal energy company in Belgium to increase the safety and reliability of geothermal energy sources. This is an exciting example of a traditional Emerson application designed for the oil and gas field now expanding to a diversified sustainability application. And then lastly, Emerson was selected as a software and controls provider for the world's largest battery storage facility, another high-growth area where Emerson brings immediate relevance. And with that, I'm going to turn it over to Frank to go through the second quarter results. Frank Dellaquila: Thank you, Lal, and good morning, everyone. Thanks for joining us. If you would, please turn to Slide 7 and I'll review the quarter. As Lal said, we had a very strong quarter. I want to also extend my thanks to everyone in operations for the execution that they turned in and have faced some very real operational challenges. Demand continues to be robust across most key end markets, driving second quarter underlying growth of 10%, ahead of the guidance that we provided in February. The higher sales were partially driven by price actions and realizations that were implemented to offset continued inflation. I will talk a little bit more about the price inflation dynamic when we address the guidance. For the quarter, we realized four points of price overall, and we did turn positive with respect to net material inflation as we said we would. Adjusted segment EBITDA increased 20 basis points as we more than offset additional material costs and other inflation, which was significant, with increased price and effective cost management. SG&A performance was excellent. We leveraged it. It was essentially flat in dollars in Q2 versus last year and was leveraged two points across the enterprise, reflecting previous restructuring actions and spending restraint in the businesses. Adjusted earnings per share was $1.29, up 21% versus prior year, exceeding the February guide of $1.15 to $1.20. As Lal mentioned, it includes an $0.08 tax benefit in the quarter. That benefit was included in the 22% tax rate guide for the year, but the timing of when we would see it in the year was uncertain. We had it – we actually realized it in the second quarter. Free cash flow was down 50% versus prior year. This is mainly due to higher inventory as a result of defensive stocking due to supply chain constraints, finished goods awaiting shipment and of course, higher expected sales in the second half of the year. Nonetheless, we have a challenge. And while we believe, this is timing-related and we will get on top of it over the course of the year, we expect conversion to improve significantly in the second half. Turning to the platform results. Both businesses executed extremely well. Automation solution underlying sales were up 7%, led by the Americas and China. Price realized in the quarter was 2%. All key end markets showed strength, and KOB 3 activity continues to be strong, remaining at 60% of sales. Backlog increased by $400 million in the quarter to $6.4 billion, due to the strong pace of orders, which gives us confidence in the year-end and positions us very well into 2023. Operations have adjusted to longer lead times for critical production inputs, and they continue to effectively mitigate logistics constraints and other challenges. We expect our ability to execute orders in backlog to improve throughout the balance of the fiscal year. Automation Solutions adjusted EBITDA improved 170 basis points versus prior year on leverage, price realization and cost control, despite higher general inflation and significant cost increases for electronic components in the quarter. We experienced a sharp cost increase in the second quarter with respect to electronics that has been addressed by price actions and that will be recovered over the balance of the year. The strong operational performance in the platform is reflected in 55% leverage for the quarter. Another very, very strong operational quarter. Commercial & Residential Solutions also performed well operationally under a similar, but somewhat different set of challenges. Underlying sales increased 14%, including 9 points of price realization in the quarter. Price, less net material inflation, did turn slightly positive in the second quarter, as we said it would, and it is on the trajectory that we said we would be on when we described this in the last call. Sales were up double digits in all world areas, except China, where they declined slightly in part due to the lockdowns across the country. Commercial and industrial markets remained strong. North American resi grew well in the quarter. We are beginning to see some signs of moderation there. In tools and home products, service, industrial and online channel sales remain strong. There are some indications of slowing in the retail channel as do-it-yourself projects begin to be impacted by the inflationary environment and the diversion of people's attention to other things as the economy opens up. Backlog increased $100 million in the quarter, mainly in Climate Technologies. Adjusted EBITA was down 230 basis points, consistent with our expectations going into the quarter. As I said, price less net material inflation was slightly positive in the quarter, remained margin-dilutive, and additional price was realized, but was offset by freight inflation and above-normal wage costs. Please turn to page eight for the EPS walk. Adjusted EPS was $1.29, up 21% and exceeding the top end of the guidance range by $0.09, including an $0.08 tailwind from the discrete tax item. Adjusted EPS was also negatively impacted by $0.04 due to prior year one-time gains, the delta that is, was impacted. Again, as a reminder, adjusted EPS excludes intangibles amortization, restructuring, transaction costs related to the AspenTech transaction and first year purchase accounting charges. Operations in total leveraged at nearly 25% and contributed $0.11 to adjusted EPS versus the prior year. So before we go to the guidance, I'm going to turn this over to Ram, so he can provide an update on the operational and supply chain challenges that the businesses continue to face. Ram? Ram Krishnan: Thank you, Frank. Please turn to slide 10. Clearly, like the last few quarters, the operating environment has remained challenging, as electronic supply, commodity inflation and logistics constraints continue to impact our operations globally. Additionally, geopolitical uncertainty and COVID lockdowns in China introduced new challenges as we exited Q2 and began the third quarter. On the commodities front, the current geopolitical environment has led to rising steel, nonferrous commodities and oil prices, causing incremental inflation on a large portion of our material purchases. This has been a significant reversal in course for some commodities such as steel. Due to the magnitude of the increases, additional material inflation will be incurred as we progress through the second half. Price actions already in place, and the additional ones underway will keep our price less material inflation positive for the second half of the fiscal year, but will constrain margins in our climate business. Higher oil prices have also led to increased logistics costs. This again reiterates the importance of our regionalization strategy, which allows us to leverage our strong regional supply bases and largely avoid expensive intercontinental logistics. On the electronics side, component availability remains a concern, especially within Automation Solutions. While we see stabilization of lead times, the market is expected to remain tight well into 2023 as capacity additions are not able to keep up with demand. Continued purchase price variances are also impacting profitability, although our proactive price increases help ease the impact. Our global teams continue to do outstanding work to qualify additional suppliers and redesign products to utilize available components, and we’re clearly seeing the benefit of this effort come through. Lastly, the China COVID lockdowns continue to be a fluid situation. The impacts to our second quarter were minimal, but these lockdowns are expected to have a bigger impact heading into Q3. The current issues are contained to our plant operations in Shanghai, but we are beginning to see constraints to our plant operations across the country due to supplier shutdowns. We're keeping a close eye on the situation and will adapt as necessary. While we expect to face headwinds in many of these areas for the rest of the year, we're confident, very confident, that our global teams will deliver differentiated operational execution in a challenging environment as evidenced by our strong first half performance. I will now turn the call back over to Frank. Frank Dellaquila: Thank you, Ram. If you would, please turn to slide 11, and we'll go through the outlook for the year. So as Lal mentioned at the top of the call, we continue to see very strong demand across nearly all businesses and world areas that challenges our operational challenges. They are not challenges around the basic demand across the enterprise. Automation Solutions is strengthening across process, hybrid and discrete markets. In process markets, recent events will drive incremental investments across the energy value chain. This strengthening demand will spur growth in transition markets like LNG and emerging markets like clean fuels, battery storage and renewables, as well as in traditional oil and gas markets as Lal discussed. Together with continued robust demand in chemicals, power gen and grid modernization, we are increasing our outlook for the process market growth in 2022 to high single digits. We also expect hybrid demand to remain strong at mid to high single digits, including continued life science investments and high commodity prices, boosting metals and mining CapEx. Discrete markets remain strong in the 10% range with semiconductor, electronics and factory automation investments are all strong. So while we're encouraged by the underlying demand situation, there are constraints, as Ram outlined, remaining -- regarding supply chain, logistics and potentially COVID in China, which is an evolving situation. It's already had somewhat of an impact in the quarter, and there's uncertainty as to how that will unfold. In particular, we expect challenges to continue around electronics availability, and we expect that to continue into 2023. Continued strength in our core markets, our backlog level and orders momentum provide the underpinning for strong second half sales growth, and we will have to deal with those challenges as they evolve. Overall, we have confidence in our fiscal year sales guide for Automation Solutions despite these challenges and we also have included in the guide the reduction in volume related to the exit from our Russian business, as Lal described at the top of the call. In Commercial & Residential Solutions, we expect continued double-digit sales growth for the third quarter and full year. Demand continues to be strong against resi and commercial businesses. In Climate Tech, residential growth is supported by European heating markets and by new product launches currently underway for the 2023 US regulation changes. Climate commercial and industrial growth is also supported by the European and Asian heating markets. Tools & Home Products retail sales are expected to moderate due to the effect of consumer inflation, as I said earlier. However, continued industrial momentum will benefit the Professional Tools business. Please turn to slide 12 for the outlook. We are increasing our underlying sales range by two points to 9% to 11%, driven by the demand outlook and by incremental price versus the prior guide. Automation Solutions guide will remain at 7% to 9%. As discussed on the previous slide, we're increasing our underlying sales expectation for commercial and residential to 12% to 14%, and this is substantially attributable to incremental price being realized in the business. We continue to expect to see tailwinds for price less net material inflation in the second half as we previously communicated. This is the traditional price/cost relationship that we have always discussed in the context of this business. This year is different. We are seeing significant inflation in other cost areas, and we are implementing significant additional mitigating price actions to protect profits. These actions, however, constrain or dilute margins. For this reason, we're going to talk about price less net material generally as price/cost, as we have described in the past, doesn't really capture the breadth of the inflation challenge. I want to point out that we are realizing more than 100% of the material-driven price that was in our and we are implementing actions to offset resurgent material costs as well as the other elements of inflation. We're achieving substantial price realization for 2022, but that overall inflation dynamic pressures incremental margins in commercial and residential. We will continue to drive for 30% incrementals for the year for total operations, but we'll probably get there differently than we thought we would even three months ago with stronger leverage in Automation Solutions and pressure on the leverage in commercial/residential due to the price inflation equation. The other elements of the guide, tax, dividend, and share repurchase remain the same as they were in February. Operating cash flow is now expected to be $3.6 billion due mainly to the increased inventory resulting from supply chain constraints as well as some other balance sheet timing issues. We are absorbing within this guide as well $100 million of tax payments associated with the Vertiv gain that we booked in the first quarter under GAAP fees run through operating cash flow, although they really are related to the financing cash flow that we realized when we booked the gain in the first quarter. Free cash flow is now $3 billion and represents approximately 100% conversion for 2022 after converting at 130% last year. The GAAP EPS guide is updated for our improved sales outlook, and as a reminder, includes two items related to the AspenTech transaction, both estimated transaction fees and interest expense on the $3 billion of term debt we issued in December in anticipation of the closing. The adjusted EPS guide moves up $0.05 at the bottom and the top to $4.95 to $5.10. Inside this guide, we're absorbing the estimated impact to operating profits related to the reduction of our Russia business, but we have not included any other potential cost or charging result -- or charges, pardon me, resulting from the exit which are not yet known with any precision. Also to be clear, no estimate of the operational impact of AspenTech is included in these guidance numbers nor is the future gain or tax impact of the TOD divestiture, which is expected to close this quarter. Turning to Slide 13. I'll cover the third quarter. Q3 2022 net sales growth is expected to be 7% to 9%, underlying sales growth between 9% and 11%. We expect Automation Solutions underlying sales in the range of 7% to 9%; commercial and residential, between 13% to 15%. GAAP EPS is expected to be between $1 and $1.05; and adjusted EPS, between $1.25 and $1.30 on the same basis I described for the year. I want to point out that this guide considers the current environment and challenges that the businesses are navigating, including the COVID shutdown, the continued electronic shortages. We're one month into the quarter, and these are very real impacts on the quarter. We intend to work through them. And assuming that the critical uncontrollable variables likely stabilize or improve, we would be well positioned to deliver a very good third quarter and then a very strong fourth quarter to close out the year. And with that, we will open it up for Q&A. Operator: Thank you. We will now begun the question-and-answer session [Operator Instructions] And the first question will come from Joe Ritchie with Goldman Sachs. Please go ahead. Joe Ritchie: Thanks. Good morning, everyone. Lal Karsanbhai: Good morning, Joe. Joe Ritchie: I want to maybe start off with China today, like I saw that you saw double-digit growth in Automation Solutions. I'm just curious, how did that trend through the quarter? And then what are you kind of factoring in for the lockdowns and the impacts associated with that in your guidance? Lal Karsanbhai: Yes. I'll speak to the business activity, Joe, and just focusing on your question around auto sol. Very strong quarter and -- both in sales conversion but also in orders when you look at the destination business, both in the mid-teens, high to mid-teens. So we feel very strong about the activity in infra auto sol. The commercial/residential activity is somewhat more muted, driven by the climate resi cycle. And those orders were softer as we went through the quarter. But when I look at the project activity, when I look at the installed base momentum we have in China, I see the outlook -- I continue to feel very strong about the outlook for the year, Joe, for us. In terms of sales conversion, Ram, if you want to speak to it. Ram Krishnan: Yes. So Joe, I think, obviously, we've got 20 plants across China, and we have a few around Shanghai, where we have experienced constraints in the last four weeks. Hopefully, as we go into the month of May, we're starting to see those open up. We partially opened up in the Shanghai area this week. Clearly, we have supply chain across China that supplies us that have been impacted. We are expecting that situation to improve as we go through the quarter. April was a tough month for us, but we do believe that as the – we built in improving situations through the quarter, and that's kind of baked into the guidance. Joe Ritchie: Okay. Great. That's helpful. If I could ask a follow-on question, and apologies if I missed it earlier. But in C&RS, I know that, there was an original assumption that we could potentially see flat to slightly up margins in 2022. Just help us understand how that – how you expect the margins in that business to expand in the second half of the year. And then any commentary on price/cost in C&RS would be helpful. Frank Dellaquila: Yeah. Joe, good morning, this is Frank. So the margins will improve sequentially in the second half as we've expected all along based on the price/cost, the incremental price, that will come through. The price is back-end loaded for the year in Climate Tech. Year-over-year we are struggling to get to a push because of the incremental inflation in the business. So the business will deliver EBIT dollars, strong increase in EBIT dollars year-over-year and consistent with what we thought we would do at the beginning of the year, but the incremental inflation and the price that the business is going out to cover dilutes margins. Joe Ritchie: That makes sense, Frank. Yeah. Thank you. I’ll get back in queue. Lal Karsanbhai: Thanks, Joe. Operator: The next question will come from Steve Tusa with JPMorgan. Please go ahead. Steve Tusa: Hey, guys. Good morning. Lal Karsanbhai: Hey, Steve. Frank Dellaquila: Good morning, Steve. Steve Tusa: Sorry, I was on the speaker there. Just on the orders, you noted some signs of moderation in residential on the C&RS side. Any other part of the order trends where there was a bit of a standout in terms of either slowing or accelerating? Any real kind of standouts on the order front on kind of a sequential monthly basis? Lal Karsanbhai: Yeah, Steve. No, good question. No, beyond the – we're watching the resi very carefully, obviously, not just the climate side but on the home tools side and watching for traffic through our big-box partners there. But beyond that, look, the strength in automation continues. I think we're energized by seeing the capital project funnel grow and the opportunities there. KOB 3 continues to be very strong, 60% in the quarter for Automation Solutions. That's been the engine in that business. But now with a KOB 1 and 2 wave coming at us, feel very robust about the outlook there. Beyond that, nothing else to comment. Ram? Ram Krishnan: No. And Steve, I think the European heat pump business remains strong, very, very strong. And actually, our North American HVAC residential business also remains strong. Steve Tusa: Okay. So it's more in kind of the resi side of tools, if you will? Ram Krishnan: Correct. Steve Tusa: Yeah. Okay. Great. Thanks a lot guys. Appreciate it. Lal Karsanbhai: Thanks, Steve. Operator: The next question will come from Scott Davis with Melius Research. Please go ahead. Scott Davis: Good morning, everyone. Lal Karsanbhai: Good morning, Scott. Scott Davis: A couple of things. I mean, just if we want to go back to chip availability, I mean, you guys were a little bit more confident, I think, last quarter in supply and demand matching up perhaps by the back half of the year. Has this just shifted to the right? And I guess another way to ask it is, are you less confident today than you were three months ago? Lal Karsanbhai: I will let Ram give its perspective, but my perspective is, its gotten tougher. We have to for quarter, get more creative, qualify different suppliers, go into the open market which all of that creates variability, variances in the P&L and challenges. But -- so that's versus where we were essentially three months ago. But having said that, we'll have to watch China carefully as we go through here, through the month of April and May and watch how – what happens in the supply chain there. But that's how I feel about it. It certainly didn't get better between the China COVID lockdowns and obviously the war in Ukraine. Ram? Ram Krishnan: Yes. And particularly on the electronics or the chip shortages, lead times have stabilized, but they are running at 3x of pre-COVID levels. And so, we're managing in that environment. The piece that we thought would improve was component shortages, but the – but we continue to fight shortages on a weekly basis that are impacting our businesses. And hopefully, we'll start to see that improve over the next several weeks. But at this point, we had hoped to see improvement in the shortages, and we haven't. Scott Davis: That's super helpful. And then other SKUs, are -- is it a different list of stuff this quarter? Is it the same list of stuff that's hard to get or a different list? Is it changing, or is there more stability there across the board? Ram Krishnan: I would say it's similar, I mean, similar type of components that we use primarily in our Automation Solutions business and some parts of our commercial and residential business. So, I wouldn't say it's changing. But I would say, I think the shortages are not improving. Scott Davis: Okay. Thank you. I will pass it on. Operator: The next question will come from Andrew Obin with Bank of America. Please go ahead. Andrew Obin: Hi, guys how are you? Ram Krishnan: Hey Andrew. Andrew Obin: Just based on the relative increase in revenue and EPS, it seems like – and this is our math, I apologize. This is like 2/3 additional price that just offsets high inflation. But there seems to be a 1/3 of the increase, which is real volume growth with normal incrementals. So first is that characterization, right? And second, where was the stronger volume? Frank Dellaquila: So Andrew, I don't know if it's exactly 2/3 or 1/3. I think generally, the characterization is right, that most of the increase in the revenue forecast is price, with pressures margins. But there is some underlying volume increase as well. It comes through a very strong underlying leverage actually when you factor out the inflation items. Andrew Obin: But what end markets specifically? Frank Dellaquila: Automation. Ram Krishnan: Yes. Automation. Frank Dellaquila: Yes. Automation Solutions, yes. And residential, it's, I would say, almost entirely price-driven at this point. Andrew Obin: Got you. And a follow-up, just going back to chip availability. There's a lot of talk about capacity -- trailing-edge capacity coming on in the US maybe in six months at places like Texas Instruments, Intel. What kind of conversations are you having with those guys? And when do you think you're actually able -- instead of going through brokers and redesign and sort of struggling with the supply chain, how long do you think it takes for real incremental sort of lower capacity to become available in North America from core manufacturers? Is it six months, or is it more like 18 months to two years? Thank you. Ram Krishnan : Yes. So Andrew, great question. First off, to answer the first part, we are in really good dialogue with suppliers like Texas Instruments, which are very important -- NXP, TI are important suppliers to us on this exact same discussion. We believe that, particularly for our types of chips that go into our Automation Solutions product offering, it's nine to 12 months is the time line for when we expect the capacity to come online or at least that's really when the discussions we've been having with the likes of TI. So that's really what's being planned. We expect the constraints to last at least until then. But hopefully, in nine to 12 months, we'll see that capacity impact lead times. Andrew Obin: So early calendar '23? Ram Krishnan : Yes. Andrew Obin: Thank you so much. Ram Krishnan : Thank you. Lal Karsanbhai: Thank you, Andrew. Operator: The next question will come from Andy Kaplowitz with Citigroup. Please go ahead. Andy Kaplowitz: Good morning everyone. Lal Karsanbhai: Good morning. Ram Krishnan : Good morning. Andy Kaplowitz: Maybe can you talk about how your Automation Solution customers are thinking about large projects at this point? Obviously, commodity prices are more supportive. You talked about energy independence and LNG, but there's also higher inflation, higher rates. So how do you think the CapEx cycle plays out here? And what are your customers saying about moving forward with these bigger KOB1 investments? Lal Karsanbhai: Yes. Good question, Andy. So, twofold. One, there continues to be strong support both inside the Boardroom and in actual spend around sustainability investments. Those continue to be funded. There's a lot of creativity in terms of what they are and how they're being implemented. And that's reflected in our funnel itself growing now to about a semblance of the total KOB funnel. So very relevant there. And I feel confident and how those continue to move forward. On other CapEx, what we've seen and the biggest change we've seen as we went through the quarter was gas. And the conversation around gas really we're 71 days into the war, and that's only accelerated. And the opportunities in -- particularly in three places: in Qatar, in Louisiana and in Texas. We had a significant amount of work, engineering work that was done pre-pandemic around investments in LNG in Louisiana, in Texas. A lot of those were shelved. The good news is a lot of that engineering has been completed, and we're seeing a number of those coming back into play now with FID activities across a lot of those. So that would be the biggest change in acceleration in the funnel, and I think that plays very well. Obviously, gas for us is a very significant opportunity as we go forward. Ram, anything to add? Ram Krishnan : Yes. I would just add, we are seeing more ethylene, methanol projects being talked through. And frankly, globally, some refining capacity coming online entering our $7 billion project funnel. So I think good activity across the board. Andy Kaplowitz: Thanks. And maybe just following up on LNG then. You mentioned 150 MTPA is already underway, and there could be 100 more. But how much of the work is actually in your backlog at this point or burning through your revenue right now? How long -- how do you think the cycle will play out? And when do you think will be the peak impact on Emerson's businesses? Lal Karsanbhai: Yeah. Look, the opportunity, let's say, size it at about $1 billion if you size it in total, and you can divide that over five years, I think it's fair to say into Emerson revenue, Andy. As you know, the cycle on construction is four to five years for each of these jobs. So take the $1 billion automation number that I essentially laid out for the 100 and divide it by five. Now what that doesn't include, in my opinion, is the regasification opportunities, which we'll see in Europe, in Germany, in places like Italy and Poland and the tankers and freighters. So that's in addition to this. But about fair. If you just did the math at $80 million per five MTPAs, that's how we'd size that. Andy Kaplowitz: Appreicate it guys. Lal Karsanbhai: Thank you. Frank Dellaquila: Thanks. Operator: The next question will come from Josh Pokrzywinski with Morgan Stanley. Please go ahead. Josh Pokrzywinski: Hi. Good morning guys. Lal Karsanbhai: Hi Josh. Frank Dellaquila: Hi Josh. Josh Pokrzywinski: So just to follow-up on Andy's question there. Just, kind of, wondering with this new project upcycle and a lot has changed in the industry and your business and the way the customers are approaching these things, a lot more digital, is there less of anything as you guys think about the bill of materials on the project? Is there something where maybe like a digital asset is replacing a physical one? Because it seems like the opportunity or the build material should be higher. I'm just wondering like if there's anything that gets smaller as we enter this like KOB 1/2 upcycle. Lal Karsanbhai: Yeah. No, it's a great question. I'll let Ram give his thoughts as well. But look, what we do see is an increase in use of analytics and software on top of the stack. And if you think about the capabilities that an asset optimization software capability like AspenTech brings to the table, that's increasingly more relevant as far as the bill of materials for these customers. So that would be the biggest change. You still got to use farm control elements. You still have to sense what goes through pipes. You're talking about very strenuous conditions of pressure and temperature. And ultimately, you still have to control the recipe with a control system. But the analytics layer and optimizing the performance of the process, I think, is where we see increasing more spend. Ram? Ram Krishnan: You're spot on. I think, obviously, the LNG wave is just going to be, from a content perspective, just as attractive as the prior waves for us with additional software that Lal mentioned. And then if you look at the sustainability wave around biofuels, hydrogen, et cetera, the content there is just as rich as what you would get in a chemical facility. So net-net, we don't see anywhere the content getting smaller. In general, it will just get augmented with more software data and analytics in addition to the mechanical and the instrumentation content that we typically have. Josh Pokrzywinski: Got it. That's helpful. And then just a quick follow-up. Because these projects are longer cycle, do you guys have anything in terms of price escalators or indexing that you're putting in the contracts to protect yourself on the inflation side? Thanks. Lal Karsanbhai: Yeah. No. Look, these are very detailed commercial agreements that we ultimately enter, and most do have some kind of inflation protection elements there on material. But keep in mind, obviously, on elements like control and software, there's very little material to speak of. So it'd be more on the final control side that we really work those very, very hard. Josh Pokrzywinski: Perfect. Thanks. Lal Karsanbhai: Thanks. Operator: The next question will come from Deane Dray with RBC Capital Markets. Please, go ahead. Deane Dray: Thank you. Good morning, everyone. Lal Karsanbhai: Good morning, Deane. Frank Dellaquila: Good morning, Deane. Deane Dray: Hey. I know Aspen close is coming up soon. What are the plans right out of the gate? Do you have any like 100-day goals that you could share? Ram Krishnan: Yes. So Deane, this is Ram here. Yes, great question. Obviously, we've been planning -- we've had plenty of time to plan for day one, particularly as it relates to integration and channel plans that have been thought through in great detail. So a lot of it, day one will really focus on getting the sales organization going on the sales synergies, which on a global basis is a significant part of the pieces. So, yes, the answer is, yes. Secondly, I mean, obviously, there's lots of opportunities on the technology front and a lot of dialogue underway there as well on the technology collaboration, which will be longer term, as it plays out. But certainly on the sales integration front, we're ready day one to get going. Deane Dray: That's great to hear. And then, any comments on April? Anything specific that you could share? Lal Karsanbhai: No. Look, I think the trends we talked about that impacted us in March, the COVID lockdowns in China, we continue to work through those. But beyond that, we're positive on the demand side of the equation through April, very positive. Deane Dray: Great. Thank you. Operator: Your next question will come from Nigel Coe with Wolfe Research. Please, go ahead. Nigel Coe: Thanks. Good morning, everyone. Lal Karsanbhai: Hey, good morning, Nigel. Frank Dellaquila: Hi, Nigel. Ram Krishnan: Hi, Nigel. Nigel Coe: Can you hear me? Lal Karsanbhai: Yes. Frank Dellaquila: Yes. Ram Krishnan: Yes. Yes, yes. Nigel Coe: Yes. Okay. Great. Thank you. So look, AS margin -- incremental margin is extremely strong, I think 57%, if my calculations are correct and came in better than you expected. I think you were pointing towards maybe some sequential moderation from 1Q. So just curious, what's driving the upside and the strength in the incremental margins? And how do you see that over the balance of the year? Frank Dellaquila: Yes. So, hi, Nigel, this is Frank. What we're seeing here is, all the hard -- coming to fruition all the hard work that was done in this business over two or three years. We don't talk about peak margin anymore, but I mean, this is the result of that effort. So despite incremental -- other kinds of inflation, despite even some NMI, which is unusual in the business to this extent, they're printing very, very strong incrementals, because the basic cost structure of that business has been reset. So the incrementals were extremely strong in Q1, and again, as you say, mid-50s in Q2, and we expect they'll continue to be strong in the balance of the year. Nigel Coe: And then, obviously, the dollar is moving around a fair bit here. And sometimes, we have seen some FX impact moving around the AS margins. Is that a factor at all here? Frank Dellaquila: No. Not really. No, not significantly. Not a material impact. Nigel Coe: And then, my follow-on for Lal on the portfolio. Obviously, you've been very vocal about diversifying away from upstream oil and gas. Do you feel the change in tone around engine security? The US administration stands towards NG CapEx, natural gas, et cetera. Do you feel that you have more headroom and maybe some more time to design the portfolio diversification moves? Lal Karsanbhai: No. Look, as I said at the offset, Nigel, I remain committed to diversification in the company. We're working actively on the portfolio management. And obviously, we'll talk at length in our November investor conference about the subject in terms of vision, and hopefully, some very meaningful steps. The commoditized element of oil and gas -- upstream oil and gas assets, we're continuing to work that very aggressively in the market. But in terms of the differentiated technology that is applicable not just in gas, but in life sciences and in many of our other markets, we remain committed to. And we remain committed to the investments around gas because I do believe if you just look at that energy equation that -- as a transitionary fuel over time, that's going to be required for the world to meet its needs. Nigel Coe: Okay, great. Thanks. Lal Karsanbhai: Thank you, sir. Operator: The next question will come from Tommy Moll with Stephens. Please go ahead. Tommy Moll: Good morning and thanks for taking my question. Lal Karsanbhai: Good morning Tommy. Tommy Moll: Digging on the topic of auto sol incrementals, I wanted to talk about pricing dynamics for your oil and gas business. Potentially, you've been able to pass through some inflationary items. But if we really think about net price, my assumption would be you started the year from a pretty low base just given the severe downturn in the recent past. But as we think through to back half of this year or really even next year, is there not an embedded call option on price here? I mean you've got a commodity environment that's got to be a tailwind. You've got record cash balances, margins, profitability, et cetera, across your customer base. Should we be fairly bullish on that front? Lal Karsanbhai: Look, are you speaking specifically about Automation Solutions, Tommy? We continue to -- we have a long history of positive price activity in that market. And that comes from a basis of not just the market structure, but the relevance of our technology in the space and our ability to differentiate and drive price, obviously, is meaningful there. So, look, in some cases, we're up to four price increases across that space. We're working very actively through our selling organizations and with our end users. But I remain confident in that business of ability not just to continue to implement price as needed, but for it also to be realized into the P&L. Frank, anything? Frank Dellaquila: Yes, Tommy, that business captures price year in and year out. It's a very strong business with respect to its ability to capture value through pricing. The commodity situation, with the exception of this unusual electronics situation, it's not nearly as impactful in that business as it is on the other side of the business. So I mean, typically, even with these kinds of broad commodity swings, while yes, they have a P&L impact, it's not determinative. Right now, it's the electronics. That really is the incremental variable that we are dealing with in terms of pricing, but there's no significant embedded price to come as a result of what's going on now. The pricing power in that business is very steady. We're stepping it up this year because we have an unusual situation. Ram Krishnan: Yes. And just to add to that, commodities as a makeup of the cost structure of that business is not a big element of the cost structure. So -- but as Frank said, we've traditionally been green price/cost, and we'll continue to be green price/cost as we get into the second half of the year. Tommy Moll: Thank you. That's helpful. And then shifting gears, I wanted to circle back to the outlook for resi HVAC. You gave some context that the trends may be slowing there and there's certainly been a lot of focus, at least in terms of the North America trends year-to-date and for the back half. So what additional insight could you give us there in terms of what you're seeing in -- on underlying demand? Lal Karsanbhai: Yeah. Look, residential as a whole, particularly reflected in our home products business has weakened as we went through the quarter. And we've seen that in just the order run rates. Our climate business has remained strong to date. And as we get into the season, we'll watch how that translates, but feel pretty good about on the climate side still, Tommy. Tommy Moll: Thank you. I’ll turn it back. Operator: The next question will come from Brendan Luecke with AllianceBernstein. Please go ahead. Brendan Luecke: Morning all. Thanks for taking the question. Lal Karsanbhai: Good morning, Brendan. Frank Dellaquila: Good morning. Brendan Luecke: Circling back to the Russia question. Can you offer some color on the size of that business, what the impact is to point out for the guide on the year in Automation Solutions? Frank Dellaquila: Sure. So we have said that that business represented on a full year basis about 1% to 2%, call it, 1.5% of sales. I'd say the average profitability relative to the total company. We had half of a normal year this year until the conflict began, and we've been scaling back the business significantly since, and now we intend to exit it. It will be a slow ramp as we exit it as we figure out exactly what those details are. But I mean -- with that context, I mean, you can determine what the full year contribution of the business is. And we've covered the piece that we expect to be without through the balance of the year within the guide. Brendan Luecke: Fantastic. And then one quick follow-up on KOB 3 within Automation Solutions. Just struck by the fact that it was again the biggest growth driver here. Can you speak a little bit to, I guess, the dynamics there and how you're driving that improvement? How much of that is price? And how often you find yourself in competitive situations for those revenues? Lal Karsanbhai: Yeah. Look, 60% of the revenue in the quarter in Automation Solutions was KOB 3, which is a replacement MRO business. That business is the least price-sensitive -- excuse me -- the least margin-sensitive of all the businesses and the one where we -- where price is the most sticky. So that was reflected in the results of Automation Solutions as we went through the end of March. Brendan Luecke: Thank you. Lal Karsanbhai: Thanks. Frank Dellaquila: Thanks. Operator: This concludes our question-and-answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.

