ITT, Inc. Aktie

Welcome to ITT's 2026 First Quarter Conference Call. Today is Wednesday, May 6, 2026. Today's call is being recorded and will be available for replay beginning at 12:00 p.m. Eastern Time. [Operator Instructions]. It is now my pleasure to turn the call over to Carleen Salvage, Vice President, Investor Relations and FP&A. You may begin.

Thank you, Kathy, and good morning. Joining me in Stanford today are Luca Savi, ITT's Chief Executive Officer and President; and Emmanuel Caprais, Chief Financial Officer. Today's call will cover ITT's financial results for the 3-month period ended April 4, 2026, which we announced this morning.

Please refer to Slide 2 of the presentation available on our website, where we note that today's comments will include forward-looking statements that are based on our current expectations. Actual results may differ materially due to several risks and uncertainties and including those described in our 2025 annual report on Form 10-K and other recent SEC filings, except where otherwise noted, the first quarter results we present this morning will be compared to the first quarter of 2025 and include certain non-GAAP financial measures.

The reconciliation of such measures to the most comparable GAAP figures are detailed in our press release and in the appendix of our presentation, both of which are available on our website. As previously communicated during our fourth quarter 2025 earnings call, going forward, ITT will include intangible amortization expenses related to acquisitions as a separate line item within the consolidated statement of operations and in its adjustments to earnings.

In 2025, the impact of this reporting change on earnings per share was $0.13 in Q1 and $0.47 for the full year. All adjusted EPS figures presented going forward will be on this basis. A full reconciliation of the impact of the revision to adjusted operating income and margin, income from continuing operations and EPS for each quarter in 2025 and the full year can be found in the supplemental materials at the end of our presentation available on our website.

With that, it is now my pleasure to turn the call over to Luca, who will begin on Slide 3.

Thank you, Carleen, and good morning. Before I begin, I want to recognize our employees across ITT for delivering a very strong start to the year. In particular, our Middle East teams who delivered despite the ongoing conflict the supply chain disruptions and the challenges this has represented to their professional and personal lives. Thank you.

In Q1, we demonstrated solid momentum across the portfolio, thanks to the disciplined execution and the tangible benefits of our M&A strategy. We delivered outstanding orders growth above market revenue expansion and robust earnings exemplified our 25% EPS growth in the quarter. We are truly pumped up.

Here are some highlights. We grew orders 26% at 8% organically. We grew revenue 33% and 11% organically. We expanded margin by 130 basis points and we delivered 25% adjusted EPS growth. I'm also encouraged by SPX FLOW's strong start. In month 1, we already produced net earnings cash accretion and promising top line growth. This is all included in our newly formed Flow Technologies segment that now combines industrial process and SPX FLOW.

This was an outstanding quarter. Let's dive into the details. We grew revenue 33% and 11% organically with all businesses contributing. CCT up 17%, grew industrial connector sales by 27% and Aerospace and Defense by nearly 20% and we're already benefiting from the Boeing price negotiation closed last year. MT increased revenue by 15% and 5% organically in an automotive market down as friction outperformed global vehicle production by more than 1,400 basis points.

And to top it off, Flow Technologies revenue was up 61% or 12% organically. The team delivered higher project sales, including from Sevan, which were up 44%, well down gland. Show cycle also grew 10% due to market share gains in all product categories. On orders, ITT grew 26% and 8% organically in Q1, showing broad strength across our segments. CCT grew 10% organically on the back of strong aerospace demand and market share gains in industrial connectors.

In Flow Technologies, we delivered 44% orders growth and 7% organically, driven by share gains in short cycle, including baseline pumps, aftermarket and bars. Bars up 24% continues to benefit from a GLP-1 project that keeps expanding in scope. And friction continued to gain market share with significant platform awards, including in the high-performance segment. And last but not least, our book-to-bill was 1.09. We delivered equally strong margin expansion of 130 basis points with all businesses contributing.

Flow Technologies delivered 23.7% operating margin up 100 basis points, thanks to significant contributions from volume and to a lesser extent, price. At 21.1% ITT deliver 130 basis points margin progression as productivity and volume growth more than offset price pressure. Finally, CCT expanded margin to 19.3% as volume growth and price both contributed.

Moving to capital deployment. On March 2, we closed the SPX Flow acquisition, 1 month ahead of schedule and with a leverage ratio comfortably below 3 at 2.7. The newly created Flow Technologies segment, both nearly $3 billion in revenue and is a global flow leader with premier brands in pumps, bars, mixes and other process solutions.

On the first day, the entire ITT leadership team actively participate in person to turn all meetings around the world with SPX FLOW employees. We lead out our vision and our expectations and answered questions from highly engaged employees. I was fortunate enough to be in delavant Wisconsin together with Rudy, or WakasaCheriboral leader. I was encouraged by what I saw in the plant by the enthusiasm of the local team by their deep knowledge of the business and their openness to do better and to do more.

I also experienced this enthusiasm with Wendy, our mixing solutions leader and our 2 other sites in Rochester, New York and Palmyra Pennsylvania. Their team has been working hard to improve material flows and overall equipment efficiency. Biotech Wendy, Rudy and I also share future growth plans and was still early in the year, I'm heartened by the orders and sales growth we delivered in the first quarter to achieve high single-digit revenue growth for 2026.

When it comes to synergies, the Flow Technologies team has been hard at work identifying and implementing actions to secure the $80 million cost of synergies. We have executed the first tranche related to corporate G&A cost reductions, and we are on track to deliver 1/3 of the total synergies in year 1. We're also working hard to deliver commercial synergies. And last week, the [ Wake ] Cerebral business of SPX 1 is first order for an ITT Bodeman Twence pulp, well done, Rudin and team and Rodolphe, I expect more.

Finally, as part of our capital allocation strategy, we continue to cultivate and be active on smaller-sized M&A opportunities. In addition, in March, we also deployed $100 million towards share repurchases. Moving on to guidance. Today, we initiate on the new basis, our full year adjusted EPS guidance with a range of $7.70 to $8, up 9% at the midpoint. We're guiding to 37% revenue growth and 5% organic growth at the midpoint with a book to be above 1, and we expect SPX FLOW to contribute low-teens net adjusted EPS accretion.

This guidance based on the profitable growth ITT has delivered over several years. Let us review our top line growth trajectory, since 2023 on Slide 4. Over the past 3 years, we have delivered outstanding top line growth with orders and revenue up over 9% on average every year and we expect the strong growth trends to continue in 2026, both by market share gains in our legacy businesses and the contribution of SPX FLOW.

Insicity, for example, as defense spending ramps up, we've been awarded large multi contracts like F-35 and RSS in the U.S. and ground vehicles, radar and precision-guided systems in Europe. We're well positioned to capture a significant portion of the incremental future spend out of our Winter facility in Germany.

During my recent visit there, I sit set down with our project managers who are collaborating with European contractors on the development of customized connectors for new decide applications, well done Marco and June on fostering this level of customer intimacy. In MT, our KONI business grew more than 30% over the last 3 years to become a $200 million platform for growth and the shock absorb leader for high-speed trains in China.

Moreover, our friction business continues to counter platforms and win market share as demonstrated by the Q1 frictional outperformance of over 1,400 basis points. At the end of last year, friction reached 32% of the global auto OE market and the share gain journey continues. Flow Technologies has been growing at a 15% revenue CAGR since 2023, in addition to the 12% organic growth and a 61% total revenue growth in Q1 this year.

We continue to differentiate our flawless project execution as demonstrated by vans growth of 44% with a book-to-bill over 1.2. Moving to backlog we have nearly doubled it in the last 3 years, and it will continue to grow in 2026 as we strive towards a book-to-bill above 1 this year as well.

With that, let me now turn the call over to Emmanuel to discuss Q1 results in detail on Slide 5.

Thank you, and good morning. As Luca highlighted, we kicked off the year with a very strong quarter. In Q1, we delivered outstanding growth across the business in orders, revenue, margin and EPS. Our teams delivered $1.2 billion in revenue up 33% in total and 11% organically. CCT grew 17% organically, fueled by strength in aerospace and defense and industrial, which were up approximately 20%. We're also realizing the benefit of the Boeing contract renewal.

Flow Technology grew 61% in total and 12% organically, driven by strong project shipments including [ venue ], which is up 44% and short cycle market share gains, especially in valves, which is up 19%. MT grew 5% organically, a significant achievement in a down market. Friction OE outperformed global automotive production by over 1,400 basis points with all regions above 1,000 basis points.

NXPX FLOW added 17 points of growth to IT. On profitability, operating income grew 42% and margin expanded 130 basis points, primarily driven by strong operational performance in our legacy businesses and the XP XO contribution. MT operating income grew 22% for a margin of 21.1% as the team drove net productivity of 220 basis points.

Flow Technologies expanded margin 100 basis points to 23.7%, driven by price and volume leverage. CCT delivered 20% income growth to a margin of 19.3%, driven by aerospace volume growth and Boeing contract benefits. As previously stated, intangible amortization expense related to acquisitions is now excluded from adjusted operating income, including in the segment.

EPS of $1.98 on the new basis was up an outstanding 25% versus the prior year. You will note the immediate net accretion of the XPX Flow acquisition. Lastly, free cash flow of $14 million was impacted by $71 million of onetime acquisition-related expenses. Excluding these impacts, free cash flow was up 10% year-over-year.

Let's now turn to the Q1 EPS bridge on Slide 16. The 25% EPS growth was primarily driven by strong operational performance delivered by all businesses compounded by the month 1 net contribution of XPX FLOW Included in the XPX FLOW contribution is income from operations, partially offset by the higher interest expense and tax rate as well as the dilution from the December equity issuance and the equity given to Lone Star as part of the acquisition consideration.

There were 4 additional working days in Q1 versus the prior year that will be reabsorbed in Q4. Finally, we continue to invest in strategic programs such as VIDAR, FLRAA, our Friction high-performance segment and the Geopad to sustain growth for the long term. On to Slide 8. to discuss our 2026 outlook. With the XTX Low acquisition closed, we are now initiating our full year outlook. We expect 37% total revenue growth and 5% organic at the midpoint driven by aerospace and defense demand, strength in both Flow projects and short cycle and continued friction OE outperformance following an outstanding Q1.

Contribution from previous acquisitions continue to be ahead of expectations. We expect to deliver roughly 70 basis points of margin expansion to approximately 20% at the midpoint fueled by top line growth, favorable price cost and productivity gains. We expect XPX Flow to deliver high single-digit revenue growth in 2026 and net adjusted EPS accretion in the low teens.

Cost synergies are expected to be approximately $15 million in 2026. Regarding the Middle East. As a reminder, our overall exposure to the region is approximately 4% of total revenue and the conflict had minimal impact in our Q1 results.

Finally, on cash, we expect to generate free cash flow of roughly $560 million at the midpoint resulting in a free cash flow margin between 10% and 11%. Now let's move to Slide 9 to finish with the EPS outlook detail. As you can see, the 9% EPS growth at the midpoint, much like Q1 will come from our differentiated execution comprised of above-market growth and productivity savings compounded by the XTX FLow accretion.

The XTX Flow contribution is net of higher interest expense due to the $2.9 billion debt we contracted in March as well as a higher combined tax rate of 24.9%. It also includes a projected 90 million share count over the next 3 quarters. We will continue to invest part of the incremental profit generated to fund long-term growth initiatives.

I'd now like to briefly discuss our Q2 outlook. EPS is expected to be up high single digits in Q2 compared to the prior year. We anticipate organic revenue growth in the mid-single digits. With Flow Technologies in the low double digits organically, CCT in the mid-single digits and empty in the low single digits.

Operating margin should expand by around 50 basis points compared to the prior year and approximately 20%. Interest expense is expected to increase meaningfully due to the acquisition of XPX Flow. Let me now turn the call over to Luca to wrap up on slide.

Thanks, Emmanuel. A few points before Q&A. As you can see, we have pumped up for 2026. Our legacy business is firing on all cylinders. In Q1, we delivered 13% of this growth, 16% revenue growth and continued margin expansion. SPX FLOW provided a boost with 5% orders growth in 14% revenue growth and the fast start in synergy capture. This is our strategy in action.

Organic value creation through market share gains and relentless execution driving sustained margin expansion compounded by M&A. This is the commitment we made during our Capital Markets Day, and it remains a commitment today. We do what we say and Q1 proves it. This is ITT. Before opening the line for Q&A, there is 1 more thing that we'd like to share. Is made even more better with by the great results that we shared with you all today.

Emmanuel, our CFO for the last 6 years and my partner here at ITT for almost 14 years, Estonia is ready to take a break and will be leaving the company. Dear Emmanuel, thank you for everything you've done. As I told you, in the last 14 years, I probably spend more time with you than with my wife. I do not know if this talks more about our partnership or about my marriage. It has been a fantastic ride, full of challenges and achievements.

I have so many memories from the very first day we met. We have always been there on my side, in the perform and in a transformed journey, and we transformed this company indeed. In these 14 years, you made us better. I always knew I could count on you. We have been a real thought partner, a copilot to discuss with to work with, to debate, agree, disagree with a real partner to bunk with. In these 14 years, you made me much, much better. I'm so grateful as I was very fortunate to find you that Day Milan and work with you side-by-side for 14 years, gratitude.

Emmanuel, we seek around in an advisory role until the end of June, helping to ensure a seamless transition for us. Mike Samineli, Vice President, Treasurer, Chief Tax Officer and Assistant Secretary, has been appointed to serve as interim CFO. Thanks, Mike.

To the people connected to our call, thank you for joining us today. As always, I appreciate your time and continued interest in ITT. Kathy, please open the line for Q&A.

[Operator Instructions] Our first question comes from the line of Joe Giordano with TD.

Yes. Emmanuel, I know you don't like the spotlight, but you've been a great partner for all these years. So I think we're all set to see you go. So best of luck to you in the next.

Thank you, Joe.

Let's start -- Luca, you never know everything about a deal, I guess, until you own it. So as SPX came into the portfolio, what was like a pleasant surprise to you versus what your initial views were? And was there anything there that you kind of realized, all right, maybe we have a little bit more work to do, maybe this was a little different than what we thought.

That's -- this is very true, Joe. I think that we don't forget that we cultivated the SPX FLOW for 3 years. So we visited all the plans. We went deep dive on the due diligence. So we really have met many people. And therefore, we were able to find many things before the acquisition. I would say 1 thing that surprised me even more positively as they've been able to walk the plant to talk to the people on the shop floor, for example, in Delavan is to see the commitment and the engagement of our workers in the Delavan plant, in the Rochester plant, in the Palmyra plant in Pennsylvania.

So the engagement of the workforce on the shop floor is something that I was able to experience and definitely surprised me positively. I also was positively surprised by the growth potential that we have on the revenue synergies. We work hard on those. It's going to take more time because those are revenue synergies. But definitely, there are there and more and these are opportunities.

Same on the cost side. So I think that all of those is good and you start seeing good in the results, good orders growth 5%, revenue growth 15% accretive to EPS, good pipeline visibility and moving fast on the synergies. I think that from a cultural point of view, similar, but there are aspects that they do differently that we -- both of us, we will have to adjust.

Yes. And then maybe your defense business has been doing great for a while now. If we have a larger trend here over the next several months towards like an ending of global hospitalities, does that create any sort of potential air pocket for anywhere?

No, we don't see that, Joe. I think that we are -- we have a portfolio that is broad in defense. And so we are on a lot of different applications. And so there's a lot of defense modernization. There's a large defense monetization trend that is happening both in the U.S. and in Europe. And we think that this is here to stay, and this is a long-term trend.

Your next question comes from the line of Julian Mitchell with Barclays.

And wish you all the best Emmanuel. If we think about the first question really around selling days dynamics? Sorry for the fiddly question, but maybe help us understand how much of a contribution that was to sales or EPS in the first quarter -- and how we should think about the seasonality of EPS over the balance of the year as that selling days tailwind goes into reverse.

Yes, Julian. So the contribution of the additional 4 selling days was around 5% -- 5 points of growth in the quarter from a revenue standpoint and then a little less than $0.10 from an EPS standpoint in Q1. When we think about the cadence of EPS, I would say that the next few quarters are going to be around the $1.90 to $1.95 EPS for Q2, Q3 and Q4.

That's really helpful. And then my follow-up would just be around if we're thinking about operating margins kind of moving around a lot year-on-year, I think you guided up 50 bps in Q2. They were up over 100 bps in Q1, and you've got a pretty wide margin guide range for the year as a whole. So maybe any sort of -- is there any phasing of investment spend to be aware of in the year? And what are you assuming for the flow acquired operating margin for the year as a whole, including those synergies you mentioned, please?

Yes. I would say that from an operating margin standpoint, we expect continued progression during the year, and this is because of obviously the productivity improvements that we're driving in all the businesses, as well as some of the price actions that we're taking and that will have a full impact starting in Q2.

So as you've come to expect of ITT we drive margin progression year-over-year that is really key to our success. And then from an SPX Flow standpoint, we expect -- so we had a really strong margin in Q1. And the reason for that is that we only had the month of March in there and March had 5 weeks which is unusually large.

So a disproportionate impact in the quarter. We don't expect that margin to be the same in Q2, Q3 and Q4. However, we do expect that margin will continuously improve as we roll out our productivity plan as well as our growth initiatives.

Your next question comes from the line of Jeff Hammond with KeyBanc Capital Markets.

Best of luck to Emmanuel. We're sad to hear you're leaving as it sounds like Luca, you are, too. Just staying on SPX FLOW, can you dig in a little more on the order trends in that business just from a market standpoint? And then it just -- it seems like shorter term, you may be getting some early revenue synergies.

But just the opportunities around leaning in on commercial excellence and starting to drive out growth because I think what are the early concerns with the acquisition was the legacy growth rate? And how do you accelerate that?

Sure. Thanks, Jeff. So when you look at the orders growth was a good order growth of 5%. Now when that is overall for SPX FLOW in the quarter. When you look at the different businesses, you have Waukesha Cherry-Burrell, our Agini pumps, their orders were up double digit. Nutrition & Health Solutions, their orders were up 3%, mixers up 7% and the pumps up 2%. So all the different businesses were up actually in terms of orders.

And all of the 4 businesses were up also in revenue with Nutrition & Health and Waukesha double-digit and mixer and pump in the low single digit. So overall, 15%, okay? We expect also the book-to-bill for the full year to be above 1 for SPX FLOW. Now this is very similar to what we said at the very beginning because during the due diligence, we saw that pipeline and we believe in this growth.

Now this, to be honest, has got nothing to do with -- this is the good work that the SPX FLOW employees have done since nothing really has changed during the month of March. Now if you top this off together with our approach, going after the 100%, not the 80-20, be more granular and be more decentralized, I would expect that performance to continue to improve.

Okay. Great. And then just from a modeling standpoint, Emmanuel, you gave kind of the organic trends in the 2Q by segment, but how should we think about that within the 4% to 6%? And then just on the tax rate, is there an opportunity to bring that down over time? That was a little bit of a surprise that the tax rate is going up?

Yes. So for the full year, Jeff, -- we expect both IP and CCT to lead the charge from an organic growth standpoint in the high single digits. And then Motion Technologies in the low single digits for the full year because, obviously, there's a decline in the automotive production.

And so -- and the friction is really outperforming very, very nicely as we saw in Q1, but nonetheless, there's a global production that is down. And then from a tax rate standpoint, so today, we stand at almost 25% at 24.9. This is the impact. This is directly the impact of SPX Flow. And so Mike and the team will work on tax opportunities in order to bring that tax rate down. But I think with limited impact in 2026 and more to come in the years after.

Your next question comes from the line of Nathan Jones with Stifel.

I'll add my best wishes to Emmanuel. First question here on CCT margins. It seems over the last few years, you guys have done the work on improving the value proposition to customers there, even -- I mean I'm talking outside of the aerospace stuff, improving the productivity, improving the on-time delivery.

So I guess my question is about value-based pricing in CCT and where you are in that process outside of the commercial OEM stuff? And how much do you think that could contribute to margins over the next 2 or 3 years?

Thanks, Nathan. This is fair. And I think that price has been also a good tailwind when you look at CCT in the last couple of years, exactly for the reason that you said. The price negotiation with Boeing that we closed last year is a natural proof of what you just said.

Having said that, I think that there is more to do on the pricing on the CCT front, and this is what the team is working on. I would say the largest opportunity to be fair Nathan is probably in Cesare. So I think the Kesariais providing a great service to our customers, and they think that there is more to be done specifically in that part of CCT.

I guess a follow-up question. [ Maris ] interested in revenue synergies out of this kind of deal, and I'm sure there is a lot of plans going on there. I know they take longer to generate. So I'm not going to ask you what they contribute to 2026. But maybe if you could just provide a little bit more color on the things that you're working on where you see the opportunities to generate revenue synergies and kind of if you have any target over time of what that could add to the overall growth for...

Sure. Let's try to be specific. So if you -- when I was in Delavan together with Rudy and we on the shop floor going around, -- we know that the Wacker doesn't have the twin screw pumps. As a matter of fact, we were spending money in Waukesha to really develop a new twin screw pumps. We did the assessment, Bornemann creams are super good, very well recognized in the market and therefore, Waukesha will sell Bornman wins screw pumps, that was just a small order that we had, but it's a start.

And not only they will start selling but then we will also localize our production of the twin screw in our client in the bank. That is a specific activity that I'm sure will deliver quite a bit of synergies. Latin America on the mixing front. Nikos our leader in Latin America he is working hard together with the leaders of the different units in -- from SPX FLOW. And I'm sure that as we localize more the decision-making, we speeded up the decision and the action in the region in Latin America, and we get more intimate with the customers just the fact that we are there. that will provide good revenue synergies.

The Middle East is another area where we are working on. But as you can imagine, that probably at this point in time is more planning and discussion. And then there are potential synergies happening just because now we have a base in Xidu, Shanghai, where we never had a plan before in the local -- in the legacy Flow Technologies in the legacy IP and a plant in Poland where we never had in Europe a low-cost base manufacturing. So we are working hard on all those fronts, Nathan.

Your next question comes from the line of Vlad Bystricky with Citigroup.

Good morning, guys. And I echo the sentiment. Congratulations to Emmanuel. We'll miss working with you tremendously, obviously. I guess my first question -- just when I look at the organic growth outlook for the year, the plus 4% to 6%, it seems very consistent with what you were thinking coming into the year. But -- can you talk about whether there's been any sort of moving pieces underneath that businesses or regions that are trending better or worse versus 3 months ago? And I guess specifically, whether you're baking in any incremental headwinds in the Middle East associated with conflict there?

Sure. No major change from what we were expecting, Vlad -- and now as a matter of fact, sure, the Middle East is something to watch. But now just to give you a perspective of the Middle East, which is 4% of total year revenue, we have an impact in Q2, but the impact in Q2 is probably less than 1% of the IC revenue.

It's probably between $0.5 million and $0.7 million of the sales when it comes to the Middle East. I think that there is a very strong performance in the short cycle when you look at the spare parts, the baseline. And I want to tell that growth is not nominal growth. That is real growth. This is volume growth. There was a little bit of price, but that was minimum. And then also the connectors industrial sales, both with the OEM and distribution and Vlad those are market share gains in Flow and also on the Connector side.

That's really helpful, Luca. And I guess just following up on that 1 on the industrial connectors -- can you -- when you talk about market share gains there, can you give us any more color on what specific end markets or verticals you're seeing share gains and any notable regional differences to call out there?

I think there is a very good performance on the -- in Asia Pacific, where the team has worked really hard on the medical side and Medical has been growing incredibly hard and then also on the HVOR. So Asia Pacific and China has been definitely a good tailwind whereas I would say, when you look at Europe on the orders front, it's really working hard on the defense because of the defense ramp-up that is happening in Europe.

And in North America, you have really the distribution is wider. So it will be difficult really to really pointing out to any specific market.

Your next question comes from the line of Brad Hewitt with Wolfe Research.

So you mentioned that your friction business outgrew auto builds by 1,400 basis points during the quarter. Curious if you expect that outgrowth versus build to compress through the rest of the year? Or could there perhaps be upside this year is the typical algorithm of 400 to 500 basis points of outgrowth?

I would say, listen, is an exceptional performance. and allowed us in a market that was down 3.4% in the quarter actually to grow, show the resilience of the team, the resilience of the business. I would say, for the time being, this is only 1 quarter -- so I would say we stick to our usually forecast of an outperformance between 500 and 700 basis points for the full year.

What I really like about this outperformance was that it was spread. It was in every region. Was in China. It was in Europe where we already had a high market share and was also in North America. And last but not least, is we won 39 platforms electrified platforms in the quarter, which will feed future market share gains.

And whilst production will be down this year to 91 million vehicles. The production of hybrid and the production of EV will actually grow double digit, and this is where we are particularly strong.

Okay. Great. And then as we think about at the total company level, can you walk through your assumptions for the year in terms of the net price cost equation as well as some of the moving pieces related to tariffs and material inflation?

Sure. On the price cost, you really have the usual dynamic. In terms of you have a very good price cost equation when it comes to IP and CCT because we've got more pricing power. Less so in motion technology where we feel the price pressure. But overall, for the full year, at ITT, the price cost is going to be positive.

Now when you look at the tariff the situation is very fluid. I'm pretty sure that the next few weeks is going to be different than what it is today. Now we are actively pursuing any opportunity to recover any targets that we already pay, but we think that process will be long and who knows how it's going to pan out.

And then -- what I would like to highlight is that as we demonstrated in 2025, we were able to offset that all the tariffs with commercial and productivity actions. So we think that, that will be a similar scenario in 2026.

Your next question Matt Summerville with D.A. Davidson.

Echo similar sentiment, Emmanuel. Just 2 quick ones for me. Can you talk about the core sort of industrial process funnel as you look ahead relative to maybe what you were seeing 90 days ago or a year ago, whatever makes sense to drive the most informed sort of comparison as to how that's evolving? And then I have a follow-up.

Sure, Matt. The funnel is very healthy. It's elevated and is actually up year-over-year, Matt, is also up sequentially to -- now what is interesting is that then if you want to go a little bit more granular and you look at the region, I would say the region where the funnel is up the most is North America, which is interesting because this is where we had our largest orders growth in North America.

And despite that, the panel is up tremendously. -- which tells us something about the replenishment speed of the opportunity in North America. The funnel is down when you look at the Europe and the Middle East for obvious reasons because all the commercial conversation, the investment that we had with Saudi Aramco, for example, all of those are frozen. But we expect those to start quickly if the situation normalizes.

And then I was wondering if you could help sort of cadence out the flow accretion you expect for the year if we were at $0.04 in Q1. Obviously, you're assuming something more conservative on the look ahead out 3 quarters. So maybe help me understand kind of the logic behind that. Maybe it's just conservatism but ultimately, how we should be thinking about that cadence?

Yes. So when you think about Q1, as I mentioned, in Q1, you have an outsized contribution from SPX Flow. And the reason for this is because basically March is so disproportionate compared to the rest of the quarter. And then you also have less interest expense as well as a smaller share count. So as you ramp that in Q2, Q3 and Q4, you get your interest that increases roughly by $30 million a quarter.

You get your share count that goes to 90 million shares. And then so as a result, SPX FLOW continues to deliver really strong performance but it's kind of impacted by these variables and the normalizing of the fact that we don't have just 1 month with fibre. So I would say the continued progression of the performance of SPX FLOW from a growth standpoint, as Luca said, but also from a margin standpoint. And so -- and preparing the ground for further productivity as we hit '27, including cost synergies.

Your last question comes from the line of Scott Davis with Melius Research.

It's Jake on for Scott. Congrats on getting the SPX deal across the goal line and congrats to manual as well. We appreciate all your help over the years and hopefully you'll be on the beach in a few months with a nice Cavern actually, I don't know what your drink is, but just on the Middle East I know you touched on -- you made a few comments on that.

But I'd have to imagine when you start turning on some of those production has been shut in, you're going to have a lot of valves and pumps and other products that probably won't work as they should and to say nothing on some of the infrastructure that's been destroyed. So I guess, is there a way to think about what the upside might be on the other side of this conflict?

Yes, what you said is absolutely true. So I think that we expect that the investment that was supposed to happen, the conversation to start super quick. And then there should be some good service world that comes out of it. And this is where our team headed by Calin by Harland by Handy to be able to perform because the service business is actually very, very good. and the Saudi expansion that we made will be perfect at that time.

One thing also I want to remind is the incredible performance also that we had of our Habonim valves in Israel. As despite what's going on and the war, this business has been able actually to grow orders despite the war to grow revenue despite the war. And sure, we had pressure on the margin because the cost of the containers, because of the transportation, et cetera, and the disruption on the operations, as you can imagine, but a great performance from the Habonim team over there in the Middle East as well.

Okay. That's good color. And just a different topic, I was surprised to hear you mention small bolt-on deals on the call, just given all you have on your plate with SPX and it seemed like a very deliberate comment, but I'm not sure if that's an indication that maybe there's some deals in your pipeline that you feel are actionable. So do you feel like you have the organizational capacity to be able to take on some more from here?

Yes, Jake. Yes, we do. Because when you think about the SPX FLOW, it involves our business units that outstanding the terms of SPX Flow, of course, will be integrated with our pumps business. But there are areas where the business and the business leaders are running very well, they got the capacity to really add to it.

Think about Habonim. Habonim is performing incredibly well. 4% revenue growth, book-to-bill of 1.2. The fundamentals are strong. They've been practically untouched by the SPX Flow acquisition. So their management team, that business have the capacity to really to do a little bit more. And this is also why we kept our debt ratio to 2.7 to really have that flexibility. So we got the financial capacity to do small bolt-ons and also the management capacity. Obviously, they're going to be small in size, right? Nothing large.

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

My name is Andrew Obin. I'm BofA's multi-industrial analyst, and welcome to the afternoon session. With us, I have ITT. We -- ITT CEO and President, Luca Savi; and Carleen Salvage, new VP, IR and SD&A. We love ITT. You guys are now US one list. So it probably tells you what I think about the company. Always a pleasure to have you in London, always a delight. I think Carleen is going to have a couple of statements. And then you guys have a couple of slides, and then we're going to go into Q&A. Thanks so much.

Thank you, Andrew. Carleen, over to you.

Yes. Our presentation and comments may contain forward-looking statements, which are based on our best view of the world and our businesses as we see them today. These assumptions and expectations can change, and we ask that you view them in that light. We encourage you to review the latest risks and uncertainties in our Form 10-K and other SEC filings available on our website. Thank you.

Thanks, Carleen. So I'm going to spend a few minutes on ITT today, and then we go straight into Q&A. So what you see today is ITT after the closing of the acquisition of SPX FLOW, which happened on Monday, the 2nd of March, is a company of roughly $5 billion in terms of revenue, split in 3 main businesses. One is Motion Technologies, where we're making brake pads and shock absorbers, so exposed to the auto industry and exposed to rail, a little bit in defense as well. Then you have CCT, Connect & Control Technologies, where we make connectors and components. This business is mainly exposed to general industrial and a lot to aero and defense.

And then what was called Industrial Process, today, we call it Flow Technologies, which is the previous pumps and valves business, the Goulds Pumps, et cetera, which today has merged together with SPX FLOW. As you have seen, exposure to the aftermarket, a lot of exposure to the Americas is the largest geography where we are exposed to. And when you look at the last 3 years, 2025, we had 5% organic revenue growth. The 2 years before was 9% every year.

We generated good profit, good margin expansion, a lot of value creation. So let me talk about a little bit of the Flow Technologies, which is this new business that is the merger of industrial process and SPX FLOW. So when you look, you see that the main exposure is on pumps. This is really our core. So what we did with the SPX FLOW acquisition, we added Waukesha, hygienic pumps, #1 leader in North America in hygiene. We add Bran+Luebbe, Johnson Pumps, leaders in the market that they play in terms of Metering Pumps and Centrifugal Pumps.

And then we added also some adjacencies like mixer. Mixer is a good business based out of Rochester in the U.S. brands like Lightnin in Philadelphia, they are #1, #3 in the mixer market. And then Nutrition & Health system. So here, you're talking about a system that we are building and delivering for customers like Danone and Nestlé and Unilever. So exposed to different markets. Now what we like about SPX also that reduces our exposure to energy when you look at the Flow Technology business, but also as a new market of Nutrition & Health to the market that we are addressing, making really the Flow Technology business more resilient.

50% or more in North America and spread also in Europe and Asia Pacific. Now these are all the brands. What you will see, ITT and also Flow Technologies is a house of brands. And many of these brands are actually #1, #2, and #3 in the segments, in the markets that they are playing into. So now a little bit of comments about Q1 before we are moving to Q&A. So what we saw in Q4 has continued. So you saw strong orders when you look at Q4. Well, we saw strong orders also in Q1, January, February. And also when it comes to March, we continue to see that.

We continue to outperform when you look at the automotive market in terms of the OE. So we are outperforming across all the different regions. So you will see that also in Q1. And when you look at all in, now with the closing of the deal on March 2, as you know, part of the deal, the $4.7 billion that we -- $4.775 billion that we paid Lone Star for SPX FLOW, they wanted to stay as a shareholder. So $700 million that were paid in shares as at March 2. So you had in March that dilution as well. And then, of course, the debt and the interest that you pay in that. So when you look at all of those in, you see from the EPS growth is a low double-digit growth year-over-year.

