Thank you for holding, and welcome to Rockwell Automation's Quarterly Conference Call. I need to remind At this time, I would now like to turn the call over to Jessica Karakos, Head of Investor Relations. Ms. Karakos, please go ahead.
Thanks, Raim. Good morning, and thank you for joining us for Ravel Automation's Q3 fiscal 2021 earnings release conference call. With me today is Blake Moret, our Chairman and CEO and Nick Gangstad, our CFO. Our results were released earlier this morning and the press release and charts have been posted to our website. Both the press release and charts include and our call today will reference non GAAP measures.
Both the press release and charts include reconciliations of these non GAAP measures. A webcast of this call will be available at that website for replay for the next 30 days. For your convenience, a transcript of our prepared remarks will also be available on our website at the conclusion of today's call. Supplemental information related to our new business segments can be also found in the Investor Relations section of our corporate website. Before we get started, I need to remind you that our comments will include statements related to the expected future results of our company and are therefore forward looking statements.
Our actual results may differ materially from our projections due to a wide range of risks and uncertainties that are described in our earnings release everyone that we have today's call. So with that, I'll hand the call over to Blake.
Thanks, Jessica, and good morning, everyone. Thank you for joining us today. Before I begin, let me first congratulate our Milwaukee Bucks for such an incredible season. Go Bucks! Let me now take a moment to talk about a couple of key highlights in the quarter.
First of all, I'm pleased to welcome Cyril Perdicotte everyone as our new Chief Technology Officer. He succeeds Sujit Chand, who is retiring later this year every after a long and very impactful career at Rockwell, and I'll talk more about his legacy in November. Everyone. Cyril brings a wealth of automation and digital transformation experience to the role, with great global experience our core automation, software and managed services offerings to provide positive outcomes for customers. We also announced the signing of a definitive agreement to acquire Plex Systems, which we expect to close in Q4 of this year.
Everyone that we look forward to showcasing its unique capabilities and integration into a complete production system everyone at Investor Day during our November Automation Fair in Houston. Now let's turn to our quarterly results on Slide every 3. We saw another quarter of exceptional demand across our product portfolio. Total orders surpassed $2,000,000,000 everyone, reflecting a very strong demand pipeline. Total revenue of over $1,800,000,000 hit a new record every quarter.
Organic sales grew 26% versus prior year despite significant supply chain challenges. The manufacturing supply chain continues to remain constrained due to increased levels of demand and persistent electronic component shortages. It's a dynamic situation that we are monitoring closely. Our global supply chain organization continues to navigate these challenges everyone that is taking a variety of measures, investing in both short and long term strategies to increase our supply chain resiliency. I'll now comment on our top line performance by business segment.
Intelligent Devices organic sales increased 29%, everyone that we are in the range of $1,000,000,000 led by strong broad based demand for our automation products. From an orders perspective, this is the every 3rd consecutive quarter of record order intake in this segment. Once again, strong order growth in Motion Independent cart orders growth was broad based and included strong wins in e commerce and warehouse automation, everyone, including Intralox, an important North American material handling OEM partner whose machines are supporting some of the largest e commerce applications everyone that we are in the world. Intralox is leveraging our independent cart technology in a high bottleneck area of their process everyone that we are able to realize a 30% increase in sortation throughput. Software and Control organic sales everyone that we are in the
midst of the strong financial performance.
We are pleased to announce that our everyone that we have strong momentum. In Lifecycle Services, organic sales increased 17% versus the prior year and increased 8% sequentially. Book to bill for the segment of 1.18 is expected to drive continued sequential sales improvement In this segment through the Q4, total company backlog grew by over 50% year over year. Turning to profitability, segment operating margin of 20% increased by 3.40 basis points every quarter, primarily due to higher sales. Adjusted EPS of $2.31 grew 75% everyone that was above our expectations.
