Good afternoon, everyone. Welcome to the 18th annual OpCo Industrial Growth Conference. Next up, we have the ITT team. Very happy to have CEO Luca Savi, CFO Emmanuel Caprais, and VP of IR Mark Macaluso with us today. Welcome, guys. Thank you, Brian. Thanks for having us. We have 35 minutes allotted, which is a really, really short period of time to discuss your story. I'm gonna jump right in. I think for those a little less familiar, you know, with the ITT story, at least modern ITT, if you could offer a quick background, you know, history post and overview of your current operations, and, you know, probably most importantly, what you think really differentiates ITT. Sure. Thanks, Brian. Well, when you look at ITT, we are an engineering and technology company. We are making components for harsh environments that are working in the transportation industry, in automotive, in energy, in aero defense, and general industrial. When you look at really what differentiates ITT in the market, I would say, it's really the way that we manage the business in ITT, which lead to a superior execution. If you think about Motion Technologies with 99.5%, 99.9% on-time delivery in the last couple of years when, you know, the supply chain was quite challenged, or quality with less than 1 PPM, and the same would be on the pump side. Execution is really what differentiates us in the market. Of course, each business then will have some key elements that will help differentiate it from the competition. We can go deeper when we talk about some of the businesses, Brian. Excellent. With that segue, you know, Motion Tech probably your best known, business Friction in particular. Luca, you were instrumental in, you know, scaling and fine-tuning the platform. What were the key steps along the way, strategic transitions made? What continues to differentiate Motion Tech, and what gives you confidence in, you know, continued outgrowth in the future? Sure. Motion Tech is really where me and Manuel came from. Manuel and I worked very closely together in turning and making Motion Technologies what it is today. I would say in terms of what have been some of the things that have helped us in building, you know, Motion Tech the way that is today is the continuous investment in the business. I remember some of the discussion that we were having with corporate many years ago on the capital investment, because we wanted to keep on investing organically in this business, which was the right thing to do strategically, was the right thing to do financially, because the return on this business are incredible. The continuous investment in this business, the continuous investment in R&D and innovation has been critical. Of course, the expansion that we went, we went with is expansion in China in 2013, 2014. We opened officially our plant in China in 2013, 2014. We went to China for the local market. We didn't go to China for cheap labor. The opening of our Mexican plant for the North American business in Mexico in 2018. The geographic expansion, the strategy to go in the region for the region, and also the strategy to go with the same level of technology, the same level of automation that is really differentiating ourselves, us from the competition, both in China as well as in Mexico. I would say on top of that, it might be something really simple, but it's really sticking to what our strengths are and to make sound business decisions, Brian. I think that this is what differentiates us from the competition. I think that this differentiation is also sustainable. Sustainable because it kept being fed by continuous investment for growth or for productivity, differentiation in R&D, in products that the competition do not have and in intellectual property that the competition does not have. That's very helpful. Given the auto-centric nature of the platform, it'd be great to hear how your team's thinking about auto production trends, the outlooks for 2023, likely outgrowth of the ITT team in each of your key regions. Then preliminary look to 2024, is there anything in terms of your win rate, the backlog, what's in the pipeline, assuming that, you know, platform production plans are reasonably as currently set, anything looking to next year that would allow for, you know, accelerated outgrowth relative to this year? When you look at the production, you know, the production of vehicles in 2020 was roughly 82.5 million vehicles. IHS is forecasting a mid-single digit growth to 85.5 million. We tend to be more conservative. We like to plan our way, when we look at market growth, we think that probably is low single digit growth, flattish in Europe and in China, and probably mid-single digit growth in North America. That is the market. We expect to outperform the market by roughly 400-500 basis points in 2023. When it comes to 2024 and the years to come, we are expecting the market to continue to grow. you know, think about it in 2017 and 2018, the vehicle produced were more than roughly 91 million, 92 million vehicles. The market is expected to keep on growing and be at this level in the late 20s. Think about it, we actually were above the 2019 level already in 2021. Why is the market decline, you know, Friction OE were able to grow, and we expected our performance to continue in the years to come. The reason why we expect our performance to continue is because our win rate in electric vehicle platform and electrified vehicle platforms or hybrid is substantially higher than our current market share in production today. Because of that, I believe that will keep on feeding our performance. Once again, if you think about it, the auto market, it will keep on growing. It's gonna take a few years to go back to the pre-pandemic level, but it will keep on growing. On top of that, you've got electric vehicles where the growth is much higher. Compounding on that is our market, our win rate in these electrified platform, which is substantially higher. This is why I like to say always electrification is good for ITT. Understood. Are you willing to put some more numbers to that in terms of the, you know, the win rate that you have, the current EV mix for Friction revenue and where that's, you know, expected to go over the coming