Rockwell Automation(ROK) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company's unaudited quarterly financial statements detail its financial position, performance, and cash flows Consolidated Balance Sheet Total assets slightly increased to $10.80 billion, marked by higher inventories and lower cash equivalents Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2022 | September 30, 2021 | | :--- | :--- | :--- | | Total Assets | $10,799.9 | $10,701.6 | | Cash and cash equivalents | $482.9 | $662.2 | | Inventories | $989.1 | $798.1 | | Goodwill | $3,582.2 | $3,625.9 | | Total Liabilities | $8,114.3 | $8,007.5 | | Long-term debt | $3,464.1 | $3,464.6 | | Total Shareowners' Equity | $2,685.6 | $2,694.1 | Consolidated Statement of Operations Quarterly sales grew 6.5% to $1.97 billion, though nine-month net income fell due to investment value changes Statement of Operations Summary (in millions, except per share amounts) | Metric | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Sales | $1,968.7 | $1,848.2 | $5,634.1 | $5,189.6 | | Gross Profit | $802.4 | $764.4 | $2,215.6 | $2,178.3 | | Change in fair value of investments | $(5.2) | $43.3 | $(138.3) | $624.6 | | Net income attributable to Rockwell | $297.9 | $271.3 | $593.3 | $1,279.6 | | Diluted EPS | $2.55 | $2.32 | $5.06 | $10.91 | Consolidated Statement of Cash Flows Operating cash flow for the nine-month period decreased significantly to $423.7 million due to working capital needs Cash Flow Summary - Nine Months Ended June 30 (in millions) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Cash provided by operating activities | $423.7 | $1,056.9 | | Cash used for investing activities | $(99.2) | $(372.2) | | Cash used for financing activities | $(478.5) | $(502.8) | | (Decrease) increase in cash | $(179.3) | $209.2 | Notes to Consolidated Financial Statements Key disclosures cover revenue recognition, the Plex Systems acquisition, goodwill, and the PTC Inc investment - As of June 30, 2022, the company had approximately $1,080 million in unfulfilled performance obligations, with about $540 million expected to be recognized as revenue in the next 12 months[37] - In August 2021, the company acquired Plex Systems for a net purchase consideration of $2.205 billion, resulting in $1.728 billion of goodwill allocated to the Software & Control segment[53][54] - The annual evaluation of Goodwill in the second quarter of fiscal 2022 concluded that these assets were not impaired[63] - The company's investment in PTC Inc common stock was valued at $1.066 billion as of June 30, 2022, with fair value changes being a significant source of earnings volatility[69][71][73] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses strong demand and record backlog offset by supply chain constraints and inflation - The company is experiencing stress on its global supply chain due to increased demand and global events, leading to disruptions, difficulty in procuring components, increased costs, and delivery delays[120] Fiscal 2022 Guidance (as of July 27, 2022) | Metric | Guidance | | :--- | :--- | | Reported sales growth | 10.5% - 12.5% | | Organic sales growth | 10% - 12% | | Diluted EPS | $7.74 - $8.14 | | Adjusted EPS | $9.30 - $9.70 | Results of Operations Q3 sales grew 6.5% organically, but nine-month pre-tax income fell sharply due to unfavorable PTC investment adjustments Sales Growth by Region - Q3 2022 vs Q3 2021 | Region | Reported Change | Organic Change | | :--- | :--- | :--- | | North America | 14.1% | 10.9% | | Europe, Middle East and Africa | (6.5)% | 3.2% | | Asia Pacific | (10.2)% | (5.8)% | | Latin America | 18.3% | 15.5% | | Total Sales | 6.5% | 7.1% | - Adjusted EPS for Q3 2022 was $2.66, a 15.2% increase from $2.31 in Q3 2021, driven by higher sales and lower incentive compensation, which offset higher input and investment costs[134] Segment Analysis The Software & Control segment drove performance with strong sales growth and margin expansion in Q3 2022 Segment Performance - Q3 2022 vs Q3 2021 | Segment | Sales Change | Operating Margin Q3 2022 | Operating Margin Q3 2021 | | :--- | :--- | :--- | :--- | | Intelligent Devices | (0.5)% | 19.7% | 21.9% | | Software & Control | 19.1% | 31.4% | 25.2% | | Lifecycle Services | 6.1% | 9.4% | 10.3% | Financial Condition, Liquidity and Capital Resources Free cash flow declined sharply due to increased working capital, while liquidity was enhanced with a new credit facility Free Cash Flow (in millions) | Metric | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | | :--- | :--- | :--- | | Cash provided by operating activities | $423.7 | $1,056.9 | | Capital expenditures | $(100.3) | $(76.6) | | Free cash flow | $323.4 | $980.3 | - In the first nine months of fiscal 2022, the company repurchased approximately 1.0 million shares for $225.5 million, with $1.33 billion remaining under share repurchase authorizations[149] - On June 29, 2022, the company entered into a new five-year $1.5 billion unsecured revolving credit facility, replacing its former $1.25 billion facility[153] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk exposures since its last annual report - As of June 30, 2022, there has been no material change to the company's exposure to foreign currency risk and interest rate risk as reported in the fiscal 2021 Form 10-K[174] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal quarter[175] - There were no material changes in the company's internal control over financial reporting during the quarter[176] PART II. OTHER INFORMATION Legal Proceedings No material changes to legal proceedings were reported since the last annual report - As of June 30, 2022, there has been no material change to the legal proceedings information disclosed in the company's fiscal 2021 Form 10-K[177] Risk Factors No material changes to significant risk factors were reported since the last annual report - As of June 30, 2022, there has been no material change to the risk factors information disclosed in the company's fiscal 2021 Form 10-K[178] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 860,134 shares in the quarter and increased its buyback authorization by $1.0 billion Share Repurchases - Three Months Ended June 30, 2022 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2022 | — | $— | | May 2022 | 408,755 | $204.71 | | June 2022 | 451,379 | $204.70 | | Total | 860,134 | $204.71 | - On May 2, 2022, the Board of Directors authorized an additional $1.0 billion for the company's share repurchase program[180] Exhibits Filed exhibits include a new $1.5 billion credit agreement and required officer certifications - A key exhibit filed is the $1,500,000,000 Five-Year Credit Agreement dated as of June 29, 2022[182]