So with that, Andrew, over to you.

And Carleen, just to get it right. So the guidance you provided on Q4 for Q1 because I think there's a little bit of confusion, this low double digit with what you guided to. The only difference is that we've now closed the deal. So apples-to-apples, nothing, no, nothing...

Nothing has changed.

Apples-to-apples, nothing has changed. It's that we closed the deal and therefore, you issue the equity and you have the debt. That's the only thing...

And we knew -- and basically, you've communicated this -- so -- because I think in the market, the reaction study to the headline is somewhat negative, but the reality everybody should have known that.

No change at all. It is exactly the same thing.

And there is no change to SPX outlook either.

No, no, not at all.

So maybe just starting with your broader framework, long-term guidance, your ITT's organic growth expectation of mid-single digits in '26 compares to the guidance of over 5% revenue growth CAGR by 2030. So how should we be thinking about organic growth in '26? And what this means for sustainable growth rate as recovery actually takes hold?

So our long-term targets when it comes to organic growth is 5% to 7% organic growth. We delivered a little bit better than that in the last 3 years, I would say. But -- and when you added the addition of SPX FLOW, we said that SPX FLOW will be able to grow mid- to high-single digits. So I think that all the assumptions when we look at the organic growth have been confirmed. And of course, if the market gets better, that can only be a tailwind for us. But all those aspirational organic growth have been confirmed -- are confirmed so far.

But so far, we're on track with that.

Absolutely.

And you talked a little bit about demand trends and you're saying that orders continue to be strong in February and March. But for the short-cycle business, right? -- have you seen any patterns that reflect that PMI is improving, right? Because you guys were constructive in Q4, you were constructive earlier than others.

Sure. When you look at our short-cycle business and for the last couple of years, we've been able to grow our short-cycle business no matter what the market was doing. So -- and that was market share gains. And we're talking about growth, not in terms of just price. I'm talking about volume growth, real growth. So -- but that's more the ITT story than...

We ran the organic growth. And I think project was better, train was better. I think that's the list. Not a lot of people have done better on organic growth since you started.

So that's the thing. So -- but what we have seen, I would say, towards the end of 2025 and also in January and February, it seems like the situation from an economic perspective is a little bit better. And therefore, that picture might continue. There are more dots.

And how should we think about the near-term impact from the events in the Middle East? And I guess, specifically, a, you do have a Middle East business, but you also have a defense business. How should we think about the net impact of what's happening?

Sure. So for unfortunate reasons, the defense business, of course, will benefit from everything that is going on today. And that is true, particularly on the CCT business, where we make connectors and also components for the KC-46 and others. So that obviously has got a tailwind. Now when it comes to our business, we do have a very good factory in Dammam in Saudi Arabia, which is performing incredibly well. It's one of our best factory, great relationship with Saudi Aramco and the customer in the region. Now obviously, when you look at that, you can imagine Saudi Aramco has frozen every conversation that we had from an investment and new orders perspective.

Now Q1 has been not impacted at all. So there is going to be no issue in Q1. If the situation continues, of course, there might be impact from a supply chain point of view in terms of stuff getting into the factory in Q2. But just to give you an idea of the size, when we look at our Middle East business, it's less than 5% of total ITT revenue, something between 4% and 5%. So not really material in that respect.

And the idea is there are enough growth vectors elsewhere to offset it.

Well, to be honest with you, what you see, what is interesting is that you could see in, for example, in Q4 of last year and also the beginning of this year, because the price of oil was particularly low, there was not a lot of service orders from our oil and gas business in North America. Now obviously, if the price of oil stays at the level that it is today or stay high, that situation could change. So what is impacting negatively in the Middle East that can actually translate in some positive trend if it is service work or if it is LNG opportunities moving faster in U.S. or other regions.

And maybe we can go to sort of talk about growth because I think organic growth actually is -- well, stock has performed okay. But I would argue that your organic growth is one of the most underappreciated aspects, I think, of the story, and it has been consistent, driven by sort of market share gain. And on one hand, I saw the auto facility in Italy, that's a very idiosyncratic story. At the same time, you're able to replicate it across your portfolio. So it's clearly not idiosyncratic. So can you just share some of your long-term playbook across businesses?

Sure. So, I think that the approach that we have is really to -- I mean if you look at our organic growth performance, it's quite good. And the way that we incentivize, the way that we look at, the way that we manage is that no matter what the market is and no matter what the market does, I mean, you need to grow. You expect it to grow and you expect it to grow win, of course, market share. And this is real growth, volume growth. It's not just growth in terms of price. We like price. We go after price. But if our people are delivering to us growth because of just price, they don't get an easy time, right?

They need to deliver real growth, growth that actually is feeding our plants that we're making more products, et cetera. So this is really how we are incentivizing. Now in terms of what we have really been good at in terms of when you look at ITT is to create platform for growth. So if you look at our KONI business, our shock absorbers, that was a business that was a $100 million platform that was losing money 12 years ago. It was -- ITT was questioning -- my boss was questioning really the fit in the ITT portfolio.

Now we turned it around. We made the acquisition of Axtone in rail in Poland, and now we have a rail platform of roughly $300 million, whose margin is actually accretive to Motion Technologies. We did the same thing for the valve business in IP. We rejuvenate our connector business and became in aero defense, another platform for growth. And we have done it with Svanehøj in cryogenic pumps in the energy transition in marine. So this is what we are really good. It's really entrepreneurial way to run the business, very granular, hands-on at every single level of the organization. And really, I know that the 80-20 is very fashionable today, but it's really not following when it comes to growth, any 80-20 approach. It's really you go after everything that could be a good growth now or in the future in the business.

And do you see continued opportunity for share gain by segment?

Yes, I do. So we do. So for example, if you look at Motion Technologies, market share gains in rail, those have happened in 2025, and we see it in the orders, we see opportunity in the pipeline when it comes to rail, both in Europe as well as in North America as well as in China, where we are exposed to high-speed train, subway, locomotive, coach and everything. When you look at also automotive, listen, we have a very healthy market share in Europe. So you might question, are you really able to grow even further? I would say, yes, because there are segments and you need to be very granular there, like for instance, high performance or light commercial vehicles, where we do not have a high market share. So there is opportunity there.

In China, we closed last year at 33% market share. There is no reason why we cannot improve substantially that one as well. And in North America, we closed 2025 at 27% market share, opportunity to grow that one as well. When you look at the connectors side of the business, listen, we are a small player. So the way that we differentiate a lot is in customizing in custom design, co-develop the design together with our customers and be super-fast on the engineering cycle.

So when you look at specific aero and defense application customization for connectors, there is a room to win market share there. We have done it in the past. We continue to see the opportunity there. And then when it comes to flow, I mean, the ability to execute different from our competition to differentiate both on the innovation and the execution, delivering our products, good quality products on time in a consistent way to the customer gives you loyalty. And so yes, we think we can.

Excellent. So as you've said, you closed SPX FLOW synergy target is 6% of sale. So maybe we can talk about -- so what's just generally in your synergy assumptions? How many years? And how much are we assuming for footprint rationalization?

When you look at the cost synergies, it is roughly $80 million run rate after year 3. And usually, the way that we will deliver probably is 1/3, 1/3, 1/3, 1 year, 2 year, 3. Now the big chunk of those cost synergies are on the G&A front. This is where the big chunk will come. Second chunk will be on the purchasing. And so the first one, we're already executing. We've already executed and we are executing a lot of them. Purchasing, procurement, this is where we're already working together the 2 procurement team to deliver those synergies. When it specifically come to footprint is a synergy that is the one which is the smallest and the one that comes later.

And the reason for that is our approach may be conservative to ensure that if we act on a plan and on the footprint, we want to ensure that our customers do not get affected. So we need to plan properly and execute in a prudent way. But that will be the gift that we'll keep on giving in terms of several plans within the ITT portfolio -- within the ITT companies as well in SPX FLOW can be concentrated in a very good plan that SPX FLOW has in Poland and also a good plan that SPX FLOW has in Xidu in close to Shanghai.

But is that -- that sounds that's beyond the scope of the 3 years?

I think that most of the savings that you will see on the footprint will come after year 3.

And what about sales synergies? Because I think you're not including those...

That's correct.

What are the opportunities?

So when you look at -- listen, cost synergies, we are fully in control of the cost synergies -- so we are -- and I can tell you, we will deliver the cost synergy. I have no worry at all on the cost synergies. On the revenue synergies, it takes more time. You're less in control of the revenue synergies. And this is the reason why we discount them fully, and we do not put them in the model. Having said that, we're already working on those together, the 2 teams from the ITT and from SPX FLOW. So I give an example.

On mining, we have a very good base in Chile and in Peru with our footprint over there as ITT. Now they do not have any base when it comes to Latin America. Some of those mixers will have the same customers. So there is an opportunity there. We have a good plant in Brazil, and we will have a larger plant in Argentina. We're investing in making the plant larger. So having that days, we could localize the assembly, reduce the lead time and be able to sell more in Latin America than what they do today. That is one.

Saudi Arabia, when things normalize, will be another revenue synergy because we will be able to have in-kingdom assembly, which is one of the regulation to facilitate you selling in the Kingdom. And then call it luck or what, but when you look at Waukesha, hygienic pumps, the product in the product portfolio, what they're missing is Twin Screw pumps, which is exactly what Bornemann does. But in hygienic, we have the full range -- full portfolio, but we have nobody. Now we can simply take those pumps, brand them Waukesha. They are top range in terms of performance, and that is the revenue synergy that we will have here in North America with Waukesha.

And that's something near term.

And that's something that is much faster than everything else.

So you noted that you target 10% ROIC by year 3 to 5 in acquisitions. So just to wrap up on SPX FLOW, when should we be getting to this 10% plus ROIC? Is it close to 5 years versus 3 or...

It's close to 5.

And then maybe before we go into the segment, just cash flow generation. So 25% was very good, but I think historically, cash conversion has been lumpy. Was very strong last year? So, what does it take to see more consistent cash generation?

I think that the one -- a lot of the investment in the past was also in terms of increased production in terms of the Motion Technologies that tend to be more capital intensive. And therefore, there has been expansion when it comes to the site in China, the site in Mexico. And then also last year, January 2025, we opened the plant of high-performance brake pads in Italy. So now the footprint that we have is that one, there is no other large investment to make when it comes to CapEx. So I think that you will have more of a stable performance.

I would say there is also a lot of improvements to be made when it comes to inventory, particularly in IP and in CCT. Motion Technologies actually is performing very well. What is the inventory turns of Motion Technology we saw yesterday in the performance review was 12.5%. Motion Technology has inventory turns of 12.5%, just to give you an idea, is a cash machine, right? So I think that working on the working capital for IP and CCT is key, inventory in particular, and receivable advance payment, particularly for IP as well.

So, maybe on going to Industrial Process. So what productivity investments have you made successfully given the strength of core margin for IP, right? Exiting the year with legacy margin of 25%. And also, what does the runway look like?

Sure. So, when you look at IP, it has been a long journey because let's face it, when we started this journey in '17, '18, our profitability was similar to the one of some of our competitors, right? If it is Sulzer or if it is Flowserve, et cetera. You look at today, it's a completely different story. So what has been really the levers that we play? Well, first of all, we have to turn around the way that we manage projects. So project management is a very good story. What you see today, the project backlog, the margin that we have in that project backlog is in the high 20s.

This was a business that was not making money -- in '17 and '18. So that has been a lever. This -- and also when we close the project and we ship the project, the margin at closing is higher than the margin when we booked the project. So this tells you a bit about our order acquisition performance and also how we perform when we deliver the projects for our customers. That is one. Second is price. So ensuring that we have a good pricing strategy and that we do not have leakage. Therefore, a very rigorous way to monitor pricing in the orders as well that in the revenue and ensure that you can continuously track it and see the pricing coming through to the bottom line was Lever #2.

And then also the lean in the factories and on the site. So I was in Seneca Falls last week, and actually, that was the first time that the best visit that they had in the plant ever -- when it comes to the assembly. So when you look at the assembly, the warehouse, the Material Flow works, it was an excellent performance and except leaning out. A lot of work that still has to be done on the machining side. The machining is still a bit of [indiscernible] but this is room for improvement for the future. When it comes to run rate, I think that our target for IP is really to get to 25% operating margin by 2030. And I think that there is nothing that would jeopardize that.

Maybe another question. Over time, can Svanehøj margins reach "core IPT levels?

I would say there is no reason why they shouldn't. I think that they improve a lot when you look at our performance in 2025, a few hundred basis points improvement in terms of EBITDA. So I think that there is no reason why in 2, 3 years, so I should not be at that level.

And you sort of alluded to IP project pricing. So are you seeing any sort of discounting from competitors?

It's when there is -- when you have a project situation, it's very competitive. And I will say there is always somebody that can come out with a ceded price. So nothing has changed that there is always a case, unfortunately.

So maybe we can shift to Motion Tech. I mean you talked about market share gains in Europe. But what is embedded in '26 for market share gains? And how does it compare to 600 bps of average outgrowth over the past several years?

Yes. It's anything between 300 and 500 basis points outperformance in terms of the market. And I can share that this is what we're already seeing already in January and February. So I think that this is confirmed. And I think that we expect that to be delivered also in the next couple of years.

And maybe we can talk about Motion Tech operating margins. Trend has improved, but hasn't historically stepped up structurally. You are guiding sustained improvement through 2030. What have you finally figured out?

I think that when you look at our automotive business, it's very, very profitable. I think that if you think about an EBIT of 20%, there are not many automotive companies are able to post this level of profitability. I think that the beauty is that you and I, Andrew, can walk the shop floor in Barge or in those in Wuxi, and we can point to areas where we are top notch in terms of productivity, et cetera. But at the same time, we can point to area where we can continuously improve, whether it is the waste, the scrap, or the efficiency of the machine or automate even more on the finishing line. So, this is the reason why we are seeing that a target of 23% operating margin by 2030 is quite achievable.

And you have material China exposure, and you've done very well with market share, specifically on the EV side. I guess one of the concerns we've heard from investors as China continues to outgrow, Chinese EV manufacturers take share globally, their margins are not that great. It's a very competitive market. How do you not get dragged down? There are a lot of headlines about competition in China on pricing. How do you not get dragged down together with that market?

Sure. Listen, our 2 most profitable plants in friction are our plant in North America and our plant in China. And those plants are Pure OE. There is no aftermarket. So this tells you a little bit about, a, how we are able to -- how our cost competitiveness because let's face it, we do not decide the price. The market will decide the price, right? So sometimes you are able to get some premium, but in automotive, you're lucky if you get 1% or 2%, 3% premium. That's pretty much it, right? So the market decides the price. And the fact that we are able to deliver those margins at the price that the market is paying our product for tells a little bit about how productive and how efficient we run our plants and our supply chain.

And can you just talk a little bit, I know that you've spent quite a bit of time educating folks as to what is driving Motion Tech's margins relative to other auto suppliers, maybe 30,000-foot view, what makes it possible for you guys to have over 20% EBIT margins even now when auto volumes are depressed and you're not getting any volume leverage? Just what is the business model?

Sure. So, there is one part, which is linked to where we play in the supply chain, which is the same for us and for our competitors, right? Which we like where we are. So for example, you design the new car, the new platform, you design the car, you design the axle, you design the braking system, the caliper -- you produce it. The last piece is the brake pad. So now when you are at the very end that you are testing, if you have a problem, you cannot redesign the car, the axle, the braking system, the rotor, the caliper. One thing that you can still play is the brake pad. So you are at the very end of the supply chain where you can still change things and you can -- and that is a nice position to be in, high pressure and all this kind of stuff, but high position to be in.

And then the cost of the brake pad is a small cost when you look at the entire cost of systems, et cetera. So this is true for us as well as our competitors. Then -- and we like where we are in the supply chain. Then what is different between us and the competitors is that when you look at our footprint, it is a very concentrated manufacturing footprint. It's 5 plants to make a number of brake pads. Our competitors to make the same number of plants will have more than 10 plants. So 10 plants to make the same number of brake pads.

So you can imagine how inefficient they are when I do have scale and the economies of scale in the plant. Second is the level of performance. We have performed in the last 7 years, every single month at 99.95% on-time delivery to customer request date, no matter COVID, the war, the UAW strike, the hyperinflation, no matter what. And on quality, we measure the quality impact per billion. Our competitors are 2 level worse than we are, level of magnitude worse. So all of those really make our business substantially different in terms of performance as well as innovation.

And maybe it's quite interesting, but you have new plant Termoli and it's the pilot side for next-gen manufacturing. It is lower volume, right? Because it's high-performance component. Can you just -- what have you learned internally and any KPIs that you can share about the performance and particularly the read across our automation because I'm sure that there are some pilot projects that can be applied elsewhere in Motion Tech and elsewhere in the company.

Sure. So one thing that this was an area of growth for us because usually, we played on the vehicles, but in terms of high volume, low mix. And this was -- our manufacturing was set up for that because it was highly automated, same machines and a conveyor that generates the one-piece flow. So the material is right to the line and then it gets into the line and nobody touches a product until it comes out of the finishing line where there are 3 women that are actually checking the quality of the product. Now this system was great, highly automated. But if you have a low volume, high mix, because of the conveyor, et cetera, you would lose a lot of efficiency in the line in the plant if you're using the same model.

But we cannot change the machines that we are using, the presses, the grinding, the finishing Line, the oven or the painting line. What was good is that our engineering team in Italy actually designed a plant, a line where you have the same machine, which was a must because that is a standardization that is a must across all the different plants. But they eliminated completely the conveyor system that automated even more with more robots and AGV, particularly a robots on wheels so that we were able to maintain the same efficiency in the plant, but also with a low-volume, high-mix.

So this is what made us willing to go also after this market. So far, we won in terms of awards, 9% market share of the high performance, which means you don't see that in revenue because when you win the award, it takes 2 years to get to the SOP to the start of production. But I would say is -- has been very effective in terms of winning. And we started that plant in January last year, and we're already profitable when it comes to January 2026. So the team is performing.

Any reader across, you said it's low-volume, high-mix. And I'm probably comparing like apples and oranges. But any read across for SPX because I know that flow business is, it's single-piece flow. I think it's the ultimate low-volume, high-mix product or even low-volume auto issues order of magnitude? High-mix then.

Yes. I think that there...

Is it comparable? Or is it just two different processes...

They are different processes. There are things that you can learn from, for example, Motion Technology is absolutely master in reducing the changeover time. And we have a methodology in doing that. And I think that, that is something that can be applied also when you come to changeovers in the other businesses. But I would say they are more opportunistic and ad hoc than a blind adoption of one methodology to the other business.

So, maybe we can shift to Connect & Control. So what about margin growth for Connect & Control in '26? A couple of things. A, dilution from kSARIA largely goes away. And b, I think you talked about the uplift from renegotiated contracts with [indiscernible].

Yes. Sure. When you look at CCT, we closed that business at an operating margin between 19% and 20% in 2025. Our long-term target by 2030 is 25% operating margin. So it's the business that's got the long -- the highest -- the biggest improvement to make. But at the same time, it's the one that's got the biggest leverages. First of all, of course, the market is great. So you will have benefits from a volume point of view. But as you said, there is a pricing impact. We finalized the negotiation with Boeing at the end of last year.

We had long-term agreements with fixed price contracts that go back to 2014, 2015. So you can imagine this is quite impactful from a pricing point of view in 2026 and it will be also in 2027, '28 and '29. And then there are a lot of efficiency that can be gained in the way that we are running the shop floor. Today, I would say when it comes to lean, probably the plants in CCT are the least mature across the ITT portfolio. So those are the 3 main levers to -- that we are working on.

And maybe defense aftermarket, you've alluded to it, but how should we think about potential impact from the events in Iran?

I think that to be honest with this is a definitely a tailwind. When you look at the CCT, the connector side really do not have a lot of aftermarket. It's more on the CT side and the component side that there is a good aftermarket business. So I would say that the unfortunate circumstances that we are facing today are actually playing a tailwind for our defense business and the defense aftermarket for CT as well.

Inside that business, just generally, your short-cycle business has held up much better than peers. What's been driving the outperformance? And does that outperformance slow when the market recovers? What do you expect to continue to outgrow the market?

No, we expect to continue to outgrow the margin. I mean, at the end of the day, our people do not get credit for a growth, which is the market growth. Everybody would be able to do that. Market grows 5%, you're growing 5%, you're not really growing. I mean, it's the market that is really pushing you. So we expect our businesses and our business to continue to outperform the market on the connectors as well as on the component side.

And the margin target for CCT assumes the most margin expansion of the 3 businesses. I mean, clearly, I think kSARIA and Boeing are part of it. But maybe another way to ask about it, what are the gross margins in this business relative to the other businesses? Is it fair to assume that it's a gross margin story?

It's the highest.

So it's the SG&A.

Yes, -- it's the highest. But you need -- despite all of that, there is -- even it's the highest gross margin, I would say, just to give you an example, you are on the manufacturing line making components in CCT and you have the station, which is called the Tuning Station. Well, it's a Tuning Station because you didn't get it right the first time, right? You will not -- in Motion Technology, you will not get a Tuning Station. That's a waste, right? So I think that even that is an improvement that you will have in the gross margin, right? And so even though the gross margin are the highest in the ITT portfolio, this doesn't necessarily mean that cannot be better. They can.

I think we're right on time. So with that Carleen, Luca, thanks so much.

Thank you very much, Andrew. Thank you.

All right. Do we have the -- ITT is the Zoom setup?

Yes. Hi, Kevin.

Hi, Kevin.

Okay. So I'll just kick it off and then -- are we doing the slides here? Or are they sharing?

We're sharing, Kevin.

Perfect. So next up is ITT. Based in Stanford, Connecticut, ITT is a manufacturer of critical engineered components that serve fast-growing end markets in transportation, flow, energy, aerospace and defense. ITT has 86 million shares outstanding. Shares trade at about $206 for a $17.7 billion market cap, $956 million of net cash for now and a $16.8 billion total enterprise value.

Joining us from ITT are Luca Savi, CEO; and Emmanuel Caprais, Senior Vice President and Chief Financial Officer. Luca and Emmanuel, I'll let you take it away to start.

Thank you, Kevin, and I'll read some forward-looking statements. So our presentation and comments may contain forward-looking statements, which are based on our best view of the world and our businesses as we see them today. These assumptions and expectations can change, and we ask that you view them in that light. We encourage you to review the latest risks and uncertainties in our Form 10-K and other SEC filings available on our website. Thank you.

So good afternoon, Kevin. Good afternoon, everybody. Thank you for your interest in ITT. I will just spend a few minutes on a few slides of the presentation. What you see here in the first slide is talking about the next chapter for ITT. When you look at what ITT has done in the last 7, 8 years is really we deliver a lot of value for our shareholders through organic growth and margin expansion. And this will continue. But what is happening now is that we are compounding with M&A. And these are not just some of the smaller acquisitions that we made in the last 3, 4 years, but with the addition of SPX FLOW that we're going to close very soon.

So if we move to the next slide, please, and talk a little bit about the SPX FLOW acquisition, roughly is a $1.3 billion highly profitable flow platform and is helping us in terms of our leadership in core markets as well as adding some adjacency in flow technologies like mixers or nutrition and health and adding markets where we are not really playing today, has got a very good and profitable aftermarket. So it's a very good fit when you look at the business and also culturally. So all of this creates really a world-class flow platform for the growth in the future.

If we move to the next slide, we will see that not only it creates a resilient business in flow, but also it takes us very much to the enterprise portfolio shift that we set as a target by 2030. We -- at the Capital Markets Day in 2025, we shared that we want to be in 2030 with roughly 20% of our portfolio be exposed to auto. And with the acquisition of SPX FLOW, really, we are already there 4 years ahead of time.

So without further ado, if we can move ahead a couple of slides, please, to the takeaways. These are -- yes, this one. What I want to stress, Kevin, is that, listen, the organic value creation in ITT will continue in the core business and also in SPX FLOW. We have acquisition now that are accretive and start -- have been contributing. We will keep on winning market share and outperform the markets we play in through differentiation, differentiation in execution as well as innovation. And we started already strong towards our long-term commitments.

So with that, Kevin, over to you for Q&A.

Great. Well, thank you both for that overview. Maybe diving in a little bit more on SPX FLOW to start. Your prior deals have been a little bit smaller, but I'd say in higher growth end markets like kSARIA and Svanehoj. This one is a lot bigger. I know you've got the $80 million of cost synergies that you're looking at from the deal. But can you talk a little bit more about why you're so excited about this as well as potential revenue synergies for both entities once you layer that business on top of yours?

Sure. I think that a couple of points. First of all, we are creating further platform for growth. So this is what we have been really good at ITT. If it was with rail, if it was with innovation like VIDAR, if it was with Svanehoj in cryogenic pumps in marine energy transition, kSARIA in fiber cabling in aero defense, all we've created organically or inorganically good platform for growth that has delivered last year, 5% organic growth, the 3 years before, 9% organic revenue growth.

Now what we see in SPX FLOW, the opportunity to create other platforms for growth. If it is on the mixers front, that will be another good platform. If we think about hygienic pumps, where we really do not play with Waukesha, which is a leading brand in the U.S. and also with the nutrition and health systems. We believe that under our management system and with a different prioritization more on growth, we believe that this business can grow high single digit for the next few years.

On top of that, I would say what we really like about in SPX FLOW are leading brands, leaders in the market they play in, a lot of engineering opportunity to differentiate, very profitable, very profitable aftermarket. And this, together with the other markets we are exposed in IP, in Industrial Process will make also Industrial Process much more resilient.

That's great. And then in terms of SPX FLOW was public itself just a few years ago. I know the business has changed a bit since then. But can you maybe walk through how the business has improved internally between then and now as you're acquiring it?

Sure. The SPX FLOW that we have -- that we are purchasing today is quite different from the SPX FLOW of a few years ago. First of all, before Lone Star bought SPX FLOW, SPX FLOW already spin off some of their business that was more linked to the oil and gas business. And under the Lone Star leadership, they already sold another couple of businesses to other companies. And they went through a journey of profitability improvement, and they were able to deliver a good gross margin, around 42% and EBITDA around 22%, applying their tools. If it is 80-20, if it is more cost reduction.

So a business that has been quite transformed from what it was quite a few years ago. And I believe that this is leaner, but maybe not as lean as ITT. And under our leadership with more focus on growth, maybe less 80-20, we can return that business to high single-digit growth.

Okay. And maybe moving then to your Industrial Process business. You've really seen very strong growth. You've been ahead of the market, and you've got a lot of new products or project wins, and you've got over $1 billion in backlog now. What would you say has been the differentiator for ITT in all those wins, whether it's just technical engineering and product development, customer service, speed and efficiency. What's been the secret sauce in terms of your success there?

Yes, Kevin, I think the secret sauce is execution. We -- this is a business that we completely revamped since 2017. We really worked on improving project management performance. And as a result, we've been able to grow.

Now I think that in addition to this, we really worked on reducing the cost base, improving the metrics that are fundamental for the customers, such as quality and delivery. And as a result, we've been really able to differentiate ourselves from the rest of the competition.

If I can build on what Emmanuel said, when we're talking about the execution, for example, let me share some of the -- some numbers on how we're performing on the projects. These are the large projects from a few million dollars to $50 million. Those projects many years ago, they were not profitable. We turned it around the way that we acquire orders, in the way that we run these projects, they start having good profitability, and then we gave a target of 15% profitability on this project and then more than 20%. I can tell you today that the backlog, the project backlog that we have today sits at a project margin in the high 20s.

And on top of that, when we close the project and we ship our pumps and our systems, the project margin that we shipped at is regularly higher than the project margin when we win the project, which is a testament of the good execution, good project management, good change management. That execution, if it's financial, if it's on-time delivery for the customer, bring loyalty with the customers that we serve, and that is almost like a reinforcing loop and a self-fulfilling prophecy.

Great. And then maybe one area of your business. Could you highlight your Middle East business? I know you've talked about the Saudi Arabia facility quite a bit. What are some of the projects that you're supporting there as well as some of the products that you're selling in that's getting the growth there?

So yes, Saudi is a great example because if -- Luca, I was talking about the metrics that are really mattering for the customers and Saudi is a great example of that. They have an incredible quality record. They have more than 90% on-time delivery. And as a result, they were able to build a very effective partnership with big players in the region such as Saudi Aramco.

And so when you look at our commercial performance for everything that is an open bid, we win more than 90% of what we quote. And so -- and this is because we're delivering such a differentiated performance for our customers. And Saudi -- our Saudi site, which a few years ago was around $20 million in terms of revenue is now more than $100 million with a significant backlog, significant order growth that are going to fuel the growth of the future -- the profitable growth of the future because as well, it's one of our most profitable sites in all IP.

And when it comes to the products, Kevin, is Goulds Pumps, right, and the Goulds Pumps systems. So centrifugal pumps that are used in the oil and gas, in the petrochemical in the future, also maybe on the mining side. But it's very interesting, the question you're asking, which product, because the fact that we are in the Kingdom, we expanded the site and 3x. Now we are able to localize in Dammam in Saudi Arabia, also some of the products that we acquired with SPX FLOW, if it has mixers or if it is other metering pump. So it's one of those revenue synergies that we are working hard to bring home with the deal.

Absolutely. No doubt you will. Maybe one more on IP. GMP-1 valves, I know that, that's been an area you've highlighted and you're expecting a lot of growth in this year. Can you just frame your position in that market? And also what happens to that business as that goes to pill form?

So let me say, this is one area where Emmanuel and I always talk about differentiation through execution, the Saudi example and differentiation through innovation. And here is we have an amazing product, which is our EnviZion valve, fully patented, which delivers a lot of value to our customers because it allows a quick changeover and therefore, more run time for their systems and their plants.

Now one of the major player in this market has really bought into this product, has benefit from the value because reducing the downtime, augmenting the production of a product that is really in high demand creates a lot of value for them. So we are working with other potential customers to ensure that they buy into this product because, to be honest with you, it's really a no-brainer. And -- but this product for this customer started as a platform of a few million dollars, went up to $20 million, went up to $50 million. It's probably -- it will probably be a platform of $70 million just with this one account.

That's a big number. So good to hear. Maybe moving to Motion then. At a high level, in what's been kind of a stagnant market in auto, you've outperformed by 400 to 500 basis points the last few years, and you said you expect to continue to do so. What's the main driver of that? And how are you able to achieve such growth in an otherwise flattish market?

Sure. There is not one silver bullet, Kevin. It's many points getting altogether. First of all, cost advantage. Our manufacturing footprint is highly concentrated versus our customers that got many more plants. So we can run the five plants at a good scale and very efficiently.

Second, differentiation in execution in terms of quality. Because we are highly automated, there are very few people in the plant, there are plenty of robots handling the process, we are able to deliver a quality, which is measured in PPBs, in parts per billion. Our competitors are 2 orders of magnitude worse than us.

Then a superior R&D and speed of development of the new products. And the fact that from a strategic point of view, we also applied good common sense. If you think about China, for example, when we opened our plant in China 2014, thank God, we didn't use the 80-20. We are more kind of 100% people. And in 2014, we just went for every single Chinese OEM and Chinese Tier 1, which means everything that we're producing today, 70% is for the Chinese OEMs is we are winning with the winners. Think about if we were using 80-20 when we opened in 2014 and spent all our time with the Ford, the Volkswagen or General Motors. We will not be growing. We will not be in the position of today.

So when you look at all of this, this entrepreneurship, the superior R&D, the automation, the quality, the performance as well as the cost advantage, this is what allow us to keep on winning in the market. And that will happen also in the next few years.

Now I've heard how impressive that plant is, and I'll definitely need to see it someday. Maybe on the Geo-Pad business, could you talk a little bit about that product and your potential OEM launch in 2028? And any thoughts on what the ultimate addressable market might be for that product?

Which product are you talking about? Sorry, I didn't hear it.

Geo-Pad. The brake.

The Geo-Pad?

Yes.

The Geo-Pad. Okay. So the Geo-Pad is a revolutionary product, fully patented. We invented an inorganic binder. Now this is what allows us to really simplify the product in terms there are less components making the brake pads, which makes it also more cost effective. In addition to that, it's also reducing our CapEx expenditure in the manufacturing process because you will not need an oven. The oven is roughly $2 million on a manufacturing line that cost between $12 million and $15 million. So you reduce your CapEx, you reduce your OpEx because you're not consuming energy in the oven. The cost of the material is lower. So this will allow us to continue to win in the market with a more cost competitive product and also better performing.

Obviously, it's completely revolutionary. And therefore, we -- it takes some time to penetrate in the market. But we have tested this product for the last 3 years in China in the aftermarket to ensure that it works well. And we are going to launch it in a platform -- in an OE platform in Q1 of 2028. We already have the customer, we already have the platform. And since -- and from that, then we will see it taking more and more market share as more platform will become available to win.

Great. I'm going to pause here and see if we have any questions here in the room. If anyone wants to jump in.