years? In turn, we've historically thought of Friction's, you know, pretty consistently outgrowing more like 800-900 basis points per year. As you continue to increase share, you're obviously kind of a victim of your own success in terms of lapping those figures. That's understandable. As the, you know, EV production ramps and you are taking more and more of that share, could we see you get back to that kind of range? Fair point, Brian. I would say we said just because our market share gains, you know, think about it from 0% to 28% in China in, you know, in six, seven years, I would say from zero, from low single digits to more than 25% market share in North America. As we grow market share, obviously the outperformance is more difficult to achieve level like 800, 900 basis points like we've done in the last 10 years, in the last four years. You rightly point out that actually electrification is something that can be a tailwind to that outperformance just because of the amount of platforms that we're winning today in the market. We might exceed the number because of the electrification, but, for this at this point in time, you know, we're saying probably 2023 and 2024 will probably be an outperformance of 400, 500 basis points from what we see today. Okay, understood. Last MT specific question. Run rate margins are, you know, a bit lower than investors have come to expect from the segment. Can you detail the cost headwinds that you faced, what led to that? You know, what is in essence locked in for, you know, part of the year, and how we should think about margin progression, you know, Q2 into the back half and, you know, perhaps resetting to what we think of as more of that normalized high teens plus range going forward. Yeah, Brian, let me add that. Let me address that. In starting with the most recent stuff, in Q2, we expect Motion Technologies margin to improve versus what we've seen in Q1. Here what is at work is better price recovery, especially in Friction, as well as a starting to see an improvement from a commodity standpoint. We have booked steel, copper, a lot of our commodities ahead of time. Because we have done that, we are not benefiting immediately from the cost reductions or the, let's say, the lower prices of those commodities as they're happening now. We expect that to build in Q2 and then Q3 and Q4. The really, there's a couple of things to think about Motion Technologies in terms of the margin progression. The first thing is that Motion Technologies is a very commodity centric business. As a result, when steel, when copper, when tin, when all those materials have gone up in terms of price, that has impacted us significantly. Unfortunately, in this business, we haven't been able to get 100% coverage from our customers. We did get the majority of our costs covered, but not 100%. That's a big headwind from a margin standpoint. We're progressing on this because this year, for instance, we'll increase our percentage of recovery of cost inflation compared to where we were last year. I think when you think about when are we going back to this 18% level of margin in Motion Technologies, as we mentioned, 2024 seems to us like a good time for us to be back at those levels of margin. We see really good volume growth based on both the recovery of the industry, the auto industry, but also the outperformance that we talked about. We also have new generation of brakes for new platforms that are entering into production in the next few years. That is gonna. These platforms are including this new level of cost that we've seen for the past year and a half. Much more favorable from a margin standpoint. Productivity. Productivity is key to Motion Technologies. We continue to improve from a productivity standpoint, and we expect this to really keep on going in the next, in, you know, as long as we can. We have many opportunities across the board and also in Motion Technologies, so that should help us with margin recovery also. Just to level, we tend to focus on Friction with Motion Tech, you know, as the core driver of the segment. The non-Friction businesses, if we think about the margin expansion over the coming quarters and resetting just on a go-forward basis, is the, you know, the recovery, you know, weighted to non-Friction businesses? We know with KONI got hit quite hard. That was unavoidable for a period of time. There have been, you know, cost-related matters and, you know, the kind of extended catch-up process with the assets there. I think you're right, Brian. We have Axtone and Wolverine, which have been double-digit businesses in terms of margin, and today they're low to mid-single-digits. They've been disproportionately impacted by commodity price increase, but also in the case of Axtone, by the disappearance of the business in Russia. Since then, we're seeing obviously reduction in cost of the commodities, but also from Axtone, really an improvement in terms of the order rates. We have been able to really compensate all the Russia business that we had lost as of March 2022, with more passenger business out of Europe, outside of Russia. The volume headwind in Axtone is disappearing, with our orders as early as Q4 of last year and Q1 of this year, which are in excess of the Russia business that we lost. The commodities are going down, and at the same time, we have stepped up our ability to get pricing. I think that, as you rightly said, we have a lot of opportunities with those two businesses who today are in mid-single digits to bring them back to double-digit margins and contribute to the greater MT performance. Yeah. Thank you for the detail. Now moving to Industrial Process, IP's been a fantastic story for your team. Luca, I recall, talking pre-pandemic, and you were very clear about, you know, creating the Motion Tech of the flow world. It seems like maybe your team is well on its way. You know, the last couple of quarters have been quite exceptional. What are the next steps on that journey? You put in, you know, the script for, you know, Q1 call, you know, continuous improvement journey, there's no end in sight. What are the near-term, you know, actions, you know, underway? What's the progress that we can look for, you know, through the remainder