ITT Inc.

Welcome to ITT's 2020 second quarter conference call. Today is Friday, July 31st, 2020. Today's call is being recorded and will be available for replay beginning at 12 p.m. Eastern. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. If you should require operator assistance, please press star zero. We ask that you please pick up your handset to allow optimal sound quality. It is now my pleasure to turn the floor over to Emmanuel Capre, Group Chief Financial Officer. You may begin.

Good morning, and thank you, Maria. Welcome to ITT's second quarter 2020 earnings goal. This is Emmanuel Capre and on the line this morning are Lucas Savi, Chief Executive Officer and President, and Tom Scalera, Chief Financial Officer. Today's presentation, Press Release and Reconciliation of Non-GAAP Financial Measures to the Most Comparable GAAP Measure, can be found on our website at itt.com forward slash investors. Our adjusted non-GAAP results exclude certain non-operating and non-recurring items, including but not limited to asbestos, restructuring, asset impairment, acquisition-related items, and certain tax items. All adjustments in the quarter are detailed in the reconciliation. Before we begin, I'd like to provide a brief overview of our Q2 GAAP results compared to prior year. Q2 total revenue decreased 29% to $515 million. Segment operating income decreased 65% to $37 million, and EPS of 53 cents decreased 29%. Free cash flow increased 205% to $169 million. Please note that our remaining discussion will primarily focus on non-GAAP or adjusted measures unless otherwise indicated. Lastly, today's call will contain forward-looking statements that are subject to risk and uncertainties, including impacts from the COVID-19 pandemic. Actual results may vary materially. All such statements should be evaluated together with the safe harbor disclosures and the other risks and uncertainties that affect our business, including those disclosed in our SEC filings. Now let's turn to slide three, where Luca will take us through the key highlights.

