ITT Inc. (ITT) Earnings

Management highlights

### Overall Q2 Performance - Management confirmed an elevated step-up in Q2 performance, and expects this elevated performance level to hold for the second half of the full year - All three segments have built backlog that provides strong visibility across short, medium, and long-term time horizons ### Market & Regional Trends - Middle East: First half 2024 revenue grew strongly from delivery of prior won backlog, though new order awards have been delayed in the region, which is expected to moderate near-term regional growth. The business has started to see new order activity pick up recently. Subsidiary Habonim outperformed, with 18% order growth and 19% revenue growth in the quarter, maintaining a book-to-bill above 1.0. Total regional sales funnel is up 34% year-over-year and 6% sequentially. - Other regions: North America and Latin America show strong fundamental growth, with rising revenue, growing orders, and expanding sales funnels. Europe and Asia Pacific sales funnels are down slightly year-over-year. ### Strategic Post-Acquisition Integration for SPX Flow - Management is moving away from the prior 80-20 product focus adopted by SPX Flow before acquisition, instead pursuing a more flexible, market-responsive approach that targets all viable customer opportunities that competitors may cede - Key strategic moves to drive growth: Decentralizing decision-making, empowering local regional teams, and increasing investment in local engineering and R&D to adapt products to regional market needs (a model that has driven success for other ITT segments in China) - Cross-selling and channel synergies are being actively realized: Leveraging SPX Flow's existing distributor channels in hygienic end markets to sell ITT's Bornemann pumps, and cross-selling SPX Flow mixers and valves into ITT's existing pharma and biotech customer base, an underappreciated synergy identified post-acquisition ### Capacity and Supply Chain - The prior acquisition of Aerospace Contacts was explicitly made to expand connector segment capacity and secure the supply chain for growing Caesarea demand; as of Q2, there are no material capacity constraints for Caesarea

Guidance

- Full year overall growth guidance was raised from prior levels, despite an expected moderation in year-over-year growth rate in the second half relative to the first half's 12% organic growth - The slower implied second half growth is attributed to: 1) tougher year-over-year comparables in Q3 and Q4, 2) Q4 2024 has 4 fewer operating days than Q4 2023, 3) a pullback after very strong first half revenue growth in the Middle East, driven by earlier delayed orders - Management expects to maintain Motion Technologies' 21.1% Q2 margin for the full year, and deliver incremental margin expansion in Flow Technologies in the second half as acquisition synergies kick in and dilution from the SPX Flow acquisition decreases - Q3 and Q4 EPS guidance was raised from prior estimates - Deleveraging from the SPX Flow acquisition is proceeding faster than originally expected

Segment performance

Financial data for absolute revenue and revenue contribution percentages was not provided in the transcript. The following segment-level performance updates are given: - Motion Technologies: Q2 margin reached 21.1%, up 90 basis points year-over-year. KONI orders rose 9% driven by Rail and Defense end markets, and the segment continues to win new awards that support long-term market share gains. Management expects stable margins and moderate seasonality in the second half of the year. - CCT (Connect & Control Technologies): Q2 margin hit a record 21.7%, which included dilution from the Caesarea business; excluding this dilution, margin would exceed 23%, improving 240 basis points sequentially. Caesarea (connector/aerospace & defense) reported 28% year-over-year Q2 revenue growth, and the segment saw very strong order growth that creates strong multi-quarter backlog visibility. Management expects consistent revenue and margin in the second half matching Q2 levels. - FT (Flow Technologies): Q2 total revenue grew 39% year-over-year, with SPX Flow (acquired business) revenue up 5% organic. Overall orders grew 91% year-over-year; Zvanoi (a FT business line) has a book-to-bill ratio of 1.3, SPX Flow has a book-to-bill ratio of 1.13, both building backlog for near and medium-term growth. Legacy FT operating margin improved 70 basis points year-over-year, with temporary higher acquisition-related dilution in Q2. Management expects margin expansion in the second half from acquisition synergies.

Risks & headwinds

- Order delays in the Middle East are expected to moderate regional revenue growth in the next few quarters, following very strong first half growth - Higher-than-expected acquisition-related dilution weighed on Flow Technologies Q2 margin, though this is expected to improve in the second half - Europe and Asia Pacific have seen slight contraction in sales funnels relative to prior periods, creating some softness in those regions

Analyst Q&A

• Q: What regional dynamics are present for legacy Flow assets, specifically in the Middle East? /

  A: Middle East first half revenue grew strongly on delivery of existing backlog, but new orders have been delayed, which will moderate near-term regional growth. New order activity has started to pick up recently. Despite regional delays, subsidiary Habonim posted 18% order growth and 19% revenue growth. North America and Latin America have growing revenue, orders and funnels, while Europe and Asia Pacific funnels are slightly down. (297 characters)

• Q: What opportunities does SPX Flow have, especially for pricing in nutrition and health, and how will you grow the business? /

  A: The biggest opportunities come from decentralizing decision-making, increasing local engineering and R&D investment in key markets like China, to move decisions closer to customers. Cross-selling synergies include deploying SPX Flow's existing Latin American mixer distribution, and localizing SPX Flow product in Saudi Arabia to capture regional projects. The SPX Flow team is already effectively executing value-based pricing in nutrition and health, achieving appropriate price levels. (382 characters)

• Q: What are the implications of shifting global energy trade routes and new LNG/pipeline investment for ITT? /

  A: There are both short-term and long-term impacts. Near-term, some existing shipping-related demand may be impacted, but new global pipeline investment will drive demand for ITT's BB3 pumps, a product line that is already fully optimized and recently won the large Vaca Muerta project in Argentina. Re-opening and expanded activity in Venezuela will create strong tailwinds for ITT's Bornemann pumps, which historically had a large market share there. (340 characters)

• Q: How much of SPX Flow growth is volume versus price, and what is price's contribution to overall ITT growth? /

  A: SPX Flow's growth is overwhelmingly volume-driven, with only a small contribution from price. For legacy short-cycle Flow Technology orders, which grew 5% in Q2, 4% of growth is volume and 1% is price. Overall, ITT's price-cost equation remains positive for Flow Technologies each quarter and for the full year. (251 characters)

• Q: What is ITT's strategy for future capital deployment, and is the business mix shifting to longer-cycle projects? /

  A: Top priorities remain paying down debt from the SPX Flow acquisition and executing on integration synergies. Small, strategic bolt-on acquisitions are actively being cultivated across both Flow and CCT segments, similar to the recent Aerospace Contacts acquisition. The business has balanced exposure: longer-cycle CCT platform wins provide long-term visibility out to 2028, while backlog for the next 3-4 quarters remains strong, maintaining near-term visibility. (321 characters)