Welcome to ITT's 2025 First Quarter Conference Call. Today is Thursday, May 1, 2025. Today's call is being recorded and will be available for replay beginning at 12:00 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. [Operator Instructions] It is now my pleasure to turn the call over to Mark Macaluso, Vice President, Investor Relations and Global Communications. You may begin.

Thank you, Tanya and good morning. Joining me in Stamford today are Luca Savi, ITT's Chief Executive Officer and President, and Emmanuel Caprais, Chief Financial Officer. Today's call will cover ITT's financial results for the three-month period ended March 29, 2025, which we announced this morning following our earnings pre-release on April 10th. Please refer to Slide 2 of the 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 2024 Annual Report on Form 10-K and other recent SEC filings. Except for otherwise noted, the first quarter results we present this morning will be compared to the first quarter of 2024 and include certain 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 number 3.

Thank you, Mark, and good morning. ITT’s first quarter results were resilient and in line with the preliminary earnings we announced on April 10. The environment has been fluid to say the least, and still our ITTers all around the world delivered. Once again the resilience of our people and other businesses came through. For this, my heartfelt thank you to all our employees. One of the highlights of the quarter was our orders of more than $1 billion, the most of any quarter ever in ITT. This was bolstered by the kSARIA and Svanehøj acquisitions. Talking about orders, in Q1, we grew 7% or 2% organic. Our book-to-bill was 1.15, resulting in an ending backlog of $1.8 billion, up 21% year-over-year and 10% sequentially. Moreover, we expanded margin 30 basis points to 17.4% on flat sales. We generated adjusted EPS of $1.45, up 7% without the loss of earnings from the Wolverine divestiture. We generated record Q1 free cash flow of $77 million, up more than 150% and we repurchased $100 million of shares in Q1. On orders, Industrial Process grew 14% and 11% organic, driven by new large palm project awards including Svanehøj where orders were up nearly 70%. We continue to invest in fast growing locations like our IP Saudi and India sites to drive further market share gains. In Q1, I was pleased to spend time with Lala and Jaimin in Vadodara, India to review our investments and market expansion plans in this important growth region for ITT. Connect & Control grew nearly 40% driven by kSARIA’s large platform award with Defense Primes including F-35 and both IP and CCT had the book-to-bill above 1.2. On profitability, we continued to expand margin despite headwinds from foreign currency and M&A amortization. The team at KONI led MT…

Thank you, Luca and good morning. ITT delivered another solid quarter. Let’s begin with revenue. Growth was flat to prior year on a total and organic basis, mainly driven by our acquisitions and pricing actions, which fully offset lower volumes including from the Wolverine divestiture in the prior year. There were however a number of highlights. In CCT, defense connectors grew over 20% and general industrial connectors grew 4%. kSARIA contributed 26 points of total growth. This was more than offset by lower aerospace volumes primarily due to Boeing as we anticipated. CCT also had the stronger price realization of all the businesses in Q1. In Motion Technologies, the highlight was double digit growth from Kony share gains. In Friction OE we saw strength in China as well as continued growth in Friction’s independent aftermarket, which offset a market slowdown in North America and Europe. Finally, in Industrial Process, strong marine pump shipments in Svanehøj as well as growth in valves offset lower pump shipments. On profitability, operating income grew 2% on flat sales or 7% excluding the Wolverine divestiture, primarily driven by shop floor productivity and price which more than offset lower volumes in auto and aerospace as well as cost inflation and unfavorable effects. IP was once again above 20% margin excluding Svanehøj margin would have been up 60 basis points. In MT, the team just reached – just about reached its 20% long-term target despite a larger than expected FX headwind, expanding margin 160 basis points versus prior year and over 300 basis points excluding FX. Finally in CCT, excluding M&A dilution margin was up 170 basis points to nearly 20% driven by price gains and productivity. We expect CCT to continue to drive higher price realization as renegotiations in aerospace are finalized. This performance combined with…

Thanks, Emmanuel. A few points before moving to Q&A. This was another resilient performance. We delivered on our Q1 commitments and have good visibility to a strong second quarter. We continue to expand our margin with more opportunities still to capture. We’re maintaining our full year guidance despite a great deal of uncertainty. We quickly deployed capital to repurchase shares in April and still there is a lot of value we can create at ITT, including through game changing innovations like VIDAR. On May 15, you will be able to see this value creation come to life at ITT’s next Capital Markets Day and hear from some of the ITT leaders delivering our results today and for the years to come. I look forward to seeing you there. Thank you for your ongoing support of ITT. As always, it has been my pleasure. Tanya, please open the line for Q&A.

