ITT Inc.

Welcome to ITT's 2020 fourth quarter conference call. Today is Friday, February 19th, 2021. 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 Mark Micheluso, Vice President, Investor Relations. You may begin.

Thank you, Maria, and good morning. It is my pleasure to welcome you to ITT's fourth quarter 2020 earnings conference call. Joining me here this morning are Luca Savi, ITT's Chief Executive Officer and President, and Emmanuel Capre, Chief Financial Officer. Today's press release, presentation, and reconciliations of non-GAAP financial measures to the most comparable GAAP measure can be found on our website at itt.com forward slash investors. This call contains forward-looking statements that are subject to certain risks and uncertainties, including but not limited to impacts from the COVID-19 pandemic. Actual results may vary materially from the assumptions presented today. All such statements should be evaluated together with the safe harbor disclosures and the other risks and uncertainties that affect our business, including those discussed in our Form 10-K and other SEC filings. Except where otherwise noted, the information we present this morning will be based on adjusted non-GAAP figures. These results exclude certain non-operating and non-recurring items, including but not limited to asbestos-related charges, restructuring, asset impairment, acquisition related items, and certain tax items. All adjustments in the quarter and for the full year 2020 are detailed in the reconciliations in the appendix. Before we begin, I'd like to provide a brief overview of our fourth quarter gap results compared to prior year. Q4 revenue decreased 1.5% to $709 million. Segment operating income increased 11.6% to $120 million. and reporting earnings per share was a net loss of 16 cents. This is principally driven by a $137 million charge related to the successful termination of our U.S. pension plan and other items, including tax charges, totaling $17 million, partially offset by a $52 million asbestos insurance settlement benefit. With that, let me turn the call over to Luca, who will begin on slide three.

