ITT Inc.

Welcome to ITT's 2023 second quarter conference call. Today is Thursday, August 3rd, 2023. Today's call is being recorded and will be available for replays beginning at 12pm ET. At this time, all participants have been placed in a listen-only mode and the floor will be open for questions following the presentation. If you would like to ask a question at that time, please press star followed by 1 on your telephone keypad. If at any point your question has been answered, you may remove your question by pressing star followed by two on your telephone keypad. If you should require any operator assistance, please press star followed by 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 Macaluso, Vice President of Investor Relations and Global Communications. You may now begin.

Thank you, Ellen. Good morning. Joining me here in Stanford this morning are Luke Asabi, ITT's Chief Executive Officer and President, and Emmanuel Capre, Chief Financial Officer. Today's call will cover ITT's financial results for the three-month period ending July 1st, 2023, which we announced this morning. Before we begin, please refer to slide two of today's presentation available on our website, where we note that today's comments will include forward-looking statements that are based on our current expectations. Actual results may differ materially due to several risks and uncertainties, including those described in our 2022 Annual Report on Form 10-K and other recent SEC filings. Except for otherwise noted, the second quarter results we present this morning will be compared to the second quarter 2022 and include non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures are detailed in our press release and in the appendix of our presentation, both of which are available on our website. With that, it's now my pleasure to turn the call over to Luca, who will begin on slide three.

