Full Year 2023 ITT Inc Earnings Call
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Operator: We ask that you please pick up your handset to allow optimal sound quality. It is now my pleasure to turn the floor over to Mark Macaluso, Vice President, Investor Relations and Global Communications. You may begin. Thank you, Kevin, and good morning. Joining me in Stanford today are Luca Savi, ITT's Chief Executive Officer and President, and Emmanuel Caprais, ITT's Chief Financial Officer. Today's call will cover ITT's financial results for the three and 12-month periods and for December 31st, 2023, 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. However, actual results may differ materially due to several risks and uncertainties, including those described in our 2023 annual report on Form 10-K and other recent SEC filings.
My pleasure to turn the floor over to Mark Macaluso, Vice President Investor Relations and Global Communications you may begin.
Thank you Kevin and good morning, joining me today are Luca Savi, Itt's, Chief Executive Officer, and President and a menu for Gray chief.
Luca Savi: Officer today's call will cover Hep's financial results for the three and 12 month periods ended December 31, 2023, which we announced this morning.
Mark Macaluso: Please refer to slide two 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.
Mark Macaluso: Actual results may differ materially due to several risks and uncertainties, including those described in our 2023 annual report on Form 10-K, and other recent SEC filings.
Operator: 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 2022 and include certain non-GAAP financial measures. The reconciliation of such measures to most comparable GAAP figures is detailed in our press release and in the appendix of our presentation, both of which are available on our website. Before we begin, I want to call your attention to a change in the presentation of certain measures we have previously provided in ITT's earnings materials and SEC filings. The SEC has asked ITT to no longer disclose total segment operating income or margin and total adjusted segment operating income or margin.
Mark Macaluso: 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 2022 and includes certain non-GAAP financial measures there.
Mark Macaluso: A reconciliation of such measures to the most comparable GAAP figures are detailed in our press release and the appendix of our presentation, both of which are available on our website.
Speaker Change: Before we begin I want to call your attention to a change in the presentation of certain measures. We have previously provided in Itt's earnings materials and SEC filings.
Speaker Change: The SEC has asked ITT to no longer disclose total segment operating income or margin and total adjusted segment operating income or margin. We are therefore transitioning to operating income and margin and adjusted operating income and margin on a consolidated basis.
Mark Macaluso: We are therefore transitioning to operating income and margin and adjusted operating income and margin on a consolidated basis. This metric is comprised of our previous segment operating income and adjusted segment and operating income measures, respectively, minus corporate expense, which was previously presented below the segment operating income line in our earnings material. Please note this is not due to any error, correction, or misstatement on ITT's behalf. We will continue to present the results for each segment individually, but because of this change, they will no longer be aggregated to disclose total segment operating income or margin. We believe the previous measures are easily derivable from our reported results.
Speaker Change: This metric is comprised of our previous segment operating income and adjusted segment operating income measures, respectively minus corporate expense, which was previously presented below the segment operating income line in our earnings materials.
Speaker Change: Please note. This is not due to any error correction or misstatement on Itt's behalf. We will continue to present the results for each segment individually, but because of this change they will no longer be aggregated to disclose total segment operating income or margin. We believe the previous measures are easily derivable from our reported results with that.
Speaker Change: It is now my pleasure to turn the call over to Luca who will begin on slide three.
Thank you Mark and good morning.
Luca Savi: 123 was an outstanding year for ITT.
Luca Savi: I would like to thank all ITT is for their hard work and dedication and consistently serving our customers with quality products delivered on time, despite continued challenging supply chain conditions.
Luca Savi: And it was your efforts that allowed ITT to surpass $3 billion of revenue in 2023.
Mark Macaluso: With that, it's now my pleasure to turn the call over to Luca, who will begin on slide three. Thank you, Mark. And good morning.
Luca Savi: Here are the highlights.
Luca Savi: 8% organic revenue growth.
Luca Savi: Nearly 17% operating margin up 100 basis points.
Luca Savi: 17% adjusted EPS growth to a new record level of earnings at $5 and 21.
Luca Savi: 2023 was an outstanding year for IT. I would like to thank all ITTers for their hard work and dedication in consistently serving our customers, with quality products delivered on time despite continued challenging supply chain conditions. And it was your effort that allowed ITT to surpass $3 billion in revenue in 2023. Here are the highlights.
Luca Savi: Free cash flow of $430 million up more than $250 million.
Luca Savi: And on the M&A front, we announced two strategic acquisitions in floor and connectors, while divesting non core businesses.
Luca Savi: On revenue growth industrial process led the way with 14% organic revenue growth, including 16% in parts and service and 31% growth in projects.
Luca Savi: The projects growth was due to significant share gains driven by flawless execution.
Luca Savi: In empty friction OEM grew 13% outpacing global auto production by roughly 600 basis points for the year.
