ITT Inc. (ITT) Earnings Call Transcript

Please welcome ITT Vice President, Investor Relations and Global Communications, Mark Macaluso.

All right. How is the sound, okay, guys? Got to get off to a good start. All right. First of all, thank you for joining us for our Capital Markets Day. Thank you also for not inadvertently going to 85 Broad. Apologize for all that. A couple of weeks ago, we learned the building was going bankrupt. We quickly, in 3 weeks' time, shifted the whole production here and to thank us, we were treated to loud construction noise all morning. So nevertheless, we made it. So here we go. Before I get started, just the fun stuff, to remind you of our safe harbor statement. Our presentation and comments today will contain forward-looking statements. These, of course, are based on our best view of the world and of our businesses as we see them today. These, as we've all learned, can change, and we'd ask you to view them in that light and to view our latest risks and uncertainties in our Form 10-K and other SEC filings on our website. So a quick look at the agenda. And by the way, the materials are available on our website if you'd like to look online. We'll have 3 to 4 presentations, themes, which I'll talk about in a second. Three Q&A sessions with each of the presenters, the last Q&A session with the extended leadership team as well. We'll have a break about halfway through. The tech demos are going to stay open during the breaks. And then at the end, I would invite you to join the rest of the team from 5 to 6 p.m., we'll talk about and you can meet some of the extended team in all 3 of the value centers, and we'll all enjoy a little food and drink to celebrate. So quickly on what you'll hear today, and then I'll step aside and let the more important folks in the room take over. Differentiations is the theme you're going to hear throughout the day, focused on execution and innovation and then how we're going to compound our organic value creation with M&A. Of course, we're going to talk extensively about our 2030 long-term targets and then how the long-term value creation through differentiation will drive scalable growth. So with that, once again, thank you all for taking time out of your day to be with us. Please enjoy this video to kick us off, after which Luca is going to take it. [Presentation]

Please welcome ITT Chief Executive Officer and President, Luca Savi.

All right. Well, good afternoon, everybody, and welcome again to 2025 ITT Capital Markets Day. I hope that you will find today's presentation, the interaction and the conversation interesting, insightful and worth it of your time. At the end of today, I hope that you will get a sense of who we are, of our culture and the unprecedented and relentless continuous improvement that drives us every day. Then you will get the smell really of who we are. And you will also see what we are building. You will see what we are going to create and the value that we will create in the next few years. And last but not least, please ensure to spend as much time as possible with the leaders of ITT, the people that you are not able to meet every single day. For today, Emmanuel and I are the boring ones. So let me share with you what you will hear today from me. So I will spend a few minutes, few words about ITT. Tell a little bit about the journey that we have been through in the last few years and then spend time on the future. Have a look at what is our enterprise strategy, the direction we are taking, how we are shifting our portfolio and then the value creation that we expect to create in the next few years. And this to deliver the long-term 2030 targets. So with that, let me start with a few words about ITT. ITT, as you heard from the video, is an engineering and manufacturing company. We make components, and I stress components, for harsh environment. If it is in energy, energy security or energy transition; if it is in chemicals, pulp and paper, general industrial, automotive, rail, aero and defense across all these different industries. We are global, and you can see from the chart. And our strategy has always been the one to be in the region for the region. And this is paying off these days. And then you will see in the numbers, in the last 3 years, we delivered more than 9% organic revenue growth. We delivered this through market share gains in beating the competition, outperforming the market. And in the last 3 years, we delivered more than 13% as an average of earnings growth -- of EPS growth. We are organized through three different businesses. We have industrial process, our pumps and our valves. So we have a great installed base. We have across the world that we differentiate our technologies with our twin-screw pumps that you've seen over here in the corner. We're working across different sectors like pulp and paper, general industrial, as we said, energy, mining. We provide superior customer service and flawless execution when you talk about the projects, projects that last many years, project that go up to $50 million, $60 million, $70 million per project and last multi-year. So if you are an oil producer and you're looking to pump and store the carbon that you are producing, it's ITT that you go to, to solve your engineering problem or your engineering challenges. Then you have Motion Technologies. In Motion Technologies, we are the global leader of brake pads for the automotive business and also a leader in shock absorbers for rail. And we're talking about global leadership. Sure. You have global leadership in terms of size when you look at our brake pad business in terms of technology, in terms of R&D, but there is a global leadership in terms of the value that we deliver to our stakeholders. If it is our shareholders, the superior ROIC that friction is able to deliver. And if you talk to our customers, the fact that you are an OEM and if you want to launch your new platform flawlessly, you come to ITT. If you want the best quality that you can find in the market for the brake pads, you come to ITT. And lastly is our Connect and Control business, where we are designing, engineering, manufacturing, connectors and components for the aero and the defense business. And here, we are greater really customizing and probably you have seen some of the highly customized product in the corner over there with our products, which allows us to be specified in some of the best platform that we have in defense. So what has been the journey? So we started the journey a few years ago. And what we started with was we started in building the foundations. So we started in creating a pristine balance sheet and creating also a new way of working in ITT. A new way of working where what we have is that the customers and business rule, not corporate. A business where common sense, good judgment, entrepreneurship really play a role more than corporate mental elucubration. A corporate with lean is everywhere, in every single plant, in every single office, in everything that we do and where the depth of knowledge and granularity on data is rewarded. And where wherever you go, no matter the results that you have, you have a healthy paranoia for continuous improvement. And I hope that you will see some of this today when you meet the people and when you talk to them about what they're doing. And in doing this, we have been able to create a lot of value, value that came mainly through organic growth and margin expansion. And in the meantime, we started to build the pillars for the future and we started to get ready for the next chapter and building what we say, the M&A muscle for the years to come. So where these led us is to today. And we were able to beat our 2022 long-term targets 2 years ahead of plan. And so here we are today. And this is where the most interesting part comes in, in terms of what's coming next. The next chapter, we call it in ITT. And it's really the chapter of compounding growth, is the journey to become a premier growth compounder, all right? So where do we start with that? Well, we start first with a clear strategy and a clear vision of where the portfolio is going. So this was 2018. In 2018, 46% of ITT revenue, ITT business, was coming from Motion technologies. When you look at EBIT, was more than 60%, 6-0. So let me repeat, in 2018, 60% of EBIT was coming from automotive. Now when you look at today, the business, thanks to the investment in terms of M&A in a company like kSARIA, Svanehoj, Habonim, Micro-Mode because of the divestiture of Wolverine in 2024, the automotive business is roughly 31% of the portfolio. And if you look at the OE automotive business, which is the most cyclical one, is roughly 21%. So if you fast forward this to 2030, then through organic growth and acquisition, we will have an automotive business -- we expect to have an automotive business that will be roughly 21% of the portfolio or 15% of the portfolio, if you're looking purely at automotive OE. So this, when you fast forward to 2030, what -- through organic investment, through M&A, the company that we expect to build is a $6 billion revenue company where you have Motion technologies that still grows. So I don't want to give you the wrong impression here. Motion technology will be the smaller business in the portfolio, but we will keep on growing. It will keep on growing strategically in China, in North America, in electric vehicles, in hybrid, in high performance. And if we grow more opportunistically when it comes to Europe and to the internal combustion engine. And at the same time, our successful and profitable rail business will grow -- we'll keep on -- with KONI will keep on growing as well. Then we will have CCT, our Connect and Control business. So we will benefit here from the recovery and the growth of aero. The growing of the defense business where our differentiation in execution and innovation, that we will talk about later, is able to make us win market share, really with connectors in defense. And last but not least, our industrial process, our flow business, where macro trends in energy security, in energy transition, as well as reshoring will feed the growth together with our ability to outperform the competition in the market, and together with the M&A that we are planning to execute in flow. So where is the value coming in the next few years. We've seen that we delivered plenty in the past. So where is it coming in the next 5 years? Well, there are -- the next chapter will have two pillars of value creation. The former is coming from organic growth and margin expansion. Yes, we are not close to be done here. And I'm going to talk a little bit about it in a second. And the second will be through compounding with M&A. So let's address each and every one of them, okay? So let's start with the organic value creation. I mean, you have seen it. We've been able to do it. We've got a great team in ITT that is able to deliver on this front. But is there still room there? So let's check from a growth perspective, right? Well, first of all, as we shift the portfolio to higher growth and higher-margin businesses, we have macro trends feeding the growth that in the market that ITT is more and more exposed to: flow, energy, aero, defense, rail, you name it, general industrial, okay? So that is a market growth. You add to that the fact that our companies, the companies that we have and the company that we bought, are a strong company with a strong leadership position. It's scary sometimes when you talk to Svanehoj and understand the market share that they have in some of their specific segments. So leadership position in the company that we are part of the ITT family. And then last but not least, is the outperformance. The outperformance that we've been able to deliver regularly, consistently year after -- quarter after quarter, year after year across all the different businesses, most of the businesses that we are in. And that outperformance comes through differentiation, differentiating from the competition, both in execution as well as in innovation. And we're going to talk a little bit more about that later. So plenty of growth from an organic point of view. And what about the margins? For the margins, too, these are the majority of the ITT site. And you have there the operating margin of ITT at 18.7%, right? So you can see there is roughly 400 basis points of improvement in just getting the underperforming sides to the level of ITT. But then because what we were talking about, our relentless continuous improvement mindset, the other sides to the left are not staying still. So there are more than 150 basis points improvement, just keep on improving also the sides to the left. How? Through lean, through automation, through technology, through the unprecedented granularity with which we are managing the business. And last but not least, with the entrepreneurship culture with which we are running the business. So as you can see, there is plenty still of organic value creation that we can create through organic growth and margin expansion. So now let's have a look at the compounding with M&A. So what has happened, right? As we said at the beginning, we were building the muscle, we were trying to get ready. So after we got our balance sheet in a pristine state, then we went out in the market and we recruited Bartek, Bartek Makowiecki. I met Bartek on the 28th of June 2021. Unfortunately, he doesn't remember the date, which is very hurtful from an ego point of view. And he joined Bartek on the 14th of September 2021. And since Bartek joined, we worked together to build the team. And we build the team at corporate and in strategy and M&A also within the businesses. We crystallized the strategy in terms of scaling the business, shifting the portfolio, simplifying the portfolio. And we started executing. We started building the muscle, the M&A muscle, with the acquisitions. Habonim in 2022, Micro-Mode in '23, Svanehoj and kSARIA in '24. So this is what we have been doing in the last few years. So what are we going to go next? What we're going to do next? Well, next is we're going to deploy $500 million to $700 million every year as an average in M&A to buy companies that are leaders in the market they're playing in, in markets that are growing and they've got high margin with strong management team like we had in Habonim, in Svanehoj, in kSARIA, management team that stayed with ITT. Soren will tell you, Ilan will -- for Svanehoj -- Ilan for Habonim; and Mike DiPoto will tell you for kSARIA. The entire management team is still there with ITT, all of them. So all of this recipe will be able to deliver an ROIC, which is higher than 10% by year 3 or 5. And it will be able to be accretive at EPS within the first full year. So really, to summarize, we do have two pillars of value creation. The organic one where you have experience with us in the last few years through organic growth and margin expansion. And then the M&A front -- the M&A one, the compounding with M&A. But you will -- you are able to do this only with the best people, right? And here, we have in today with us, the high-performing leadership team. Please ensure that you spend the time, and you will be able to get the sense really of who they are, of their deep knowledge, of their customers, of their markets, of their people, the entrepreneurship that they do have, and once again, their drive towards continuous improvement, no matter what results you're delivering. And then a word also on the Board of Directors. Lori, our General Counsel, and I worked really hard together with the Don and team in the Board to really create a high-performing Board and we succeeded. And I'm really happy and proud today to be part of this Board. A Board that is hard working, always prepared, incredibly smart and knowledgeable, that is able to constructively challenge you whilst supporting the management team and whose value system is aligned with ITT's values. I'm talking about people, also all the other people that are here today, the speakers as well as the speakers as they stand. I'm sure that you will experience and you will see many of the things that I just shared with you here today. So now finally, the targets -- the 2030 targets. What -- what's interesting is there was a 2022, in May, I think it was May, when we had our last -- it was our first actually Investor Day here in New York with many of you, and we shared our long-term targets then that we were able to beat 2 years ahead of plan. So now it's good to be back in New York and to share what are our 2030 targets, right? A revenue growth of 10% total, 5% organic. A -- adjusted operating margin of 23% or an EBITDA higher than 25%. An adjusted EPS growth -- an adjusted EPS of more than $12 in terms of total. And the free cash flow margin that continuously improve and is between the 14% and 15%. So with that, how are we going to -- the team is going to cover in the next few session, really how we are going to deliver this value in more detail and really is through differentiating ourself in the market. How do we sustain this value creation is to continue to differentiate in the market. And we are differentiated in the market through execution, and the team will talk through that with examples and what we mean -- what we mean by execution in ITT. We differentiate through innovation as well as differentiate through M&A. So let me show you a quick video about differentiation through execution and innovation. [Presentation]