[Operator Instructions] Thank you. Our first question will be coming from the line of Scott Davis at Melius Research. Your line is open Scott.

Thank you, operator. Good morning guys.

Good morning, Scott.

I think that the headline to me at least these order numbers are pretty big. Can you give us a little bit of color on why you think orders picked up so much? Is there may be some impact of people trying to get ahead of price increases? Is there any other variables out there that you can kind of point to that could explain sequentially and year-over-year why you had such a big increase?

Sure. No Scott, we don’t think there is any purchasing ahead of what might happen. Also the reason for that is, if you think about IP for example. IP project orders were up 47%. Those projects, we’ve been working on those projects for months, in some cases for years. So there is no acceleration in any shape or form on that one. And then, of course, our great acquisition performance both from kSARIA as well as from Svanehøj. If you think about Svanehøj was up 70% year-over-year with a book to bill of 2.0. So I would say this is for sure partly the market, but partly also market share gains in several sectors.

Okay. Helpful. And then just to clarify, the big buyback that you did presumably to help offset Wolverine, but not fully of course, but help. But was that because of market weakness or because you see perhaps a lull in M&A? Any color behind that, please?

Sure. No, I would say that it’s not related to the M&A. As a matter of fact, our pipeline is healthy. We keep it on cultivating and we’re still targeting to do M&A this year. In an ideal world, we will be able to deploy $500 million to $700 million or a little bit more this year on M&A. So it’s not related to the lack of opportunity in M&A. It’s just to reaffirm really the confidence in ITT and our medium and long-term outlook. And as you’ve seen, our net debt ratio was probably one of the lowest in the multi industrial. I think in one of your slides you show it at 0.3%, so you might have precipitated to that decision, Scott.

Well, best of luck guys. I’ll pass it on. Thank you.

And our next question will be coming from Mike Halloran of Baird. Your line is open.

Hey, good morning everyone.

Hi Mike.

So first, can we just bridge the previous guidance to the current guidance? Feels like pricing moves revenue up a little bit, probably some implicit pressure on the volumes. Not that you’re seeing it today, but you’re assuming back half, maybe a little something FX more favorable. Anything else I should be thinking about from a put and take from previous guide to the current guide?

Yes, Mike. So when you look at guidance to guidance, obviously as you mentioned, we have a little bit of a positive impact from FX and also from share count as we discussed.

Yes, share count, yes.

I think when you look at a little bit the headwinds, we have an increased tax rate, a little bit of more cost inflation and also we expect the second half to be a little lower than originally, so not baking at all a recession, but economic activity maybe to be a little bit slower. So all in all this is where we stand. We expect acquisitions to deliver a little bit better than originally. So that’s really good news. And then when you look at the different components of the guidance. So as we discussed mid-single digit organic revenue growth, we expect IP to be leading the pack with around 5% and CCT closely behind MT to be roughly flat. One of the things that I think it’s important to highlight is that we continue to expect obviously margin expansion. We expect that IP for the year will land at close to 22%, MT is expected to be solidly at 20% in line with our long-term target and CCT just shy of 18% because obviously it is impacted by the kSARIA margin dilution. But without kSARIA, CCT would be above 21%, which is really close to long-term target. So I think that all in all, EPS aligned with prior guidance. If everything goes well and the tariffs are resolved, this is good news. Other than this, no major change.

That’s super helpful. I appreciate that. So then just kind of thinking about the resilience of the model here. I think the IP side, curious your thoughts on how that should track if you do get a little bit of softness. I know the pipeline, the backlog, the front log are all very attractive. How do you think that tracks? How do you think the customer base responds? And do you think there’s enough inertia in what you’re doing as well as the need in the market to have some sort of offsets or at least be pretty resilient in the face of that?