Stronger sales and favorable mix all contributed to our strong profit performance in the quarter everyone as we continue to increase our business resiliency and make technology and people investments that set us up for a strong future. Turning to information solutions and connected services, which represent many of Rockwell's newest digital revenue streams, everyone we had another great quarter. Organic sales and orders grew strong double digits with contributions across a variety of end markets. Every recent orders also include a number of meaningful software and infrastructure as a service wins with some of the world's most important food and beverage everyone and life sciences manufacturers. For example, Sinovac, one of the largest pharmaceutical manufacturers in China, every we recently chose our pharma suite MES to help bolster production of their vaccines.
We also had a great win with GE Renewable Energy everyone on a greenfield project to develop a major power plant in Africa. Once operational, this hydro plant everyone that our customers are in the range of $100,000,000 In addition to using our core automation products, our capabilities in industrial cybersecurity helped us win even greater share of this every Greenfield project. Calypso also continues to play a very important role within our connected services offerings. And lastly, received PTC's Systems Integrator Partner of the Year Award. This is in addition to Rockwell Turning to Slide 4.
At last year's Investor Day, we talked about how we are bringing our factory talk software offering to the cloud everyone that we have with SaaS offerings in 3 key areas: FactoryTalk Design Hub, FactoryTalk Operations Hub and our FactoryTalk Maintenance Hub. The organic development of our FactoryTalk Design Hub is well underway and complements our best in class every with the addition of Plex, we will have a world class every full scale FactoryTalk operations hub. Plex's smart manufacturing platform includes one of the most advanced cloud native MES Supply chain optimization and track and trace are more critical than ever, and we will have unmatched on premise and cloud native solutions. Last week, we also announced our partnership with Tesla, a leading provider of cloud based traceability software The foundation of our FactoryTalk maintenance hub comes from last year's acquisition of Fix, Since the acquisition, we've seen accelerated growth at Fix, including the addition of their first two customers everyone that we have in place grew by over 40% both year over year and sequentially, and they've added on average over 50 new logos per month
everyone that
we have joined Rockwell. Fix and Flex applications are highly complementary with many opportunities for customers to further improve manufacturing that our high velocity go to market model will provide additional revenue synergies in the years ahead. As we mentioned on the call to announce the Plex deal, we're moving fast because manufacturers are picking up the pace of innovation everyone that we have the opportunity to leap ahead with new value from highly scalable, easy to use and well integrated information solutions everyone that build on our rock solid heritage born in the world of real time data. Let's now turn to Slide 5, where I'll provide a few highlights of our Q3 end market performance. Figures are for organic sales.
We had great performance in our discrete industry segment everyone that we are pleased with roughly 40% sales growth. Within this industry segment, automotive sales grew at about 50%, led by an increase in capital project activity. We estimate 2 thirds of the capital projects we are winning Where our core automation technology will be used in an EV battery pack assembly line, one of North America's largest automotive brand owners. Everyone that we're
pleased to announce that we're pleased to announce that we're pleased to announce that we're pleased to announce
that we're pleased to
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we're pleased to announce that we're pleased to announce that we're pleased to announce that we're pleased to announce that we're pleased to announce that we're pleased to announce that we're pleased to announce that Increasing capital spend and broadening share of wallet with customers are all driving our growth. We are raising our semiconductor growth outlook once again to high teens for the year. Another highlight within discrete was our performance in e commerce players as well as traditional retailers that are transforming their warehouses through automation. Turning now to our Hybrid Industry segment, these verticals also had a terrific quarter. Every food and beverage grew over 30% and had the most significant outperformance relative to our expectations as customers prioritize investing And that our technical and commercial strength is reaping dividends that should carry through into fiscal 2022.
Everyone that we are
pleased with.
Life sciences grew over 40% in Q3, was another great performer in the quarter. Life sciences was our 4th largest industry in the quarter, everyone that we are not far behind automotive, and we continue to believe we are taking share in this fast growing vertical. Everyone in Brazil. Here our plant PAX control system, factory talk batch and pharmaSuite MES we'll enable a best in class paperless system that will fully integrate with batch control and other equipment on the factory floor. Our fastest growing vertical in the hybrid segment was tire, which was up about 60% in the quarter.
