ITT Inc.

Welcome to ITT's 2022 first quarter conference call. Today is Tuesday, May the 3rd, 2022. Today's call is being recorded and will be available for replay beginning 12 PM ET. 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'd like to ask a question at that time, please press star followed by one on your touch tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing star followed by two. If you should require operator assistance, please dial star followed by zero. We ask you that you please pick up your handset to allow optimal sound quality, and please ensure that you are unmuted locally before asking your question. It is now my pleasure to turn the floor over to Mark Macaluso, Vice President of Investor Relations. You may begin.

Thanks, Harry, and good morning. It's my pleasure to welcome you to ITT's first quarter 2022 earnings conference call. Joining me here this morning are Luca Savi, ITT's Chief Executive Officer and President, and Emmanuel Cabret, Chief Financial Officer. Today's call will cover ITT's financial results for the three-month period ending April 2nd, announced this morning. Today's remarks may contain forward-looking statements that are subject to certain risks and uncertainties, including comments relating to company performance, strategic priorities, business mix, market conditions, and the effects of COVID-19 on ITT. These statements are not a guarantee of future performance or events and are based on management's current expectations. Actual results may vary materially due to, among other items, the factors described in our 2021 annual report on Form 10-K and other recent SEC filings. IT is not under and expressly disclaims any obligation to update forward-looking statements, whether as a result of new information, future events, or otherwise. Except where otherwise noted, the first quarter results to be presented this morning will be compared to the first quarter of 2021 and are based on non-GAAP financial measures. These adjusted results exclude certain non-operating and non-recurring items, including but not limited to a charge related to the suspension of operations in Russia, restructuring, acquisition-related charges, and certain tax items, and in 2021, asbestos-related charges. All adjustments in the quarter are detailed, along with a reconciliation of such measures to the most comparable gap figures in our press release and presentation, both of which are available on our website. It is now my pleasure to turn the call over to Luca, who will begin on slide number three.