So when we look at the market in IP, we see a little bit of a slowdown in the funnel. So the funnel is down year-over-year and we think it accounts for all those projects that have been awarded that have not replenished as fast as we have seen in the past. But I think it’s fair to say that the funnel remains at elevated level even though it’s declining. Some of that decline is coming from North America and specifically in there we see decline also from an oil and gas and chemical standpoint. But for us, as we discussed, we have a really strong backlog. The backlog in IP is at $1 billion, which is a record. It’s up year-over-year 15%, sequentially up 8% as we discussed book to bill above 1.2. So I think that we are really confident in terms of our revenue number and our growth in 2025 for IP.

If I may add one point, Mike. If you look at the backlog that Emmanuel was talking about, in the last three years, it grew from $0.5 billion to $1 billion, so 100% up in three years and 50% organically. And then also when you look at our project execution, when we close the project now, the closing margin of this project is higher than the margin of the project when we book them. So I think that this gives us confidence to continue to perform in IP.

Really appreciate it. Thanks, gentlemen.

Thank you, Mike.

Thank you. And our next question comes from Vlad Bystricky of Citigroup. Vlad, your line is open.

Good morning, guys. Thanks for taking my question. So maybe just following up on IP. You mentioned continued investments that you’re making in Saudi and in India. I guess in the Saudi region in particular, can you talk about whether or how you’re thinking about any potential risks to Saudi spending plans as we’ve seen crude oil prices pull back this year and whether you’re hearing any change in tone from your customers there?

Sure. No, actually we do not see any change in tone. As a matter of fact, when you look at the orders, if you look at the last three years, our orders by market, oil and gas have been orders up every single year 2022, 2023, 2024, chemical the same, general industrial the same. Q1 2025 energy, oil and gas keeps on growing. So no major noise on that front. And I would say also that on top of the market we are benefiting of course from market share gains because of our – because the way that Khaled and the team are performing in Saudi, more than 95% of time delivery, perfect project execution. So the customers are very loyal to us.

That’s great to hear, Luca. I appreciate it. And then maybe just shifting to MT. You mentioned, I think an expectation for Friction OE outperformance to ramp in North America and Europe over the course of the year. Can you just talk about, is that based on OEM production schedules and platform introductions? And do you see any risk of further modifications to those schedules just given the current uncertainty in the environment?

No, to be honest with you, Q1 was very challenging for the European and North American market. The European market was down almost 7% in terms of production. North America is down 5%. So the only resilient market that showed good growth was China with operation – with manufacturing up 11%. So these were the market number and in China we outperformed by few hundred basis points. The reason why we are confident on the 400 basis points for the full year and ramping up is the platform that we want, the start of production that we see and also the order book that we see now, for example, for the next three months. So all of that give us confidence of the outperformance of 400 to 500 basis points for the full year.

Great. Appreciate it guys.

Thank you, Vlad.

Thank you. And our next question will be coming from Jeff Hammond of KeyBanc Capital Markets. Your line is open.

Yes. How’s it going guys?

Hi, Jeff.

So just want to hit the good color on the tariff exposure. Can you just talk about how much of the $50 million to $60 million you cover with price, where specifically you’re announcing price increases? And then just any changes you’re implementing around sourcing or otherwise to kind of further mitigate the headwinds.

Sure. When you look at the total exposure, Jeff, which is roughly between $50 million and $60 million for the next nine months. As we said, we are acting on cost, and on the sourcing. So when you’re looking at the sourcing where you have material, for example, where you have two supplier that are qualified and might be in different geographical location, we’re able to use that flexibility and that resilience that we build in the supply chain in the last few years to reduce the impact of the tariff. And then when it comes to the commercial actions, the commercial actions are really on all the products that for instance are not USMCA compliant. And a lot of those commercial actions that are executed or in progress tend to be the majority through the distribution, so where we also have more pricing powers. So all of these enable us to have no net impact to the EPS guidance for 2025.