of 2023 into 2024? How does that business continue to get better? Sure. Thanks, Brian. Yeah, it's been a wonderful journey in IP. I think let me share a couple of things that I'm undergoing that are happening right now that will consolidate the performance and will continue to improve. Our major site is the Seneca Falls in Upstate New York. In that site, we believe it or not, we still have a foundry. A foundry that is not the most efficient and not the best foundry in, you know, in the world that produce casting. Today, making casting ourselves is not that strategic. There is a supplier base worldwide as well as regionally that will be able to provide the casting in a much more competitive manner and with better quality. What is in the process, Brian, today is the closing of the foundry, which is something that we've worked for the last couple of years, and it's gonna be closed by the end of Q1 2024. It takes some time because you do not want to screw up your operations while you're doing that. You want your customer not to be impacted, affected by something like this. That closing will enable us to be more cost competitive as well as reduce partially our footprint in Seneca Falls. That will translate in cost competitiveness. VAVE, value analysis, value engineering. We have started this process in 2017. I remember Emmanuel and I having these meetings with AP, say, "Okay, what can we do to improve the cost competitiveness of each of our products, and how can we make our products better from a technological point of view?" Probably we've gone through 30% of our products, of our families of pumps, therefore it's gonna take the next probably seven, eight years to finish the complete portfolio. Guess what? We start over again. VAD is something that's happening right now. The complete re-layout of the factory in Seneca Falls, where each, as we mentioned in the remarks, in the script, is at the end of Q3. Each and every single plan that we are making in Seneca Falls will be made in one-piece flow. You will be able to be on the shop floor and see actually how you're making this pump, the productivity, the efficiency, see the problem, attack the problems, and that not only will improve the productivity, the efficiency, but the speed that this factory is operating at. All of these are the things that are happening, as well as development of new products, unique products that the competition does not have, that will help keep on differentiating ourselves from in the market. Those are few examples that we continue to consolidate our results today, which three quarters in a row at 21% operating margin and continuously improve in the future. I appreciate the detail. It's all very exciting. Since we're discussing IP, maybe offer a quick, you know, update, any perspective your, excuse me, your team, you know, may have on just run rate, and market trends. Chemical, industrial, oil and gas, green energy, broadly speaking, has been a nice tailwind, for you guys. Just any insight you can offer on general end market trends. Let me address first maybe the question in terms of short cycle and projects, and maybe Emmanuel, you can talk about the end market because, you know, 25%, 30% of our business is project, the other is short cycle. At the end of last year, we were concerned about the short cycle part of the business because we were seeing mixed signals. Q1 was surprisingly strong on the short cycle as well. When we look at the orders, both on the project and short cycle, they were incredibly strong. Particularly when you look at the short cycle, the parts like taps, they were growing not only because of price, but also because of volume. We have seen, you know, a very good strong order. If you look at the macro number, and if you look at IP specifically, is that you have a business that grew 25% in Q1. Despite the growth in revenue by 25%, our book-to-bill was 1.23, which means that your orders are coming in much higher than the revenue. Whilst you're booking more orders, the funnel of opportunities, which are all the future orders that you're working on, actually kept on growing and is up year-over-year by 30%, which means that the replenishment rate that you have in terms of the opportunity is even higher than your booking rate. Overall, quite a positive picture. From an end market perspective, Emmanuel, go ahead. Yeah. So, what we're seeing is that all from a project standpoint, that we are in the full, in the middle of the capex supercycle. We're seeing that all the different end markets are growing. Chemical is really strong, general industrial is especially strong, and oil and gas, obviously. Also all the different regions are growing. The... Luca mentioned the funnel being of opportunities being up, year-over-year, but it's also up sequentially by almost 10%. Obviously there's a lot of strength in North America, but Europe also is coming back. For us, a very, a very positive picture from a market standpoint, where we play in IP. No, that's great to hear. The 30% expansion of the funnel is that, you know, meaningfully weighted to any of your end markets? Seems like there's broad-based momentum in terms of the outlook. I think that they were all the markets were up, Brian. When you look at year-over-year, oil and gas, general industrial, chemical and petrochemical, they were all up, both in terms of orders as well as in terms of funnel of opportunities. When you look at the regions as well, in terms of the funnel of opportunities, all the regions, you know, also Europe was up year-over-year. I would say probably the two regions that were up the most were really North America and the Americas in general, North America and Latin America, as well as the Middle East. There is quite a lot of good bulk of projects that have to deal with the decarbonization of the oil and gas. Thank you for the detail. Then the last segment, Connect and Control, you know, interesting set of technologies you have there. You've grown from that as having the highest margin entitlement of your businesses. That seems reasonable as you continue to scale. The one pushback that I've heard, and I think it's a fair one, is that, you know, the segment needs more scale. You know, how should we think about, I