Operator: Good morning, and welcome to the Emerson First Quarter 2022 Earnings Conference Call. All participants are in a listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask question. [Operator Instruction] Please note, this event is being recorded. I would now like to turn the conference over to Colleen Mettler. Please go ahead. Colleen Mettler: Thank you. Good morning, and thank you for joining Emerson's First Quarter Fiscal 2022 Earnings Conference Call. Today, I am joined by President and Chief Executive Officer, Lal Karsanbhai; Chief Financial Officer, Frank Dellaquila; and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with the slide presentation, which is available on our website. Please join me on Slide 2. This presentation may include forward-looking statements, which contain a degree of business risks and uncertainties. Please take time to read the safe harbor statement and note on the non-GAAP measures. Turning to Slide 3. I would like to highlight a few exciting accomplishments for Emerson this quarter. First, in December, Emerson announced the acquisition of Mita-Teknik, a leader in wind power control automation. Mita-Teknik brings specific control design, expertise, complementing our existing Emerson’s Ovation and power portfolio. We are very excited to welcome the Mita-Teknik team to Emerson and its ability to expand our renewable power generation capability. Secondly, Emerson was recently named the 2022 Industrial IoT Company of the Year award by IoT Breakthrough. Emerson was acknowledged for advanced digital technologies, software and analytics that help customers across a range of critical industries, optimize their operations and deliver on environmental sustainability goals. Finally, last week, Emerson was recognized as a 2022 Best Place to Work for the LGBTQ+ equality, and earned a score of 100% on the Human Rights Campaign Foundation's 2022 Corporate Equality Index. Before I turn it over to Lal, I wanted to provide a brief update regarding one of our previously communicated investor events. We are now planning to host a half-day in-person investor conference in the second half of this calendar year where we will provide an overview of our business strategy, portfolio direction and long-term financial outlook. We look forward to sharing additional information as we finalize details for this event. I'll turn the presentation over to Emerson's President and CEO, Lal Karsanbhai, for his opening remarks. Lal Karsanbhai: Thank you, Colleen. I'd like to begin by recognizing the exceptional work that nearly 90,000 Emerson employees did to deliver our first quarter results. I'd also like to express my gratitude to the OCE and the Board of Directors for their continued support. And last, but certainly not least, to our shareholders for your trust and investment in our company. Saturday, February 5, marks my first year anniversary as CEO of Emerson. And although I do not intend this to be a holistic reflection of my first year, I would like to share 5 important learnings: one, build good teams and empower them to lead. We have a very strong new OCE. We hired our first Chief People Officer, our first Chief Sustainability Officer, named a new Chief Operating Officer and named our Chief Compliance Officer, to the OCE. And we have an independent chair of the Board, Jim Turley, a great partner for the shareholders and the management of this company. Number 2, diversity makes us better. It is my goal to continue to create a workplace where people feel like they belong, have a place and can be themselves. I'm very proud of the diversity targets we established to double representation of women and U.S. minorities in leadership by 2030. Number 3, strengthening any business starts with strengthening its culture. Culture transformation is well underway at Emerson, and it includes the redesign of the Emerson management process into a new modern cohesive system. Number 4, think boldly. Emerson is a historic company going back to 1890. But we cannot be afraid of change and must always be keenly aware of the value creation levers at our disposal. Number 5, tomorrow starts with us. We will live our purpose. We will drive innovation that makes the world healthier, safer, smarter and more sustainable. We will create accelerated value through culture, portfolio and execution. Allow me now to turn to the quarter. It was a very positive quarter, significant from a number of dimensions as we delivered $1.05 of adjusted EPS, an increase of 13% over 2021 Q1. Demand is accelerating in Automation Solutions and continues to be very strong in Commercial & Residential Solutions. The trailing 3-month underlying orders were up 17%, for the enterprise as a whole. Our relevance with our customers continues to be a differentiator across all of our businesses, whether it is the energy customer undergoing a critical transformation to a carbon-free or lower carbon future or new energy economy start-up customer in hydrogen of biogas. Our KOB funnel continues to be very robust, valued at approximately $6.5 billion at the end of the quarter, and KOB 3 hit 60% of total automation revenues in the quarter. Interestingly as well, the sustainability and decarbonization element of the funnel is now valued at over $800 million, up over $100 million over this time last quarter, very positive. Our HVAC OEM customers who rely on our compression and electronics know-how to make their systems more efficient to meet new regulatory standards. And also, the tradesmen, the utility workers, the plumbers, many of whom, as I continue to learn, have rich [indiscernible] who trust our gear to get the job done. Over the past 100 days or so, I had the opportunity along with many members of management to meet these customers, representing a broad cross-section of our markets and feel great about the role that we continue to play in making them successful. Our execution in the quarter was excellent. We improved adjusted EBIT margin a 140 EBITDA margins -- 140 basis points to 19.6%, delivering incrementals of 32% across the enterprise. The automation business is operating at historical levels of profitability with adjusted EBITDA margins increasing 320 basis points to 21.5%. Our commercial and residential business was faced with planned but unprecedented price cost challenges, and the team performed exceptionally well. We have confidence in the price and cost management actions that are in place as we go through 2022. We will speak about the operating challenges that continue to be prevalent and most importantly, what we are doing to address them. These include electronics, both lead time, extensions and purchase price variances and shortages, particularly that impacted automation solutions sales in the quarter, logistics and freight cost escalations and labor wage inflation and availability that are concerns, particularly in North America. In most of these cases, we feel better today than we did 3 months ago, but they do remain challenging. And we have been aggressive and implemented further price plans to offset these additional costs. Lastly, overall, I have and we, as management, have increased confidence in our 2022 financial plan. We have increased our underlying sales growth estimates for the year to 7% to 9%, up by 1 point and the adjusted EPS target to $4.90 to $5.05, about 10% increase over last year at the midpoint. I've often said to the management team that sometimes growth isn't a lot of fun because we are working so hard. But I'll tell you that there is no other team I'd rather do it with and this thing here at Emerson. Let's now turn to Chart 5, please. We continue to see increasingly strong levels of demand across both platforms and all world areas. In Commercial & Residential Solutions, trailing 3-month orders were up 13%, continue an extraordinary level of demand. The European heat pump market continues to benefit from ongoing electrification trends in Europe. For our tools business, we see long-term cycle demand related to the housing market to remain strong with favorable macro trends and fundamentals, including DIY trends. At the same time, I believe commercial and industrial segments are seeing considerable strength with project starts in the U.S. and Europe. The trailing 3-month orders for Automation Solutions were up 19% versus prior year, and there is broad strength across discrete, hybrid and process markets across all world areas. China orders were up 34% on a destination basis and continues to be an important growth region. Sustainability-related investments, as I referenced earlier, continue to be a key driver for our business, including renewable and great investments, which benefit our power and OSI businesses. We are also seeing continued recovery in our energy markets with capital spending budgets up significantly year-over-year, in part due to LNG and Middle East investments. Portions of these budgets are being dedicated to decarbonization, emissions and energy efficiency projects, which are accelerating as our customers take tangible steps in pursuit of their ESG targets. To provide a little color on this, I'll highlight a few of our recent project wins related to this growth sector on Slide 6. First, let's start on the left of the chart. Emerson was recently awarded 2 sizable projects in the Middle East with our Measurement Solutions business to help customers reduce emissions. These solutions provide continuous monitoring systems, allowing customers to take preventive actions against emissions and releases. The main driver behind these projects was the customer's commitment to emissions reductions as part of net zero targets. Both projects were supported by environmental regulations in the Middle East to minimize emissions, protecting the environment and community. Next, in the middle, a refining customer in Europe has chosen Emerson to implement a full-scale automation and control modernization of one of their compressor units. The upgraded system, utilizing DeltaV PK controller and control software solutions will provide greater control and load sharing of their system. This greater degree of automation, control and advanced compressor application is uniquely provided by Emerson, and will allow the customer to optimize their operations, thereby increasing their efficiency in reducing energy and load requirements. Solutions like this can help customers use up to 30% less energy in their operations, that's a critical number. And that's a critical piece of what many customers net zero -- of the many customers' net zero journeys. And then finally, on the right, last month, Emerson announced participation in the Poseidon project in the Netherlands. Poseidon will be the world's first offshore hydrogen generation projects, basing an electrolyzer on an offshore platform, coupled with nearby offshore wind power generation. Offshore wind will power the electrolysis of the mineralized seawater to produce hydrogen, which should then be transported to shore for integration with natural gas in the national gas grid. Working as 1 of the key consortium partners with Neptune Energy, Emerson will deploy DeltaV software and systems to manage desalination, electrolysis, gas transportation and the associated infrastructure. Learnings from this project should help provide a broader pathway to large-scale offshore green hydrogen production. So we're very excited with this partnership. These are just 3 examples of how Emerson is assisting our current and new customers on the net zero and sustainability journey. And with that, I'll pass the call over to Frank Dellaquila, who will go through our financial results for the first quarter. Frank Dellaquila: Thank you, Lal, and good morning, everyone. Appreciate you joining us. If you would please join me on Slide 7, I'll go through the quarter. As Lal mentioned, the quarter was very strong. Our business has delivered excellent financial results in the face of some significant operational challenges, and we're very grateful to the people who are working very hard to get through this time of unique challenge in operations. Our end market demand continues to be robust across most key end markets, and it drove first quarter underlying growth of 8%, which is in line with our November guidance. This growth was achieved despite the significant supply chain issues that affected the availability of certain production inputs from time to time as we went through the quarter. In particular, electronic component availability in certain automation solutions product lines constrained sales in the quarter. Despite these challenges, adjustment segment EBITDA increased 80 basis points, driven by volume leverage, price realization and continued effective cost management. Please recall that as we explained in November, adjusted segment margins now additionally exclude intangibles amortization expense. Adjusted EPS was $1.05, up 13% versus the prior year and exceeding the November guide of $0.98 to $1.02. Free cash flow was down 41% versus the prior year mainly due to higher inventory as a result of defensive stocking due to supply chain bottlenecks, finished goods awaiting shipment, but most importantly, higher expected sales in the second half of the year. We believe this impact on cash flow is mainly timing related and we maintain our outlook for the year. And I should point out that our first quarter cash flow last year was at a very high level versus history, just given the dynamics and the ramp-up in our commercial and residential business in last year's first quarter. Turning to the platform results. Both businesses executed extremely well in the face of the operational challenges. Automation Solutions underlying sales were up 5%, continued recovery in the Americas and strong growth in Asia, particularly in China. All key end markets showed strength in particular, life sciences, discrete automation, chemicals and power. KOB 3 activity continues to be strong, rising to 60% of sales in the quarter. Sales were 1 point below our guide mainly because of the availability of electronics components that affected our systems and instrumentation businesses. Backlog increased by $500 million to $6 billion due to the strong pace of orders. We expect that our ability to convert orders and backlog to sales will improve throughout the balance of the year. Automation Solutions adjusted EBITDA improved 320 basis points versus the prior year on the strength of leverage, price realization and cost control. Operational performance in Commercial & Residential Solutions was also very strong. Underlying sales increased 13%, including 5 points of price realization. In Climate Technologies, residential demand continues to be strong in the U.S. as well as commercial and service businesses growing well. Strength in residential construction, DIY and retail demand underpinned strong demand in home tools and home products. Backlog in the platform increased $150 million in the quarter to $1.3 billion, mainly in Climate Technologies. Adjusted EBITDA was down 320 basis points, consistent with our expectations for the quarter due mainly to unfavorable price/cost, logistics and wage inflation, which we will talk more about. Underlying leverage and operational performance in the business was excellent. Price cost, as we have traditionally defined it, is price less net material inflation, and that was modestly better than expected in the quarter. However, we are seeing increasing acceleration in terms of freight and wage costs due to logistics constraints and the tight labor market conditions. We are taking price actions incrementally to offset these incremental costs. We continue to expect to see tailwinds for price cost, again, as we define it in the second half. Please turn to Page 8, and I'll take you through the EPS bridge. EPS bridge is pretty straightforward. Adjusted EPS was $1.05, up 13%. And as I said, exceeding the guidance midpoint by $0.05 despite a $0.06 headwind from tax attributable to some internal reorganizations. So as you can see, the nonoperating items wash out and the increase in adjusted EPS is on the strength of operating performance. Again, as a reminder, adjusted EPS excludes intangibles amortization, restructuring, AspenTech transaction fees, first year purchase accounting and the gain from our Vertiv subordinated interest that we recorded in the first quarter. Operations leveraged at over 30% and contributed $0.10 to EPS. Share repurchase was about $260 million, and added $0.02. We do continue to deal, as I said, with the various operational challenges and supply chain logistics and labor. Our teams are doing a great job mitigating the impact of these. I'm going to hand the call off to Ram to provide more detail on what challenges we're facing and what we're doing about it. Ram Krishnan: Thank you, Frank. Please turn to Slide 9. Clearly, the operating environment remained a challenge in the quarter as electronic supply, labor availability and logistics constraints continue to impact our global operations. Electronic component availability drove the miss versus our Automation Solutions sales guide in the quarter and shown on this slide is what we're currently facing. Availability challenges continue to persist, but we are seeing signs of stabilization at longer lead times, which our operations teams have now calibrated to. While we still see some spot shortages, on certain electronic components, the number of decommits and pushouts from our suppliers is certainly reducing. We expect these challenges to continue into the second quarter and the rest of the year. And hence, we continue to qualify and ramp up secondary supply and proactively redesigning our products to utilize available components. Our global teams have done an outstanding job actively communicating with both suppliers and customers for improved visibility and forecasting. On the labor front, U.S. turnover remains high but has been manageable. We did, however, see absenteeism rise in November and December due to Omicron. We saw numbers as high as 20% absenteeism in some of our plants in the Midwest. Overall, though, our plant operations have improved their ability to manage through the labor dynamics by adjusting hiring practices and entry-level wages to ensure labor availability and are certainly gearing up for a pickup in output levels as we enter the second half of the fiscal year. Finally, as Frank mentioned, we are seeing incremental wage inflation manifest, but these are being offset with our pricing programs. Logistics continues to be constrained by the ongoing supply and demand imbalances and rolling COVID unplanned disruptions. Our teams are mitigating the impact by leveraging alternate ports and our regionalization strategy certainly continues to position us well versus our peers. Freight costs have risen to record levels across the businesses in the quarter, we are mitigating these impacts through surcharges. Finally, our global operations teams continue to work diligently on these challenges, ensuring that our continued operational excellence remains a strong differentiator. I will now turn the call back over to Frank. Frank Dellaquila: Thank you, Ram. If you would please join me on Slide 11, and I'll go through the outlook for the rest of the year. As Lal mentioned at the top of the call, we continue to see strong demand across nearly all businesses in the world areas, and this underpins our improved outlook for the year. Within Automation Solutions, we see relevant CapEx spend rising in 2022, supported by recent LNG projects reaching final investment decision as well as strength in the Middle East. Our MRO and recurring revenue business also will benefit as budgets continue to increase. Sustainability-related investments like the projects Lal described continue to be a key driver for our business. And although electronic component availability challenges will continue to limit top side growth potential in the near term, we are seeing stabilization of supplier lead times at longer-than-usual levels but our operations are calibrating to maximize output, as Ram described under those circumstances. Discrete investments remain strong, and we expect a supportive automotive demand environment in the second half along with continued factory automation projects. We expect hybrid demand to remain strong at mid- to high single digits, including continued life sciences investments, and we continue to be encouraged by process automation, market demand and spend as we've discussed. This continued strength in our core markets, the wave of sustainability investments and our backlog and continued order momentum provide the underpinning for strong second half sales growth and gives us confidence in our ability to deliver the fiscal year sales guidance. In Commercial & Residential Solutions, we expect continued solid growth and expect the impact of moderation in the residential markets throughout the balance of 2022 to be mitigated by continued strength in commercial and industrial markets. Our Pro Tools business is seeing considerable strength with project starts that drive our U.S. and Europe momentum. Overall, Commercial & Residential Solutions, we expect high single-digit to low double-digit growth in Q2 and for the full year. Please join me on Slide 12. So in view of the strong demand backdrop and the backlog, tempered by uncertainty and limited visibility around some of the operational challenges, we are raising our underlying sales guide expectations to 7% to 9% for the year, with net sales growth of 6% to 8% currency having an impact of 1 point. The Automation Solutions guide increases to 79% and Commercial & Residential Solutions increases to 9% to 11% all on an underlying basis. We did increase our price cost guide to favourable $175 million as our businesses implement incremental discretionary price actions to mitigate modestly higher NMI, but in response also to the higher freight costs and wage inflation. And as a reminder, both of which are not included in our typical price cost calculation. Simply said, the increase in the price cost guidance has a minimal impact to our profitability at the margin. Restructuring actions tax, cash flow, the dividend and share repurchase are all consistent with our November guide. The GAAP EPS guide is updated for our improved sales outlook and now includes 2 items related to the AspenTech transaction. Estimated transaction fees and interest expense on $3 billion of term debt that we issued in December in anticipation of the closing. Those items reduce our GAAP EPS guide versus the November guide net of our operations improvement, and the guide is now $4.71 to $4.86. The adjusted EPS guide, which excludes those items, increases to $4.90 and to $5.05. To be clear, no estimate of the operational impact of AspenTech is included in these guidance numbers. We will address that in May after we close the transaction. With that, I thank you for your time and attention, and I will turn the call back over to Lal for some closing comments. Lal Karsanbhai: Yes. Thank you. And thank you, Frank and Ram. And before opening up to Q&A, I'd like to acknowledge and you referenced it a couple of times, Frank, the AspenTech team for their strong performance in the quarter, they did report last week. The team and the business is benefiting from increased demand for their software solutions in the sustainability and electrification efforts of its traditional customer base. We are on track to close the transaction as previously communicated in the second calendar quarter of 2022. And with that, I turn to Q&A. Operator: [Operator Instructions] Our first question comes from Deane Dray with RBC Capital Markets. Please go ahead. Deane Dray: A couple of questions. The first, I would love to hear just more broadly or holistically, what kind of management processes had to change in your first year and what the impact is? And then on the business side, the question on the KOB 3 being as high as 67% when we're in a period of spiking oil prices, and I get that you're less dependent on oil per se. But when you get a spike in oil prices, doesn't that -- don't the refiners tend to hold back on maintenance. They just want to run as fast as they can as much as they can at these higher prices? And does that end up crimping some of that MRO spend? So 2 questions. Lal Karsanbhai: Yes, Deane. Great. So very good around the management process. We are essentially in the redesign phase as we speak. We'll speak about it holistically when we get together later in the year on our investor conference. But essentially, what we're doing, Deane, is a redesign of a process that was, for the most part, put in place in the mid-70s and we've been operating the company around that. A lot of goodness and what that's brought to us, but we believe that we have an opportunity to really challenge and create a system that can drive more innovation, collaboration and perhaps, a little more risk taking within the business itself. So we're working that. We'll talk to you about how that translates ultimately into our continued ability to execute and to meet our commitments. So we look forward to that later in the year. Related to your KOB 3, the number is 6-0, 60%. I apologize if hadn't come across clearly earlier. It's driven predominantly by modernizations, digital, a number of the smaller sustainability type programs like flare reduction, eliminations and emission reductions fall into the category. Keep in mind also, Deane, that we had a significant amount of delayed maintenance that occurred in most of these plants through COVID, where staff left and a lot of what needed to be done just wasn't done over periods of as much as 1.5 years. So all of that is a bit of a catch up that's occurring in the plants. In terms of KOB 1, again, the funnel is at $6.5 billion today. It's pretty -- been stable over the last 12, 18 months. We're watching that carefully as we execute the LNG wave we've completed. And there's a few things, obviously, in Qatar that will come our way. So we're watching that carefully. But there that deferred maintenance and the modernization sustainability in digital is what's driving the bulk of the KOB 3 to a large extent for us as well. Operator: Our next question comes from Andy Kaplowitz with Citigroup. Please go ahead. Andy Kaplowitz: Well, last quarter, you mentioned good confidence and 30% incremental margins for the company for FY '22. Can you update us on your thoughts about incrementals in the current environment? Obviously, the incremental margin in Automation Solutions has been particularly strong. We know the savings benefits of your restructuring program have been flowing through, but the incrementals were so strong in Q1. So is there anything else going on there? And how are you thinking about automation solution incrementals for the rest of the year? Lal Karsanbhai: No, Deane. I think we reiterate that guide of 30% for the business for the year. They had a phenomenal execution in the quarter, it was almost dollar for dollar on the incrementals on automation. But I expect that to normalize as we go through the year, and I think that really guide us. It's the stake in the ground that we put in for our businesses, our expectation that would drive a clear amount of investment back into the business and enable a return back to the shareholders. So that's what we still expect. That's what we have in the financial plan and expect to deliver in the year. Andy Kaplowitz: But love nothing onetime in the quarter per se in that business, right? Lal Karsanbhai: No. No. Andy Kaplowitz: Got it. And then I think your comments were exactly in line with AspenTech management's comments that they mentioned they're seeing some acceleration of final investment decisions for LNG and Middle East oil and gas projects. But they also suggested that they were seeing their refining customers improve their spending. Maybe you could elaborate a bit on what you're seeing in your major energy markets. Are you seeing an acceleration in core North American refining and upstream markets. I think your orders at 19% would imply that, but maybe you can give us a little more color. Lal Karsanbhai: No, absolutely. North America is very strong for us across Automation Solutions right now and it's broad-based. It's a process. I think overall, the oil and gas segment, the outlook is very high single digits as we think about the year. And the CapEx, a lot of that CapEx that we're seeing is driven around those sustainability efforts in production and expect that to be strong. So it's consistent with what AspenTech has seen across the process industries, which has been a bit of a laggard to discrete, obviously, in hybrid that we experienced through 2021. Operator: Our next question comes from Steve Tusa with JPMorgan. Please go ahead. Steve Tusa: Can we just get a little bit more specific color, I don't know if you said this earlier on the call, but what you expect the price cost to be in 2Q? And then I guess just you're guiding to an expanded spread there. How much of that spread is from -- I would assume all that spread is from increased price. And ultimately, what's your price capture this year in revenue? Frank Dellaquila: Yes. Steve, this is Frank. So it's -- as we've said before, it's going to improve through the year. We did raise the guide. But again, that guide also -- it does not include the impact of wage and freight. Wage and freight is a significant increase versus the visibility that we had back in November. So much of that increased price that we went out and got is in response to those 2 items. So in terms of how the thing models out, I mean we will turn green on a traditional basis in the second quarter, and then we will continue to ramp the price actions are about 90% in place in terms of the material pass-through that we've expected right from the beginning as well as all the discretionary actions that have been implemented across commercial and residential solutions to offset the NMI, the material inflation, excuse me. So I mean, we see it pretty much as we saw it back in November. And frankly, it's kind of grossed up because we've had to go out and take incremental actions in response to what we're seeing. Steve Tusa: So what's the total price capture for the year now for the -- in revenues percentage-wise? Lal Karsanbhai: Yes. I don't think we Frank Dellaquila: Yes. We're not going to go exactly there. I will just tell you that our price capture is at least as good and a little bit more robust than what we talked about back in November in terms of how we model out the year. Steve Tusa: Got it. And then just one quick one on resi. On your resi HVAC business, is there a quarter this year that you're planning to be down on that business as kind of inventory and channel fill? I mean, everything kind of whips around on a volume basis. Lal Karsanbhai: Down relative to where we are today, certainly in the fourth quarter. Steve Tusa: Year-over-year. Year-over-year. Yes. down quarters. Lal Karsanbhai: It could be tight in the fourth quarter, Steve. It would be my take comment. Ram Krishnan: Yes, down volume in the fourth quarter, but will be -- obviously, we're getting price. So I think we'll be right around flat in the fourth quarter from a resi perspective, but down volume. Operator: Next question comes from Andrew Obin with Bank of America. Please go ahead. Andrew Obin: Just a question about -- on first, what have you learned since you've announced the merger with Aspen about opportunities, not only that Aspen offers but cross-selling opportunities. And a follow-up question also is on systems and software sales. Could you just give some color as to -- it seems from your disclosure revenue growth was only 1%. But can you just give us more color what happened to the assets that are going into Aspen? Lal Karsanbhai: Yes. No, look, we continue to be very excited about the commercial opportunities with AspenTech, as you heard from Antonio on the call as well. The commercial agreement is underway. We're working finalizing the last little elements there. The global teams have begun to collaborate. And it's very interesting and even as I made customer calls in Houston 3 weeks ago, engaged at both the Emerson and the AspenTech level in terms of defining opportunities across both businesses. So I think those will come into more clarity as we get closer to close. In terms of the software assets, Ram, if you want to comment on the performance of the assets? Ram Krishnan: Yes. I think the 2 software businesses, GSS and OSI had a very, very good first quarter from an -- orders remain very strong. OSI remains on plan. I think the other point is from a sales growth perspective, which is the number you touted in I think we were up 2% on systems and solutions. And primarily, that was driven by electronic shortages in our systems business, our DeltaV business. Orders, frankly, were strong double digits. So we are seeing good momentum from an order activity as it relates to our systems businesses, both the businesses that we're contributing as well as the ones that will remain within Emerson. Andrew Obin: And just a follow-up on Commercial & Residential. How do you think -- what are you seeing from your customers about we've heard of the AHR Expo a lot about sort of product transition towards the year. And how disruptive do you think it's going to be sort of to the optics of shipments, right, because people may not want to have inventory in the channel, there are different regulations. What are you hearing from your customers? And what's the state of the readiness of the industry to manage this transition, given how stressed the supply chains are? Ram Krishnan: Yes. I think, Andrew, as you probably heard at the AHRI, I mean, at this point, all of our customers are telling us do not slow down. Fundamentally, they have immediate demand that we are continuing to satisfy. They're building in safety stock for what will traditionally be a big third quarter in the industry. And more importantly, they want to build up into fourth quarter in advance of the transition that's going to happen Jan 1. So at this point, I think the messaging is do not slow down, and we will continue to see good order activity from our customers over the course of the next few quarters here in preparation for that. I don't think there's going to be a significant inventory build before the transition, but I think demand will not slow down in the fourth quarter like it traditionally does. Operator: Our next question comes from Nigel Coe with Wolfe Research. Please go ahead. Nigel Coe: So I just want to go back to the price/cost, Steve's question. Is that 175 still being captured wholly within Com/Res? Or was it spread more across the 2 segments, I think the 100 primarily with Com/Res? Frank Dellaquila: Yes. No, it's actually spread across the business. So we're seeing more of the wage and particularly the freight inflation in commercial/residential, just given the nature of the business. But we're also going out and capturing significant incremental price in automation solutions in response to the mainly, to the electronic component shortage where we are working very hard to get what we need to make product and in some cases, paying significantly more than you normally would pay. So it's pretty balanced and the actions have been significant in automation solutions as well. Nigel Coe: And then on A/S, obviously, the margins that have been touched on already. 1Q is normally the weakest -- or rather the lowest quarter for margins. So I'm just curious, this is not a normal year or anything, but would you still expect 1Q to be the low bar for margins and the sequential improvement from there? Then just on the guide for 7 to 9 to get to the mid- to high end of that range would require a pretty significant ramp-up in the second half of the year. I'm just curious, what does the backlog tell us about the second half? And how much comps do you have in the high end of that range? Frank Dellaquila: Nigel, I think we feel pretty good. Again, everything we say is kind of tempered by the unknowns around logistics and supply chain. Having said that and seeing our operations people basically figure it out as we go through time here, we have good confidence in the upper end of the range for the year. Certainly, the pace of orders in the backlog more than supports that, and it's all about conversion. And we feel very confident in our ability to convert. There's a big ramp in the second half of the year, no doubt, but we've known that from the beginning of the year, both in terms of volume and sales as well as in profitability because of the way the price cost comes through and the price is realized heavily in the second half of the year. So we feel pretty good about it. Operator: Our next question comes from Joe Ritchie with Goldman Sachs. Please go ahead. Joe Ritchie: So my apologies if I missed this earlier, but I know you spoke a little bit about KOB 1, roughly $6.5 billion. I'm curious, just more broadly, how are your conversations with customers today, just given the move that we've seen in commodity prices? I just wonder if that funnel is starting to get bigger and the near-term opportunity is more imminent? Lal Karsanbhai: No. Great question, Joe. And I had the opportunity to spend a few days in Houston with customers face-to-face, which is great in the Energy segment, chemical and energy, and the mood is obviously positive. But what's most interesting is how budgets are shifting into the sustainability elements in a very significant way, which is what we've seen in our own funnel, where almost $1 billion now is essentially around those types of electrification. Could be carbonization, emissions, all the sustainability buckets. So that is a significant shift in capital, and I think we'll see that increase over time as we go forward. We see positive move on the large KOB 1s that do remain, whether they're North America-based LNG or Qatar, those are moving forward. We received a number of awards already around our instrumentation and our valve businesses and actuation businesses in Qatar over the last few months. And so we continue to see encouragement there. But I'd suggest, Joe, that the makeup of KOB 1 will start to shift more and more into that sustainability area. Ram, any comments? Ram Krishnan: No, I think well said. I mean, at this point, the number is holding flat at 6.5%, but we could tell you that the pace of FIDs or final investment decisions continue to improve just given the nature of the spend we're seeing with our customers. So we'll see that unravel over the next several quarters. Joe Ritchie: Got it. That's helpful. And then my follow-on is just on M&A. Since you clearly, obviously, announced the large acquisition at the end of last year on the software side. I'm just curious, how are you thinking about your pipeline today? There's some assets that seemingly might be coming up on the market. And I'm just curious like where is your focus today? Is there still an emphasis to diversify away from oil and gas? Just any color that you can give us today would be great. Lal Karsanbhai: Sure, Joe. We're very active both on the pluses and minuses. Obviously, our strategic imperatives around diversification is important to create a world-class automation business. So we're very active looking at those. And you're right, the market is active and there are interesting assets out there, and we'll participate accordingly. So we'll stay active. Our balance sheet is in very good shape. I think we have firepower if we' to choose to do other things, and we have that flexibility. So we'll keep -- we'll be smart and very attentive to the opportunities that are out. But we'll also be very intentional as to the pathways that we've defined and we'll speak more about in our Investor Day around the portfolio journey and the targeted verticals that will drive increased value creation through underlying sales growth. Operator: Our next question comes from Markus Mittermaier with UBS. Please go ahead. Markus Mittermaier: If I could come back to the budgets, please. I understand its shifting increasingly to sustainability. As you said, where would you characterize sort of the absolute level of these budgets versus, say, the last cycle peak in '18, '19 sort of -- maybe that's 1 question, trying to get to the total profit pool? And then how easy is it now to get these budgets released when you speak to your customers? Lal Karsanbhai: Okay. Sure. Sure, Markus. I'll be happy to give you some insights. So year-over-year from last year, budgets overall or the size of budgets there up undoubtedly on the KOB 1 side. However, if you look back through time, particularly given the significant LNG wave of investments, they're down because those are very significant capital that was put on outlay to increase capacity of LNG. So they're down on that basis overall. So for us, it's been stabilized from an Emerson Automation value over the last few months and that we'll see as things may potentially expand or particularly around sustainability, as I said earlier. Markus Mittermaier: Okay. Great. And then more final question on the comments around redesign of products. I know you obviously have to do that given the shortages of parts. But is that also an opportunity from a design to value perspective? Or is there frankly no time to kind of focus on taking cost out of all these products that you have to redesign now anyway? So is it really focused on, okay, I don't have a certain shipment and try to redesign that part? Or can you go beyond that to maybe change structurally, the bill of materials in a number of your products? Ram Krishnan: Great question, Markus. This is Ram here. So I think the short answer is we're doing both. I think the immediate need as we wrestle through component shortages is redesigning to ensure that we have component availability to meet current shipments. However, in the Automation Solutions business, particularly where we have the biggest exposure to electronics, Mark Bulanda and his team are fundamentally redesigning all of the major platforms across automation solutions into next-generation platforms that are fundamentally enhanced performance use more modernized electronic components, upgrading the chips, obviously putting more diagnostics and additional functionality into those platforms. And we're using this opportunity to invest in next-generation platforms that will address what you referenced, better cost, better performance and, frankly, give us more robustness in our supply network design in order to support these products. Now as you know, that will take a little longer, but I think it's important to understand that we're remaining focused on both, manage the short term with immediate redesigns, but then invest in next-generation platforms going forward for the longer term. Operator: Our next question comes from John Walsh with Credit Suisse. Please go ahead. John Walsh: Great. Maybe a first question just around China. Obviously, you called out very strong growth there around sustainability, decarb, a lot of stuff happening on the ground there as it relates to potential stimulus. Just are you seeing anything change in China? And how are you thinking about it? Lal Karsanbhai: Look, just to give you a perspective, we have a traditionally very strong business in China, as you know, almost 10,000 employees in China and a business that continues to be incredibly robust. On a destination basis, automation business in China in the quarter was up 17%. The orders, as I think I mentioned, were up 34% in the quarter. So we feel really good. Obviously, we continue to be active in conversations, both governmental and quasi governmental as you could say, to try to influence normalcy of relations with China, but we've continue to feel really good about our position in the marketplace, our ability to win and differentiate and really have loyalty from the customers that are based in China. And our continued acceleration in project participation and growth of our underlying business is, I think, testament to that. Ram? Ram Krishnan: And just to add, I think -- so as Lal described, I think overall, our Automation Solutions businesses remain very robust in China, and I think we expect that to continue. If there's any semblance of a slowdown in China, we've seen it in our appliance businesses, related businesses where we supply sensors. And then our air conditioning business did see a soft first quarter, flat demand, if you will. However, that's where the stimulus and the China stimulating their economy will help in the second half because we expect that to have an impact on our consumer-related businesses. So just to summarize, China, strong automation solutions, expect that to continue, and then we'll wait to see how the stimulus drives fundamental demand in our Climate Technologies business. Lal Karsanbhai: Fair to say that we continue to plan very high single digits, if not low double digits for the year in China from a definition sales performance. John Walsh: Great. And then maybe a similar follow-up to that. If you listen to what some of the kind of integrated energy companies are saying and where they're going to put their CapEx. I mean emissions reductions been mentioned several times. You have product that helped that. Are you actually seeing sales today that can attach that as the reason for why you're getting the sales order? Just thinking about how they have to upgrade their installed base for these -- their own sustainability goals. Lal Karsanbhai: Absolutely, absolutely. And it's broad-based across the energy segment from the producers in traditional upstream like Pioneer to the integrated oils flare elimination, emission reduction, decarbonization, carbon capture programs. And the example -- one of the examples that I shared with you at the offset around emissions was exactly that. So we're -- we can attribute bookings and sales. We have significant pursuits underway across our world areas with our selling organizations around those technologies that are part of our core portfolio that aid our customers in that transition. So we feel really good. Ram, if you've got something to add. Ram Krishnan: Yes. And I think to your point, in terms of the broader scope of technology, whether it's continuous emission monitoring, analytical systems that Lal showed in as an example or the relief valves or other isolation valving associated with emissions monitoring. We've got a very, very good scope of products that can help our customers, and we're certainly seeing a nice uptick on all those product lines as it relates to these type of investments for our customers. Operator: Our next question comes from Tommy Moll with Stephens. Please go ahead. Tommy Moll: I wanted to circle back on the strong implied exit rate for your auto cell business. I think I heard you say earlier that a lot of the visibility there is on backlog conversion. Could you give any insight as to an end market or part of the world that's particularly strong as you see that backlog start to unlock through the rest of the fiscal year? Lal Karsanbhai: Look, I'll give you a perspective from an industry perspective, Tommy, and just from a worldwide perspective for the quarter. The quarter performance globally was relatively strong, but the opportunity really lies in -- from a geographic perspective, in North America and Western Europe from a conversion of backlog perspective. In terms of markets, we expect the process space to be in the high single digits to low double, ultimately, high singles on hybrid as we go through the year and low doubles on discrete as we go through the year. So the discrete strength continues, and then we'll see an acceleration as we go through the process. That's the potential that we see out there. Geographically, I feel really good about where we are. And obviously, as we convert backlog in the developed economies of Europe and U.S., we'll see that benefit. Tommy Moll: And as a follow-up, I wanted to ask about the funding on the Aspen deal for the $6 billion cash portion. So you've got nearly $5 billion on the balance sheet today after the recent notes financing and it looks like you monetized part of the Vertiv stake. What are the plans to fund the remainder of that $6 billion? And any chance for a sizable divestiture between now and then that would fill part of that gap? Frank Dellaquila: Tommy, this is Frank. So the plan right now, leaving aside divestitures for the moment, the plan right now is we did $3 billion of term debt in December. We will probably take more cash off the balance sheet than we normally do in a given year to also partially fund and then the balance we intend to do in the commercial paper market. We've had our debt ratings now reaffirmed by Moody's. S&P had done it right from the get-go. So it will be a combination of the $3 billion term debt. Cash on the balance sheet beyond what's on the balance sheet as a function of having done the term debt and then commercial paper. If there is a divestiture and there's no major divestiture in flight right now. But obviously, if there's any divestiture, those proceeds will go towards the cash portion of the purchase. Operator: Last question today will come from Jeff Sprague with Vertical Research Partners. Please go ahead. Jeff Sprague: I'll make it one question because my second was about divestitures, which Frank just addressed. I will -- I'm just wondering if you could give us a little color on actually labor cost and the inflation that you're dealing with. I would assume most of the inflation is in the U.S., but I'm curious if it's spreading to other parts of the world. And can you give us any color on labor as a percent of your COGS or some other framework to think about it? Ram Krishnan: Okay. Yes. This is Ram, Jeff. First off, from an inflation perspective, you're right, U.S. inflation is probably the biggest portion of the inflation, but we have seen inflation in Mexico as well. Mexico, frankly, Jan 1, they increased minimum wage, entry-level wage by 22%. And frankly, this is 1 of 4 minimum wage increases we've seen in Mexico since 2019. So there's issues outside of the U.S. as well, but majority of the inflation is in the U.S. And in our larger compressor plant, for example, we've seen wage inflation, particularly entry-level wages go up by 20% to 25% over a couple of steps. We've had to do that to remain competitive and have the labor availability to work down our backlog. So that's the extent. Normal inflation in some of the other markets we operate, China inflation, India inflation, Europe inflation. Nothing abnormal, normal levels of inflation in those markets. So the abnormal levels we're seeing are particularly in the U.S. and some, Mexico. Jeff Sprague: And can you size labor as a percent of COGS, maybe Frank? Ram Krishnan: DL is about 9 -- high single digits... Frank Dellaquila: Obviously, a little higher in Climate Tech & Commercial Residential and a little lower in Automation Solutions, but high single digits on the profit waterfall as a percent of sales. Operator: Ladies and gentlemen, this will conclude our question-and-answer session, and this will also conclude the conference. Thank you for attending today's presentation. You may now disconnect.