Please welcome President, Motion Technologies and ITT Asia Pacific, Davide Barbon.

Good afternoon, everyone, and welcome. As you heard from Luca, the first pillar of organic growth is differentiation through execution. Today, we need that will be Hamdy from IT and Art from Connector to share with you some example within our respective businesses. When we look at differentiation and execution, these are six among the most critical values that we carry through our day-to-day activity. And I'm very -- this is -- execution is something that is very close to my heart because it really identify with what we can control. This is all about how we wake up every day in making today better than yesterday and building for a better tomorrow. There are six items and I call attention on three of them, which we will touch throughout our presentation. One is customer centricity. The other one is one size does not fit all and the continuous improvement. Customers -- when we talk about customer centricity, Hamdy will talk to us about our journey in ITT in Saudi and how they really focus on Saudi Aramco and reaccelerate the growth in the region. On a one size does not fit all, Art will talk about their tailored approach in speed prototyping to serve the military sector in connectors. And I will close it up with continuous improvement and motion technology specifically for friction. Across all the presentation though I'm sure you will understand one piece that really differentiate on everything we do across our site. It's our people and it's our culture. And with that, let me introduce you to Hamdy that will take us over to the IP IT performance.

Hello, good afternoon, and welcome, everyone. I'm Hamdy Salem. I've been with ITT for 18 years, a long journey. And during my journey, I took leadership roles in different regions in the U.S., then Europe, Middle East, Africa and India. And during my journey, I experienced firsthand how flawless execution can differentiate us from others. So I would like to share my experience with you today and walk you through what we have done over the last years. So for those who are not familiar with Industrial Process, I would like to share some information about Industrial Process. As Luca mentioned, we are a global leader in centrifugal pumps, twin-screw pumps and valves and aftermarket services. These are highly engineered products, and this is what differentiates us from others. $1.4 billion business, and we serve different segments of the market, chemical, industrial, mining and energy. And we are spread globally with a very big market share in North America, and we are the global market leader in ANSI pumps in North America. We have more than 1.6 million installed pumps globally, and this is growing. And as you can see on the financials over the last 4 years, significant order growth, 16% and with that, a lot of market share that we have gained. And the secret for gaining market share, we'll talk about it later when we talk about differentiation through execution. We doubled our backlog in the last 4 years. Again, another significant impact that we have done to our business and fantastic operating margin as well. To achieve that on an industrial process level, it's the same process that we have implemented in Saudi that I'm going to be sharing with you -- the experience in Saudi, but we go down to basics first. So we set our foundation, SQDC: Safety, Quality, Delivery and Cost. These are the main foundation that we have embedded in our culture, in every IP site. Aside from that, customer centricity, this is where we put our focus. Our customer is the most important part of our business. If we have a satisfied customer, we serve them with speed and reliability. This is what puts us above anybody else in the business. We have a multiphase pump technology that is really a differentiator for us, and it's very, I would say, give us an edge in the harsh applications like carbon capturing, like Luca mentioned, anti-flaring. We're working on applying these pumps in other energy transition like ammonia, like hydrogen. So this is one of the differentiator for ITT as far as products in the industrial market. So looking at our financials for the last 4 years. Again, you can see the significant growth in orders, in revenue and operating income and margin. And as I mentioned, this does not happen by accident. It happened by a lot of effort and a lot of work to differentiate ourselves over others. So talking about ITT Saudi, and this is really very dear to my heart because in 2017, ITT asked me to move from Houston to Saudi Arabia to help build the business, build the team and support the business to grow. So in 2017, or end of 2017, our business was $19 million, 1-9. If you look at it today, it's a $100 million business with $160 million backlog -- this over the course of the last 7 years, which is a significant improvement, and I'll tell you how did we do that? How did we gain all this market share? This is not only market growth, which happened, but also a lot of market share gain by doing the effort and putting ourselves where we need to be to gain the customer trust and loyalty. So as I mentioned, foundation is rooted to SQDC: Safety, Quality, Delivery and Cost. When we talk about safety, if you look at the record of ITT Saudi, 650 days accident free. So safety is in the core of everything that we do. Every employee in ITT Saudi and in ITT IP is a safety officer. He has the right to stop operations at any time if he observes anything that is unsafe and they have the authority to do that. We acknowledge, we recognize, we award anybody who raises safety concern that might jeopardize the safety of our employees. If we talk about quality, quality is embedded in everything we do. We start the quality from design, from engineering, and we have our KPIs to measure every aspect in the business. from design, from engineering, from documentation through manufacturing. And before any product leaves our facility, there is multiple inspections that happened from the time we received the part in our shop through the in-process production and before it leaves. 95% of our products in Saudi, it has also customer inspection before it leaves our site. So we have to make sure before we call the customer in to inspect the product we have already done our due diligence because once it's ready, we want to ship it out of the door. And if we're not ready, and the customer doesn't like it, if any issues with the product, they have to hold them until we fix it. And that will impact our on-time delivery, it will impact our contractual obligation exposures to liquidated damages. So if you look at our on-time performance in Saudi, it's 96% over the last 4 years, meaning that we always deliver. We always meet our commitment and you cannot do that without the highest quality product ready to be inspected and get out of the door in time or even before time in most of the cases. So this is what quality means to us. We talked about delivery, I talked about on-time performance, unprecedented 96% on the last 4 years. And then cost, cost is reflected in our profitability, reflected in our margins. And you can see that by the high profitability that we're able to achieve. Part of the cost -- we are masters of cost control and masters of managing the project, managing the customer because part of it is managing the supplier, negotiating with the supplier, making sure that we get the best discounts and the best product in time. But the biggest part of it that we are good at is managing our customer and customer expectations. With these highly engineered products and big projects that we have, which is 26% of our business is project business, always there is a change in the scope, always there's some additional modifications and tweaks that the customer would like to have during the execution of the project, and they always want to have it for free. But we have this good relationship with the customer. We have the intimacy, the partnership that we have the right to ask them for additional money whenever they do a change order, and we are good on managing change orders. And change in order comes was a higher margin than the project itself, and this is how we change a good margin project to a fantastic margin project. And this is an area that we are good at, and we know how to manage our customers. So talking about SQDC, moving to customer centricity. Customer centricity, the best way to convey how good we are, good with our customer, how close we are with our customers. I'll give you a couple of examples, and that will, I would say, show you how good we are on managing our customer being closer to them. So we start our partnership with our customers before the project even starts, before they are awarded by the end user. So if we have an Aramco project, they're usually, I would say, awarded to an EPC, and engineering contractor and then the orders come to us or we get orders directly from Aramco. So we start from the feasibility assessment. We offer our services, our highly engineered, capable design company in the industrial business. So we help them to define the pumps, define the hydraulics, define what do they need to do, set up their data sheets to reflect what we