Okay. That’s helpful. And then just back on M&A, a lot of companies have said, gosh, it’s gotten more difficult, we got to ask a million questions on tariffs and we don’t know what’s going to happen from a demand perspective. And that makes M&A difficult. But it sounds like, you guys still feel like you can get stuff to the finish line. Maybe just speak to actionability and if you’ve seen stuff fall out because of all this noise.

Sure. I think that now is the time to spend more in cultivating these opportunities on the M&A front. Now, the uncertainty means that of course you’re going to be more granular and understand that it will be more the impact in the short-term. But if you have a very good strategic acquisition with a lot of value creation, sure, you need to be more granular, but largely the long term picture will not change. And this is the approach that we are having on the M&A front. So Bartek, myself and the entire team are busy in cultivating, meeting and analyzing the opportunity. Granted, you might need to be a little bit more granular in your model in the first three, four years.

Okay. Great. We’ll see you guys in a couple weeks.

Thank you. See you, Jeff.

Thank you. Our next question will be coming from Brad Hewitt of Wolfe Research. Brad, your line is open.

Good morning, guys. Thanks for taking my question.

Hi, Brad.

So, on the IP side, very strong project orders in Q1 with the 47% growth. Just curious if you can walk through your updated growth assumptions for IP between projects and short cycles. I believe your prior guidance was like mid-teens growth in projects and kind of low to mid singles in short cycles.

Yes. Sure. So the guidance really hasn’t changed much. Keep in mind, Brad, that while we’re very happy with the project orders and the growth of 47%, this will not convert into revenue growth in 2025. Those are long lead projects. They take anywhere between 12 to 24 months. So our assumptions between projects and short cycle, they remain essentially the same. I think that as I mentioned in IP, really for us, the focus is to make sure that we convert that backlog in a timely fashion. We’re not really concerned of hitting our revenue target for 2025.

And when you look at the short cycle, Brad, if I may add, if we look at – sure, the growth in project was very strong and short cycle not so much. But to be honest, if we look the short cycle orders sequentially, we were up 1%. And the book-to-bill in the short cycle was 1.07, and then even looking at the short cycle, the – on a weekly basis, the run rate in Q1 was higher than the average weekly rate of 2024. So doesn't have the growth that we saw in the past, but is still staying at a very high level.

Okay. That's helpful. And then maybe switching over to the tariff side of things. You mentioned the $50 million to $60 million in gross headwind for the rest of the year, most of that offset coming from price. I guess, just curious in your guidance, what are you embedding in terms of demand elasticity in response to those price increases?

So as we mentioned, Brad, we do not – we did not bake anything in terms of – in the guidance in terms of demand distractions due to those tariffs. We expect to be able to – we expect to be able, obviously, to pass all the cost increase through price and cost reduction actions as well. I think one thing that it's important to highlight is the fact that we pretty much are in the same condition as everybody else. For instance, in IP, most of the competitors buy their castings from China or from India. So we don't believe that there'll be any competitive disadvantages. And so we expect to be passing on. And we'll see if that results in a little bit of a hit to demand in the second half, we continue to be very prudent and monitor the activity.

Great. Thank you.

Thank you, Brad.

And our next question will be coming from Joe Ritchie of Goldman Sachs. Your line is open, Joe.

Thanks, good morning, guys.

Good morning, Joe.

Hey, sorry if I missed it. But have you guys said how much of the $50 million to $60 million in tariff cost impact is coming from each segment. Just trying to gauge just in terms of your ability to kind of pass pricing? I know that sometimes it takes a little bit longer for the Friction business.

Sure, Joe. The majority of the impact is actually in IP and in CCT. Because if you remember, in Motion Technologies, with the divestiture of Wolverine, the impact of the tariffs has been greatly reduced. We are in the region for the region, Europe for Europe, China for China and Mexico for North America. And all our products are USMCA compliant. So when it comes to MT, the exposure in MT is only in the KONI shock absorbers that play a role in the aftermarket in the U.S. So majority is IP and CCT.

Which is, in a way, very favorable if you think about it from a business case because this is where we also have the largest pricing power, both in distribution and in direct.