Operator: Good day and welcome to The Emerson Fourth Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note that this event is being recorded. I would like to turn the conference over to Colleen Mettler, please go ahead. Colleen Mettler: Thank you. Good morning and thank you for joining Emerson's fourth quarter and fiscal year-end Earnings Conference Call. Today, I am joined by President and Chief Executive Officer, Lal Karsanbhai, Chief Financial Officer, Frank Dellaquila, and Chief Operating Officer, Ram Krishnan. I encourage everyone to follow along with the slide presentation, which is available on our website. Please join me on Slide Q. As always, this presentation may include forward-looking statements which contain a degree of business risks and uncertainties. Please take time to read the safe harbor statement and note on non-GAAP measures. As I turn to Slide 3, I would like to highlight 2 areas where Emerson is making a difference. First, Mike Train (ph), our Chief Sustainability Officer, will be attending this year's United Nations Climate Change Conference [Indiscernible] 26 in Glasgow. Mike will be a panelists of the Adjacent Sustainable Innovation forum, participating in 2 notable discussions. The first discussion will be how to support small to medium enterprises to adopt net 0 pathways, and the second on supporting breakthrough innovation to green hard to abate sectors. Mike has worked this year to drive many greening of, buy and with Emerson initiative. One notable greening by example, in the recent announcement between BayoTech and Emerson to accelerate production of distribution of low cost, low carbon hydrogen. In the agreement, Emerson will deliver advanced automation technology, software, and products, and support a BayoTech building hundreds of fully autonomous hydrogen units to enable hydrogen fuel cell, commercial trucking fleet, and abatement projects in steel and cement. Another exciting initiatives is our a $100 million commitment to corporate venture capital, Emerson Ventures, designed to accelerate innovation by providing insights into cutting-edge technology that have the potential to solve real customer challenges. The investment commitment will advance the development of disruptive discrete automation solutions, environmentally sustainable technologies, and industrial software in key industries. A formal announcement and more information will be seen in tomorrow's press release. Finally, our investor conference historically has been in February. However, due to the recent announcement with AspenTech, we have decided to move our investor conference to May. It will be located at the New York Stock Exchange on May 17th 2022. I'd like to now turn the presentation over to Emerson's President and CEO, Lal Karsanbhai for his opening comments. Lal Karsanbhai: Thank you Colleen, and good morning, everyone. 2021 was a phenomenal year for Emerson. It developed very differently obviously than we planned a year ago. For one, I was named CEO and brought a new value creation agenda to the table. But equally important, we operated in an environment which was both rewarding and challenging for the organization. Through it all, our teams around the world did a fabulous job. I want to express my sincere gratitude to all the Emerson employees around the world. Thank you. I will also like to thank Emerson's Board of Directors and our shareholders for your support and confidence in the management team. 2021 was characterized by strong demand in our Residential Air Conditioning business, as well as our hybrid and discrete markets in Automation. Furthermore, we have experienced a recovery in Process Automation markets. The automation KOB3 mix for 2021 was up 2 points to 59%. And Emerson September 3-months trailing orders were plus 16%. We grew 5.3% underlying and leveraged at 38% operationally, inclusive of a $140 million swing in our price cost assumptions from November through the end of the fiscal year. The earnings quality of this Company continues to be excellent, with free cash flow conversion of 129%. The fourth quarter however, was challenged significantly by supply chain, logistics, and labor challenges. And that is not dissimilar from anything you've heard before. This was experienced in the form of material cost inflation, notably, steel, electronics, and resins, and lead time extensions. In addition, we experienced logistics challenges, unavailability of wanes and costs, and lastly U.S. manufacturing labor which was characterized by higher turnover rates, absenteeism, and overtime costs. In the quarter, we missed sales by a $175 million and alongside a challenging price cost environment in our climate business. It resulted in a negative $0.14 impact to EPS for the quarter and then $0.19 impact to 2021 EPS. Having said that, the Company grew 7% in the fourth quarter and had 19% operating leverage. Turning to '22, and some initial thoughts. The first half of the year will not look too similar from the fourth quarter, with slight sequential improvement as we go to Q2. Price cost and supply chain challenges unwind in the second half of the year, against the backdrop of continued strong demand. The price cost assumption in the year will be a positive $100 million for 2022. I'm very optimistic for 2020. The operating environment has unpredictability, but it is significantly more stable than a year ago, and demand is much stronger. The residential AC cycle was moderate as we go through 2022. However, we expect automation markets to continue to strengthen, driven by digital transformation and modernizations, replacement in MRO markets, and select LNG and sustainability driven KOB1. Most notably, methane emissions reduction projects and carbon capture. I have confidence that we will deliver 30% incremental on our underlying sales in 2022. This addresses execution and, as you know, that's one of the three pillars we identified as the management team for accelerated value creation. We have equally taken significant steps in our journey to modernize our culture and advanced ESG initiatives. The board named James Turley as the Company's independent Chair of the Board. We named Mike Train as the Company's first Chief Sustainability Officer. And we hired Elizabeth Adefioye as Emerson's first Chief People Officer. I'm very proud of the diversity targets we set for the enterprise. The changes to our long-term compensation and annual bonus structure to include ESG measures and the commitments we have made to accelerate greenhouse gas intensity reductions. Lastly, turning to the portfolio, please turn to Slide 4. We recently concluded a comprehensive portfolio review, which culminated in a 2-day session with our Board of Directors in early October. We left the meeting with a defined portfolio roadmap and pathways. The key elements were as follows. Firstly, in terms of the portfolio today and how we're thinking about it. Diversification is critical. We will continue to divest upstream oil and gas hardware assets. Secondly, we will action low growth or commoditized businesses and lastly, we will action disconnected assets. All three of these actions will take place over time with intentionality, that patients and a keen awareness of cycles and meeting the value creation proposition to our shareholders. Secondly, we identified 4 large, profitable, high growth end markets, each with at least $20 billion of size and projected to grow higher than 4% a year into the future supported by macros. The 4 end markets will be the hunting ground for our M&A activity. Lastly, we define 2 possible end states for the portfolio in the journey that we'll embark on, and that have embarked on. One of the 4 markets is Industrial Software. A $60 billion a year segment that we identified growing at 9%. The AspenTech transaction is an exciting step for Emerson, and a very important transformational step for this corporation. AspenTech is one of the best run industrial software companies in the space, with highly differentiated technology and a phenomenal leadership team led by Antonio Pietri for who I have the greatest personal admiration. The AspenTech Company will be a highly diversified business with transmission and distribution as its largest served markets and uniquely positioned to enable our energy customers to transition to a lower carbon future. I'm optimistic of the synergy opportunities that exist and believe the new AspenTech, which will be 55% owned by Emerson shareholders, will be a differentiated platform for future industrial software M&A. I'm very excited about this as I hope you can tell. We expect to close the transaction in the second quarter of 2022 following the completion and approval of the customary regulatory items. With that, I will now turn the call over to Frank Dellaquila, Emerson's Chief Financial Officer. Frank Dellaquila: Thank you Lal and good morning, everyone. Please turn to Slide 6, if you would. So we're really pleased with financial results for fiscal 2021. As Lal said, we ended the year with a great deal of uncertainty and far exceeded the expectations we had at the beginning of the year. The underlying demand environment developed, such as much as we thought it would, it was continued strength in global discrete and hybrid automation markets and in North America process markets began to gain momentum later in the year. The global demand and our commercial residential markets were strong and broad-based, particularly in the U.S. residential air conditioning market. And it's far exceeding the expectations that we had going into the year. Our operations teams successfully worked through labeling supply chain issues, particularly towards the end of the year, and deliver the strong results that we're able to report to you today. Towards the end of the year, the intensifying combination of rising material costs, supply chain challenges, and labor constraints of the U.S. did begin to weigh on sales volume and profitability. We've worked through that in the fourth quarter and we will continue to work through that in the first half of fiscal 2022. Despite these fourth-quarter challenges, we're pleased to report, as we see, the key financial targets that we committed to you in August regarding underlying growth, adjusted EBITDA margin, adjusted earnings per share, and cash flow. And you can see all of that in the table. This was achieved in the face of an unexpected increase in key raw materials, mainly steel and copper, that resulted in an unfavorable price cost swing of a $140 million during the year, versus the expectation and the guidance that we gave you a year ago. We're very grateful for the extraordinary effort of our operations teams at every level, and the manufacturing employees who made this happen under some of the most challenging conditions that we've seen. Please turn to Slide 7. This slide highlights our strong 2021 results. The continued recovery in our end markets drove strong full-year underlying growth of more than 5%, net sales were up 9% year-over-year, including a one point impact from acquisitions, mainly OSI, which closed at the beginning of the fiscal year. Adjusted segment, EBITDA benefited from strong leverage and operations. 38% as well I Just mentioned that adjusted EBITDA from underlying volume and the benefit of cost recent actions that were begun 2 years ago. These cost reductions more than offset price cost headwinds, which as I said, we're a $140 million versus our expectation at the beginning of the year, and the supply chain challenges that raised costs and reduced availability. Cash flow was robust, up 18% year-over-year attributable to the strong earnings growth and working capital efficiency. Free cash flow conversion of net earnings was 129%. Adjusted earnings per share was $4.10, exceeding our guide by $0.03 at the midpoint and up 19% for the year. Automation Solutions underlying growth was flat year-over-year, growth turned positive in the second half, driven by strong discrete and hybrid markets, while the later Cycle Process Automation markets delivered sequential improvement as we move through the year. Adjusted EBITDA increased 230 basis points due to the strong leverage driven by cost reset benefits. Commercial and Residential saw exceptional growth of 16% underlying year-over-year due to broad strength across the Residential and Commercial markets with mid-teens growth in all world areas. Adjusted EBITDA increased 20 basis points versus prior year. Price cost headwinds worsened in the second half, particularly in the fourth quarter, as we anticipated on the call in August, but were offset for the full year by strong underlying leverage and spending restraints. Please turn to Slide 8. Operational performance was strong throughout the year, adding $0.59 to adjusted EPS, overcoming a $0.19 headwind from supply chain and $90 million of unfavorable price cost. Operations leveraged at more than 35% on volume and cost actions. Non-operating items contributed $0.02 net, overcoming a significant headwind from the stock comp mark-to-market accounting. Share repurchase totaled $500 million as we guided, and added about $0.03. In total, adjusted EPS was $4.10, as I said, an increase of 19%. Please turn to Slide 9. Regarding the fourth quarter, strong end market demand drove underlying growth of 7% with net sales up 9%. This growth was achieved despite $175 million impact from supply chain, logistics and labor constraints that affected both platforms in somewhat different ways. Adjusted segment, EBITDA dropped 10 basis points, reflecting 200 basis point impact from supply chain volume constraints across the Company and from the increasingly negative price cost headwinds in commercial and residential. Free cash flow declined 39% mainly due to higher working capital to support the growth versus the prior year. Adjusted earnings per share was $1.21 exceeding the guidance midpoint by $0.03 and up 10%, versus the prior year. Automation Solutions underlying sales were up 3%, with strong recovery in the Americas, particularly in the power generation and chemical markets, partially offset by declines in other world areas. Sales were reduced by about $125 million or 4 points due to supply chain constraints. Our backlog was up 16% year-to-date and now sits at $5.4 billion, or $100 million less than at the end of the third quarter. Typically our backlog would reduce more in Q4. However, due to strong orders and supply chain constraints, backlog remained elevated above the levels we would otherwise have expected. Strong leverage and cost reductions drove a 170 basis point improvement in adjusted EBITDA. Commercial and residential underlying sales increased 13%, driven by continued strength in North America residential HVAC and home products, as well as heat pump demand in Europe. Sales were reduced by about $50 million or 3 points due to supply chain constraints, which together with sharply increasing material cost headwinds, which were expected, perhaps a little worse than we expected in August before expected, drove a 340 basis points decline in adjusted EBITDA. With that, I'm going to turn it over to Ram to provide color around the price cost, and some of the other operational issues that we are dealing with. Ram Krishnan: Thank you, Frank. Please turn to Slide 10. Clearly, as you can see, the operating environment is a challenge, as commodity inflation, electronics supply, logistics constraints, and labor availability continues to impact our global operations. Net material inflation headwinds, accelerated through fiscal 2021, as you can see on the chart, primarily driven by steel prices, with majority of the impact being felt by our Climate Technologies business. North American cold roll steel pricing, increased once again in October, extending the streak of monthly price increases to 14 months. However, the magnitude of the increases have declined in recent funds and more importantly, hot-rolled steel prices dropped around $20 a ton in October, a positive sign for us. We do anticipate steel prices to start to flatten out over the next few months and net material inflation to peak in the first half of fiscal '22. We continue to stay focused and diligent on our pricing plans by executing on our contractual material pass-through agreements, surcharges for freight and more aggressive annual general price increases. We remain confident that price cost will turn green and will be a strong positive for the second half of fiscal '22. Our current plans indicate that price cost will be approximately a $100 million tailwind for the fiscal year. Turning to the next slide. On the commodity front, while steel prices are at elevated levels today, as I mentioned earlier, they are showing some signs of flattening, providing optimism that we will see North American cold-rolled steel prices start to decline in the coming months. Plastic resin prices have remained elevated due to high price in elastic demand, and weather-related supply challenges. Copper prices have also surged as of late, but our hedge positions will dampen the impact to the fiscal year. Now, while COVID-related restrictions are improving in Southeast Asia, capacity at key electronics suppliers remains constrained. Several key component suppliers have extended lead times, and pushed out delivery forecast, which has increased shortages and decommits to our EMS suppliers. Furthermore, we're closely watching the impact of industrial power outages in China, which has become a common occurrence at manufacturers and has led to an increase in silicon prices. For us, electronic shortages are impacting multiple business units in both platforms and supply is expected to remain a challenge into fiscal 2022. Extended logistics [Indiscernible] times, particularly on ocean freight, has add an impact on our global operations. Port congestion in the U.S., weather and COVID related disruptions in China being the key drivers. These dynamics are highlighting how critical regionalization is even on lower variation parts and components and the work we have done over the past many years to regionalize are clearly proving the importance of this strategy. This is exemplified by several of our businesses with strong regional supply basis, which have performed very well and avoided expensive airfreight and significant expediting costs. Finally, hiring and retention challenges continue in many of our old U.S. plants, predominantly in the Midwest, as competition for available labor is intense. High levels of turnover and absenteeism in these locations, have impacted productivity and driven increased over time. Now on Slide 12, despite the unprecedented challenges, our supply chain and operations teams have worked tirelessly to continue to meet the needs of our global customers. Many creative solutions are being implemented on a real-time basis to ensure continuity of material supply to our global plans, and availability of freight lines to make our shipment commitments. Our teams have leveraged strong supplier relationships, utilized free qualified alternate sources, leveraged contractual agreements, and stepped in to assist our suppliers where needed. Our regional manufacturing footprint, and the enhanced resiliency of our supply network through multi-sourcing that we spent years developing, has certainly been an advantage for us in these challenging times. Accelerated actions around hiring and production shifts to plans with stable work forces as ensured, we continue to meet our customers needs. Many of our global plans are producing at record levels, as our disciplined investments and factory automation have allowed us to unlock additional capacity to [Indiscernible] back labor availability challenges. Finally, I want to take this opportunity to sincerely thank our global teams for delivering an outstanding operational year. With that, I'll turn it over to Lal to walk through our fiscal '22 outlook. Lal Karsanbhai: Thanks Ram. Let's please turn to Slide 14 and I'll give the team some color on the current environment. In looking forward to 2022 demand continues to be strong across both the platforms. The trailing 3 month orders for automation solutions were up 20% versus the prior year, driven, as I said prior, by continued automation investments in discrete and hybrid markets. And we believe that will continue to '22, and of course the strengthening of the process automation spend. While KOB2 and KOB3 drove most of the orders growth in 2021, the new infrastructure bookings for L&G and de - carbonization will improve I believe through 2022 providing further upside. Increased site access will drive increased walk-down and shutdown turnaround activity in the business. To give you perspective, 2021 walk-downs were up 50% year-over-year with more than 5,000 globally, with each walk-down driving substantial KOB3 pull through. Shutdown turnaround bookings were up for -- in '21 10% year-over-year, driven by strong spring season that extended into the early summer. 2022 shutdown turnaround outage activity span is expected to be up mid single-digits, led by chemicals and refining, leading to high single-digit bookings growth. Turning to Commercial Residential Solutions, the U.S. and Europe order rates continue to be strong heading into 2022, while Asia has began to moderate. Overall, the 23-month orders were 9% in September. In thinking a little bit further into 2022, many of our key Climate Technology then markets, will continue to have momentum, including aftermarket refrigeration, commercial HVAC, food retail and food service, driven by new store builds and quick service restaurants, and residential Keith Comp. Turning to Slide 15, looking ahead to 2022, it will be a year characterized by strong underlying demand and an improving operating environment. The late cycle process automation business will continue its recovery with mid-single-digit annual growth. Meanwhile, discrete and hybrid momentum will endure with high-single-digit in mid-single-digit growth, respectively. Growth of moderate in residential markets as demand stabilizes, but improving commercial and industrial environments will benefit Commercial Residential Solutions. Decarbonization and sustainability projects as noted earlier, will provide further growth opportunities because budgets get allocated towards these projects. Based on this macro landscape, we believe we too -- we continue to expect demand to be strong in 2022. Supply chain and price cost headwinds continue through the first half, pressuring first quarter leverage, return to significant tailwinds in the second half, and end positive in the year. The team has done a significant amount of work, progressing our restructuring programs. Emerson's 2021 adjusted EBITDA of 23.1%, suppressed our previous record. Over 90% of our restructuring spend communicated in our Investor conference, is complete. And over 70% of the savings have been realized with remaining longer-term facility projects left to be completed. Great work I've seen. Let's turn to Slide 16 and talk about guidance. So given this landscape, we expect underlying sales growth of 6% to 8% in 2022 and net sales growth of 46%. Underlying sales growth for Automation Solutions will be 6% to 8%, while Commercial and Residential Solutions will be 6% to 9%. As Ram discussed, we expect price cost to turning to tailwind for the year of approximately $100 million. $150 million of restructuring activities includes the minimal remaining spend on our cost reset program, and additional programs including footprint activities, that had been identified and are planned in the fiscal year. Historically, our adjusted EPS excludes restructuring and other items like first-year purchasing accounting in the calculation. Looking at the 2021 column of the bridge to the right, our prior adjusted EPS of $4.10 increases to $4.51 when removing the impact of intangibles, amortization expense of $0.41. For 2022, the amortization expense is expected to be approximately $0.42, driven by -- driving our adjusted EPS to between $4.82 and $4.97. Additional details on the calculation are provided in the appendix, as well as the accounting tables in the press release. Please note that old guidance does not include the impact of the AspenTech transaction, which is expected to close as I said earlier, in the second quarter of calendar year 2022. Turning to Slide 17, we expect the first quarter 2022, underlying sales growth of 7% to 9% with broad underlying strength across Automation Solutions and Commercial Residential Solutions. Automation Solutions will experience underlying sales growth in the mid-to-high single-digits, while commercial and residential solutions underlying sales growth will be in the high single-digits to low double-digit range. Adjusted EPS is expected to be between $0.98 and $1.02. Amortization for the quarter is expected to be roughly $0.10. And with that, I will turn the call back over to Colleen Mettler. Thank you. Colleen Mettler: Thank you Will. We will now turn the call to the operator to start the Q&A portion of our call. Operator: We will now begin the question-and-answer session. [Operator Instructions]. The first question is from Andy Kaplowitz with Citigroup. Please go ahead. Andy Kaplowitz: Hey, good morning, guys. Lal Karsanbhai: Good morning, Andy. Frank Dellaquila: Good morning, Andy. Andy Kaplowitz: Well, maybe you could give us a little more color into how you're thinking orders play out in FY22. Obviously, a nice recovery is continued in Automation Solutions, but you mentioned that you think KOB1 bookings could come in LNG and Decarbs. When do you see those types of projects hitting? And could they help maintain bookings growth at current levels as comps begin to get more difficult over the next few months? And then in C&RS, it's held up obviously very well despite Asia moderating a bit. So maybe more color into what you expect there. Lal Karsanbhai: No, I think the environment -- I'll start with Andy with Automation. The strength -- I see the strength in the Process Automation business to continue throughout the year. Very honestly we're in an environment where a $100 oil is not uncertain right now, and we're seeing some restraint in the U.S. shale and discipline and OPEC and things of that sort. That's going to free up significant capacity, particularly at NLCs, and some of the larger integrated companies to move forward on a lot of the programs that will drive the decarbonization initiatives. We've seen that already with many flaring type of projects in the U.S. And we will continue to see that with carbon caption and others accelerating I'm highly optimistic about that. On the LNG side there's 2 significant programs that we're pursuing which will be awarded likely Andy, towards the second half of the year. One is the Baltic L&G, investment and of course the Qatar North field expansion being the two largest. Those are very significant in terms of capacity additions and investment in automation, or are so both in pursuit. Turning to commercial, residential. Yes, I see the residential air conditioning mark in moderating as we go through the year and but, with upheld by the commercial strength in the marketplace, which obviously for us, is very relevant. So I do see more of a mixed bag in the Commercial Residential business driven by that moderation in the residential AC. Andy Kaplowitz: Well that's helpful, man, obviously one of the main concerns that we've heard from investors posting announcement of your deal is that Emerson instead of diversifying actually doubled down on oil and gas. So I'm sure you anticipated that concern. So maybe you could address it head on, Lal. Ultimately, I know you think industrial software as a different market, you just said that in your prepared remarks, but is the view that you believe AspenTech gives you the best chance of hitting or exceeding the long-term guidance you gave us earlier in the year? Lal Karsanbhai: I do. I obviously think that the solutions that AspenTech brings to the table are incredibly broad in terms of -- particularly the sustainability journey. And what we're seeing is that the importance of the software in term -- particularly in terms of design and optimization of assets, will be incredibly relevant as these customers embark on these new -- on the new projects. And so, I regard the energy position as important, but I've regarded more importantly from the transition and the share of wallet spend that there will be undertaken in the Energy segment. Having said that, the platform for investments in diversification, which has been a core component of the Aspen board for a long time, will continue to be important here as we go forward. And the opportunity, whether it's for M&A, and for growth in TD, and other segments is a core part of this synergy value. Andy Kaplowitz: Thanks, Lal. Lal Karsanbhai: Thanks, Andy. Operator: The next question is from John Walsh with Credit Suisse, please go ahead. John Walsh: Hi. Good morning, everyone. Frank Dellaquila: Good morning. Lal Karsanbhai: Good morning. John. John Walsh: Just wanted to talk a little bit more about the margin bridge here through the year. I think in your prepared remarks, you remain confident in the 30% underlying leverage. Your -- the guide for Q1 implies we're certainly starting I think below that. Is it all just price cost-timing driven, or is there something else there that we should be aware of for our models about the Q1 margin performance. Frank Dellaquila: Yes. Good morning, John. This is Frank. Yes, it is primarily price cost driven. We will be below the 30% assumption for the first half of the year, and then as the price rolls through, which we have -- we had some plans for that to happen. The margins will -- the leverage will increase as we go through the years. So that's how we will get there, but we're very confident that we will in fact in fact get there are obviously, Automation Solutions to leverage is good as we go throughout the year and then, it's in commercial residential where we have the ramp as price cost normalizes and then, turned positive in the second half of the year. John Walsh: Great. And then maybe a question Lal around earlier in the call, you talked about, still some portfolio pruning around some of the upstream oil and gas assets, disconnected assets, within the portfolio. Could you size that for us? What is the revenue size that you're talking about for that bucket? Lal Karsanbhai: No, John, I'm not going to do that, but I will tell you that the activities on the divestitures will be done over time. As I have noted earlier, they'll be done very carefully at times, times with incoming assets as well. Obviously, we have a large impending transaction and on the horizon here. So that's what I will tell you. I do -- I am a firm believer that share of wallet in the energy segment will continue to move to the zeros and ones, and away from hardware structure. And hence, we're going to continue to drive down that path. But in terms of sizing that entire bucket for you. I apologize John, I'm not going to do that. John Walsh: No. Worth the shot. Thank you very much. Appreciate you taking the questions. Lal Karsanbhai: Thanks, John. Operator: The next question is from Andrew Obin with Bank of America. Please go ahead. Andrew Obin: Good morning, guys. Lal Karsanbhai: Good morning, Andrew. Frank Dellaquila: Good morning, Andrew. Andrew Obin: One question we got in particular, looking at the results from one of your peers yesterday in Auto Sol, how do you guys reconcile 20% year-over-year orders growth, 16% year-over-year backlog growth, and then 6% to 8% FY22 organic revenue guidance? What's incorporated into the FY22 revenue guidance? I know you gave us some color, but just the disconnect. Lal Karsanbhai: Obviously, as we finished -- as we went into September and into the first quarter, we have some comps that are still favorable in the business. So that's one element of it. And then I think normalizing as we go into what it will be, I think still a very strong environment, and how I felt was important for us to guide in that business. And you're right, I think that the opportunities across the three served segments of the market of there's strong I think the underlying demand is very strong. But in terms of guiding with certain and -- some uncertainties remaining in the supply chain environment, I wanted to be somewhat cautious as well. But having said that, the demand picture is very optimistic. Andrew Obin: Makes perfect sense, and other question was sort of get a lot of big to date for investors. Just sort of sense of inventories in the channel. And your customers, right, because one big theme this earning season, there's a lot of companies bringing up, even companies who was very short-cycle businesses, bringing up these very strong backlogs even for companies that don't have backlogs usually. And I think, Investors are just worried that this may not end well, sometime midyear, next year. What's your sense of inventories in the channel and your customers? How do we think that plays out throughout your fiscal '22 or calendar '22, however you want to discuss, because your team has seen many cycle and this one seems to be a little bit different than way? Thank you. Lal Karsanbhai: Yeah. And I'll start, I'll turn it to Ram for a couple of comments as well. Look, on the automation side, I really don't see that as a concern. Most of the [Indiscernible] part of the business, obviously 59% in the year was booked to ship KOB3, and they went directly into -- not into inventories, but into predominantly application -- end-user application. As you turn into the Climate Business, Ram, perhaps a few comment from you. Ram Krishnan: Yeah, I would say across both our OEMs and in the wholesale community, Andrew, I would say inventories are slightly elevated to where they would be in normal times as people anticipate supply chain challenges and have been bringing in more material. With that said, I think the inventory is getting out into the end customer base through the wholesale channel and through our OEM. So I would say it's not a big issue per say and it maybe it'd be slight elevated levels, but it's not something that is unreasonable or unseasonal. Andrew Obin: I really appreciate your answer. Thanks a lot. Lal Karsanbhai: Thanks, Andrew. Operator: The next question is from Tommy Moll with Stephens. Please go ahead. Tommy Moll: Morning and thanks for taking my questions. Lal Karsanbhai: Thanks, Tommy. Tommy Moll: I wanted to start on your outlook for Automation Solutions. I think you called for 6% to 8% underlying in the 2022 outlook. I'm curious what your visibility and assumptions are there for oil and gas customers. You're planning your fiscal year here, several months in advance of when a lot of them well, and I'm just looking at $80 crude and wondering potentially when those budgets are rolled out at year-end or early next year, if there's some substantial upside potential? Lal Karsanbhai: It's a great question. Obviously, we are 3 months [Indiscernible], 4 months ahead of seeing those budgets, their capital budgets. What we are seeing and have assumed, Tommy, is a continued strength in the operating budget spend, which is, as you know, where a significant amount of the KOB3 and some KOB2 falls into. That strength picked up in the second half of fiscal 2021, and we assume and believe it will continue to accelerate as we go through 2022. But in terms of the capital environments beyond the two LNG jobs that I've -- that are obviously funded and moving through bidding phases. We will see what else comes out at the capital plans. But I would expect, Tommy, that there would be sustainable type of investments. Again, the methane emissions is a big deal. I think we saw something from the U.S. around those standards. And of course, carbon capture, of which I think, will be more and more significant as we go through the year. So we'll see. But you're right, we'll watch that very carefully as we go into Jan. Tommy Moll: Thank you for that. That's helpful. I wanted to pivot to OSI. Can you refresh us on what the top line contribution was in '21? What's your plan is for '22? And I think, it's likely going to be fair to say you've realized some revenue synergies since acquiring the asset and any anecdotes you could share on how you were able to drive those in such a short timeframe would be helpful. Thanks. Lal Karsanbhai: So phenomenal first year for the Company, approximately a $190 million in revenue in 2021, growing to approximately $220 in 2022. Well ahead of Synergy board plans, the great execution globally. We won our first transmission distribution project in Europe, with a very large customer in the Netherlands and Northern Germany. We won our first transmission distribution project in Australia, in Tasmania. Again, planting critical flags. And we're significantly engaged with the large power producers in transmission companies in the U.S.. So realizing the synergies, and great growth and profitability. So I feel really good about the acquisition. And as it goes into AspenTech, it goes in -- with lots of momentum into the business. Tommy Moll: I appreciate it, and I'll turn it back. Lal Karsanbhai: Thanks, gentleman. Frank Dellaquila: Thank you. Operator: The next question is from Josh Pokrzywinski with Morgan Stanley. Please go ahead. Josh Pokrzywinski: Hi good morning, guys. Lal Karsanbhai: Good morning. Good Morning, Josh. Josh Pokrzywinski: Well, just wondering on the Auto Sol side, maybe hoping to shore up some of the growth differential you guys are looking at, versus Rockwell yesterday. Any observation on the mechanical or say, balance and controls type business, versus more of the software and automation side? Is there a wider spread in that outlook for 2022 than usual? Lal Karsanbhai: Well, not really. Obviously, our systems and software business has outgrown our device business. Our digital transformation initiatives which are both software and device-based, have outgrown the remainder of the business. But having said that, I really don't -- I wouldn't note a significant difference as you go through a lot of the KOB3 business is device layer type of business where you'd see perhaps a little bit of a bifurcation to be honest. Because if you look at the KOB1 heavy dependent businesses, some of those in final control. But, beyond that, I'd suggest that we will see broad portfolio alignment as we go through and it's really delta of a point or so between them. Josh Pokrzywinski: Got it. That's helpful. And then, just shifting over to CNRS. I guess first, what is the -- and I apologize if I missed it. What's the price embedded in that outlook. And then you mentioned steel is coming down. Maybe prospectively based on futures. I know some of that is sort of contractually set, like, if that comes down, is that going to the calculation for how prices -- it's divined with the OEM relationships there. Thanks. Lal Karsanbhai: Yeah. Go ahead. Go ahead. Ram Krishnan: Yes. So this is Ram Krishnan. On the -- I'll answer the steel question first. So obviously, as steel [Indiscernible] to come down in the second half that we've modeled it as a moderate decline in the second half. But any significant [Indiscernible] to that really doesn't impact '22, but will translate into our pricing dynamics for '23. So it's not necessarily a concern for us in '22 and we'll watch that carefully. Obviously, we'd like it to come down which will impact the second half or help us in the second half. So that's on the steel piece. On the pricing piece, I think whatever is the inflation, I don't think we're going to give out an exact price number, but obviously the inflationary dynamics of '21 will translate and convert into material price plus through price that we will realize in '22 Josh Pokrzywinski: [Indiscernible] color. [Indiscernible] Lal Karsanbhai: Thank you. Operator: The next question is from Deane Dray with RBC Capital Markets. Please go ahead. Deane Dray: Thank you. Good morning, everyone. Lal Karsanbhai: Good morning Deane. Frank Dellaquila: Good Morning Deane. Deane Dray: Quick question for Frank, if I could. Free cash flow was well below your 4Q average. I know you called that working capital pressures. Maybe some color there would be helpful. Thanks. Frank Dellaquila: I mean, per the nature of the sales ramp and the comparison versus prior year when we were taking cash off the balance sheet, I think we have a little bit of a dislocation there in the fourth quarter Deane that will normalize. The year was very, very strong, but the cash flow was lumpy, given the way the year played out, and particularly, in commercial and residential. Deane Dray: Got it. And then for Lal, on the expectation, focusing M&A on industrial software, since it is a new structure for us with Aspen Technology, when you say industrials, where I position? Is that an Emerson driven? Is it Aspen? Would it be folded into Aspen? Does Aspen have -- are they part of the review process? And so forth. Thank you. Lal Karsanbhai: Yeah, sure. In the -- no. Industrial software M&A will occur at AspenTech. And Lal Karsanbhai: Deane, it will occur at AspenTech. Having said that, Industrial Software is only one of the 3 large market segments, Deane, that we will be acquisitive in. And