offer. So when they are ready to buy, our pumps are already defined in the scope of supply. This is how we position ourselves. So they see us as a solution provider, they see us as a partner not only as a supplier, and that positions us in the right place when it's time to get the orders. The two examples I would like to share with you very quickly, one with Aramco directly. When Aramco was attacked in 2019, half of their production in the Abqaiq plant was impacted. Abqaiq plant is the largest oil production facility in the whole world. So the first vendor they called is ITT. Half of the pumps were damaged. These were old pumps, more than 50 years old, and it was not an ITT brand, and they came to us, they say, can you replace these pumps? Can you help us out and give us replacement? These were 20 pumps. In 6 months, they had the replacement pumps completed, installed and the site in Aramco Abqaiq was up and running. So this gained us the right of Aramco to trust us, to be a loyal customer to ITT, to always call on ITT to help them when they have a highly technical problem that they need help with and also to help them out in difficult events and in any projects coming forward. And you're going to see that reflected in the ITT Saudi financials over the last 4 or 5 years and what's happening in the future as well. So that's an example. Another example is another one of our critical customers, strategic customers, they were in a rush. They didn't have the resources to define the pump hydraulics that they wanted. We deployed three of our engineers, 4 weeks sitting with the customer, defining all the hydraulics, that's in 2024. That ended up with a $17 million order -- actually 2 orders for 2 projects, single source to ITT. That's because they valued what we have done for them. They see us as a reliable partner for what we can offer them and we always meet what we commit to. This is an example of customer centricity. Talking about localization. This is, as Luca mentioned, in the region, for the region. That's really a lot of value. It gives us the flexibility to serve the local customers but also to decide how to manufacture in the best cost and the best strategic approach for our customers to help them out. So in Saudi Arabia, there's a huge initiative in the Kingdom of Saudi Arabia that they only prefer to place orders to local suppliers. So ITT invested heavily in Saudi to enable the Saudi team with investment in people, investment in the facilities, in the equipment, expansion of the shop floor. So all these investments happened to support the localization, and that paid off. So with localization also, we localize the engineering, we localize the design, we localize the supply chain. We are relying on local suppliers in Saudi Arabia that helps the team to be more agile, to be able to control their cost and to be able to meet the delivery of the customers. So talk about tools and processes. This is, of course, in every country -- and I'm sorry, in every company, tools and processes are important. We look at it differently. We do it. We are very granular, like Davide mentioned. We work on LEAN. We work on Six Sigma. We implement visual management. We have the ability and the agility to every day walk anywhere in the facility, and you have the gemba boards, whether it's virtual gemba boards, electronic or manual. And you know every project, every product, where it is, what stage, what phase gate and we can track it. We have our gemba walks every day, and we know exactly what do we need to do to get it out of the door. I'll give you an example on this as well. When COVID happened. We're doing the gemba walks every day and I was there. And we have to go every morning, group the whole -- not the whole team, but the leadership team, and we walk over the gemba boards to see what do we need to do to get stuff out of the door and get projects moving. COVID happens, it was curfew, everything was shut down. The very next day, in 24 hours, we transformed the gemba to a virtual gemba. We're meeting every day virtually, talking about projects, talking how we're going to be executing. This is how much agility do you have, how much dedication that the team is having, how much granular we run our business every day. People is our, I'd say, our biggest force. We really, really invest in our people. We like our team to grow, to be empowered, to be able to make decisions on their own and to run the business the way they see, that's the right thing to do. People, for the last 7 years, we had less than 2% attrition in ITT Saudi. Whoever comes in the facility do not want to leave. They like the culture. They like that we are successful. They like that we're able to meet our commitment. Even if they get other opportunities, they come to us and say, we do not want to go. We want to stay with the company because they appreciate what we do. They see the efforts and the energy in the facility and the respect that we're able to meet our commitment. With that, I would like to introduce you to our team in Saudi Arabia. If you look on the right side, and you can see that all of them have big smiley faces not because Luca is visiting us but because they're proud of what they have done and the synergy that they have in Saudi is fantastic. If I tell you, we have 13 different nationalities in ITT Saudi, 13, 1-3. And I remember when I was there in 2017, when we started to build the team was 45 employees, was $19 million. Now we have 120 employees for over $100 million this year. Again, 13 different nationalities, Indian, Pakistanis, Filipinos, Egyptians, Jordanians, Russians. From every region in the world, we have people working together in harmony, collaborating, be able to get things out of the door. So the culture is amazing. The collaboration is amazing. If you look at the records or the KPIs that we have 650 days, as I mentioned, safety, accident free, quality -- top quality, which we are recognized for by our customers in Saudi Arabia, Aramco and SABIC and [ Madden ] that we are the top supplier for them from a quality perspective, and they have the supplier measurement that they sit with us every quarter, and they assess us and the feedback that we're getting from our customers that we are the top quality that they have in Saudi Arabia. Delivery on-time performance, 96%, as I mentioned in the last 4 years. And then the growth, 91% of the orders that we bid on last year, we won. Our hit rate grew to 91%. This is how much trust that we have from our customers in ITT. If you look at this picture, these two pumps are part of a project that is $13.5 million, part of six pumps. And these are crude oil booster pumps for one of Aramco's big projects called Safaniya project. So this is the largest pump of this type that was ever built in whole ITT. It was built in ITT Saudi -- six pumps, delivered on time. And according to budget with a lot of savings and a lot of improved profitability to ITT. And it was tested for the first time built and tested it and designed an ITT Saudi and pass the testing from the first time. And these are the first 2 getting ready to package and get out of the door, and it was a great achievement. They were only able to build and test these pumps because of the investment that ITT have done in 2023 to build a brand-new testing facility for ITT Saudi to enable them to manufacture such large vertical and horizontal pumps and enabled ITT Saudi to grow their business and be able to be one of the largest competitors in the industrial pumps business in Saudi Arabia. With that, I would like to share with you a very, very short video to show you the ITT Saudi team and their capabilities. [Presentation]

This is my last slide. I would like to show you the growth of ITT Saudi orders. 2017, as I mentioned, and then growing to 2024, we have $160 million backlog, and this is where we see ourselves in 2030, and this is not a fictitious number. This is where we see the market is. This is where we see that our capability to grow. If you look at the same ratio of growth over the last 7 years that can be easily done. And we're ready. If you look at the investment that ITT is making in ITT Saudi, this is in the green, what we have already invested and completed the top one in Phase 2, this is already working on, is going to be completed in Q3 this year. It should be up and running. And then Phase 3, where we're going to be extending our growth with new products going into ITT Saudi to be able to manufacture different products of the ITT product line and be able to grow the business to get there and also with the market share that we're expecting to capture. So the differentiation is real. The differentiation is in the people, in the talent, in the processes, in the equipment, in the facility and in the execution, in the customer centricity. And this is how we are growing. We are proud of what we have achieved. But we are not satisfied yet. There's a lot more that will be done. A lot more that will get us to where we need to be. And the investment continues and more growth for ITT. With that, thank you very much for listening, and I'll hand it over to Art Dunn to talk to you about execution and differentiation through execution in the Connect technology. Thank you.