Key wins included Toyo Tire Group in Japan. Rockwell was chosen as the automation standard for their plant in Serbia. Our core automation technology, our IoT ready architecture and strong MES capability And our technologies are actively supporting our customers' increasing investments in innovation and production capacity. Saw all of our major process industry verticals return to positive growth, including oil and gas, Turning now to Slide 6 and our Q3 organic regional sales performance. North America organic sales grew by 29% versus the prior year everyone with strong double digit growth across all three industry segments.
EMEA sales increased 21%, Driven by strength in food and beverage and tire, sales in the Asia Pacific region grew 23% everyone that we have in place with broad based growth led by semiconductor, life sciences and tire. In China, we saw a double digit growth Driven by strength in tire, life sciences and EV, we continue to expect growth in China will exceed the company average for the year everyone that our longer cycle businesses kick in. Latin America growth of 26% was led by food and beverage and automotive. Let's now turn to Slide 7 to review highlights for the full year outlook. Orders momentum and backlog are everyone that we are expecting to drive strong sales growth in the balance of the year and into fiscal 2022.
Our higher top line guidance is driven by improvements in our hybrid everyone in process industry segments. Our new outlook for total reported sales growth is up 12%, including 8% organic growth versus the prior year. We're seeing strong growth in both core automation as well as information solutions and connected services. Acquisitions are contributing over a point of profitable growth. We are increasing our margin expectation to 20%.
Our new adjusted EPS target of $9.20 at the midpoint of the range represents 17% growth compared to the prior year. This also includes $0.15 from transaction fees related to our pending acquisition of Plex. I should add that we expect double digit annual recurring revenue growth in fiscal 2021 with the Plus acquisition we're expected to add over $175,000,000 to our ARR totals next fiscal year. A more detailed view into our outlook by end market is found on Slide 8. I won't go into the details on this slide, But as you can see, we continue to expect broad based organic sales growth this year.
With that, let me now turn it over to Nick, everyone who will elaborate on our Q3 performance and updated financial outlook for fiscal 2021. Nick?
Thank you, Blake, and good morning, everyone. I'll start on Slide 9, 3rd quarter key financial information. 3rd quarter reported sales we're up 33% over last year. Organic sales were up 26%. Acquisitions contributed 1 point of growth everyone that we are confident in our ability to deliver strong
sales and currency
translation increased sales by 5 points. Segment operating margin was 19.9%, an expansion of 3.40 basis points compared to Q3 of last year. Higher sales volume, a favorable mix our planned investment spend, last year's pay reductions and higher input costs. Corporate and other expense was $29,000,000 slightly higher than last year, mainly driven by costs everyone that we are committed to executing on our financial results related to the pending Plex acquisition. The adjusted effective tax rate for the 3rd quarter was 14.6% every on a later slide.
Free cash flow was $437,000,000 or conversion of 161 percent in the quarter. That free cash flow conversion was 118% and free cash flow dollars was up 39% versus last year. Everyone. One additional item not shown on the slide. We repurchased 225,000 shares in the quarter at a cost of $60,000,000 For the full year, we have lowered our repurchase target from $350,000,000 to $300,000,000 every quarter under our repurchase authorization.
Slide 10 provides the sales and margin performance overview of our 3 operating everyone's performance in the segment. The Intelligent Devices segment had organic sales growth of 29% in the quarter. Everyone that we have in place. Segment margin was 21.9%, 500 basis points higher than last year, mainly due to higher sales. This segment did see higher input costs both year over year and sequentially.
However, these costs were largely offset by price. Once again, we once again had strong orders performance in the quarter. Intelligent Devices orders grew approximately 65%, led by North America and EMEA demand. Software and Control segment organic sales grew 32% in the quarter. Acquisitions contributed 3 points to growth.
Segment margin was 25.2%, which was 270 basis points above last year. Software and control orders also grew strong double digits led by Logix, which grew double digits in all regions. Organic sales of the Lifecycle Services segment grew 17% year over year, led by Life Sciences, Food and beverage and semiconductor. Acquisitions contributed about 1.5% to growth. Operating margin for this segment was 10.3%, an increase of 60 basis points compared to last year.