you'll see those as we play those out. Obviously, they will become public knowledge. But no, I -- we've got a great platform there to transact M&A softer with what I believe will be a market multiple, that will enable the economics to work from a transaction perspective, and from a value creation perspective. Deane Dray: That's really helpful. Thank you. Lal Karsanbhai: Thank you. Thanks, Deane. Operator: The next question is from Jeff Sprague with Vertical Research. Please go ahead. Jeff Sprague: Hey, thanks. Good morning, everyone. Lal Karsanbhai: Good morning. Jeff Sprague: Hey Lal, good morning [Indiscernible] to the portfolio review, the comment about two end states. I would suppose that means you do the addition and subtraction you're talking about and then continue to [Indiscernible] as Emerson. There's option one and options two. As you do that, and then perhaps separate. If there's more that you can share on your thought process there or what might be kind of the triggering mechanisms of one over the other that would certainly be interesting? Lal Karsanbhai: Yeah, I know. I think we're going to play this [Indiscernible] as I've mentioned earlier over time. And I think I used the expression when we were in New York for the AspenTech transaction announcement, that this is a marathon, that we're going to be very deliberate and thoughtful as we go through this. We're going to be keenly aware of the value proposition to the shareholders and impacts to the cash flow, and impacts to value creation as we go through the journey. The end game, of course, is to create a portfolio that's more connected. A portfolio that has an underlying sales potential, that is higher and consequently can deliver through cycles, double-digit EPS. That's the objective here. And for that, we need to expose the portfolio to more of those markets. And between the strong Balance sheet of the Company, the strong Balance sheet that AspenTech will have as well, and the divestiture work on this side, I think we'll get there over a number of years. But there were meaningful conversations with our Board. There were great debates. Obviously, this was a body of work over a number of months, almost 4 months, that our partners did alongside management, and -- but we have pathways now and optionality. And this is why we have 2 potential end-stage here. Jeff Sprague: Great. And then just as a follow-up, sort of a bundled question around price cost and margins and the like. The price cost positive of a $100 million, does that arithmetic get you to margin neutral on price cost? And then, kind of separate, but I guess related, just the additional restructuring that you're doing, can you elaborate on that a little bit? And what kind of savings tailwind you're expecting in '22 from both the actions you took in '21 and the new actions you're talking about here in '22? Thank you. Frank Dellaquila: Yeah. Hey, Jeff, this is Frank. So the -- I mean, we're thinking about it in terms of delivering the leverage on the business for the price cost in isolation. Obviously, on the way up is not necessarily margin accretive. So we're just looking at it holistically in terms of delivering 30% plus operating leverage for the business for the year. The price cost, given the way it has rolled and will roll through, very lumpy, very distortive within the quarter. So we're just very focused on getting to that goal for the year, delivering up margins, and for the total enterprise, and delivering the operating leverage. Regarding the restructuring. I'll take a quick stab and then let Ram rollout and can come in. And your question was around the continued restructuring spend. So as we go through this week, we identify additional opportunities in both businesses. Some of it is footprint consolidation. I mean, the cost reduction March is kind of a never-ending [Indiscernible] and [Indiscernible]. Obviously very significant opportunities that we've executed on for the most part, when we talked about driving to previous peak margins. But, there's more to do in a complex business, we're continually trying to improve the cost position. And frankly, much of what we do in terms CapEx and restructuring over the next couple of years will be around capacity expansion for the breadth that we expect to see in both businesses. So we may be engaged in some restructuring that's a little bit higher than our historical levels, but it's all around continuing improving the cost position than putting in the capacity in the right places. Jeff Sprague: [Indiscernible] you've said it well. Lal Karsanbhai: Okay. Hello. Colleen Mettler: The next question. Operator: The next question is from Scott Davis from Melius Research. Please go ahead. Scott Davis: Thanks. Good morning, everybody. Lal Karsanbhai: Good morning, Scott. Frank Dellaquila: Morning, Scott. Scott Davis: Best of luck for 2022. I had a couple of questions here for you guys. First, the 30% incremental that you referenced, Lal, is that more of a baseline or a goal. Does that include the price -- the $100 million price tailwind. If you answered some of that, I apologize, but just looking for more color on that. Lal Karsanbhai: No, that is the plan. That's what the fiscal plan rolls up into commitment we're making. It does include the price. Obviously it's all in of first half headwinds that we described in second-half turning into tailwinds, whether that's price cost or supply chain. But as Frank I think said, that will be below in the first half, as we were and improve as we get into the second half, obviously. But for the year, I feel very, very good about the 3 points of incremental on the underlying sales. Scott Davis: Okay, and then the comments that you made around carbon capture, methane, LNG, is there a point where you can start to measure what percentage of your orders those particular types of projects represent, where we can get a sense of the materiality of the future growth there? Lal Karsanbhai: I think that's a great question, Scott, as well. We identified approximately a $1 billion of KOB1 projects. Now, that includes also transmission distribution, but also a whole slew of sustainability and renewable jobs, inclusive of hydrogen, including our carbon capture, etc., Biofuels, and other things. So as we go forward, I -- and then we've continued to look at our funnel, and address our funnel and how we communicate the funnel. I think it will be important for us to break those on, and give you some visibility too. So I think that's a fair question. Scott Davis: Okay. Well, good luck in 2022. Lal Karsanbhai: Thank you, Scott. Scott Davis: Thank you. I'll pass it. Frank Dellaquila: Thank you, Scott. Lal Karsanbhai: Thank you. Operator: The next question is from Julian Mitchell with Barclays. Please go ahead. Julian Mitchell: Hi, good morning. Just wanted to -- good morning. Just wanted to start with the Automation Solutions organic growth guide. So you're assuming that that business grows about 7% this quarter. And then the same over the subsequent 3 quarters, even as the comps get a lot more difficult. So I just want to understand, is sort of everything in that segment, steady-state as you go through the year in terms of hybrid versus process versus discrete, or KOB1, 2, and 3, or is there something changing across either of those [Indiscernible] kind of as you move through the year, that allows the organic growth rate to hold steady even with tougher comps. Lal Karsanbhai: Yes. Great question Julian, good to hear your voice. Yes. So, backlog situation normal if you look at our typical performance in Automation, Q3, Q4 last year, for example, I believe we reduced backlog by about $400 million. This year we reduced it by $100 million. A lot of that was reflected in that $125 million [Indiscernible] in the quarter for Automation Solutions. So the backlog situation coming into the obviously, is stronger. But having said that, we do expect KOB3 to remain strong. I think the data that we're seeing in the commitments our customers are making, particularly around STL activity, is very, very robust. And then secondly, modernization programs and the KOB1 that I outlined, whether that is sustainability or LNG, I think will come in and support the second half of the year. Obviously, KOB1, for the most part, will not turn into revenue, with the exception of perhaps some of the earlier feed stuff that in our systems business, as you know, Julian. But robust, and we will pick up as we go through the second half of the year. Julian Mitchell: That's helpful. Thank you. And then just switching to Com-Res. 50% plus of the revenues in that business a residential facing. You do call out the slowdown that you're embedding in Resi through the year, but it doesn't sound as if any major cliff is looming as you see it today. Maybe discuss how you're thinking about the situation of the OEMs in Resi, and how confident you are that you can sustain positive growth through the year in Resi with tough comps. Lal Karsanbhai: Our perspective is that we've got a couple of looming regulatory changes on the environment. Efficiency and obviously, referred to our new efficient '23 and refrigerants in '25. It's been an interesting cycle to call where I've spent a time with 2 of our largest OEM customers this quarter. I went down to Carolina, visited with Train, and went down in Miami and visited with Carrier. And we're staying very locked step in terms of understanding their demand and their projections for demand as we go through the fiscal. But we do believe that there's a moderation, not a cliff as we go through the year. Julian Mitchell: Great. Thank you. Lal Karsanbhai: Great. Well, Julian, thank you very much and with that, I think we're going to close the call. I thank you all for your time this morning and I appreciate the questions and thank you for your support. Operator: The conference call has now concluded. Thank you for attending today's Business Edition. You may now disconnect.

Operator: Good morning, and welcome to the Emerson Third Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Pete Lilly, Investor Relations. Please go ahead. Pete Lilly: Thank you so much. Good morning, everyone, and thank you again for joining us for Emerson’s third quarter earnings and conference call. Today, I’m joined by President and Chief Executive Officer, Lal Karsanbhai; Chief Financial Officer, Frank Dellaquila; and Chief Operating Officer, Ram Krishnan. I’d also like to introduce and welcome, the new leader of Emerson Investor Relations, and certainly an upgrade for the role, Colleen Mettler. Colleen joins us from the Automation Solutions finance organization, and will be your main point of contact going forward, as I try to transition to a new role in the operating business units. Many thanks to you all for your support and friendship over the past couple of years. It’s been fun. I certainly wish you health and success. As always, I encourage everyone to follow along with the accompanying slide presentation, which is available on our website. Please join me on Slide 2. As always, this presentation may include forward-looking statements, which contain a degree of business risk and uncertainty. Please turn to Slide 3. And I will turn the call over to Colleen to introduce herself and cover some exciting developments within Emerson. Colleen Mettler: Thanks, Pete. I certainly have big shoes to fill. As Pete mentioned, I’m coming into this role from our Automation Solutions finance organization, and I’ve been with Emerson for over 13 years. I’m certainly excited and humbled to be joining the Investor Relations team during this dynamic time for our organization. I look forward to speaking with all our investors and partners very soon. Now, I would like to take a moment to highlight two areas of real ESG impact within Emerson. First, on Slide 3, and keeping with environmental sustainability framework of greening of, by, and with Emerson that we introduced in February, our first topic is about Greening by Emerson. It is a great example of how Emerson solutions are relevant in enabling our customers’ sustainability initiatives. Emerson recently signed a multi-year agreement with PureCycle Technologies, which has a novel technology and process for fully recycling plastic number 5, polypropylene back to a clear pellet. As some of you may know, polypropylene is a common form of plastic that has not had great recycling options. Emerson is serving as their born digital automation partner going forward with initial plant project in Ohio, Georgia and a remote operations center in Florida. Now, please join me on Slide #4. Our second topic is a Greening with Emerson example. Leveraging our Helix Innovation Center in Dayton, Ohio, Emerson has collaborated with the Department of Energy and their Oak Ridge National Laboratory to advance next-generation HVACR technology, expanding the applicability of heat pump technology, redesigning refrigeration architectures to maximize efficiency and food retail, and working to minimize energy used and leaked in commercial HVAC applications are just a few of the exciting areas of cooperation. We have a number of collaborations with the Department of Energy and their lab. We look forward to continuing to build these relationships and support the development of novel solutions and real sustainability roadmap going forward. Now, please turn to Slide 5, and I will turn the call over to our CEO, Lal Karsanbhai. Lal Karsanbhai: Thanks, Colleen. Just a few words before I turn it over to Frank to go through the financial data. First, Pete, thank you very much, Godspeed and have a good luck in your new opportunity. We’re all very excited for you and thanks for all of the hard work. Welcome, Colleen. It’s great to have you here. Colleen and I’ve had the opportunity to spend a couple of years together in Automation Solutions, and we’re very blessed to have her join our Investor Relations team. Colleen Mettler: Thank you. Lal Karsanbhai: So, welcome. Thank you. I’d like to express my thanks to the leadership teams and the management and our employees globally for what has been a very, very well-executed quarter. And we have a lot of energy and momentum behind us, which was very exciting to see as we executed through the last three months. I’d also like to express my thank you to our shareholders. I had the opportunity over the last six months to meet many of you, and I look forward to meeting more of you, as I go through the next part of the year. But I appreciate your continued confidence, your challenges and, of course, your investments. A few things, just -- that are non-financially related that I wanted to mention to the team here. First of all, our cultural work is well underway. We will be announcing our new Chief People Officer later this month. We’re all very excited about the selection process. It will be an outside hire and somebody who fundamentally will have the opportunity to come in here and really help us, as we navigate some of the challenges and create a many of the pathways that we have as we evolve the culture of Emerson into the future. Secondly, our portfolio work is complete. We have – we are now -- we’re getting ready to review it with the Board, which will occur at the October Board Meeting. We discussed briefly with the Board yesterday. And essentially, what we have defined is multiple paths for our business to drive higher underlying sales growth and diversification of the portfolio. We’re all very excited about the process we underwent. It was very exhaustive. And we have turned over a lot of different spells, defining broad markets with high-growth and loss of optionality in terms of M&A and organic activity, very exciting there. I’ll mention on the M&A front that industrial software continues to be critical, as we think about share of wallet and we think about the potential for underlying growth acceleration. And there are many pathways there. Our OSI acquisition is performing incredibly well and ahead of our internal synergy board plans. So, that’s been very, very well done. But what stands out to me most above all is the execution by the team. Yes, there were market tailwinds, and we’ll talk about those, particularly as they accelerated in Automation Solutions and continued across our commercial residential businesses. And they are relevant, but the execution was absolutely phenomenal. There were a lot of hurdles to overcome through the quarter, material inflation, material availability. We did a lot of expediting. We had to get very creative in qualifying suppliers, logistics and management of cargo around the world, and, of course, labor availability in the United States. But the team just did a great job. And lastly, before I turn it over to Frank, the cost reset work is well underway and we’re now in the tail end of the span. And we’re seeing, despite these operational headwinds, the value of that work being reflected in the incrementals of the Company. The operating leverage -- profit leverage at 34% was very strong, and now, most importantly, has given us the room to accelerate investment in differentiating technologies. And further -- that will further, I think, drive relevance -- increased relevance at our customer base. So very exciting headroom that’s created and we started those investments. And I’ll share a number of those with you and we’ll talk about that more as we go through the year. So, with that, I’ll turn it over to Frank. And I’ll speak towards the end of the call. Frank Dellaquila: All right. Thank you, Lal. Good morning, everybody, and thank you for joining us. We’re especially pleased with the results in the quarter, especially in light of the operations challenges that Lal just described, and Ram will talk about them later in the call. If you please go to Slide 6. So, continued recovery in our end markets, combined with the benefits of the cost reset actions, and it drove strong operating performance and financial results in the third quarter. Adjusted EPS was $1.09, up 36% from the prior year. Demand continues to strengthen the sales coming in ahead of our expectations with underlying growth of 15% and June trailing three-month orders were at 26%. Automation Solutions notably turned positive this quarter in both sales and orders, up 9% in sales and 17% on an underlying basis. Commercial & Residential Solutions continues to experience robust demand across the business and geographies with 29% sales growth and 43% orders growth on an underlying basis. The cost reset benefits continued to be realized as planned, reading through to the margins. And along with the additional volume and leverage, they drove adjusted segment EBIT growth of 40%, 280 basis points of increased margin to 19.6%. Cash flow continues to be very strong with operating and free cash flow approximately 30% year-over-year and free cash flow conversion exceeding 150% of net earnings. We’re continuing to implement the remaining elements of the cost reset program. In this quarter, we initiated $32 million of restructuring actions. The program is on schedule and delivering the projected savings, as we planned. Please turn to Slide 7. There’s a bridge of the earnings per share increase from prior year. The operational performance was very strong. So, the noteworthy thing on this chart is the green bar. Operations added 33% to adjusted EPS, and it was balanced between the platforms. They both delivered strong profit leverage on the strength of volume increases and cost reduction benefits, as Ram mentioned, while leverage was 34% across the enterprise. Tax, currency, pension stock comp netted to a $0.05 headwind, and there was a minor favorable impact from share purchase. Again, in total, adjusted EPS was a $1.09, up 36%. Please go to the next chart, chart number 8. So, as I mentioned, underlying sales is up 15%. Gross profit increased 90 basis points to 42.4%, driven mainly by the benefits of the cost reduction actions and then the leverage on the volume across the enterprise. We did offset the impact of price cost headwinds, which we are beginning to see intensify and which we will see in the next couple of quarters, and we will talk about a little later in the call. Adjusted EBIT margin was 18.4%, up 310 basis points. Effective tax rate was 19.2% versus 11% in the prior year. Last year, we had several favorable discrete items, mostly around R&D credits that we described at the time. This was a $0.10 headwind year-over-year that we overcame. Adjusted EPS, as mentioned, was $1.09 versus $0.80, last year. If you go to Slide 9, please, we’ll talk about earnings and cash flow. Adjusted segment EBIT again increased 40%, margin up 280 basis points. Leverage on volume and cost reset benefits offset material cost headwinds in the Climate Technologies business. Adjusted pretax earnings increased 350 basis points to 17.6%. Operating cash flow was very strong, up 31% at $1.1 billion. Free cash flow was $977 million, also up a little over 30%, driven by strong earnings growth and effective working capital management. Lastly, the trade working capital ratio improved to 15.4% of sales. Turning to Slide 10, we’ll look at Automation Solutions. Underlying sales turned positive this quarter at 8%. Trailing three-month orders accelerated to 17%. The improvement in the Americas is particularly encouraging and notable with continued momentum in life sciences, food and beverage and medical markets and a return to growth more broadly across the traditional process automation markets and sustainability-related business. We’re seeing increasing KOB3 activity across our process automation customer base, mainly driven by shutdown turnaround and outage activity and OpEx spend. MRO spend is returning to pre-pandemic levels from pent-up demand and delayed STLs. CapEx spending is recovering at a slower rate with tailwinds from site-based emissions and optimization projects. The platform continues to implement the comprehensive restructuring actions that have been ongoing, and the benefits are flowing through to the financial results. Adjusted EBIT margin increased 320 basis points and 310 basis points at adjusted EBITDA, driven mainly by the flow-through of the cost reset savings and by the volume leverage. The integration of OSI continues to go very well. We’re very pleased with the acquisition and the results to date, and we have increasing confidence in the synergy plan that we have. Backlog increased to $5.5 billion. It is up 17% year-to-date. We’ll talk a bit about the project funnel and other opportunities later in the call. Turning to Slide 11, we’ll review Commercial & Residential Solutions. Sales were up on an underlying basis, 29% versus the prior year. Orders continue to be strong and very broad-based in their strength. The June trailing three-month underlying orders were up 43%, and it was very balanced across both, Climate Technologies and tools and home products. All our businesses and geographies showed strong double-digit growth. Residential markets continue to be strong and growth has accelerated in cold chain and professional tools. The Americas were up 29% with continued strength across all end markets. Europe was up 37%, driven by continued heat pump demand and increasing sales of professional tools. Asia, Middle East and Africa was up 25%, driven by cold chain and various heating technologies. Margins improved by 170 basis points of adjusted EBIT and 120 basis points of adjusted EBITDA, driven by the strong volume leverage and the cost reset savings, which more than offset the price cost headwinds that we are seeing in the business. Please turn to Slide 12. I’m going to pass this over to Ram. And he’s going to talk a bit about operations, what we’ve done in the quarter to deliver the results and some of the challenges that we face. Ram Krishnan: Thanks, Frank. Clearly, as you can see, our operating environment remains very challenging as commodity inflation, electronic supply and labor availability continues to impact our global operations. Steel prices are at record highs with 11 months of consecutive increases and, in our estimation, have not peaked yet. Plastic resin prices remain elevated as our global teams have maneuvered expeditiously defined alternatives to maintain supply. And while copper pricing has receded off record highs, it is still up over $1.40 a pound year-over-year. Our hedge positions lessened the impact to 2021, but the inflation impact in terms of copper will carry over into most of 2022. Electronic shortages are proliferating in most of our businesses, impacting both platforms, and supply is expected to remain constrained well into 2022. Very little component inventory on microprocessors, controllers, linear integrated circuits are available in the open market, and the number of shortages faced by our EMS suppliers is growing, severely impacting lead times. And finally, labor availability continues to be an issue across many industries in the U.S., and our businesses are impacted as well. Our V-shaped demand recovery in many of our Commercial & Residential Solutions businesses, local competition driven by tight labor markets in many cities, and rolling labor constraints as waves of COVID disruptions impact our sites, has added a new level of complexity to our operational plans. It is important to note that price cost remains at an unfavorable $75 million as we estimated last quarter. No change, but we expect the maximum impact of the commodity inflation to be felt in the next two quarters. Now, despite these challenges, turning to Slide 13, I’d like to highlight some of the outstanding work by our global supply chain and operations teams to combat these challenges and help deliver phenomenal operational results to date as they remain flexible, creative and nimble in a dynamic environment to serve the needs of our customers. Our supply chain teams have worked tirelessly in this environment to ensure continuity of material supply to our global plants. As you can see on the chart, many creative solutions are being implemented on a real-time basis, quickly and effectively. Our regional footprint, both on the manufacturing side as well as supply chain that we spent many years developing, has certainly been an advantage for us in these challenging times. Many of our global plants are producing at record levels while ramping up capacity to meet surging demand and, in many cases, in-sourcing critical elements of the supply chain to address sudden disruptions. I do want to take this opportunity to sincerely thank our global teams for delivering an outstanding operational quarter. With that, I’ll turn it over to Lal to walk through our full year guidance and outlook. Lal Karsanbhai: Thank you, Ram. Let’s turn now to Slide 15. We are improving our sales outlook for the year, based on the continued strength in our orders, the pace of business and the year-to-date profit performance. We now expect underlying sales growth to be near the top of our May guidance of approximately 5% to 6%, Commercial Residential above their range in May at 15% to 16%, and Automation Solutions closer to the top of their range at 0% to 1%. The strong volume and improved cost base will flow through to margins. Our estimates are now 50 basis points above the previous guidance, increasing adjusted EBIT margin and adjusted EBITDA by 0.5% to approximately 18% and 23%, respectively. There’s no change to the restructuring, tax rate, capital spend or dividend. Strong profitability and working capital performance enabled an increase in our operating cash flow and free cash flow estimates, both of which increased by $300 million. We are also raising our adjusted EPS guidance to $4.07, plus or minus $0.01. Our price/cost headwind for 2021 currently remains as estimated in Q2 and Ram covered at $75 million, despite the current challenges that were highlighted. We continue to manage this through containment, selective price actions, but the recent market developments that Ram described will be a challenge through the next two quarters, as we navigate them. Stock compensation impact increases to $125 million. So, now, we’ll go over to chart 16, and I’ll just frame the order environment that we’ve experienced through the last three months. Emerson’s trailing three-month orders continue to be very strong and have momentum from the last update we gave you in the second quarter, with Commercial & Residential Solutions continuing to climb higher in their order run rates and Automation Solutions turned sharply positive to the high-teens in June. Commercial & Residential Solutions continues to see strength in residential, cold chain and the professional tools business, and all three very near to that average band of 43%. Discrete and hybrid markets in Automation Solutions continue to be very strong, while we see recovery in later cycle process automation markets, especially in North America. KOB3 and KOB2 are driving most of the recovery, but we are beginning to see some KOB1 activity materialize, particularly in chemicals, power and biofuels. The Americas really strengthened, up 29% as deferred maintenance demand and site access drove momentum. Finally, as we have commented in the past quarters, life sciences momentum continues to be extremely strong. Let’s now turn to chart 17, and I’ll review the underlying sales growth outlook. Q3 underlying sales were up 15% versus prior year, exceeding our management expectations, driven by the strength in Commercial & Residential Solutions as well as the North America recovery just discussed. Full year expectations on underlying sales are between 5% and 6%, at the top end of our prior guidance of 3% to 6% and sales of approximately $18.4 billion. The fourth quarter is expected to land in the high single digits to low double-digit range. For the remainder of the year, we expect to see the North America business continue to recover in Automation Solutions as well as continued broad strength in commercial residential solutions. However, the impact of supply chain and labor issues will be a challenge. Let’s now turn to Slide 18, and I’ll review our outlook by geography. As Frank mentioned, for the full year, we are expecting Automation Solutions sales to be flat to 1% and Commercial & Residential Solutions to be between 15% and 16%, driving us to our overall 5% to 6% underlying sales expectations. So, starting off in the Americas. Quarter four is expected to be strong in Automation Solutions at approximately 20% growth, broad-based recovery across all industries, led by continued strength in discrete and increasing strength in hybrid. Process is showing some recovery, although uneven with some strength from returning domestic oil demand, offset by reduced midstream investment and continued fiscal restraint in upstream. For KOB3, we expect to see continued spend for deferred maintenance and increasing spend for site access that has been pent-up from the pandemic with an expectation that we will see a strong fall shutdown turnaround season. In Latin America, strength in mining industries, particularly, are expected to continue. On the Commercial & Residential side of the business, ongoing momentum in the residential markets, driven by do-it-yourself trends, home starts and HVAC seasonality as well as strength in professional tools and cold chain are expected to continue. Europe will continue to see demand in life sciences and biofuels on the automation side. Project wins in power, midstream, downstream and sustainability will drive low to mid-single-digit growth in Q4. Commercial & Residential will see robust demand for heat pumps and professional tools as well as the continuation of the refrigeration market recovery in Q4. Turning to Asia, Middle East and Africa. Our Asia automation business is seeing healthy project activity in marine, nuclear, life sciences and semiconductors and a positive trend for site level spending in the Middle East. On the Commercial & Residential side, we are seeing the commercial recovery across the region, specifically with commercial AC and cold chain solutions. Ongoing COVID restrictions continue to be a challenge across the organization, particularly in this part of the world. Let’s now turn to chart 19, and we’ll review the business funnel for Automation Solutions. So, back in February, we commented that our traditional large project funnel was $6.4 billion, and this should be something that is very familiar to those of you who watch this carefully. Since February, we have booked approximately $80 million of projects, some LNG and one most notably in Mexico. New projects added include clean fuels, hydrogen, renewable diesels, lithium mining and LNG projects, while projects removed from the funnel since February were mostly oil and gas and downstream refining projects. The August 2021 funnel is now valued at $6.3 billion and approximately 180 projects. And below in the donut pies, you can see the industry mix of our traditional funnel. We have identified new decarbonization opportunities. And though generally smaller than our traditional definition of projects for our funnel classifications, these projects are increasingly relevant to our business. They’re being added into this view so that -- because they have the potential to grow in nature over time. Today, as depicted on the chart, these opportunities are worth $400 million and approximately 120 projects. The combination of our traditional project funnel and the new sustainability funnel is now valued at $6.7 billion. And below is the combined industry mix where we are working to diversify our funnel. On the right side of the chart, we are introducing the business opportunities with our recent OSI acquisition, which gave us an important foothold into the transmission and distribution automation space. These opportunities have slightly different characteristics from our traditional project funnel definition, and therefore, we are keeping it separate for our discussion purposes today. Generally, these opportunities are smaller and more numerous compared to our large traditional project funnel, but they are clearly strategically important. The value of these opportunities is $1.5 billion and are made up of 530 projects. To give you some perspective on the scale and how differentiated it is, approximately 15% of that $1.5 billion has a value of greater than $5 million, and 50% of it is between $1 million and $5 million. The funnel is global, although approximately $1 billion of it is in North America and Europe. Overall, we have strong opportunities ahead, and I’m bullish on overall project outlook as we diversify and expand into new spaces. Now, let’s turn to chart 20. This is a very important chart. And as Frank mentioned in our financial results showcase, our robust cost reset plan is being incredibly well executed across the enterprise. As a reminder, this comprehensive plan began in late 2019 and will be fully realized by 2023. It involves over $600 million in spend and approximately $650 million in savings. In February, we also introduced our midrange targets of 24% adjusted EBITDA margins and $4.75 to $5 in adjusted EPS. We are very much on track to reach those targets by 2023. Importantly, however, the recent outperformance and momentum through the end of 2021 is creating some headroom for critical investments, and I’m particularly excited about this, particularly as I think about key technologies that will enable our business to outperform over the long term. As you can see, revenues, margins and cash flow are all better than February expectations and are enabling this acceleration in technology investments. I’ve outlined four examples below and we’ll come out over the next months and in depth in February as to how we’re managing and thinking about these very significant investments. Those examples outlined are the Copeland K7 scroll, which is the largest new product investment in the history of our air conditioning business. This thing drives obviously increased performance and meets the 2023 efficiency regulations and is optimized for 2025 refrigerants. The Greenlee remote cutters, an award-winning tool on the right hand side of the chart, which enhances safety for cutting underground cables. The Gemini, which has our next-generation pressure in temperature device being developed in our measurement solutions business, which will have next-generation electronics, unmatched safety and process insight. And lastly, our Plantweb Optics, our integrated operational performance platform, which unifies data, people and systems to drive operational performance. And with that, I will turn the call over to the operator, and we’ll begin the Q&A. Thank you. Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Julian Mitchell with Barclays. Please go ahead. Julian Mitchell: Hi. Good morning, and I look forward to working with you, Colleen. In terms of, I suppose, Lal, the Automation Solutions sort of revenue outlook. So, a lot of very good color in the slides. It looks like the guidance is embedding sort of mid-single-digit type growth in the fourth quarter in Auto Sol organically. When we take your comments together in terms of a sort of stable funnel since February and maybe an ongoing sort of subdued oil and gas CapEx backdrop, should we take that as a good sort of medium term or into next 12 months sort of placeholder that mid-single-digit type Auto Sol growth rate? Lal Karsanbhai: Hi. Good morning, Julian. Thank you. Thanks for the question. I think that’s fair. Look, the recovery has been largely fueled by modernizations and MRO spend across facilities. There has been, as I indicated, some KOB1, but that’s not what’s going to drive us going forward. So, what I would expect is, I think, that conversion in -- of those two segments of the business into -- from orders into sales would continue. And I think the guidance is -- I think that’s a fair assumption. Julian Mitchell: Thanks very much. And then, maybe switching to the margin aspect, maybe clarify how much of that $75 million price-cost headwind sort of falls into the fourth quarter. And when we look at Com Res margins in that context, can that business sustain a sort of 20-plus percent incremental margin the next six months, or does it get sort of pushed below that by the price-cost headwinds? Lal Karsanbhai: Great question as well, Julian. Clearly, that’s where the challenge is going to be is on incrementals in Commercial Residential for the next six months. The team is working both sides of the equation, Julian, price and cost. We’re getting very creative in terms of the contract structures and the negotiations with our major customers. But we also have opportunities to continue to work availability of materials, sourcing from different world areas, moving a few things around. But that’s where the biggest challenge is, and I would suggest that your assertion is correct that the incrementals in that business are going to be the most challenged as we go over the next six months. Julian Mitchell: Great. Thank you. Operator: The next question is from Josh Pokrzywinski with Morgan Stanley. Please go ahead. Josh Pokrzywinski: Wow, I got nailed there, Josh. A couple of questions. I guess, first on some of the kind of extra funnel additions, particularly on decarbonization, nice to see that tick up. I guess, can we add some more context there, if you wouldn’t mind. I mean on one hand, your customers have -- some of your legacy customers are pretty big emitters. Is there more of a push on those folks to sort of diagnose, measure and improve, or is more of the funnel that you’re tracking sort of on more green technologies, like you mentioned hydrogen? Like, which one of those is showing up more and which one do you think could be kind of the bigger needle mover here in the medium-term? Lal Karsanbhai: Yes, great question. And I think there’s a little bit of both in the funnel. I think if you look at the traditional $6.3 billion funnel, there was already embedded in that a lot of the biofuel conversions, emissions monitoring work that’s being done downstream, particularly in refining and other parts. What’s in the green bar, what’s in the new opportunities, I think, are significantly incremental investments. And those are partially driven by things like green diesels, which is basically the manufacturing of diesel, but using a feedstock that is a sustainable feedstock or the investments in hydrogen. If you recall, back in February, we talked about $1 billion opportunity for hydrogen that was framed around 2030. However, as we now bring these projects into our -- and this is a very defined pursuit process that we run within the business. We now bring those into that pursuit, and we are pursuing those to 2023, and that’s the view of the $400 million. I expect that to increase over time and the number -- not just the number, but the scale of those projects to become more and more meaningful, which is why we’re talking about it today. But you’re absolutely right. I think, our core integrated oil customers, upstream through the midstream and downstream, they’re all spending dollars, incremental dollars on emissions, sustainability, reliability, productivity, all around those automations to drive to their ESG commitments. And that can come in the frame of conversions or of optimizing current processes. Josh Pokrzywinski: Got it. That’s helpful. And just on the price-cost side, I know some of what you guys have out there, particularly in Com Res has kind of pricing contracts that we set periodically, maybe annually. I would imagine that that puts you a bit more behind the curve this year. Can you maybe talk about what just slipping the calendar or flipping the fiscal year sort of sets up in terms of price cost? I know Ram talked about some of the hedges, postponing things like copper inflation. But I think there’s probably a little pent-up pricing opportunity as well. Could you maybe kind of match up how those things work together? Ram Krishnan: Yes. So, I’ll take that. From a pricing perspective, as Lal mentioned, our Commercial & Residential teams are working that diligently. Many of the pricing, particularly with the large OEMs, some will happen in October, but many of it will happen in the Jan time frame. So, you’ll expect the pricing to kick in, in a big way into our second quarter. And that’s all well underway. In terms of the steel and copper pricing, certainly, the copper hedges will flow through, through the year. We’ve modeled that out. On the steel side, we do expect the next three to six months to be pretty tough. But outside of that, going into the second quarter, we’ll start seeing the better pricing on steel come through as well. So, I would say, from a pricing perspective, a lot of the pricing from our perspective is modeled in the Jan time-frame. Josh Pokrzywinski: Okay. So, after that six-month timeframe, it is a bigger step-up. Understood. I appreciate it. Thanks for the color, both. Lal Karsanbhai: Thank you. Operator: The next question is from Andrew Obin with Bank of America. Please go ahead. Andrew Obin: Hey, guys. Good morning. Lal Karsanbhai: Good morning, Andrew. Frank Dellaquila: Hey, Andrew. Andrew Obin: Hey, I just was wondering if you can talk about sort of internal bottlenecks, and specifically I’m thinking Com Res. It seems resi HVAC is doing very well. You’re talking about V-shaped recovery in tools. Do you need to add capacity at Copeland and tools to deal with demand? And how are you thinking about it? Ram Krishnan: Yes. We are clearly in a position where we are adding capacity and will add more capacity as we go through this plan. Certainly, at this point, we’re fighting labor challenges in terms of short-term capacity in many of our current U.S. locations, but we are adding capacity, both in the U.S. as well as Mexico for both the Climate Technologies business as well as the tools business. So, the answer is yes. Andrew Obin: Excellent. But it’s not a constraint, right? How much of a constraint is it to growth, I guess? Ram Krishnan: It is not a constraint at current levels, I mean, outside of the labor challenges we see. But, as we model out the long-term growth dynamics of the business and certainly, the regulation changes that are coming down the pipe, it’s important for our longer-term plans. Andrew Obin: Got you. And just a follow-up question. I think, you disclosed systems and software now. Can you just break down how much -- what is organic growth? And I mean, clearly, the balance would be M&A. And also specifically hone in on growth trends that you’re seeing in OSI Power, the funnel is very impressive there. Lal Karsanbhai: Yes. So, as we -- Frank and I mentioned in the comments, Andrew, we’re very pleased with the performance of OSI Power. We were actually up there for a growth planning session just earlier -- late July. So, the teams are performing incredibly well. Management, we’ve retained management, and they’re executing the plans. And what we’re seeing is actually higher-than-expected ability to leverage existing relationships that PWS and Ovation have across the large power companies in North America. But, more importantly, the opportunity to greatly geographically expand this business at a far higher rate than we expected at the time of the acquisition. So, validating the technology, validating the applicability and the customer relevance has been very important for us. So, we’re excited. There is an opportunity to build around this business, and there is a vision to continue to transform this into more of a pure software play in terms of evolution from perpetual into subscription, in terms of outsourcing services and focusing on software and looking around measures that are relevant for software businesses, such as annual recurring revenues and things of that sort. So, we’re working that very aggressively within the business. In terms of growth rates, I would suggest high single digits on the Systems & Solutions business. And I would say, Jeff, that the data management layer grew slightly above that, but on average. But, I don’t have that number in front of me. But that would be based on what I have seen and heard, my understanding, Andrew. Operator: The next question is from Jeff Sprague with Vertical Research. Jeff Sprague: Thanks for all the transparency on your thought process here about a strategic review and everything. But, it is interesting, I guess, you say that you’ve concluded it, and you will review it with the Board in October. So, I suppose that suggests any idea of any large-scale strategic change or something like that is not on the Board or you wouldn’t be sitting on that until October. And instead, we should think about you’re cultivating a investment pipeline and kind of an M&A pipeline and, as you said, kind of looking at ways to create new growth vectors and potentially diversify a bit. Is that the right read on what you said in your opening remarks? Lal Karsanbhai: It’s an interesting read, Jeff. I’ll tell you this. The M&A pipeline is ever green. We’re working a number of opportunities as we speak, which are related to and aligned with the strategic portfolio study that we’ve done. So, we’re very excited about those, and we’ve been speaking to the Board about those opportunities through the summer and will continue to do so through this month because some may come sooner rather than later. That’s okay. Now, in terms of the overall study, look, this management team believes that the path to the higher multiple and to the total shareholder return performance is driving an increase in the underlying sales growth of the Company. And we need to fall into this bucket of 4% to 6%. So, as we look at our optionality around the makeup -- the current makeup of the portfolio and the potential to invest in new areas, that’s really what the study and the portfolio study focused on. And those are really where the engagements and debates with the Board will take place. But we’re walking and chewing gum at the same time. We haven’t stopped pursuing opportunities as a management team and as a Board, simply because we haven’t covered the details of the study with the Board, but they’re very much aware of it. Jeff Sprague: Understood. Thank you. And then, just thinking about the investments, right, it would seem like you’re certainly on a pretty good glide path that kind of hit or beat those 2023 targets. But, it sounds like you are cautioning us a little bit that the investment spending and the bias to make sure there’s growth kind of beyond 2023 potentially tempers the upside of those targets. Is that kind of a correct perspective? Lal Karsanbhai: No. Honestly, glide path is generous. There’s a lot of hard work to hit those targets, Jeff, by everyone engaged. And there are always obstacles in the way as we’re experiencing -- as we have experienced this quarter with labor and materials, as Ram and Frank described. So, it’s a lot of hard work to get there, and we’re not taking our eye off the ball. Having said that, not only do we need to work the portfolio opportunities that I just mentioned with pluses and minuses, but we need to elevate the organic investments and the organic sales growth of the Company. And with that, we have to take -- we have to make those investments for the future. So, it’s both. We have the capacity to do both. We have the opportunity to do both, like many businesses. And we’re taking full advantage of that. Operator: The next question is from Nigel Coe with Wolfe Research. Please go ahead. Nigel Coe: So, Lal, we’re getting close to fiscal ‘22. So, I know you’re going through the planning process. But, given that the funnel is building here and the activity levels in automation, I’m just curious, normally, early phases of recovery, we see solid double-digit growth in automation. Is there anything that’s changing in terms of the profile of the front-log or backlog or anything that suggests that that’s not going to be the case at time? Can we expect double-digit type growth in ‘22 for automation? Lal Karsanbhai: Yes. Hi, Nigel, great to hear your voice. A very thoughtful question actually. And if you go back through the last couple of growth cycles in automation, there was an important component, which we have to watch very carefully in this up cycle, which is the KOB1 element. We benefited from that in the ‘10 to ‘14 run. We surely benefited from that in the prior run in ‘18. But in this one, it’s been subdued to date. And that’s going to be the differentiating. Now keep in mind that we just underwent a significant investment in LNG that is being absorbed by the market. We have yet one big large project to go. But, it’s that -- that would be the -- I’d suggest that differentiated between the high single digits and the double-digit type of organic opportunity in Automation Solutions, if that makes sense to you. Nigel Coe: It absolutely does. Thanks for the color there. And then, just coming on top of Jeff’s question on portfolio, and the October Board pitch, I guess, heard that loud and clear. But given the emphasis on diversification, is it fair to say that you’re focusing here more on acquisitions as opposed to disposals? I know you’ve done a couple of smaller disposals, but in terms of material acquisitions or disposals. Lal Karsanbhai: Yes, we announced the divestiture of the Daniel oil and gas business. And what I’m going to tell you is, it’s both. We’re looking at the portfolio, both in terms of opportunities to acquire and/or opportunities to divest. And it’s a very fluid conversation with an element of that with the Board yesterday. We got their support. It’s both. Because to solve, whether it’s the equation around diversification from oil and gas and/or elevate the underlying sales growth of this company, we’re going to have to press both of those buttons. Operator: The next question is from Andy Kaplowitz with Citigroup. Please go ahead. Andy Kaplowitz: Well, can you talk about how you’re thinking about the longevity of the Commercial & Residential Solutions cycle at this point? Obviously, [Technical Difficulty] relatively enduring, I think you were worried a bit about residential comparisons toward the end of this year. So, how are you thinking about enduring residential strength as you go into ‘22 as well as the improvements you continue to see in commercial construction, cold chain and tools? Lal Karsanbhai: Great. So, I will bifurcate that into the three -- the two pieces, the climate piece and the tools, professional tools piece. Obviously, the professional tools has a different cycle, partly some of it driven by the similar set of investments that we’re experiencing in client, be it the residential growth, the do-it-yourself investments, which impacts our home products side of the tools. But the professional tools area, the rigid and the Greenlee, they’re really driven by infrastructure spend, capital cycles, not dissimilar to what we see in our mid-cycle automation businesses. And so those, I think, have sustained opportunity as we go well into 2022. The one we’re watching very carefully, as I look at climate, is the air conditioning residential cycle. And we’re watching those orders. We’re staying very close with our OEM customers, the trains and carriers of the world in terms of communicating, understanding their demand. But for now, I would expect a more subdued quarter as we go from an order perspective as we go into the fall season. But, we’re watching it very carefully. But that would make sense in the cycle that it subdues and comes. I know we’ve seen -- you’ve seen in our trailing already that commercial residential has turned, and that’s partly driven and entirely driven by that residential AC business. Ram, do you have any more color to give? Ram Krishnan: No, I think that’s spot on. Andy Kaplowitz: And then, Lal, you talked about being well into your cost-out program, which has been focused on automation solutions, as you know. And incremental margins continue to be strong there. I know we already talked about margin pressure in C&RS. But as we look at Automation Solutions margin going forward, given your cost-out program should continue to drive margin tailwind, could you continue to generate average or better-than-average incremental margin for that business in ‘22 and beyond? Lal Karsanbhai: I think so, Andy. We printed 41% incrementals in that platform this quarter, and the team has begun their significant investments around their technology and people there. The business is structurally different than the business that I took on in 2018 today, in the way it goes about and the way it manages and the way it approaches customers. So, there’s a lot of room there. The target I’ve given the business is obviously is 30% incrementals. But, as we ramp up investments and such, I think we’re likely to see higher than those types of numbers as we go forward. Pete Lilly: I think, our next question is from Scott Davis. Scott, are you there? Scott Davis: I’m here, yes. Good morning, guys. I don’t know if we messed up or whatever, but a couple of clarification issues. Just, Lal, when you think about kind of price-cost in your backlog, do you get to a parity number kind of a calendar 4Q? I’m just trying to think about how cadence is in, or if you still are kind of fighting that headwind well into the next fiscal year? Lal Karsanbhai: Yes. It does bleed into the next fiscal. Ram described the next two quarters as being the most challenging, which is right. So, that parity really arrives in our first fiscal -- excuse me, our first calendar of ‘22. So, our second fiscal of ‘22. Ram Krishnan: Yes. Scott Davis: Okay. Sorry if you said it before, I just didn’t hear it. And then, again, to clarify on the cost reduction actions, and you just had a big Board review, is that largely complete, or are there -- and can you -- I guess, do you need to start going in the other direction, I suppose, which I think Andrew asked that question about adding CapEx and such. But, do you need to actually start spending more money just given the size of the backlog overall? Lal Karsanbhai: No. I think, Ram answered that well. I think we’re looking at optionality around capacity increases in the existing footprint and in the footprint that we have initiated as part of the cost reset plan. We have operations in construction of significant size in India, in Mexico and in Eastern Europe, and all those are underway. Some will begin production later this year, others in early 2022. So, we feel really good. The challenge for us, Scott, which is not thematical honestly and not dissimilar from anyone out there, is the labor availability in the United States. And to me, that’s the biggest single constraint and what we’re fighting on a daily basis across most of our facilities. Operator: The next question is from Steve Tusa with JP Morgan. Please go ahead. Pete Lilly: It looks like we may have lost Steve. So, we can move on to the next call -- next question? It looks like our next question is from Deane Dray. Deane, are you with us? Deane Dray: Yes, I am. I missed that whole introduction, too. So, that’s the reason for the delay. Sorry about that. Good morning. So, page 16, the whole three-month underlying orders, can you give us some color on July, because it looks like Automation Solutions is pivoting to growth? And just any kind of color on July would be helpful there. Lal Karsanbhai: I don’t have a number to share with you, Deane, but I would tell you, I think that -- excuse me, somebody came on the line here. That is a fair assumption. We continue to see increased momentum in Automation Solutions. Obviously, we’re watching parts of the world carefully, particularly Southeast Asia and India. But, in large significant markets, Europe, North America and China, we continue to see good order momentum, driven by KOB2 and KOB3. Deane Dray: Got it. And then, second question has been really good color on the call here, especially in the portion from Ram on the focus on the cost inputs, labor, commodities, et cetera, but not as much focus on price realization. Can you give us, for the two segments, more color on pricing? And I know one of the headwinds on Commercial & Residential Solutions, on like Copeland, is locked into longer-term contracts. So, just price realization color would be helpful here. Ram Krishnan: Yes. So first off, I’ll answer the question with -- as it relates to automation, automation has been green on price-cost and has been very, very disciplined in getting price this year, and that dynamic will continue into next year. So, we see no issues as it relates to price or price-cost on the automation side of the business. And on the Commercial & Residential side, particularly in the climate business, the price realization, which is a function of our long-term OEM contracts, will start unlocking in the January time frame of significance. Now, we do have pricing that will go into effect in October, but the big impact we will start to see in the second quarter of fiscal ‘22, which in turn, assuming the commodities start softening, will turn them into the green category into the second quarter of next year. So, that’s how we see it. A lot rides on our contracts, which open up in the Jan time frame. Deane Dray: Got it. So, you said second quarter fiscal next year, but in answering your earlier question, it sounded like you would be at parity in the first fiscal quarter. Did I... Lal Karsanbhai: I corrected myself there, Deane, and I did say... Ram Krishnan: The second. Lal Karsanbhai: First calendar, second fiscal. Operator: The next question is from Steve Tusa with JP Morgan. Please go ahead. Steve Tusa: Good morning. Can you hear me now? Lal Karsanbhai: Yes. Steve Tusa: Sorry. You guys usually have the call in the afternoon. So, I sleep in these days. So, I was just -- I fell asleep there for a second during the Q&A. Just to clarify some of this price-cost, what was price-cost in the quarter? And then, what has it been? Just remind us of what that’s been year-to-date? Ram Krishnan: So Frank, you got that? Frank Dellaquila: Yes. I mean price-cost in the quarter, total enterprise -- Steve, this is Frank -- is roughly about negative $50 million. So, we were positive in the first half. We’ll see that intensifying in the fourth and the first quarter, as both Ram and Lal have said. And we’re going to have to work through that right through the second quarter of next fiscal year. But, it was order of magnitude around $50 million in the third. Steve Tusa: Of negative? Of negative? Frank Dellaquila: Negative. All in commercial residential. Steve Tusa: Right. So, you’re like absorbing a pretty decent amount this quarter already in your ops? Frank Dellaquila: Yes, we are. Yes. This is just about investing in that platform. Steve Tusa: Just kind of -- just trying to make that clear. Lal, just on the go-forward incremental margins, I mean, you kind of throw out, we need to invest. I mean, every company needs to invest. Nobody underinvests. I mean, some companies do, but it doesn’t seem like that way for you guys over time. What is kind of the normal incremental margin on that mid-single-digit growth rate that you can expect out of this business model over the next -- that you would expect and you would be comfortable with over the intermediate term? Lal Karsanbhai: Yes. Steve, I continue to asset that 30% number, as we go through the long term. You’ll see that flex up and down, but that’s the target. And as we executed the cost reset plan, that’s the -- how we frame that with the businesses. There will be quarters, as we saw with automation, where we’ll print higher than 40. And there will be quarters as we sell commercial residential that we’ll print forward than 30. So, it will flex, but 30 is the way I’m thinking about it. Steve Tusa: Got it. And then, just one last nitpicky one. Stock comp is obviously up massively this year. I know that there’s -- historically, like every few years, there’s like -- I don’t know if that’s where the reset is or if it’s somewhere else, maybe in corporate. Is 235 kind of a run rate number for stock comp going forward, or does that -- the prior two years were in the low-100. Is that -- does that reset lower? Frank Dellaquila: No, Steve, definitely not. As you know, it’s mark-to-market driven. It’s driven almost entirely as a function of the change in the stock price. We had the dip in the stock price last year related to COVID. We’ve had good stock price performance this year and a big delta year-over-year. But no, that is not a run rate that should be expected, the 250 range. It’s more like a 150 to 170 number, give or take, from a run rate over time. Steve Tusa: Got it. So, tailwind. And then, sorry, one last one. The orders conversion, I know there was an earlier question about mid-single-digit growth in the fourth quarter. I mean, you’re coming off of a 17% orders comp, and I know that orders don’t completely equal revenue in the immediate term. But, I mean, with that kind of orders projection and with you guys talking about turnarounds being good in the fall, I mean, why would organic growth slow in Automation Solutions? It’s a tougher comp, but it’s only a couple of hundred basis points where the orders are just obviously inflected. So, I mean why would that go from 8% to like 5% at the midpoint of that guidance? Is there something about timing, or is that just conservatism around the COVID or whatever? Lal Karsanbhai: Well, less so COVID, more so the availability of materials, particularly electronics, Steve, that are a challenge in that business. And I think as we guided Automation Solutions within that band, I think it’s -- there’s momentum on the order side. The question is, can we convert in the plants? And it is a hand-to-hand combat. I can’t emphasize that enough in terms of material arriving and our ability to have the labor to convert it. And it’s -- and that is what keeps me a little bit more guarded in terms of the order-to-sale conversion in the fourth quarter. Steve Tusa: Right. And that’s kind of like a couple of hundred million dollars difference you think in kind of your ability to fulfill? Lal Karsanbhai: Well, I don’t know. I really don’t know what it is. It’s probably around the $75 million to $100 million range. Steve Tusa: Yes. Okay. Still doesn’t quite bridge the gap, but that’s helpful. All right. Thanks, guys. I appreciate it. Lal Karsanbhai: Okay. Operator: The next question is from Gautam Khanna with Cowen. Please go ahead. Gautam Khanna: I had a couple. First, just fiscal ‘22, based on your comments on the project funnel at Auto Sol, are you thinking that the KOB3 mix stays pretty similar to what it was in fiscal ‘21 as a percentage of sales? And what is that? Lal Karsanbhai: Yes. So, the funnel -- I think, the funnel has shown resiliency as we’ve gone through the last six months or so, staying at that 6% level. The makeup of it obviously is different, smaller projects, different types of projects that we’ve seen in our -- from our customer base. Having said that, it’s all about the movement from right to left, the ability to convert the projects to be funded and then to be actioned. And that’s what we’ve got to watch and could be a differentiating element as we head into 2022 for Automation Solutions. I have a high degree of confidence, Gautam, that the transmission distribution funnel moves forward aggressively, that the renewables are sustainable, decarbonization part of the fund moves forward successfully, the conversions, the biofuels, the greenfield investments, the propylene plastic renewables that Colleen described move forward aggressively. What I’ve got to watch very carefully is the larger, particularly LNG jobs, that one big remaining one, the Qatar North Field expansion, [ph] how does that move and how do those folks think about the funding of that and as it moves forward. But that will be differentiating into 2022. Ram Krishnan: And Gautam, if you were asking about the KOB3 mix in addition to the funnel, it’s in the high-50s. And we expect to operate at that range for the next several quarters, probably into the low-60s into 2022. Gautam Khanna: Okay. That’s very helpful. And as a follow-up to one of the earlier questions at C&RS, in aggregate next year, do you think the business grows organically, just given kind of the outsized strength that we’ve seen this fiscal? Lal Karsanbhai: I believe so, Gautam. And what we are going to, and you’ve seen in the numbers today, is that the backlog situation across the business is at $1.1 billion. And that’s what -- that’s the impetus to drive the organic growth, despite what happens in the residential AC cycle. And that will support the organic growth in the business for ‘22 . Ram Krishnan: The longevity of our commercial businesses as well. Gautam Khanna: Okay. Last question, just your comments on M&A and portfolio. Any change to how much we should earmark for M&A in our models over the next couple of years? Lal Karsanbhai: Yes. We’ll come out with guidance as we think about things. Obviously, as I mentioned earlier, Gautam, we are at -- our funnel is very fluid right now. There’s a number of activities underway. And so, -- but, we’ll give you some kind of guidance as we go into -- as we come out in November. Gautam Khanna: Said differently, are there any large properties, bigger than OSI that you guys are looking at? Thank you. Lal Karsanbhai: Yes. I will -- yes, there’s a range. I would suggest that we’re looking more in the larger than we are in the bolt-ons right now, Gautam. Operator: Our final questioner today is John Walsh with Credit Suisse. Please go ahead. John Walsh: A lot of ground covered, but maybe thinking about OSI Power and your customers there. I mean, we picked up that there’s some activity in Spain and a couple of states in the U.S. Are you seeing the customers waiting for more clarity around stimulus before they’re going ahead with projects, or is there just enough demand there, given where renewables sit in the grid that they’re moving forward these projects, and there’s no kind of delay caused by who’s going to pay for it? Lal Karsanbhai: No, I think it’s the latter, absolutely. Aging infrastructure, advent of renewables on to the grid that are causing all kinds of challenges, there are just strong underlying drivers that I think overwhelm the need for stimulus spend there. So, infrastructure bill, particularly in the United States will help, no doubt about it, and we’ll benefit. But there’s incredibly strong underlying demand as is in the traditional utilities, particularly in Western Europe and North America. John Walsh: Great. And then, maybe just circling back to an earlier question around kind of supply chain and backlog. Did you grow backlog? Your sequential backlog growth, was that kind of demand-driven, or do you think there was some supply chain stuff that you wouldn’t have been able to ship and that’s why you were able to grow backlog? Just trying to understand if there’s some delayed sales or deferred sales there because of supply chain. Ram Krishnan: I think the answer is both. Certainly, on many parts of the Automation Solutions business and some in Com Res, the demand side was very strong. And on both platforms, we were not able to fully execute elements of the backlog, given the constraints in labor primarily on the commercial side and electronic supply on the automation side. So, the backlog growth was driven by both fronts, supply and demand. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Lal Karsanbhai for any closing remarks. Lal Karsanbhai: Well, thank you very much. Thank you, everyone, for your time and confidence in us. So, we’re excited about the quarter ahead. And I look forward to seeing many of you as we go through the next three months. And until our next call, stay healthy and safe, and stay well. Thank you. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

Operator: Good day, and welcome to the Emerson Second Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Pete Lilly, Head of Investor Relations. Please go ahead, sir. Pete Lilly: Good morning, and thank you for joining us for Emerson’s second quarter earnings and conference call. Today, I’m joined by President and Chief Executive Officer, Lal Karsanbhai; Senior Executive Vice President and Chief Financial Officer, Frank Dellaquila; and Executive Vice President and Chief Operating Officer, Ram Krishnan. I encourage you to follow along the discussion with the accompanying slide presentation, which is available on our website. Please join me on Slide 2. As always, this present may include some forward-looking statements, which contain a degree of business risk and uncertainty. Turning to Slide 3, I’d like to briefly highlight that Emerson has been publishing a Corporate Social Responsibility report for many years now. We have renamed the report the Emerson Environmental, Social and Governance Report and are excited to highlight all of the goals, momentum and global standards that our organization is working towards. In particular, our environmental sustainability framework, greening of Emerson, by Emerson and with Emerson, captures our internal sustainability efforts, our enablement of our customers’ sustainability journeys through our products and solutions, and our collaboration efforts with various sustainability stakeholders. I encourage you to review the document next month when it is published. As always, I am available for questions. Please turn to Slide 4. I’d like to briefly mention our recent Emerson Exchange Virtual Series, which took place from November through March. Emerson Exchange is a chance for our customer base to interact with other users, industry experts and Emerson technology leaders. Despite the obvious in-person limitations of the pandemic, Emerson had a tremendously successful virtual engagement with customers, focusing on digital transformation, sustainability, technology and many other topics. This virtual framework dramatically expanded the reach of this already very popular user event. Due to the success of the hybrid format, we will likely be adopting such a format going forward. More details to follow as the time and place for the next Emerson Exchange event is finalized. Please turn to Slide 5, and I will now turn the call over to Lal Karsanbhai for opening remarks. Over to you, Lal. Lal Karsanbhai: Thank you, Pete, and good morning, everyone. I would like to say a few things before passing it on to Frank. Firstly, to our global team, three things. Thank you for a tremendous quarter. This was one that was delivered based on strong execution, which required agility and creativity as we jumped over a number of hurdles over the last three months. The result was top-class profit leverage over 40% across our operations. Well done by everyone. Momentum is building, and it’s more broadly today and across a large number of our markets than it was three months ago. This expansion across both platforms, now as the cycle expands, will enable us to make critical technology investments, building on our strong differentiation and customer relevance. Lastly, to the teams, thank you for welcoming me during my first 90 days and thank you for your energy and passion. You energize me every day in the journey and on the journey that we’re taking together. Secondly, I would like to recognize David Farr, who stepped -- whose Board service concluded today after more than 20 years. Thank you, David, for your many contributions. And last, but not least, I would like to extend a warm welcome to Jim Turley, elected by the Board of Directors yesterday to be Emerson’s new Nonexecutive Chair. Jim is a highly qualified Independent Director who is extremely passionate about people, culture and the future of Emerson. I look forward to working alongside Jim and our entire Board. Frank, over to you. Frank Dellaquila: Thank you, Lal. Good morning, everybody, and thank you for joining us today. We had a strong quarter and I’d like to take you through the highlights of that over the next several slides. The strengthening recovery that Lal referred to in most of our end markets, combined with the benefits from our cost reset actions, drove strong operating performance and strong financial results in the second quarter. Adjusted EPS for the quarter was $0.97, ahead of our guidance midpoint of $0.89 and representing 9% growth versus the prior year. Demand strengthened significantly with sales ahead of expectations at 2% underlying growth and March orders towards the high end of expectations at 4% underlying growth. Within that growth number for the orders, significantly Automation Solutions continues its steady improvement in both orders and sales, while Commercial & Residential Solutions continues to experience robust demand across all its lines of business and in all geographies with 11% sales growth and 21% orders growth for the trailing three months through March. The cost reset benefits for the program that we implemented almost two years ago are being realized as planned, driving adjusted segment EBIT growth of 15% and 150 basis points of increased margin at 19.1%. Additionally, cash flow continues to be strong, up 37% year-over-year with free cash flow up nearly 50%. This represents 125% conversion of net earnings. We continue to execute on the remaining elements of our cost reset actions, with the bulk of it behind us at this point, we initiated $21 million of additional restructuring in the quarter. Please turn to the next slide if you would for comments on the EPS. The EPS bridge operational performance was very strong in the quarter adding $0.14 to adjusted EPS. As we guided in February, stock compensation was a significant headwind in the quarter due to the mark-to-market impact, which was caused by the difference in the share price at the end of last year’s second quarter and this year’s second quarter. Of course, you’ll recall that last year, share prices in general were all severely depressed with the onset of COVID and we closed last year’s second quarter at $48 versus $90 this year. And that headwind was within $0.01 of the guidance that we gave you in February. Tax, currency and other miscellaneous items netted to about $0.04 of tailwind and a small impact from share repurchase. So in total, again, adjusted EPS was $0.97 versus the guided $0.89. Please go to the next slide for comments on the P&L. So as I mentioned, underlying sales growth exceeded expectations at 2% and it was 6% on a reported basis, including acquisitions and currency. Gross profit slipped just a bit, 10 basis points, mainly due to business mix, given the growth in our Commercial & Residential Solutions business. SG&A increased by 10 basis points, but the real story here is that excluding the stock compensation impact, operationally, it was down 220 basis points, indicative of the magnitude of the cost reduction activity and the flow-through of the benefits. We had very strong leverage on SG&A and the spend was actually down year-over-year when you exclude the impact of the stock comp. Adjusted EBIT margin was 18.2%. Our effective tax rate was within a point of last year. Share count at $603 million, and again, adjusted EPS of $0.97. Please turn to the next slide. We’ll talk about earnings and cash flow. Adjusted segment EBIT increased 15%, with the margin increasing 150 basis points to 19.1%, as I said earlier. Leverage on the volume and cost reset benefits offset the material cost headwinds that we did see in the quarter. Again, stock comp was nearly $100 million headwind. It was partially offset by some other corporate items. Adjusted pre-tax earnings were down 20 basis points to 17.3% again as the impact of the mark-to-market on the stock comp flows through. Operating cash flow was very strong, almost a record again at $807 million, up 37%. Free cash flow at $707 million was up 48%, driven by strong earnings and favorable balance sheet items. Lastly, trade working capital was down to 16.8% of sales as the impact in the distortions from the COVID-related volume decline are beginning to normalize and as the businesses did a good job managing inventory as we return to growth. Please turn to the next slide. We’ll go through Automation Solutions. Orders continue to turn upward here. We were at negative 5% on a trailing three-month basis, making good progress, and we’re on the trajectory that we’ve been mapping out for several months. Underlying sales were above expectations at negative 2% and we’re encouraged to see the continued sequential improvement in order rates underpinning the sales. China was very strong, and they were favorable comps, but also due to good strength in discrete, clinical and energy markets. Our demand in North America improved sequentially, but it did lag other world areas. However, there are noteworthy pockets of growth, very encouraging signs in both discrete, life science, food and beverage, and power generation. Importantly, we also continue to see increasing KOB3 activity across process automation customer base, driven by increased SGOs and focused spend on OpEx and productivity. Margin in the platform increased 180 basis points of adjusted EBIT, 230 basis points and adjusted EBITDA, driven by the cost reset savings. The OSI integration continues to go well. The effective synergies are being realized and we are increasingly encouraged in validating the case that we made for the acquisition when we did it last October. Backlog is roughly flat sequentially at $5.3 billion, but it is up 14% year-to-date. Please turn to the next slide and we’ll review Commercial & Residential Solutions. The story here is very, very strong growth. Orders continue to strengthen with the March underlying trailing three-month rate at 21%. The demand is primarily driven by ongoing strength in residential end markets, but significantly cold chain, professional tools and other commercial and industrial markets are also picking up and contributing to the growth. All businesses in all regions were positive indicative of the trend. Strong growth in China, over 50%, was attributable to commercial HVAC and cold chain demand in addition to the favorable comp. Europe grew 9% on the strength of continued demand for heat pumps and other energy-efficient sustainable solutions. Margins improved 40 basis points at the adjusted EBIT level. Cost reduction benefits were somewhat offset by price cost headwinds, which we’ll discuss a little more when we cover the guidance. Commercial & Residential backlog has increased almost 60% year-to-date to about $1 billion. This is about $400 million above what we would consider normal for this business. Operations are working through the significant challenges to meet strong customer demand across most of the businesses in this platform. Please go to the next slide and we’ll talk about the updated guidance for the year. Based on the strength we see in orders and the increasing pace of business, we’re very encouraged and we are improving our sales outlook for the year. We now expect underlying sales in the range of 3% to 6% overall, with Automation Solutions roughly flat and Commercial & Residential up in the 12% to 14% range. The stronger volume will drive improved profitability. We now expect 17.5% adjusted EBIT margin for the entire enterprise. Cash flow was also projected higher at $3.3 billion, operating cash flow and $2.7 billion of free cash flow, an increase of $150 million. Our tax, capital spending, dividend, share repurchase assumptions remain as they were. We are raising adjusted EPS guidance by $0.20 at the midpoint from $3.70 to $3.90 and we’re tightening the range to plus or minus $0.05 from plus or minus $0.10. We’re doing this, increasing the guidance in the face of additional headwinds to profitability because we’re very encouraged by the underlying strength of the business and the read-through of the cost reset actions that the business has been working very diligently now for almost two years. The additional headwinds you can see in the margin there on the right of the slide, mainly $50 million more of unfavorable price cost, driven by continuing increases in raw materials costs and about another $20 million of stock comp expense versus what we estimated back in February. The speed and the magnitude of the price increases in key inputs, steel, copper, plastic resins is unprecedented. Operations are actively and effectively working to mitigate the margin impact through selected price and cost containment actions, and the good work that they are doing gives us the confidence to raise the guidance, despite these increased headwinds. On the plus side, we expect to retain about $10 million more