My name is Art Dunn, been in the Connector business for over 25 years, 16 at ITT, and had the honor of leading the Connector group over the last 3 years. So today, I'd like to talk to you about how the Connector Group has been differentiating and execution in the area really of R&D and rapid prototyping. But before I do that, I'd just like to cover Connect and Control Technologies. A $900 million business with 2/3 of its business in aerospace and defense, military, two rapidly growing market segments. With significant opportunities to grow in Europe in mil/aero, in defense, in transportation, industrial in Asia. So I want to bring it back to Connectors. How has the Connector group been separating itself from its competition? Well, oftentimes, the simplest actions really can be the most impactful. And in 2022, we launched a new product team. And that team consisted of 7 engineers, experts in their field, high speed, high power, high temp across fiber applications, copper applications, RF applications. That team was led by 2 seasoned veterans of ITT, Mike Finona, 27 years at ITT, an expert in connected design. He's known throughout the industry for his creativity, but more importantly his passion for serving the customer. Paul Alpers, 17 years working at the company in business and technology development. Those 2 individuals, along with 7 others formed this team, and they were given no restrictions, go out and solve customer problems. Their charter, their mission was simple: become a strategic weapon, not just a partner, a strategic weapon of our customers solving their most complex connector challenges. Their work has been amazing. I just want to cover one example today of what they're doing. But I would invite you to come over to the booth later on. We have many examples we can go through. Here, you see a modern-day soldier. He's wearing a tactical radio unit. That unit is waterproofed to about 20 meters. The heart and soul of that unit is a ruggedized cell phone. That's his eyes and ears in today's battlefield. If that unit goes down, he is blind to what is going on in the battlefield. ITT is out working with this customer in Northern California. He's building these radio units. We're doing an RF breakaway connector for this unit that they're building. It's out in the field already. In the U.S. Army calls and says, stop everything you're doing, we have failures in the field, and we need an immediate solution. You can imagine a soldier is out in the field and all of a sudden, his eyes and his ears are gone and he's out in the battlefield. So they turned to ITT, and they said, what can you do to help us? Well, it turned out in this particular radio unit, the soldier was pulling the ruggedized cell phone out of the holster. And in the design of the unit, they never imagined that a soldier would do that. They don't know why you think soldier out in the field, in the midst of a battle, he wants to pull the cell phone out, take a picture, send it back to command. The unit was not designed to be taken out of the holster. Within 48 hours after being notified of this, we delivered 3D models to the customer of a solution that we could bring to them. Three weeks later, they had working prototypes of this solution. And here's the best part. They went to the U.S. Army and they made that proposal to them. And the U.S. Army said, who's designing this connector and they said, ITT. And this is a sweet part of it all. They said, ITT, we know those guys. You're good to go. And the reason they said that was on 80% of the radios that are in the field is ITT content. And we just took that technology and repackaged it and presented it to the customer. This opportunity alone starting in 2026 and beyond is estimated to be $10 million a year. So when you think about that, it was speed, it was technology, -- and then it was brand. It was ITT. ITT you're good to go. Great opportunity for us. Many of them like that, that we're working on. So we have an engineering cycle going on here today that we can talk about. It starts with the customer. The customer is at the center of everything we do. And through meeting with the customer and listening to them, and solving their problems, we see opportunity to develop technology. And then that technology over time can be adopted and it leads to platforms. 53 projects we've finished in the last 2 years through this process. There's 23 more of these programs that are going to be completed this year. We're estimating that 65% of our revenue growth this year will come from these new projects. So I invite you to come over to the booth and you'll see a product called C5 Warrior, it started as an individual custom connector for a customer, and it has evolved into a product line. You can come over to the booth. We'll talk to you about high-temp ceramic connectors that we developed for missile -- hypersonic missile application for one of the prime contractors. We're on the third generation as we speak. Lastly, we can talk to you about a customer interaction on a digital box going into the Joint Strike Fighter as they upgrade their boxes. It started out as one conversation around one connector, one custom connector. It is now 23 connectors, it's 90% of the content of that box. That's what happens when you differentiate yourself through execution and speed and brand recognition. So I can leave you with one thought today, the typical gestation period from developing a connector to volume production is 2 to 4 years. This cycle has basically been going on for 2 years. The revenue streams are just starting to come online. Imagine -- just imagine the amount of revenue flow that will be coming out of this process. This just started because we wanted to focus on the customer and bring speed and be a strategic weapon for what they do. So with that, I'd like to pass it on to the master really of execution in the business. We're just beginning in the connector world. We've been doing it for a couple of years. But the real master of it is Motion Technology. And with that, I'll pass you back to Davide.

Just in case I can read. Right, I'm back again. And let's get some rules straight here and some scores straight. Motion Technologies delivers, but we are far from the masters. We have a lot, a lot still to improve. Let me start to introduce you a little bit on Motion Technology for who is not familiar with our value center. We make -- we design and make safety critical and comfort components. Those components are for friction, they're brake pads. For KONI, they are used in auto. For KONI, we have shock absorber that you see on that side of the stand. So I want to make sure you don't only go to the connector side because they have the nice, nice stand. But those KONI shocks are primarily used on railway and defense. And then we have Axtone energy absorption solution, which are used both in passenger and freight trains. When we look at a brake pad, a brake pad is something that most we don't think about it when we drive a car. It's this big. But the good news for you is it's a safety component. If you don't have it, the car doesn't stop. The good news is that there is two for every rotor. So every wheel has two of those, so you have eight on cars. And if you have them and they work, you also will not feel any noise or any vibration. When you think about KONI shock absorber in railway, you have to think about riding on a train around 200 miles an hour, you want to make sure that those shocks are working to holding and maintaining that train on a track. That's how critical our components are. When you think then on Motion Technology, we are present all around the world with one technology, the same technology, we use the same processes and we use the same operating systems. And as all the other businesses in ITT, and you heard Luca talking about it, in Motion Technology we are local for local. That means we can move at the local speed yet we will leverage our global expertise when it's appropriate. On the middle of those pie chart, you see where geographically we are present everywhere. Europe is really a legacy region where we have our largest market share. In North America and China, we opened our facility a little bit later, so we have more room to grow. And on the far right, there's a pie chart on friction, our OE business which is also growing across all the different type of engines, not only the internal combustion, but also the hybrid and EV. And on the EV, we started to invest and develop on a tailor-made brake pad for electric vehicles when this segment started and it was a priority in China in 2017. All of this is delivering a growth in Motion Technology that is compounded over the years of 6%, while the market is down. While the market is down, we're growing 6%. And as Luca said, we still have opportunity to grow our share and grow our margin in Motion Technology. And now let me share in this a few minutes a little bit on how we differentiate through execution. We will help us to deliver the long-term potential that we have identified for motion technology. These are the seven pillars that really define how we operate in motion technology. And I call your attention on three: premier customer experience, continuous improvement and speed. Let's start with the customer centricity because as Art and as Hamdy said, it all starts from a customer. If there is no customer, there's no business. And on that, I want to share with you something about product launches. A car, on the average, has 20,000 components. 20,000 components. So you can imagine with all the buzz on our new product launch, if you're a carmaker, the only thing you want is a flawless execution. Come to our components, this little lovely components, so small, yet safety, critical is usually the last in the process of designing the system of a car. They design the axle, they design the powertrain, they design the rotor, and at the end, they get to our dear brake pad. What does that mean? It means that you're very close to the actual launch of the car. And usually, there are some hiccups along the way with 20,000 components that need to fit properly. So if you have, for example, a little noise in the car is before you get to launch into the market, they can go to the axle and redo the axle. They can't redo the powertrain. They come to the brake pad. They say, guys, can you fix the entire system. So we actually need to go back and readjust and modify our brake pad to fit the new needs of the issue that need to be resolved because every vehicle that is running on the street has its own specific tailor-made brake pad. Now we move into continuous improvement in speed. But before we go to that, I want to share that these 7 pillars as a stand-alone, they are difficult and they're hard, they're tough to achieve and what makes it really the unlocking power of execution across Motion Technology is our people and our culture. It's really the glue that keeps the all seven together and make us execute day in and day out, month after month. Going back then the continuous improvement, but not continuous improvement like everybody else talks about it. At Motion Technology, we talk about it as unprecedented continuous improvement. And let me give you an example on quality, and you see the top box on the left side. Friction, a few years ago arrived at 1 ppm. PPM is the standard metrics of quality in a factory. It's part to produce per million and how many defects do you have by per million of part produced. So we arrive at 1. It's not much more than we can go beyond 1. So the team decided that fine, we're going to change the metrics. We are the only one in our industry that actually measure quality in PPB. That is how many defects do you have per billion of parts produced. Last year, we closed at 398 PPB. So 398 defect per billion of brake pad produced. We produce a lot of brake pads, but not in that kind of scale. Yet for this year, we could have set a 10%, 20%, maybe 30% improvement target. Our target for this year is 200 PPB. It's more than 50% improvement. Shifting to speed. Typically automotive have a new -- develop a new car have a period of about 18 to 24 months between the time that they design it and then when go into an award. And for our product, this means going back and defining the specs, defining the formula because, again, every vehicle adds its own brake pad, then we're going to develop prototype. We run some dyno test to see this performance is in line with what the customer require. We get those discussions when we finalize that's what they want. We put those prototype on a vehicle. We run the cars in different parts of the world and different terrains to make sure that the performance they require. We industrialize it and then we go into production. That period now in our Motion Technology is 8 to 10 months. But we all move at a different speed and nowadays, it's all about speed and it's all about velocity in different countries of different expectation from a customer perspective. And as it happened last year, a few of our most demanding customers needed to have a brake pad in 3 months. That's from design to SOP, 3 months. Guess what? They call friction. They call ITT friction because they knew they can count on us, and we deliver it. Now what I shared with you in terms of continuous improvement, in terms of speed, it's not just in quality. It's just not -- just in launches. It's on everything we do. Here, you see a metric also on prototype where we shifted from over 7 years prior to that data, we improved 300%. We were down in 2017 at 10 day -- 11 days to get a prototype. And this is where Art, I mean he talks a lot about MT being the masters. But in reality, when you look at is speed prototype in doing in 48 hours, we're still -- we're still far to that. Now we improved that. We were down to 3 days. 3 days, again, it's little room to move. So this year, we said, well, that's it. We don't look at any more in days. We look at in hours. So this is our new target for this year for delivering a prototype to our customers. When you look at Motion Technology performance that because of this execution and the way we wake up every day making today better than yesterday for a better tomorrow. We have been able to differentiate. Here you see on these 2 charts, it started from 2017. For who's not aware, 2017 was the peak of production volume for cars. From 2017 to today, the market is down 6%. In those years, Motion Technology outpaced and outperformed the market every single year. 2024, we were up 39% in a market that is down 6%. And I can confidently tell you that this growth and this outperformance will continue. Why? Because today, we have already the visibility of what we will be producing for the next few years because of the project, a new platform that we have been already awarded in the recent years that will go into production in the coming from an SOP perspective. So the outperformance will continue. To wrap up, our unprecedented drive to continuous improved depth and granularity in everything we do enable us to differentiate through the execution. And it's really, by the way, our people set those super stretch target of 200 PPB, knowing that every month, you go to ITT and you do your monthly performance review, you are red, and you're going to be red for the entire year. But at the end, you will come more solid and with the breakthrough that will enable us to continue to differentiate from our customers and be their partner of choice. This brings us to the end, not only of the section of Motion technology, but all the pillar of differentiation through execution. Listening to Hamdy and their fantastic performance on Saudi and the performance that IT is having as well as Art with the speed prototyping and the cycle of engineering, how they've been able to gain market share and differentiate really in execution to their customer, and a little bit of our approach in Motion Technology and in friction, I hope you have a better -- that you gained a better understanding as an insider of how we execute across all our businesses in ITT in order to be able to be the reference for our customers. And this is what will feed the 5% organic growth, long-term target that Luca shared with us earlier. Thank you very much. And now I call in Art, Hamdy and Mark to help us out through the Q&A section. Thank you.