While we're waiting, maybe I'll move to Connect & Control. I know we've got -- we've had a Boeing price renegotiation on what you supply to them. Can you just help investors, how should we expect that to flow through both this year and over the next few years, whether it's a onetime step-up or if it's progressive and as well as margin impacts as well?

Yes, Kevin. So we are very happy to be able to have finalized the renegotiation with Boeing. It was a long negotiation, and as you can imagine, also very strategic. So we were able to secure high double-digit price increases for a 5-year contract. Most of that price increase is going to happen in year 1 and year 2, and it's going to be effective as of January of this year. So really good impact for us from a revenue standpoint, obviously, and from a margin standpoint.

Great. And then on the KONI defense business, obviously, that's -- most of KONI is your rail business, but can you talk about that, that's been seeing nice growth lately as well.

Sure. This is another great differentiation in terms of execution and innovation because in 2015, we developed a product, the hydro product, the Hydroride for big vehicles that we are selling in the military now. So now the military has always been a small business within KONI, roughly a few million dollars a year. But I would say because of our speed in terms of engineering, designing a new product and because also we had the right product for the market, we've been able to win up to roughly $17 million of orders in defense in 2025 in Europe.

We -- one of our major customers is Patria, which is a Finnish company developing vehicle -- military vehicles that are very successful in Europe. And their 6x6 is actually 100% sourced to KONI. So we think that, listen, it's not a huge market, but coming from a few million dollars to $17 million of orders, it's a nice area of growth in the future for KONI so -- and a focus area for us.

And well positioned in the U.S. with major platforms as well as in Europe, as Luca was just saying.

Yes, that was actually going to take me to my next question. On defense, we've, for years, seen steadily rising defense budgets in the U.S. Now it's happening in Europe as well pretty rapidly. How are you participating in the defense buildup in Europe?

Sure. We are participating in a couple of areas. One is, as we said, on the KONI on the vehicles -- military vehicles. And the other areas are really on the connector side. We have a very good factory in Germany in Weinstadt, close to Stuttgart, where we are producing connectors and we are quite well integrated from the machining, the molding, the plating as well as the assembly, fully -- very highly automated assembly. And so we are seeing very good orders coming in through the funnel, if it is with Rheinmetall, if it is with Leonardo. Or -- and also we are working with some military in the Middle East as well. So connectors and KONI are really well positioned for growth.

Now this is Europe and Europe being Europe is probably not the fastest-moving continent or geographic region. So you see it in the order, you see in -- the opportunity is that we do not see it as yet translating in a high growth in revenue, but it will come.

Terrific. Maybe then on the cost side of your business, last year, we had the whole tariff situation, which you wisely bought back a lot of stock at a good price during. But could you walk through maybe as you see tariffs currently as well as other costs into your business and how that compares to your pricing power?

So right now, in terms of tariffs, we have been able to completely offset the tariff costs with price with our customers. This is mostly coming from IP and CCT. Motion Technologies is, I would say, self-insulated from tariffs because we sell, I would say, more than 90% of our products from -- directly as a pickup from our factory in Mexico. So customers bear the cost of the tariffs and not us. And so when you think about IP, we have been able to push those tariffs to our customers through the distribution channel as well as to some strategic accounts. and really no impact there.

And then in terms of CCT, we have -- most of the product that we make are in North America, so in Mexico. And so as a result, we have a large portion of them that are USMCA compliant, so not subject to tariffs. And for the rest, working with our distribution partners as well as our -- some of the OEMs, we have been able to completely offset. We did have a little bit of a margin impact, but it was completely immaterial.

Understood. Usually, at this point, we're talking about cash flow allocation -- capital allocation and uses of cash flow. Obviously, we know a big one that's pending for you. So maybe could you walk through for us just how quickly you expect to delever following the closing of SPX FLOW? And at what point we can expect ITT to get back on that M&A trend, which has been driving so much growth for the last few years?

So maybe I'll take the first part. So first of all, at the close of the SPX FLOW acquisition, we'll be less than 3x levered. And so I think it's still very much manageable. You heard Luca, we're going to be focusing on synergies. We're going to be focusing on generating cash. By the way, generating -- cash generation is the only metric that really we look at once we buy a company because this is really what's going to drive our decision-making. And here, we expect to delever pretty quickly so that we should be below 2 in a couple of years. And then obviously, we're going to -- as we continue to grow this business as well, we should have a significant benefit from a return standpoint. Can you talk about...

Yes, sure. As always, Emmanuel is spot on, on what he's saying. And then -- so what we say, if we end up with a net leverage of 2.7, 2.75, we have a little bit of flexibility for any small bolt-ons that might come up. Now don't expect any large acquisition for the next 12, 18 months because of the focus, but there might be some small bolt-ons that we do not want to lose because they're going to be strategic for platforms that are not touched by the SPX acquisition. So there is cultivation that is happening today for those small bolt-ons, but we will see. We do not want to lose them if they are coming up, and we have the flexibility to do it.

Understood. I'll check back. Any questions here in the room? Well, if not, thank you again so much for participating. It's great to see the market starting to recognize the benefits of XPS FLOW (sic) [ SPX FLOW ] in addition to the continued strong performance of ITT. So thank you for coming virtually.

Thank you, Kevin.

Thank you.

Thank you.

Bye-bye.

Great. Well, we'll get underway with the next session here. It's my pleasure to have up next ITT. The first time you're both coming here. So it's my pleasure to have Luca Savi, President and CEO; Emmanuel Caprais, CFO. So I really appreciate everyone being here, and thank you both for coming. I think you have a couple of comments prepared, and then we'll get into sort of the meat of the Q&A. Thank you.

And before that, I want to read the forward-looking statements. So our presentation and comments may contain forward-looking statements, which are based on our best view of the world and our businesses as we see them today. These assumptions and expectations can change, and we ask that you view them in that light. We encourage you to review the latest risks and uncertainties in our Form 10-K and other SEC filings available on our website. Thank you.

Okay. So I would be very brief, so we get into Q&A straight away. But since it's our first time here at Barclays, thank you for [ inviting ] us.

Thanks for coming.

So ITT, we are an engineering company, and we engineer, design and manufacture components and stress components for harsh environment across different industries from transportation, aero and defense, flow in energy, chemical, energy transition, of course, and general industrial and mining. It's a roughly $4 billion company. In the last 3 years, we've been able to grow organically 7%. And you see our cash flow margin from last year and our adjusted EPS growth for the last 3 years over there in the slide. So what we make, we are structuring in 3 different businesses: Industrial process, this is flow. So we are making pumps and valves in this business across different industries.

Motion Technologies, we are making brake pads and shock absorbers, shock absorbers for rail, high-speed trains around the world or shock absorbers for defense vehicles and brake pads. Brake pads for vehicles, for cars around the world. And then Connect & Control Technologies, we are making Connectors and components controls mainly in aero and defense. We have generated a lot of value in the last few years organically through organic growth and organic margin expansion.

And that value creation is here to stay. So there is going to be still a lot of that in the next few years. And now we are compounding with M&A. We've done successful M&A in a few small ones and a large one that we are just closing during the month of March. So this is SPX FLOW, which is going to be a good addition. It changes the enterprise portfolio in a way that reduces our auto exposure to roughly 20%. It fit culturally, it fits from a product, brand, et cetera. These are our long-term targets in terms of growth, 10% total growth, 5% organic growth for the next few years until 2030, get it to more than $11 in terms of EPS, $12 if you are adjusted for M&A and an adjusted operating margin of 23% or more than 25% EBITDA. Cash flow margin, 14%, 15%. We're already at 14% last year. Now we must keep it. And now these are the key takeaways, but why don't we get into the Q&A?

Yes, sure. So thanks very much, Luca, for that overview. Maybe on the kind of very near-term demand side of things, there's a lot of optimism here around kind of green shoots in the U.S. industrial economy and realize that touches sort of different parts of your 3 segments. But any kind of perspectives around what you're seeing there in the last few months on U.S. industrial demand?

Sure. So I would say there are many dots and that are positive. So we see -- we saw it in Q4 in terms of the orders, the order performance across the board, across different sectors. Of course, forget about aero and defense, that goes without saying, but also in the short cycle and on the project side. And I would say also when you look at January, very good orders also during the month of January. Also, when you look at automotive, it's a good stable and good growth and we saw in the month of January year-over-year. So I would say there are many positive dots that direct us to draw that conclusion. But I would say it's still early to tell.

Sure. And a lot of your activity is quite short cycle in nature and book and ship, but your backlog was up, I think, high teens in 2025 overall. Maybe help us understand kind of what drove that. Are you seeing any more of a trend to kind of longer-dated orders by customers? Anything changing in kind of the composition or shape of that backlog?

So the backlog is a very healthy backlog, not just in terms of size, but also in terms of profitability. So I would say there has been a trend in terms of -- well, we in ITT tend to bring in the orders as soon as we can. So that builds a good healthy backlog. So what you will see, for example, in air and defense, you win orders for long-term platforms. If you think about the F-35, for example, let's say, we were able to bring orders for a couple of years in our system. So this is good.

So we have a very good visibility in terms of long term across IP and also across aero and defense. The other thing -- so good on that respect, visibility. I would say also the other thing which is good of this backlog is that it is healthy and profitable. So the margins of the backlog are higher and continues to increase, which tells us a little bit about our rigor in order acquisition and also value pricing that we have in the business.

And if I can just add just an example, for instance, are the green projects that we have in IP. These tend to be longer cycle even in terms of delivery. So we booked several orders out of a decarbonization project in Australia. And we see that between the order taking and the delivery, we're looking at almost 2 years. So for sure, on those green projects that are growing significantly because they were up 90% in 2025 versus 2024, the conversion time is a little longer.

Perfect. And I think last year, overall, the orders were up kind of mid-single digits total company kind of full year. I think you'd mentioned, Emmanuel, that kind of all the markets really should have orders growth again in '26. Maybe help us understand kind of who are some of the extremes there on the high or low end of kind of end markets as you see it this year on order book?

Yes. So for sure, when you look at aerospace and defense, they're on the higher end of the range. For sure, we expect the Boeing ramp-up in terms of production, the Boeing repricing, the investments in the defense modernization to really play well with our portfolio. And so as a result, we'll deliver significant growth. I think probably on the low end of that is automotive. So automotive is expected to be roughly flat to slightly down. I would say that has been the case for the past 2 to 3 years. So nothing changes like this for this.

But what I think we bring to the table is that outperformance of the automotive market. So we expect to outperform automotive by 400 to 500 basis points again this year in 2026. So we expect to be able to compensate a little bit that sluggishness from the auto market. And I would say from an IP standpoint, I think middle of the fairway, we expect low to mid-single digit growth from an IP standpoint. I think, as Luca was saying, short cycle has been pretty strong. And we're seeing it both on the spare parts as well as on our valves business, thanks to the GLP-1 opportunity. And then from a project standpoint, we're not going to see the growth that we've experienced on an order standpoint in 2024 and to some extent also in the first half of 2025, but we're still seeing healthy markets that are going to stabilize at a high level -- at an elevated level.

Got it. And on revenue near term, you exited last year with very strong organic sales growth. You've guided for a sort of a slowdown or step down, what have you in the first quarter despite the backlog and order growth. So sort of what are the mechanics of that sales growth in the first quarter?

So as Luca was saying, we booked some orders last year that are orders for several years. So you can't expect those orders to convert right away. You were mentioning some larger -- longer conversion type of orders, and that's also the case. I think last year, in Q4, we grew revenue by 9%. But some of it were organically, but some of it was because in the case of aerospace, for instance, there was no activity. I mean there was complete work stoppage at Boeing. So the Q4 2024 is an easy compare. And I think that as you see Boeing has recovered and is continuing to recover, the comp will be less easy even though there will be strong growth coming from Boeing.

And you mentioned aerospace a couple of times. Maybe the defense side of things. What's the exposure there, specifically in defense? And what are kind of some of the main product categories that you think you should see the highest growth now?

So when you look at defense, of course, there is the acquisition of kSARIA. So we are talking about interconnect solution, fiber cabling and cabling with customized connector. KSARIA, which was roughly -- which is a $200 million business, is 80% defense. So you're talking about the F-35, you're talking about the F-47, eventually, you're talking about submarine. So many of those applications. And then there is the legacy part of the business in CCT Controls and Connectors. So controls, for example, if you're talking about the KC-46, the refueling plane, the valves that allow the fuel to go from the big to the small plane, that has been designed, engineered and manufactured by ITT, or the FLRAA, the new helicopter that will substitute the Black Hawk, we want roughly $6 million to $7 million of NRE that will translate in roughly $80 million of manufacturing orders eventually for the next 10 years.

And then on the Connector side of the business, listen, if you're talking about a standard Connector, that will not be ITT. We will not be able to compete with the big players that are out there in the market. But if you want a customized connector, if you want to get rid on the drone of those standard connectors and miniaturized in a very small one with the same data, high speed, high density, then this is where we are adding value. So we are working with many companies in Europe as well as in North America in terms of drones or missiles or the connector side of the...

Yes. And so overall, when you think about defense, this is representing roughly 10% of the total portfolio of ITT. And we have some pieces that are growing significantly, for instance, like our KONI shock absorbers that we supply to the defense industry, both in the U.S. and in Europe, orders last year grew 70%, and this is mostly for ground vehicles. And so we're really looking at developing those type of products, especially now that Europe is ramping up from a production standpoint.

When you think about that defense portion, do you think that could kind of grow double digit in the next few years revenue-wise? Or it's just kind of too lumpy to predict?

So if you look at our kSARIA business, certainly, those orders exceeded our expectations and grew double digit last year. So I think that does this mean that we can expect double digits in 2026? Probably. What -- and certainly, we see also a very positive picture from an order standpoint in 2026. So we expect a book-to-bill above 1. Now does this continue longer term? I think it's too early to say. So for the moment, we are around that high single-digit growth that we were expecting. We're confirming that. But for sure, the first 2 years were really good. And the rest of our portfolio is really benefiting from defense modernization, soldier worn equipment, whether it is radio, Luca was talking about drones also first FPV drones. So we expect significant growth out of defense in the future.

And if you look at that kind of the CCT business, I think you're guiding this year all of it up mid-high single digit. How much of that is kind of A&D versus non-A&D? And when we think about that repricing, how to think about the sort of scale of that? It's something another company mentioned this morning, repricing of commercial OE programs.

Sure. So I mean, when you look at the repricing is a big component. When you look at the pricing power within that portfolio, I would say CCT is the business where we got the highest pricing power. But let's face it also, we come from a period where there were fixed price contracts, and therefore, we had to change that. So there is an adjustment to what is fair square.

Now I think that when we are measuring growth in ITT, we tend to look really at volume growth and overperforming the market. So -- and this is what we have seen across the portfolio. In defense, we definitely look at a lot of volume growth and outperforming the market. When you look at aerospace, I think that sure, price is a good component, but we will have a couple of tailwinds in aero. One, of course, is the recovery of aero in general. And second is the fact that we tend to be more exposed to the widebodies than the narrowbodies, and those came in a little bit later. So it's fair to say that we are late in the [indiscernible] in the recovery in aerospace, and this will be a tailwind in 2026 and beyond.

Got it. And when you think about the program side of things, every year, there's some programs up for renewal on commercial aero OE. Is there any kind of weighting in the next 2 years as particularly high or low in terms of that repricing coming through?

No. I think that most of the efforts have been done, I would say. Now having said that, it would be a continuous renegotiation on some of these contracts. Now with our largest customer, Boeing, we were able to successfully negotiate and both parties are happy about the 5 years agreement. And therefore, we have a good 5-year agreement with Boeing, and there is no need of further negotiation for the next 5 years on that front.

Got it. And within Industrial Process, how would you scale kind of the traditional sort of petrochem, energy downstream, upstream? How much of the business comes from those markets? And then what sort of trends are you seeing on CapEx there.

Yes. So if you look at petrochem and energy, more than 50% -- that composes more than 50% of total IP portfolio. And I think that got boosted with Svanehoj. Because Svanehoj added the piece of energy transition from bunker fuels to cleaner fuels. I think that when you look at chemical, chemical hasn't been great for the past few years. However, we've been able to outperform both from an order and a revenue standpoint.

I think this year, we see a little bit of a mixed picture, especially coming out of Europe. So we don't expect much growth out of chemical. But I think from an energy standpoint, whether it is from Svanehoj with the energy transition, a lot of LNG investments or with the rest of IP, for instance, in Saudi Arabia, where we are performing extremely well. Our teams are winning 90% of what is available to bid in Saudi Arabia with Saudi Aramco, among others. And then some energy decarbonization, green projects also that are really rounding up the portfolio. So I think the prospects from an energy standpoint are still very bullish.

So when Emmanuel was talking about energy is the entire energy. So if you look at the oil and gas, the traditional oil and gas, that exposure is roughly $10 billion, 10% of the ITT portfolio. And then what Emmanuel was talking about is the energy transition. So the changing of the pumps in a ship that now is now using dirty fuel, but it will go to LNG and eventually to ammonia or carbon capture. So that makes a big portion of the energy orders.

Perfect. And then maybe moving to the kind of profitability side of things. Net productivity is always a very big kind of driver of your margins and you break that out. The structure, I think, of the company is quite decentralized. So how do you kind of ensure that, that productivity flywheel keeps spinning?

Sure. Actually, that's core to us. We honestly believe that corporate manufacturing excellence, those words do not go together. So actually, we believe that the decentralization and holding those plants or those regions super accountable for their numbers is actually what drives the productivity and what drives the growth. I think that, that model, I think, has had some good returns for us, and we believe we'll keep on giving.

We really incentivize in terms of continuous improvement and the net productivity all across the different businesses, all across the different plants. We are looking at 48 different KPIs that are the standard for every single plant and people are incentivized on those. That has been working well. So I see actually decentralization and net productivity going together and not vice versa.

Perfect. And soon you'll bring in the SPX FLOW business, as you highlighted. How confident are you that you've got a good top line growth outlook there without ITT having to put in a lot of investment. The assets had a number of different owners down the years.

That's fair. So a couple of things. Now let's park for the moment the revenue synergies, and we can talk about it later because those will take a little bit of time. But I believe there are a couple of components that will feed a mid- to high single-digit growth. Now if you look at the Nutrition & Health, I think that the -- I think that we are entering into a growth cycle in terms of if you look at some of our customers that [indiscernible] of this word, a 3% to 5% CapEx growth in the next few years. So that will help, and that is pure market related.

Then I think that there are 2 components which are the way that we are going to run the business. We were talking about decentralization. The decentralization and holding the region, if it is China or if it is another region more accountable of the growth rather than being centralized somewhere in Europe or somewhere in North America, will feed more local growth. We believe in making decisions for the product and for the opportunity as close to the customer as close to the market as possible.

And then I would say, a more pragmatic approach to the 80/20. I think that in SPX 80/20 has been a great tool. And don't get me wrong, it is a good tool, but we are pragmatic on it, and we use it as a common sense. I believe that if you are a [ crusader ] of the 80/20, actually, you will kill some growth. And therefore, having more of a pragmatic approach to that will help us growing in the mid- to high single digit. And those things should happen from day 1.

That's great. And maybe talk us through kind of -- I don't have a typical integration process, but particularly with SPX FLOW, it will close soon. How do the first sort of 100 days go and of course, plan of action there?

So SPX probably will be different from the acquisition that we made in the last couple of years because when you think about Svanehoj, kSARIA, Habonim, first of all, we do not talk necessarily about integration in ITT. We talk about value creation. And so you bought a successful company with a strong management team. For sure, you integrate when you think about finance, when you talk about cybersecurity, et cetera.

But then if you got a good machine, and this is what has happened with Svanehoj, with kSARIA, with Habonim, and has created a lot of value for us in the years. SPX FLOW is a little bit different in terms of -- it's going to be a little bit more integrated within IP. So for the last couple of months and for the next month, we are working very hard every single day to ensure that we hit the ground running day 1 after closing and which means that a very clear idea on what are the corporate G&A synergies that will be executed and realized in day 1.

So there are duplication that will be eliminated in day 1, of course. And then there are synergies from a purchasing point of view that we are already working on it, but that will take probably a little bit of a medium term to be realized. And then in the business G&A, those are synergies where we need to work together with the business a little bit more and understand the business a little bit more. Those will be more towards the end of the year and in 2027. And then footprint synergies.

These are the 10% of the synergies that will be realized probably in year 3, because we tend to take a little bit more time to ensure that we do not mess around with our customers in terms of the delivery. So we are running meetings, Emmanuel and I are participating to progress on the way that the organization is going to be designed and the savings are going to be realized from day 1 every single second day.

And just a quick update. So we received all the regulatory approvals for SPX FLOW. So we should be on track to close for the -- during the first week of March.

Okay. Perfect. And then the -- okay, I see. And then once that's folded in, will you update the financial guidance at the following earnings? That's the way to think about that?

Yes. So this is why there were many pieces moving, right? So when we came out with the earnings call -- at the earnings call for the Q4, we decided to give guidance for Q1 so that at least our investors know the solidity and the health of the legacy business. And of course, in March, when we're closing with the SPX FLOW, we will be able to bundle everything together and come out with the guidance for the full year at the earnings call in May.

Got it. And there's been a very successful acquisition history at the company. There's also a lot of companies here, for example, this morning, who are doing large or have done large divestments, so how do you kind of think about what to keep, maybe what to divest while at the same time kind of adding more exposure?

I think that we need always to be active on the portfolio management. I would say -- and this is exactly what we have done in the last couple of years, for example, with the divestiture of Wolverine. I think that, that was very timely because also Wolverine was the business that was most exposed to the tariff world because we were buying steel from Europe, manufacturing only in North America and then exporting. So you can imagine we would have eaten twice.

So we've got lucky there. And so as we reduced our automotive exposure. Now with the SPX acquisition, we are going to reduce our automotive exposure to roughly 20% of the portfolio, which is good. I would say that part of the business is still very profitable. There is growth opportunity there, both in terms of revenue growth and margin expansion. So at this moment in time, I see that all those parts of the portfolio are still fitting well within ITT, because we can still create tons of growth and tons of margin expansion. So it will be part of the value story for the next few years.

And within automotive, you mentioned it's an industry with very tough competition. You've managed to take share consistently there for some time. Maybe help us understand how does that strategy differ, say, OE versus aftermarket? And more broadly, in ITT, do you kind of feel comfortable about passing on higher cost in price?

Sure. So 2 things there. So first of all, we tend to be more OE than aftermarket. So 75% of our business is really. So when you look at ITT is mainly an OE player. And we've been able to outgrow, and you see our profitability in terms of more than 20% EBIT, which is quite rare in the automotive market and keep on growing revenue and keep on growing our profitability. There is no one single reason for that. It's a recipe of many things that we are very differentiated when it comes to manufacturing, when it comes to the speed we're operating, when it comes to R&D and therefore, that differentiation, quality, we are measured quality in PPB is parts per billion.

No competitor is able to match that level of performance. So every single time an OEM wants to launch flawless a platform, they really rely on ITT. So that is really good. I think that when it comes to the price and cost equation, I will say you do not have a lot of pricing power in automotive because none as a matter of fact. Even if you are the only one that's able to solve the problem, you are lucky if you're able to get 1%, 2% or maximum 3% of premium. So you don't get that. But the trick here is to ensure that you've got the price/cost equation that is favorable. And this is what we've been able to do in Motion Technologies. Our price/cost equation has been good in 2024 and in 2025 and will be positive and tailwind also when it comes to 2026.

Perfect. Good. Well, with that, I think we'll turn now to the audience response survey questions. The first one is you currently own shares in ITT. And then second, question is around sort of aside from ownership, general bias to the stock right now. So generally positive disposition. The third question is around EPS growth expectation versus kind of multi-industry average. So generally above average EPS growth profile. The next question is on the balance sheet and what should the cash usage be? And post SPX FLOW closing, is sort of debt reduction for...

Yes, -- the focus will be to reduce the debt, of course. We will close probably around 2.7 in terms of debt ratio. And you can expect some small bolt-ons right? in terms of -- because we -- if there is a strategic acquisition, you don't want to add them. But I would say no large acquisitions, of course. But the focus would be execute on SPX, get the synergies done pay down the debt, and you may add some small bolt-ons.

Perfect. The next question is around valuation. What PE on year 1 should ITT trade at? around sort of 20x. And then the last question is around kind of what's the main anchor on that valuation multiple today. Sort of core growth and execution on the transaction.

Great. Well, with that, thank you so much, Luca and Emmanuel, for being here.

Thank you.

Thanks so much.

Welcome to ITT's 2025 Fourth Quarter Conference Call. Today is Thursday, February 5, 2026. Today's call is being recorded and will be available for replay beginning at 12:00 p.m. Eastern Time. [Operator Instructions]

It is now my pleasure to turn the floor over to Carleen Salvage, Vice President, Investor Relations and FP&A. You may begin.

Thank you, Gigi, and good morning. Joining me in Stamford today are Luca Savi, ITT's Chief Executive Officer and President; and Emmanuel Caprais, Chief Financial Officer. Today's call will cover ITT's financial results for the 3 and 12 months periods ended December 31, 2025, which we announced this morning.

Please refer to Slide 2 of the presentation available on our website, where we note that today's comments will include forward-looking statements that are based on our current expectations. Actual results may differ materially due to several risks and uncertainties, including those described in our 2024 annual report on Form 10-K and other recent SEC filings. Except where otherwise noted, the fourth quarter and full year results we present this morning will be compared to the fourth quarter and full year 2024 and include certain non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures are detailed in our press release and in the appendix of our presentation, both of which are available on our website.

With that, it is now my pleasure to turn the call over to Luca, who will begin on Slide 3.

Thank you, Carleen, and good morning. Before we begin, I want introduce Carleen Salvage, our new Vice President of Investor Relations and Financial Planning and Analysis. Carleen brings extensive experience in financial and operational leadership and is returning to ITT, where she spent over 9 years in roles of increasing responsibility, culminating in the position of Vice President and CFO of Industrial Process.

In our new expanded role at ITT, Carleen will lead our global IR and FP&A organization, driving ITT's performance and continuing to provide compelling communication of our long-term value proposition. Welcome, Carleen. We're very happy to have you back.

I would like to thank both our existing and new shareholders for participating in the equity raise we completed in December to fund the pending SPX FLOW acquisition. We are grateful for your support, and we will work hard to make this acquisition a success. Finally, I'm also deeply grateful to our ITTers for their contributions in 2025. And a year that marked a milestone in the execution of our long-term strategy. I'm humbled by what you have accomplished.

Now to the results. The dominant theme of the year was growth and we delivered growth across every metric outlined at Capital Markets Day, revenue, margin, cash, orders and all these compounded with M&A. Let's get into 2025 financial highlights. We grew revenue 8% in total and 5% organically. We grew EPS 14% or 18% excluding the $0.16 impact from the Walgreen divestiture and the $0.03 dilutive impact from the equity offering related to the Svaneh�j acquisition. We grew operating income 11% and expanded margin by 40 basis points to 18.2%. In addition, our recent acquisitions, Svaneh�j and kSARIA both expanded margins compared to prior year.

The fourth quarter was equally strong. ITT hit a milestone with orders and revenue both exceeding $1 billion for the very first time. Orders grew 15% or 9% organic. Specifically, CCT grew an outstanding 40% organic with equal contribution from our legacy business and from kSARIA. Revenue grew 13% or 9% organic. Of note, both IP and CCT grew more than 11% organically. Operating margin grew 90 basis points to 18.4%, with all segments expanding versus prior year. EPS of $1.85 grew 23% and 26% excluding the dilutive impact of the equity raise to fund the pending SPX FLOW acquisition.

I would also like to take a moment to underscore our cash performance in 2025. We grew free cash flow to over $550 million, up 27%. Free cash flow margin of 14% was up to 100 basis points. Cash conversion was well over 100. And during the year, we put this cash to work, investing in productivity, growth and innovation as well as deploying $500 million to repurchase shares early in 2025.

Now turning to drivers of future growth. We grew orders 10% to $4 billion, up 5% organically. Backlog ended at $1.9 billion, up 18% year-over-year. We continue to look for ways to elevate our commercial performance and win market share in all our businesses. Earlier this year, we held our first sales conference, [indiscernible], where the ITT sales team spent 2 days together in the Middle East to review our performance, hear from our customers, learn from various speakers and strategize to win and conquer in 2026 and beyond. Looking at our investments in new products, by their inflow and high performance in friction will continue to feed the growth in previously unaddressed market. And the pending acquisition of SPX FLOW, the largest in recent ITT history will be a significant accelerator as we focus on a higher growth, higher margin flow business.

On SPX FLOW, we still expect to close the transaction in March. Let me share a few highlights on the performance for 2025. Total orders grew in the mid-teens for the full year driven by strength in the Nutrition & Health segment and in mixers. Backlog was up in the high teens with a book to be comfortably above 1. EBITDA margin was in line with our expectations with significant runway for expansion driven by volume growth, pricing, operational efficiencies and synergies. On the integration front, our teams are preparing for day 1 readiness. We're identifying best practices to deploy and defining priorities and integration must have. We are currently defining the future organizational structure and aligning on performance measures to ensure clear and effective accountability and delivery.

We are also very happy to have secured many key leaders from SPX FLOW ahead of closing. We are fully engaged for the long-term success of this new platform. And from a synergy standpoint, expected savings related to G&A are on track. We continue to identify further procurement synergies, and we are evaluating footprint and best cost country opportunities to plan for seamless execution, leveraging SPX FLOW size in Poland and China.

Let's return to ITT on Slide 4. I would like to talk about the incredible work our sales and engineering teams have done this past year to win in the marketplace and ensure we sustain the high single-digit growth ITT delivered over the past 5 years. As we discussed during Capital Markets Day, we're focused on delivering growth organically and through M&A. On the organic front, I want to highlight 3 specific platforms for growth. Flow. What honestly started an opportunistic award in the carbonization in Australia has grown into an approximately $50 million win for our bond multiphase pumps. Bornemann technological superiority convince the customer to source sources on the entire project, consisting of 3 expansion phases. We shipped the first system in Q3 of 2025 and we delivered a follow-on system in 2026 and 2027. Great job [indiscernible] and Bornemann.

In Latin America, we are supporting Argentina's oil production ramp and our BB3 pumps were chosen for one of the largest unconventional oil reserves outside of North America. This was thanks to the perseverance of Gabriela and Fernando, who executed the perfect commercial strategy for a project where we started as the underdog. Finally, we are well on our way to supply 100% of the biopharma [indiscernible] valve for a leading GLP-1 drug maker for their U.S. and European expansion phases. Our patented EnviZion technology and the intimacy we developed with both the EPC and the end user made it happen.

Moving to defense. Enidine, a leading brand of rotorcraft energy absorption is benefiting from defense modernization. Specifically in the U.S., we have been selective for the development of a FLRAA energy absorption system by Bell. This is a platform that could be worth more than $60 million over 10 years, starting in 2028. Connectivity is another growing trend in defense that continues to benefit our connector business. In 2025, we grew orders by 27% as we secured several high-profile solder warn and drone applications. In land size applications, KONI Hydroride is roughly gaining shares in the U.S. and Europe, our marquee platforms spending ramps up. KONI defense business is approaching $50 million in orders after growing more than 70% in 2025.

Finally, on Transportation. In Q4, we renewed a multiyear contract that will ensure aerospace control supports Boeing growth plans. Great job, [indiscernible] and Aerospace team. In rail, KONI keeps on gaining market share as the only validated source of the CR450 high-speed train platform, thanks to the incredible work of Team and Charles. And they could not talk about platforms for growth without mentioning our friction business, which has outperformed global OE production again for the 13th year in a row while our team in Barge continues to make progress on the geopath, [indiscernible] that is now in trials with a major European OEM for a start of production in 2028. Amazing job Umberto and Alexandre.

As you can see, we have a long organic growth runway ahead of asset ITT, we are compounding it with M&A as you have seen with Svaneh�j in Marine Energy transition, with kSARIA in defense and now with the SPX FLOW acquisition that we expect to close in March.

Let me now turn the call over to Emmanuel to discuss Q4 results in detail.

Thank you, Luca, and good morning. We ended the year with another strong quarter. In Q4, we delivered strong performance across the board in orders, revenue, margin, EPS and cash. Our teams delivered over $1 billion in revenue, up 13% in total and 9% organically from higher volumes and price realization.

Within IP, Svaneh�j grew over 50%, while legacy pump projects were up 30% organically. CCT grew 11% organically thanks to strong aerospace and defense, up 27% and 17%, respectively, while kSARIA grew 11%. In MT, KONI defense grew 13% as we continue to penetrate the ground vehicle market in Europe. Friction OE outperformed global automotive production by 400 basis points, while aftermarket was up 9% from an easy 2024 compare. On profitability, operating income grew 19%, driven primarily by strong operational performance and contributions from our acquisitions. MT operating income grew 13% and margin reached 19.7%. The team at IP drove 100 basis points of margin expansion, including Svaneh�j EBITDA improvement of 350 basis points. Moreover, CCT margin was up 240 basis points, excluding M&A dilution.