guess, One. do you think that's a fair stance? Two. In terms of growing CCT overall, you know, what are the organic and inorganic levers available to you, and where should we see that business, you know, three - five years from now? Sure. Now, when it comes to scale, it is interesting, Brian, because I remember, you know, the one of the very first presentation that we made to the board in 2012 regarding the Friction, and we were much smaller at the time. What we were saying in 2012, 2013, that, yeah, we were smaller than many of the competition, but we were much richer. The same thing could be said on when it comes to pumps and valves. We are not as big as some of our competitors, but when it comes to, you know, operating margin, definitely they are pretty numbers. I would say when it comes to CCT, I would say that the story is quite the same when it comes to the connector side of the business. What we have to think about CCT as really the components and controls and the connector side of the business. Your comment of size is probably more fair on the controls and components, where, I would say we're suffering more the side that we are subscale. That's a fair comment. When it comes to the connector side, I would say we're able to differentiate because of our brands, because of our technology much more, because of our speed to market, our execution. Therefore, when it comes to the win rate, the projects we're winning in the sense the profitability of the business has got nothing to envy to our largest competition. This is a platform that we are growing organically and inorganically, and where we really made an acquisition in the last couple of weeks of Micro-Mode, which is specialized particularly in space and defense. Understood. Okay. I guess sticking with Micro-Mode, you just referenced. Does seem like a very interesting, you know, asset. You covered some of this in the call, perhaps, you know, offer those who weren't on the call or add to, you know, the description of the technology itself and how it fits for, you know, your portfolio and, you know, the go forward path in terms of defense growth. Okay. Specifically for Micro-Mode, Brian, you were saying? Yes. Yes. Yes. Okay. This is a company that is very specialized in space and defense, and products, you know, RF connectors that are really an area where we do not have the product. In many cases, when we provide some packages, we have to buy these from the competition. This is a very complementary portfolio in a sector, space and defense, where we are already strong. Very complementary, not only in terms of the product, but very complementary in terms of customers. They're very strong with some defense companies, customers where we are not present, and vice versa. I can tell you know, two days after, you know, we're working together after being part of the same family, you know, we're already working on opportunities that were not there for Micro-Mode at the beginning. This is very good. It's a company based out in California. It is a very simple operation, but very well and nice integrated. I think that, there will be a good level of, synergy, particularly on the, on the revenue side, Brian. Got it. All right. Final topic, capital deployment and specifically M&A. What end markets or technologies are of greatest interest to your team as you know, think about where ITT should be three years, five years, seven years from now? I guess given the current backdrop, how do you think about those M&A opportunities, you know, relative to, you know, share repurchases? Sure. Maybe I start with the first one and you later, Emmanuel, on share repurchases. In terms of the areas, is, it's simple, Brian. It's pumps, valves, and connectors. It's flow and connectors. We believe that we are very good at execution in these two businesses. We've turned around these businesses as they were performing, you know, in the last few years. We know how to do it. We believe in these markets that are still very fragmented. This is where we are really looking to make more acquisitions. This will help us also rebalance in the portfolio more towards these two businesses. We've been building the funnel of opportunities of targets for these two end markets. While, you know, we've seen some really good progress, especially with, as we reinforced, towards the end of 2021, our M&A team, you know, it's still M&A and you don't control everything. We are really focused on creating value as we deploy capital. We have been able to do that with Habonim. We hope that we and we think that we're gonna be able to do that with Micro-Mode. The team has a great plan in terms of commercial synergies as well as cost synergies. If for one reason or the other, you know, we're not able to deploy as much capital to M&A, we'll go after repurchases as we've done. We have a really good financial position. I think that, you know, we can, we can afford to do both. We're really focused on creating value. Understood. All right. Luca, Emmanuel, I think we have a few minutes left. Anything that you'd like to leave the audience with today? Uh, well, one, uh, well, maybe one, uh, one thing is, uh, you know, is that the point that I raised also during the earnings call, what, uh, really differentiated us is really in Q1, but not only Q1, is execution and, uh, and growth. We executed on several fronts, and we showed that, uh, we are able to grow across, you know, the different businesses. I think that if you look at the market we're operating in, aero, uh, aero is a, is a tailwind for us. Defense is a tailwind for us. Uh, we see a good growth when you look at the, the, the macro projects that are happening across different industry across the world. And then last but not least, in terms of the, the automotive market is growing from, you know, a low level. Electrification will be compounding on that. Our differentiation will allow us to continuously, you know, overperform. When you look at the market we're in, the ability that we have in execution, I think that this will keep on ITT growing in the future and create value for all our stakeholders. Excellent. Detailed color, as always. Thank Thank you very much, guys. Thanks, Brian. Thank you, Brian. Take care. Talk soon. Ciao.