This increase was primarily due to higher sales, partially offset by the reinstatement of incentive compensation. 3rd quarter book to bill performance for the Lifecycle Services segment was 1.18. The next Slide 11 everyone that we are conducting in the Q4. Turning on the left, core performance had a positive impact of approximately $1.65 primarily due to higher sales and favorable mix. We did see higher input costs this quarter compared to a year ago, everyone, which we have been offsetting with targeted price increases throughout the year.
Approximately $0.10 was related to non recurring that currency contributed about $0.05 incentive compensation and the reversal of the temporary pay reductions As a reminder, there was no bonus expense in Q3 of fiscal 'twenty. Acquisitions were about $0.05 dilutive, This slide shows our average daily order trends for our products, which includes our software portfolio. The trends shown here account for about 2 thirds of our overall sales. Order intake improved again this quarter. Particularly strong areas were in Logix and Motion.
Not included on this slide are orders for the Lifecycle Services segment, that strong order performance resulted in total company backlog of over $2,000,000,000 growing over 50% year over year. This takes us to Slide 13, updated guidance. We are increasing our organic sales growth to 8%, everyone, which is a one point increase from the previous midpoint of 7%. We expect currency translation to now contribute about 2.5 points to growth and we still expect acquisitions to contribute about 1.5%. In total, we are forecasting recorded sales to be about $7,100,000,000 or up 12%.
We have also updated the adjusted EPS guidance to a new range of $9.10 to $9.30 This new range now includes about $0.15 of transaction fees related to the pending Flex acquisition. I'll review the bridge from the prior guidance midpoint of 9.15 to the new midpoint of 9.20 on the next slide. Segment operating margin is now expected to be approximately 20%. This includes a 200 basis point annual benefit related to discrete items, which we expect to realize in Q4. We believe our normalized adjusted effective tax rate is around 18%.
Given our strong generation of free cash A few additional comments on fiscal 2021 guidance. Corporate and other expense is expected to be about $135,000,000 and now includes about $20,000,000 Net interest expense for fiscal 2021 is now expected to be about $95,000,000 to $100,000,000 And now reflects the expected incremental interest of about $5,000,000 related to new debt for the pending acquisition of Flex. Finally, we're assuming average diluted shares outstanding of 117,100,000 shares. This takes us to Slide 14. This slide bridges the midpoint of our April adjusted EPS guidance range everyone to the midpoint of our new guidance.
Starting on the left, there is a higher contribution from core operating performance, Full year bonus expense is now expected to be approximately $175,000,000 Given our projected full year performance, this bonus is higher than the initial fiscal year 'twenty one target everyone of about $115,000,000 For comparison, this was 0 for fiscal year 2020. Finally, we now have about a $0.15 impact coming from the pending acquisition of Flex, which we anticipate will close in Q4. This brings the new midpoint of the guidance range to $9.20 Finally, a few more comments on Plex. Turning now to Page 15. Flex will be reported in our Software and Control segment and be a every part of our information solution and connected services portfolio of offerings.
We are forecasting that in fiscal year 'twenty 2, every $0.35 of incremental EPS from operations is forecasted to fully offset the deferred revenue adjustments, integration expenses and incremental interest expense. We expect fiscal year 'twenty three revenues everyone to be above $200,000,000 with a meaningful contribution to EPS in fiscal year 'twenty three. We have included further details in the appendix on the financial impact of Plex in fiscal year 2021 2022. With that, I'll hand it back to Blake for some additional comments.
Thanks, Nick. Once again, strong order everyone that we have confidence in our team's ability to navigate the supply chain challenges. And we continue to invest in our future. The combination of our software portfolio with our controllers, intelligent devices and lifecycle services creates unique value for customers across discrete, hybrid and process end markets. Our momentum would not be possible without the tremendous efforts of our employees.
I'd like to thank everyone at Rockwell everyone and particularly the people in our integrated supply chain organization who've done a great job managing pandemic challenges And now mitigating our sourcing constraints. We're leveraging our own manufacturing expertise to help customers everyone that we will be more resilient, agile and sustainable. Let me now pass the baton back to Jessica, and we'll begin the Q and A session.