All right. To open it up for Q&A. We'll start with -- wait for the mic, Scott Davis of Melius Research.

I can't help but to ask this question. Luca put up this chart of the underperforming factories, and presumably, you guys run some of those. What are the common characteristics of those underperforming factories? And how do you think you can turn them around?

Maybe we can start with Hamdy and Art? Maybe 45 seconds on each?

Okay. I think the first thing that we need to focus on was underperforming factories to understand the reasons for underperformance. If it's a supply chain issue or if it's resources issue. If it's a customer demand is sometimes more aggressive than how the supply chain is reacting quickly to bring the parts that we need. So getting to the root cause from one facility to another, from one operation to another, it can be a different recipe to correct that. And this is what we're looking at. So if we have an underperforming factory, we do the root cause analysis, we assess where the bottlenecks are, and then we'll start tackling these bottlenecks. It's a continuous improvement process but it always goes back to fixing the basics, the SQDC that we spoke about earlier. And one big factor that maybe I didn't touch in my presentation is the supply chain management. You have to make sure that we have enough I would say, diversity and redundancy in the supply chain that enables us to bring the parts that we need in time to be able to satisfy the customer requirement. I hope I answered your question.

I know Luca is dying to chime in on this one. Anything else to add from the group?

No, I think, Hamdy, said it right. It's just SQDC. Some plants exercise very well, others need to continue to improve in that area.

What I would add from a Motion Technology perspective, and also what I see across the IT -- the ITT business in Asia Pacific, there is 2 pieces that I think are also important in addition to what Hamdy and Art shared. Number one is culture, and you start from the leadership. I think it's about having the right leaders that really spend time, quality time on their factories, work with the people and get them engaged because at the end, the person that is working on a specific position or in the supply chain in an office is the one that knows their role better than anybody else. And it's up to us to be able to engage them in a way where they feel okay and open to highlight where there are issues, opportunity, pilot them and if it doesn't work, try something else.

We're going to go to Joe Giordano at TD Cowen.

Just to follow up on that, like -- and you kind of were touching on it, but how far down the line like is the visibility, if you're at one of these facilities that is underachieving relative to target? Like what's the incentive structure all the way down the chain to like the people on there to fix that? And how much are they even aware that there is a problem? And maybe if you can talk a bit about where you are, respectively, on like your deployment of automation and robotics into the process?

Okay. Hamdy, you want to start?

Sure. I have two hats trying to figure out which one -- why I get a part time -- which one is the part-time job of the two. So when I look at Motion Technology, we're more on the upper side of those margins. And to your point, all our facility have an incentive mechanism where we pay for performance. And it's about being fair and recognizing when that exceptional performance is being done, is being delivered and is being recognized. So we also have an incentive performance to motivate our people to give idea, to share ideas. So that is a wheel that is turned. I also have in Asia Pacific, maybe some side that are on the left side. And again, I think a lot of it is people know when they're working on a site that is not doing as well. But I also believe that people all come to work to do their best. And I think it's about us just instilling the right drives, the right desire to make today better than yesterday and building tomorrow. I'm really -- merely a firm believer into culture, and it starts from me, it starts from us as a leader, to walk the shop, to leaving the shop, to spend a lot of time to work with them. We have sites where we not only the -- maybe they are performing from an operating margin, and maybe they're not as clean as we like to do. So now actually our leader clean the factories as well. I think it's showing this -- making this all our colleague proud for where they work and what they do that then will stimulate them to get more ideas and then incentivize and investing on their knowledge by doing also training and courses on lean, on gemba walks and make them part of the process. I hope I answered the question.

When it comes to incentive, Joe, it gets cascaded down completely to the level of the site. So each site is incentivized on some numbers, which may be their value center or the region. And -- but the biggest percentage is actually on the site performance. And then what you do have, just to reinforce the message that Hamdy and Art were saying about the SQDC, the financial metrics that push the incentive, then get multiply or de-multiplied based on an SQDC multiplier that can be more than one or less than one just to reinforce the fundamentals of the business.

Okay. Next question. Brad Hewitt from Wolfe Research.

Great. So maybe a question for Hamdy. I guess, you spoke a lot about the factors driving the growth in Saudi and IP. I guess curious, any particular learnings from Saudi and you're in the process of applying to other regions and kind of how you think about that and the impact of that?

Actually, there are several. Thank you for the question. There are several lessons learned and good implementations that we got from Saudi, and we are actually actively implementing it in different places. The gemba board, we're doing it everywhere. But the granularity that the Saudi team is doing it, that's really -- it's very effective, and it helped them to manage the business properly. And the way they have done it is they adopted the gemba board. They changed that. They transformed it to fit their own specific business. So it's not the standard gemba is being used everywhere else. And that worked for them. So we're doing the same concept, the same idea, and we're implementing everywhere else. This is one point. So having the visual management, having the gemba boards to have visibility about your production on a daily basis, on a weekly basis, on a monthly basis and always when we plan, we have a 6-month look at. We don't plan for this month how much we're going to ship this month. We look 6 months look ahead -- have 6 months look ahead. So this is one of the key lessons learned that we have from Saudi and implementing everywhere else. The other one is project management. Again, the granularity of the project management that we have in Saudi, we're also implementing it everywhere else. The way they manage change orders, this was really impressive because you can generate a lot of orders, a lot of business and a lot of profitability from change orders that the Saudi team is a very good at because they're very good negotiators. And on other facilities, they were not very -- they did not really see the concept of it initially, but we have been implementing this across the board. Just when a customer come back with a request to say, I want this to be added. A lot of our engineering team, they are not very commercially savvy and say, oh, the customer wants this, it makes sense from a technical perspective. Let's change the drawings and give it to them. They do not realize this has an additional cost, additional lead time that we need to ask for rightfully from the customer. So this is what we have been doing, training our engineers on commercial training, training on margin, let them understand basic financials, what does it mean? Because an engineer usually is an engineer and he only focused how to make the product the best or perfect. So this is, again, another lesson learned that we are implementing across the board, and we're extending the commercial training and even incentivizing the engineers, not only the project management. If you get a change order, you get an incentive, you get a bonus of the value of the change order and the profitability of the change order, you get a specific bonus that you get paid at the end of the year. Initially, we start with those project managers only. But then we realize the engineer is the one who can first identify there is a change in the scope or not, and they should raise it to the project manager. And together, they need to convince the customer that this is an additional value to what you ordered before and would like to get paid for it. And most of our customers, because they trust us, they respectively understand the logic, we always get the change orders successfully. So this is yet another KPI that we added into the project management team into the engineering team, and it has paid off, and we're seeing a lot more change in orders coming. The last thing is the daily planning that I mentioned. We used to plan on a monthly basis. Now we do the planning on a daily basis. We meet with the team on a regular basis every day in the morning. What did we achieve yesterday? What did we ship, what we didn't ship, which project went on properly, which project is not going and what do we need to do, what's the mitigation plan? If we do this in the front, upfront, we don't wait until the last minute before the project is ready to ship in a few weeks, we were able to mitigate it, fix the problem soon enough to be able to get stuff out of the door in time and according to budget. I hope I answered the question.