Yes, that's good to hear. Thank you. And then just a follow-up question. VIDAR seems really interesting. I'm just curious, as you think about the opportunity in getting after this opportunity, Luca. Is it the same like sales force? Are you able to kind of cross-sell this with your pumps business as well? Just like help us understand how you see this playing out.

Sure. The way that we are running this business is a completely separate job. So we run it in Ventures under Bartek Makowiecki, who's both the leader of business development and M&A as well as the leader of IP, but it's completely separated. So there is Dan Kernan and his team who are based out of Syracuse, we have their own sales force and therefore is its own business. Now granted, there might be some synergies. So there might be some incentives that you put in place for your comp sales if they are successful in helping VIDAR launch, but it's completely separated.

Okay. Understood. I'm sure we'll get more details at Investor Day. Thank you.

Exactly. So we're waiting to see you there at the customer market – at the Capital Markets Day.

And our next question will be coming from Andrew Obin, Bank of America. Your line is open, Andrew.

Hey, you have Sabrina Abrams on for Andrew Obin. Good morning.

Good morning, Sabrina.

Good morning, Sabrina.

Apologies, this is going to be a little long, but you've given some helpful color on the bridge from prior guide to the updated guide, which is helpful and you're keeping the 3% to 5% organic with slower economic activity in the second half. And I guess, part of this question is, is the $50 million to $60 million of gross tariff impact, is that over the course of the second half of the year, or is that an annualized number? And I guess, could you just talk about what's embedded in 3% to 5% organic for pricing versus volume and how that's changed? And then I guess, the $50 million, $60 million, if that's in your number, I think like the annualized price increase needed to offset would be around 2%. So is that the right way of thinking about tariff pricing?

Hi, Sabrina. Okay. So the $50 million to $60 million is for the remaining nine months of the year, right? So this is not an annualized impact, just the remaining months. In terms of – so it's obviously included in the guidance and no net impact because we're expecting to offset, as I mentioned, with commercial actions as well as cost reductions. So that's one. In terms of pricing, yes, you're correct, it's around 2% price increase that we're planning in organic growth of mid single-digits.

Thank you. And then the short cycle distribution business in CCT tends to be, I guess, a canary in the coal mine for you in terms of general macro industrial activity. And I just wanted to ask how that business is trending. I understand you've had really great share gains in that business as well, but I want to understand how is that business trending? And then maybe any commentary on the tone you're hearing from your distributors? Are they showing any signs of weakness?

Sure, Sabrina. So when you look at the revenue, connectors revenue grew 4% organic. And of course, here, defense and aero were the main contributors. If you want to look at the leading indicators in terms of orders, connectors orders were up 11% year-over-year, and they were up 27% sequentially. Now a lot of this is a big play is, of course, on – from defense. And – but then if you look at the distribution, you have a distribution orders that year-over-year are down, but it's up sequentially 20% and it's at a very high elevated level. So overall, still a positive picture, I would say.

Thank you.

Thank you.

And our next question will be coming from Damian Karas of UBS. Your line is open.

Good morning, Damian.

Hey, good morning, everyone. Sorry if I missed this, but I wanted to ask about some of the pricing trends that you're seeing in MT. I'm just curious like is there going to be a transient period here in which you're going to maybe get hit with some of these tariff cost headwinds more immediately. And then over time, you'll offset that with price. Or could you just give us a sense like what kind of how pricing is playing out in that market?

Sure. So when you look at – just to talk about the tariffs for a second. Tariff impact is mainly in IP and CCT. There is very minimum tariff impact in Motion Technologies and very little in Friction because we are in the region for the region. And when you're talking about North America, our product are USMCA compliant. So that is on the tariff front. I think that when you look at the price cost equation for ITT overall, we are positive in Q1. It would be positive for the full year, both in dollars and margin. And that picture is the same on the Motion Technologies side. So the team is able to gain efficiencies through operations as well as sourcing, and granted, we are sharing some of these efficiencies with our customers, but the price cost equation in MT is positive today.

And as we said in the past, we are focused on making sure that we recover any fluctuations in commodity from our customers. And I think that as the team really progressed in making sure that they quantify those impacts able to go back to customers and get a fair compensation.