Thanks, Blake. Before we start the Q and A, I just want to say that we would like to get to as many of you as possible. So please limit yourself to one question and a quick follow-up. Thank you. Raine, let's take our first question.
Thank you. Your first question comes from Julian Mitchell from Barclays. Your line is open.
Hi, good morning. Just wanted to understand, first of all, how we should be thinking about operating leverage Over the, let's say, the next sort of 12, 18 months, realizing the current quarter, there is a heavy headwind from compensation and probably some headwinds as well from trying to manage supply chain constraints and component costs. Just wondered how quickly those sorts of items you think should fade as we move beyond this current fiscal quarter. When you look at the business mix, how we should think about sort of, yeah, operating leverage, please?
Hey, Julian. First, just to round out 'twenty one as far as operating leverage and we often, as Russell talk about our core conversion, We see full year 'twenty one being right in the range of the 30% to 35% core conversion that we often talk about. As far as thinking about the future, of course, we'll say more about that in November at our Investor Day. But like one way to think about it is, There are several things. Nothing drives our operating margin like top line growth.
And given our 30% to 35% core conversion, We think that's still a helpful way to think about it, and that implies that we would expect our margins to expand next every year, but of course, I'm going to give we'll give more detail about that at our Investor Day in November.
Perfect. Thanks very much. And then just as we're thinking about the automotive End market within discrete, very, very strong growth, 50%, I think you delivered in the Q3 year on year. Just wondered if you could update us sort of as you're looking into 2022, what portion of your backlog perhaps everyone if there is such a thing in auto is related to EV, and how you think about the sustainability of that auto CapEx rebound?
Sure. Well, Julian, we think that about twothree of the capital projects And we see that trend continuing and probably accelerating as new entrants into the EV market, either the established the brand owners and then the startups are bringing their products to market. And our sales are, of course, directly to those brand owners as well as all of the tier suppliers Like with Propri that we mentioned a little bit earlier. So around the world, we're very positive, very bullish on our portfolio. And quite frankly, we think Flex is going to help that with tier suppliers because that's one of their strengths, providing
Your next question comes from Scott Davis from Melius Research.
I'm kind of intrigued just to follow-up on Julien's question there. I mean, these EV projects, I mean, how do they compare versus ICE in like complexity
Sure. For Rockwell, there's actually upside to a every project versus a traditional internal combustion engine. So starting with the drivetrain, a lot every battery and the drivetrain side, if you will, for EV, where traditionally in internal combustion engines, Rockwell has had a smaller content. That may not be true for some of the other suppliers who have the traditional revenue stream for CNC or what have you, but we don't. And so we're not losing business in that transition.
It's a net positive for us. On the software side, the EV manufacturers are adopting right from the start MES software as a necessary element of the production scheduling system. And so whereas 10 years ago or so, it was seen as a nice to have, that not necessarily a requirement with these new facilities coming online, MES is seen as a necessary part every and then you combine all the other pieces of putting the vehicle together that remain the same. So you still have to stamp and Good offerings for it. In terms of the competitive landscape, as you would expect, the usual suspects
And in
the electric vehicle drivetrain, very heavy Asian content, China, Japan, Korea, and so I'd say it's even more international with a bias pursuing these projects that span across multiple countries.
That's really helpful. And you've increasingly become more bullish, Blake, on independent cart kind of almost every call here for the last year. Are there how does this scale out? I mean, could you actually do A full Amazon style kind of warehouse and independent card, is that even possible to the scale To that emphasize?
There's lots more applications within, say, an Amazon fulfillment center everyone that can be accomplished through independent card. Today, those pieces of their overall facility are typically being Provided by multiple of our customers, so you don't see necessarily one single every sub supplier to them, providing all of the conveyance and sortation and so on. And so we're working with some of the big ones, of course, these names you would recognize, but there's also a whole host of integrators and machinery builders with a good idea that Amazon is bringing into their ecosystem and so we're working with a lot of these smaller suppliers. And I would Also add, this isn't just for the big e commerce giants. This is for the big box retailers We're also looking to automate their material handling.