If I may build on what Hamdy is saying, is that there are two areas where you -- the way that we are expanding -- and cross-fertilizing. One is, of course, is you extend the processes, right? And so that you ensure that also in Seneca for us or here in the U.S., we are using the same processes that we're using there in the project management. And the second is from a cultural point of view, is in feeding the people. And Hamdy is the perfect example. Hamdy went to run Saudi, turn it around, then run Europe and now is over here in the U.S. and is running good pumps on a worldwide basis. He is not the only one because you take the best people, the best project manager and you grow them and then you put them in some of those sites to turn them around because you know that not only they have the tools, but they have the culture that mindset it allows also to turn it around. And he's one example of many.

Okay. All right. We've time for one last quick one. Andrew Obin with Bank of America in the front row.

Just a question on connectors. Why not be more aggressive strategically in growing portfolio? You're sticking with aerospace and defense, but you have a competitor, Connecticut-based build to connector business, a $100 billion market cap company. Clearly, you guys have done a lot of things right. But why wouldn't connectors be just a bigger area of focus for ITT to go beyond the verticals that you're already in?

Well, it's really not. It's -- we've been focusing our energy over the last 2 years as we were developing our product development team but we're actually working right now. We'll be presenting to the Board at the next board meeting, our whole T&I strategy and how we're going to be refreshing our transportation and industrial product set. So it's not like we're not there. It's not like we're not trying to grow that business. It's just we have been focusing on the mil/aerospace first, and now we're actually -- this time around, we're actually presenting our transportation industrial strategy.

One thing I can add, Andrew, as well is that we need to realize what we are really good at, right? So if we're talking about a standard connector, something that big volume, super standard. This is not necessarily where we can really differentiate ourselves and we can win against much larger competitor of ours. But if you're talking about customization, if you're talking about differentiate through the execution, that speed that Art was talking about and then the innovation, this is where really we can win. And therefore, that's the focus mainly is on those programs where you can really deliver a lot of value to the customer that -- and this is one of our strengths. That's the reason of the focus.

Great. I'm going to try and keep us on time. We will clear the stage. Before I do, please join me in giving a round applause to these gentlemen as we move to the next section.

All right. Thank you, everyone. We're now going to move to the next section on differentiation through innovation. And with that, it's my pleasure to introduce Luca Martinotto, who's a Friction, General Manager.

Thank you, Mark, and good afternoon, everybody. My name is Luca Martinotto. I'm the General Manager of Friction Technologies. In ITT since 15 years in the role in the last 4 years. I'm really glad today to be here to introduce the innovation section because I was born in R&D and still well R&D is in my blood. Today, together with my colleagues, Dan and Mike, we will like to introduce you with some real examples on how we are differentiating through innovation in ITT. And I hope that after hearing about these examples, it will be easier for you to understand what innovation means for us in ITT. It's a passion to solve our customer issues and turn every challenge into an opportunity. It's the obsession we have to combine innovation in product and process always not to keep them separate. And it's the excitement to deliver to the world game-changing solutions, as you will be hearing in these examples. So whether it's a micro connector in a drone, a wider motor in an industrial plant or a brake pad in a car, this is innovation in ITT. So let me start from a couple of examples on how we are still differentiating through innovation in Friction Technologies. And the first one is about process innovation. And how, thanks to innovation in manufacturing, we are entering a sector where we are not today, the high-performance car segment. The second one is about material science, innovation, always product and process. And this is opening the door for us to a real breakthrough in our sector, what we call the Geo-pad. So let me move to the first example. High performance is a niche but growing and profitable market segment where we have never been playing so far despite we are in Europe, in particular, the market leader. Why this? Those who have the chance to visit our plants and I've met before Damian and Joe, had the opportunity to see our one-piece flow straight production lines, super optimized to produce millions of brake pad with high efficiency. This is our DNA, our strength. And if you look at the Porsche GT3 on the screen, this is not exactly a high-volume application. So Porsche, Ferrari, Lamborghini are, of course, very low-volume application that does not fit with our current production. Clearly, our vehicle test driver would have loved to work for years with these kind of cars. But totally opposite for our plant managers. Think about our plant in Italy, Barge is the biggest plant in the world to produce brake pads, 100 million brake pads a year. Think about asking the manager of this plant to have every while to produce a few thousand pieces for Ferrari or a Lamborghini. So this is the reason why we never addressed this market. But a couple of years ago, we decided to approach it. But again, in the ITT way, differentiating ourselves. So we ask ourselves, how can we -- is it the possibility to produce low volumes, high mix with the same output of the efficiency we have today in our high volumes plant? And the answer is, yes. And by the way, we did it. Our engineers developed a set of features and enabling technologies to make it possible. And I will give you a couple of examples. I mentioned the one-piece flow we have in our factories, several machines connected by conveyor belts, fantastic to produce 4 million, 5 million brake pads a year. If we have to make continuous change over, this is not working very well. So we decided to still maintain our strength of the one-piece flow but without physical connection among the machine. So no more physical connection or conveyors. All pieces are moved around by our plant by autonomous guided vehicles. The one you see on the screen behind me. In this way, we can maximize the flexibility in our plant and the machine utilization because every machine can be used if it's free. Another thing that we ask our engineers to work on where some smarts add-on to our standard machine. For example, quick changeovers. So due to the fact that this production of high performance are required frequent changeover to be quick, such as in Formula 1 when they changed tires. So to speed up and reduce to lose efficiency. And last but not least, we decided to have here in this new plant, an unprecedented level of data-driven production scheduling and optimization. There is a brain there optimizing on how the machine are working and how the AGV are distributing our part. So which is finally the results, the overall results. The result is that ITT today has a new and unique manufacturing concept for low volumes, highly customized products, the high performance one. With double efficiency industry standards, maximize machine utilization and unprecedented level of automation with very reduced manpower there. So finally, we were in the position to approach the high-performance market, not only with the good product we always had and the good service we have always said, but also with this dedicated production setup. And then as we like to do in ITT, we combine innovation with execution. We decided to implement this new manufacturing concept in a dedicated facility and expansion of our thermal plant in Italy. Remarkably, 15 months from the first tone to the operational facility with the flawless start of production in Q1 this year. So the plant is now running. By the way, it's running with almost 100% of green electricity because of the solar lake panel that we installed there. So in less than 2 years, and I repeat less than 2 years, starting from 0% market share and no plant and this to give you an idea of the trust our customers have on us, we have been now able to achieve already a 5% market share and the funder of opportunities in our hands, targeting 30% market share in the next 5 years. So this is a unique plant at the technological frontier of our sector. You will not be able to find something similar in our sector today. We have to find out of the brake industry and the friction industry. This was the first example. Let's move to the second one. And the second one is about material science, again, process and product. We have many examples of how we have been differentiating in Friction Technologies through material size. Think about copper-free materials that allowed us to enter and hugely increase our market share in North America some years ago, or the more recent product portfolio for hybrid and electric vehicles for which we are still improving our position in almost all regions. But today, I'm glad, really glad to be able to share with you our latest innovation in this field that is a real game changer. And I can tell you for an R&D guy or a former R&D guy as I am, there is nothing more exciting than thinking that what we are doing can really change a sector -- an entire sector or an entire industry. And this is the case of our -- what we call our Geo-pad. With the Geo-pad, we are attacking the core of our product, the binder, the glue that keeps together all other the ingredients and components of our product. Since more than one century, the whole Friction industry has been using an organic binder in all products. We are using and everybody else is still using that. So for the first time, after one century, we are going to replace this organic binder with an inorganic green binder. This inorganic binder, we call the Geopolymer has been studied, of course, through several years of studies in our laboratories, in our headquarter. And the result is simply amazing because this product is not only greener, so with reduced ecological impact, but there's also superior performances compared to the ones we are using today. 50% of our new product will be made with this geopolymer that will be fully produced in-house. While today, we are buying raw materials and combining them So 50% of our product will be in full control of ITT and fully patented. And thanks to that, we will also be able to reduce 30% of other ingredients that we have today in our products, so streamlining our supply base. But even more remarkable than that, an entire step of our current manufacturing process. When we put our pads in ovens for thermal treatment will be eliminated because no more needed. And so this is, for us, amazing because we have plenty of ovens in our factories and this will bring us to have a huge streamline of our manufacturing process, a reduction in CapEx, a reduction in energy. So performances, green proposition and streamline of process and supply base. So we are clearly excited about this product. And where are we with this project? We completed the full product validation according to the industry standard with positive results. The first line to be able to produce in-house the geopolymer will be installed in Italy in the next couple of months. And of course, we have also a full coverage in terms of IP of patents of this new technology application in our sector. A few words about our approach to the market. Since the last 2 years, we have been running a pilot project in aftermarket in China, hundreds of vehicles running for 2 years to collect information. Lastly, with positive feedback. And due to that, we are now approaching the OEM market, our customers. So we have already approached 2 OEM customers in Europe with positive feedback, and we are confident to be able to release pilot project in Europe in original equipment by the end of this year. So to close, since the brake pad was invented one century ago, an organic binder was there. every single pad out there is today with an organic binder. And this will no more be the case in the future. We are reinventing the way our product is designed and the way our product is manufactured. So this is innovation in ITT. And with this, I leave it to Dan with another exciting game changer.