With the Boeing contract negotiation now closed, we are confident that our teams can focus on supporting the accelerated aerospace growth expected in the next few years. EPS of $1.85 was up 23% or 26% excluding the dilutive impact of the equity offering related to the SPX FLOW acquisition. Lastly, on free cash flow. Our performance accelerated sequentially to deliver 27% growth for the full year and 14% free cash flow margin. We are already at the level we targeted for 2030 at Capital Markets Day. Here, I want to point out the significant progress regarding customer advances. Following the example of Svaneh�j, the team in IP collected 20% more cash advances compared to the prior year, which represents 300 basis points improvement as a percentage of the inventory brought in-house. Great momentum with more opportunities to drive further improvement in working capital.

Let's turn to the full year EPS bridge on Slide 6. For the full year, EPS grew 14% compared to the prior year and 15% excluding the dilutive impact of the December equity raise related to the SPX FLOW acquisition. The $0.62 from operational performance, including volume growth, pricing actions and productivity were compounded by $0.25 contribution from our acquisitions. The $0.16 headwind from the loss of income from the Wolverine divestiture, the impact from the high tax rate and interest expense was offset by a lower weighted average share count.

Here, I would like to spend a moment describing the foundational progress we have made, particularly in IP and CCT as we're driving towards the empty benchmark. SQDC, or safety, quality, delivery and cost is the framework we use to measure our operational performance. On safety, both IP and CCT are below the injury frequency rate benchmark of 0.4. Specifically, IP delivered a 50% recordable incident reduction in 2025 compared to the price. Quality performance also improved with 20% fewer claims in IP and a 60% PPM reduction in CCT in 2025. On delivery, overall IP improved on-time performance by 600 basis points and our anti-pump product line improved by 2,700 basis points in December compared to the prior year. Both businesses significantly improved their cost position during the year, which led to the margin expansion performance we presented earlier. This positions us very well to grow profitably in the future.

With that setup, let's now move to Slide 7 to discuss our 2026 outlook. Let's review the assumptions underpinning our revenue growth outlook by segment, beginning with Connect & Control Technologies. Accelerating commercial aero production supported by a widebody recovery ramp is expected to drive meaningful growth across our aerospace portfolio. Repricing of long-term aero contracts is poised to deliver multiyear benefits enhancing visibility and profitability over the cycle. In defense, expanding demand for advanced electronics and the introduction of product innovations will continue to drive [indiscernible] of share gains. At the same time, kSARIA backlog conversion provides an additional tailwind, further strengthening CCT's outlook for sustained above-market growth.

Industrial Process is positioned to strong growth as we convert our $1 billion backlog and continue gaining share in pump projects. Svaneh�j continues to benefit from the accelerating marine energy transition while our execution differentiation further drive short cycle demand. As mentioned previously, the expansion of GLP-1 production will support valves growth, thanks to our patented Envision technology. In Motion Technologies, continued Friction OE outperformance positions the business well despite flat vehicle production and softness in North America. Share gains in high-speed trains in China and Europe are fueling strong growth in our rail portfolio. Finally, high-teens growth in KONI defense driven by product differentiation and expanding military ground vehicle programs in the U.S. and Europe provide an additional impetus for the segment.

Let's move to Slide 8 to continue outlook discussion. The planned SPX [ FLOW ] closing in March, we'll focus today on Q1 guidance. This does not include any of the accretion we expect from the acquisition. For Q1, we expect total revenue growth of approximately 11% and 5% organically. This is driven by mid-single-digit growth in IP and CCT due to share gains in pump projects and Aerospace and Defense. MT will continue to outperform global auto and rail production to deliver low single-digit growth. In addition, Q1 2026 will have 4 more days than prior year. All segments are expected to expand margin versus the prior year to deliver over 100 basis points of EBIT margin growth driven by higher volume, positive price costs and fixed cost controls. We expect both Svaneh�j and kSARIA to improve profitability year-over-year as revenue ramps up and productivity accelerate. All of this will translate into 17% EPS at the midpoint in Q1.

On Slide 9, we can see the different components of the Q1 EPS outlook. We expect EPS to land at $1.07 for Q1 at the midpoint, up 29% when excluding the impact of the December equity offering. This is primarily driven by operational improvements. We expect a flat tax rate, higher corporate expenses and a share count of 86 million shares given the December public offering. This does not include the impact related to the Lone Star equity consideration to be issued at the closing of the SPX FLOW acquisition. For the full year, we expect ITT to grow organic revenue mid-single digits. This topline momentum, combined with favorable price cost, fixed cost discipline and productivity gains across our recent acquisitions position us to deliver at least 50 basis points of margin expansion for the full year. We look forward to providing updated guidance inclusive of the acquisition impact of SPX FLOW at our next earnings call.

As previously mentioned, we expect the SPX FLOW acquisition to close in March, and we continue to estimate it will generate a net single-digit EPS accretion in full year 2026. As a reminder, following the close of the transaction, ITT will revise the definitions of adjusted operating income and adjusted income from continuing operations to exclude all acquisition-related intangible amortization reflecting ITT's ongoing M&A activity.

Let me turn the call over to Luca on Slide 10.

Thanks, Emmanuel. A few points before Q&A. 2025 was a milestone. We executed on all fronts, delivering strong growth, higher profitability and making strategic use of our capital. We delivered on all our commitments, and we have started the next chapter of strong. Our execution and innovation will continue to drive future growth as you have seen 2025. We are accelerating our 2030 vision as we compound our organic performance with the announced SPX FLOW acquisition. We are well positioned for continued value creation.

Thank you for joining us today. As always, it has been my pleasure to speak with you, Gigi, please open the line for Q&A.

[Operator Instructions] Our first question comes from the line of Jeff Hammond from KeyBanc.

A lot of moving pieces, appreciate all the color. Maybe just to start with IP, I know those orders can be lumpy and the backlog sounds great and gives you visibility. But just wanted to get an update on the funnel and just how you see kind of orders flowing through the year just based on that fund of visibility.

Sure. When you look at the funnel in terms of the orders, the funnel is slightly down versus the prior year. But if you look at the quarter, Q4 funnel actually is stable versus Q3. and still very, very healthy. And within that funnel, you will actually see that the funnel in the Middle East and in Asia Pacific actually grew nicely. So we are feeling pretty good on the funnel. And just to give a little bit more color when we were in the Middle East and the expansion of our facilities in Saudi Arabia, and that was able to [ derank ] our customer, actually, they were quite positive about future investment and '26 be better than '25.

And Jeff, if you look at our 2026 orders, we expect to deliver growth with really all end markets contributing to roughly probably low to mid-single growth -- single-digit growth.

Okay. Great. And then on CCT, you talked specifically about, I think, kSARIA order, but just unpack that 40% organic growth and in the orders and if there's any kind of onetime issue or lumpiness in there. And then just separately, like just wanted to clarify, the 1Q guide still includes amortization. And then once you close SPX FLOW, you'll exclude it.

Okay. Let me take the orders and of course, Emmanuel, you will track on the second one. So when you look at that incredible performance in terms of the orders in Q4, I would say that was -- everything was nicely up. It was -- connectors was up more than 20. Controls or up 70 aftermarket was up 35. kSARIA was up 33. So all the orders were nicely up in the quarter, and this is very to also for the full year. I think that there is probably just one item which probably is a few million dollars, which is a price adjustment because of the contract renegotiation with Boeing. That's the only thing, but I would say very nice across the board. Emmanuel?

Yes. And regarding our Q1 guidance, so we're very happy to deliver a 17% expected growth from an EPS standpoint. This does not include any change to the accounting we have on the intangible amortization. So we'll do that when the acquisition closed sometime in Q1. And so -- but it includes the dilution from the equity raise that we did in December.

Our next question comes from the line of Mike Halloran from Baird.

Can we start on some of the SPX comments you made there, Luca. Obviously, really good momentum exiting the year with the order trajectory, backlog commentary, et cetera. Maybe just dig into a little bit how sustainable that trajectory looks and what the core drivers for your perspective are that should allow that momentum to continue?

Sure. So we are working very closely with the SPX FLOW team. So we still haven't closed the deal yet. So more color will come later. But I can tell you that the -- when you look at the nutrition and health, I think that when you look at many of the customers that they're working with, they are in a good CapEx cycle. And SPX FLOW is a very good position with several of them.

As a matter of fact, I participate to a call together with the SPX leadership team with one of their major customers, and it was really good to see the intimacy that they have and how they work with the customer in building the CapEx and building the execution for the years to come. I think that this is confirming a little bit our visibility into what we said at the beginning when we communicated the acquisition that we see this SPX FLOW as really a growth opportunities. And when it comes us to mixers, I would say we have some good opportunities there as well. Granted, probably that was coming from an easy compare when it comes to 2024.

And then maybe just a generic question and then a specific one associated with it. If you think about your outlook for '26, how much has changed over the last 3, 6 months in terms of how you're thinking about next year or at least versus the 3Q earnings release? And more specifically, within the Motion piece, is there anything changed on how you're thinking about the end market outlook for auto?

Sure. I would say that some of the trend continues, some of the trend probably reinforced. So if you look at the aerospace recovery, we've been talking about the aerospace recovery now for a few quarters. And now you see some good results in there in terms of the orders and in terms of the revenue as well. And the aftermarket is strong. We see the production ramp-up. We see also the widebodies. So those were something that were happening, and now they're getting a little bit stronger.

Defense was good. It's getting it to be stronger, and that is what's happening. So a confirmation. Now when you look specifically at Motion Technologies, I would say in terms of the auto market., If you look at 2025, it was a positive year in terms of growth of production. That was mainly because of China. Both Europe and North America were down less than what we expected at the beginning of the year. You look at 2026, we expect the production -- the global production to be flat, slightly down. And once again, it will be across the board, probably Europe being flattish and North America and China flat to low single digit down.

Our next question comes from the line of Joe Giordano from TD Cowen.

So for businesses like Svaneh�j, kSARIA, it's great to see them scaling and getting orders to this magnitude. But like I guess the -- like the other side of that mountain is sometimes challenging, right? So how do you kind of prepare these companies? Like how -- is this -- are these like stable run rate orders? Or like are we going to have to kind of find new ways to keep the level of business to that magnitude? Like how do we prevent a plus 40 becoming an impossible comp in like all years?

Sure. So when you look at the -- I would say there are slightly difference between kSARIA and Svaneh�j. I think that when you look at the kSARIA incredible order performance. And I would say that is, I would say, quite sustainable, if you think that more and more expenditure will happen in defense and kSARIA play -- 80% of the kSARIA business is actually in the fence. So I think that, that is sustainable in the short and medium term from our perspective.

The comments in terms of Svaneh�j, I think it will be difficult to repeat the level of performance of orders in 2026 versus 2025. I mean, '25 orders grew 44%. So obviously, that will not be repeated. Having said that, we are working to expand the opportunities in Svaneh�j with new product introduction and also from a small addition from an inorganic perspective like the acquisition of [indiscernible] that we did at the end of last year, which introduces compressors into the mix. So working on that from an innovation and product point of view, Joe.

Perfect. And Luca, you touched on this in your prepared remarks. But like as you get ready for to come in like it's a much larger deal than anything you guys have done. So how do you -- like when you do ahead of time before you can really dig -- before you get your hands on it, what can you do to prep internally to make like the early-stage integration as fast and efficient as possible?

I can tell you that the team are working very closely together. Actually, it was really good to see the team working together over here in Stamford. We had it a few weeks ago. both the SPX team and the ITT team working to really kick the ground running on day 1. And know exactly how the organization is going to look like and working on those synergies that we expected to deliver in year 1 and also working commercially as said before as well, both Bartek and myself participate to a call with one of our major customers that we will meet in person after closing. Next week, I will be in London, and we'll be able to spend 1 day with the Nutrition & Health leadership team altogether, looking at the projects and the opportunities. So we are all in it already.

Our next question comes from the line of Nathan Jones from Stifel.

I guess just following up on some of the SPX stuff, interested in hearing a little bit more about the organizational structure post getting the deal closed here. There's some parts that -- where there's overlap, there's some completely different customer bases between your industrial process business and some of their flow businesses. So just any commentary on how you'll structurally go about integrating those? What will run separately? What gets integrated into IP? Just how you're thinking about running those businesses once you get them in the [indiscernible] please?

Sure. First of all, SPX is well run. We saw the margin that they were delivering, right? So we have a good, well-run company with a good management team really that we have in the businesses. So when we are approaching this, it's really to ensure that the businesses are performing well with strong management team are stable and they're delivering the base case. And on top of that, we're going to deliver the synergies. But most of the synergies, particularly in year 1, are coming from the G&A from the fact that we are not going to have a duplication from a corporate point of view.

So we are using the best leader, and we've got very good athlete and very good management team in SPX. So we will integrate some part and those are the must-have conversation that we're having today. But the parts that are running well, you want to keep on running well and ensure that you do not disturb them.

I guess a question on the finalization of the contract negotiations with Boeing. I'm sure you're glad to finally have that behind you. Can you talk about the potential margin improvement that CCT sees those contract negotiations? I know that some of that benefit is coming over the last few years and some of it will come on over the next few years. Just where we get to or what the contribution is from that and how quickly that rolls in and over what time period?

Thanks, Nathan. We're very happy, as you said, about the conclusion of the Boeing contract. And here, really, we want to applaud the work of the CCT aerospace team that really worked really hard to deliver that contract. So this is a high double-digit price adjustment 4- or 5-year contract. So most of the price adjustment or the price increase is going to come in the first and the second year with additional price increase to offset expected inflation in year 3, 4 and 5.

This is obviously compensating for the absence of price adjustment we have had since 2015 and 2017 and the cost inflation that we have experienced. So as a result, as you can imagine, this will be a large improvement of our profitability, our aerospace profitability, specifically with Boeing. And we're very happy because it allows us to focus on supporting the growth at Boeing that we've seen both on the narrow-body and the wide-body platforms.

Our next question comes from the line of Amit Mehrotra from UBS.

Luca, we're just currently, I guess, in an environment where folks are getting maybe a bit more positive on some cyclical tempo improving. If you kind of just look at the more cyclical parts of your business, are you seeing any evidence of that? Because obviously, there are certain large parts of your businesses that sell into cyclical markets, but you've been able to outperform that, obviously, with autos [indiscernible]. But if we were to just sort of isolate the cyclicality of the market I'd just be curious, does it feel better to you? Or is it really no change?

I would say that there are some small signs of improvement, I would say. If you look at the last, I would say, probably 6 weeks, if we look at some of the part in the short cycle in IP, the order book in terms of automotive in Europe, I would say, is stable. The aftermarket in Q4 was growing nicely, even granted was from an easy compare. So there are some signs, I mean, that will imply that maybe the situation is a little bit better, but it's probably too early to tell.

And I would add that our short cycle performance really is standing out. We are focusing on improving our on-time delivery which really brings a lot of opportunities forward for us to gain market share. And when you look at the short cycle in IP, we had pretty strong spares orders in Q4, and we started the year also super strong. And so we're very encouraged by this.

Okay. That's great. And just as a follow-up on SPX FLOW. I think the market obviously sort of understands and knows this asset as it used to exist. But it's come through a lot of change. And Luca, I know you've -- I think you have Bartek and probably visited every single facility of the company over the last couple of years, I guess. And so I guess like there are some people that are skeptical of the asset, but now you guys are excellent executors. And they're just trying to reconcile that. And so I'd love it for you, Luca to just talk about what SPX was, what it is now and what you think you can make it just given sort of applying some of your track record and execution to that business?

So when you look at SPX, its true, I would say, but let's not forget that the acquisition that we're bringing in has already got a very good profitability and a very good EBITDA margin, right? So they've already done a good job in terms of that cost containment. Now on top of that, you need to lay the synergies that we have, which are roughly $80 million to be executed in the last 3 years. A lot of that will be from the G&A. 1/3 from the procurement and then there's going to be roughly 10% that is coming also from the footprint rationalization.

I think that this is the area where we are pretty good. And I believe that they also are good and we're working together on executing. I think that what we are going to add as well is the impetus on growth, on the growth momentum. And there are a lot of revenue synergies that are not in the model that we're already working on. You're talking about Latin America, where we have a very strong base throughout the Middle East, where we have a very strong base. So that is an area where we will be able to grow. They have some product gaps that we'll be able to cover with our twin [indiscernible] and twin screw pumps. And then I would say probably a little bit more focus on growth that is in our DNA. and probably be less religious when it comes to 80/20 market size and customer size.

And just to confirm that, the high single-digit accretion in this year pro forma for the closing does not include any revenues. Have you talked about maybe the magnitude? I mean we're talking about a few hundred million dollars of revenue synergies as an opportunity. Any thoughts there?

Yes. So I think that when you think about revenue synergies, I think we expect them beyond the 2026. Right now, we're going to focus on understanding the business. Obviously, there's a short-term opportunity, we will take it. But I think it's fair to say that the cross-selling and the commercial synergies are going to happen most likely starting 2027. So we haven't really quantified how much those commercial synergies are, but we expect that they're going to be meaningful as we're really able to leverage the portfolio of both companies.

Our next question comes from the line of Vladimir Bystricky from Citi.

Impressive pronunciation of my last name there. I like it. So just following up on IP and your ability to continue to outperform the market there. Can you just talk about whether you've seen any change in competitive behavior in that business? Or are you thinking about potential risk for more aggressive competition on pricing or on terms and conditions?

Thanks, Vlad. No, we don't see any change in terms of behavior in the competitive landscape. That has not changed. I've never seen any change in the last 6 years as a matter of fact, I can tell you. But I think what is changing is really the performance that keeps on improving. Let's take the project example, the project business, Vlad. This was a business that was losing money, that was making a little bit of money and a bit, then we give a target of 15% plus than 20%. Today, those execution, those projects that executed and deliver margin in the high 20s. And they are perfectly on time. And when you have this level of performance in the market your customers tend to be loyal. And as I said, some of the best intimacy and loyalty. I've seen it actually when I was in Saudi and I met with the customers over there. This is what really is happening in the market.

That's helpful and great to hear, Luca. And then maybe just sticking with IP and digging into the biopharma valves wins that you mentioned. We've heard from some others about pretty positive commentary around the capital investment cycle in pharma and biopharma. So can you just talk about sort of incremental opportunities that you see in the pipeline, specifically in that market segment and how you're thinking about potential for incremental wins over the course of '26 in the biopharma space?

Yes. Thanks, Vlad. So yes, the GLP-1 business opportunity that we have has been growing really fast. So this was a roughly $20 million opportunity that we got awarded a couple of years ago and then that has grown into more than $50 million as this customer is expanding production sites in the U.S. and also in Europe. This is what's really interesting about this as well, is that those are diaphram valves. And so there's a meaningful recurring aftermarket when you have to replace diaphram every time you change the composition of the formula that you are developing. So this is really interesting for us.

I think that when you look at our biopharma valves business, it has been expanding. I think it's up 10% this year from an order standpoint. And we continue to see other opportunities, especially because in Europe, we are much -- we have penetrated Europe much less than in the U.S. So we have many opportunities. And then the last point I wanted to make is that Habonim is doing really well as well, more on the new energy, but this is a significant platform for growth for our valves business. Habonim now is a little bit more than $60 million business when we bought it, it was barely $50 million, and the margin is still very good, and we are finding new ways to grow and can gain market share, especially in the U.S.

Our next question comes from the line of Matt Summerville from D.A. Davidson.

Just a couple of quick ones. Can you talk about how much relative price capture you're expecting across the 3 reportable business segments that's embedded in your full year '26 organic outlook? And then I have a quick follow-up.

Yes. So let me start by saying that 2025 was a really successful year in terms of price capture. We were able to capture a lot of price in IP and CCT above our cost inflation. And we were able to limit as well the price decrease in Motion, Tech and Friction, compensated obviously by the raw material disinflation that we've seen during the year. In 2026, we expect our price capture to be as strong. Obviously, it's incremental. We expect IP and CCT to lead the way overcoming the cost inflation, so being positive price cost positive from a dollar and a margin standpoint. And in terms of MT, we expect to be neutral.

Got it. And then you mentioned aftermarket in friction a couple of times being up 9% against an easy compare. How should we be thinking about kind of what's embedded in your guidance for friction aftermarket in '26 relative to how it performed over the course of the full year '25?

Yes. So in terms of the friction independent aftermarket, we expect this to be roughly flat in 2026. This is mainly a European business, and as we described, Europe is really flatlining from a growth standpoint. So that's why we don't expect much of an uptick. And then in terms of our the spares, the original equipment spares, we expect also to be flat. Here, there's a lot of market share gains that are at play, and we're working with our customers to provide low-cost quality solutions.

Our last question comes from the line of Andrew Obin from Bank of America.

You have Sabrina on for Andrew. Sabrina Abrams. You guys have had a really impressive trend of accelerating organic growth this year. I think we went from flat to 4 to 6 to 10 and you're ending the year on such a strong note and I think above the commentary from where we sat a quarter ago., Any comment on, I guess, what -- if so, like what went better than expectations? And then as a follow-up, other than guiding with some conservatism, any reason why things would decelerate to mid-single digits next quarter?

Yes. Thank you, Sabrina. So yes, we are very happy we were able to grow organically 5% in 2025 and almost 9% total. Large contribution from Industrial Process and Connect & Control Technologies. So when you think about what has driven that growth in Connect & Control Technologies, obviously, aerospace and defense is helping a lot. And in that, we have a significant contribution from a sales standpoint from aftermarket. Aftermarket was -- aftermarket aero, especially from a sales standpoint, was up more than 20%.

kSARIA is doing also really well. We talked about the orders that were able to get and convert some of them. So CCT, a lot of really good activity from an aerospace standpoint, as well as some price capture, as I mentioned about earlier. In IP, I think here, what you see is all the pump projects that we've been able to deliver. When you think about the pump projects for the year, they were up 30%. And I would say that a large majority of those pump projects were delivered in quarter 3 and quarter 4 both at legacy IP and Svaneh�j.

And as a follow-up, sort of to the last comment. I know the project mix and IP is dilutive to margins. But I think we had the best I think we had the highest margins. You guys have seen since you closed Svaneh�j. So anything in particular you want to call out, like given the mix headwinds, anything in particular you want to call out that's gone super well and execution for the segment?

Nothing in particular is really broad in terms of the execution of the projects. When you look at these projects, when we close and ship the projects, the margin is always higher than what we booked those projects at, which is a testament to the good project execution, good project management, management of the changes and also the cost management. So that -- and also good project order acquisitions. So this is general. We have seen the trend and the trend keeps on improving. So go to the next improvement.

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

Good morning, and welcome to ITT's conference call and webcast to discuss the company's announced agreement to acquire SPX FLOW. [Operator Instructions]

It is now my pleasure to turn the floor over to Phil Terrigno, Executive Director, Global Communications. You may begin.

Thank you, Liz, and good morning. Joining me in Stanford today are Luca Savi, ITT's Chief Executive Officer and President; Emmanuel Caprais, Chief Financial Officer; and Bartek Makowiecki, Chief Strategy Officer and President, Industrial Process. Today's call will cover ITT's definitive agreement to acquire SPX FLOW, which we announced this morning. Please refer to Slide 2 of the presentation available on our website, where we note that today's comments will include forward-looking statements that are based on our current expectations.

Actual results may differ materially due to several risks and uncertainties. The materials we published this morning and reconciliations of certain non-GAAP measures are available on our website.

With that, it is now my pleasure to turn the call over to Luca, who will begin on Slide 3.

Thank you, Phil, and good morning, and thank you all for joining ITT today. I'm honored and humbled to present the strategic acquisition of SPX FLOW, a milestone in ITT's value creation journey. This acquisition checks all the boxes from a strategic point of view. It checks all the boxes from a financial point of view, and it accelerates our 2030 vision.

Before we get into the details on SPX FLOW, let me spend a few moments on ITT's 2030 vision. In May 2025 at our Capital Markets Day, we shared ITT's vision. The strategy was simple, scaling while shifting towards high-growth, high-margin businesses, making the portfolio more resilient and making automotive exposure roughly 20% of the total portfolio by 2030. The pillars of this strategy are value creation through organic growth and margin expansion compounded with M&A. In the last 2 years, we have been growing organically and expanding our margin whilst being active on the M&A front with the highly successful acquisitions of Svanehøj and kSARIA. And today, we are communicating the strategic acquisition of SPX FLOW, a company we have been courting for the last 3 years. This is an incredible achievement if you think that it took me 10 years to convince my wife to say maybe, when I proposed.

Let me now share the rationale behind this acquisition. As I shared earlier, SPX FLOW checks all the boxes strategically. It delivers strong financial benefits, and it accelerates our 2030 vision. Let's go deeper into the strategic fit. SPX FLOW adds to our core in pumps and valves premier brands with market-leading position, such as Waukesha Cherry-Burrell. It also adds adjacent flow technologies in end markets where ITT does not currently play, such as Nutrition & Health and personal care. Other premier brands like Lightnin and Bran + Luebbe enhance ITT's ability to solve complex challenges for our customers at an even greater scale.

SPX FLOW strengthens ITT's leadership in existing core markets such as chemical, energy and mining. This acquisition expands our total addressable market with an opportunity of more than $60 billion across its 4 verticals. Notably, SPX delivered approximately $1.3 billion in the trailing 12 months, a 42% gross margin and 43% aftermarket revenue that will double industrial process aftermarket sales. And last but not least, it accelerates ITT's portfolio reshaping. For ITT, SPX is with no doubt on strategy.

Now let me turn the call over to Emmanuel to walk through the transaction details.

Thank you, Luca, and good morning. We are acquiring SPX FLOW from Lone Star funds for $4.775 billion in cash and equity. This equates to 14.2x SPX's forecasted full year 2026 EBITDA or 11.5x, including expected cost synergies. We expect the transaction to be immediately accretive to gross margin and adjusted EBITDA margin with adjusted EPS accretion in 2026 and double-digit EPS accretion in 2027, excluding the amortization of intangibles. The cash portion of the transaction will be funded through debt and equity, and we expect the transaction to close by Q1 2026.

Now let's turn to Slide 6. We are planning to maintain our investment-grade balance sheet with this transaction. We have secured a fully committed financing facility and at the request of Lone Star, the consideration will include $700 million in ITT common stock to Lone Star. We expect the projected net leverage of less than 3 turns of debt-to-EBITDA, and we expect to be below 2 turns within 18 months.

Let me hand the call over back to Luca on Slide 7.

Thank you, Emmanuel. Let's go deeper into SPX FLOW. We have always admired SPX FLOW's brands. After the acquisition by Lone Star, the company has shed noncore businesses. And today, a more focused, streamlined SPX FLOW is a perfect fit for ITT, with the brands, with a leadership position and with the market they're exposed to. Well done to Lone Star, Marc and to the SPX leadership team. Today SPX is superior engineering company with great products, pumps, valves, mixer, heat exchanger to name a few. They are leaders in the market where they play in, be it chemical, Nutrition & Health or industrial. SPX has strong global presence with well-organized and lean production plans, whether it is in Wisconsin, China or Poland, where Bartek, Emmanuel and I spent time with the local teams during the last 3 years.

Thanks to the work that SPX leadership team has done, their financial performance is top class, with 42% gross margin, 22% adjusted EBITDA, which we expect to increase above 27% after synergies, already above ITT's 2030 long-term target. And because of the critical nature of SPX's applications, the quality and reliability of their products, SPX customers are loyal. This loyalty translates into a healthy recurring and sticky aftermarket, made even better by the great service SPX FLOW provides.

Let me now share how they are organized today on Slide 8. There are 4 businesses. First, the Hygienic Pumps where Waukesha Cherry-Burrell is the #1 brand in North America for Nutrition & Health. This is a world-class brand that is very close to ITT's score. IP distributors will love to put their hands on it and sell. Then Industrial Pumps with the Bran + Luebbe and Johnson brands, playing in markets that are very familiar to us, such as chemical, general industrial and energy. This is core for ITT. Here, we can leverage ITT's stronger industrial channel in regions like Latin America and Saudi for further market penetration. Third, mixers. A very close adjacency with the #1 brand like Lightnin recognized worldwide, and Philadelphia, another well-established brand in mixing with nearly 70 years of heavy-duty industry experience. Last but not least, Nutrition & Health Solutions, a component and project business that shares similar attributes to the project business we are running at IP. In summary, the deal is close to our core and adds strategic adjacent products.

Now to Slide 9 to briefly look at the strategic fit. As you can see, with a very strong strategic fit with our Industrial Process business. We're expanding our product portfolio in core and closely adjacent markets. We are broadening our geographic coverage. We will leverage each other's respective channel strength, ITT's in industrial and SPX's in hygienic. And we will enhance our end market mix, making into attractive and growing markets, significantly growing our overall TAM.

Another key strength of this deal is SPX's aftermarket presence on Slide 10. As previously shared, 43% of their business comes from aftermarket. SPX FLOW designs critical equipment for critical applications with the quality of their engineering and the service they provide, their blue chip customers are loyal, and this loyalty drives the recurring, healthy and sticky aftermarket. To top it off, this doubles IP's aftermarket revenue to approximately $1.2 billion. This deal also presents significant opportunities when it comes to cost synergies.

Now to Slide 11. We have identified an $80 million run rate by end of year 3, 2/3 of which we expect to capture by the end of year 2. The first portion comes from G&A, where we will consolidate back office resources and optimize combined spend. On COGS, we will target quick wins in procurement by consolidating our spending in machining, for example. We will also leverage SPX footprint in Poland and China, where they have top-notch operations. Let me remind you that IP today has no low-cost country facilities in Europe and no real prices in China. As you can see, we have a clear line of sight into the cost synergies, and we will hit the ground running at closing.

Also on the revenue side, we know what we must do. And whilst revenue synergies are not included in the model, we will nevertheless go after them with ITT's typical entrepreneurial spirit and hunger. We will expand SPX FLOW's brands in Latin America, a growth region where we have a strong presence. Not to mention Saudi Arabia, where we recently expanded our footprint and capabilities 2 weeks ago, just in time to have new products from SPX. And we will also share these products and leading brands in North America with our distributors.

Last but not least, an area which people tend to underestimate during M&A, the cultural fit on Slide 12. Like Svanehøj and kSARIA, this is an outstanding cultural fit. At Capital Markets Day, you might have spoken to Søren, Johnny or Jacob from Svanehøj or Mike DiPoto from KSARIA. They sounded like ITTiers, bold, proud of their product and never satisfied. When you talk to them about the product application of projects or customers, they know it inside and out. This is ITT. And this is also SPX. I personally saw the same knowledge in everything they do. I could see it and I could feel the same passion. Both companies have a global perspective, the level of granularity that we are proud of at ITT was beautifully mirrored in the meetings that we had with Jaime, Peter and the business leaders. SPX is very analytical, and the visibility they have into their data is unmatched even better than ITT.

With ITT focused on continuous improvement over and over and yes, over again, and we witnessed SPX's continuous improvement focus on the shop floor in all the plants we visited in the last 3 years. And believe me, we went to many of them. As you can see, very aligned cultures and very focused on delivering value for the customer and solving their most critical problems.

Now to the new ITT, on Slide 13. With this beautiful addition, our revenue will be above $5 billion, and we will increase our gross margin by 110 basis points. It is an ITT portfolio with a larger, more structural resilient IP covering a larger TAM and an automotive business that is barely above 20% with an EBITDA margin of 22%, we expect EPS accretion in 2026 and a double-digit EPS accretion in 2027. No doubt, this acquisition is on strategy and is an acceleration towards our 2030 vision.

Moving to Slide 14. This is a large deal for ITT. And let me share what we have here. We are fortunate to having one single company, many leading brands and businesses. They are #1 or #2 where they play. They're well run with a strong management team. They have a great reputation in the market and with their customers, and they have a very strong financial profile. Combining this with ITT strength in execution, will create value for our customers and our shareholders.

At ITT in the last 4 years, we delivered 9% organic revenue CAGR, 170 basis points of margin expansion, 44% adjusted EPS growth, and our recent acquisitions are performing well, growing profitably and creating value. Bartek, the entire leadership team and I will focus on this deal, ensuring we create value for our shareholders, customers and people. Before wrapping up, let me reaffirm our full year guidance for 2025, reflecting our continued strong year-to-date performance, we continue to expect adjusted EPS of $6.62 to $6.68, representing growth of 13% to 14% for the full year after giving effect to the impacts of this transaction, including our expected financing activities.

Now let's wrap it up. ITT's acquisition of SPX FLOW, as I said, checks all the boxes from a strategic point of view. It checks all the boxes on the financials and it accelerates our 2030 vision. Now what is left to do is just execute. And you can rest assured, we will work hard to serve our customers and deliver value for our shareholders. Thank you for joining us today. Liz, please open the line for Q&A.

[Operator Instructions] Our first question comes from Andrew Obin, Bank of America.

So on SPX, I think, some of us have seen the business in the prior iteration and it's just interesting to see how much better it looks coming out of private equity than going in. Maybe you can give us some background on history. What has changed inside SPX over the past several years? How much of the margin improvement that we're observing is volume, i.e., better fixed cost absorption? How much of it is shedding assets and what exactly has changed under the private equity ownership in terms of asset base? And finally, how much of it was sort of core operational improvement?