Luca Savi: 8% organic revenue growth and nearly 17% operating margin, up 100 basis points. 17% adjusted EPS growth to a new record level of earnings at $5.21, and free cash flow of $430 million, up more than $250 million. And on the M&A front, we announced two strategic acquisitions in Flow and Connectors, while divesting into non-core businesses. On revenue growth, industrial process led the way with 14% organic revenue growth, including 16% in parts and services and 31% growth in projects. The project's growth was due to significant share gains driven by flawless execution. In MT, friction OE grew 13%, outpacing global auto production by roughly 600 basis points for the year.
Luca Savi: Ending CCT, our aerospace and defense components business was up 25%.
Luca Savi: On profitability.
Luca Savi: Our productivity and pricing actions drove a 100 basis point improvement in margin expansion for the full year.
Luca Savi: Bolstered by the performance in industrial process.
Luca Savi: IP grew margin 330 basis points.
Luca Savi: <unk> seen 22%, whilst we continue to invest in product redesign key competencies and lead.
Luca Savi: We also successfully closed the Seneca falls foundry, which will enable the business to operate with a more efficient cost structure.
Luca Savi: There was considerable progress at motion technologies as well for.
Luca Savi: For the full year empty delivered 16, 2% operating margin improving sequentially every quarter in 2023 and exit in Q4, we did run rate above 17% the.
Luca Savi: The performance at Walgreen also significantly improved to a high teens operating margin in December.
Luca Savi: With this performance and a more favorable price cost dynamic we remain confident in <unk> ability to reach 18% during 2024.
Luca Savi: Moving to capital deployment, we strategically deployed cash across all key priorities in 2023.
Luca Savi: We invested more than $100 million towards capacity expansion in friction to support EBIT share gains productivity improvements in all businesses and R&D to fund our next product innovations.
Luca Savi: And in CCT, our aerospace and defense components business was up 25%. UNPROFITABILITY Our productivity and pricing actions drove a 100 basis point improvement in margin expansion for the full year, bolstered by the performance in industrial processes. I peaked with a margin of 330 basis points, eclipsing 22%, whilst we continue to invest in product redesign, key competencies, and leadership. We also successfully closed the Seneca Falls foundry, which will enable the business to operate with a more efficient cost structure.
Luca Savi: When we were in Italy, together with the team we review the progress of our investment into the high performance segment.
The team has developed new product formulations, whilst the site construction is progressing on time.
Luca Savi: Most importantly, we already won multiple awards that will feed the plant slated to start production in the fourth quarter.
Luca Savi: On M&A, we acquired specialty connectors manufacturer micro mode and in January closed acquisition of Marine cryogenic pumps leaders Danny Hollie.
Luca Savi: I was fortunate to join disadvantaged integration kickoff together with Fernando as we begin executing our playbook.
Luca Savi: There was considerable progress at motion technologies as well. For the full year, MT delivered 16.2% operating margin, improving sequentially every quarter in 2023 and exiting Q4 with a run rate above 17%. The performance at Wolverine also significantly improved to a high team operating margin in December. With this performance and the most favorable price-cost dynamic, we remain confident in MT's ability to reach 18% during 2024. Moving to Capital Deployment. We strategically deployed cash across all key priorities in 2023. We invested more than $100 million towards capacity expansion in friction to support EV share gains, productivity improvements in all businesses, and R&D to fund our next product innovation. When we were in Italy, together with the team, we reviewed the progress of our investment into the high-performance segment. The team has developed new product formulations whilst the site construction is progressing on time. Most importantly, we have already won multiple awards that will feed the plant, slated to start production in the fourth quarter. On M&A, we acquired specialty connectors manufacturer Micromote and, in January, closed the acquisition of marine cryogenic pumps leaders Vaneholm.
Luca Savi: Both teams we're excited.
Luca Savi: <unk> focused on the right priorities and ready to hit the ground running on day one.
Luca Savi: And still we have a robust and active pipeline of M&A opportunities today.
Luca Savi: In terms of returning capital to shareholders, we announced a 10% dividend increase in 2024 and as already mentioned with a new $1 billion share repurchase program, which will provide additional flexibility and capacity.
Luca Savi: In total we have deployed over two $5 billion since 2019, nearly two times, our adjusted free cash flow over the same period.
Luca Savi: When it comes to our 2023 performance I'm incredibly humbled by our team's commitment and results.
Luca Savi: It has been a difficult few years, given all the macro challenges put in front of us and our teams at leads into location time and time again.
Luca Savi: We recognize some of their exceptional achievements at the annual ITT Awards in December.
Speaker Change: Me share a few.
Speaker Change: Our team from Korea has been accident free for more than six years.
Speaker Change: On a walgreen team for Dearborn, Michigan.
Speaker Change: <unk> developed a new product formulation to replace a key raw material, whose production was discontinued.