All right. Good afternoon, everybody. My name is Dan Kernan. I am the General Manager of VIDAR. I have 20-plus years at ITT and really specifically in the flow industry. Although I'm here as in a general manager capacity, I would say my background and at my core is engineering, right? And in those 20 years, and in those engineering capacity, I have nearly 20 patents in the flow industry. But I will say that VIDAR is by far, the most exciting thing that I've worked on here at ITT and in my career. And for sure, I'm going to give Luca a run for his money on the Geo-pad to make it the most exciting innovation at ITT. So what VIDAR is? VIDAR is a new type of motor. It's a game-changing motor, specifically designed to go after industrial pumps and fans. I'm so excited about VIDAR because where it came from. It came from listening to customers. It came from solving a problem that spans across all industries in our space. And it's underpinned by some very innovative technology, which we have over a dozen patents on. So before I actually get into what makes VIDAR special, I want to take a step back and kind of look at the current state of the flow industry and what's the problem we're trying to solve. And it really starts with your daily life, the modern conveniences that we enjoy, right? The tap water we turn on, the chemicals that clean that water, the gas we put in our car, the cardboard boxes that are all sitting on our ports right now piling up. Those are all made from transporting, mixing, pressurizing, heating and cooling fluids with pumps and fans. And to that point, just industrial pumps and fans consume $300 billion of electricity annually. That's about 10% of all electricity. It is a big number. And through our 170-plus years of experience with ITT and brands like Goulds Pumps, they're analyzing hundreds of pump systems. We estimate that 30 to 60 of that -- of $30 billion to $60 billion of that is wasted. So why is that? If you look at how pumps and fans are controlled today, about 85% of them are operated with an outdated fixed speed motor. Now I'm not suggesting customers are buying outdated motors or their motors today are outdated, but the technology has been around for about 100 years. And they have one inherent flaw. They go one speed. They go 100% speed. And when we're making products, we need to be able to control that flow. So if I've got a motor go on one speed, which means my pumps going on speed, I need a method to control that. And the typical way we do that is with mechanical controls. We take a control valve for a pump or a dampener for a fan, and we pinch it back or we throttle it back. The analogy I like to use is a lot like driving a standard car with 2 feet, right? Imagine pressing the gas pedal all the way to the floor, ringing that engine up to a maximum speed and then using the brake to control your car. It would be silly. We wouldn't do it. It waste gas, certainly put a lot of wear and tear. But yet, that's how we primarily control industrial pumps and fans today. Now the industry came up with a solution to this. They came up with something called the variable speed drive. Variable speed drive connects to the motor, allows us to vary the speed of the motor, allows us to take our foot off the brake, regulate the speed, much more efficient. Anywhere from 30% to 70% more efficient to do it this way. But yet, if you see up there, only about 15% of industrial pumps and fans are operated with variable speed. And the reason for this is VSDs today are very big and bulky. They require a lot of space. A typical VSD for an industrial pump is about the size of a mini fridge to a fridge. You need one VSD for every motor you want to run variable speed. So if you have a plant with hundreds or thousands of pumps or fans and you want to make a significant impact on upgrading your equipment, you would probably have to build a whole new clean electrical room. Because these VSDs can't just be put by the pump. They are -- they have sensitive electronics. They have to actually be protected and go into a separate space, hundreds, if not thousands of feet away from the pump. All this complexity has led to only this 15% adoption. So this is where VIDAR was born. This was the frustration we saw with the customers. This is what we wanted to solve for them. And so on paper, VIDAR is a pretty simple concept. We're going to take a VSD, we're going to take an industrial motor, we're going to put them together. And we're going to make a variable speed motor. We're going to make a motor with embedded variable speed intelligence. The challenge that we face though is we couldn't just bundle existing VSD technology. It was just too big. If you come over to our Expo, we have one to just give you an example of the size of this. So we had to work with some of the brightest minds, universities, and we came up with our patented AC Link technology, which shrunk the VSD down by about 60%. This now allowed us to embed it into the motor into a single compact solution. So now if the customer wants to upgrade their pumps or fans to variable speed and enjoy that 30% to 70% energy, they take out the existing motor and they drop VIDAR in. And we're going to do that at 30% to 50% less total installed cost than the traditional way to doing that with the VSD. So let me show you a simple case study how this works. This is grain processing in Cedar Rapids, Iowa. he replaced the fixed speed motor with VIDAR. In case you're wondering, the green and gray, the s*** logo motor, that's VIDAR. Opened up the control valve, the results were immediate, over 50% energy savings by swapping out motors, slowing it down. That 50%, this is a 75-horsepower, was enough energy to power 30 homes. One pump. That's how much energy. It's going to save this customer approximately or nearly $20,000 a year just in energy, and that doesn't include all the reliability, the less wear and tear on the equipment. And they're going to pay for this VIDAR motor replacement in under 2 years. So that's kind of, I would say, more of the financial angle. There's other benefits. If we don't consume the power, we don't generate CO2. So there's CO2 savings. But what we found in the market also is it's less about the, I would say, the sustainability, and it's more about how it impacts the plan. When we talk to our customers, things like better reliability, better process control, reduce noise pollution, these are actually what interest our customers in our the value that VIDAR can bring beyond just energy savings. And we didn't just do it in one place. We did it across all the key markets, in chemical, in pulp and paper, general industry, municipal water, oil and gas. And we didn't just put it on ITT pumps. We can put this certainly on our pumps. We put it on non-ITT pumps. We put it on fans. So this isn't just a product for the ITT portfolio. It crosses all types of equipment. And from a go-to-market strategy, we can go as an aftermarket upgrade with VIDAR and we can also package this with new equipment. And that leads us to the opportunity. So we feel or we estimate that VIDAR has an addressable market of about $6 billion with a motor with embedded variable speed intelligence specifically designed and certified for industrial environments that nobody else has in the market. We launched this product in March. We've begun accepting preorders. We start shipping in July. Our goal in 5 years is to have it be a $150 million business. And long term, we believe we can capture 10% of that addressable market. So I just want to conclude on talking about the theme, and I really think VIDAR, this is innovation at its best. This is how we -- this is how ITT differentiates with innovation. So I want to say thank you. And I want to say, come see VIDAR for yourself in the tech demo, and we'll be happy to answer your questions. And with that, I want to pass it off to Michael Guhde to talk about defense connectors.

Wow, that is a great example of differentiation through innovation. And I'm really excited to see what's going to happen here in the future and to see that you give them a run. But I think we have some things inside the connector business that we want to talk about to maybe put our mark on ITT for the future. My name is Michael Guhde, and I'm the President of CCT, and I'm excited to share how our connector business is differentiating by creating innovative solutions through the strong execution that Art talked about as well as game-changing technology. As we partner with our key players in the military and aerospace markets, we hear about the challenges that they're trusting ITT to help them conquer. And because of that, we're focused in four key areas with our product development. One, speed. Data and bandwidth requirements are ever increasing with the expectation to reliably provide up-to-the-minute information to the pilot, the sailor, the soldier, driving the need for this increased speed. Power, the expansion of electrification as well as the increased computing requirements in today's power-hungry platforms, create the need for connectors that are capable of delivering the amount of power that a modern Formula 1 car produces. Think about that up to 800-horsepower being passed through one connector. Density, our customers need all this power and data packaged in spaces that are ever smaller and lighter as on our -- or excuse me, unmanned vehicles, electrification take place, and they're looking for time in theater as well as reducing load on soldier in terms of the gear that they're carrying, requiring that they be sometimes less than half the size of today's legacy solutions. Temperature, the expansion in the space and hypersonics mean that ITT connectors have to operate in environments that would melt aluminum. So I want to share with you an example of a defense prime who partnered with ITT to develop their new transponder. This customer set out with the goal of reducing the size of this device by up to 70%, moving from something that was roughly the size of a shoebox into something that was more the size of a paperback book, requiring us to move from a connector that historically would have been about the size of a coke can to something that's less than the size of a penny. ITT's engineers responded with the speed that sets us apart and delivered concept within a week and working prototype hardware within 6 months, enabling the customer to successfully meet their targets. So here's how we did it. C5 Warrior is ITT's new compact platform capable of up to 5x the number of connections in a format that is roughly the diameter of your pinky. This new platform moves from simple radio signals to high-definition TV signals and battlefield data to and from the soldier. So how big of a challenge is this? I want to give you a real-life example. How many of you have gone and plugged in a USB cord and had to do it 3 or 4 times, even though there's only 2 possibilities, right? Now imagine doing that, connecting all of the things in your office, with one connector and having to do it in the rain, having to do it in the dark, having to do it while you're tired and God forbid having to do it while you're being shot at and it has to work. Platforms like C5 Warrior and our innovative Cu-Light Series, which captures the speed and bandwidth of fiber optic and converts to reliable electrical signals in a compact lightweight platform are driving growth in our connector business with new products representing 16% of our orders in 2024 and a new growth -- or new product growth rate that's exceeding 25%. And I would welcome you to come and visit our booth and see some of these exciting technology development like C5 Warrior and Cu-Light as well as VIDAR and the Geo-pad during the tech displays during the breaks. Luca, Dan and I have shared a few examples of ITT differentiating through innovation with intense customer centricity. Like Luca described where ITT friction acts as an extension of the OEM to meet performance needs, linking process and product together through the optimizations of materials and manufacturing. And ITT is delivering game-changing technology like VIDAR with its integrated speed and control capabilities or the C5 Warrior platform solving the needs of our customers. All of these solutions are performing under pressure delivering highly reliable results where performance matters. Now I welcome Luca and Dan back to the stage for Q&A around differentiation through innovation.