Thank you, Mark. And thank you all for being with us this morning. I truly hope that everyone is healthy and safe. Before I begin, I'd like to again thank all the IT tiers around the world who continue to work tirelessly during this pandemic to serve our customers and to take care of each other in these challenging times. I'm humbled by the way this team continues to respond to the crisis and want to express my sincere gratitude for all you have done. Your efforts to serve our customers and drive exceptional performance in a safe, fast, and productive manner are a testament to the commitment, perseverance, and your hard work. I would also like to welcome to ITT our new Vice President of Investor Relations, Mark Macalusa. Mark joined ITT in January of this year after a successful 13-year career at Honeywell and has hit the ground running. I'm happy and excited to have Mark on the ITT team to drive our global investor relations strategy. Welcome, Mark. As a result of our focus on the health of our people and our efforts, we delivered another strong performance in the fourth quarter. Early last year, we took some difficult and swift actions to respond to the pandemic. These actions ensured that ITT continued to outperform in 2020 and and will emerge stronger in 2021 as the economic environment recovers. And, as you will hear this morning, we have made tremendous progress on both fronts. Let me now highlight some key financial achievements for the quarter. We generated adjusted segment operating income growth of 8%, with margin expansion of 150 basis points on a 4% organic sales decline. and we improved our decremental margins every quarter in 2020. For the full year, our decremental margin was 22% at the low end of our range. As a result, we delivered adjusted earnings per share of $1.01, a sequential and as well as a year-over-year increase. We generated free cash flow of $102 million for Q4 and $372 million for full year. Throughout the year, we drove cash collections and optimized inventory whilst applying strict control over capital investments. This drove a free cash flow margin of 15% at the high end of our guidance that we increased just last quarter. On capital deployment, in 2020, we increased our dividend by 15%. We repurchased ITT shares totaling $73 million. and we increased our majority stake in our Wolverine China joint venture as we continue to expand our market share in Asia. Despite the restrictions posed by COVID, I was fortunate to safely visit many of our facilities around the globe, including in China, Europe, the Middle East, and across the US. As you know, I consider this fundamental to identifying and executing the many operational and commercial opportunities we at ITT have around the globe. In 2020, we reduced the number of recordable incidents by 25% and implemented safer workplace protocols globally. This is an important element in ensuring the health of our people, and it also contributed to a significant reduction in workers' compensation expense in the U.S. Safety is foundational for our operational excellence. and all of us should expect a continued reduction in incidents in the future. From a commercial perspective, sales infriction outpaced global auto production rates by more than 600 basis points for the full year. We increased market share by almost 400 basis points in North America, more than 200 basis points in China, and almost 100 basis points in Europe. And when it comes to EVs, we secured position on 42 new electric vehicle platforms during the year. In industrial process, we continue to execute on our footprint rationalization projects. We finalized our first consolidation in Europe this quarter and are progressing according to plan on our second project, this one in North America. We are making progress in sourcing efficiencies through aggressive negotiation and supplier rationalizations. As I noted before, I believe there are still many opportunities to improve our purchasing performance, as well as further lean out our operations. Industrial process delivered 15.1% adjusted segment operating margins this quarter. This is a milestone. Still in IP at the end of last year, I visited our Industrial Valves site in Emory, Mississippi. I was impressed with the order management process implemented by Angie and her team that has resulted in best-in-class on-time delivery performance and unparalleled service for our customers. This is also true from a project management performance standpoint, where IP continue to drive near-perfect execution and on-time delivery, whilst driving margin expansion for many of our large projects. In connect and control technologies, the order situation improved sequentially in the fourth quarter, and our book to build was above one, thanks to our industrial connectors. While CCTs and markets remain challenged, we are deploying the same operational excellence playbook that we successfully executed in MT and IP. We expect to reach pre-COVID margin levels at CCT in the next two to three years. Today, I'm also pleased to provide our outlook for 2021 that reflects all that we have done to strengthen our operations, our people, and our potential. We anticipate full-year organic sales growth of 2% to 4% driven by continued share gains in motion technologies, as well as the broader auto market recovery. We expect the rest of our markets to be flat to slightly down. We plan to expand adjusted segment margins by 130 to 180 basis points. The increased sales volume and the carryover impact of our 2020 cost actions, coupled with the strong productivity from 2021 initiatives, will generate adjusted earnings per share in a range of $3.45 to $3.75, which equates to 8% to 17% growth versus prior year. because of our strong free cash flow performance in 2020, we're well positioned to deploy capital in 2021. First, we will invest in our businesses with approximately 100 million of capital expenditures, up over 55% versus 2020. Second, we will aggressively and diligently pursue acquisitions in our core markets to effectively put our cash to work and build on our strong businesses. Third, we increased our dividend by 30% as announced this morning. This is our ninth consecutive dividend increase. And finally, we are planning to repurchase ITT shares totaling $50 to $100 million, reducing the full-year weighted average share count by approximately 1%. Let's turn to slide four to talk further about the fourth quarter and full-year results. From a top-line perspective, motion technologies delivered a strong performance, growing over 10% organically, driven by continued share gains and double-digit growth in auto in North America and China. This was offset by lower short-cycle demand in industrial process, as we anticipated, and the impact of commercial aerospace dynamics in CCT. Our focus on operational excellence is producing strong results. Motion technologies expanded margins over 400 basis points to 19.5%. Industrial process grew margin 90 basis points to 15.1% despite a 10% organic sales decline. The MT and IP performances more than offset connect and control technologies margin decline. For the full year, I'd like to point out a few highlights in addition to those that we have already discussed. First, working capital as a percentage of sales continues to decline, and we saw 70 basis points of improvement in 2020, excluding the impact of FX. Second, free cash flow increased 40% versus prior year, despite the challenges posed by the global pandemic. We hit the high end of our full year target for free cash flow margins, while also investing in the business through growth capex of more than $35 million for the year. Third, we continue to effectively manage our legacy liability profile. As I mentioned in our last earnings call, early in Q4, we successfully transferred our U.S. pension liability to a third party. This will reduce our administrative costs and end all future funding requirements for the plans. We also continue to successfully negotiate asbestos-related insurance settlements with our carriers. And we drove an increase in our insurance assets of $52 million in the fourth quarter and $100 million for the full year. As a result, our net asbestos liability that we recently brought to a full horizon valuation is now $487 million. Let's quickly turn to slide five to discuss a few wins and awards in our businesses that will shape 2021 and beyond. Years back, our friction team developed a strategy to penetrate the growing EV segment while continuing to gain share on conventional vehicle platforms. We focused our technical expertise in addressing tighter noise and vibration requirements while continuing to deliver a frictionless customer experience. In China, our EV Brakepad Development Center continues to effectively partner with our customers in the largest EV market in the world. And in 2020, we continue to see the results of our strategy by winning content on new electric vehicle platforms, including several platforms with the EV manufacturers. We also won both the front and rear axle for a new U.S. performance crossover vehicle. The strength of our friction technology continues to be on display as we assist automakers in significantly reducing braking distance of heavier vehicles. All of this is a testament to the innovation and engineering prowess behind our brake pad technology. In industrial process, Our redesign between bearing API pump has seen new orders increase over 50% this year. Our customers are benefiting from improved hydraulic efficiency and performance. We reduced lead times at the competitive price point. In Q3, we further expanded and improved our hydraulic pump offering and have an active funnel of potential orders already. Our new iAlert remote monitoring offers diagnostic capabilities and tailored solutions that predict customer equipment failure and improve asset uptime. Finally, in connect and control technologies, our Anodyne business is teaming with Bell Textron to produce passive vibration control technology for the 360 Invictus. The Invictus is Bell's competitive prototype to the US Future Attack Reconnaissance Aircraft, or the FARA program. Together with Bell, the Anodyne team is developing technology for use in a mission-critical defense application suitable for the FARA program. As we embark on 2021, we remain laser-focused on operational excellence and customer centricity. This has been the ITT playbook for the last four years. We continue to make significant progress, and we again show the benefits of this commitment in the results we delivered in Q4. We will continue to be good stewards of ITT, driving performance for our customers while searching for organic and inorganic opportunities to deploy capital and grow the business. Our effective and comprehensive capital deployment strategy with clear priorities on organic investment first and foremost, followed by close to core acquisitions, and then returns to shareholders will ensure that our cash is efficiently put to work. Let me now turn the call over to Emmanuel, who will take us through the segment results and provide more detail on Outlook for 2021.