Thank you, Mark, and good morning. I would like to again begin by thanking our shareholders, our customers, and our IT tiers for their continued support and investment in ITT. I'm pleased with ITT's results this quarter, considering the ever-challenging environment that we're operating in today, which further demonstrates ITT's resilience and the strength of our businesses. I continue to be confident in ITT's growth and our performance over the long term. Before we begin, I want to take a moment to acknowledge the more than 8 million refugees from Ukraine whose lives have been impacted by the war. We are deeply saddened by the tragic losses of life stemming from the invasion of Ukraine. We will continue to support our employees in the region who remain our top priority. With this in mind, Let us discuss the quarter. Demand for our products and services remains strong across many of our end markets, and we are outperforming in most businesses. We see this in the short cycle chemical and industrial business in the industrial process, in aerospace and defense in connect and control, and in our friction business. Our teams drove 14% organic orders growth this quarter, contributing to an ending backlog of nearly $1 billion, up over $170 million from this time last year. On the strength of this demand, we drove 7% organic revenue growth, of which approximately 3% came from pricing actions across all Arab businesses, but most prominently in motion technologies. The empty team achieved over 80% of its first quarter pricing target and is stepping up incremental pricing actions given the continued rise in raw material and energy costs. On profitability, margin this quarter was severely impacted by rising raw material, labor, and overhead costs, which continued to increase throughout the quarter. Cost inflation amounted to an approximately 760 basis point headwind, which outpays the 270 basis point positive impact from pricing. During the first quarter, I again experienced firsthand the challenges in the global supply chain and the inefficiencies it creates in our operations. As an example, in one of the many trips that I made to Seneca Falls this quarter, we developed new actions to mitigate the impact of parts shortages, which are preventing production lines from operating at full capacity. In our outlook, we initially expected to lap the headwinds from higher raw material costs by the second half of 2022, as costs would begin to normalize and our price actions would take effect. However, current prices for steel and tin are now above the escalated levels from 2021, which will put additional pressure on our full-year margin and earnings. Nevertheless, ITT delivered solid first quarter results. in line with our expectations while continuing to invest in the future. We invested over 3% of revenues in research and development to fund key growth initiatives. On CAPEX, we invested in further friction or e-price capacity, including the addition of two production lines in our Silao Mexico plant to support EV wins in North America. We are also funding product redesigns in IP and CCT, footprint optimization and closures, and new product innovations as we continue to refresh the portfolio. As an example, in industrial process, we are launching the third generation of our high alert condition monitoring solution that more quickly and accurately diagnoses status changes and wounds of issues prior to failures. I'm particularly excited about another new disruptive technology in industrial process that will significantly reduce energy consumption and CO2 emissions. At our Investor Day in June, we will show this and other innovations to demonstrate how we differentiate from the competition. In April, we close our second ITT Ventures investment in a technology startup focused on the rotor coating market with its groundbreaking WekaDoor technology. The technology is an innovative hard coating application that allows rotors to last longer better resist corrosion, and reduce fine dust emission. These will be critical requirements for electric vehicles. We also signed a third, larger venture investment, which we expect will close in Q2, pending regulatory approval. Recently, we announced the acquisition of Habenim, an Israeli-based designer and manufacturer of valves and actuation technologies for the gas distribution, biotech, and harsh application sectors. As Emmanuel and I witnessed firsthand when we met the team in February, Habonim has an attractive offering in LNG and is well positioned for growth in the green hydrogen space through its ultra-high pressure and cryogenic offerings. In addition to Israel and the Netherlands, the company has a presence in North America, which we will look to expand. I'm very happy to welcome Ilan and the Habonim team to ITT. Lastly, this quarter we repurchased nearly $190 million of ITT shares. Together with the increases in dividends and growth capex, we deployed over $235 million in Q1 and over $375 million year-to-date, including the Habonim acquisition. Moving to our outlook, we anticipate that the supply chain challenges and the higher raw material inflation we saw in Q1 will persist throughout 2022. demand remains strong and we are working hour by hour to eliminate the bottlenecks that are impacting our top line growth. With these dynamics in mind, we are maintaining our fully adjusted EPS guidance range for 2022. We are trending towards the higher end of the range for organic sales growth, given the strong demand and outperformance I cited earlier. However, given the headwinds I mentioned, as well as the ongoing war in Ukraine and COVID-related lockdowns in China, we're trending towards the lower end of our range for adjusted operating margin. In summary, we're advancing the actions in ITT's control, including share gains, pricing actions, and capital deployment, while managing through market dynamics that are worse than we initially anticipated, and I'm confident in ITT's ability to deliver. Let me now discuss a few points I raised in the opening. ITT's products continue to win in the marketplace and gain share. We see that in our order rates and backlog today. Orders increase on a year-over-year and sequential basis, which drove a 24% increase in organic backlog year-over-year that will convert in 2022 and 2023. We continue to see broad-based demand in industrial processes short cycle pump and service offerings, while the long cycle pumps business continues to strengthen. Year-over-year, the project funnel increased over 30%, with strength across the board in mining, chemical, and oil and gas. Our short cycle run rates are well above what was an already high level of orders in prior year in all product categories. and we expect that the addition of Habonim will add to demand given their fast-growing vast portfolio and capabilities in LNG. Orders in Connect and Control increased with the growth in commercial aerospace and new program awards in defense. The Connectors business continues to grow in North America and Europe, driven by increased industrial activity and our ability to deliver on time. All-in, these drop organic revenue growth of 23% in CCT for the quarter. In Motion Technologies, we continue to position ITT as the breakpad supplier of choice to OEMs, especially with electric vehicle manufacturers around the world. We won content on 15 electric vehicle platforms in the first quarter, with key wins in Europe and China. We also gained share through awards on both the front and rear axle on a major European premium OEM platform. We are maintaining the strong wind rate and continue to outpace global auto production. Let's turn to slide five to review ITT's capital deployment progress in Q1. As I previously said, capital deployment continues to be one of ITT's top priorities. We are starting to see the benefits of our heightened focus in this area as evidenced by the activity here to date. We invested in growth CapEx to support new electrified vehicular wards in friction that will convert our EV share gains into revenue. We also continue to improve ITT's operations through our green CapEx initiative. In April, we announced a $2.5 million investment to install a solar lake in Barge, Italy. that will power nearly 30% of the Innovation Center's energy needs. We are well on our way to deploying the $10 million commitment in 2022 for Green CapEx to create a more sustainable ITT. On repurchases, we now expect to reduce our full-year share count by a minimum of 2.5%, given the strong historical cash generation and actions to eliminate our asbestos liability We have a ton of firepower still to deploy and intend to maintain a disciplined approach to capital deployment. Our M&A pipeline remains very active, and we are cultivating a number of additional targets with our revamped M&A team now in place. As you have heard already, in April we announced the acquisition of Havany. The acquisition is now part of our industrial process segment. We acquired the business for $140 million, which amounts to a multiple of less than 13 times EBITDA. Our goal is to build a much larger and profitable platform for growth, with Aberdeen being the first step in our strategy. Let me share why I'm so excited about this business. First, Aberdeen is a manufacturer of bold vows for harsh applications with strong brand recognition. The company has attractive positions in gas distribution, hydrogen, chemical, and pharma markets. Second, Habonim is a strong and defendable market position, maintains close relationships with its end users, has a relentless focus on product quality, and like in ITT, customer centricity is a core value. Third is technology, both on the product and on the process. On the product, as an example, Habonim has developed a proprietary technology called Total Hermetics, which is a fully sealed valve system that guarantees zero fugitive emissions. On the process, the company has designed standard core product components while allowing for late-stage customization. All of this simplifies considerably the supply chain and production processes. Fourth, The Habonim team is comprised of highly skilled engineers and entrepreneurial leaders with expertise in applying Habonim's technology to solve the customer's most pressing needs. And finally, Habonim is a strong track record of growth and profitability, with a sales cager of over 10% for the past four years and EBITDA margins that are accretive to IP and ITT. I look forward to showcasing happenings and ITT's technologies to everyone on June 16 at ITT's Investor Day. Let me now pass it over to Emmanuel to review the results in more detail.