Okay. We'll open it up to our second Q&A session. Let's start with Jeff Hammond of KeyBanc. Alex, if you could pass to him.

My question is on the Geo-pad. I think the other examples were a little clearer in terms of the revenue opportunity and I guess I'm just trying to understand like is the customer asking for it? Is there -- is it just a more profitable and superior product? Just maybe the end game in terms of like the revenue growth opportunity?

Okay. Thanks for the question. I think it's a great question, and your -- let's say, your doubt is true because at the end, the beauty of this product is we have several possibilities in terms of value proposition. And now this is what we are discussing internally because there are regions where the green value proposition is probably more interesting today, maybe Europe, maybe China, there are regions where there are some performance characteristics because this product has some performance characteristics that making, for example, particularly suitable for electric vehicle. And this is where probably China is more interested than other regions. So we are really thinking about the value that this product might have for our customer and try to understand how to position it in the -- with the first customer in -- by region also. Of course, there are then the advantages of streamlining our process and reducing our internal costs that are something that will -- for which we will benefit.

Next question go to Sabrina Abrams of Bank of America.

Thank you. I guess I can ask this question for all of you, but just all of these innovations sound like they're going to save your customers either money or efficiency or drive efficiency, like very cutting-edge innovation. And I guess, what's like the pushback? And what's sort of would drive a slower pace of adoption? I guess, how are those conversations going with your customers? What does that sort of timeline look like for ramping and getting them on board.

Let's start with Dan?

Yes, sure. It's a fair question, particularly in the industrial space, it is definitely more of a conservative market for adopting new technology. And we will certainly have to prove the reliability and robustness. And so our strategy, particularly in the beginning, is to plant as much, call it, corn seed as possible or seed and really get it as in many plants as possible because we know that it's going to take a year to -- for them to trust the product, trust the reliability before we start to see that ramp up.

Luca?

Yes, I mean that's something -- we are -- the brake pads are safety critical component. So when in particular, we are talking about breakthrough game-changing is understandable from our customer side, a kind of prudency and so not willingness to be 100% sure. So we are expecting not an introduction that is disrupting introduction, but more of some pilot projects that will prove that this is okay. On the other side, the beauty of working on critical components is that their value.

Okay. Let's go to Damian Karas, UBS.

Dan, I wanted to ask you about VIDAR. You mentioned you've already gotten some preorders. In your conversations with customers, what's kind of the I guess, initial hesitation or be pushback, if you will, that you're maybe hearing in these early conversations? And I'd also be curious to hear kind of what this variable speed motor means for the aftermarket and replacement cycle over time.

Yes. Okay. So I think in the beginning, it is all about reliability. And we have to -- we divide our product through our testing, through our design. We have to earn their trust. So that's probably the biggest pushback is how long will this last? Will it last in these environments? These are nasty environments. And so the pushback with what is -- I'm not going to put 100 of these in my plan to start, right? Let's start with a couple, maybe we add from there. And so kind of what we talked about before, I think you're going to see that slow ramp in the beginning before we hit that critical key point. And then -- I'm sorry, what was the second question?

Speed motor means for the aftermarket and replacement cycle over time.

And the replacement cycle. So there is certainly motors and pumps have a replacement cycle. And you could argue, well, let's say, the motor, the fixed fee motor fails, that's our opportunity to sell VIDAR. But we're actually trying to pull that forward because there is attractive payback. And there's other pain points, too. It's not just about energy. A lot of the preorders that we've had or the pilots we've done, they're usually fixing a pain point or on the reliability on the process side and less about energy.

And Luca, if I could just ask a follow-up on the geopolymer binding agent. Are you able to give us a rough sense on removing this furnace kind of heating aspect of the production line, like how much cost is that removing? How much more profitable could you be on an existing OE platform that you're already on? And I'm sure your peers are also keeping a very close eye on this. Just curious like how long do you think it might take for one of them to kind of come up with a comparable inorganic solution?

So starting from the end, we are -- we kept a lot of attention on the patent coverage. So I mentioned patent coverage because it's really a patent -- it's not -- we have a patent. We are covering all possibilities. We think we have at least for someone to do exactly what we are doing, then there are maybe other possibility from the chemistry. So this is what we are doing. I'm not sure about the cost and working at the mark, but there are two -- there is direct benefit that is the direct -- of course, the CapEx we are saving because of the cost of this equipment in our facilities. But there is something that, in my opinion, is equally important because it's how this will improve the logistics in our plans because we have three major steps in our plan. So pressing ovens, say, thermal treatment and finishing. If you remove one -- this one in the middle will create really -- so the guys that are more excited in our company are the guys taking care of the logistics. This is -- so this is not quantified is -- so easy to quantify as the cost of an oven, but is as important as it is even more.

Okay, we're going to Mike Halloran, Baird, all the way in the back.

So two questions here. First question, just on the VIDAR side of things. How much is this like-for-like from a footprint perspective? Is that a component that matters here? And then secondarily, internally, are you replacing, who are you replacing or displacing and how much of the opportunity is just to embed this on your existing pump portfolio?

Sure. So dimensionally, yes, the idea is, make it easy. So this is dimensionally equivalent to your motor you buy today. It is a few inches longer. But in the space, what really matters is that where you bolt it and where the shaft lines up, those are the critical dimensions. So it's -- in that regard, it's a complete drop in, and that's what makes it easy. In terms of replacing who are out there? Yes, these are -- you're talking the major industrial motor manufacturers. We are -- in North America, the leader would be ABB and WEG, those type of motors. And then from our portfolio, yes, we can absolutely package this with new pumps, and we plan to. And there are things that we can do with our portfolio as well, to optimize the portfolio to give us an advantage, knowing that we're not restricted to one speed anymore, knowing that we can operate variable speed.

A higher levered generic question. What's the threshold for you all from an innovation perspective at this point? As you scale, I'm assuming the revenue size has to be bigger to accommodate the portfolio. But how do you think about what the investment threshold is internally to put capital dollars towards these and move forward and launch in a generic sense?

Okay. Mike, do you want to take that?

Sure. I'll take a stab at it. I think as we think about product development, we think about it in several different states. The products that I was describing the C5 Warrior really has evolved into a platform where we've got multiple product lines, and we're really thinking about something that can blanket very -- excuse me, many markets and there's -- the threshold becomes a little bit higher there, and our expectations are higher from that perspective. And I think we shared some of the revenue numbers on the material previously. We've been expanding from an R&D standpoint pretty aggressively within the CCT business to really capture these trends. And probably the largest single investment is in the brain power that we need in order to be successful. And that's been where we've been spending the money in order to get the maximum return. I think as we build these building blocks, it gives us the flexibility to create customization that we can then go in and solve very specific problems using building off of those platforms. So once we have these sort of big umbrella platforms, it gives us the ability to go in, be very targeted, very specific and very sticky.

Okay. Okay. We're going to go Vlad Bystricky with Citi.

Maybe just going back to the high-performance brake pad market. Can you talk a little about how you're thinking about the market size in dollar terms? And then visibility to the 30% share that you're targeting in '25? Is that based on what you're bidding on platforms you've already won? Just how should we think about achievability of that goal?

So the addressable market has been measured -- giving with some, let's say, we define the perimeter with the horsepower of a car, which is the perimeter that we were interested to attack. So this was defined as this 12 million brake pads a year. So the 30% refers to this, of course. It's based on a funnel of opportunities that we have already in our radar. It's not something we have already won to be clear. But based on what we have already won compared to the funnel we had so far, we are projecting a similar win rate for the funnel for which we have the visibility. I don't know if I replied to your question.

Okay. We have time for one more. If there's any final questions for this session. I can't see who it is, but way in the back. Kayla, if you can give him the microphone. If you wouldn't mind just name and firm would help?

Sure. Mustafa Okur from Bloomberg Intelligence. Maybe bring a Porsche GT3 RS next time for a tech demo that would gather a lot of interest. One for Luca first. I'm wondering if there are any learnings be it material science or maybe the AGVs that you're deploying to take those learnings and apply them in the high-volume brake pad factories as well? And a follow-up for Dan. VIDAR looks like a great product. You seem to have some patterns around it. Is there any risk of cannibalizing your valve products maybe? If you could give any color on that?

Thank you for the question. No, in particular, I think if we think about high performance and what we are doing there, and this is my R&D part, that is not a lie. This is something we have discussed with Luca and Emmanuel because it's something that, in my opinion, will be very interesting to have because it's not only addressing and it's connected also to the payback you want. It's a sector that can have a quick payback of what we are doing. But on the other side, the technology level where we are, that is really not usual in our sector is something for what I'm sure our conventional production will be benefiting in the next years. So it's an open laboratory, if you want, a pilot that is as a payback by these zones. So that's good.