Andy Kaplowitz: Appreciate all the color, guys.
Ram Krishnan: Thank you.
Operator: The next question is from Deane Dray, RBC Capital Markets. Please go ahead.
Deane Dray: Thank you. Good morning, everyone.
Lal Karsanbhai: Good morning, Dean.
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.
Deane Dray: Go ahead.
Mike 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 and measurement, Natty, on the orders visibility, is there maybe some color on the demand and whether did you miss any orders? Is the demand out there and you missed orders, or is the demand not there? Are you engaging 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 slay flat, the slight sequential growth from what we did in Q2, given the easier comparisons, will improve in the second half and then go positive into Q25. Certainly, as Laurel 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 six months, but outside of that, everything is coming in as expected.
Deane Dray: Great. Thank you.
Operator: The next question is from Steve Tusa, J.P. Morgan. Please go ahead.
Steve Tusa: Hi. Good morning.
Lal Karsanbhai: Good morning, Steve.
Steve Tusa: I’m just trying to 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 flat, just from a quarter-to-quarter sales perspective and then with much less of a ramp from 3Q to 4Q. Is there anything on the top line seasonally that is not normal, is a little slower than usual on the core business, outside of Natty and outside of Aspen?
Lal Karsanbhai: No, Steve. Actually, the way I see it is our second half versus first half will be up high single-digits sequentially from a sales perspective. It is consistent with the normal seasonality of how our core business minus Natty 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.
Steve Tusa: Again, given the mix of MRO is so high today and the growth really isn’t that strong, is the mix really changing that much? How much is the lower margin project stuff going to be up in the second half, more than MRO? Can the mix change that much quarter-to-quarter?
Mike Baughman: No, Steve. It doesn’t. We were at 65% in 2023. In Q2, we were at 64%. There was a point shift. That may move yet another point as we go through the year, but no, you’re right. The underlying strength of MRO in our process and hybrid business is still intact. Certainly, we go through the summer and approach the fall averages and STOs and turnaround opportunities. We look at that, 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.
Steve Tusa: And then just one last one on Natty. I haven’t done the math on the 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 or something like that. Is that the right construct for Natty in the second half?
Mike Baughman: So flat Q3, sequentially up in Q4.
Steve Tusa: Yes. It’s bottomed. The revenue is at the bottom there.
Mike Baughman: Yes. Yes.
Steve Tusa: Thank you.
Lal Karsanbhai: Thank you, Steve.
Operator: The next question is from Joe O’Dea, Wells Fargo. Please go ahead.
Joe O’Dea: Hi. Good morning.
Lal Karsanbhai: Good morning, Joe.
Joe O’Dea: Can you dig in a little bit on the growth trends in measurement and analytical and final control? I mean, it seems like measurement and 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?
Lal Karsanbhai: So the measurement solutions this year, you’re spot on. It’s going to grow faster than final control primarily because that was the business that suffered the most from a backlog bill due to lead times. 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 hybrid markets, relatively the same mid to high single digits.
Joe O’Dea: Got it. And then, it looks like on Aspen Tech, 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.
Joe O’Dea: Okay. Thanks a lot.
Operator: The next question is from Brett Linzey, Mizuho. Please go ahead.
Brett Linzey: Hey, good morning. Thanks. 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?
Lal Karsanbhai: Yes, we’ll give you some perspectives and some guidelines. On a 1200-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.