Thank you, Andrew, for the question. And the straight answer is a little bit above everything that you just said. I think that one major aspect under the ownership of Lone Star is Marc and the leadership team have really executed their plan in terms of streamlining the company. And therefore, now is much more focused. They've worked on leaning also on the plants. And therefore, what you have today is a much more profitable company, much more focused, and as I said, a perfect fit for ITT. If you look at all those 4 businesses are either very core, pumps, valves or very adjacent to what we do, mixers or projects in Health & Nutrition. So in short, streamlined, focused, leaner.

You want me to [ chime in ]?

Please, yes.

So maybe from my perspective, I think there's an element, there's a strong element also in terms of the way they operate. They pretty aggressively rolled it out, their 80/20 strategy, which focused them kind of in the right pockets in terms of markets, in terms of customers. But there is another very strong element in terms of aftermarket capture. As you know, they have very strong brands with very strong installed base that they have historically actually neglected to some extent. And so one of the things that they really drove over the last year is to recapture some of that wallet share and they've actually done that very effectively. So that drove a lot of the margin improvement.

Congratulations.

Next question comes from Amit Mehrotra with UBS.

Congrats on today's announcement. Maybe to start with -- just following up on Andrew's question a bit more quantitatively, can you just talk about the trajectory FLOW has been on the last few years in terms of organic growth? Offer just a bit more color on the aftermarket business, obviously, a significant percentage of the business, how the economics work, how the growth rate in that business compares to the OE portion of the business? Any color around kind of the through-cycle growth would be helpful.

Yes. Thank you, Amit. So when you look at the growth that SPX has experienced in the past few years, over the period '22 to '25, they grew overall by low to mid-single digits. The aftermarket was much higher by high single digits. So to the point of what Bartek was saying, they really worked on improving their aftermarket service. That now represents more than 40% of their total revenue. They really worked on cutting their lead times and improving the service to customers. And that's why they've been able to grow and also to make it really accretive from a margin standpoint.

Okay. And just maybe as a follow-up, I'd be curious to get your perspective on the competitive positioning of the products, whether on a stand-alone or the advantages that comes with by joining forces. I mean there's obviously companies like, I guess, Flowserve, Alfa Laval, Dover that have similar kind of types of business. Be curious to get your perspective on the competitive advantages of the products and the technology.

So let me talk about the joining forces and then Bartek, maybe you address on the power of the brands. I think that when you look at the joining forces, first of all, in -- as we said in prepared remarks, the revenue synergies are not in the model. But we are going to go after them. And just to give you a couple of examples, they are not very present in the Middle East. And we have a very strong presence in Saudi Arabia, where we actually opened the expansion just 2 weeks ago with 140 customers attending. So you can imagine how this could be a great opportunity for the Bran + Luebbe pumps, metering pumps or for the mixers. So that is just one example. We have a very strong presence in Latin America. In Argentina, in Brazil as well as in Chile and Peru. Once again, mixers will be great opportunity over in Latin America as well as their progressive cavity pumps.

So those are from a geographic perspective and then also use each other distribution in terms of what our strength is in industrial distribution in North America, and this will be a great channel for some of their products. And also we have some hygienic pumps that we make in Bornemann that is by, you can say, by chance, is really something that they do not have in their product portfolio. So definitely a strength, we are going to be stronger together.

But Bartek, why don't you talk about the power of the brands?

Look, I think Luca mentioned that in his opening remarks. I think the beauty of this acquisition really is that the vast majority of the brands that we're getting here are leading brands. And when I say leading, it's not like top 5, they're literally #1 in their space. If you look at Waukesha in the U.S., absolutely sort of the [ Kleenex ] in this category. You look at Lightnin in Philadelphia, same thing on the mixer side. And then you look at Bran+Luebbe metering pumps, same thing, very, very strong. So great fit for us because in the end, if you look at ITT, we're a family of brands, family of leading brands, so this fits beautifully into the portfolio.

Your next question comes from Scott Davis with Melius Research.

Congrats. It looks like a great deal for you guys. But I know you guys kind of walked around a little bit of the factory footprint. Could you be a little bit more explicit? How many factories do they have? And how many factories you think they need? Is there an opportunity for some consolidation within even your own facilities? Perhaps, just a little color on that.

Yes. So when you look at their production sites, they have around 15 production sites. And one thing that we were really encouraged when we visit them, is that they're very well capitalized. The equipment is new. As Luca said, they've implemented lean, but there are still more opportunities for us to do. And then also what's really interesting is that they bring low-cost country footprint. They are very -- they have a really large facility with a significant available space in Poland. They have also a top-notch operation in China. And so we intend to use those square footage to be able to expand and produce our products also there.

Another thing, Scott, that I wanted to share with you, we visited many of these factories. And actually, they are very well run. If you look at also our -- their Poland factory, actually, they have a very good expertise in importing production from other plants. So this will represent a further optimization in our cards when we look at the footprint of the 2 companies together. The SPX China plant that Bartek and I visited a couple of months ago is another great opportunity. We are not making any pumps in China, Scott. So if you talk about Bornemann, if you talk about RPG, if you talk about Goulds Pumps, zero.

All right. Now we have a chance, and we have a good low cost country in Asia and a good low-cost country in Europe, great opportunity.

Yes. Helpful. Just switching gears, I imagine you may not have an explicit answer for this, but any sense of the holding period for Lone Star with the stake that they're taking on you guys?

No. I think that this is something that probably is not for this call.

Our next question comes from Mike Halloran with Baird.

So just a couple of questions here. First, just to be clear, the 3% to 5%, Emmanuel, you mentioned earlier is the growth rate the last few years. Is that the expectation on a forward basis? It feels like maybe you're expecting a little bit of acceleration there. I know you're not explicitly including revenue synergies, but I get the sense that you think that the growth rate might have a little optionality.

Sure. Thanks, Mike. First of all, SPX FLOW operates in solid markets, which are less cyclical. So if you look at the market, those markets are growing mid-single digits, right? Now in these markets, they are exposed to areas that are growing high single digits, like, for example, protein ingredients. So it's almost like the example of Svanehøj, right? Are you getting excited about marine? No. Are you getting excited about energy transition in marine? Absolutely.

And you see, for example, what is happening in Svanehøj. Protein ingredient is a high single-digit growth, and this is where they play. And then as you said, we will go after revenue synergies and we will apply the ITT playbook of outperforming in the market play in. And these will lead to the high single-digit growth. On top of that, during the due diligence, we have been very thorough. The level of granularity that you will expect from ITT from us. And therefore, we are very comfortable with the backlog and the visibility that we have for 2026 and 2027.

That makes sense here. And then could you just walk and bridge the financing for us? I think I'm struggling, there might be a gap in them, maybe you need to do a different level of issuance. But with the $700 million of capital that Lone Star's -- equity capital that Lone Star is taking on by putting an extra 2.5 turns on. There's a gap there. So maybe just kind of help me understand how you get to the financing for the $4.775 billion.

Yes, Mike. So as we discussed and as we mentioned in the press release, we intend to fund the cash portion of the transaction consideration through a combination of debt and equity. We may in the future, to the extent market conditions warrant, raise funds through debt and equity financing. And also what's really important for us is that we work on deleveraging the balance sheet as quickly as possible. So at closing, we will be less than 3 turns, and then we work very quickly so that by end of 2027, we are less than 2 turns.

Congrats.

Our next question comes from Jeff Hammond with KeyBanc.

Congrats on the deal. Just a couple more on the deal financing. Can you talk about what you're thinking on interest cost? And then I know you've gotten this question before as you start to do deals, but just as you do this deal, how are you thinking about GAAP earnings versus ex amort earnings going forward?

I think that, Jeff, we have a committed financing. And as we said, is debt and equity. So what we have is the flexibility in terms of the debt to repay in terms of as soon as we are generating the cash. And so we are trying to retain that flexibility as the market and the rates might move in a favorable direction. So this is what we are trying to do on that front.

And then, I think, it wasn't exactly clear, but I think you talked about the adjusted EPS changes. So we expect that on closing, we'll adjust our EPS definition and remove intangible amortization.

Okay. Perfect. And then just back on the growth rate. So I think at the Analyst Day, you said 5 to 7 for IP. Is that -- we should think about as you pull SPX flow in that, that's still kind of a long-term target organic growth rate for this segment?

I think the long-term targets for the segment have not changed, Jeff. But as we said, when we look at this target, we will work really to deliver in terms of the high single-digit growth for SPX.

Our next question comes from Joe Giordano with TD Cowen.

Can you talk about what -- how much of this business has been like either walked away from or divested? I know there was one like divestment of [ Ingersoll ]. But like when this went private, I think, the revenue was something like $1.5 billion, give or take, in 2021, and now we're talking $1.3 billion. So just -- can you bridge the gap between the organic and how much has been eliminated here?

So they sold essentially 2 businesses. They sold air treatment and hydraulic tools. They were both between $150 million and $200 million in sales -- at sale.

Okay. Perfect. Now when they went private again, they were talking something about $75-ish million of synergies being taken out at that time. And now we're talking another $80 million. So it's even a higher percentage on a lower revenue base. And arguably, a revenue base that's been more optimized over the last 4 years. So -- and you talked about 80/20 already kind of having been put through at least in the early stages of that. So can you talk about like the ability to pull out like an increasing rate of synergies on top of a business that already kind of went through this?

Yes. So in terms of synergies, as you can tell, we have a very grounded plan. We have identified all the G&A, procurement and footprint synergies. With clear light on sight, we feel confident about our ability to execute. Overall, they represent roughly 6% of the target's revenue. So it's a very good number. The large majority of the synergies are going to come from G&A. So we talk about back-office rationalization, combined spending efficiencies. And then there will be also the most immediate synergies. And then once we go into year 2 and we get more than 2/3 of those synergies implemented, this is when the procurement and the footprint kick in. And so we have sourcing, logistics, best cost country sourcing, volume pooling as well and, of course, utilizing their facilities in Poland and China.

Emmanuel, can I just clarify one thing -- sorry, if I could just clarify one thing on the financing, and then I'll let you, if you have another point on that, you can jump in. But the $700 million going to Lone Star, the $4.07 billion (sic) [ $4.775 billion ] the cash portion. Are you saying that some of that $4.07 billion (sic) [ $4.775 billion ] can also be equity? I just want to make -- because the math doesn't work out unless it's part equity there, I think...

So yes, we're considering a range of financing means, and we'll make announcements at the appropriate time. The size of any potential offering will depend on a range of factors, including market condition at the time. So we'll get back to you on that.

And then my only addition here on synergies is, I think, you've been around our name for long enough, so you know that we don't sort of -- we don't take flyers and we don't take chances, right? So all the synergies are very, very well grounded and bottoms up. So we have specific initiatives study. This isn't like a percentage of sales kind of approach. On G&A, we know on footprint specific moves that we want to make and on procurement, the same thing. So there's a very detailed buildup behind it.

Our next question comes from Joe Ritchie with Goldman Sachs.

Luca, I think, I'm still laughing at your 10-year comment, we're going to have to explore that one day offline. Why it took so long to close the deal, but anyhow. The -- just maybe just, my one question is just really on those synergies. So I know that you guys are detailed. I know that historically through some of the deals that you've done, you have under-promised overdelivered. When you do take a look at this, as a percentage of revenues, it's only about 6%, really kind of towards the lower end of what we typically see for deals of this size. Just talk a little bit about like the maybe conservatism that exists in the synergies? Or is this just a really well-run business and so maybe it is at the lower end because it is already a well-run business today?

I think what I'd like to stress is the last point you're making is a very valid point in terms of -- it's very well run. Marc and the team have improved the profitability of this business. And if you look at their EBITDA and their margin is -- they're really good. Now if you look at the EBIT -- SPX's EBITDA percentage after applying these synergies, you will end up with EBITDA, which is higher than 27%, which is higher than ITT long-term targets that we shared at the Capital Markets Day. So I think that those $80 million of synergies are getting to a very good, very well run, very healthy business.

Now this $80 million, as Bartek said, is very granular. So what we have communicated here is really the synergies that we have identified that we build, and we will hit the ground running when we close at the end of the quarter. What are not included here, Joe and I want to emphasize, are the commercial synergies because we, as an approach, tend to discount those completely. And in this case, we have put 0. Now as you can imagine, we will go after them from day 1, and those are not included.

Our next question comes from Vladimir Bystricky with Citi.

Congratulations on the deal. Luca, you mentioned backlog at SPX and how that gives you some visibility into '26 and '27. So can you just talk a little bit more about sort of the short cycle versus longer cycle mix in the portfolio here? And how much of annual revenues comes from backlog?

Okay. So when you look at the project business that you have in SPX FLOW. You're talking about anything between $200 million and $250 million, $300 million, which is the project. And therefore, those gives you a very good visibility in terms of the -- on the long term. And I think that what was also good to see is that thanks to the service they provide, the quality of their product and how they manage the projects, they have a very good customer intimacy with some of their major customers, the known of this world, et cetera. And therefore, they are building the CapEx -- of their customers' CapEx together with them, and we have a very good visibility on that long term and the project business.

And then Vlad, also, I wanted to highlight the fact that they have -- they are entering 2026 with a record backlog. And so from a system standpoint, rough -- more than 2/3 of their 2026 revenue is covered by backlog. And obviously, for the rest, the short-cycle stuff, it's a much more reduced number around 30%, and that's very similar to what we see in our IP business.

Okay. That's really helpful color, guys. And then maybe just -- you mentioned that you've been courting them for 3 years, and you've visited many of the plants over that time period. So can you give us any color on just the background and the process here? Was this a bilaterally negotiated deal? Just any more color on how this came to fruition.

Sure. Thanks, Vlad. As I said, it took some time. I'm sure that Marc and the SPX team remember, our very first meeting, which was December 2022 in the city 3 years ago. It has been a long courting, which has enabled us to know each other better. In these 3 years, we visited many plants, met many people and at different levels of the organization. The leadership of the plants and the people reporting to them in many countries, from Poland to the U.S. to China, you name it. Now we were very close to a deal in 2023, but we couldn't agree on the valuation.

As you know, it takes 2 to tango. Now 2 years later, we met and we found a good agreement for both parties and the fact also that Lone Star decided to stay in the game is a good sign, I would say, for us, for ITT. And I think that it's good right now, 2 years later, is also, I would say, better for ITT, because we built some muscle after the successful acquisitions of kSARIA and Svanehøj. And therefore, what you have to think about here in this deal is practically 4 different businesses, 4 different Svanehøjs.

So that's a little bit of background. But if I can take 1 minute more, I want to congratulate Bartek and the team because of the way that this deal was prepared, cultivated, negotiated. The Capital Markets Day, we shared the differentiation through execution innovation. We also said differentiation through M&A. And Bartek went through how we differentiate in the M&A in the cultivation being there early on, all of us, Emmanuel, myself, the granularity going into the plants.

So the deep cultivation early involvement, rigor for 3 years, the granularity, the cultural fit. And once again, Bartek and the team were able to get into an exclusive situation. So here, all of those differentiation in M&A in action.

Our next question comes from Nathan Jones with Stifel.

A couple of follow-ups. I'd just like to start off on SPX's margins. I mean when they went private, they were in the very low teens, and it looks like 200-plus basis points a year of margin expansion that they've put in there. Just any commentary you can give us on the due diligence process and your comfort with the sustainability of those margins? And I guess the angle I'm coming at this year is it wouldn't be the first time a private equity business was dressed up for sale, but it does sound like you've been through a lot of due diligence here. But just any commentary you can give us on how you think the sustainability of those margins is.

Yes. No, that's a good question. And you can imagine, right? For the same reasons you outlined, we come at these things with the right degree of skepticism. And so yes, we've done very thorough diligence around where the margin improvement came from. And obviously, we would be more concerned if this was a blip and a sort of a flash in the pan and they just have 1 year and 1 good year, but the good news is that they have been operating at the level of profitability that we reported here for the last 3 years.

And so they've been at this level for a while. So we were able to look at 2025, 2024, and 2023. And so again, I think you saw that step change relatively early on. And then Emmanuel, I think, outlined where it came from. So it wasn't just cost rip-out. A lot of it was actually initiatives around regaining aftermarket, around 80/20. So no, we feel actually very comfortable that, that is a sustainable margin level and really don't have any concerns around that.

And if I can add to that, as Emmanuel said, when we visit the plants, it's not that the plants are there waiting for capital the plans are all very well capitalized. So that will not require capital. This is a capital-light model with already well-capitalized plants.

I think last time I was in the Bydgoszcz plant, they were just starting to get the first of the automated welding machines in there. The 3% to 5% kind of organic growth rates they've seen over the last few years, I think would -- given the pricing that's likely gone through due to inflationary pressures, would imply that volume has stayed maybe relatively flat during that period. Can you comment on maybe the impact of 80/20 taking out some of the lower margin revenue. I know there was a very wide range of margin profiles in SPX's portfolio. When they went private and maybe some of that -- the lower-margin stuff has been walked away from. Any commentary you can provide on that and maybe where they are in the process of working through taking out some of that lower margin revenue?

Sure. What you described on 80/20 is exactly what has happened with SPX FLOW, which have definitely improved in terms of the profitability. I would say, when you look at the future, I think that we expect to be in the high single digit in terms of growing of this business. And this is coming from segment that are really growing higher than the market. We were talking about the protein fortification. And I will keep on stressing as well is the ITT and the IP playbook. We have track record of outperforming our markets and gaining share. I think that probably 1 area that might be a little bit different is also maybe we tend to run probably more decentralized and that probably might benefit the growth in some of the more periphery markets.

But let's not forget those revenue, those commercial synergies because those opportunities, Nathan are really -- are real, and we [ lease ] them, we have them and we will go after them.

The next question comes from Brad Hewitt with Wolfe.

How would you describe your appetite for additional deals over the next 12 months, both from a financial perspective and from a resourcing perspective? And curious if the focus for future M&A shifts a little bit more towards connectors in the medium term, just given this provides a significant amount of scale and flow already?

Yes, sure. As I said in the prepared remarks, #1 priority is for Bartek, for myself for the entire ITT leadership team is to execute and deliver on this deal, is to achieve the synergies, to enable the growth and to deleverage as fast as possible. So no additional deals of this size. There is nothing like that. As we said, less than 1.7 leverage in 18 months.

Now when on the M&A front, what will happen is that we will keep on cultivating deals, right? If you think about this deal, I mean, it's been in the making for 3 years. If you look at all our deals, we've been able to cultivate them being granular and be able to differentiate and be in an exclusive position when then we will close. So we will keep on cultivating the M&A pipeline. But the focus now is synergy, growth, deleverage, get it down as soon as possible to 1.7.

Great. And then -- is there a good way to think about the margin differential between the 43% of the SPX FLOW business that's aftermarket versus the remaining 57%. Just trying to think about the impact of that continued mix shift on the margin expansion algorithm for SPX FLOW.

So of course, aftermarket is much more profitable than the OE business, but that's also the case at ITT. So we don't see much difference between what is the mix and the margin differential between us and IT, remember -- between us and SPX. Remember, these are very similar businesses than us. They provide spare parts as well as services. So we expect to actually benefit from their aftermarket, especially in terms of footprint. They have a lot of service sites where we could also provide service for our pumps. So overall, very synergistic and very similar aftermarket businesses and mix.

Our last question comes from Matt Summerville with D.A. Davidson.

Just a couple of quick ones. Is the aftermarket content similar across the 4 sort of verticals you highlight on Slide 8 of the deck? And similarly, has the company executed upon all of the kind of incremental aftermarket capture? Or is still -- is there still some runway there? I mean you talked about how maybe thousand piece of the business that for a period of time was sort of ignored. That's no longer the case. Has that been fully executed at this point? Or is there still some to be had? And then I have a quick follow-up.

So I think on the first question, I think, yes, a lot of these businesses are -- all the businesses are rich in aftermarket, right? So they're solid in that front. And yes, there is continued opportunity to regain wallet share. And it's actually fairly significant from what we can tell.

And then as a follow-up, Luca, you've spoken highly about the management team here running the business. Is the idea to keep them -- the Board here, is Marc going to continue to run the SPX organization? Or how should we be thinking about leadership transition and/or evolution?

Sure. Thanks. Listen, they have a very deep bench and a lot of talent at the level of running the businesses. Obviously, these will be integrated into IP. So Marc and part of the leadership team will be key in supporting the deal and on an initial transition, but it's mainly the leadership in the businesses that will be -- that will run these businesses within IP. And IP will be led by Bartek Makowiecki, who's here right now with us.

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

All right. Good morning, everybody. Welcome to the UBS Global Industrials and Transportation Conference. My name is Amit Mehrotra. I lead the multi-industry franchise here at UBS. Very happy to have ITT. We've got a really full lineup today and tomorrow. So I appreciate folks here in the audience and then obviously, folks dialing in on the webcast.

We've got ITT, a great company, a really interesting kind of growth story, really good technology. Happy to have Emmanuel Caprais here, Chief Financial Officer. Alex Sherk, Executive Director of FP&A Investor Relations. Alex is going to read very, very important disclosures. We'll get into maybe a few minutes of prepared remarks, and then we'll dive right into Q&A. Go ahead, Alex.

All right, great. Our presentation and comments may contain forward-looking statements which are based on our best view of the world and our businesses as we see them today. These assumptions and expectations can change, and we ask that you view them in that light. We encourage you to review the latest risks and uncertainties in our Form 10-K and other SEC filings available on our website. Thank you.

All right. Thanks, Emmanuel, why don't you go ahead? .

Good morning. Thank you for being here. All right. So let's talk about ITT. So as you may know, ITT is a roughly $4 billion revenue company. We are split into 3 segments. The largest 2 segments are industrial process, which makes pumps and valves. And the second largest segment is Motion Technologies that makes brake pads and shock absorbers for the transportation industry.

And then we have CCT that is the smallest segment focused on aerospace, defense and industrial making connectors as well as control components. From an end market standpoint, as you can see, we're very exposed to general industrial, but also aerospace and defense. Some exposure to automotive as well through the Motion Technologies segment. And we talked about in our Capital Markets Day, we talked about how we are trying to really expand within defense with our connectors business within industrial and industrial markets with our pumps and valves business in order to shrink our automotive portion of total revenue.

From a geographical standpoint, we're very present, as you know, in North America as well as in Europe and Asia Pacific. From a performance standpoint, I think what's really important to underline is that we've been growing organically, outperforming our respective markets. So 3% organic growth from a revenue standpoint -- over -- I'm sorry, 9% organic growth from a revenue standpoint over the past 3 years and adjusted EPS growth of roughly low teens.

If we move to the characterization of each business, as you can see, we -- in our industrial process business is very present in chemical, in general, industrial as well as in energy. We have over 1 million pumps that are installed, which are providing a lot of aftermarket revenue stream, so resilient revenue stream and high margin as well.

Our friction business is outperforming markets year after year. So if you look at the past 10 years, we are outperforming -- we've been outperforming the OE production by roughly 800 basis points every year on average. And our connector and Control Technologies business is very heavy on defense. We've acquired kSARIA, which is a cable company, a specialty cable company focused on defense, which has allowed us to increase our defense exposure, which is, for us, a very good market in which we're also performing -- outperforming with our connectors business. And then so we -- as we released our Q3 numbers, we continue on our CMD growth objectives. So 6% organic growth. We almost hit the $1 billion mark from a revenue standpoint.

Our ROI grew 2x our organic revenue growth. We delivered really strong cash generation, and we are on track to be -- to deliver $0.5 billion of cash for the full year. And as a result, and for the third time in a row, we raised our EPS guidance range. So with that...

Can you go back to the first slide on quickly. One thing -- second yes. The one thing I noticed is 9% compounded annual growth, double-digit compounded EPS growth. I don't typically associate that with a company with a lot of general industrial exposure, certainly not with a lot of auto exposure, more like a data center company. And so that's kind of what stands out at me.

And there's obviously something that you're doing in terms of the recurring model, the technology you have, which I think is maybe a really key component. But maybe just talk about the end markets that you serve are clearly undergrowing those numbers significantly so. So what's kind of the secret sauce, if you will.

Yes, Amit. The -- so ITT has been focused really on outperforming our markets, and the recipe is really simple. First, we need to deliver for our customers. So that means for us, it means SQDC, Safety, Quality, Delivery and Cost, where quality is more important than delivery and delivery is more important than cost. And the focus on this is really key because that creates customer satisfaction. So the customer wants to come back to us. So from a quality standpoint, we have businesses that are leading in terms of quality performance. Our friction business, for instance, has one parts per million defect.

Billion or million?

One part per million and then actually less. And then so much so that our teams came back to us and say, "Well, I want parts per million, there's not much we can do. So we said, okay, let's measure parts per billion." And all of a sudden, we have 1,000 parts per billion to work with.

And so that has been really a key success for us. And then so as a result, we've been deploying that quality approach to all the different -- our other businesses. And so we're making progress in industrial process. We're making progress in connectors. We're not to the point of the less than 1 part per million in terms of quality, but we are better than the competition. And that's what really matters.

The customer can rely on us. And they know that when they order product from ITT, the quality is going to be there and it's going to be delivered on time. So that's really important. The first -- the second thing is customer centricity, where we really focus on serving our customers to the best of our ability. So here, for instance, the example of our project management practices, in industrial process where we've been able to really gain a lot of market share because we manage our projects in a way that is collaborative with our customers.

That is very precise in terms of the specification that we accept to deliver to our customers. And as a result, there's no surprise for the customer. And when they have to manage a lot of different suppliers for really large projects, they are happy that they can rely on ITT for the pump side or the valve side of it.

So really, there's no super secret. It's just making sure that we deliver on our commitments and that we are differentiated from a quality and from a delivery standpoint compared to the rest. Once we are able to really display the differentiation, then we reinvest some of our profits that we generated into innovation that allows us to create new products, which allows us to elicit even more interest from our customers.

And you have this long-term kind of framework to think about, I guess this compounded growth of high single digits you expect to be able to -- be able to sustain it over the next several years?

So in our Capital Markets Day earlier this year, we outlined the fact that until 2030, we expect to be able to grow organically around 5%, which is a little lower than what we've been able to do. But we like to under promise and over deliver. But -- and in addition to this, because of our capital deployment, we are in a very good position from a capital deployment standpoint.

We have minimal levels of debt. We plan to add 500 basis points of growth to that 5%, so we get 10% -- 10% on average every year until 2030.

And we're here in December 2, 2025. So 2030 is a long ways away. We've got '26 to deal with. Do you think it's a linear progression? Or do you think there's maybe some opportunities because the general industrial market is still pretty weak. And maybe there's a little bit of a rising tide there next year, hopefully.

Yes. So I think that for sure, when you think about 2026, we expect 2026 to be a growth year also for ITT. There's no reason. When you think about IP, we accumulated significant backlog, especially in projects. So we'll be focused on converting the backlog into revenue. Part of that backlog that we acquired came from [ Svanehøj ], which is our latest acquisition. And so we expect Svanehøj to contribute and generate -- help us generate nice revenue growth next year. If you look at Motion Technologies. So here, the -- it's pretty much secured because we have one, the platforms that we need to be able to show growth next year.

So we won those platforms 3 or 4 years ago. We're now entering mass production and so the growth is kind of baked in already. We still have to deliver. We still have to make sure that from a production standpoint, production improves because today, if you look at the overall production.

This is mostly driven by China, Europe and the U.S. are taking a back seat. So we expect probably Europe and the U.S. to do a little bit better next year. But still here, being able to outperform by roughly 400 basis points in the market. And then from a CCT standpoint, we have been awarded significant defense OE platforms in price. And then so those defense platforms are around 1 to 2 years in terms of time line to between order and delivery.

And so we'll see -- we won significant content on the F-35 for instance. And so 2026 will be a year where we've been -- we'll be able to convert some of that backlog too.

Can we just talk about maybe go through the segment? So in IP, talk about orders a little bit. I think there's been maybe some chatter about large overseas energy orders, maybe getting pushed to the right. Maybe break that down because that is kind of one of the most diversified end market segments you have, where are you seeing pockets of improvement versus pockets of maybe stagnation or even deceleration?

Yes. So it's true when you look at the funnel, we are seeing an improvement sequentially. So for instance, when you look at end of Q3 compared to Q2, the project funnel, so budgeted projects is improving. But if you look year-over-year, there's a decline, and it's a decline of probably mid-teens. For us, we're focused on our differentiation. And so we continue to find whether it is because of our technology.

So for instance, our Bornemann business, which is a twin- screw business that's a pump that is able to push forward liquid as well as gas together. We're finding a lot of discrete opportunities in the traditional conventional energy sector, but also in the decarbonization. So this is very positive for us. In the rest of the, let's say, conventional projects for our Goulds pumps brand, we're able also to find some good projects, we're able to differentiate. And that differentiation really gets us market share gains. And we see it because, for instance, in Q2 -- in Q3, our project sales went up 50%.

And so we continue to gain market share from a short cycle standpoint, short cycle has been pretty stable. It was -- it's been increasing significantly over the past 2 to 3 years, and we were expecting maybe things to go down from there, but it's been stable at a high level. And so we're really happy with this.

Here, we're talking about spare parts that are doing really well. Baseline pumps, which are our standard pumps. And in our valves business. So valves business is doing extremely well because a couple of years ago, we got this massive GLP-1 order from a customer that wanted to expand capacity.

And then as a result now, we are helping in building out that capacity in their plants in the U.S.

So where do you think -- if we were to look at IP in '26, you've talked about these new VIDAR game-changing platform. Maybe talk a little bit about that, because I feel like you're so technology front footed, and that's really part of your success. And to me outgrow the market. When you talk about a new product being a game changer kind of really perks my interest up -- and maybe kind of correlate that with where you think IP could end up for 2026.

Yes. So VIDAR, we're really excited about VIDAR. VIDAR is a motor that has integrated in it a variable frequency drive. So in essence, today, when you want to make a motor intelligent, you add a VFD that is usually separated from the motor. What we've been able to do is to package everything into a regular motor package.

And that's really important, because today, a lot of the motors are working 100%. Whether you need 100% of the flow or not, they're working 100%. So it's like -- when you -- and when you don't need that more than 100%, you put a valve downstream, that regulates the flow and reduces the flow. So it's again -- if you think about it, it's again driving to driving a car with your foot on accelerator. And when you need to slow down, you keep your foot pressed on the accelerator, but you push the brake. And so that's not efficient, right?

And so our motor -- our VIDAR motor is able to make that motor smart and reduce the velocity of the motor when we need it. And so as a result, we've been registering with our customers between 50% and 80% energy savings on applications that do not have variable frequency drive.

So it's an important innovation. It allows our customers not to have any clean rooms in their facilities and their production facilities. They can just plug in the motor and the motor is going to have variable speed.

In terms of impact on revenue, I think that right now, so we launched it in June, we're getting some orders. So today, that motor is installed in a little bit more than 20 different facilities. So here, we're not going for -- to deploy that product at a large volume with one customer.

What's really important for us is to deploy that product with all customers possible. So we get once it to these orders per customer, but for them -- for us, it's really important that the experience of what VIDAR can offer. And so as a result, we expect more orders as there is a really large portion of the park that today could be equipped with variable frequency drive and that is not because of size.

And is there -- I mean, I think about kind of like the gas furnace industry when efficiencies, there's a variable mess to it that drives a lot of efficiency. Is there a lot of competition in the space? Or is this kind of a protected product?

Yes. So that's a great question because we are the only industrial motor available on the marketplace today. There are some commercial applications, but they are for smaller horsepower and so we're the only industrial application and we're competing with giants, right, the Siemens, the ABB -- but we're convincing those -- our customers that we really have a differentiated and innovative product.

And I think for us, what's really important is to put those products in their facilities so they can experience the benefits and then they'll come back and then we'll see from there. But in terms of what we expect as a contribution to revenue, I would say, realistically, probably will have a meaningful contribution between '27 and '28.

Okay. Maybe just finishing up on IP, I have a couple of more questions, then we can move to motion is I guess, 2 sexy -- 3 sexy words, data centers and nuclear, other opportunities to kind of penetrate those markets more meaningfully? Or is that just kind of not part of the story?

So at ITT, we try to avoid buzzwords, because they distract from taking care of business. However, I have to say that over the past probably 3 to 4 months, I'm seeing when we do our business reviews, I'm seeing a lot of orders for data centers for pumps. So it's probably in the cooling side of the data. And so we're seeing a lot of those orders. I'm not saying they represent a large percentage, but it's interesting to see that.

So what would you do like you introduce valves that take the water from the chiller through the...

Process. On the process side, yes. And so from a cooling standpoint, I think our pumps have something to play. And what's good about this is that we didn't have to invent new products. We just repurpose existing products. From a nuclear standpoint, we have a small product family in our valve business that -- where we are certified and we play there. From a pump standpoint, we don't have the offering, but we're working with a partner right now to identify how we can deploy that technology to small and medium reactor opportunities. .