The Walmarts of the world are also looking at these solutions Getting in the right place more efficiently than ever before, but we see almost limitless opportunity just in the e commerce every single area for additional adoption of independent cart. And as we've talked about, we see independent cart wins every in other applications outside of e commerce, we see it in life sciences, we see it in food and beverage packaging given scalability and flexibility that manufacturers could never see before and then we have some, let's say, more unusual applications like the one we talked about
everyone. Your next question comes from Josh Pokrzywinski from Morgan Stanley. Your line is open.
Hi, good morning.
Hey, George.
Just a follow-up on, I guess, what might be several questions on orders and backlog. Blake, so you have another quarter here with pretty healthy order intake. You referenced that you guys are seeing that would make that shippable over a longer period of time than usual. Obviously, you guys have sort of a reputation for being more short cycle. Everyone, but how is that evolving and over what time frame would you view that backlog as sort of a shippable number?
Yes, I would not look at this backlog as being longer term shippable Based on the mix of industries or projects, the longest backlog orders that we get are typically in solutions, And that's the part of the business that's actually been a little bit slower to recover. So there's nothing in that mix that would indicate that These backlog increases are due to some special case with respect to higher project content or what have you. It's really due to just the dramatic surge that we have seen and seen sustained over the last few quarter in orders Coupled with supply chain constraints, but we've given you the color about individual verticals that it's coming from and it's a great balance everyone that has been across discrete and hybrid and now the process markets are starting to kick in a bit there.
Got it. That's helpful. And then just a follow-up on some of the moving pieces on the cost side for Unique. I think last quarter, maybe some earlier quarters, there was a bit of a talk on some of the investments being kind of front loaded for 2021, Maybe that's a bit more of a tailwind into 'twenty two. If we need to add up the investments in the incentive comp piece, Is that something that levels out on a normalized basis or is there still some kind of catch up or get back where you start off
Yes, Josh, in terms of our investments for full year 'twenty one, that we expected year on year the investments to go up between $90,000,000 $100,000,000 compared to the second half of 'twenty. Our best estimate now is it's going to go up $85,000,000 year on year for the second half. So I'd call it more back end loaded than front end loaded of our investments. And then in terms of investment spending Next year, Josh, again, it's early, but I don't see any reason to think that it would not be fairly evenly every year. I don't see any big seasonality impacting next year in our investment spend.
Your next question comes from Andy Kaplowitz from Citigroup.
Blake, I'm sure you don't want to give us too much in 2022 at every point, but given orders are so much higher and they keep trending up, what kind of confidence at this point do your order trends give you in delivering organic growth in FY 'twenty two that could be close to 'twenty one or at least at or above your 2x industrial production target. Well,
Without saying too much about 2022 until November, we're very positive on where we are, The orders momentum, the backlog that we expect to largely shift as we get every Closer to normal levels through the balance of the year, our ability to compete and win In competitive projects across the world and across the verticals, I think it's a great setup and It should bode well for our growth and performance going into the next year and beyond.
That's helpful. Maybe just focusing on process markets. Obviously, you're seeing, especially in chemicals, given you modestly raised your 2021 forecast, some improved growth, but are you starting to see more significant improvement yet in oil and gas? What's your confidence level in sort of more of a typical later cycle recovery for process as you go forward.
Yes. We continue to see Discrete businesses, but we grew year over year and sequentially in oil and gas. We expect everyone another quarter of growth in oil and gas in the 4th quarter. And while there's still a lot of uncertainty, these every project around the world, and we're continuing to watch COVID infections, and those are continuing to be a concern for us. We think we're in a good spot with oil and gas and some of the comments from some of the earlier cycle oil and gas operators, the people who are providing drilling technology as well as Oilfield Services, those generally lead the impact on our business by, say, 6 or 9 months.
And so we are optimistic that some of the early signs that we saw this quarter in oil and gas
Your next question comes from Nigel Coe from Wolfe Research. Your line is open.
Hi, good morning. I'm on from IdolCo. My question would be looking at the investment question again. I I was still looking at the $35,000,000 tailwind and for the incentive stores around $30,000,000 for 2022.