in the year of the COVID-related savings than we previously estimated as basic activity like travel and everything that goes with it comes back in more slowly than we would have thought a couple of months ago. If you please go to the next slide, I’ll give you an update on orders. So as I mentioned earlier, our underlying trailing three-month orders turned positive in the month of March with 4%. This is consistent with the upper range of the guidance that we provided to you in February. It’s driven by ongoing strength in Commercial & Residential Solutions as you can see at 21% and continued significant improvement in Automation Solutions as our global markets recovered and increasingly we see improvement in our traditional process industries as well in North America. We expect general demand to remain strong for the balance of the year. We expect the Automation Solutions markets to accelerate in the second half and the Commercial & Residential HVAC demand will taper off somewhat later in the year, but we would expect to see some of the other end markets, commercial, professional tools and such, recover to partially offset that tapering off in Commercial & Residential. So, all in all, we believe we have a good outlook for the second half of the year. If you please go to the next slide, the underlying sales growth outlook. Based on what we see in the pace of the improvement in orders, for the second half, we see growth in the high-single digits range at about 7% to 11% and that will drive the full year growth of 3% to 6%. We expect net sales to be just a bit above $18 billion. And with that, I’ll turn the call back over to Lal and he’ll talk about our business and end market outlook in more detail. Lal Karsanbhai: Thank you, Frank. I’ll just cover a few charts here with the group. Again, increased momentum -- turning to - on chart 15 here. First on Automation Solutions. We are -- we were lagged through the recovery in the first half by our discrete and early cycle businesses within the platform. And essentially, what’s occurred as we’ve navigated through the second quarter is a broader recovery in their mid -- in the mid-cycle elements of this platform. So we see a return to growth in Q3, which is very positive, after five down quarters in this business and a continued demand in short cycle, as well as that acceleration in the core process automation markets in the back half of the year, yielding a 4% to 8% range in the second half and a flat year guidance on sales. If you turn to Page 16, I’ll give you some color on what’s going on in the world areas. Perhaps before I do that though, I’ll just paint it from a KOB perspective. KOB3 has been incredibly strong, both in our discrete spaces, but more interestingly as we navigated this second quarter into our process basis. Frank referenced the shutdown turnaround activity, which is up double-digit -- mid double teens for the year and the STO schedules are holding and full honestly as we go into the summer into the fall season, which is very encouraging. The site walk downs are up almost 50% year-over-year, also very encouraging and, of course, the long-term service agreements are up almost 40% across the world in the business. Very encouraging to see and really provides the fuel for the underlying activity we’re seeing in the process space. On our KOB1 basis, things are not completely stopped. There’s less activity. Obviously, we digested a significant LNG weight, but there’s more activity on the horizon. We’ve entered the feed stage on two very important projects: the Baltic LNG and the Golden Island BASF in China. Those are important opportunities for us in Automation. And secondly, we were awarded the Sempra Costa Azul LNG project on the Pacific Coast in the Baja Peninsula of Mexico, which has a significant value for us and was awarded and will be booked here in the third quarter. So there is some activity. We continue to engage on the KOB1. And as that starts to loosen up a little bit, I think, we’re very well-positioned. The tale of the tape, honestly, for the remainder of the year for this business is going to be the Americas. And it’s going to be a significant swing from a down 16% first half to a second half in that 10% midpoint. And we’ll see that, we saw that already as we entered April. We will continue to see that recovery, I think, as we go through the latter half of the year into 2022. Europe, an incredibly strong first half, driven by life sciences, activity around biofuels, the number of KOB2-type project awards and we continue to see that strength and I feel confident that that strength will be there into the second half of the year. Of course, across all of this, the discrete environment has been very, very good into Asia, Europe and in North America, whether it’s automotive, medical or semiconductor, and we expect that strength to remain here. So, overall, feeling much better about the second half here and feeling very good about how North America is shaping up for us in Automation. Turning to Chart 17, some comments on Commercial & Residential. What a great year this team is having and, obviously, the beneficiaries of a tremendous residential cycle, much of which was driven by pandemic inventory levels, pre-pandemic inventory levels, a pre-build in the cooling season that then we also benefited from a secular shift into suburbs and high-family home construction and renovation. All of that has led into incredible residential strength through the year. Obviously, my expectation is that first to dampen as we get into the latter parts of the fiscal year. However, the mid-cycle professional tools, cold chain businesses are accelerating and that’s where we see here in this very balanced perspective for this business throughout 2021 and I’m very encouraged by what we’re seeing in the later cycle pieces. Of course, we -- there’s some good underlying technology evolutions as well that will impact the residential, be it the refrigerant changes or the heat pump moves in Europe, which are -- which will continue to drive good growth for the businesses. And then turning to Page 18, again, a very balanced picture here from a world area perspective. And overall, a strong second half with the Commercial Industrial segment of this business continuing to improve as the residential market start to taper, as I discussed. I think all the world areas should grow, again, in the low double-digit to mid-teen range as we go into the second half. In the Americas, we are seeing residential demand remain strong in the near-term and the commercial markets really starting to accelerate. And the cold chain piece particularly, which is driven by transport and aftermarket and then we see the tools momentum building in the professional channel. So very encouraged by that. Europe, I mentioned heat pump activity. We expect that to stay strong, and, of course, a surge in construction should bolster our plumbing and electrical tools business. And then lastly, in Asia, China is the headline contributor to growth as some of you’ve already noted and demand is driven by commercial air conditioning and cold chain solutions. So, with that, Pete, I’ll turn it to Page 19 and we’ll go to Q&A. Operator: We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from John Walsh with Credit Suisse. Please go ahead. John Walsh: Hi. Good morning, everyone. Lal Karsanbhai: Hi, John. Good morning. Frank Dellaquila: Good morning. Ram Krishnan: Good morning. John Walsh: Hi. So, obviously, a lot of focus will probably be on the Americas recovery, just wanted to get your perspective in Auto Sols, kind of how much of this is driven by kind of just run rating the trends you’re seeing in process against an easy compare versus kind of the growth you expect to see in those discrete and hybrid markets there? Lal Karsanbhai: Well, we’re seeing, John, good acceleration in underlying process. We went through a period of time, as you recall, of break/fix environment with limited site access, with limited FDL type of activity. That slipped. Obviously, the inoculation rates in this country have helped the confident that customers have and having others on-site and having their own folks, very honestly on-site. That’s driven now a level of activity that is incredibly encouraging and is, I think, above and beyond just the simple comparisons that we have. The discrete strength, to your point, will remain. I don’t foresee that to wane, at least as we go through the year in North America, but the real fuel there will be increased activity. And we’re seeing that in the PO rates and we’re seeing that in quotation activity and in the daily booking activity in our short- to medium-cycle automation businesses. John Walsh: Great. Thank you. And then, obviously, you updated your view here on inflationary pressure. Just as we think about the balance of the year, could you talk a little bit about the price/cost equation and if there’s kind of any noticeable difference kind of Q3 versus Q4 and any timing of price related to that? Thank you. Lal Karsanbhai: Yeah. I’ll comment. We -- as Frank noted, we adjusted our guide there from the $25 million headwind to $75 million. Again, within the construct of what we believe we can guide the overall EPS, the teams are doing a fabulous job in particularly around the headwinds of classic resins, copper and steel, which have been challenging for us. I would expect as capacity comes online, John, that the -- that there is a little bit of relief on price/cost. But again, that’s a wait and see, so we took a more conservative approach there based on what we’re seeing in the market and as we’ve discussed with the teams. Ram, any comments there? Ram Krishnan: Yeah. I think and we do expect the bulk of the impact, frankly, in Q3 and Q4. We didn’t see much of an impact in the first half as we worked down inventory. But the impact of steel and copper and resin will see in the second half. But as Lal mentioned, we do expect, particularly in steel, capacity to come back online. Certainly, our pricing on steel in China is better than what we see in North America. So, hopefully, as we get into the later part of the year, we’ll start that -- seeing that steel pricing soften a little bit. So that’s kind of what’s built into the plan. John Walsh: Great. I’ll pass it along. Thank you. Lal Karsanbhai: Thanks, John. Operator: The next question will come from Nicole DeBlase with Deutsche Bank. Please go ahead. Nicole DeBlase: Yeah. Thanks. Good morning, guys. Lal Karsanbhai: Hi, Nicole. Frank Dellaquila: Good morning. Ram Krishnan: Hi, Nicole. Nicole DeBlase: Hi, there. So maybe we could talk a little bit about what’s going on with respect to supply chain, obviously, a really hot issue this quarter. So if you guys could talk about what you’re seeing and to what extent that could be, I guess, a cap to upside to revenues in the second half? Lal Karsanbhai: Yeah. So, certainly, a lot of press on supply chain, obviously, in terms of inflation, but also availability and shortage challenges. For example, you’ve probably heard the electronics challenges on chip shortages. Frankly, our global teams, I would say, at this point, have done a remarkable job from an availability standpoint, whether its availability of steel, plastic, resin, where we’ve been able to move to alternatives. Certainly, on the electronics front, we’ve managed through our supply in terms of electronics supply from Asia pretty well. The inflation side, we’re managing through that. I think that is something through price and productivity programs, we’re addressing. But to this point, we haven’t seen any availability challenges. And similarly on the logistics front, whether its ground, ocean freight or airfreight, our teams have done a really good job locking in the needed capacity to bring in material from our overseas supply chains, and frankly, at preferred rates. We haven’t had to go out into the spot market yet, which is where we’re seeing a lot of that inflation. So, so far, I would say, we’re managing through it pretty well. And the other piece I would want to point out is our regionalization strategy, where we really have regional supply chains supporting our business has been a significant benefit where we haven’t had to rely significantly on overseas supply chains to feed our plants. Nicole DeBlase: Got it. Thanks. That’s really helpful. And then, I guess, thinking about the cadence of EPS revenue margins in the third quarter versus the fourth quarter, anything you guys want to highlight there? I think usually you give us kind of a sense of what the next quarter’s earnings will look like. So just anything you want to provide on 3Q versus 4Q? Frank Dellaquila: Well, Nicole. Hi. This is Frank. I think we’re looking in a very, very strong third quarter coming at us just based on the orders that we see and the backlog that we have available to us. So I would say, at this point, as I look at second half, third quarter will be very strong, the fourth quarter will be good but a little less visibility into the fourth. So that’s kind of how we see it right now, maybe it’s a tad frontloaded towards the third quarter. Operator: The next question will come from Nigel Coe with Wolfe Research. Nigel Coe: Thanks. Good morning. Lal Karsanbhai: Hi, Nigel. Nigel Coe: Very different feel to the call today. Good to hear Frank’s voice. Hi. Can you hear me okay? Frank Dellaquila: Thank you. Thank you, Nigel. Nigel Coe: So, Com & Res - good. So on Com Res, $0.11 growth, nothing to phase out very strong orders. But the growth rates come in a little bit lighter than some of your OEM customers and there’s a deceleration from Q-to-Q. It looks like we’ve got some nice acceleration come into the back half of the year. But just curious how inventory levels look in the channels and whether you saw some destocking happening during Q2, just curious on that? Frank Dellaquila: Yeah. And -- thanks, Nigel. Good to hear your voice as well. I think there’s a dynamic here between residential and commercial in Com & Res across the broad business and that’d be our climate into the tools as well, which is - has an impact there in terms of growth rates. We’re seeing many of our OEM customers have reported with strong residential growth. Now, although, we have that, we have a balance in our business between cold chain and NAC. So I think that’s where you probably see that difference. Nigel Coe: Great. And just a bit of a random question here, Lal. But on the Emerson Exchange of the virtual this year, I mean, how does that play out going forward? I mean, how do you judge the sort of the engagement with customers virtually versus in-person and how do you think that evolves… Lal Karsanbhai: Yeah. Nigel Coe: … going forward? Lal Karsanbhai: Yeah. No. Great question, Nigel. And I know you’ve attended the Exchange. It’s a very special event for us in Automation, as you know, and we get great customer engagement throughout. We learned a lot, and, obviously, we didn’t have a choice as we went through an Exchange season in the Americas and Europe this year. But I think what we learned is that there’s got to be a balance. I think there’s going to be a way to engage with folks on the ground and we don’t want to get away from that if we have the opportunity to do so. But we can also reach a much broader base of engagement with customers through the virtual platform, customers who may not be able to devote a day or night of travel, who may be interested in a singular subject or a keynote, they now have the opportunity to dial in and listen in or see that presentation in a form that works for them. So I think it’s going to be a balance. I think some of that engagement is still going to be important, because as you know, as you saw when you were there with us in Nashville, there is a lot of customer engagement where the value really comes in from those discussions. So we don’t want to lose that. It’s -- I think we, in this new construct, I think, can reach a broader base of folks while not losing the original intent of the meeting. So I’m excited about Exchange. I hope we can hold it in the fall. The guys are talking about the fall versus spring right now. We’ll see where we land. Nigel Coe: Thanks, Lal. Best of luck. Lal Karsanbhai: Thanks, Nigel. Operator: The next question will come from Julian Mitchell with Barclays. Please go ahead. Julian Mitchell: Hi. Good morning. Lal Karsanbhai: Good morning Julian Mitchell: Maybe -- good morning. Maybe a first question on the margin outlook. You raised the EBIT margin guide to that 17.5% number for the year as a whole. I just wanted to double check sort of as we think about the second half specifically. It seems to imply maybe a sort of mid-20%s incremental on the segment level and maybe a little bit lower than that sort of all in because of the corporate aspect and so on. Just wanted to confirm if that’s roughly the right math and any difference in incremental margins in the second half for the two divisions, AS versus Com & Res? Frank Dellaquila: Yeah. I mean, I think, that’s in the -- you’re talking about now the incrementals with leverage. I think that’s in the ballpark, Julian. Hi, this is Frank. It’s in the ballpark. I mean, the incrementals I would expect to be higher in Automation Solutions. We will have to digest the price cost headwinds in Commercial & Residential and that will be a headwind for certain on the incrementals. Nonetheless, we’re going to deliver good incremental profits in the business and we will have leverage on those sales. But no doubt that it’ll hold those incremental down at least for the next couple of quarters. So I think you’d expect to see to be higher in Automation Solutions than in Com & Res. Julian Mitchell: Thanks very much, Frank. And then maybe a broader question around Automation Solutions, sort of top line outlook and the end market backdrop there. So we saw that the backlog was sort of flattish sequentially up, I think, mid-single digits year-on-year. How do we think about that Auto Sol backlog trending from here? Understood that maybe big projects are relatively sparse, but maybe the KOB2 stuff picks up. How do we think about that AS backlog the pace of the pickup from here? Lal Karsanbhai: Yeah. Good question, Julian. I - so year-over-year backlog in Automation is up 14%, I believe, is the number. Obviously, we went through a significant, through the first two quarters I’d suggest that in terms of shifting KOB1 activity, we have particularly in our final control and systems businesses, and the fuel of the revenue growth going forward becomes more mid-cycle measurement solutions and systems and discrete business. So consequently, that’s more what we’d call book to ship within quarter or within quarter and a half. And I wouldn’t necessarily expect a significant growth in the backlog, but within the parameters that we’re in today. So in that I suggest 10% to 15% backlog growth. So without the vast KOB1 activity, I don’t expect that to grow beyond the rate we’re in today. Julian Mitchell: That’s great. Thank you. Operator: The next question will come from Scott Davis with Melius Research. Please go ahead. Scott Davis: Hi. Good morning, guys. Lal Karsanbhai: Good morning. Frank Dellaquila: Good morning. Scott Davis: Encouraging -- good morning. Comments -- encouraging comments you made on April. It must’ve been a pretty darn good month. But I had a couple kind of completely different questions since, Lal, you’re relatively new. I mean, your compensation structure is a little bit complex for your management team. Is there – is that one of the things you’re working on kind of adjusting early in your tenure here? Lal Karsanbhai: Yeah. So, yeah, good to hear from you and thanks. April, I did make the comment April from an Automation perspective and Commercial & Residential perspective continues to be on trend to what we have experienced and have expectations around. So I’m encouraged by that. In terms of the comp structure, yeah, I’ve spoken openly about the journey we’re on in our culture and what we’re undertaking here as an organization. I think there’s a lot of energy around that across the enterprise. Compensation is absolutely something that we’re looking at. And we actually -- we have a task force in place today led by Lisa Flavin and she is looking through how we compensate the executive structure and others. And I think there’s a lot of opportunity there for us. And we’ll be -- we will take our time. We’ll work very closely with the Board on that as we go through the summer and to the fall, and hope we have an evolution there as well. Scott Davis: Okay. Good. And just as an unrelated follow-up, the heat pump market in Europe, you guys have been talking about for a couple of quarters now. Does your product have technological differentiation? I mean, perhaps, you can maybe talk through kind of why you guys think you’ll win in the heat pump market? Lal Karsanbhai: I think there -- I think we’re very well-positioned, obviously, with a strong customer base we’ve had for a long time. But I think the technology differentiated is really around sound attenuation in the heat pumps and the efficiency. And I think that’s where we stand out versus what the marketplace offers and has been a big part of the growth in what fuels the European opportunity going forward. So we’re excited about where the product investments have been and where we can grow going forward. Scott Davis: Sounds good. Good luck, guys. Thank you. Lal Karsanbhai: Thank you. Operator: The next question will come from Steve Tusa with JPMorgan. Please go ahead. Steve Tusa: Hey, guys. Good morning. Frank Dellaquila: Hey, Steve. Lal Karsanbhai: Good morning. Ram Krishnan: Good morning, Steve. Steve Tusa: Strange to be on an Emerson call in the morning. Usually, we have to wait all day for this. So thanks for that. The -- just looking at your comparison versus 2019. So your sales in the first half are down relative to 2019. Your EPS is up very comfortably, like, $0.20-plus. If I just take the back half of 2019 on EPS and add it to what you just did in the first half of 2021, you’re already kind of at the high end of your guidance range. The sales comps year-over-year should be pretty similar to down moderately versus 2019 still. What’s kind of the big headwind in the second half? I know price cost maybe is like a $0.05 or something like that. I don’t know it, but it seems like you’re growing very strongly over 2019 without the benefit of revenue already. But in the back half, you really don’t show any material improvement whatsoever versus 2019, maybe you could just like help us with the moving parts there. Frank Dellaquila: Yeah. So, Steve, this is Frank. I mean, the obvious thing in the second half that were not headwinds in 2019 are both the price/cost and the stock comp, so between the two of those you’ve got $70 million, $75 million of headwind, $0.08 to $0.10, to take your point. But we’re waiting to get better visibility into the fourth quarter. At this point, we understand that when you make the comparisons to 2019, it’s not a big increase over the second half of 2019. But we do have some uncertainty to work through as we go through the second half here and we’re going to see how that plays out. We think the guidance raise at this point is prudent and we’re confident we’ll get there and then some as we work our way through this. Steve Tusa: And then just on the HVAC side, different players putting up different types of results all very strong from a customer perspective. I know you guys have like kind of a big end to calendar year last year. What did you see in your kind of U.S. resi kind of core compressor business this quarter roughly? Lal Karsanbhai: So, Steve, this is Lal. Yeah. So, we had a strong -- we had a very strong quarter in the climate business in the United States. We continue to see orders accelerate. Backlog conversion grew in the mid-single digits, excuse me, sales grew in the mid-single digits, and with the acceleration really occurring, as Frank pointed out, into Q3 for us. And that’s where you’ll see this really from a U.S. - purely U.S. perspective in HVAC pop for us. Steve Tusa: Right. And then just one quick one, how big is that business now as a percentage of CR&S? I mean, historically, everybody kind of thought of you as a U.S. resi play. I mean, given you’ve smashed these businesses together and China remains a big driver and Europe is growing fast. I mean, how big is that kind of core U.S. compressor business now for you guys as a percentage of CR&S? Lal Karsanbhai: Yeah. It’s a sizable business. We haven’t disclosed the size of it relative to the entire platform. But you can assume it’s a sizable portion of – in the entire climate and CR&S platform. Steve Tusa: Okay. Great. Thanks a lot. Appreciate it. Lal Karsanbhai: Thanks, Steve. Operator: The next question will come from Andrew Obin with Bank of America. Please go ahead. Andrew Obin: Yes. Good morning. Lal Karsanbhai: Good morning, Andrew. Frank Dellaquila: Good morning, Andrew. Andrew Obin: Just sort of a big picture question. As you talk to your customers in the energy industry, how much -- how set are the budgets into the year? And is there anything that can change them? Is there any sort of reason to think that there could be potential upside given massively increasing economic activity, given high oil price, or do we need to wait until next year to sort of see them change their mind? Lal Karsanbhai: Good question, Andrew. I think budgets have been set on assumptions around demand and oil price. Having said that, they’re significantly skewed towards sustainability efforts, they’re skewed towards efficiency and operating elements of the business and that gives us a good baseline of confidence in the recovery in the market. Having said that, if we do see more planes in the air, more trucks on the road, broader economic activity, I think, we’ll see expansions in the budget area as we go through the second half of the calendar year, into the second half of the calendar year and that will prove to be advantageous to the Automation business, above and beyond where we are set today. Andrew Obin: Great. And then another question on Commercial & Residential, as we think about the heat pump business in Europe. You certainly guys have been talking a lot about it. How much visibility -- it seems as part of a sort of longer-term regulatory trends, but how much visibility do have in this business over the next 12 months to 24 months? And is it accretive to the mix, neutral to the mix, how should we think about that? Thank you. Lal Karsanbhai: Yeah. Go ahead, Ram. Ram Krishnan: Yeah. I would say we have very good visibility in Europe, as well as the heat pump opportunities in China. But in Europe, our engagement with the OEMs, which play in the space, has been very good. These have been traditional customers of ours. So as it relates to the new technology that Lal referenced in terms of efficiency and sound, our scroll product line and our complete solutions position for that market, we’re in deep engagement with the OEMs. So I would say the visibility is good. And then your question was margin accretive, is that -- what your question was? Andrew Obin: Yeah. Is it good for the margin or is it bad for margin? It’s very simple. Ram Krishnan: It’s -- I would say it’s neutral to slightly accretive to the margins. Andrew Obin: Fantastic. Thank you so much. Lal Karsanbhai: Thank you. Operator: The next question will come from Tommy Moll with Stephens. Please go ahead. Tommy Moll: Good morning and thanks for taking my question. Lal Karsanbhai: Hi, Tommy. Frank Dellaquila: Hey, Tommy. Ram Krishnan: Hi, Tommy. Tommy Moll: Well, I wanted to talk about the pathway to record margins you referenced in the release and on the call. Comparing to where we were a quarter go, I’m thinking through the factors that may have changed. But clearly, price/cost, even if the temporary factors worked against you in the last 90 days, so maybe flow-through on some of the cost out execution is at least as good as, maybe a little bit better than expected. But if you just step back and think about versus a quarter ago, the pathway and the timing endpoint for that record margin progression, what would you highlight for us as the most important things that have shifted? Lal Karsanbhai: Yeah. I’ll say a couple of words and I’ll let, Frank, who actually presented on this subject to the Board yesterday. I feel really good about the path, Tommy. We have a potential acceleration on the path in Automation Solutions with tremendous performance and on the cost. The price/cost that you referenced is predominantly in our -- the challenges are predominately in our Commercial & Residential business. But what I’ll say is that they’re on track to deliver that endpoint peak margins work. So I feel very, very positive. Slightly ahead in one platform, on track on the second platform. Frank? Frank Dellaquila: Yeah. Tommy, Lal summarized it well. I mean, we did have this conversation yesterday and we feel very good about the timing that we laid out in February regarding the achievement of the margin targets in 2023. The pickup in the pace of volume in Automation Solutions and the flow-through of the cost reset actions that have been taken in that business basically put us a year ahead of schedule, we believe, in terms of margin improvement there, which really derisks that plan. And in Commercial & Residential, very significant mitigation actions are being taken to offset the trench in this temporary price/cost headwind that we’re going to have for the next couple, three, four quarters. And we are -- we believe strongly that we’ll be right back on track to hit those targets as well. So, as Lal said, we feel very good based on the leverage that we have even in the face of the unexpected price/cost that we’re going to get to the finish line in 2023 as we committed. Tommy Moll: That’s very helpful. Thank you, both. And if I could follow-up with a question on culture. Lal, you are now a few months in. Cultural modernization is clearly a theme that’s important to you, but also one that you’ve made clear is tied to value creation and execution. So what can you provide us for an update there about the vision now that you’ve had a little bit of time to think through how you’re going to approach it? Lal Karsanbhai: Yeah. No, I appreciate the question, Tommy. The first thing -- one of the first things we’re doing in is we need to measure where we sit today and where we want to go. So we’re working with an outside firm to do a cultural assessment of the 58,000 employees, salaried employees of Emerson. We’ve done a pilot to understand how the tool works. We feel comfortable how - that we understand the tool and we like the tool, so we’re going to broaden this out here in the month of May. And what that’s going to give us is a very important set of data, understanding where we are and where the population of the company wants to go in terms of the culture. I would suggest that, in addition to that, Tommy, we’ve done - taken care of some of the low-hanging fruits, some modernization of work practices. We’re working with McKinsey & Company on a diversity inclusion target and goals, which we’ll publish as part of the ESG report and after conversations with our Board in June. So there’s a lot of activity going on. We’re all a very energized about the opportunity and we do believe honestly, Tommy, at the end of the day that if we look more like the world where we live and work inside of Emerson, we’ll be a better company. We’ll perform at a higher rate and we’ll create more value. Tommy Moll: Thank you, Lal. I’ll turn it back. Lal Karsanbhai: Thanks, Tommy. Frank Dellaquila: Thanks, Tommy. Operator: The next question will come from Markus Mittermaier with UBS. Please go ahead. Markus Mittermaier: Hi. Good morning, everyone. Lal Karsanbhai: Good morning. Frank Dellaquila: Good morning. Markus Mittermaier: We covered a lot of ground already, but maybe – hey, good morning. Maybe a finer question on price/cost in Com & Res, if I could. So the way understood you is that basically Q1, Q2, you were protected from essentially using inventory. So how should I read the guide to $75 million unfavorable price/cost given that sort of is that inclusive of future price trends that you might be planning? Or is that based on what you’ve done so far and your best view on inflation to date? Maybe we can start there. Frank Dellaquila: So, Markus, I mean, that incremental $50 million price/cost that we’ve guided to is predominantly in Commercial & Residential, obviously, factored into the guidance. And it’s a complicated subject. But I mean with the major OEMs, we have material pass-through clauses, but they’re all different and they all operate with varying degrees of lag. So while we’re confident the price comes back in, it comes back in over time. Across the rest of the platform, we will take deliberate pricing actions and mitigation actions as well to offset that inside of the guide that we’ve provided. So that’s how we think about it and that’s how it will play out. That’s how it’s played out historically. This is just a more pronounced increase than we’ve seen in anybody’s memory here. Markus Mittermaier: Okay. Got it. And then maybe a broader question on China, obviously, easy comps in the past quarter here. How do you see the momentum in both short- and long-cycle there on the ground? Maybe you could take us on a tour through the various verdicts to stay on China, specifically given that is quite sizable for you guys? Thank you. Lal Karsanbhai: Yeah. Thanks. Thanks, Markus. I feel good about what’s we’re seeing in China. Obviously, the past quarter was very, very strong across all platforms. We’re seeing good activity on the Automation side, KOB3-driven, but also project-driven, particularly in the Chemicals segment, which is - should continue through the second half of the year. And then the easier comps obviously come on the climate side, but again, encouraging trends there as well, infrastructure, commercial construction-driven and cold chain around transport, particularly. So I feel really good about China for the remainder of the year. Teams are very engaged and I feel positive about what we’ll see throughout the fiscal. Operator: The next question will come from Deane Dray with RBC Capital. Please go ahead. Jeffrey Reive: Hi. Good morning. This is Jeffrey Reive on for Deane. My question is I think in your prior guidance baked in WTI prices of $45 a barrel to $55 a barrel. So I think we’re sitting above that level pretty comfortably now. Maybe how has that changed your thinking? How has that factored into the new guidance? And maybe what are you hearing from customers? Frank Dellaquila: Yeah. Thanks, Jeffrey. Yeah, obviously, it’s embedded in our thinking and that level of activity that we’ve baked into Automation Solutions and the increase in the guidance there. We’re seeing that being reflected in the spend rate and the activity in the segment more closer to that $60 number now. But as you can imagine, customers are still relatively skittish as they forecast and we talked about budgets in the past in one of the past questions here. So they’re watching it closely. But clearly, as reflected in the increased guidance, I feel a little bit stronger about where the WTI ultimately will land for the year. Jeffrey Reive: Got it. Thanks. And then maybe just another one, can you talk about the Chairman transition? Was it a conscious decision to separate the Chairman role from the CEO role? And maybe you have any update on the timing of a potential CFO transition? Lal Karsanbhai: Well, you know Jeffrey, the CFO is sitting right here with me. I’m very happy that he’s here with me and... Frank Dellaquila: Did Deane tell you to ask that? Lal Karsanbhai: No CFO transition in the foreseeable future here. I’m very happy that I have Frank and very blessed to have Frank, very honestly, and his experience, which will be incredibly important for this management team. So nothing there to report. In terms of the Chairman, honestly, it was not -- it was highly researched, debated and discussed with the Board. Obviously, felt very comfortable with the separation of role to enable me to operate the company, to learn the governance piece over time, to have mentorship from the Board of Directors, very important. And again, as you think about the early stages of my CEO-ship, so that was the right decision. I’m glad the Board supported it and I think we landed in a really good place. Jeffrey Reive: Very helpful. Thanks a lot. Lal Karsanbhai: Frank, your retirement... Operator: The next question will come from Andy Kaplowitz with Citigroup. Please go ahead. Andy Kaplowitz: Good morning, guys. Frank, I’m still very happy you’re around, so. Frank Dellaquila: Thank you, Andy. I appreciate that. Andy Kaplowitz: All right. So last quarter in C&RS (sic) [CR&S], I think, you were still wondering how your Q4 would look, given tougher comparisons in residential on how the professional tools recovery would shake out. Obviously, you’ve refined your guide for second half revenue growth and you sound good about your visibility in Q4 at this stage. But could you give us more color into how you were thinking about the Q4 growth against the more difficult comps and how that might translate into FY 2022 growth and the longer-term revenue growth guidance that you gave at the Analyst Day for C&RS (sic) [CR&S] of 5% to 7%? Lal Karsanbhai: I’ll comment on it. I will – I feel good because of the cross section in the cycles, right? The early cycle residential, I think, we’ll all agree is going to taper off whether that tapers in Q4 or into Q1, but it will taper off, it’s been incredibly hot now for a number of quarters. But the good news is the balance that that platform has, in terms of not just in the climate side with cold chain, which is accelerating, as we’ll go into Q3 and Q4, but also on the professional tools side, which will balance off the consumer tool businesses, which have benefited from do-it-yourself and big star growth. So the balance is incredibly strong. It gives me, at this point, at least confidence heading into the latter half of this year and honestly into a balanced perspective into 2022. Andy Kaplowitz: That’s helpful, Lal. And I’m sure you guys don’t want to update us in the funnel every quarter. But let me ask you about in the sense, so you had mentioned $6.5 billion in your funnel that you had mentioned $1.6 billion for electrification funnel. So maybe it’s a good time to talk to us about an update on OSI. But also in terms of the funnel, obviously, KOB1 actually perking up a little bit. Are you seeing new projects enter the funnel? Or is it really some of these old projects maybe starting to move a little bit? Lal Karsanbhai: A little bit of both. Obviously, the two feed stages on Baltic and Golden Island are things have been talked about and debated and discussed for a long time, and so those are starting to move forward, so that’s that element. But something like the Sempra is, obviously, in terms of - it’s relatively new. We didn’t know whether it was going to move forward as part of that significant eighth job LNG wave. Now this is the ninth job. So very important to see that. In terms of what’s new in the funnel, it’s still in that $6.4 billion range. The hydrogen-related element, in addition to that, would be about $1 billion. The electrification piece, as you said about $1.5, $1.6. There’s some newer stuff in there, but it’s relatively smaller. Biofuels conversions of existing facilities are modernizations that fall into the funnel. So it’s relatively static, although it is encouraging as you point out to see some things moving to the left. Now, in terms of OSI, phenomenal first six months with us ahead of plan that we put together internally and to -- and present it to our Board. I feel great about the management team and what they’re accomplishing. And more interestingly, I feel really good about the opportunity to continue to invest in the business and expand the sandbox. I think it’s a very unique opportunity for us in terms of both technology and end market diversification. We want to do both, but we want to do more, both organically and if available inorganically. Andy Kaplowitz: Appreciate it, guys. Lal Karsanbhai: Thanks. Operator: The next question will come from Gautam Khanna with Cowen. Please go ahead. Lal Karsanbhai: Hey, Gautam. How are you doing? Gautam Khanna: Hey, thank you very much. Lal Karsanbhai: Gautam, you’re not the only one who gets your name… Gautam Khanna: Thank you. Lal Karsanbhai: You’re not the only one who gets your name massacred. I’m there with you. Gautam Khanna: No. Not at all. Yeah. I know we understand each other. I still remember being called Quantum when I was in Little League Baseball. Yeah. Lal Karsanbhai: Gosh. Gautam Khanna: So, hey, a couple of questions. First, in the quarter, what was the mix of KOB3 at Auto Sol and what are you guys expecting in the second half with respect to KOB3 versus the other two? Lal Karsanbhai: So, first, second quarter first half stayed relatively consistent at 59% on KOB3. And very honestly, I expect that to stay within that 59% to 60% range as we go through the second half of the year. It’s a very strong mix, obviously, for us. But that’s kind of where I see it, Gautam, as we go through the second half. Gautam Khanna: Okay. And in your opening remarks you talked about turnaround backlog being pretty strong, visibility there being strong. Anything you’re seeing with respect to scope of turnaround that’s different than you would normally see in a cyclical recovery? Any sort of change in customer buying behavior that’s noteworthy? Lal Karsanbhai: Yeah. No. Interestingly enough. So what we saw particularly in the upgrade turnaround environment as we went through COVID, was that the systems upgrades for the most part continued. And the reason they continued is because of the ability to perform a lot of that work virtually and remotely. We have tremendous capabilities in our DeltaV business to do that, in our Ovation business to do that. And that activity continued as system upgrades were performed around the world. What was mostly impacted was the stuff that hangs on pipes or on vessels, the valves, the transmitters, the flow equipment and which we’re now seeing the acceleration. And honestly, there is just no two ways to do that remotely. You’ve got have people on-site and you’ve got to have a lot of people that are not necessarily familiar with your site there. What we’re seeing and we’ll watch whether this is a trend or not, there are two things, Gautam, to your question. Number one, the scale of the turnaround, they may be doing one or two units versus the entire facility. And secondly, the rate or the cycle at which the turnarounds are performed, many of these facilities have now gone over 18 months, almost 24 months, without a turnaround. They may question, whether they can expand the cycle on turnaround and the frequency at turnarounds based on this experience. We haven’t necessarily gotten that message yet, but we’re watching it very carefully as we go through this cycle, particularly this season over the summer into the fall. Hey, Ram, I don’t know if you’ve got comments there. Ram Krishnan: No. Lal Karsanbhai: Okay. Gautam Khanna: Thank you. Very helpful. Ram Krishnan: Yeah. Sure. Lal Karsanbhai: Okay. Well, I want to thank everyone for your questions and your engagement today. It was a -- I felt phenomenal about my first quarter as CEO. I thank the teams, a lot of hard work and a lot of energy. And I feel really good about the momentum that we have as an organization for the second half of the year and into 2022. So thank you, everyone, for your time and talk soon. Frank Dellaquila: Thank you. Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