Thank you, Mark, and good morning. I would like to begin, as I always do, by thanking our employees around the world who work hard every day to ensure we deliver on our commitments to all our stakeholders and to our shareholders and customers for their ongoing support and investment in ITT. Last quarter, the ITT story was about growth and execution. And in Q2, the story is again growth and execution, with a significant step up and record results on many fronts. Our order growth rate accelerated. We expanded our margin, especially in industrial process and motion technologies. And our teams generated significantly higher cash, and we deployed it. Let me share some of the highlights. 12% organic revenue growth. 280 basis points of segment margin expansion, 36% EPS growth, and more than $120 million improvement in free cash flow since Q1. And on top of that, orders up 13% organically and 6% sequentially. Now, let's get into the details. On growth. Industrial process delivered a 23% revenue increase and a 15% organic orders growth, with another record quarter driven by projects and aftermarket. On aftermarket, our daily order rates in parts and service remain at historically high levels, and we are realizing through the pricing. On projects, orders grew 41% despite a tough prior year comparison. This includes a significant pumps award on an LNG project for one of the world's most prestigious engineering firms. Green project orders are up more than 100% in Q2 and here to date are already more than double the amount for all of 2022. Additionally, our Bornemann twin screw and multi-phase pump technologies are capturing share. For example, Bornemann was recently awarding content on one of the world's largest decarbonization projects in Australia that produces roughly 16 million tons of LNG per year. When I was at our Bornemann site in Germany, I saw firsthand how the team's outstanding project management capabilities are driving market share gains. IP is quickly developing best-in-class project management with strong leaders and rigor across the organization. With IP outperformance ramping, I am pleased to announce that Fernando Roland has joined ITT as President of Industrial Process, succeeding Dave Stablin, who retired early this year after 30 very successful years of service to Goods Pumps and ITT. With more than two decades of senior leadership experience at large multinational companies, Fernando has the expertise to help grow our premier flow business and enhance IT's differentiation. Fernando, welcome to ITT. Continuing with growth, Motion Technologies grew revenue 10% organically, driven by friction OE outperformance, which in Q2 was nearly 500 basis points. This quarter, we won content on 67 new electrified vehicle platforms. We premiered auto OEMs, including Tesla, BYD, Porsche, Polestar, and BMW. Stepping back from the quarter for a moment, one of the unique aspects about Friction is the team's ability to serve our customers by anticipating their challenges and developing solutions to meet their needs. With each market disruption, Friction found ways to differentiate and accelerate our market share gains. It happened with copper-free boy packs. It's happening with the EV transition. And the next opportunity is the eventual rollout of Euro 7 emission regulations. The Friction team has been proactively developing Euro 7 compliant products in partnership with our customers ahead of the expected rollout. As you might remember, in 2022, our ITT Ventures Fund invested in Wecodure, a German company specializing in highly customized rotor coating technology. Today, together with Wecodure, we are developing low-emission braking technology to help our customers achieve Euro 7 compliance, two years before regulations are expected to be enacted. We expect this will drive further market share gains once again. Lastly, on growth, connect and control technologies deliver record orders in the quarter, growing 7% organically versus prior year. Aerospace components grew 25% fueled by increased commercial aero and defense demand in North America. And despite the challenges in distribution, connectors orders grew 2% year-over-year and 24% sequentially. with a strong performance with our North American OEM customers in commercial, aero, and defense. Well done, Art and the entire Connectors team. On execution, we grew IP margin more than 600 basis points driven by volume, pricing, and shop floor productivity, eclipsing our long-term target of 20% for the fourth straight quarter. And we deliver this margin performance while continuing to invest in the business. Our team is increasing IP's manufacturing capabilities and advancing the lean transformation in Seneca Falls. And we now expect to have five one-piece floor lines running next month. We're also progressing with a foundry closure, which will provide additional cost benefits beginning in 2024. In MT, margin improves 150 basis points to 16% and 120 basis points sequentially, as we anticipated. With the progress in 2023, we believe MT will return to roughly 18% margin in 2024, as this stocking in the auto aftermarket abates. Moving to capital deployment. On M&A, we didn't waste any time getting to work with our recent acquisition. The Connectors and Micromodes teams are working together to execute on the commercial synergies and grow the pipeline. The teams are sharing customer opportunities, exploring new ways to package our products, and expand distribution. We believe Micromodes' differentiating miniature and high-frequency design capabilities will enhance ICT's product portfolio and customer base, and provide further entry into attractive defense and space markets. feedback from our customers has been positive, and this is leading to other commercial opportunities for our connectors business. Beyond M&A, we also paid down over $60 million of outstanding commercial paper and repurchased $60 million of ITT shares year-to-date, including $30 million in Q2. Next, to our outlook. With an outperformance through the first half, our large profitable backlog, and our order acceleration, today we're raising the midpoint of our full-year EPS guidance by 25 cents. We have confidence in our ability to deliver over $5 of EPS or 14% growth for the year. Notably, the high end of our previous range now becomes the low end of the new guidance, thanks to the performance in MT and IP. Cash generation ramped considerably since Q1, with plenty of room still to grow on a path to nearly $400 million of free cash flow in 2023. With our exposure to growing end markets, including auto, energy, air and defense, and the backlog of more than $1.2 billion, ITT is in a strong position entering Q3. I'm incredibly proud of the team's accomplishments this quarter, and we are ready to conquer what lies ahead. Now, I would like to share with you another growth opportunity for ITT. In June, I joined the friction team for a groundbreaking ceremony at NT's facility in Termoli, Italy, to announce a 50 million euro investment that will position ITT to quickly gain share in the underserved and profitable high-performance vehicle segment. The investment comprises a new facility, upgraded production equipment, and an expansion of our fast prototyping, testing, and R&D capabilities. We are also installing solar panels that we expect will provide more than 20% of the entire thermal site's electricity needs, demonstrating Friction's ongoing commitment to sustainability. This opportunity was largely driven by feedback from customers about their need for a responsive, high-quality, and high-performing partner. We have earned their trust by understanding their needs, delivering highly customized solutions, and performing. And today, they are trusting us again to deliver the same quality for their most prestigious platforms. This is a win-win. Our customers will benefit from having a trusted and known partner that they know will deliver. And the expected returns for ICT are attractive. Congratulations to Luca Martinotto, Friction, and the entire Thermoly team. You have earned this investment. Let me now turn the call over to Emmanuel to discuss our Q2 results and full year outlook in more detail.