In terms of the tailwind for 'twenty two, I mean, we're I'm not yet in a position where we're sharing guidance on what we that we expect investment spend to be for 'twenty two, but our total investment spend this year As far as headwinds and tailwinds, I didn't quite catch all of that. But for instance, it would be more likely that our bonus is back in everyone that we have not necessarily go down or not repeat. The one exception is we have temporary investments We've accelerated investments of $30,000,000 That is going exactly as we anticipated, that $30,000,000 in the second half of the year, About $10,000,000 of that we spent in the 3rd quarter, dollars 20,000,000 we're anticipating in the 4th quarter. Those will not repeat into 'twenty two, and we did those investments to Accelerate our growth in 2022. And then the last point is, as I said earlier with Julien's question, It's our expectation that margins will be expanding in fiscal year 2022.
Got you. And another one was that in terms of The orders momentum, you mentioned it's not as long cycle. Do you have any idea when the conversion will happen into sales?
Well, obviously, we're seeing good sales Rates that were above our expectations in Q3 and that led us to raise the guidance of organic growth at the midpoint every quarter that we expect that we'll be shipping the backlog through the balance of 'twenty two getting us closer Towards
more
normal backlog levels, backlog will be up in Q4 a little bit, But not as market increase as we saw in Q3.
Appreciate it. Thank you.
Thank you.
Your next question comes from Steve Duszak from JPMorgan. Your line is open.
Hey, good morning.
Good morning, Steve.
Thanks as usual for all the details. Just wanted to Dave, maybe I might have missed the comment on incentive comp. What is normal just mechanically? What do you think is normal incentive comp relative to the level that you're performing at this year?
Yes. Steve, we started the year with our
that our planned compensation, which is
what we would consider our normal amount of $115,000,000 given our every expectation of exceeding that performance. We're currently expecting total bonus expense this year to be Approximately $175,000,000
Okay. So just mechanically, we should assume that next year you get a $60,000,000 tailwind from that?
I think that's a pretty fair assumption.
Okay. And then just for the investments, I mean, so should we kind of think about Investments up 2 and then remove the $30,000,000 So, is that kind of the profile for investments Going forward, at least for next year?
In terms of the investments, yes, the $30,000,000 you should think of that as something that we're not planning to repeat. But it's we still haven't given our guidance here. We're working through a lot of things of how we want to what we want to invest on in 'twenty two. But yes, your assumption of taking $30,000,000 out of what we've done this year, that's the way we've been saying that and I agree with that approach.
Okay. So something like it's like $60,000,000 plus the $30,000,000 and then we have to kind of make up our minds on how much kind of the core investment account goes up and that's kind of the profile for those costs.
I think the best way is to Look to November when we're going to be able to provide more detailed bridges.
Okay. I won't ask you for the date of that. That would be the follow-up. But one more question for you just on this orders sorry, on the Plex deal. That's a pretty big growth number in 2023.
Is there something to do with the accounting around deferred revenues on that front? Because 30 everyone that seems to be a pretty dramatic acceleration as to where this company has been in the past. And then how much of their revenue is actually like every peer MES that's really kind of detached from their kind of ERP core? And thanks for the details, guys.
Yes. Just so a couple of things. I'll start and Nick may have some additional comments. First of all, The figure in 'twenty three is after the adjusted adjustments for deferred revenue that impact of revenue in 2021 2022. So you don't see the deferred revenue adjustment in 2023.
So we're not looking for 30% Top line growth in 'twenty three, but we will not be seeing the deferred revenue adjustments carrying into that year. And then in terms of the mix of Flex's offering, so they offer a modular smart manufacturing platform and it has ERP, it has MES, it has Quality management, it has supply chain. And so particularly when you're talking to small and medium sized manufacturers, they don't have big centralized engineering resources to take a bunch of disparate software applications and hope that they knit together. And so Plex offers The customer isn't forced to buy what they don't want. We'll continue to support all these applications for the customers who've already bought them As well as to other industries like food and beverage and pharmaceuticals that they haven't had as much exposure to in the past.