Okay. That's really helpful. And I'm not sure if you talked about it, but could you just give us a little bit better sense on what's going on with Svanehøj and what's driving all the strength in the 2x book-to-bill and orders up 70%.

Sure. When we cultivated Svanehøj, when decided to acquire Svanehøj, we saw the opportunity in market growing substantially in the foreseeable future. And so there is definitely a trend there due to the market they're operating in, in terms of the marine market and the shift to green energy. So there is a market component to it. But I would say also that the good quality product, the great performance and Søren and the team together with Glenn and everybody is delivering to the customers on-time performance, et cetera, enable them to win market share. And they are seen as leaders in three of the sectors they're operating in. So market plus performance are delivering these exceptional results. You may remember that after the acquisition, we also committed to probably a double-digit growth for Svanehøj for the next few years. And this is what we are seeing and the orders will continue to deliver that.

Yes. It seems like that deal is certainly bearing fruit. All right, guys. Thanks. Best of luck.

Thank you, Damian.

Thank you. And our next question will be coming from Joseph Giordano of TD Cowen. Your line is open, Joseph.

Hey, guys. This is Michael on for Joe.

Hi, Michael.

Hi, Michael.

You mentioned earlier about connector strength, and I know some people have been kind of contemplating a prebuy. If there's any kind of color there that would be certainly helpful in the end market dynamics at play as well? I would appreciate it.

Yes, Michael. So we are not aware of any prebuy. When we look at our distributor inventory, it is not excessive. The point-of-sale information is also healthy. So there's nothing that really points to a pre-buy. What's really difficult to understand is that you may have inventory built up at our customers' customers, and that's before the end customer, right? So there may be that possibility. So we do everything we can to understand the situation from a distribution standpoint. One thing that I wanted to highlight, unrelated to tariffs, but we do see evidence of excess inventory in aerospace. And so we are working with our Tier 1s and also the airframers to make sure that they address the situation and that we continue to be good partners to them.

Great. That's helpful. Actually another question I had, too. I know you mentioned you saw down low – or excuse me, mid-teens in the quarter. My understanding, if I remember correctly, there was supposed to be like an OE ramp in 2Q. Does this destocking dynamic for A&D change that ramp timing? Any time that you guys are mostly levered to widebody, but any color there would be great. Thank you.

We expect in the second half sequentially, aerospace orders to pick up. They're still going to be slightly down versus the prior year. And then if you look at the full year, we expect orders to be slightly up. So a recovery in the second half. So we're going to see improvement in the second quarter, continue to improve in the third and in the fourth. And then they're going to start converting into revenue probably in the second half.

Great, thanks guys.

And our next question will be coming from Nathan Jones of Stifel. Your line is open, Nathan.

Yes, good morning. This is Adam Farley on for Nathan.

Good morning, Adam.

Good morning. One more on tariffs. So your largest exposure to tariffs is in CCT. What are the primary components that are being exposed there? And do you have confidence in dual sourcing there or finding new sources of supply?

So when we look at CCT, is the main exposure there is the trade between Mexico and the U.S. That is mainly because there are many things that are going from the U.S. to Mexico, Mexico to U.S. So we are talking mainly about connectors. And in most of the cases, those are USMCA products. And when it's not, we are able to act on a pricing side. And this is in CCT through distribution is also where we have more pricing power. So it's not so much a resourcing strategy when it comes to CCT and connectors as much as a commercial action.

Okay. That's helpful. And then just maybe high level, I mean, are you actually seeing any signs of customers deferring their capital investment decisions? Or is it more just caution on the back half? And I'll leave it there. Thank you.

Sure. I would say, no, we do not see those kind of things. Sure, you might have one project or two that have shifted to the right. but not to call it a trend. And you see it in the orders of the project, which were up 47%. And the funnel of opportunity in IP is actually staying at elevated level. It's practically flat sequentially. And there are some regions like Europe, Middle East and Asia-Pacific, where actually the funnel is up. So, so far, we really haven't seen major shift to the right. Just a couple of examples, and that's it.

Thank for taking the questions.

Thanks Adam.

Thanks Adam.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.