And just the last question on IP before we move on. So the -- it's -- the vast majority, I guess, is short cycle, it's pretty diversified across a few different end markets. We're all trying to hear at this conference kind of figure out the tempo of the short cycle industrial economy. You guys are a little bit different, because you're winning -- you're winning share in the market. But maybe if you just step back for a second. It didn't seem like you were talking about any real activity acceleration, albeit stability at kind of high levels. Is that a fair characterization? Or are you seeing some signs of maybe some optimism or concern out there with respect to the short-cycle stuff?

Yes. So the market, we're not seeing any -- in terms of the market, we're not seeing any signs of pickup for sure. However, because we've been really working on lead times working on delivering -- improving our on-time delivery, we're seeing a bunch of demand from customers that can get the product as fast with other buyers. And so we're able -- even on the short cycle to gain market share.

On the motion side, one thing that's interesting is that it hasn't been clear that you guys have been outperforming auto production. I don't know if that's an EV issue or anything like that. But talk about why what's going on there and your ability to kind of outperform underlying auto production?

Yes. So in -- so we had two decent quarters of outperformance. So in Q2, I think we outperformed by 400 and then similar number in Q3. So outperformance there. Q1 was a little lower. We see -- we see the outperformance over several quarters, not just one quarter -- so we expect for the full year to be able to outperform between 300 and 400 basis points, the OE production. So Q4, we're counting on Q4. Q4 will be a very strong quarter from a China automotive production, we'll be able to outperform that as well.

Europe is picking up a little bit, both in terms of production and also outperformance. So I think that this will be probably a year where we are probably on the low end of our guidance, which was 400 to 500. But 300 to 400 is not bad, when the market is bad we're running -- we're growing 4% so.

And when you benchmark that, is that just total production? Or do you weight it for your regional exposure or are we exposure.

No total.

Total production.

Yes. Total production. So we compare the car produced to the units, the volume we sell. And so -- to your point, I think when you know that we're not present in Japan, where we're not really present in India, where we are not as present in Latin America that outperformance is very meaningful. .

Yes, it's even more pronounced. Yes. Interesting. One of the things that you've talked about more recently is introducing the products into the commercial vehicle market, trucking market. Maybe just talk about kind of why you haven't been in that market in the past and maybe kind of what the opportunity going forward is?

So historically, in our brake pad business, we've been more on the rear axle than on the front axle. And so here, the light commercial vehicle really is driven by front axle production. The reason for this is because you have those mini vans that are starting and stopping all the time to deliver -- mostly to deliver package in the city. So we've been focusing on this, because we think that we have the same differentiation with the other type of products, but also because it is high in aftermarket.

They start and stop, generate a lot of break aftermarket. So I think I would say we have been pretty successful, especially in Europe, but those type of vehicles have also expanded in the U.S. and then so we've been applying the same recipe as we do for the rest of the platforms and getting market share. The other thing I would say is that recently also, we've invested in high-performance type of break pads.

So we have a brand-new expansion in our [indiscernible] facility to cater high-performance cars. So you're talking about the Ferrari, the Maserati, but also high performance with Mercedes and Hyundai. And so this is an area where we were not present at all. We had 0% market share. And customers have come to us because they weren't supplied adequately.

The current suppliers were unable to provide the performance that was needed and the on-time delivery. So they came to us. We looked at it -- it was a little bit of a question mark, because those are small series production, so kind of different from our model, because we rely on large series -- and so we found an industrialization proposal that would allow us to maintain the efficiency that we need on our equipment and deliver those small series, the smaller batches.

And so -- now we -- based on the awards that we accumulated, we gained more or less between 5% and 7% of the market and we'll continue to go after a new platform.

And it feels like sometimes maybe the cyclicality of some of these end markets, your ability to kind of win market share during the downturn because of that on time in full ability and the capacity. Just talk about that and how differentiated that is in the market? Because it feels like in tough times where people just model revenue to end market, you're actually doing the opposite of that.

Yes. So if we -- if you talk to our CEO, Luca, he will say that his focus has been to really reduce the cyclicality of ITT by outperforming our markets, and this is very true for our friction business. And so here, really, we're driving differentiated performance. And the recipe is defend our existing business, so not lose anything so that everything that we gain that is new is incremental. And it's working really well. We came out recently with a new formulation, which we call the Geo-Pad.

That's what I was going to ask you about. Yes, talk about Geo-Pads and maybe what the sales are going to be like. .

Yes, yes. So our Geo-Pads products, we're very excited about this because think about it, it's a product that from 15 different friction components as less than 10, much more simplified supply chain. It doesn't require heat treatment -- and so you get rid of all these ovens that are costing millions and is allowing us to reduce also the cycle time.

So this is a product that performs better because from a noise standpoint, even like static noise, it really helps. It is greener, because it has less emission of friction dust, and it will be cheaper for us to produce. So really a super, super proposal for our customer, in a win-win, win, win.

Exactly. Exactly. So right now, we're testing with one OEM and they're going to give us -- we expect that they're going to give us a platform probably towards the end of the year, probably beginning of next year. And then well -- the automotive cycle is pretty long. So we're entering production a few years from now. And then once this is proven, hopefully, we'll get new customers.

And with the less -- I'm sorry to interrupt, the less complexity in all the different supply chain parts I assume that the margins -- there's a mix benefit from this just given everything you just said.

Yes, there will be, for sure, a margin enhancement because there's a lot of value that we propose to our customer -- and so the cost base will be lower than our existing pads. So yes, we expect a significant improvement from a mix standpoint.

And I used to cover the auto industry 20 years ago, and I remember like the product cycles are very, very long. And so it's almost like you're kind of building the detracts for 2030, 2031 in terms of what the next leg of outgrowth is going to be -- is that the right way to think about it?

Absolutely. Absolutely.

And do you think that as these OEMs are building new platforms like this has an opportunity to kind of be spec-ed in as the standard across the industry? Or is it just going to take a little bit of more of an education it's an old industry, sometimes it's tough to change.

Very conservative. So we're trying -- we're certainly trying to do that. So far, our electric vehicle brake pads, we were able to qualify our -- in China, our EV friction mix as the Chinese reference mix. And so that has been -- that has worked really well for us as we see our outperformance really ramping in China. .

So with Geo-Pad, we -- especially because we have a lot of patents around this friction material, we're expecting that this will be the superior friction material recipe for -- in the future. But there's a lot of work and it still needs to be.

Yes. And do you think -- I guess, maybe for auto production kind of flat is kind of the new paradigm over time? Do you think next year, if auto production is flat, we can still kind of outgrow by 400, 500 basis points? Is that the right algorithm for the business?

Yes. I would say probably, yes, around that number. I think that over the years, we have been used to not relying on our production to grow in order to show growth ourselves. So next year, I think that's probably Europe and the U.S. will be -- will show a little bit of growth from a production standpoint. What China may be a little bit more stable. China was expecting to be really flat this year in 2025, and it surprised us to the upside. Next year, we expect China to be stable.

Cool. Any questions? I'm going to continue. But if you have any questions, please raise your hand in the audience, and we'll bring the mic around to you. Moving to CCT. I mean you talked about defense. Obviously, aerospace and defense has -- that portfolio has been kind of evolving. Just talk about how you're positioned. I think you talked about the Joint Strike Fighter -- sorry, F-35 -- Joint Strike Fighter, so what's kind of that end market looking like? Are you feeling good about where you are right now, any more work to do there? .

Yes. So I think -- so specifically on the JSF, we're doing really well with -- especially with our kSARIA business. kSARIA has been able to rewin the F-35 platform that we're in. But also on top of that, get more content. And so today -- so as of the first quarter, we won roughly $40 million over the next 2 years.

And then we keep on rewinning a new set of connectors and cable. And same thing for our connector business. So JSF for us is a really good platform that should help us grow in the future. From a defense standpoint, overall, we are winning defense OE contracts in our connector business or with our kSARIA business in existing application, but also new applications. So for instance, our kSARIA business won a vertical launch business with the customers that we have never done business with. And so all this is incremental in terms of market share, obviously.

And the the connectors business, I mean, you've got some large-scale competitors out there. How do you guys kind of stack up against the competitive landscape there?

I would say that for us, compared to Amphenol or TE, we are focused on smaller platforms, very customized platforms. Platforms where we can really differentiate from a fast prototyping standpoint, from a customization standpoint, where maybe the others are not really focused on. And we're able to show the differentiation. Our people, our engineers, they like to say when we go and visit customers, we try to understand what are they working on, whether it is like a radio business or more of an aerospace business. and we sit down with them and we listen to them about what they need from a connector standpoint and right there on their desk, we design more or less the connector.

And then a week later, we're able to give them a full functional prototype and that really makes the difference. The customer feels that they are listened to. They are someone that is there to serve them and that they have a quick product in their hands to be able to test their solution. And so this is, for us, what's winning, what has been allowing us to win market share on those defense platforms.

Got it. That makes sense. And just tying it all together, we've talked about the different businesses. I'm just trying to understand, if we kind of step back -- what I find interesting is this conference so far, only about a day in the word tariff has not come up at all, which is bizarre, given the history that we've had this year. Is that a consideration for you guys now? I mean what -- how do you manage that? And where are we in relation to maybe where we were in April, May, thinking about this?

So tariffs continue to be very disruptive to the industry. There's no doubt about this. However, we learned how to deal with them and to react very quickly. So either we are protected through USMCA exemptions, and that's very true for our friction business, for instance. On our friction business, we have -- most of the content is USMCA protected or our conditions are delivery or plant.

So that means that customer is taking care of tariffs. So USMCA exemptions has been working really well for our friction business, but as well as our IP and CCT business. Now we are not able to get USMCA exemptions, and this is because we have components coming from China, components coming from India that represent a large amount in the overall cost of the product. We are passing that through price increases. Thank god, we don't have to do it in the automotive industry, because that is extremely difficult. But for our CCT and IP business, we've been able to pass those price increases pretty seamlessly.

And I would say based on the latest tariffs that they were implemented, I think maybe probably 1.5 months ago, we reacted and in a matter of days, we were passing those price increases.

But like I get that the USMCA exemption. Thank God, to your point, but there was a moment there where it was concerning. Has that changed your -- I always think about management, it's somewhat like a risk management exercise as well. There's so much volatility. Does it make any -- has it driven you to rethink kind of how you source maybe more locally within the borders of the U.S.? Or is it still kind of not really economically viable to do that?

No, yes. So on our friction business, for instance, we are actively working. Because today, the requirement is around 70% North American content, and we think that it's going to increase to 80%. So we're actively working to get supplies from either Mexico or the U.S. But the key here is to make sure that we don't get a price increase. And so we're working with our suppliers, we have good opportunities, especially that allows us to challenge some sole source position for some imposed suppliers by our customers and put that on the table and say, okay, you want us to increase our USMCA content.

You told us to work with this supplier -- can we work with a Mexican supplier. Can we work with the U.S. supplier instead of bringing this product to -- from Europe in order to increase our USMCA content.

Got it. Very helpful. Maybe just as a final topic of conversation, M&A side of it. Both in terms of addressing your own diversified model, but also obviously, if you marked, I don't know what is $500, $700 million a year towards acquisitions. So maybe first, I mean, -- it seems like you guys have a really good thing going, investing a lot in technology, driving above-market growth really across a lot of your businesses -- does it make sense to have the model it has today? Or does it maybe -- is there an argument to be made to kind of separate?

So when you look at our businesses, we believe that there's a lot of runway, both from a growth standpoint and from a margin expansion standpoint. So it makes sense from that point of view. We're not going to get rid of a business that has a lot of potential in front of them. We've demonstrated that. And -- and if you look at our Capital Markets Day targets, our MT business today, which is around 20% margin is expected to go to 23% and our IP and CCT business to 25%.

And so -- that is the proof that we think there's so much more runway. Now we emphasized the need for us to reduce our weighting of automotive revenue, and so that's what we're doing with M&A by going after targets in pumps and valves for our IP business and in connected for our CCT business. So we're going to emphasize the flow business and the connector business for sure through M&A.

And as a result, we expect our automotive participation to be around 20% of our total revenue, which is very much reasonable, I would say. So I would say, for us, the M&A imperative is about deploying effectively cash, it's about shifting our portfolio away from automotive even though we are very happy with our automotive business.

And then compound the growth, the organic growth that we have been able to deliver the 9% over the past 2 years to more than that. And to be able to deliver even more synergies, even more margin improvement as we integrate those businesses and put them under the ITT way.

And you sold Wolverine last year. Is that a you just talked about kind of lowering auto through addition of other businesses. But is there any pruning that can happen?

So the Wolverine divestiture was really important because Wolverine model was concentrated in production in the U.S. exporting to everywhere else, exporting to Europe, exporting to China and it's in the world of tariffs. That is really damaging. And then it was also very much automotive centric, so we get rid of that exposure.

When we look at the rest of the portfolio for the moment, we don't see large opportunities like the Wolverine divestiture and to prune part of our portfolio. So we're happy with what we have. We're happy with our aerospace and defense exposure. We're happy with our flow exposure. And then we're going to continue to expand on that.

And just as a last question, I had a dinner with the CEO of an industrial company last night, and they have a lot of spare balance sheet capacity, like you guys do a good balance sheet. And -- but, but they're buying back their own stock because in their words, the valuations are nutty, literally. So how do you view that in terms of the pipeline of opportunities? Are you able -- do you think the funnel, the acquisition pipeline has opportunities at a reasonable price point that's going to allow you guys to move.

So let me start by saying that on Liberation Day, we saw a major opportunity when everybody's stock went down. So a major opportunity including ours to buy back shares. And we bought back $500 million in one go in over the course of a week.

From an M&A standpoint, the funnel is healthy. We have good opportunities, mostly bolt-ons. We have a few larger deals, but they are harder to execute. And then so we're confident that we're going to be able to convert some of that -- those opportunities into transactions over the near future.

Got it. All right. Great. I think we're at time now. But listen, I think -- I think you guys are all good businesses, companies that I've seen manage well into the future, which is clearly what you guys are doing. So I wish you guys the best of luck, and thanks for participating at our conference.

Thank you, Amit.

Welcome to ITT's 2025 Third Quarter Conference Call. Today is Wednesday, October 29, 2025. Today's call is being recorded and will be available for replay beginning at 12 p.m. Eastern Time. [Operator Instructions]

It is now my pleasure to turn the floor over to Mark Macaluso, Vice President, Investor Relations and Global Communications. You may begin.

Thank you, Gigi, and good morning. Joining me in Stamford today are Luca Savi, ITT's Chief Executive Officer and President; and Emmanuel Caprais, Chief Financial Officer. Today's call will cover ITT's financial results for the 3-month period ended September 27, 2025.

Please refer to Slide 2 of the presentation available on our website, where we note that today's comments will include forward-looking statements that are based on our current expectations. Actual results may differ materially due to several risks and uncertainties including those described in our 2024 annual report on Form 10-K and other recent SEC filings. Except for otherwise noted, the third quarter results we present this morning will be compared to the third quarter of 2024 and include certain non-GAAP financial measures.

The reconciliation of such measures to the most comparable GAAP figures are detailed in our press release and in the appendix of our presentation, both of which are available on our website.

With that, it's now my pleasure to turn the call over to Luca, who will begin on Slide 3.

Thank you, Mark, and good morning. I'd like to begin today with a sincere thank you to our ITTiers. Our teams around the world delivered strong results for yet another quarter. For all your hard work, my heartfelt thanks, especially to our team in Brazil as the plant was hit by a very destructive storm during the quarter, production was back up and running in less than 48 hours. Rodrigo, the entire Salto team and Niko, thank you for your dedication and commitment to our customers and to ITT.

Now to our results. ITT's third quarter was another step towards our 2030 targets with organic growth and margin expansion compounded with M&A. Let me share some highlights. In Q3, we delivered nearly $1 billion of total orders for the third consecutive quarter, up 3%, both once again by the strong order intake from our kSARIA and Svanehøj acquisitions. We grew revenue 13% total and 6% organic with all segments contributing to $999 million. Rest assure we were on the phone after quarter end with the plan that left the million bags on the shop floor.

Operating income grew nearly twice the organic sales growth rate and operating margin expanded over 100 basis points excluding M&A. Adjusted EPS grew 21%, and we grew free cash flow 46% to $368 million year-to-date and now expect to be at the high end of our previous range at $0.5 billion for the full year. Furthermore, free cash flow margin in the quarter was over 15%, surpassing the high end of our 2030 target communicated in May.

We also continue to fund innovations like VIDAR, our game-changing industrial motor. VIDAR is installed with 3 large energy companies in North America. And now we have begun shipping goods pumps with VIDAR motors. As Stan, our Global Head of Engineer mark, the best just got better.

Now let's get into the details. On revenue, we saw broad-based organic growth in Industrial Process and Connect and Control as we continue to convert the robust backlog. IP grew 11% organically mainly due to project, which grew over 50% including another strong top line performance from Svanehøj, growing 34%. In August, I was with the Svanehøj team reviewing the testing of our new deep well cargo and high-pressure fuel pumps. And as a firsthand the [indiscernible] of beautiful shining new pumps ready to ship.

CCT delivered 25% total growth, both by the kSARIA acquisition or 6% organically. As the sense momentum continues and aerospace demand ramps. And in MT Friction OE grew 4% organically, outperforming global auto production once again led by an outstanding performance in China, where we keep on winning with BYD, Gray War, Geely and others.

On profitability, we expanded margin 110 basis points excluding M&A. IP grew margins 70 basis points to nearly 22% and Svanehøj also improved its profitability with EBITDA exceeding 20% this quarter. MT grew margin to 110 basis points, driven by over 300 basis points of productivity savings offsetting 120 basis points of inflation. NCCT grew margin 270 basis points, excluding kSARIA dilution. The team continues to make progress on key customer price negotiations, which we expect to finalize now in Q4.

On cash, a robust performance, which allows us to pay down debt and lower our interest expense whilst funding investments for VIDAR and other game changer innovations, including the Geo pad. The Geo pad is currently being tested on a dedicated platform with a large European OEM. More to come on this in the coming quarters.

Given our strong performance to date, ramping contribution from acquisitions and the lower effective tax rate, we are raising our full year adjusted EPS outlook. Notably, the low end of our revised EPS guidance range is now above the previous high end. This represents 13% growth versus prior year or 16% if we exclude the lost earnings from our 2024 Wolverine divestiture. This is a testament to our team's ability to deliver for our customers and our shareholders day in and day out, no method environment. Emmanuel will talk more about our revised guidance shortly.

Now let's turn to Slide 4 to talk about ITT's orders and revenue growth. As you recall from our Capital Markets Day in May, we demonstrated with numerous examples across all value centers, how ITT's differentiation is driving our share gains. Let's spend a few moments to discuss this further, beginning with orders.

Year-to-date, over the last 3 years, orders have grown 19% to over $3 billion with strength across all segments adding in attractive growing end markets, including defense and aero, rail and the energy transition. In Motion Technologies, the friction team once again continued to outperform in the market. And in Q3 alone, we won 10 high-performance platforms and more than 40 electrified awards with leading OEMs in China, Europe and North America.

Our market share in China has grown from 31% last year to above 34% today. At the same time, KONI expanded its leadership position on global high-speed rail and defense platforms. In Connect and Control, orders were up 27% and 6% organic on the strength in aerospace and defense. And our acquisitions continue to perform ahead of expectations with strong orders growth in 2025 and a book to bill comfortably above 1.

kSARIA grew orders 58% year-to-date with a book-to-bill of 1.2, thanks to awards on coveted defense platforms. This included content on a vertical launch system with a brand new customer. We were at kSARIA headquarters in Hudson, New Hampshire together with the ITT Board earlier this month. We share with our Board how built-in process quality drives kSARIA's differentiation. Thanks, Mike and team, for your accomplishments. I'm incredibly positive about the growth we will drive together in the years to come.

On Svanehøj, Soren and team won orders of over $250 million year-to-date. This represents 59% growth versus the prior year and the book-to-bill of 1.6. For the year, even with over 30% revenue growth that expects to end 2025 with a book-to-bill of nearly 1.3. This quarter, Svanehøj secured a first of its kind award to enter the U.S. land-based terminal market, which will involve the largest LPG pumping company history, capable also of handling ammonia. Notably, the Goods pumps team, which has strong connections on terminals in the U.S. introduced Svanehøj to this customer, while done John and team for capturing this opportunity with a major U.S. EPC, another strong year with ITT.

All in, our year-to-date book-to-bill of 1.08 resulted in an ending backlog of nearly $2 billion, up 13% compared to prior year-end. For the full year, we continue to expect a book-to-bill above 1, which puts us in a strong position to grow again in 2026.

Speaking of growth, a main driver of our revenue growth has been our flawless execution on pump projects. One example of this is our Good's pumps team in Saudi. This team's performance secured another win rate of more than 95% in the last 2 years. In mid-November, I would be in demand with Biotech, Hamdy and the local team to recognize this outstanding accomplishment and to join the ribbon cutting of Phase 2 of our $24 million expansion to announce our manufacturing and testing capabilities to meet our future growth.

The last thing I would like to highlight on growth is that 2/3 of this revenue growth since 2023 came from volume and just 1/3 came from price. Clearly, we are gaining share.

Now let me turn the call over to Emmanuel to discuss our Q3 results in more detail.

Thank you, Luca, and good morning. As you can see, ITT delivered another strong performance in the third quarter. We saw a step-up in growth with organic revenue, EPS and free cash flow well ahead of our initial expectations. We talk briefly about some of the many highlights. On revenue, all segments contributed to the performance, growing 13% in total and 6% organically.

Industrial process once again led the way with 11% organic growth on the strength of projects business, which grew over 50%. And from an orders perspective, for the second consecutive quarter, we saw growth in every short-cycle product category, most notably in parts and valves. CCT grew 6% organically with strength in both aerospace, which grew 18% and defense, which grew 4%. In total, CCT grew 25%.

In Motion Technologies, KONI grew 12%, driven by share gains in Rail. Friction OE outperformed global auto production by 360 basis points, growing 4%, led by China and Europe. On profitability, we grew operating margin 20 basis points to 18.5% on higher volumes, pricing actions, including related to tariffs and continued operational improvements. This more than offset the impact of inflation and temporary acquisition amortization from kSARIA, which will end in Q4.

At the segment level, CCT margin expanded 270 basis points versus prior year, excluding the dilution from kSARIA. IP margin expanded 70 basis points to nearly 22 and in MT, run and the KONI team again delivered outstanding profitability, which is driving empty above 20% margin for the second consecutive quarter.

The profitable growth drove adjusted EPS to $1.78, up 21% year-over-year. In addition to our strong operational performance, we also realized benefits from a lower share count, thanks to $500 million of share repurchases year-to-date and less unfavorable foreign currency impact, which more than offsets higher interest expense.

Finally, on cash, an incredible performance by our teams to drive strong cash collections and negotiate customer advances while demonstrated early progress in managing inventory. These actions pushed free cash flow margin in the quarter to over 15%, while still funding further strategic CapEx towards innovation and productivity to ensure our performance continues.

We're driving improvements in working capital, especially in MP and leveraging the learnings from Svanehøj with working capital as a percentage of sales is now just 5%. All in, as you can see, a high-quality performance across the board.

Let's quickly turn to Slide 6. The key takeaway here, similar to what I conveyed in Q2, is that the strong operational performance across our businesses, contributions from our acquisitions and a lower share count enabled us to grow EPS over 21%. We also realized a lower effective tax rate than planned.

The earnings accretion from our acquisitions is increasing and will continue to do so as we lap the remaining temporary amortization impacts from kSARIA. We're also making strong operational improvements with 500 basis points improvement in Svanehøj EBITDA margin this quarter. Just to step back for a moment, even if you remove the $0.07 impact from the favorable FX, tax and other items, we still grew EPS over 16%.

Now let's move to Slide 7 to discuss our revised 2025 guidance. After a strong third quarter performance, during which we grew revenue, expanded margins and generated a ton of cash, we are raising our total revenue and EPS outlook for 2025 and bumping our free cash flow outlook for the -- to the upper end of our previous range.

On revenue, our total growth is now expected to be slightly higher at 6% to 7%, while organic revenue remains within our prior range of 3% to 5%. We expect continued growth in the project business in IP, given the strong backlog, firm demand in aerospace and defense and outperformance in friction OE and [indiscernible].

Our margin outlook remains strong. We expect to drive continued productivity in legacy businesses and significant margin expansion in our acquisitions as well as considerable pricing, particularly in CCT. Excluding M&A, we expect margin expansion to be more than 100 basis points for the year.

On EPS, we're raising the midpoint of our guidance by $0.20 to $6.65, another step change in our EPS outlook for the year with a $0.27 increase at the low end and $0.13 improvement at the high end. This is due to improved productivity, profitable growth from our acquisitions and a slightly lower effective tax rate, now expected to be 21.5% for the year.

Finally, on cash, we now expect to reach the high end of our guidance, delivering $500 million in free cash flow and a 13% margin this year. This reflects several years of structural improvement and disciplined execution from weekly receivable [ costs ] to a more granular approach to customer payment practices, ensuring ITT east top of mind with them, given the differentiated value we provide.

These actions are driving consistently improving results, and we see further opportunities to strengthen cash performance, such as optimizing our advanced payments for large projects. With just 1 quarter left in 2025, let's spend a minute discussing our implied outlook for Q4. We expect high single-digit growth in revenue of mid-single-digit growth on an organic basis led by strong performances in Connect and Control and industrial processes. Friction should once again outperform global auto production while strength in Rail should continue.

We expect operating margin to be up approximately 130 basis points, led by strong margin expansion at IP. In CCT, pricing and productivity should make -- should more than offset the remaining temporary amortization from kSARIA and MT should once again hit the 20% mark in Q4.

In terms of other forecast items, we expect total corporate costs to be slightly up compared to Q3 due primarily to higher growth investments in VIDAR. This should collectively drive EPS growth just below 20% for the quarter.

Let me now turn the call back to Luca to wrap up.

Thanks, Emmanuel. A few points before Q&A. Q3 was all about growth for ITT and another step on the journey towards our 2030 targets. The organic value creation through growth and margin expansion continued. And as you saw, we are compounding this growth with M&A as that acquisitions performed well ahead of expectations.

Cash continues to ramp towards an expected $0.5 billion of free cash flow this year with a free cash flow margin this quarter of more than 15% and we made another step change improvement in our full year EPS outlook, raising the midpoint by another $0.20.

As you can see, ITT's growth is strong, ended its year to stay. Before opening the line for Q&A, there is one more heartfelt thank you, I would love to give. Mark Macaluso, our Head of Investor Relations and Global Communications will be leaving ITT later this week to pursue another opportunity. Dear Mark, thank you. You had a real and great impact on ITT and in ITT. You elevated how we talked about our businesses. You challenged us and are thinking. You made us more efficient, you made us much, much better. You work hard, play hard and we had fun. Thank you. I learn a heck of a lot from you, and I would also have liked to keep on learning.

One thing you didn't deliver though was to find an earnings call operator with a strong Italian accident than mine to [indiscernible] accent. I know you probably wanted me to say fewer words, but we wanted you to know how grateful we all are. From all of us at ITT, thank you and best of luck. Gigi, please open the line for Q&A.

[Operator Instructions] Our first question comes from Mike Halloran from Baird.

So two questions here. First question, maybe just spend some time given the state of the union as you see it for global auto production Luca and how you think that tracks in the next year. Obviously, the outperformance metrics will continue, but always good to understand your view on the baseline for the market.

Sure. So when you look at auto production, Q3 actually was a good quarter. The production worldwide was up and this is very much a China story where -- which was up 9.7%. But both Europe and North America were up as well. For the full year, mind though, the auto production will be overall, up 2% year-over-year at 91 million vehicles produced. Once again, it's a China story. China up whilst Europe and North America are forecasted to be down low single digits. .

Now when it comes to 2026, it's still a little bit early to tell, but I would expect it to be flattish to low single digit up. And as you rightly said, we outperformed in the market in Q3, 360 basis points, expect to do so for the full year and also in 2026.

That makes sense. And then maybe just a little thought process on the funnel and what you're seeing on the IP side specifically. Certainly, it sounds like the momentum hasn't really changed, timing a little variable, comps are harder. But what are your customers saying? And how confident are you that these -- this funnel can convert to orders in a pretty orderly fashion here?

Sure. So when we look at the funnel, you can see that the funnel year-over-year is down, but 2024 was an incredible year in terms of the opportunities. But there are a couple of important data and signs that confirmed some positive that we shared in the Q2 earnings. The former is that the funnel is up sequentially, Mike, and by quite a bit, by 22%. And I'm talking about active or projects that are active. And the latter data is that without energy, the funnel is also up year-over-year by a healthy 9%.

So very good positive signs, and the funnels are up as well in North America, in APAC as well as in Latin America. Another data, and then I will stop is when you look at the green project, we had very good orders intake on green projects, but also the funnel of opportunity is up considerably as well as the budget quote. So good positive size on that front, Mike.

Our next question comes from the line of Jeff Hammond from KeyBanc Capital Markets Inc.

Best of luck to Mark. I'll plan to stay in touch. Just on the $0.20 guidance raise, I'm just wondering if you can unpack. I think you mentioned better profitability, better acquisitions and tax. I don't know if you can quantify those 3 pieces. It just seems like at a high level, the margins and top line aren't changing that much.

Yes. Thank you, Jeff. So yes, we raised our guidance -- full year guidance EPS by $0.20, that's up 13% versus the prior year and plus 3% versus the prior guide. In Q4, like in Q3, we expect our businesses to exceed or come in line with the previous guidance. And we also expect lower corporate costs due to spending control measures. So if you think about it, Q3, we were up a little bit more than $0.10 compared to our previous guidance. In Q4, we benefiting from higher revenue and improved margin from all the businesses, a little less than $0.10. And then we have a tax rate impact also that is positive, that is around $0.01.

Okay. Very helpful. And then I know it's a little early to look into '26 and you mentioned kind of views on auto production. But maybe just talk about any markets you think you're more excited about and maybe improving inflecting and others that maybe seem a little less certain.

Sure. So first of all, Jeff, we are entering 2026 with a strong backlog. And this is thanks to the IP project wins and also to the CCT Defense Awards. MT continued to outperformance. So I would say, from a market point of view, Air and Defense would be a tailwind. In automotive, the outperformance will drive the growth in Motion Technologies. And when you look the IP is a very strong backlog. And as we just shared with Mike, the funnel opportunity is also increasing.

We are still very excited about the acquisition in terms of we expected Svanehøj and kSARIA to deliver on the growth in 2026, which is going to be fed by the huge orders growth that they had this year.

Our next question comes from the line of Vlad Bystricky from Citi.

Congratulations, Mark. Sorry to see you moving on, but wish you good luck. So just a couple of quick ones for me. Just in IP, the commentary around short cycle orders being up 5% seems quite encouraging, I guess, in the current environment. Can you just talk about maybe any color on regions or end markets that are driving that and how you're thinking about the sustainability of short-cycle momentum in IP?

Yes. So thanks, Vlad. Yes, we were pretty excited to see good short cycle activity. We had strong activity in parts as well as in valve. And if you look at parts, while July wasn't great, August and September really showed -- delivered the growth for us. And then from a baseline pump standpoint, we had also good numbers, slight growth. Valve was very strong. And here, what we're seeing is the foray we've made in the medical valves especially on those weight loss drugs, which is delivering for us.

And Vlad, if I may, I may add is that the show cycle is 5%, the legacy show cycle growth was actually 7% in the quarter. And when you look at that 7%, 4% was volume. So this is also another good sign.

That's really helpful color. And then just sticking in IP, you highlighted again the strong win rates that you're seeing in Saudi pumps. Can you just talk about underlying market demand trends there and the opportunities you're seeing in Saudi and Middle East more broadly, whether you're seeing any change in demand patterns in that region for IP?

Sure. Well, we are very excited about our growth opportunities there. As you can see, in all the quotes that we put there, the team won 95% of those quotes. The funnel is increasing. And when we look at the funnel sequentially in the Middle East is up 21%, and these are active projects. So the opportunities are there, it is a growth area. We see investment going as well in terms of downstream in the long term, there are further investment in other areas. And this is the reason why we are enlarging our facilities there and investing in manufacturing engineering.

I will be there also in November, as I said, celebrating the opening of the expansion and also meeting with some customers, but definitely a growth area for us.

And as Luca was saying, the region is very dynamic. And I think in addition to this, customers are recognizing the performance in project management, where we really are able to deliver the pump that they want on time with the quality that they require, and this is really making the difference for our business.

Our next question comes from the line of Joe Ritchie from Goldman Sachs.

Mark, congratulations. I'm sure we'll keep in touch, but I wish you the best. Yes. So maybe just kind of starting off, look, Svanehøj and kSARIA so far has just been tremendous, right? And I know you talked a lot at Investor Day about this -- your ability to potentially compound via M&A going forward. So I just want to get a sense Luca, just on the funnel, like how attractive is your M&A funnel today types of acquisitions that you're looking at? Any potential color there would be great.

Sure. Thank you, Joe. So when you look at the funnel, the funnel is rich of opportunities. And I can tell him I'm spending quite a bit of time together with Biotech and the business leaders to look at opportunities, meeting management teams and visiting also some company sites. So those opportunities in the funnel are progressing and so this is good. I want to restate, they are in flow. So it's mainly pumps and valves and some on the connectors as well mainly focus on aero and defense. So that is happening and is good.