Got it. Hey, Steve, just to make sure you're seeing it, in the appendix, we've provided some additional detail breaking out 2022 for Plex and that shows the underlying revenue and then the deferred revenue Adjustment or actually a range on that that we're anticipating that we provide that so you can put it in context of how to think about that growth that we're showing.
Right. That's super helpful.
Okay. Thanks a lot.
We have one last question everyone from Noah Kaye from Oppenheimer. Your line is open.
Good morning. Thanks for taking the questions. I guess just Following up on that, I would love to hear some of the responses that you've been getting to the Plex announcement, both from the customer base And internally, I think there have been some questions about on prem versus cloud migration for a lot of these manufacturing customers. You've got another arrow coming in the quiver, but you also have your own broad portfolio of offerings, Some of which are, of course, legacy on prem and some of which are moving to the cloud. So can you just talk a little bit about the response and what you think customers are going to be trying to figure out and how you think you can help them over the coming quarters and years.
Sure. Noah, thanks for the question. Customers that I've developed relationships with over the years and they were really excited, thrilled everyone about what we were bringing in. They felt like it made great sense and it added what we can offer to complement the core automation that they've been buying from us for years or in some cases where they're trying to decide who their digital transformation partner is. With this, what we have and this is something we've talked about for a long time, an approach that meets customers where they are on their journey.
We're still going to sell a lot of on premise software and customers have made investments there and they want to see a migration path every We have the opportunity for customers who have made a decision that they're going to start working with these applications with cloud native software customers who said they're ready to look at that as well. And so having that approach, it all comes back to that theme of an open approach where we're not forcing One philosophy down the customer's throat and we're telling them we can meet them where they are on their journey. We'd like for that data to be coming from Rockwell every core automation components, but as we've talked about before, a lot of this software we fully expect is going to give us a way in Into competitive strongholds where we're not currently the supplier of the core automation and we're going to be providing the value at the software
everybody. Okay, thanks. Blake, let me ask one more question. I don't think it was addressed too much everybody on this call, but you mentioned both in the press release and I think in prepared remarks, some of the supply chain constraints. And I was wondering if we can get a little bit more color around where you see the supply chain pressure is really still manifesting for Rockwell internally And what that looks like over the coming couple of quarters.
But then also, if you can just touch on what impact this is maybe still having on demand. I mean, I got to imagine for any ops every this re ramp is like drinking from a fire hose every day. And so just wondering to what extent you're seeing your customers demand or kind of CapEx plans somewhat being held back everybody just the challenges of the ramping.
Sure. So in the quarter, we saw a little bit of an impact On supply chain in automotive MRO, there was a small amount and we did not see that affecting capital projects operations and supply chain organizations are going to continue to be working on for the foreseeable future. It's not going to crimp the supply going forward. And in fact, it's probably lessening with respect to automotive everyone from what we may have seen earlier in the year. The part of the supply chain constraints that We're thinking about our in terms of converting our own backlog and I mentioned specifically that our every supply chain organization, I think, is doing a terrific job navigating this, but it's not going to be over in the next every quarter, we're going to continue to be dealing with these supply chain constraints for the foreseeable future, and we're looking at how do we deal with these on a short term basis, But also on a longer term basis, and I would say electronic components are a piece of that.
Some of this is just simply brought on by the extremely sharp recovery in demand that we've seen And that we continue to see in orders, but then there's also the labor and we have to make sure that we're a great destination for labor in our plants, in our supply chain organization, in our development teams and so everyone across the organization because as you know, it's a very hot, it's a very active labor market right now. And again, I think we're doing a great job with that. We have really good collaboration across all parts of the organization to make sure that we're pulling together So that when people are considering Rockwell as a destination that we come out on top. So it's those two areas, I would say. But again, in terms of the demand, we're really not seeing a significant dampening of demand brought on
Thank you. I would now like to turn the call over back to Ms. Corakos.
Thanks, Raine. Well, thanks everyone for joining us today. I know it's a very, very busy day for earnings. We appreciate your interest and support and we'll see you soon.
Everyone that concludes today's conference call. At this time, you may now disconnect. Thank you.