Blake Moret: Sure. So Jeff, you asked about the IRA and what specifically are we seeing there. A couple of thoughts come to mind with that. One, we’ve showcased the work that we’re doing with First Solar, including some of their greenfields, which they’ve stated were helped along by IRA funding for renewable energy. And so we’re proud of the relationship we’ve had for many years with First Solar. We’re doing the controls and now the digital twins in their facilities. They would not have introduced as many greenfield projects without IRA funding. And so that’s an example where it helped them, which helps us because they are a good partner. The second is some of the provisions in the IRA on U.S. manufacturing. When an automobile manufacturer builds a plant in the U.S., there is a higher probability that we’re going to get large content because of our strong position here.
And so that’s also what’s helping us as well. And again, it’s the increased investment in the U.S. by the brand owners. But then when it comes to the U.S., for the reasons I talked about earlier and that you’re well aware of we have an unmatched position. So for the second part of your question, semiconductor and what are we doing there? For a long time, our core strength has been in areas of facilities management and control systems. So that’s controlling the temperature, the humidity, the cleanliness of the clean room environment. We’ve done that for a long time in Asia. And as more fabs are being built in the U.S., again, we’re extending that capability and share of wallet here. It’s also in clean room process tools. And with some of the tooling suppliers, we’ve enjoyed a good relationship for a very long time.
And that’s a combination of hardware as well as our project management and engineer-to-order expertise. More recently, cybersecurity has been a factor and has added millions of dollars of new business as we’re helping harden these facilities to make them more resilient against cyber-attacks. And the wafer transport that we’ve talked about a couple of times, that independent cart technology that we talk a lot about in EV and other industries, is really valuable here as well. And we’re starting to win big, multimillion dollar projects in several of the largest semiconductor companies in the world. And then the final one that I mentioned was a silicon carbide becomes a scale technology. We’re starting to use it in our own products. We’re seeing some logic-based automation there, and that’s exciting because they are using a standard architecture rather than a lot of the custom PC-based control systems that have characterized that industry for a long time.
So hopefully, that gets at the heart of those questions, Jeff.
Jeff Sprague: It does, thank you.
Blake Moret: Yes.
Operator: Our next question comes from Josh Pokrzywinski from Morgan Stanley. Please go ahead your line is open.
Josh Pokrzywinski: Hi, good morning guys.
Blake Moret: Hi, Josh.
Nick Gangestad: Hi, Josh.
Josh Pokrzywinski: Blake, just trying to balance out here some of what you’re seeing out there versus what we’re seeing in the macro, I guess the Fed is trying to create some more employment flag deliberately, and you would think that productivity and automation are sort of a foil for that, but it doesn’t really seem to be showing up in orders. And I know some of the markets you mentioned in the prepared remarks where things like food and beverage and life science and EV, and maybe there’s just not as much demand variability there. But how do you see kind of this cyclical versus secular balance? And are customers making these investments kind of with the expectation that demand will slow down and these are imperatives anyway?
Blake Moret: Yes, I think, there is a blend of things going on. First of all, there is the investment in new technologies that all of the players in the industry, like EV, have a real fear of missing out on. We’ve got the idea that they’re going to take a pause based on the macroeconomic concerns and let their competitors build out their fleets and be far ahead of them in terms of their ability to turn out hundreds of thousands of vehicles a year, they just can’t wait. And so they are having to power through a still dynamic economic environment. And of course, that’s EV and battery. I would say it’s also semiconductor as well, where they have to build this capacity. In general, we’re seeing across a broader spectrum of verticals the idea that automation is going to help them be more resilient and is going to enable greater productivity from their workforce.
So it’s not so much about the direct substitution of automation for labor, it’s making that labor more productive. And I think that’s a general trend that we’re seeing across other of our verticals, food and beverage, pharma, and so on. So we’re seeing that. We’re not tone-deaf to the concerns about the economy. And in terms of our own operations, when I talk about taking a conservative approach, we’re watching that. We’re prudently adding resources as needed to fuel new growth, but we’re very aware of the macro. It’s just not going to have as much of an effect on us in the current fiscal year because of a huge backlog that we have, and we’re building backlog that’s going to go well into 2024 and beyond.
Joshua Pokrzywinski: Got you. That’s helpful. And then just a follow-up on maybe putting some of these announcements we see out there in context. I think the White House put out something fairly recently, talking about across different verticals like ones you mentioned, some $350 billion or $400 billion worth of projects over the next several years. What’s sort of the automation exposure within that for some of these bigger announcements? Is it 2% of the spend? 10% of the spend? Just trying to maybe kind of dimensionalize that versus kind of the bigger numbers that we see?
Blake Moret: Yes. Josh, I wish I could construct an equation that would give you the percentages by vertical and give us our guide for us. But unfortunately, there’s a huge amount of variability between the different industries. And of course, between greenfield, brownfield and so on, a lot of the brownfield-type investments are going to carry with it a higher percentage. So some of those are dedicated to the things that we offer in terms of automation and information management and the related services. The percentage spend for a new fab or a major new EV complex, it’s going to be a small percentage of the total. And our job is to maximize the wins in our traditional value, but work really hard as we’re doing in areas like semi and EV to add share of wallet, like we’re doing with independent cart really in both of those as we’re doing in software on the EV side and so on.
So I hope that while that percentage of the total CapEx remains fairly low, it’s high value, it’s profitable and it’s growing each year.
Joshua Pokrzywinski: Very helpful as always. Thank you.
Blake Moret: Yes. Thanks Josh.
Operator: Our next question comes from Julian Mitchell from Barclays. Please go ahead. Your line is open.
Julian Mitchell: Hi. Good morning. I just wanted to circle back to the margins, as that was the main area of surprise, I guess in the quarter. So I think Nick, you talked about a 20% segment margin in the first half and sort of 22% in the second half. Is it life cycle services that’s seeing that biggest kind of half-on-half ramp? And then also, any help you could give us on thinking about the Software & Control operating leverage? I think that averaged about 70% in the last three quarters, so exceptionally high performance. How should we think about that on a sort of run rate ahead?
Nick Gangestad: Yes. Julian thanks for the question there. In terms of moving from roughly 20% margin in the first half of the year to 22% margin in the second half of the year, yes, lifecycle services is one of the bigger contributors to that step up as we see lifecycle services going up through the year. But we’re expecting margin expansion in all of our segments year-over-year in fiscal year 2023. And lifecycle services just a little bit over the total average for margin expansion that we’re expecting. So that’s how we’re seeing it. In terms of Software & Control, like Julian, just one of the things I just want to point out, as you look at some of the leverage that we’re getting, if you’re looking at the base, that was including what I was calling out a year ago of some of our incremental expenses related to Plex.
So as an example, in our a little over 600 basis points of margin expansion year-over-year in the first quarter in Software & Control, there’s about 200 basis points of that, that came from the year-over-year change in what we’re experiencing in Plex as we’re largely driven by some of those onetime expenses that we had in 2022. In terms of the overall leverage and conversion that we expect in Software & Control, we don’t really give it down to that €“ at a segment level like that. We €“ you’ve often hear me talk about our 30% to 35% core conversion. That’s more inclusive of everything. But as we grow Software & Control, we continue to expect that that’s going to create margin enhancement. That’s one of the things that we expect that will enhance our margin.
It is also a business that is attracting more of our incremental growth investments as well as we put more investment in that. So Julian, that’s just part of the balance. I’d like you to keep in mind on that.