Operator: Good day, and welcome to the Emerson First Quarter of 2021 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Pete Lilly, Investor Relations Director. Please go ahead. Pete Lilly: Good afternoon. Thank you so much, and welcome, everyone, to Emerson's first quarter 2021 earnings conference call. I hope everyone is staying safe and healthy. Today, I'm joined by David Farr, Chairman and Chief Executive Officer; Frank Dellaquila, Senior Executive Vice President and Chief Financial Officer; Jamie Froedge, Executive President of Emerson Commercial & Residential Solutions; and congratulations to Lal Karsanbhai, current Executive President of Emerson Automation Solutions, who was recently announced as Emerson's next Chief Executive Officer effective on February 5. As usual, I encourage everyone to follow along with the slide presentation, which is available on our website. Starting on Slide 3. I'd like to briefly highlight two examples of the great work our global teams are doing and some recent recognition from customers and the marketplace. First, Emerson's Plantweb Optics analytics software recently received the 2021 IoT Breakthrough Award. Emerson's Plantweb Optics platform helps customers collect OT data from a variety of sources and apply practical and customized visualization and analytics, delivering key operational insights to the right people at the right time. Next, turning to Slide 4. Emerson recently received the 2021 Control Reader's Choice Award for our industry-leading automation control and instrumentation solutions. Emerson continues to receive positive feedback from customers and users of our products based on a relentless focus on technology, unmatched customer service and critical domain expertise in our customers' industries. Turning to Slide 5, we will review the highlights of a very strong quarter. First, Emerson remains steadfast in our commitment to health and safety for our employees, customers and communities. Serving our customers in critical industries, disciplined cost control and positioning to outperform as we emerge from COVID-19 remain our key thematic priorities, and we are starting to see the benefits of this focus flow through. Next, our regionalized operations remain sturdy and stable, and we will continue to build upon our firmly rooted strategy of business localization. Turning to performance. Emerson delivered a very strong quarter in a challenging but stabilizing and improving demand environment. The organization delivered adjusted EPS of $0.83 in the quarter, which was up 24% from the prior year and well above expectations. We continued our execution of the broad cost reset plan with an additional $69 million of new restructuring actions. Cash flow was a new first quarter record for the company with operating cash flow of over $800 million and free cash flow of $686 million, up 90% and 121%, respectively. It is important to emphasize that the balance, the end market diversity and the stability of our two platform business strategy was critical to enabling the strong operational and cash flow outcome. Even on down 2% organic revenue, segment margins grew by 230 basis points to 17.7%. This margin improvement is a strong testament to the consistent operational execution of the global organization throughout the pandemic. Despite lingering uncertainty and demand challenges in many key markets, sales and orders finished ahead of previous guidance. Commercial & Residential Solutions underlying orders remained quite strong, finishing up 15% on a trailing three-month basis. Importantly, our Automation Solutions business is showing signs of stabilization and improvement. Given the orders, sales and profitability improvement, we are updating full-year guidance to reflect the stronger outlook. Please turn to Slide 7, which offers details on the results of the quarter. Both underlying orders and sales came in ahead of expectations at down 4.5% and down 2%, respectively. Commercial & Residential Solutions underlying sales was up 12%, while Automation Solutions was down 9%, but improving. Adjusted EPS, which excludes restructuring and first year purchase accounting and fees, was up 28 -- 24% to $0.83, well ahead of expectations. As previously mentioned, the organization achieved a new Q1 cash flow record, driven by increased earnings and strong working capital management. Operating cash flow increased 90% to $808 million, and free cash flow increased 121% to $686 million. Turning to Slide 8. We will briefly bridge adjusted EPS in the quarter. Starting with adjusted EPS in Q1 of 2020 of 68 -- $0.67, non-operating elements, including tax, interest, FX and other items, were a combined non-factor, adding $0.01 in total. The most important element was operations, which drove the vast majority of the EPS outperformance, contributing $0.13. Share repurchase added $0.02 for a total of $0.83 in the quarter. Moving to Slide 9, we will review the P&L. Net sales were flat, and we saw a slight reduction in GP margin, which was driven by volume deleverage and mix. Meanwhile, SG&A as a percentage of sales declined by 310 basis points to 24% as aggressive cost-control actions took effect. EBIT and adjusted EBIT margins, which exclude restructuring and first-year purchase accounting and fees, increased 350 basis points and 260 basis points, respectively, also reflecting the cost-containment actions flowing through. Lastly, the effective tax rate came in at just below 20%, slightly lower than expectations. Turning to Slide 10, we will review underlying sales by world area. For the quarter, the Americas continued to show the steepest declines, down 7%, but importantly, they started to improve. In North America, we saw strength in residential, cold chain, life sciences, medical, food and beverage and some discrete markets more than offset by weakness in many other automation end markets. Europe grew 4%; while Asia, Middle East and Africa grew by 3%, fueled by strength in China at 7%. All Commercial & Residential Solutions world areas turned to growth. Please turn to Slide 11, and we will discuss the business segment performance. Total segment adjusted EBIT margin increased 230 basis points to 17.7%, reflecting aggressive cost-control measures and strong operational execution even with slightly down underlying sales. Adjusted pre-tax earnings increased by a similar magnitude, 240 basis points to 15.2%. As previously highlighted, Q1 cash flow performance was record-setting with operating cash flow and free cash flow increasing 90% and 121%, respectively. Free cash flow represented a 152% conversion of net earnings. Importantly, trade working capital dropped to 17.8% of sales driven by strong execution by operations. Turning to Slide 13, we will discuss the business platforms. Automation Solutions underlying sales finished down 9% for the quarter. The Americas remained the most challenged, down 20%, but showed signs of stabilization and early improvement. Overall, we saw continued momentum in life sciences, food and beverage and semiconductor markets as well as some early signs of improvement in upstream energy markets. Meanwhile, Europe and Asia, Middle East and Africa both turned to low single-digit growth driven by strength in Eastern Europe and China, respectively. Trailing 3-month underlying orders were down 13%, again reflecting stabilizing and early improvement trends. Geographically, the Americas continued to be the most challenged, down 27%. Asia, Middle East and Africa declined modestly by 1%, supported by China orders growing 6%. Europe declined by 3% due to weakness in energy markets, somewhat offset by chemical, power and life science projects. Restructuring actions totaled $64 million across the platform as we continued execution of the return to peak profitability. The platform delivered robust positive profitability improvement despite the drop in revenue. Adjusted EBIT and adjusted EBITDA margins increased 200 basis points and 290 basis points, respectively, as the effects of the ongoing cost actions took hold. Lastly, the platform increased backlog by $600 million, of which $300 million was due to the acquisition of OSI. The ending balance was $5.3 billion. Turning to Slide 14. Commercial & Residential Solutions underlying sales were up 12% in the quarter. All core world areas were solidly positive, with the Americas showing the strongest growth at 14% driven by strong residential, cold chain and home products demand. This growth points to share penetration gains in many of our end markets. Europe was up 8% as heat pump demand was driven by sustainability regulations and customer technology preferences. Finally, Asia, Middle East and Africa was up 7% driven by China, up 10%. As mentioned, trailing 3-month underlying orders remained robust, up 15%, with all business units growing. North America increased by 16% in robust HVAC and home products demand, while China was up 17%. Restructuring actions totaled $3 million in the platform and were primarily focused on facility rationalization and optimization programs. Adjusted EBIT and adjusted EBITDA margins were up 230 basis points and up 210 basis points, respectively, reflecting leverage on the increased volume and improved cost base. Finally, backlog in the business increased by approximately $200 million, ending the quarter at nearly $800 million, which is well above normal levels. Please turn to Slide 16, and we will introduce second quarter guidance. We now expect the underlying sales will be roughly flat year-over-year with a range of down 1% to up 1%. This potential for the company to return to positive growth is earlier than previously forecasted. The top line outlook is driven by continued momentum in residential, life science, medical, discrete and food and beverage markets and ongoing stabilization and improvement in other automation markets. GAAP EPS and adjusted EPS are expected to be $0.83 and $0.89, respectively, plus or minus $0.02. We expect adjusted EBIT margin to be 17.0% to 17.5% with adjusted EBITDA margin in the range of 22.2% to 22.8%. Lastly, it is important to note that this guidance embeds an $0.11 change in stock price costs due to movement in the stock price. Slide 17 introduces our updated full-year 2021 guidance framework. Management assumes that demand will continue to be challenging but stabilizing and steadily improving as global vaccine efforts mature. We also assume there are no major operational or supply chain disruptions and that oil prices remain in the $45 to $55 range. Given that context, we expect underlying sales growth this year with a range of flat to plus 4%. Automation Solutions is expected to be in the range of down 3% to up 1% underlying sales, while Commercial & Residential Solutions is expected to grow between 8% and 10%. As you can see, both of these platforms -- platform outlooks are improvements from November. We expect a slight decrease in effective tax rate as well as increases in operating cash flow and free cash flow to $3.15 billion and $2.55 billion, respectively. There is no other change to the capital allocation outlook. GAAP EPS is expected to be $3.39, plus or minus $0.10; while adjusted EPS is expected to be $3.70, plus or minus $0.10. We have also updated our outlook for profitability headwinds and tailwinds in the year. Since last quarter, we expect that COVID-related savings will now only be down $40 million this year, up from the previous estimate of $70 million. However, we now expect that price cost dynamics will be slightly negative as raw material costs and availability become more of a short-term challenge. Operations are working diligently to mitigate this issue. Lastly, stock price will be more of a headwind. And now please turn to Slide 18, and we will briefly cover the changes to the reset restructuring and COVID-related savings plan. Total company planned restructuring spend remains $200 million for the full fiscal year. As mentioned, we now expect only $40 million of the $150 million COVID-related savings from 2020 to return as business conditions start to normalize in the back half of the year. Accordingly, incremental 2021 savings have improved to $220 million. Total long-term annualized savings of the overall reset restructuring program are expected to exceed $650 million. Please turn to Slide 20, and I will now hand the call over to Mr. David Farr. David Farr: Thank you, Pete. First, I want to welcome everyone to the first quarter earnings call. And I want to thank you very much for the interest in this great company. I'm clearly a little bit biased on that, but it is a great company. Second, I want to thank the global leadership team, the executive leadership team and all the employees around the world executing and delivering a fantastic first quarter for all of our investors. The last 19 months have been hard with a cost reset for peak margins, downturn in late 2019, COVID-19 pandemic and a resulting global recession and now the return to growth. My recognition and applauding to all of you is powerful and thankful. I want to thank all of you from my heart for what you've done over the last 19 months. But now we have a new threshold of execution for the second quarter and total fiscal year. I believe this team will make it happen. They are good. Third, I want to recognize and congratulate Lal Karsanbhai as the new CEO of Emerson. I'm so proud of you and so excited for you and how you and your new OCE team will take Emerson to new heights as I and we have done the last 20 years. When Chuck Knight turned over the reins to me in late 2020, I took a deep breath, I paused, I smiled, and then I moved forward. You're ready and have what it takes to lead Emerson. You have the right stuff as does all the OCE and global leaders. I'll be your best cheerleader, your supporter, and my phone line is always open to you and your team. Pause for a second. Phew. Now why now? I'm healthy, folks. I'm not sick. Nothing is wrong with me other than my right knee, which is definitely gone, no golf. So the knee replacement is on the way. I've already talked to my doctor. The Board's succession plan and process ran its course with many great candidates over the last 5 years. I want to thank all of them. They all know who they are. A couple could be in this room. I also want to thank Bob Sharp, who is a close friend and really wanted to be CEO of Emerson, but as he and I talked, told him was not going to happen. So we decided to figure out how to make it happen somewhere else. I wish him the best of luck. As we went through the first quarter, it was clear to me, the Board that we clearly had one strong obvious candidate: Lal. The others are great leaders. They're great individuals. They're great friends. They've done great things in Emerson, but Lal is the next leader. So we decided. But that's not the only issue. There are other things going on across the company. The company is in great shape, the P&L, the balance sheet and the cash flow. As the Finance Committee told Lal this morning, don't blank it up. We had a very good final quarter in fiscal 2020, as you all know. Orders have been turning up strongly. The V-shape recovery has been taking hold and is really firm at this point in time. We've had strong exceptional execution around the massive cost reset that we embarked upon back in 2019, a cost reset costing us over $600 million when it's all said and done. The progress is enormous. You've seen it in the margins in the fourth fiscal quarter. You see it in the margins in the first quarter. We're going to deliver over $650 million of savings for the company when it's all said and done. The global teams led by these 2 individuals -- these 3 individuals in this room, Lal, Jamie and Frank, are getting the job done. They don't need my help. We are going to continue to deliver. I guarantee you. That's one commitment that I made to the Board when I said, yes, Lal is the guy. The first quarter was strong on all fronts. GAAP sales were flat; underlying sales, only down 2%. And I believe in the second quarter, our GAAP sales will clearly be up, and I think our underlying sales will be up also, maybe not a lot, but I think it will be positive. Profitability was very good and with improving volume and cost out in the first quarter, great incremental margins on both sides. Strong margins, EPS momentum and, yes, record first quarter cash flow of $800 million and free cash flow of $700 million, extremely strong execution around earnings and the balance sheet. And we see a solid fiscal quarter, both -- in both platforms across fiscal '21. Sales will grow this year, both in GAAP and underlying growth standpoint. We'll have increased margins, stronger EPS, potentially even that $3.70, which was our 2019 EPS with much higher sales in 2019. Plus strong cash flow. In my opinion, the number will bust the $3.2 billion, but I'm not the CEO, so he has to live with that number. With order and sales momentum in the second half of 2021 and going into 2022, we, the OCE, believe we'll finally deliver the $4-plus EPS in '22. Based on the global economic recovery, the momentum we see and the cost out, it looks very good, and we'll talk about that on the 16th. Cost reset, the drive to new peak margins in '22, '23, they are firmly in place. The entire next-generation team is ready to take the reins and lead Emerson forward. Clearly, even with the COVID-19 vaccine rolling out, we continue to be restrictive on what we can do. We have to operate in a safe environment. The normal year Emerson management process is somewhat turned, not quite the same. Global travel; live customer engagement; our face-to-face planning conference, which is known to be a combat sport at times; organization planning process; leadership planning process are all restricted and delayed. We're doing them, but they're not the same. So as I thought about what I can do as the CEO in this environment, it's basically take my experience, my maturity, which many of you know I'm mature, in this environment and help the next team. Name the new team, put it in place, get out of their way and help. That's what I'm going to do. I talked to the Board about this. It makes the most sense. Yes, I said 2021. Yes, I even said maybe most likely later in 2021. But the new facts and issues, and I always like to surprise, with our annual investor conference coming up this month in the 20 -- 16th, I think the time is ripe for the new CEO to stand up, present and not have the Dave Farr game, which many of you've had for over 20 years, in some cases, more than that as I worked for Mr. Knight. The February 16 time -- the February 16 presentation with the next-generation team is very important. I'll be there to help. I'll be there to advise. I care about this company. I'm a big shareholder in this company. It's been my life for 40 years, leading it for over 20 years. The time is ripe. As you know, I've never believed in long, drawn-out successions. Chuck and I had 3 days. He hit me with the keys in the chest. He took off for a year or for 6 months. I had to track him down to try to break the quarter string on earnings. The team, the -- Lal are ready. So let's move on. As I talked to the Board, we all said the same thing. So again, my congrats to Lal and the OCE. And if anyone wants to start a yelling match with me, you'll quickly see I'm not sick. Let's go to Chart 20. I do have my Stan Musial bat, my Rally Monkey and my rally squirrel, which is really a rally ferret, sitting here today, helping us out, making sure I don't lose my train of thought. We have pretty good momentum in orders. We laid out boxes. We started this box game as we put our forecast out in, I think, April of 2020 with Frank, at that time, Bob and myself. We delivered -- actually -- we laid out the box in the first quarter. You can see we came in better. The blue dot is where we thought we would be. We're above that, obviously, at the upper right-hand corner. Jamie's business has been very strong. He's executing. He's building backlog. That's one of his issues. He's got to get that backlog down. Lal's business has turned. It's not going to be quite as sharp as Jamie. Clearly, it's a different business model. But he's turned. If you look at the next forecast, next quarter, we now have a blue dot sitting pretty much on orders above the line, with a minus 4% to plus 6%. We're seeing good momentum in Europe. We're seeing good momentum in Asia. We see good momentum in Jamie's business in North America, and we're seeing some improvement in Lal's business, which I'm sure he'll talk about. So again, very good momentum in orders. As we lay this out, that's how we see it. Jamie's business will flatten out. It will turn down a bit. He's running at high levels at this point in time, clearly some unique opportunity of growth there with all his markets as he'll tell you going the right way, which is great to see. So if you look at Slide 21, what we're looking at right now for the growth this year, as we presented the Board, we're looking at somewhere around the plus 1, minus 1 for the second quarter, depends on what kind of execution Jamie can get on his -- on the backlog. He clearly has issues relative to capacity, COVID, materials, which we'll talk about. I think Lal's short-term business is starting to turn up, and we'll talk about that in his discrete business. Even some of the onesie, twosie orders are starting to happen. We have a broad second half. It's hard -- the third quarter will be a spike. As we all know, it's a spike down. But the key issue for us is to look at good growth in second half. Obviously, the ratios will look really good in the third quarter. But we're looking at the second half and the overall business pace in that second half going into fiscal '22. What I want to do is turn it over to Lal now so he can talk a little bit about his forecast and what he sees, some insights into the marketplace, and then we'll turn it over to Jamie and let him do the same thing. So Lal, the floor is yours. Surendralal Karsanbhai: Thanks, David. Sorry. It's been an emotional time for a lot of us, Dave, and your words are very special. I'm very proud of the team and what the team has accomplished in the quarter. It's a phenomenal execution of a plan that we laid out for our investors last February that we committed to do, and we're now seeing it reflected in the P&L of the company. We're generating some of our own tailwinds, which I'll talk to you about, and the market is starting to recover broadly across many geographies as well, which is highly encouraging. This Page 22, nothing really changed appreciably in our orders as we went through the summer months. However, as we got into the late fall, we started to see an increase in activity, particularly driven by Europe and Asia. I'll flip to the next chart and give you some perspectives on how we see the outlook right now. The industries that drove growth dramatically were the discrete industries driven by Germany, specifically, which had turned its economic engine on and started to accelerate both in the process space for internal consumption and then its vast export market engine. So we started to see that improve in automotive and semiconductor packaging OEMs as well as broad activity across Europe around power and the specialty chemicals segment. In Asia, driven by China, Steve highlighted growth of 6%. We feel very good about what we've seen there and expect that growth to accelerate into Q2 as we'll talk about in a moment. But the big elephant in the room is North America. And what we experienced in North America was a stabilization of the oil and gas markets, albeit at lower levels but a forecastable level of business. What the business -- what has driven the business in -- on the continent has been power generation, mining in the Southern Cone and life sciences throughout, which has been a great story for us. As a result of that, we are seeing a recovery and expect to see sequential improvement in order pacing and sales pacing in the second quarter and in the second half of the year as indicated back on Chart 22. Let me turn then to Chart 24, and we'll give a perspective of how we see the world areas first half to second half. And across most of the world, and I can pick out 1 or 2 pockets here, we will see that improvement reflected in the environment. That discrete energy -- that discrete momentum that we've built in Europe and Asia will begin in the Americas, in North America, particularly. And we've seen, as David noted, early signs of distribution-based business recovery as we navigated through December into January. So that's very encouraging to see. I was in Odessa, Texas a few weeks ago. I saw -- I met with teams and talked about the plans for 3.8 million barrels a day production for the year, which is a stable level from where it was a year ago. So we'll see maintenance of that, increased drilling to maintain those levels in those fields. So some encouragement there. But obviously, demand will ultimately drive those -- that market. In Europe, I've talked about it's really been a German story. Our discrete business is up over 30%. Our process business is up over 10% in Germany alone. And that -- and then there's increased momentum throughout the continent, very pleased with the positive first quarter, and we expect that to continue. And in Asia, the China bounce back was important. That was discrete-driven and process-driven as well. And we feel very good about the funnel of activity that we see as we look out right now. So I feel much better than I did in October, David and team. But -- and I look forward to a much better outlook in executing in a much better environment as we go forward. David Farr: You did feel better once you got the CEO ring. Surendralal Karsanbhai: Well, I feel even better because I've got Jamie. Jamie's rolling. David Farr: Yes. Well, I just set you up for a very tough second quarter. So now I think -- so I mean very interesting to see. It's too early to talk about January, but you see the analyzing around January because I think we are feeling the distribution. We are feeling some semblance of optimism in even the Americas, and you've obviously seen some very good international orders. So I think that things are setting up. It doesn't mean it's going to be a perfect straight up. You're going to be going here or there. You go sideways stepping. But I feel very good about it. Jamie, I mean, you have a -- like you said, you're -- you can't be the slowest antelope in the pack when the tiger's out there. Right now, you're not the slowest antelope, but you've got a tiger out there running around. So what do you see happening to your business in the second half? James Froedge: Yes. The tiger is some kind of combination between growth that folks have never seen before and kind of a material situation that we're all dealing with around the world. David Farr: And customers. James Froedge: Before I jump into that, I just want to I say a couple of words because this is a one -- a special moment in time here. It's not going to come again. I want to say thank you and congratulations to David on just really an unprecedented career. What you've done in the space, there's no comparison to it. I know there's thousands of families and employees around the world that you've touched that wish they could be here to say this. I'll speak for them as well to say thank you for all you've done. You're part of the fabric of this company forever. And you've been a great leader and mentor for me, but you've also been -- you are a great friend. So congratulations. David Farr: Thank you. James Froedge: Lal, I want to say congratulations to you. We've known each other pretty much since I joined the company. We were in a similar leadership class together and worked at corporate together. We worked in the business together. I worked for you in automation. Now as business as leaders now, I get to see you in the CEO role, and I'm very proud of you. I know that the leadership team has a great deal of confidence in you, and we're very excited about this next chapter together. So congratulations to you and your wonderful family, who I have gotten to know over the years. So congratulations. Surendralal Karsanbhai: Thank you, Jamie. James Froedge: So with that said, let's jump into the first chart there, Chart 25, that shows the updated outlook for underlying sales for the year. As you can see, you heard throughout the call, the outlook for the year has improved since we last spoke. In November, we were outlooking 4% to 7% underlying growth for the year. It was going to be about 5% to 6% in Q1, 2% to 4% in Q2 and 5% to 8% in the second half. And growth in orders and sales has really accelerated in Q1, as Dave talked about, and we saw greater-than-expected strength in North America residential markets along with accelerated improvement really in all other businesses and world areas. And so from a Q1 order standpoint, we saw double-digit trailing 3-month underlying orders for all of our businesses with the exception of Professional Tools, which came in at 2% after delivering 8% orders growth in the month of December. So it was improving as the quarter went on. The broad product line and world area strength that we saw in Q1 orders, the backlog we built, what we continue to see in our business trends in January support the increase in our outlook for the remainder of the year. So if you go to the next chart, Chart 26. These 2 -- these next 2 charts look at the business from a product line and then a geographic perspective. First, from a product perspective, we see underlying sales growth in the heating and AC business in the 9% to 12% range for the year. Extremely strong first half driven by the residential market and a more moderate second half as, by the fourth quarter, inventory restocking should stabilize. Demand may settle into a pattern closer to historic cycles. However, we do see positive medium- and long-term trends in the residential market driven by homeownership, remodeling and a focus on efficiency and environmental concerns. Our Cold Chain business has exhibited a quicker growth recovery than anticipated. In November, we expected Cold Chain to grow more in the 3% to 6% range for the year, now at 6% to 9%, supported by a stronger Q1 than expected, which was really driven by a 20-plus percent Q1 sales in global transport, positive growth in U.S. foodservice in December. So even though foodservice is a tough market, coming back slower, we had positive growth in December, double-digit growth in U.S. food retail in the second half of the quarter and double-digit aftermarket growth. China delivered double-digit Q1 Cold Chain sales growth with transport up more than 40%. We anticipate solid, stable growth in the Cold Chain as the year evolved. Foodservice will continue to lag other segments, but improvement in vaccine rollout could drive upside in that space in the back half of the year. In November, our outlook for Tools & Home products was also in the 3% to 6% range. It's now 6% to 9%. Our home products business and tools we have impacted by residential demand, we will see extremely strong growth in the first half. Just to put some of the home and contractor growth in perspective. In Q1, our wet/dry vac business posted 38% trailing 3-month fixed rate orders, and our InSinkErator business saw 20% plus trailing 3-month fixed rate orders growth. Again, the residential markets will settle into more moderate growth rates as the year progresses with very strong growth in the first half, good overall fundamentals in the medium and long term. For the remainder of our Professional Tools products, we will see a return to quarterly sales growth in Q2, followed by double-digit growth in the second half of the year, aided by comparables in Q3 but also a general improvement in market conditions globally, which we already started to see, as David mentioned. For example, EMEA, Asia both turned positive in Q1, and general industrial has been steadily improving. Overall, commercial building construction globally will continue to lag the recovery of most of our other served markets. All right. Next chart, Chart 27. Our heating and AC compression business saw 24% plus trailing 3-month Q1 orders growth with exponentially higher growth in residential. Our Q1 U.S. residential heating and AC compression businesses sales grew 69% in the quarter with growth accelerating as the quarter unfolded. We do expect the U.S. residential market to settle into lower growth in the second half for the first half as we've seen unique near-term growth dynamics and the rebuild of inventory in the channel. However, as I mentioned earlier, we do see some longer-term positive residential trends persisting. North America industrial continues to improve with commercial building construction lagging. Asia climate trailing 3-month fixed rate orders due to December were up 11%. Europe climate was up 12%, supported by continued strength in the heat pump space in Europe along with weather conditions improving marketing conditions overall in China. Overall, Europe Q1 climate fixed sales growth was 8% with heating growth up 40%. Overall, Asia fixed rate climate sales were up a little more than 6%. The climate part was up 15%, and the heating piece inside of that was up 30%. So we see pretty solid growth dynamics for the remainder of the year in North America, Europe, China and the Middle East and several smaller markets but a slower recovery in parts of North and Southeast Asia. The COVID situation is dynamic. We're watching it closely around the world. We'll let you know if we start to see any changes that would reflect our current view of how the year is going to unfold. And just to wrap up, I want to say thank you to the entire Commercial & Residential Solutions team, the whole Emerson team for a tremendous quarter. You all responded to unprecedented demand increases, worked long hours to make sure we meet our customer needs while working hard to keep our employees safe. And we saw historic increases in demand in several businesses. Our team did a great job responding. And what we all can't forget is the middle of a pandemic. And so I want you to know how much the entire leadership team appreciates all of your efforts. So with that, I'll pass it back to Dave. Onto you, Dave. David Farr: Thank you very much, Jamie. Key issue here is Lal needs you to come through again in the second quarter, you and your team. I know you've got a lot of issues with, obviously, keeping the plants up and running. As we told the Board yesterday and again today, we are making investments for capacity, for productivity for you. Lal's clearly got plenty of capacity, but he's moving new facilities out, so he'll have capacity when it comes to '22, '23. So you really have a lot of moving parts. I think your team is in really great shape. And I know the team here at corporate will try to support you they best can as you go through this process because we're banking on your strong execution to deliver this year. James Froedge: Yes. David Farr: For the people on phone, I've been very busy in the last 2 days if you can imagine, Board meetings, shareholder meeting. I received over 500 e-mails and faxes. I will get back to everybody. It takes time. I'm not ignoring you. I didn't change my e-mail address, and I didn't block all the crazy ones out there that people sent me e-mails, too. It's wide open. And I will have a webcast tomorrow in the morning with Lal, and then I'll start the process and work my way up. You all mean a lot to me. You're my friend. We debate. We don't always agree, but you're all my friends, and I will get back to every single person that has sent me e-mails and faxes over the last 2 days. I appreciate that. With that, we're going to open the floor for Q&A. I, again, look forward to listening to this Webex -- or the webcast the next time. I guess that will be May. And so you guys are going to have fun. But today, we have a little fun one more time. So open the floor up. Well, who's going to hit me first? Operator: We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Andy Kaplowitz with Citigroup. Please go ahead. Andrew Kaplowitz: Good afternoon, guys. David Farr: Good afternoon, Andy. Surendralal Karsanbhai: Good afternoon. Andrew Kaplowitz: Dave, I know I speak for all of us: you've been a great help to the entire investment community. You keep it real. You keep it light at the same time, which we appreciate. Congrats, Lal. I think you're going to need some sort of rally animal to fill those shoes of Dave. David Farr: He isn't taking my Rally Monkey or my rally ferret. That sucker is -- those are going home with me. Andrew Kaplowitz: So, Dave, maybe the first question is -- one of the things you've talked about in the past is that you're hopeful that CEOs would begin to spend on CapEx again as the new year unfolds and that same distribution begins to ramp up. So your orders suggest maybe that you're seeing a little bit of that in Automation Solutions, but maybe you could step back and tell us if your conversations with customers are changing yet to the point where they're starting to open up their CapEx spigots? David Farr: So I wouldn't use the word spigot, but I would use -- I think that the conversation is with CEOs, my fellow CEOs, is that, in the capital industrial world, they are opening up. And they're talking about spending money around bringing lines back up, Andy, being -- getting some incremental capacity. We have a situation right now in the supply chain for Jamie's side of the business. There's a huge capacity issue, where there's not enough capacity, and we know they're going to have to -- they're going to start spending money around steel, iron ore, mining, copper, plastics, all these things. So what Lal's guys are hearing and we've been hearing quite a bit across the United States even now and even in Europe, they are starting to talk about small projects and spending. So I think those conversations will continue. I think you'll start seeing capital. We're going to spend more capital this year. I bet you, if we had the time, we'd probably even spend more, but the time is not a big issue for us. So I think that we're feeling it, and we're -- Lal's seeing it. Where I really, really, really want to see it is the U.S.A. And -- but I guarantee you Jamie's customers, his facilities, all need capital, and Lal's the one who is going to make it for him. So that's what we see. But we'll see how that unfolds this year. I think our discrete business in the U.S. probably had a good month. We don't know yet totally, but I think they had a very good month. And that will tell me that the projects are coming at the distributors