Thank you, Emmanuel, and thank you all for being with us this morning. Despite the many challenges, and unique circumstances that you're dealing with at this time. I truly hope that everyone stays safe as we continue to adjust to the widespread repercussions of the COVID-19 pandemic. Before we start this call, I'd like to thank our customers and suppliers who have worked with us to ensure that we deliver our products safely and in a timely manner. I'm also very grateful to our shareholders for their support. And I want to give a heartfelt thank you to all our ITTs across the globe who continue to work relentlessly to serve our customers and shareholders in the most dedicated fashion and to take care of each other in challenging conditions. On our Q1 call, we highlighted our 2020 focus to strengthen ITTs' resilience and to drive aggressive cost actions while playing offense for the future. And this is exactly what we did in Q2. We delivered a 25% segment incremental margin. We accelerated and increased our cost and spend reduction actions to $160 million. We generated record-free cash flow of $169 million. We bolstered our liquidity to $1.4 billion, and we signed an LOI to acquire a niche European rail company. Building on this strong foundation, we will continue to drive operational execution that further reduces decremental margins while fueling future growth opportunities. We can only truly demonstrate our resilience through actions and results. This morning, we will share with you the actions we will keep on driving to strengthen the operational and financial performance as we continue to mitigate the COVID-19 impacts and reinforce the resilience at ITT. Today, we will also give our understanding of the market that we serve and our expectations for the balance of 2020. Before going into Q2 highlights, a word on safety. Safety is my top priority, and when I talk weekly with our facilities across the world, I'm energized by the accomplishments of our teams who diligently and effectively execute our health protocols. This enabled us to contain the global number of infections to fewer than 70. Now let's turn to our Q2 results. We focused on what we control and produced better results than expected. During the second quarter, ITT's resilience the resolve of our teams and our pivot to play offense were on full display. From a financial perspective, we deliver solid EPS of 57 cents, exceptional segment decremental margin of 25%, record-free cash flow of $169 million, representing a significant growth of 205% or $114 million. and segment working capital reduction of 210 basis points compared to prior year and 100 basis points compared to the first quarter. Operational excellence is a fundamental pillar of ITT's long-term success. And during the month of June, I was able to experience it firsthand over and over again when visiting our Seneca Falls plant and seven facilities in Europe. SFO operational improvements enabled industrial process to deliver a 13.7% adjusted operating margin. This is 120 basis point expansion versus prior year, despite a revenue decline of 17%. The 13.7% margin also represents an improvement of 240 basis points over Q1. We moved quickly to take out costs. and we are progressing nicely toward our long-term 15% plus margin target. IP continues to impress with strong operational execution, and as an example, the ANSI line at Seneca Falls achieved above 90% on-time delivery for the 10th consecutive month. Whilst in Europe, I was also pleased to see all the Kaizen projects we have underway to improve our operations. being an assembly line efficiency workshop in Coney of Berlin, or boosting output in Axton Stavola Vola in Poland. Last but not least, in Barge, our friction teams continue to improve our manufacturing processes by repurposing and driving the utilization of existing equipment. All across ITT, we drove high levels of operating efficiency at our manufacturing plants in Asia, Europe, Middle East, and the Americas. And lastly, this operational excellence combined with our speed in execution enabled us to accelerate and boost our cost reduction plan, adding 25 million of new actions that increased our target to $160 million. All of the operational excellence was possible because all our leaders kept our people safe through the adoption of rigorous health protocols. Thanks for this. On customer centricity, our teams passionately serve our customers and were created in satisfying increasingly demanding requirements, showing in actions, once again, that our customers are our priority. Let me elaborate. Momentum infliction OEM share gain continued. In the first half of 2020, we outperformed the global market and each of our main regions. And based on platforms ramping in the second half, we continue to expect to outperform global markets by 700 to 1,000 basis points this year. Our M ordering unit drew new business awards by 94% in the quarter. The improvement that Laurent and his team executed have put this business back on a growth trajectory. IP grew organic pump project orders by 22%. project orders were consistent with the level reached in the first quarter. As a result, our backlog at the end of Q2 was up 3% excluding foreign exchange compared to the beginning of 2020. The project order performance is an emerging sign of customers' recognition of IP's operational improvement and the innovation in our products. IP customers were also delighted By Seneca Falls, 95% plus baseline pumps delivery performance during Q2. This outstanding delivery performance pairs nicely with the rest of our U.S. facilities and our Korean and Saudi plans. Well done, IP. This level of execution mirrors the motion technologies playbook, where our friction business maintained 99% on-time delivery performance despite operating in areas hit hard by COVID-19. Lastly, on capital deployment, our effective capital deployment strategies consolidated and protected our outstanding liquidity position. This will enable us to continue to invest in future growth opportunities as we pivot to play more often. Today, we have $1.4 billion of available liquidity. and we have ample capital to fund all our operational needs and investments, and position us to take advantage of other strategic opportunities. And we continue to protect our cash position through daily and weekly cash reviews, and we added a record $169 million of free cash flow year-to-date. While we play offense for the future, we will continue to strictly control our capital expenditures. In Q2, We reduced capex by 25% compared to prior year, and are tracking to our $35 million reduction target for the full year. Our strong liquidity position enabled us to weather the present storm while we saw the seeds of future growth. We will continue to invest in smart and energy-efficient applications that will drive revenue growth in the long term. In 2020, The ITT SmartPAD is making new inroads in both aftermarket and OE customers. And at IP, we are currently testing a revolutionary energy-efficient power source for our pumps. Lastly, on capital deployment, we signed an LOI for a new niche rail acquisition as we continue to build out this long-term growth platform. All of these actions, executed with speed, helped us deliver the Q2 results provided on slide four. Segment operating income margin of 12.6% despite the revenue decline. We delivered this margin through strong operational execution and fast and decisive cost actions that produced segment decremental margin of 25% and an EBIT decremental margin of 20%. We achieved 52% corporate spend reduction versus prior year. EPS of 57 cents per share was ahead of our expectations and declined 35%, excluding unfavorable effects of 3 cents. And lastly, we generated $169 million of free cash flow year-to-date, representing a 205% improvement over the prior year. In summary, we delivered a solid second quarter in a difficult environment by executing decisive action early and with speed. Now, let me turn it over to Tom to discuss Q2 results by segment. Tom?