One thing is also -- as you said, the 2 acquisitions we made have been successful. They are overdelivering on all fronts. We need to ensure that our process stay rigorous both in terms of from a strategic point of view, it has to be on strategy and also financially that we are going to create value for our shareholders. So -- but all of that I'm positive on the progress we are making there.

Yes. Look, I know sometimes these are really difficult to like figure out exactly when timing is going to work out, willing sellers, et cetera. As you kind of think about 2026 and your ability to get a few deals done, like how are you kind of handicapping whether you'll be able to get some things done?

Well, I would say, look, if you look at the last couple of years, for example, Joe, in the last couple of years since the beginning of 2024, we deployed $1.9 billion of capital. $200 million went on CapEx, $900 million went on M&A and $800 million went in dividends and share repurchases. So I would say we really are working hard to deliver the growth from an M&A point of view as well. But if things do not happen, we are going to deploy our capital and repurchase shares. So that is our backup option. But the capital will be deployed.

Okay. Great. And then if I could just squeeze one more in. Just on orders, sounded like the activity is very good, particularly on the industrial process side. I know you mentioned the book-to-bill kind of greater than 1 for the year. But as I kind of look at the fourth quarter, you've been kind of -- you've been in that $1 billion range for orders the last few quarters. Is that kind of like -- are you tracking towards a number in that ballpark for 4Q?

Yes. I would say, yes, Joe. And one thing that I want to stress on the orders is there has been a lot of phasing if you think about this year, right? So if you think about Q3, for sure, the book-to-bill in Q3 is not great, but there was a very tough comparison in IP projects versus the prior year when we booked a huge project in the Middle East and also on Svanehøj, many customers anticipated orders in the first half. And our philosophy Joe is to take the orders as soon as we can get them.

So on the orders front is a good story for ITT. The book-to-bill for the full year will be comfortably above 1. And the backlog that we will have at the end of the year is going to be higher than the backlog that we had when we started in 2025. And as Emmanuel said, also the picture is good on the short cycle as well, which is good.

Our next question comes from the line of Matt Summerville from D.A. Davidson.

Just on the auto side of the business, can you talk about what you're seeing in aftermarket. And if in that business as you look out over the next several years, does that still really stay relegated from a geographic perspective to Europe? And then how should we be thinking about the ramp in high performance in VIDAR over the next year or two? And then I have a follow-up.

Sure. When you look at the aftermarket, the aftermarket that we are staying in Europe, there is no move to other regions. This is only the market where we play and we decided to play. And also in that market, we position ourselves only on the top end. The aftermarket probably is the only area where we saw some decline, and that is mainly -- is a market related that is not a share conversation to be had there. .

Now when we look at the high performance, the performance is progressing well. The plant internally is producing a supply to our customers. We continue to win awards. So if you look, we won several awards in Q3 with a company like Daimler as well as Audi and the plant is also using green energy, that high-performance plant can run 100% with actually the green energy. So very positive growth on the high-performance side.

When it comes to VIDAR. Well, VIDAR as well, I would say, is progressing well. We have it installed with 3 major energy companies in the U.S.A. Now what you find here, Matt, is a revolutionary product in an industrial environment. So we really need to test the customer really to see it working for some time, you will face the typical S-curve. Having said that, we are still committed to $150 million of sales by 2030 and a 10% market share on a $6 billion market in the long term. We keep on investing a lot, Matt, in this one and in short to ensure that we have the product for the European Union as well as the larger sizes in the U.S.

And then just as a follow-up, I mean, the number of platform wins, I don't know the number off the top of my head year-to-date, but I feel like you've been winning 30, 40, 50 kind of on a per quarter basis here over the last couple of quarters. What is your actual win rate in MT friction OEM on the platforms you're competing on?

It's a very good win rate. So -- and I would say, if you look at also the electrified platforms, is year-to-date are 142, which is the same number of platforms that we won for the last year in 2024. So these platform wins is one of the pillar of our friction strategy to ensure that we keep on gaining share. So we are confident we will keep on improving our market share in the next few years as well because of these wins. .

Our next question comes from the line of Joseph Giordano from TD Cowen.

And so I guess if you guys start beating on corporate expense, we'll know you were paying Mark too much, right? Is that the way we should think about it?

You got it. You got it.

You got it. So there's been a lot of talk now about like these chip shortages in Europe for auto and like potential shutdown of production as that plays out. Just curious what you're seeing there and what you're hearing in terms of like near-term visibility.

Sure. Well, when we look at Q3, Europe posted a very slight growth in terms of production of 1%. But both Europe and North America are forecasting for the full year a decline in production of roughly 2%. So these 2 markets from a production point of view are still challenged. So this is what we're seeing.

Our customers are challenged from an investment point of view with a new platform from a competitive point of view, because the competitive environment is getting tougher with the Chinese OEMs. So -- but at the same time, the way that they need to win is with new models, new products coming to the market, and this is an opportunity for us to keep on increasing our market share.

So regarding the ship shortage, we read the headlines with [ Nexperia ] like everyone else. For the moment, our customers are not voicing any concern directly to us. We had a pretty strong month of October in terms of deliveries for Europe. So we don't know exactly what that means, but Europe was a little bit stronger than what we were expecting in October.

Okay. And as you start thinking about 2026, like if you look at some of these businesses that Svanehøj and kSARIA orders up so large. I mean, obviously, that's going to derisk the revenue profile into next year. But are those sustainable order levels? Like how do you prepare for like -- is there likely to have some big decline in orders that you need to like calibrate what's the real kind of underlying multiyear trend line? Like how do you kind of how do you operate when you have those kind of dramatic moves one way or the other?

Yes. So this year, for sure, I would say if you had told us that Svanehøj would grow more than 50% in terms of orders year-to-date, we would have said no way. So what we saw during the year, though, is that a really strong first half with really, really strong growth. And customers actually pulled in orders in order to secure capacity within Svanehøj. And so that's why the second half is a little weaker.

I don't expect that next year will be as strong as what we're seeing this year because on average, remember, we said that we expect growth of low double digits for the next 5 years. And so I think 2025 was especially strong. We think it's going to normalize over the year, but still delivering over the long-term low double-digit growth.

Our next question comes from the line of Damian Karas from UBS.

So obviously, you guys are doing quite well in IP, really strong organic growth there. We have been hearing from some peers out there that there's been some -- maybe some deferrals going on in the project space kind of in the process markets. Just curious if you happen to be kind of seeing any of that in your business?

So one thing that we share -- the short answer is not really -- not material. And as a matter of fact, the sign that we had in this quarter which was positive was on the funnel. The funnel has gone up sequentially by quite a bit. And when I'm talking about the funnel, I'm not inserting in the funnel budgetary quote. I'm talking just about funnel of active projects, so projects that are funded. So no, not really. We had in our orders, some phasing because with programs always happened away, but no.

Okay. That's good to hear. And Emmanuel, I was hoping you could maybe give us a little bit of framework for CCT margins thinking about 2026. There's that deal amortization thinking about how that will factor in. And then maybe just some of the mix items that you think about the areas like OE and aftermarket and aerospace and events, energy and the like.

Sure. So let me start by saying that it's a little bit early for 2026, but let me give some broad strokes in terms of CCT. So obviously, CCT will continue to benefit from the aerospace recovery. And here, what's interesting is that, so far, we've seen more narrow-body recovery, and then we expect wide-body where CCT business is stronger in a ship set from a ship set standpoint. So aero volumes up. I think with that, this will be compounded by price. We have high expectations from a price standpoint for CCT. We -- on this point specifically, we continue to negotiate with Boeing, and we're making some really good progress. We value Boeing as a customer, and I think it shows in their proposal that they value us as well.

And so this from a top line standpoint should be really a tailwind. And then from a profit standpoint, I think in CCT, there's a lot of -- there are a lot of opportunities from a sourcing and a manufacturing standpoint. We are seeing sites like our Orchard Park site, for instance, which is doing really well and also investing in automation process of projects in order to support the growth in [ bill rates ]. And we have other sites in CCT, where we still need to make progress. We still need to go after efficiencies.

So we're working a lot of machining efficiencies. And so that should drive really margin expansion in addition to volume and price. And obviously, finally, the end of the temporary amortization that you discussed should bring a little bit more than $0.10 coming from kSARIA next year.

Our next question comes from the line of Sabrina Adams from Bank of America.

Congratulations, Mark. .

Thank you very much, Sabrina.

I'm going to follow up on Damian's question there on margins. With the incrementals have had a lot of temporary amortization in the past 2 years and have been running maybe closer to 25%. And I think I'm seeing the implied incremental somewhere closer to 33% in Q4 and when you're anniversarying kSARIA, I guess maybe just some thoughts on how to think about incrementals into next year versus what we've seen in the past couple of years, as you anniversary the amortization because I think historically, been able to do closer to even 40%, just any direction there?

Yes, Sabrina. So when you remove the impact of acquisitions, our incremental in Q3 were around 40%, right? And all the businesses were really strong with Motion Tech the strongest. In Q4, we expect similar incrementals, excluding the impact of acquisitions. For 2026, we -- I think around 30% to 35% is probably a good number to keep in mind. .

And I just want to ask a little bit about the pricing environment. Clearly, tariffs have not been an issue for your execution, but just in general, what are you seeing from your customers in terms of pricing acceptance? How is the pricing environment evolving? I think we've heard from some channel checks that there's been a lot of inflation push this year. Maybe next year, it will be more difficult, but I know you guys have some idiosyncratic pricing on the aero side. Just maybe thoughts there on how that's evolving.

Sure, Sabrina. So when it comes to pricing, the dynamic is different in the different businesses, I would say the most -- the area where we have more pricing power remain CCT and this is where you will have -- you will see more impact. Now when it comes to IP, Sabrina, the price would be more strategic and so we will really have to be more analytical and understanding where we can really price the value for that specific pump in the specific region for the specific customers. And then when it comes to automotive, that is a completely different dynamic. .

Our last question comes from the line of Nathan Jones from Stifel.

This is [indiscernible] on for Nathan. I wanted to quickly ask, margins were very strong 20.2% for Motion Technology. Can you provide the margin impact from FX transaction?

Sure. So when you look at Motion Tech, we are very excited that for the second quarter in a row, they are above 20%. And so the FX transaction, I want to say, was still negative in absolute value, but year-over-year was a benefit of around 100 basis points.

I appreciate that. And then I guess we talked a lot about AMD. Can you just provide a little bit more color on prospects for improving growth aside from A&D within TCT? .

Yes. So A&D for us has been pretty strong. As I mentioned, A&D historically has been a little weaker than everybody else because we are more tilted towards wide-body than narrow-body. But in the quarter, orders for aerospace were up in the high teens, and defense was also up in the -- sorry, in the mid-single digits. kSARIA was really strong as well. So the quarter in Q3 was pretty good.

I think when you look at Q4, we expect growth to continue to accelerate with both aero and defense to be around the 20% mark in terms of growth. And obviously, this implies that we have to ramp up our production to make sure that we support our customers in delivering the products that they need.

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

Good morning, everyone. Thank you for joining us today. I'm Matt Summerville, Senior Research Analyst with D.A. Davidson, here to host a fireside chat with leadership from ITT.

With us here today, we have Luca Savi, CEO and President; and Emmanuel Caprais, CFO. With that brief introduction, I'm going to turn it over to Emmanuel for covering -- to cover the safe harbor, and then they're going to make a few opening remarks.

Thank you, Matt. So our presentation and comments may contain forward-looking statements, which are based on our best view of the world and our businesses as we see them today. These assumptions and expectations can change, and we ask you that you view them in that light. We encourage you to review the latest risks and uncertainties in our Form 10-K and other SEC filings available on our website. Thank you.

All right. So well, good morning. Just a few remarks before we go into Q&A.

ITT had a Capital Markets Day in May. And so when you look at Q2, Q2 was a strong start in the new journey. We had very good orders growth, you see the numbers, both in terms of organic and total. And we started with a good also revenue organic and total growth and margin expansion, which was one of the key message of the Capital Markets Day.

You saw a lot of value creation in the past with ITT, a lot was pure organic value creation, and we started Q2 in the same vein. And this is exactly what is going to happen in the next 5 years on top compounded with M&A.

Another highlight of Q2 was actually the cash. We generated very good cash and a cash flow -- free cash flow margin of 14%. Now if you look at the strategy that we communicated at Capital Markets Day was really an evolution of the portfolio. If you look at several years back, you see the spread of the different markets and automotive was very heavy in the mix.

And you think that more than 60% of the EBIT was actually coming from automotive. With the turnaround of the other businesses, the organic and inorganic growth of also the other businesses, that has shifted. And today, roughly 30% of the EBIT is coming from automotive. And what we shared is that look at 2030, the portfolio will keep on shifting with roughly 20%-or-so coming from automotive.

This doesn't necessarily mean the automotive will shrink. It will grow, will continue to grow in the next 5 years, but the other businesses will grow more, both organically and inorganically. We also communicated the long-term targets, which was a 5% organic growth, 10% total, 23% in terms of operating margin or more than 25% in terms of EBITDA and a good improvement also on the cash flow margin, and EPS of roughly $11 or more and $12, if you consider the M&A.

Now if you look at the messages when it comes to Q3. Q3 is aligned or a little bit better than what we were expecting and this is good. I think that when you look at the orders, we will have a total low single-digit growth. And this is because when you look at the orders of last year, there were very large orders that lap. And so -- but overall, in line or slightly better than what we are expecting and also with a very good cash performance, so which will enable us to continue to invest if it is R&D, if it is organic or M&A.

So with that, let's get into Q&A.

Sounds good. I wanted to start out talking about ITT's differentiation, organic capital deployment. Talk about some of the more sizable organic investments ITT has been making across 3 segments. Things that come to mind include high-performance pads, geo pads, Smart Pad and MT, VIDAR and IP, C5 and CCT, how your team is driving kind of the go-forward cadence of innovation across the company?

Sure. I think that the investment in organic growth is key, and you've seen the results in the last 5 years, and this will continue in the next 5. So if we take the different businesses, one big investment when you look at the brake pads, our automotive business, has been the high performance.

We've been growing our market share consistently in the last 7, 8 years. We outperformed the automotive market by roughly 700 points for the last 10 years, and we continue to do so. So our market share in Europe is incredibly healthy, our market share in China is around 31% last year and in the U.S., in North America, 27% last year.

So you have a very good opportunity to increase market share in China and in North America. In Europe, it tends to be a little bit more tricky because we already have a very high market share. So you really need to be very [indiscernible] in order to understand where you can grow. So a couple of areas where our market share is not that high are actually light commercial vehicle, and we are focusing on that; and the other is the high-performance vehicles. You're talking about the top of the range of the Porsche or the Daimler or the BMW. Our market share 1.5 years, 2 years ago in this segment was double 0. So obviously, it's an opportunity.

We never attacked that for specific reason, we decided to go after. And we invested roughly $50 million to open a new plant adjacent to an existing one with a very pushed automation manufacturing. So there are very few people in the plant, AGVs and robots moving the thing. And it has been a major investment that will allow us to keep on growing our market share also in Europe.

Result 1.5 years after, we already won 5% market share of that market. Granted, we are not making 5% because when you win, you need to -- you win the award, it takes a little bit of time to develop the product and then the ramp up to regime. But already in terms of awards, 5% of market share in 1.5 years. So that has been a major investment.

Another major investment has been actually VIDAR. We invested millions and millions of dollars in this motor. This motor, which is unique in the market, we are the only one to have it, we've got intellectual property to protect us, is really combining in the motor a variable speed drive.

So today, the only way to have a variable speed drive motor is to buy a motor and buy also another electronic component that is the variable speed drive, but it's inconvenient because you need a clean room, you need space. And you think about the chemical plant, right, with hundreds and hundreds of pumps, think about it, hundreds of these variable speed drive, you don't have the space, is dirty, so it doesn't get applied many times.

Combining it, I think that we solved the issue. This has been a major investment for the last few years. We launched it commercially in June-July. And I think that it's going to be a great success story for ITT. And then it's lean across all the different businesses to continuously improve the profitability.

Very good. As it pertains to inorganic capital deployment, can you talk about actionability and depth of ITT's current M&A funnel and how the company thinks about M&A versus repurchases is a venue to generate shareholder value?

Maybe I'll talk about the funnel and the priority, I leave it to you, Emmanuel.

So if I look at the funnel, on the M&A front, what we are looking at the flow and the connector business. So we are looking at good growth and high-margin businesses. So we have been cultivating many of this company. We keep on cultivating, and we are progressing in that process. I think that for us to differentiate on the M&A front, we really need to be ahead of many of our competitors to establish a very strong relationship with the target.

Emmanuel and I get involved early on, and this enable us to differentiate and to win some of these deals even before the process started. I think there are several targets today that are actionable, and therefore, we hope to be able to deploy some of the capital on the M&A this year or early next.

And if I can add, when you look at the funnel, the composition of the funnel, I think it's fair to say that most of the targets that we're looking at are in the flow and fewer of them are in the connector business. And so -- and in connector, we're really looking at a sliver of the connector business, which is more defense, right?

From a capital allocation standpoint, the focus for us is to grow this company inorganically. And so this is where we're going to dedicate more of our cash if we can, right? Because it's not always a given. It takes 2 to tango and so M&A, you got to convince the seller that we're the right buyer. And we've been able to do that. When you look at Svanehøj and when you look at kSARIA, those were really interesting assets for a lot of people, and we were able to get them.

If we're not able to execute on the M&A side, then we will continue to deploy the capital from a share repurchase standpoint. This year, we repurchased 500 million. We continue to have very acceptable levels of debt. And so we stand ready to continue to do that. When we repurchased the shares earlier this year, obviously, it was at a much lower price than the share price today, and so it was a good investment.

To that end, maybe recap kind of the level of activity and how you utilized kind of a disjointed market to take advantage of that, but also then focus on where your leverage is today and where you think kind of the optimal leverage profile of the company might look like?

Sure. So I think that Luca really pushed us to take advantage of that dislocation. And so in a typical ITT fashion, we tried to be faster than anybody else, and we saw that there was a window of opportunity. And so we really took advantage of that and tried to deploy that capital as soon as possible because we knew that our share price were bound to grow again.

And so we thought it was going to be the same for ITT because we didn't see anything specific to ITT that would be a cause for concern. And we were also very confident in our ability to get compensation from customers in terms of the tariff incremental costs. So we acted decisively and really fast. And so we were able to really take advantage of that dislocation to the maximum of our abilities.

From a debt standpoint, we're slightly below 1x today. And so I think that we can grow that to 2x, 2.5x, and -- but we need to have -- we need to make sure that we have the right opportunity to deploy that capital. So we're not in a hurry. We're really focused, as Luca said, on quality assets, and that's where we're going to deploy the cash. And if we're not able to, it's going to return to our shareholders.

Maybe let's start digging into the businesses a little bit, starting with MT Friction. You spoke at a high level kind of what you're thinking about from a regional standpoint and where you stand in terms of market share. Maybe provide a little bit more granularity on where you see OEM and aftermarket demand across Europe, North America, China? Realizing aftermarket is more of a European commentary, but maybe just a little bit more of the state of the union of MT.

Sure. So when you look at our -- when you look at MT, you got rail and friction and automotive. And when talking about the automotive, we tend to be more in OE than in aftermarket. I would say 75% or more of our business is OE and the rest is aftermarket. And aftermarket, as Matt was saying, is mainly in Europe, split equally between independent aftermarket and OES, first equipment.

So talking about OE. If you look at the production, think about it, our volume sales on brake pads is directly linked to the production. You know that every time they produce a car, there's going to be either 6 or 4 or 8 brake pads per vehicle, depending if you got the drums in the back or not.

So what you see in the market probably today is a market that is likely to be flat in terms of production year-over-year, but the story is different for different countries. So you've got China, which proved to be super resilient and that we will keep on growing in terms of production in 2025. And you have Europe and North America that will decline.

So now in that market, we are outperforming the market. And this is what we have done year after year for the last 8, 10 years. Just to give you a piece of data is the highest the production has been was in 2017, and that was 95 million vehicles produced. Since then in 2017, the production of vehicles went from 95 to 90 will be this year. So a decline of roughly 5%, 6%.

In the same amount of time, we grew by roughly 39%. So we outperformed the market. And I'm talking about volume, I'm not talking about revenue, I'm not talking about price. This is pure volume. So a strong outperformance.

And the outperformance will continue for the next few years. And the reason why I'm saying that is not arrogance or something like that. But the way that it works, think about it, when they design the car, they give you the award today for an SOP that is going to be in 2 years' time. This was happening in the Western world, Europe and North America.

They gave you the award today, you need to finalize industrialize the product in the next 2 years. So we have visibility because we know the awards that we won 2 years ago that we're launching now. We know the awards that we won last year, we're launching next year. And the award that we won this year that we're launching in 2 years' time. So we have visibility of what our market share roughly will be in the next couple of years.

A little bit more tricky in China because China works at a faster speed. So really, the time between the award and the SOP is really 9 months, as an average. But there, we got a very good story because we are winning with the winners. 2014, when we opened the plant, the General Manager there, Davide, invested with the Chinese OEMs. It sounds obvious today.

It wasn't in 2014. In 2014, the majority of the Western company were investing with Ford, with Volkswagen, with GMs. We invested a lot of time in developing the relationship with the Chinese OEMs. And today, more than 65% of what we produce are with the Chinese OEMs.

And so if you think about Xiaomi, NIO, BYD, Chery, say, all of these Chinese OEMs are our customers. Xiaomi, they manufacture -- the phone manufacturer has come out with 3 platforms. All those platforms, as an example, 100% of the front, 100% of the rear axle are ITT. So this is how the market evolves, is evolving, probably it is going to pan out in 2025, and we will outperform that across the regions.

Very good. Maybe just sticking with Friction here for the next couple of minutes, delivered 90 platform wins through the first 6 months of this year across EV, HEV and ICE. Are you seeing an acceleration in your wins or win rate? And how does that kind of inform your legacy market share target of 37%?

Sure. I would say it's a good speed. We -- the team in -- particularly in China was a very dynamic market, definitely has won many of the platform in this year in China. Interesting enough, last night, I was at Vanderbilt here because we have a training with -- our people have been trained by the school for a couple of days, and we were celebrating [ Sallai ], who was the sales leader of Friction because of the exceptional performance.

So there is a little bit of an acceleration, I would say. Now when it comes to the powertrain, I want just to highlight, we are completely agnostic of the powertrain. You want an internal combustion engine, we made the best brake pads for you. You want a hybrid, you want an EV, we do it.

I think it's fair to say that when it comes of a new challenge, so where you need R&D to solve a problem that you haven't solved before, so EVs or Euro VII, this is where we have an advantage, and this is where the acceleration comes because you require more R&D to find the best solution for a new challenge, and this is really one of the differentiation that we do have. And therefore, in those kind of cases, we're able to find the solution faster than the competitors, and therefore, we tend to win more when those kind of challenges arise.

Over the years, what's defined ITT's ability to capture share in this business, including through periods of supply chain crisis, logistical challenges, COVID impacts? How some of the KPIs fared that really differentiate the business versus your competitors?

Yes. So maybe let me talk a little bit about what we call the MT playbook, the Motion Technologies playbook. So this is where it all started, where we really worked on driving fundamental operating performance, strong fundamental operating performance, and that started in Motion Technologies in the Friction business, where we really focused on what makes the difference for customers.

So obviously, internally, for us, safety is the #1 priority because we want to operate a safe workplace, and we want our people to be motivated to come to work because it's a safe environment. But then what really matters to the customer is quality. So how can we deliver the best quality, deliver that quality on time and at the right price.

And so really, this is why Friction and Motion Technologies overall has been so successful because we dominate from a quality standpoint. So if you compare to the rest of the industry, we are very much ahead of everybody else. We have every 1 million parts that we deliver, we have less than 1 and sometimes less than 0.5 that is defective.

And so much so that when the team said, "What more do you want? We're less than 1. It's going to be very difficult." We decided to go to defective parts per billion. And then so all of a sudden, we are at 500, 300. And then so there's much more room to improve, right? So -- and that is an absolute differentiator compared to the competition.

Delivery, we're able to deliver -- all our plants are able to deliver our products to the automakers more than 99% of the time on time, which is really a strong performance. And then obviously, because of our process, because everything is automated, we are able to deliver those brake pads at a fraction of the cost and so extremely competitive price, which guarantees a good margin to our customers.

So when you look at that, the value proposition for the customer is outstanding. Then because we are -- we have this success, we're able to reinvest those extra profits into R&D, into innovation, which gave us the geopolymer project that we're going to hopefully go to market with in a couple of years.

And so this is a self-reinforcing loop where really driving strong operating performance allows us to generate more profit that we are able to reinvest to make this business stronger and generate that outperformance from a growth standpoint.

Let me -- if I can build on what Emmanuel said, he was talking about our cost advantage. Let me give you a couple of snippets that you can actually touch it, right?

The competition to make the same number of brake pads that we're making, they've got more than 12, 13 plants, we have 5. So you can imagine from a cost point of view, how you can be efficient running 5 plants at efficiency rather than having 15 plants that you need to keep it profitable. That's one thing.

Then if you come to each of those 5 plants in Europe, in Silao, Guanajuato, Mexico; or in Wuxi, China, is the same technology, the same machines, the same level of automation, which means that it's -- I'm not saying is easy-peasy, but you make an improvement in one plant tomorrow, you're going to copy and paste exactly in the other plant. The competition have got different technology in different plants, which makes it also very unflexible. So all of this translate in efficiency and cost optimization that we're able to deliver.

Very good. Maybe we'll leave it there for now and Friction and come back if time remains. Let's wrap up the rest of the MT segment. Maybe talk a little bit about the rail side of the business in terms of what you're seeing demand-wise, what you're seeing from a regional standpoint? And similar to Friction, how has ITT been able to generate continued market outgrowth in that business?

Sure. Addressing the second question is -- immediately is very similar to what Friction did in terms of being able to deliver better than the competition, in terms of on-time delivery, in terms of quality and keep on innovating. So this has enabled us to win incredible market share in Europe and as well as in China, for example, where there's been a huge investment in rail.

And we have a very healthy market share with all the high-speed train that they have in China. So when it comes to rail, we really like rail. I know is -- particularly here in the U.S., doesn't look like a very s*** business, but actually it's great.

First of all, if you think about the macro trend, more and more wheel transportation will happen by rail, particularly when you think about also in Europe and you think about in China. So we like the macro trend. And in terms of the innovation that we pushed, we've been able to beat the competition over and over again across the board.

Now on KONI, it's not just a question of rail, but KONI, which is one of our brands where we are making the shock-absorbers, is also playing in defense. So this is granted, is a small portion of the business today. But I can tell you that the orders for armed vehicles, et cetera, is growing at incredible speed.

So when you look, for instance, in some of the vehicles in the U.S., but also all the investment that's happening in Europe, and you see the announcement of many of the countries investing in the Patria 6x6, that is one of our platform where all our shock-absorbers. So rail is a great opportunity for us in the long term, and we're getting some benefits from defense, too.

Very good. Maybe let's switch gears over to IP for a few minutes here. Can you provide an update on what you're seeing from an overall demand standpoint across key end markets such as chemical, oil and gas, mining, general industrial and importantly, applications tied to decarbonization?

So let me start by product type. So if you look at the short cycle, we continue to see moderate growth in there. So our spare parts, for instance, continues to grow. And it's fair to say that it was already at a high level in terms of demand. So we continue to grow, and we're happy to see that. Our baseline pumps are also probably growing in line with GDP in the U.S.

And then the long-cycle business. So the long-cycle business, we have had a slew of orders in last year and also in the first half, right? And so what we saw is that the funnel is declining a little bit. And so what was the cause for that was that we got a lot of orders and the funnel had difficulty to replenish, right?

So from a demand standpoint on the project, we see -- we continue to see strong demand. From a market standpoint, mining was strong. Chemical is pretty much flat. And I would say general industrial, we are mostly U.S., and so general industrial is mostly aligned with GDP.

If I can build on Emmanuel's comment on the funnel is when you look at the funnel today, as Emmanuel said, you look at year-over-year, and it has decreased because it was huge, but it's still a very healthy level. And what we have seen in the last few months and quarters is that a reverse of the trend.

Now you have to be careful on that one to understand if those opportunities that are in the funnel are actually going to materialize or not depending on the certainty that you have in the market. So there is a lot of uncertainty, and therefore, you see some of our customers waiting to make a firm decision on the investment.

So that is more something that you -- thinking that you have in the funnel more than what you have in the backlog. When you look at the project that you have in the backlog and the backlog is incredibly healthy, those project goes. Even if you think about during COVID, we never had one project that was canceled, that was started, right? So that huge backlog that we have will materialize in revenue growth in the next couple of years. But then when it comes to the funnel, we really need to see the decision that the customers are making on those investments.

So maybe just double-clicking on a couple of things you said there. Across the broader industrial space, some have talked about demand pushing to the right a little bit, maybe you're hinting that you've seen a little bit of that on either geopolitical noise, tariff noise. How might we expect this to play out in your order entry in the business, both with respect to short cycle and project side of things over the next couple of quarters?

So I think that -- as Luca was saying in the beginning, we expect from a project standpoint to show pretty flat to down type of activity in Q3. I think Q4 may be a little bit better. There are 2 components. First is what Luca was saying, the fact that the funnel has been declining quarter after quarter, even though we're seeing today that we're seeing a little bit of growth in the funnel. And then second is because we had a really strong Q3 and Q4 last year that is tough to lap.

In terms of orders, right?

In terms of orders, yes. So we think that from an order standpoint, we're going to continue to grow. Certainly, the full year is going to be very positive, and there's no real cost concern for 2026.

Now the implication of all those orders that we got in '24 and also in the first half of '25 is that there's a lot of activity that needs to happen in our plant to be able to convert those orders into revenue. And really, that's the focus today, making sure that we're able to ramp that capacity and to be able to deliver to our customers on time.

So when you look at the healthy backlog that we have, what is our backlog at the end of Q2, was it roughly...

Total was in IP around $1.2 billion, $1.3 billion...

$1.2 billion. So a lot of that backlog that is a long -- most of its long-term backlog is going to be delivered in 2026, some in '25 and '26. So from a growth perspective, no concern at all. And then within that business, we have a business like Svanehøj, our recent acquisition, that business, they booked in the first 6 months the equivalent of the orders that they booked for the full year of last year. So there has been, for sure, a great story on the market, but a lot of market share gains there, and therefore, this will keep on fitting the growth of Svanehøj in '25 and '26 for sure.

Maybe just to wrap up with IP. Can you talk a little bit about your exposure to decarbonization and what you're seeing there from a trend standpoint and also talk about your relative price power in this business today versus maybe when you took over...

Sure. So when you look at decarbonization, that is something that is there to stay. So many of our customers need to decarbonize. So for instance, they need to stop flaring. So if they have investment, particularly outside of North America, they need to stop flaring not just from an environmental perspective, but if they flare, they get fined. So they need to stop flaring.

We have the solution with our Bornemann pumps, twin screw pump, multiphase technology in order for them to find competitive solution that enable them to stop doing that. And then we are designing some solutions for some of the major oil producer for them to be able to push the carbon capture that they capture under the ground.

So we had a major oil producer that standardized, and we're already at the third or fourth project with them for some of the major investment. So this is really a good solution that we're able to put in the market. Then when it comes to decarbonization, also, if you think Svanehøj, the company we acquired that is in the marine, if you look at the marine market, it's not growing that much. It's normal growth.

But why is Svanehøj growing so much is because the market is growing normally, but then there is a proportionate amount of growth in switching from [indiscernible] fluids, the dirty fuels to LNG and to ammonia. And this is where we have our product, and we are the leaders in many of the applications. And this is where really you see the growth of Svanehøj and the market share gains. So marine decarbonization, carbon capture, stuff flaring, we have the technical solution and the companies and the brands that got a special solution for our customers. So it's good for us.

And then from a pricing standpoint, I would say IP, I would say, has a unique ability to push pricing. And the reason for this is because of our performance. So you remember, I talked about the Motion Technologies playbook, this is what we've been deploying in IP and also in CCT. And so we've been able to improve our service to the customers from a quality standpoint, from a delivery standpoint.

There's still a lot of room to grow. We're nowhere near the 99% on time that we have in Friction, for instance, but we made decisive progress. And as a result, customers are coming back to us with new orders, but they're also coming back to us, for instance, in the projects and are willing to accept a premium because they know that with ITT, their project is in good hands and that we're going to deliver on time a product that fits their specifications. So in IP, we -- since probably 2020, 2021, we've been pushing price to really make sure that we capture as much value as we can for that business.

Very good. I think we have about 5 minutes left. So let's maybe go over to CCT. Maybe focus on the aerospace side of the business, talk about how you're positioned relative to the commercial aerospace cycle and the progress you've made with respect to customer contract negotiations and pricing terms.