of the channel. They're talking. They're ordering product. I think that Professional Tools will be the same way. If I -- now I turn to Jamie. He's shaking his head. James Froedge: Yes. David Farr: So that means the channel is coming, Andy. So I think that I feel good about it. Now the question is the momentum, but we'll see how much. But they've got to spend some money here. They've got to get things going, productivity-wise. And so I feel good about it right now. Andrew Kaplowitz: That's good to hear, Dave. And then at the risk of front-running your Analyst Day a little bit, when you think about Automation Solutions coming out of the downturn and the margin progression, when we look at Q1, you obviously improved adjusted EBIT by 200 basis points despite the decline in revenue. So as the segment improves, should you be capable of delivering over that mid-30% incrementals you've talked about in the past given your restructuring efforts? And do you see a path back to the high teens adjusted margin here over the next couple of years? David Farr: I'll let Lal answer that. I have my opinion, but I'll let him answer it first because he's the one who's got to deliver. So… Surendralal Karsanbhai: Absolutely. We're well on path, Andy, to deliver that peak margin plan in 2023. We want to stay that course. If we do get that tailwind, we have investments that we will need to make in this business. This is a technology business that's built around phenomenal products that differentiate us in the marketplace and allow those participation gains that we always have enjoyed and benefited from. So we will invest back in the business, and we'll stay measured. But I think we have opportunities, obviously, and we are in a phenomenal momentum right now in terms of margin execution. David Farr: So if you think about the next two or three quarters, the way Lal's business will unfold, he's going to have his earlier-cycle businesses. Those are all his higher-margin business. And so if you think about D&I, you think about measurement and instrumentation, you think about those businesses as flow businesses. Those are better-margin business. That's what's going to come back for him first. So he should have pretty good incrementals. He doesn't have the same cost/price pressure. He has a little bit of it, but not as much as Jamie does. And I don't see a lot of KOB1-type projects coming in for, what, 12, 18 months, Lal. Surendralal Karsanbhai: That's right. David Farr: So I think that as he goes into 2022, my gut tells me he's going to have strong double-digit orders going into 2022 in the fourth quarter. The question will be is the execution of the plans ready, has he got the moves done. And I think he's set up for a very good first-half of 2022 margin flow-through. Not every quarter is going to be perfect like this one. But I think, overall, his team is really focused on this. And I think they got -- they're ready to have a good execution around margin, and they will reach those new peak margins. Andrew Kaplowitz: Congrats again, guys. Good luck, Dave. David Farr: Andy, thank you very much. Operator: The next question comes from Joe Ritchie with Goldman Sachs. Please go ahead. Joseph Ritchie: Thanks. Good afternoon, everybody. David Farr: Good afternoon, Joe. Joseph Ritchie: Dave, you're going to be missed. I hope you get that knee fixed soon. Go hit the links. Enjoy retirement. But yes, thanks for everything throughout the years. David Farr: My neighbor does not sound too excited about me retiring. He called me a walking dude and [indiscernible] earlier when he came up in his truck, he said, what are you guys doing in the neighborhood? I said, I’m not going to knocking at doors and asking to help you do things like fix the air conditioning, the concrete work, so a lot of my neighborhood just think about, I need to move. Okay, Joe, let’s get back to you. Joseph Ritchie: All right. Well, Lal, congratulations as well. Surendralal Karsanbhai: Thank you. Joseph Ritchie: And I look forward to working with you closer. But yes, maybe my first question, Lal. I know you're going to tell us more at the Investor Day in a couple of weeks. But maybe talk to us a little bit about how you're thinking about looking at things maybe with -- from like a clean slate. And maybe that's the portfolio, maybe that's the margin trajectory, maybe that's the cost structure. Just any initial thoughts that you have on the transition and then making your imprint on the organization? Surendralal Karsanbhai: I surely appreciate the question, and I was waiting to hear who is the first one to ask. So congrats on that. There are a lot of things that I've thought about that I need to internalize and discuss with the team. Allow me a little bit of time. I'd like to really focus today on what's been just a phenomenal quarter for us for our organization and the guidance that we've put out for the year. The 16th of February will be shortly upon us. You'll hear our voices. You'll hear some of our thoughts. And if you allow me that, I truly appreciate it. Joseph Ritchie: Okay. Fair enough. Maybe turning it over to Jamie for a second. Jamie, when you take a look at that Slide 25 and you take a look at like the growth outlook for the second half and compare it to what we saw in 2020, clearly, like you have your easiest comp in the third quarter. James Froedge: Yes. Joseph Ritchie: And I recognize that things have been kind of like white hot for you guys in the first half of this fiscal year. But how do I reconcile those two things in that growth is going to step down in the second half just given what seems like a really easy comp in Q3? James Froedge: Yes, we'll see. I mean, I think Q4 is a big question mark right now in the model. And what we -- one scenario is that a dramatic portion of pent-up demand plus inventory that had to be restocked got pulled into the first two quarters and possibly a little bit of the third quarter. And so by the time you get to the fourth, which -- you got a tougher comp. We started to see growth come back towards the end of last fourth quarter. So it's a different comp you're chasing and could the residential markets go flat, even slightly down, slightly positive in that range. So you're -- I think it -- we see the Professional Tools businesses doing very well in the second half, both in terms of comps but also just demand improvement. Cold Chain is going to be steady throughout the year. So it's really a residential story. If residential has another wave here and stays strong and you have a hot summer, you have a very strong buying market in the housing market -- I think there's a lot of folks that didn't participate in the last wave of this housing remodeling and purchasing. That may be on the sidelines ready to go. They could -- then it could extend. We could have upside. But it's too early to tell. And so -- but that's going to be the key thing. Operator: The next question comes from Steve Tusa with JPMorgan. Charles Tusa: Congrats to you both. Dave, thanks for all the really fun times over the last, I don't know, 15 years or so. It's been a lot of fun. David Farr: Thank you very much, Steve. Hopefully, we'll see each other at least one more time. Charles Tusa: Maybe. I'm definitely hoping for that. But onto the results, which were pretty good. The second quarter guidance, I think, for AS reported revenue looks like flat sequentially. Do I kind of have that right? And can you kind of explain why that would be? I mean, looking back other than in 2020, it seems like that business is always kind of up sequentially, comfortably. And then I have just a quick follow-up on the margins. David Farr: Okay. I would say, initial look at it, you're right. It's probably flat because of FX, foreign exchange, the delta there. And the question is also just a mix of business as Lal gets the -- does he get the U.S. business coming in. Until we see the -- really, as we know that the U.S. business is -- we're trying to be cautious on Lal's business. He's done well the last two quarters, beat the numbers, Steve. But right now, it's just a function of we've got to get some of that early-turn cycle business. And so if he did see that happening in January, he should be able to do well in that second quarter. So probably a little cautious more than anything else and the currency impact from that perspective, Steve. But you're right in your analysis as always. And we'll see. Hopefully, it has a better quarter. Surendralal Karsanbhai: Yes. We're watching -- sorry, Steve. Charles Tusa: Go ahead, sorry. Surendralal Karsanbhai: Yes, just very quickly. We're watching our later-cycle businesses very carefully. Those will lag Final Control, which as they are the project-based businesses, which had good and lag coming into the down cycle. So Ram was still experiencing solid growth at this point last year and having weakened. And so we'll see him come in a little bit later. So that's going against us as well. Charles Tusa: And how much revenue will OSI contribute this year? Surendralal Karsanbhai: The Board plan, I can tell you what that is. It's around $180 million in sales. David Farr: Hopefully, it gets to $200 million. Surendralal Karsanbhai: We have a real shot. David Farr: I mean we had a good strong quarter, the first quarter, Steve. The question then, can we keep this momentum going there? They're really taking hold right now with our channel. And obviously, this whole renewable push is helping these guys a lot, too. But it's a question of how much they can execute around the various customers. But the orders right now are easily hitting the $200 million run rate. So... Surendralal Karsanbhai: Yes. So we booked nearly $95 million in the first quarter. David Farr: Yes. Charles Tusa: Right. And then one last one for you. I mean, I guess, despite kind of this quarter, which was well above prior year margins on a decline, you're basically guiding, I think, to flat adjusted segment margins year-over-year for 2Q. I mean, is there any reason? Is there a mix dynamic there? Is there something going on that we have to -- is it price cost? Like, what's the driver of a kind of a flattish margin year-over-year? David Farr: Yes. I think that -- did we give the individual margins up for the guys? No. So Steve, what you're seeing is Lal's business will have good second quarter margins. The big issue that Jamie has now got to override is the price cost as material inflation is coming in. Yes, he's got leverage from volume. He's got leverage from the reset. But the material cost numbers are starting to hit him right between the eyes at this point in time. We had good coverage in the first quarter. And now his team is working, scrambling hard to figure out how to offset that. So if we get good news there, then he'll be better than the margins in the second quarter, but he's the one that's going to be struggling when it comes to margins because of the material costs. And Lal -- I think Lal will have a good second quarter. I don't see -- or the automation business will have a good second quarter. Charles Tusa: And then one last one for you, Dave. I know you had kind of a tough ride in your first year as CEO. You had to kind of like break the streak and cut guidance. I mean, do you have enough visibility to kind of make us feel comfortable that we're not going to be kind of sitting here in the same shoes 6 months from now? David Farr: Yes. I mean the other problem is the GameStop thing that's going on out there. We did have the dot-com. The dot-com bust came in March for me that year. We would have had problems with the 9/11 issue too that year. So we -- yes, I did break the string. I did go see Chuck and said, Chuck, we're about to break the 44 year -- quarters. I knew I was going to have to do it eventually but not my second quarter in. You're right, Steve. I think we have a better feel for what's going on right now, and I don't see a dot-com bust. So I feel comfortable. I don't think that we're -- I'm not setting Lal all up for that famous phone call to you guys. Surendralal Karsanbhai: No SPAC bubbles. David Farr: No SPAC bubbles. No SPAC bubbles. Steve, you're such an optimist. Thank you. James Froedge: One thing I want to follow up with Dave is you're absolutely right, what we're facing. But I didn't want to -- for all those on the call, this is -- we've seen these cycles before. I think the bounce back in volume is faster than we've seen before. Some of the materials issues are greater than the markets have experienced. However, we're confident that, throughout this year, as we go into early part of next year, the relationships we have with our customers, the contracts we have with our customers in regards to price and MI, it all works itself out. So our focus right now is on partnering with those customers, getting the supply we need, making sure we meet their needs. But we also have very much in focus how this tends to play out in regards to the price and MI situation. So we'll be -- there'll be months where it's a little rocky as we chase things. There will other months that are fantastic as it flows through. Operator: The next question comes from Andrew Obin with Bank of America. Andrew Obin: Thank you, Dave. And Lal, congratulations. Surendralal Karsanbhai: Thank you. Thank you, Andrew. Andrew Obin: So the question sort of maybe goes a little bit into what you guys are going to talk at the Analyst Day. But with Democratic control of the Senate, has the tone of the conversations with your customers regarding green opportunities has changed? And I think I'm specifically talking about things related to the grid as it relates to Ovation and maybe anything you're seeing on mining in terms of change in tone as it relates to EVs and batteries. David Farr: Okay. So before these two guys talk, we spent two hours with the Board today on this very topic because we've been working on it. The Board knows we have been working on it, so we made a decision to bring in the organization to talk about this today. And so I'll let Lal and Jamie talk because both sides of these guys' -- of our businesses are very much involved in this whole ESG, around the sustainability and renewable stuff. And I'll just let Lal go first, and then we'll let Jamie go on this one because that's a very relevant question. We are really relevant in the space, Andrew. Go ahead. Surendralal Karsanbhai: Yes. And you're right, Andrew. This is thematical for us in what we'll talk about in the February meeting. And we're very excited to share that with the investors and talk about the opportunities we have as Emerson. James Froedge: We're going to have a dedicated section on it, Andrew. Surendralal Karsanbhai: Now so the dimensions that we'll speak about are within Emerson, the greening of Emerson. It's the greening by Emerson as we aid our customers around various elements. And Andrew, you and I have spoken about decarbonization and energy efficiency and emissions management. And it's the greening with Emerson. So it's a partnering around solutions and organizations around the world. We have -- we are in a unique position as an automation and as a commercial residential business to really fulfill what is a global demand and a global need here. So I'm pretty excited about where we sit. It's a growing business. There are various facets to it. We'll try to walk you guys through it. But over the last really two years, David, we've had a number of individuals around the world working there specifically. So I'm excited to share that with you on the 16th as is Jamie. David Farr: I think, around alternative energies, Andrew, I mean, we have a tremendous start in sight. I think we had the core technologies, as I told the Board. We're going to have to create some new technology solutions, both internally and externally, but we have the credibility with our customer base on some of these areas here. There's going to be a lot of work that happens in the marketplace over the next 5 to 10 and 15 years. And I think we have a pretty good start. Jamie's -- and I'll let Jamie talk, but we've been working on this for quite some time. We've been involved with the whole thing around refrigerant efficiencies. You think of the changing technologies and stuff that's going on, we've been living that with the governments around the world now for well over 10 years, and there's some big moves happening right now. So that's why Jamie's business in Europe is so strong. So why don't you... James Froedge: No, I think that's a great point. Look, I think in general, it's a broader political topic around regulations. I'm not going to get into that. If you just look at how it could impact our markets, when there is a clear regulation that gets put in place, it gives clarity and certainty in decision-making around what people should purchase, what they have to purchase, what they need to do in order to meet whether its efficiency targets or its emissions targets, et cetera. So generally speaking, it's good for our business because we're delivering compression solutions that have better efficiency, that use lower-GWP refrigerants. We're the leader in waste disposal capabilities globally. And we got a lot of other markets that we'll talk to you about here as we go to the Investor Day. But just in general terms, it's a very positive trend for our business because it gives certainty to folks around how they need to deploy their capital or where they need to spend their money. And as Dave said, we -- look, our engineers, our business leaders are on all the major committees around the world, have been for many, many years, that are driving these policies and driving the technical requirements around them, and we're ready for it. And in a lot of cases, the technology is already being developed and is getting ready to launch here in the next 18 months because we've seen this next transition coming, for example, on efficiency and low-GWP refrigerants. So... David Farr: I would say, in Lal's business, the automation business, our European team really pushes because they're not big oil refining business. We saw some push out of Asia when Jamie was in Asia, but the European -- and so they got it started about 2 years ago. And now with the acceleration of what's going on around the world, we have a very good running start from the standpoint of the opportunity. And that's what we want to share with you. We're a combination of doing it ourself but also working with our customers and helping everyone reach these goals. But I'm pretty excited about this in automation and in commercial. And we have a unique situation for the next 5, 10, 15 years in the space. So I feel good about it. Andrew Obin: It sounds like you guys are going to have quite a bit to say about it at the Analyst Day. A follow-up question on software. I think you have sort of -- there are multiple definitions of software. But the stand-alone software, I think it's like, what, $1.1 billion. That's sort of the market I'm referring to. What kind of growth rates have you guys seen last quarter? And what are you expecting for the business to grow at this year? Surendralal Karsanbhai: Yes. We continue to see in that high single-digit range, Andrew, as we spoke about, I think, in the past. That seems to be consistent through Q1 and what we expect for the year. And again, we -- it's driven by a lot of work in life sciences. There's opportunities in the electrification grid you talked about but in core discrete and process as well. David Farr: Yes, I think, well, there'll be some years it's really strong, some years less, but I -- we're making good momentum there. And we're going to continue to invest in startups and ventures around this area because it's both internal, as you know, Andy -- Andrew -- sorry, Andrew, and then also through, obviously, trying to look at acquisitions. But we have a good foothold in this right now. And it's really having a -- it's going to be a key port of -- part of what we're doing around sustainability too because it's not only doing it with the compression but using electronics and software. Same thing with a lot of software for Lal's business too as we... James Froedge: Yes. I mean, Dave, we were just talking about it the other day. When you start rolling out A2L refrigerants, low-GWP refrigerants, they're going to require -- it will be legal requirements around what -- the sensing you have to have, how often you have to monitor, how you have to remediate it if there's a leak or there's an issue. So as the world moves more and more in that direction, it's just going to require more insight real time to the data, and it's a huge opportunity for our business. David Farr: Andrew, so we have lot to say, but we only have so much time. Because unless they eliminate the former Chairman, we will run out of time. But -- and so they'll probably give me one chart: hello and goodbye. So we'll see. Andrew Obin: Thank you, Dave. And Lal, congrats again. Surendralal Karsanbhai: Thanks, Andrew. Operator: The next question comes from Jeff Sprague with Vertical Research. Jeffrey Sprague: Dave, congrats. We're really going to miss you. You're like the last of the Mohicans. You know that, right? I mean... David Farr: I know I'm the last of the Mohicans, truly the last of the Mohicans. Probably -- but that's okay. You guys can't handle many more Mohicans around here. Jeffrey Sprague: No, that's right. And no doubt Lal will do a great job. Congrats, Lal. Surendralal Karsanbhai: Thank you, Jeff. Jeffrey Sprague: Dave, I was wondering if you could address for us again, as all this succession was culminating, to what degree, if any, did kind of the discussion about, hey, maybe naming 2 CEOs and splitting Emerson at this particular juncture in its history? And clearly, where the decision landed is clear based on the discussion today. But kind of what, if any, was the debate around that and kind of the pros and cons in your mind? David Farr: Well, so not to sort of replay history, we went through that process back in 2019. So as we took the Board through for the -- June through the end of, say, November time period and we looked at the analysis of the 2 platforms, the strategic rationale around the two platforms, that was obviously on the table at that point in time. And the Board hired outside help relative to these 2 issues. And their opinion and working with outside help, it was very clear and we fundamentally believe there's more value in the combined basis than separating the two businesses. And so the logic was around the investments we see going relative to this whole -- around the ESG, around sustainability, around software, what we see happening in the global world right now. As you look at the different cycles, the classics and what's going on right now in the 2 different cycles and how they leverage each other, that work was done back in the mid- to late 2019. The Board made a decision. And as we went through these last 18 months -- I guess it's not quite 18 but close to 18. I'll say 12 or 14 months. The Board never -- did not think about that at this point in time. They made that decision in a while back, and that's where it sits. And I -- obviously, clearly, from Lal's standpoint, the Board will continue to evaluate that in our strategy sessions with the Board -- or his strategy sessions with the Board. And I fundamentally believe that will constantly be on the table as we look at the mix of the businesses, if we look at where we want to go next and where we may want to get out of. This company has been in and out of businesses. We get out of this business. We'll go here. And that's what's made Emerson unique. For the 40 years I've been around, if you look at the 40 years and how we transformed this company, let alone the 20 years I did, we don't sit still. So I mean, I guarantee, before Lal retires, the company will look different than it is today. Now how is it going to look differently? Well, that course will play its hand out with him and his team and the Board. So that's how we look at it, Jeff. We don't look at trying to -- status quo is not a word around here, as you know. Jeffrey Sprague: Yes. No doubt. And I was also wondering, you've obviously worked extraordinarily hard to get costs out through this restructuring. When we think about these COVID-related temporary savings, only $40 million of which are coming back, how much of that kind of total $150 million do you think does come back? It sounds like you're working hard to really mitigate that even looking into 2022. David Farr: You're going to have -- it's going to be really hard to measure because you're -- by the time we get to '22, the business is growing again. So I would say, obviously, what we've learned through this process, some things will change. So certain things will be different from a meeting standpoint, travel standpoint. But at the same time, you're going to be looking at a company that's growing as you get into '22. It's going to be a solid growth year for 2022. But I mean, clearly, it's not dollar-for-dollar coming back, but you're going to be seeing growth investments happen at that point in time because we're growing. But I would say it's been hard for us to get an exact number, but we know it's not 100% coming back, but we also know it's not only 50%. So I mean I've always felt that we'll probably be somewhere around the 80%. 80% would probably have to come back over time and 20% we've learned from a different process. But it's really what happens and what businesses grow, Jeff. It's -- but I guarantee we've learned a lot of different things here in the last -- not always a lot of fun things. Let's put it that way. But we've learned a lot. Operator: The next question comes from John Walsh with Crédit Suisse. John Walsh: A thank you to you, Dave, and a congratulations to Lal. Surendralal Karsanbhai: Thanks, John. John Walsh: So I noticed some new disclosure here in the back around software. I was just curious if this is just shuffling some things around for financial reporting or if you're changing the way some of this software actually goes through channel to your customers. David Farr: Fundamentally, as we've talked about, we're talking about trying to start to report on our software sales. We're in the early stages of what -- how we measure it. Because one thing you want to do, once you start going out with a measurement world -- in the accounting world, the columns are going to sit there. Auditor is going to look there, and they're going to say -- I see Frank shaking his head. No, he's -- so we've got to make sure we understand it exactly so we can measure it. A lot of companies don't worry about those things, but Emerson does worry about the integrity around the number. So this is our first step. As we start talking about it, we want to make sure that we have really grounded numbers so when we tell you what that is, you know what it is, and you can measure it. So that -- it's a first-step process. That's all it is. Surendralal Karsanbhai: No change to channel, no change there to reporting just from that perspective... David Farr: We're going to start giving some more insights around software. That's all. John Walsh: Okay. Great. I look forward to that. And then, I guess, just on the free cash flow guidance, I guess, is there some working capital associated with the higher sales? It just seems like you took the earnings up higher than the free cash flow. I just wanted to understand the dynamic there a little bit. David Farr: Okay. So yes, what we see happening in this third and fourth quarter is growth will be pretty strong. Now as someone said earlier, Jamie has got a unique situation where he has -- his comparison to the third quarter is really easy so he could spike. And he doesn't know what it's going to be like in the fourth quarter. So we're trying to be cautious. The other issue that we face right now and one of the reasons we had very, very strong operating cash flow in the first quarter -- yes, Lal's execution was very good. Yes, Jamie's execution was very good. But we're in a situation with Jamie's business that we haven't seen before of this magnitude, where all of a sudden, he's shipping using all the inventory can and from the standpoint of getting the inventory out getting paid and maybe not paying all the suppliers on the payable side standpoint. He's in a situation right now where his trade working capital as a percent of sale is extremely low, just where that's based out. And we know some of that will reverse as his business starts slowing down in certain areas. So I think we want to be very cautious as they try to estimate how much was that cash pull-in because of the working capital, but it was a very good quarter on earnings and execution. And I think Frank and his team, as he talked to the financial officers out there, want to be a little bit more cautious. I think if we get a better feel in the second quarter, how the cash comes in, I think I wouldn't be surprised if we don't tweak it back up a little higher, John, to be all honest. But we're just being careful right now. But I think that the earnings and cash flow execution right now is very good. And we definitely will have cash burning as we get into that fourth quarter because of our growth rate. Operator: The next question comes from Gautam Khanna with Cowen. Gautam Khanna: Congratulations. Congrats on the great run, Dave. David Farr: Thank you. Gautam Khanna: And congrats to Lal, and best of luck. Surendralal Karsanbhai: Thank you, Gautam. Gautam Khanna: I was going to ask you -- maybe you'll address this in a couple of weeks. But you hear the HVAC OEMs talk a lot about indoor air quality and that being a potential driver, especially in the commercial market, commercial HVAC market. I was wondering, does Emerson really play in that? Is there any specific products or solutions you guys are offering that might add another leg of growth to your commercial HVAC sales? James Froedge: Yes. We do. I mean some of it is direct, and some of it's indirect, right? Indirectly, as the OEMs work with different folks and they may put a broader air quality solution in place, it will often include an upgrade or a change out to the core compression solution. I think the other piece around air quality is that tight humidity control, I think, would be a big component of that. And we found that a lot of the air quality solutions work better in a tighter humidity band. Our 7ac business that we just bought, we invested in early stage, then we bought it out, and now we're commercializing it. It is a business that has 30%, 35% more energy efficient at providing very tight humidity bands for the air handling space for, initially, commercial buildings, for example. And we'll do some of that directly, and we'll also sell some of that through some of our large OEM partners. So there's multiple ways we play, and I think we'll continue to invest in that space as we go forward in both solutions with OEMs and maybe some that we sell direct to the end user base. But already, we see a lift from it today. David Farr: Yes. I think the key issue here, Gautam, is that what Jamie highlighted earlier in the conversation is that we see the states -- as we go through this current efficiency and refrigeration chains, we see the states putting in some controls and monitoring and some justification of where things sit, which will be sensing software based. And I think that's where we're going to be playing around this whole area because they're going to want to know that systems -- especially in the commercial area offering. So I think that will unfold here. That's something Jamie is going to talk about and we're investing in right now. But I think that efficiency does -- or air quality, efficiency, comfort does play for us. And so I think it's going to continue to build that way. I like that game for us. James Froedge: We always talk about automation. We work in that business close, and we have a closed loop between control system and our final control element or measurement element. If you think about the air quality space, fundamentally, it's moving in that direction. You've got to close the loop. You got to close the loop between the monitoring, the electronics, the controls, humidification, particulate management. And so if you -- for example, if you have a large commercial or residential thermostat business that's tied to key diagnostics and electronics, then you've got a big part of the puzzle there. And there's partnerships that you can have around those other pieces to close the loop and build a full solution. So we'll talk more about it in a couple of weeks, but we're very active in that space, and I think we'll do more there going forward. David Farr: What else you want to know, Gautam? Gautam Khanna: Yes. Just a second question maybe at Automation Solutions. So obviously, the order comparisons get a lot easier come May and June when you're comping down 13%, down 19% in orders. And what is the right expectation? I mean, I know you gave the second half guidance for the range at automation. But are we going to see a bigger snapback in the absence of KOB1 kicking in where we could see a double-digit month or 2 or 3 as we get to the third quarter or the fourth quarter? Surendralal Karsanbhai: Gautam, I think your assumption is right. We should not expect the KOB1 activity for the next 12 to 18 months. I don't foresee that. More significant, KOB2; and obviously, what we've been living on, KOB3, certainly. What I will tell you is that snapback is fully dependent on what happens in North America. David Farr: U.S.A. Surendralal Karsanbhai: Period. End of story. And that's really the -- that will measure the dimension of how it quickly comes back, how hard that snapback is. David Farr: I think we're trying to be cautious, but I think you'll watch the order pattern that these guys will put out because we're not going to stop that. I'm assuming Lal's not going to stop that. He may make that decision, but just watch and see what happens from that standpoint. Operator: The final question comes from Josh Pokrzywinski with Morgan Stanley. Joshua Pokrzywinski: Dave, it's been a pleasure. Enjoy retirement. Get a few more dogs. Take in a few more Cardinals games. I'll certainly miss you in Laguna. Lal, congratulations and good luck. You don't need it for sure. Surendralal Karsanbhai: Thank you. Joshua Pokrzywinski: But onto the question side of things. If I look at auto sol, kind of a similar angle is what was brought up before on C&RS. It looks like, for the second half, the range got a little wider and maybe a little bit lower. I know that, Lal and Dave, you guys both talked about KOB3 and kind of the process energy complexes being guidance parameters or drivers of the high end versus the low end last quarter. How do you see those evolving? What are the drivers of that range today? And how important is kind of that KOB3 process bucket? David Farr: So I'll give my answer, and I'll give -- I know -- I mean I know how these guys are thinking right now. They've had a couple of good quarters. They're still negative, Josh, as you clearly see. They've been very cautious relative to taking the back end up. So I think they've been -- as -- you're right. As they got a little bit better in the second and third, they'd probably get a little bit on the fourth as they look at the quarter. And so I think they're just -- I think these guys are being cautious because we have not seen the pure whites of the eye relative to that U.S. recovery. I think if we get a month or 2 where we see that consistent KOB3, KOB2 type of ordering in the U.S.A. like we've been seeing in Asia, like you're seeing in Europe, I think these guys will get a little more comfortable relative to that volume and that profit coming in. So I think they're just -- that's my impression of these guys. They've gone through a tough market here, a cost reset. And no one wants to say, hey, this thing is over, let's just go. I mean it's just like Jamie. Jamie was cautious a couple of quarters ago. Now as he's running through, he has -- it's hard for him to hide. So I think that's my feel. Anything you want to say there? James Froedge: No. I would add -- I think it's well said, David. Obviously, we're watching things like site access very carefully in terms of our engagements with customers; the spring outage schedules, which are holding right now, which is very important as well. Those are all positive signs. David Farr: The short date -- I mean, your order pattern. So what day to day -- what was your day-to-day order this month? What do you think it's going to be? James Froedge: In the month of January, it will land somewhere between $40 million and $43 million, somewhere in there, a day. David Farr: So that's a good number. That means he's coming back. So I think he's gaining -- everything's holding that we talked about from the standpoint, Josh. And now he just wants to see a couple of months of that continue. I mean you saw the early signs in December. If January gets the details, we want to analyze the details. That would be good. Early at first half of February, he gets into the investor conference, then I think he's going to say, okay, it's definitely taking hold firmly, just like we said 3 or 4 months ago with Jamie's business. So I think that's what it is. But all the signs are doing the right things. Joshua Pokrzywinski: Got it. That's helpful. And then going to the longer cycle end of the equation, the longer projects that got shelved with COVID, do you guys think that those come back off the shelf? Do we like the slate clean, start over just given that the world has changed so much? What are you hearing? What are you talking about with your customers today? Do we have a scenario where those come off, plus we have post COVID, kind of new projects and a nirvana scenario? Just happy to weigh in on all fronts there would be great. Surendralal Karsanbhai: Yes, I'll give you a quick color. The funnel sits at about $6.5 billion. It really appreciably has not changed for the last 3 months. What happened within that funnel, there were a number of cancellations, but they were replaced by a high number of smaller jobs. So quicker paybacks, those types of things. In addition to that, what's been interesting is we now have about a $1.6 billion electrification project funnel, which OSI brought to us. So that's in addition to the $6.4 billion KOB1 funnel that we've been talking about traditionally. We'll talk about this a little bit more in detail in a few weeks. But overall, feel that those projects are going to eventually move forward. It's just a matter of time here around demand. David Farr: Yes. I think from my perspective, as I hear from customers, I think they're going to -- Lal's projects will sort of be recut differently. The pressures on the CEO is relative to capital and things like that. So I think the projects, they are good projects. They will move forward, but they might be smaller. They might be cut a little bit differently. I think there's been a lot of discipline in our customer base around spending capital that's been learned the old-fashioned way through a lot of pain, like broken legs, broken arms, a couple of knives in the back. And so I think that I feel good they're going to be good. There'll be obviously some leaves, some new. But overall, I think it's going to be done. And I think Lal's got one more to say. Surendralal Karsanbhai: Yes, just one more thing. To your point, David, you're exactly right. If your project was a "bottom of the barrel" type of refinery project, that got scrapped. If your project is a conversion to a biofuel refinery, those projects are moving forward. There are many active in the United States and Europe, and we're very engaged in those processes. David Farr: It's going to be -- it will be a good -- that will be more late '21, early '22, Josh, as I see it right now. I think -- so Lal's team's got a lot of work they got to get done. They've got a lot of repositioning work in the facilities underway right now in Europe. And he's got to get that done because his business is coming back, and he can use capacity around the world right now to cover it. But when he starts getting all the world area markets going, he's got to get those new facilities up and running. With that, I want to thank everybody. And again, I will get back to people on the e-mails. It's going to take me a while. And I truly appreciate what people send to me in faxes and e-mails, and I look for it. Lal and I will try to get in before I fully go out to pasture. We will try to get into New York and I have some sessions trying to help Lal. I most likely will probably bring Jamie along just so he can learn, too. But we want to do that. That's part of my learnings that I could pass on to these guys, these gentlemen. And I have been doing this a long time, as you know, not only 20 years as CEO, but I was, when I came back from Asia, I became the spokesperson for Emerson for those 3 years. And I was an investor relations guy for multiple years -- well, 18 months. But I look forward to seeing all of you, and I truly appreciate everything you've done for me over the years and keep me straight, keep me honest and challenge me and disagree with me. I love that. Take care. Bye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.