Sure. So when you look at CCT, it's a bit unfortunate because it's always the smallest one, so we only get left the last 5 minutes, right? But we're really excited about CCT. Now this is where we have the connector business, the components business. So the Connectors has performed incredibly well in the last few years, even though there was problem in the short cycle, we were able to grow double-digit, win market share. Granted we are a small player, so it might be easier and it is easier to win some market share if you are performing well, but it's a great performance.

On the component side, on aero, probably this is the only area in the portfolio of ITT, where if you look in the last few years, we underperformed the market. And the reason for that is because we tend to be more exposed to the widebodies than the narrowbodies and the aero recovery hit more the narrowbodies to start with.

So now with the development more and more of also the travel and international travel, the widebodies will feed the growth of the components as well. So that is going to be good.

Now going to the negotiation, we have -- as you can imagine, Boeing is a big customer of ours. And therefore, we had some fixed price contract with Boeing that were negotiated in 2014 and in 2015. So we are in the middle of negotiation with them. That is going to end at the end of this quarter or the end of October. We made very good progress with them. We are serving them well. We are performing them well. And therefore, we just demand a proper fair price.

As you can imagine, the price was fixed in 2014 and 2015, but the cost of the material, the cost of the components were not. So you can imagine how much money we were not making on many of those products. So I'm sure that we will come to a good conclusion for Boeing and for us in these negotiations soon.

Very good. CCT Defense, maybe speak to ITT's core defense-related business and relative positioning here, growth outlook into '26 and talk to the strategic significance of the kSARIA acquisition and it's enabling technology, et cetera?

Sure. Defense is a very good market for us. And as we talk about KONI where before and it is a very small portion there, but growing. And defense is really where we are playing in CCT. Components, if you think the KC46 the valves that allow the fuel to go from the big plane to the small plane, all of those valves are designed, manufactured and delivered by ITT.

So every single time there is a very harsh environment, a critical component, valves, switch, whatever that the defense will need, we are a very good partner for them, for our defense customers.

And then also on the connector side. On the connector side, we are probably not the best, if you're talking about a standard connector. But if you have a special application, if you need a customization, this is where we play.

So if, for instance, you have a drone and you want to move away from 3 standard 38 2.9 connectors and you want to just do everything with one very small connector, this is where we come in, so that you can push more data, you have more space on the drone, it's lighter and therefore, you can put and increase whatever you want on the drone or you can increase the flying time.

This is where we differentiate. So this is a very good growth opportunities. And then kSARIA, our last acquisition, this is where we will see a very good growth in terms of both orders as well as revenue in our Defense segment in CCT and ITT.

Maybe just to wrap up, another question on kSARIA. Can you remind investors of the operational and commercial synergies you see and relative level of accretion, particularly as we move into '26?

Sure. I would say, let me spend a little bit more time on the revenue synergies. This is where we saw more and more opportunities. In some cases, for example, the customer were coming to us with the requirement of some fiber cable solutions with the connectors. And we didn't have the credibility.

We had a little bit small business with fiber cable, but we didn't have the credibility or the knowledge or the competence to do so when it was very complicated. So the acquisition of kSARIA enabled us to enlarge the piece of the cake that we go after. So that is a big opportunity for us.

Second is that if you go to the kSARIA plant and you walk the shaft floor, you will see, in many cases, some connectors and not ITT Cannon connector. So that's an opportunity for us. There are cases where that platform we have been qualified. So that will be an easy switch.

There are cases where we are not qualified, and it will be relatively easy -- an effort, but relatively easy to get qualified. You go through all the steps so that there will be a synergy to come a little bit later. And there are cases where we will not make sense. But all of those will be good revenue synergies for both kSARIA as well as our traditional connectors business.

As well as from a pricing standpoint. So for instance, we worked hand-in-hand with kSARIA at the beginning of the year, end of last year when it came to the renewal of a really large defense program. And so as a result, we were able to get that renewal business and at a higher price point, which allowed us to also expand our margins.

With that, I think we're at time. Thank you very much, Luca, Emmanuel. Appreciate it.

Thank you, Matt. Thank you very much.

Thank you.

Welcome to ITT's 2025 Second Quarter Conference Call. Today is Thursday, July 31, 2025. Today's call is being recorded and will be available for replay beginning at 12:00 p.m. Eastern Time. [Operator Instructions] It is now my pleasure to turn the floor over to Mark Macaluso, Vice President, Investor Relations and Global Communications. You may begin.

Thank you, Bella, and good morning. Joining me in Stanford today are Luca Savi, ITT's Chief Executive Officer and President; and Emmanuel Caprais, Chief Financial Officer. Today's call will cover ITT's financial results for the 3-month period ended June 28, 2025.

Please refer to Slide 2 of the presentation available on our website, where we note that today's comments will include forward-looking statements that are based on our current expectations. Actual results may differ materially due to several risks and uncertainties, including those described in our 2024 annual report on Form 10-K and other recent SEC filings.

Except for otherwise noted, the second quarter results we present this morning will be compared to the second quarter of 2024 and include certain non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures are detailed in our press release and in the appendix of our presentation, both of which are available on our website.

With that, it's now my pleasure to turn the call over to Luca, who will begin on Slide 3.

Thank you, Mark, and good morning. I'd like to begin, as always, with a heartfelt thank you to all our ITTers. We could not have delivered these results without each and every one of you and your hard work. I'm humbled by our team's ability to achieve such strong performance once again. In May, we were fortunate to see many of you at our Capital Markets Day in New York City.

There, we showcased ITT's enterprise strategy and value creation pillars. First, organic growth and margin expansion; second, the compounding with M&A and when you look at our second quarter results, you see all of this value creation in action. Let me share some highlights. In Q2, we delivered $1 billion of orders, up 16% total and 13% organic as all our businesses delivered a strong order intake, bolstered by the kSARIA and Svanehøj acquisitions.

We generated record quarterly revenue of more than $970 million up 7% total and 4% organic, with all segments contributing. Operating income grew more than twice the organic sales growth rate and operating margin expanded over 100 basis points excluding M&A. Our profitable growth and continued operational improvements resulted in adjusted EPS growth of 10% and or 16% excluding the Wolverine divestiture. Finally, we grew free cash flow to $214 million year-to-date, making significant progress, nearly $0.5 billion for the full year. Furthermore, free cash flow margin was 14% in Q2.

To round out the highlights, we repurchased $500 million of ITT shares year-to-date, reaffirming our confidence in the long-term outlook of ITT and lowering our weighted average share count by 3%. As you can see, a strong performance in Q2 built on ITT's pillars of value creation, organic growth and margin expansion compounded now with M&A as we laid out at Capital Markets Day.

Now let's get into the details. Orders, definitely one of the highlights of the quarter. Industrial process grew 22%, driven by strength in Goulds Pumps and Svanehøj. Notably, in the first 6 months of 2025, Svanehøj holders of nearly $200 million were above their full year 2024 revenue, a strong first half to say the least.

Furthermore, Bornemann won large awards on leading energy projects with 2 oil majors in Australia and the Middle East. The former in one of the world's largest LNG fields where Bornemann again thanks to our superior technology, our customer service and our execution on the current pump project.

The latter at an onshore oil field in the UAE, where our customers standardize on Bornemann's twin screw pumps based on the performance track record of our existing solutions. And this is despite aggressive pricing by our competition during the bidding phase, well done [indiscernible] and Bornemann team.

Moving to Connect & Control. We grew 9% organic, driven by Defense & Commercial Aerospace awards and grew total orders 36%. And kSARIA continued to secure content on coveted defense platform such as the [ Abrams Stank ] and the battlefield communications program. As a result, their orders grew more than 25% this quarter.

I was fortunate to be at kSARIA as quarters in New Hampshire with Michael and the leadership team to work together on executing our commercial synergies. The team successfully replaced a competitor's connector with our Canon HDx on an important existing kSARIA platform, and there are many more still to capture.

In Motion Technologies, the friction team won 49 new [indiscernible] award with leading OEMs in China, Europe and North America, including [indiscernible]. And in [ Core], once again, we saw strong orders across the board, mainly driven by rail and defense, including a notable win on a prominent U.S. battle vehicle.

All in, our book-to-bill of 1.1 resulted in ending backlog of nearly $2 billion, up 34% versus prior year and up 9% sequentially. On revenue, we saw a broad-based organic growth across all segments as we work to convert our robust backlog. IP grew 5% organically on project strength. Svanehøj also delivered strong top line performance, growing 43%.

CCT grew 4% organically as defense momentum continues and aerospace demand improves. And in MT, frictionally grew 7% organically, continue to outperform global auto production in all geographies. On profitability, we continue to expand margin, growing 30 basis points after overcoming headwinds from temporary M&A amortization and foreign currency transaction costs.

IP grew margin 100 basis points to nearly 22%, driven by volume, productivity and price. The Svanehøj team also drove improvements in profitability as they are efficiently ramping up production capacity. MT grew margin by 140 basis points, driven by productivity savings and this after offsetting 100 basis points of unfavorable FX impact. And finally, CCT grew margin 270 basis points, excluding M&A dilution. This was driven mainly by strategic pricing actions with 2 additional customer price negotiations closed this quarter.

On capital deployment, an incredibly strong cash performance, which put us in a position to act quickly to repurchase $400 million of ITT shares in April and May alone. And M&A, we continue to progress several acquisition targets of [ sites ] through the funnel, building our M&A muscle that will drive the next leg of value creation for ITT.

Lastly, on the outlook. Given a strong first outperformance, ramping contribution from acquisition and a less volatile environment, we are raising our full year adjusted EPS outlook to $6.45 at the midpoint, amounting to 10% growth versus prior year or 13% growth if we exclude the lost earnings from our 2024 Wolverine divestiture. This is a testament to our team's ability to deliver day in and day out for our customers and our shareholders, no matter the environment. Emmanuel will talk more about our revised guidance shortly.

Now let's spend a few moments discussing our 2025 Capital Markets Day and a few examples of how in Q2, we differentiated through execution, innovation and M&A. First, on execution. In our engineered valves business, thanks to the value of our patented and vision technology and the impeccable service we are providing to a large biopharma customer, our team is expected to double the size of the previous VAVE order to roughly $50 million.

Next, Friction China to industrialize the new award that [indiscernible] the China team won in the last 18 months, we performed more than 150 process validations in Q2. This means that the team had to stop production lines 2 times per day to run more test batches of the newly awarded [indiscernible]. And despite of this, our overall plant efficiency in Wuxi was more than 90% in Q2. Well done Friction.

Next, on innovation. At Capital Markets Day, you heard us talk about the geopolymers, the next breakthrough material size in brake pads at ITT. In Barge, Italy, I was fortunate to see the production line with design that we made the copolymer. We have the product, we have the manufacturing technology, and we have a customer.

Today, we are one step closer to the commercialization of this unique and patented technology. Then in Svanehøj. We recently launched our new high-pressure fuel pump. The lab testing demonstrated this new pump will outlast our competitors product. It has been running on an operating vessel since March, and the second pump will be installed on another vessel in August. This type of innovation for us environment will sustain Svanehøj share gain momentum.

Last but not least, VIDAR. Our revolutionary compact motor that embeds variable speed capabilities to deliver energy efficiency and better reliability for our customers. At our launch event in June in Houston, we secured strategic wins and now we have deployed VIDAR in trials at 2 of the world's largest oil companies. The team already secured more than $1 million in orders and last week, we started shipping.

Finally, on M&A. We are still early on our M&A journey, but the success with [indiscernible], Svanehøj and kSARIA is promising as [indiscernible] shared at Capital Markets Day. We continue to progress acquisition targets through the funnel with rigor and a disciplined framework for deal selection, execution and integration.

Now with all of this in mind, let me reiterate our 2030 financial targets on Slide 4. We expect to drive more than 5% organic revenue growth and approximately 10% growth in total on an average annual basis. Margin is expected to reach 23%, representing a 500 basis points of expansion compared to 2024. This will drive more than $11 of adjusted EPS from our existing businesses and more than $12 including anticipated M&A. And free cash flow margin should reach 14% to 15%. As you can see, we have now started our journey towards this target, and Q2 was a very good first step in that direction. Now let me turn the call over to Emmanuel to discuss our Q2 results in more detail.

Thank you, Luca, and good morning. As you can see, ITT delivered another strong performance in the second quarter. We saw a step-up in nearly every financial metric while also putting a significant amount of capital to work earlier in the quarter. Let's talk about some of the many highlights.

On revenue, all segments contributed to the performance, growing 7% in total and 4% organically. Industrial process led the way with 5% organic growth on the strength of the project business. And from an orders perspective, we saw growth in every short-cycle product category this quarter, leading to a book-to-bill of 1.2.

CCT grew 4% organically with strength in both Aerospace and Defense and grew revenue over 30% in total, including kSARIA. Organic orders growth was also strong at 9% led by commercial aerospace and defense awards on coveted platforms. Finally, in Motion Technologies, our rail business grew 10% driven by share gains in [ core]. Friction OE outperformed global auto production by over 500 basis points, growing 7%, led once again by our differentiation in China and strong execution in Europe and North America.

Friction's performance has been remarkable in what continues to be a highly competitive global automotive market. On profitability, we grew operating margin 30 basis points to 18.4% on higher volumes, pricing actions, including related to tariffs and continued operational improvements more than offset the unfavorable foreign currency transaction impact stemming from a weaker U.S. dollar and the impact of temporary acquisition amortization from kSARIA.

At this point, the temporary amortization from [indiscernible] has ceased, and it will end for kSARIA in Q4. Notably, [indiscernible] and the KONI team delivered outstanding profitability, which is driving empty above 20% margin. The revenue growth and continued margin expansion drove adjusted EPS to $1.64, up 10% year-over-year and up 13% sequentially. If you exclude the loss of earnings from our 2024 divestiture of Wolverine, EPS growth in Q2 would be 16% year-over-year.

Finally, on cash. The teams drove strong cash collections while making progress on managing inventory and executing customer advances in the project business push free cash flow margin in the quarter to 14%, while still funding further strategic CapEx toward innovation and productivity to ensure performance will continue.

We are driving improvements in working capital, especially in MP and leveraging the learnings from Svanehøj whose working capital as a percentage of sales is just 9%. We also repurchased $0.5 billion of ITT shares [ to May], which lowered our weighted average share count by 3%. All in, a very strong high-quality performance across the board.

Let's quickly turn to the Q2 adjusted EPS bridge on [indiscernible]. The key takeaway here is that the strong operational performance across our businesses, contributions from our acquisitions and a lower share count enabled us to grow EPS for overcoming temporary M&A amortization impacts and favorable foreign currency transaction costs, higher interest expense and the lost earnings from the Wolverine divestiture. Excluding the divestiture, adjusted EPS would be up 16%.

Now let's move to Slide 7 to discuss our revised 2025 guidance. After a strong first half performance during which we grew new expanded margin, repurchased $500 million of ITT shares. We are raising our total revenue and adjusted EPS outlook for 2025. On revenue, our total growth is now expected to be slightly higher to 5% to 7%, given the tailwind from foreign currency compared to our assumptions at the beginning of the year, while organic revenue remains within our original range of 3% to 5%. Our visibility to a strong second half is improving given the Q2 execution and the better-than-expected backlog position.

We expect continued growth in the project business in IP, firm demand in aerospace and defense and outperformance in frictional and rail to continue in the second half. On margin, we are narrowing adjusted operating margin to approximately 18.4% at the midpoint, up 60 basis points versus prior year. We expect this improvement will be driven by continued productivity in the life businesses and significant margin expansion in our acquisitions through year-end. In addition, we are driving considerable pricing, particularly in CCT.

Excluding M&A, we expect margin expansion to be more than 100 basis points for the year. On EPS, we are raising the midpoint of our guidance by $0.15 to $6.45, a step change in our EPS outlook for the year, with a $0.25 increase at the low end and $0.05 improvement at the high end. This is due to improved productivity and FX benefits, partially offset by unfavorable mix and higher M&A-related costs. On cash, higher operating income and improving working capital puts us in a position to deliver close to $0.5 billion of free cash flow this year.

Next, I would like to spend a moment addressing our updated assumptions on tariffs. Given the current economic landscape and status of negotiations with key U.S. trade partners, we now estimate the gross tariff costs before mitigation to be approximately $25 million in 2025, half our previous estimate. We are offsetting this with pricing and productivity actions, as such, there is no material impact expected in 2025.

Briefly looking ahead to Q3. We expect double-digit growth in revenue or low single-digit growth on an organic basis, led by industrial process and Connect & Control. Friction will once again outperform global auto production while strength in [ real ] should continue driving MT to end roughly flat for the quarter.

Operating margin will be up slightly year-over-year, led by continued margin expansion at IP and MT. In CCT, pricing and productivity will only partially offset the temporary amortization from kSARIA, while total corporate costs will increase slightly compared to Q2 due to anticipated M&A-related costs. All this should result in EPS representing low teens growth year-over-year, slightly above the second quarter. Let me now turn the call back to Luca to wrap up.

Thanks, Emmanuel. A few points before Q&A. Our Q2 performance is a great first step towards our long-term commitments. We keep on driving the organic value creation through growth and margin expansion. All our businesses grew organically, and we saw strong margin expansion in many parts of the portfolio.

And as I said at Capital Markets Day, this is here to stay. On the inorganic front, our acquisitions are performing well and over delivering on their commitments. Cash continues to ramp towards an expected $0.5 billion of free cash flow this year with a 14% free cash flow margin in Q2. And lastly, as a result of all of this, we raised the midpoint of our full year EPS outlook by $0.15.

It is ITT's differentiation through execution, innovation and now M&A that will ensure the value creation continues. As you can see, it was a strong quarter on all fronts, fully aligned to the value-creation pillars we laid out at Capital Markets Day. Thank you for joining ITT today. As always, it has been my pleasure to speak with you. Bella, please open the line for Q&A.

[Operator Instructions]. Our first question comes from the line of Mike Halloran with Baird.

So first, maybe just get some thoughts on what you're seeing on the capital side of things, capital equipment, larger projects, and not specifically to any segment. Did you see any pause in the second quarter? Obviously, the orders are pretty good. I know the short cycle piece was up across all segments. Any signs of hesitancy or pushouts or any change in the forward thought process from your customers anywhere?

Mike, thanks for the question. Yes, when you look at our performance in terms of orders has been remarkable. And of course, there is a lot of market share gains in there. When you look at the projects even on the legacy business going up 22% year-over-year and was not an easy compare when you look at 2024.

So -- and then you look at the Svanehøj performance of the orders year-to-date for the 6 months, which is equivalent to their 2024 full year revenue. So definitely a great performance on the orders front. Now when we look at the funnel, the funnel is still elevated is down year-over-year, but this is because of really a tough compare.

So we haven't seen any major shift, and we have seen probably just a couple of orders that shifted to the right, but no major change that will make us concerned right now. So when we look at the orders very strong, you were talking about market, very strong on the oil and gas, a very strong also in the general industry.

That's helpful. And then maybe can you just give your latest view on what you see the auto landscape developing is. And obviously, the outperformance this quarter and well as long as [indiscernible] stock really has been incredible. So maybe talk about what you're assuming on that side as well.

Sure. So let me start with the market first. So the market in Q2, the production was up 2.6%. So that was a nice figure. And if you look at the forecast for the full year, it's a little bit better than what we thought 3 months ago. So we think that the full year production will be roughly flat or slightly positive to 90 million vehicles produced that will be produced in 2025.

Granted, the story here is mainly a China story. Both Europe and North America will be down, but this is the market. Now when you look at our outperformance, the outperformance was spread across all the 3 different regions. You're talking about outperforming in Europe, outperforming in China by a lot and outperforming in North America and also outperforming across all the 3 different type of powertrain, internal combustion engine, hybrid and EV. So the outperformance, I'm happy to see is continuing.

Operator, I think we can go to the next question.

Your next question comes from the line of Nathan Jones with Stifel.

This is Adam Farley on for Nathan. So maybe starting on CCT orders, really strong orders growth. I know you're getting a lot of price. Maybe you could help us think about the differences in share gains versus just overall market growth?

Yes. Thank you, Adam. So yes, you're right. We saw a significant growth, 9% from an order standpoint in the quarter. And a lot of that growth was fueled by aerospace and defense, specifically defense, where both our legacy business and our kSARIA business continues to do really well.

Our legacy business was up 25%. kSARIA was up by 36%. So on the defense, we are pretty confident that we continue to make the difference and differentiate for our customers. And as a result, we're gaining share on some really good platforms. We talked about in Q1 about the large award that Cascara had on the F-35. And then we have more awards this quarter on coveted platforms. Aerospace is doing well as well at plus 12%. And here, frankly, we are doing the best we can to support Boeing in their ramp-up plans, especially on the 737 MAX.

All right. Then shifting gears a little bit to Motion Technologies margins, the FX impact on margins kind of stood out. What is the FX relationship there that's causing the margin compression?

Sure. So we've seen during the first half a depreciation of the dollar compared to the euro. And so while this helps from a translation standpoint, it hurts us from a transaction standpoint. And so what we're seeing here is the transaction impact that has an outsized impact on Motion Tech's margins.

Your next question comes from the line of Joe Ritchie with Goldman Sachs.

Can we double-click on Svanehøj for a second? Growing greater than 40% this quarter, you can't imagine that the end market is growing that quickly. Like just maybe just give us a little bit more color what's happening there? What's -- where are you really seeing the strength in that business?

Sure. Probably you remember that when we communicated this acquisition, we always expected this business to grow substantially in the years to come. I think that what is driving this outperformance of the market is really flawless execution by our team when it comes to project and also service as well as a differentiation on the product side.

Differentiation on the product side that they keep on feeding with R&D investment and with new products like the one that I shared in the prepared remarks, the new high-pressure fuel pumps. And it is across the board when you think about LNG, LPG, ammonia and also large carriers.

And Joe, if I can complement what Luca was saying with some numbers. So in the first half, Svanehøj grew orders by more than 80%. We expect for the full year for them to be a little bit above 20%. And this is because we have anticipated a lot of the orders that we were expecting in the second half in the first half.

So really strong performance even for the full year. And from a revenue standpoint, also for the full year, we expect them to be up 30% because we are converting all those orders that we got in 2024, we're now converting them in terms of revenue. So obviously, from a book-to-bill standpoint, the picture is really strong. For the first half, we were over 2x and then will be largely over 1 for the full year.

And Joe, it's not just a question of orders and growth. I mean if I can credit store and [indiscernible] in the entire team, they generated year-to-date in terms of cash, almost the same amount of cash that they generated in full year 2024 and their working capital is a single digit. So great performance across the board.

Yes. That's amazing. That's great color. And congrats so far on that acquisition. Maybe just my second question, really focusing on the pump business. Clearly, really good order growth this quarter. You did mention a couple of project delays and there's been other peers that have also been mentioning some things kind of slipping to the side and at the same time, Luca, you had some comments around aggressive pricing as well.

So just -- maybe just give a -- it's hard to kind of like totally square the fact that your orders have been really good. You guys are executing really well, but at the same time, there's some [ gyrations ] in the market. I just -- we're just trying to understand that a little bit better.

Sure. So I would say when you look at the funnel, the funnel is down year-over-year, but was exceptionally high last year. So it's still a very healthy funnel, what we see and really the move that we saw to the right or just a couple of examples. I think that the story here is really a story of share gains, Joe.

And even when you look at the Bornemann, I mean the -- we were able to win those orders because the service that the team has provided, the project execution with the customer. And therefore, in one case, the customer came straight to us no competition at all in the second case despite incredible competition from a price point of view, they stayed loyal because of the performance and the service. So it's really a market share gain story.

Next question comes from the line of Jeff Hammond with KeyBanc Capital Markets.

So I think you said third quarter low single-digit organic. I'm just trying to understand the cadence in the fourth quarter. It seems like you'd have to have a step up. And just -- as you look at this order strength, how much is kind of giving you the visibility for second half versus giving you longer-dated visibility into '26?

Yes. So I would say that for the projects that we're getting today those are going to be delivered in 2026. So from a project standpoint, our backlog is full, and we are secured in terms of delivering the revenue. it's a little bit different for the short cycle that we still need to get mostly in pumps and also in connectors.

But other than this, I think from an order standpoint, when it relates to projects, we are covered. We expect in Q4 similar growth rate -- organic growth rate from a revenue standpoint than in Q3. And yes, so in the low to the mid-single digits.

Okay. Great. I think you called out a healthy funnel, some acquisitions of size. I think you called out a step-up in corporate around M&A. Just speak to -- I guess, maybe put a frame around what you consider an acquisition of size and just a little more color on that on the funnel.

Sure. When we look at the funnel, the majority of the company that we are cultivating and that we see in the funnel revenue between $200 million and $400 million. So this is the bulk of the opportunity that we have in the funnel. And if you look at this is also the last couple of acquisitions that we made Svanehøj and kSARIA that are executing and overdelivering over approximately that size. So the majority are around that size.

Your next question comes from the line of Brad Hewitt with Wolfe Research.

So you mentioned Svanehøj and kSARIA trending ahead of expectations, and I think that's pretty visible in the order numbers. But as we think about next year, is there any help you can give us in terms of thinking about the building blocks of the incremental year-over-year accretion from the 2 deals in 2026?

Yes. So thank you, Brad, for the question. So when you look at from a profitability standpoint, both Svanehøj and kSARIA are progressing well compared to our plans. So when Luca is saying they're outperforming, they're outperforming from an orders self profitability and cash. And so we saw some really strong year-over-year EBITDA margin improvement in Svanehøj as well as in kSARIA. So we're very pleased with that.

I think that as to have in mind kind of a kind of a guideline for what we expect out of acquisitions, we probably expect around 100 basis points of margin improvement every year. Maybe in some years, it will be a little bit more, maybe others less, but that's the average we expect.

Okay. Great. That's helpful. And then maybe switching over to the short cycle side of -- so you mentioned that orders inflected from negative in Q1 to positive in Q2. I'm curious if you saw any change in order activity on the short cycle side as you progressed through the quarter or maybe even end of July.

Not through the quarter, Brad. I think that Q2 was a very good quarter across the board, both the baseline parts, service and [ VAVE], which service and [ VAVE ] growing double digit when we look at the orders. As a matter of fact, Q2 was probably the second highest quarterly orders performance in short cycle when you look at the weekly rent.

Now July was a little bit softer, but that tends to be the this thing, is July is the first week is always a little bit softer. So that happened last year and happened again this year. So no different trend, I would say, in the quarter.

Your next question comes from the line from Vlad Bystricky from Citigroup.

So I just wanted to ask you about the IP projects a little more you mentioned the price competition you saw in Bornemann, it sounds like you were able to hold margins despite that. But can you talk in general about margins you're booking into backlog on project wins in IP today versus segment margin and how we should think about mix going forward?

Sure. So a very good point because when you look at our mix in the backlog, you go back 2 years and the mix was 60%, 40% short cycle project. Now you look at the backlog today, is the reverse, 58% project, 42% short cycle. So this makes the improvement that you see in the margin of [indiscernible] even more remarkable when you see that this big headwind that they have in terms of mix.

And the reason for that is because the team is able to improve the margin in the project when we are booking, when we are winning, thanks to the execution, thanks to the performance that we have with those customers.

And the second point, very important, is that when we look at this project, when we close the project, when we ship everything, the margin of the project tends to be higher than the margin of when we book the project when we won the order, which is a testimony to the great execution of the team, of the project manager. So well done [indiscernible] and the project management team. So mix is a headwind, but we're able to compensate through the continuous improvement in execution.

And so if you look at the year-over-year margin progression on all the projects that we shipped, we're in the neighborhood of 400 basis points improvement versus the prior year.

That's really helpful color. I appreciate that. And then -- just shifting to CCT. Can you just talk about shorter cycle visibility at CCT and how you're thinking about the durability of growth momentum there?

Sure. When we look at the show cycle and CCT, we're mainly talking about connectors. And I would say Connectors orders in Q2 was the second highest quarter of the performance ever. And after a growth in orders in Q1 of 11%, the orders grew 12%. I'm just talking about connectors without kSARIA here, so the without the acquisition. And so very good performance on the orders front. And granted, a lot of that comes from aero and defense. And -- but we will expect for the full year also continue to grow double digit.

Your next question comes from the line of Sabrina Abrams with Bank of America.

So I just want to be clear. I think you tried to losses is a 2-quarter, so I guess you trimmed the high end of margin guide. Just want to understand what the driver of that is. And then I think because of the cadence of the 3Q year-over-year comments, you need to have a bigger year-over-year margin expansion in 4Q. So I just want to understand that dynamic a little bit better.

Sure. So I mean, it's really a small adjustment, and we like to be precise. So I would say that the headwinds we're facing is a little bit of a higher M&A cost than what we were expecting. And then from a mix standpoint, those numbers that we talked about for Svanehøj, them growing really fast. Their margin, even though it's improving, it's still dilutive to the overall ITT margin. And so as a result, we take a little bit of a hit there.

And then from a 4Q performance, Yes, I mean we're expecting not a big difference between third Q and 4Q from a margin standpoint. So we're pretty confident that our outlook from a margin standpoint is achievable and realistic.

And I think looking at the CCT, I guess, if I take the core earnings, excluding the temporary amortization, you have really strong incrementals. I think the core incrementals are over 80%. And I think in the slides, there was some mention about pricing actions. I know this has been a big focus for you, particularly on the aero side. Just can you talk about what's going so well here, like the strong execution in CCT? And yes, I would just love to know what's driving the really strong incrementals, whether it's more aero or short-cycle side.

Yes. Thank you, Sabrina. So yes, I think we're really happy with the way CCT is performing even the legacy CCT. We are at 21.5% margin if you exclude kSARIA, which is a really, really strong number. And so the incrementals are around 70%, as you mentioned, so really strong performance.

We have a really good contribution from pricing. And here, pricing is on 2 aspects. One is to make sure that we get compensated for inflation on some of the old contracts we had. And as we mentioned, we closed another 2 contracts this quarter. And the second one is strategic pricing, and that's more around the aftermarket and the repair and overhaul.

And so that is generating 450 basis points of margin improvement just due to pricing. Some of that is offset by inflation, but it's a net positive. I would say the last point I would make about CCT is that we talked for a long time about automation. And we're getting those projects in action right now.

We have implemented automation project in our Orchard Park facility and then now up and running, especially in the machining area, which is causing a lot of productivity. And then we are about to kick off automation also in our Valencia plant for valves and switches, which we should continue to help us expand margins.

Your next question comes from the line of Damian Karas with UBS.

Sorry if I missed this earlier, but I was wondering if you could maybe talk to us a little bit about the pricing actions that you've taken since last quarter and is there any additional price that you think you'll need to take in the second half, just thinking about some of the updated tariffs and maybe just to fill us in on what your updated assessment is of your tariff exposure as well.

Sure. When you look at the tariffs, the exposure for 2025 today is half of what we thought a quarter ago, so roughly $25 million. And this is mainly for some of the things that were importing from Asia, some exposure on product that for [indiscernible] absorbers from Europe to North America and a small portion of non USMCA compliant products in CCT.

But when you look at the 25% -- [ 25 million ] impact, we are able to mitigate it through price and actions together with the supplier and productivity actions also ourselves. So 0 impact when it comes to income. Now if you look at the pricing, I would say price cost has been positive for Q2 for ITT, both from an income point of view and also margin.

We expect that to be the same for the full year and across all the 3 different businesses. And I would say no major difference in terms of our pricing actions from Q2 to Q3, strategic pricing and pricing to cover for inflation and tariffs.

Okay. That's helpful. And Luca, there's been a lot of deal activity in industrial process out there. It seems, for example, [ Baker Hughes ] has been involved in a couple of transactions. From your perspective, are you starting to see a riper deal environment in IP space. And I'd be curious to hear your thoughts on where you think some of these deals are pricing.

Sure. So when we look at our funnel, the majority of the opportunity -- you know that we are going after in terms of the funnel in the connector specifically on the aero defense and inflow. And therefore, when we're looking at the funnel, those are the areas where we are focusing. And it's fair to say that the majority of opportunities are actually in the flow area.

So we are actively working the funnel. We are cultivating. And as you can see, our M&A costs are probably ramping up. So two of the past acquisitions that we made, [indiscernible] and Svanehøj are in flow. So it's still a very fragmented market. So for sure, more acquisitions there will happen.

Our final question comes from the line of Joe Giordano with TD Cowen.

This is Chris on for Joe. Most of my questions have been addressed, but maybe -- when you look at the strength in -- on pumps, what types of applications are driving strength? Is it greenfield versus expansions of existing sites and how would you characterize customer urgency versus a normal level?

Yes. Thanks, Chris. So yes, we got some fantastic orders in IP in Q2, up 23% and we saw some real strength in oil and gas, so energy as well as in general industrial. And then on the green type of projects, we are also very happy with that because if you look at our year-to-date green orders, they're almost in line with what we get for the full year in 2024. So that's very positive, obviously.

Luca mentioned an order for Australia that we got. And this is a decarbonization order with a major oil company, and we got the first project in 2023 which was for more than $20 million, and we got a follow-on order as we executed perfectly from a project management standpoint with that same customer for that same field. So we were happy with the way the green projects are developing and the market share we're able to make.

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