Speaker Change: Our team in Nogales, Mexico over hold their production planning process to significantly improve our on time delivery and lastly, our IP team secured large awards with Exxonmobil and other leading oil and gas producers place.
Speaker Change: <unk> ICT technology on groundbreaking energy projects around the world.
Speaker Change: We are proud and grateful for the efforts of all ITT, which drove the results we're announcing today.
Speaker Change: Now to 2024.
Speaker Change: We are in a strong position to continue the progress we made last year.
Speaker Change: Our EPS outlook of $5 45 to $5 90 is up 9% at the midpoint we.
Speaker Change: We expect total revenue growth of 10% this will be driven by more than 4% organic revenue growth compounded by the contribution from this acquisition.
Luca Savi: I was fortunate to join this Vaniroy integration kickoff together with Fernando as we began executing our playbook. Both teams were excited, aligned, focused on the right priorities, and ready to hit the ground running on day one. And still, we have a robust and active pipeline of M&A opportunities today. In terms of returning capital to shareholders, we announced a 10% dividend increase in 2024. And, as already mentioned, we have a new $1 billion share repurchase program, which will provide additional flexibility and capacity. In total, we've deployed over $2.5 billion since 2019, nearly two times our adjusted free cash flow over the same period. When it comes to our 2023 performance, I'm incredibly humbled by our team commitment and results. It has been a difficult few years, given all the macro challenges put in front of us, and our teams have risen to the occasion time and time again. We will recognize some of their exceptional achievements at the annual ITT Awards in December. Let me share with you a few.
Speaker Change: We anticipate our operating margin to be above 17% at the midpoint and we are driving towards $450 million of free cash flow driven by higher income and working capital improvements.
Speaker Change: I'm encouraged by the opportunities ahead and confident in our ability to outperform.
Speaker Change: Now, let's turn to slide four to talk more about growth.
Speaker Change: At ITT at our ability to outgrow the competition council our ability to differentiate.
Speaker Change: And our teams differentiate in both performance.
Speaker Change: And innovation.
Speaker Change: Let me talk about the performance aspects first.
Speaker Change: On Monday, we announced a three year $80 million award in our flow business with Exxonmobil.
Speaker Change: Under the agreement IP with supply Exxon Mobil without highly engineered API centrifugal pumps.
Speaker Change: After market parts and services to their existing facilities.
Speaker Change: We displaced several incumbents by offering a superior solution that will lower the total cost of ownership for our customers by improving top appetite.
Speaker Change: And the dedicated project management team, we provide world class customer service and flawless execution.
Speaker Change: Well, Don Kelly, one and then.
Don Kelly: Team for your perseverance and the close collaboration you built with Exxonmobil.
Don Kelly: Moving to friction.
Don Kelly: Our teams continue to gain share in the electrified vehicle market through superior quality on time delivery and perfect execution.
Don Kelly: In 2023, we more than doubled the number of electrified platform awards with leading Oems, including Tesla BMW BYD, great wall and Gili.
Luca Savi: Our team from Korea has been accident-free for more than six years. Our Wolverine team in Dearborn, Michigan, swiftly developed a new product formulation to replace a key raw material whose production was discontinued. Our team in Nogales, Mexico, overhauled their production planning process to significantly improve our on-time delivery. And lastly, our IP team secured large awards with ExxonMobil and other leading oil and gas producers, placing ITT technology on groundbreaking energy projects around the world. We're proud and grateful for the efforts of all ITTs, which drove the results we're announcing today. Now to 2024.
Don Kelly: I'd like to draw your attention to our incredible growth of 49% in EV brake pad deliveries as we continue to win market share.
Don Kelly: As we've mentioned many times electrification is good for ITT.
Don Kelly: And on top of that we're winning on IC two despite the declining IC market, we grew our delivery 7%.
Don Kelly: As a result of all this our global OE share rose over 100 basis points to more than 29% globally in 2023.
Don Kelly: Led by Europe and China.
Don Kelly: Continue with China in November the ITT leadership team and I spent four days in China to finalize Itt's 2024 plan.
Don Kelly: During this visit we were fortunate to spend time on the shop floor in Wuxi to see the latest improvements and new investments.
Luca Savi: We are in a strong position to continue the progress we made last year. Our EPS outlook of 545 to 590 is up 9% at the midpoint. We expect total revenue growth of 10%.
Don Kelly: The team showcased the many new electric vehicles, where we won brake pad contracts.
Don Kelly: Been iteration of the China market has been outstanding and both local and western Oems recognize the value we create spin.
Don Kelly: Specifically our in region for region strategy enabled us to design products tailored for the China market.
Luca Savi: This will be driven by more than 4% organic revenue growth compounded by the contribution from this Vallejo acquisition. We anticipate our operating margin to be above 17% at the midpoint, and we're driving towards $450 million of free cash flow, driven by higher income and working capital. I'm encouraged by the opportunities ahead and confident in our ability to outperform. Now, let's turn to slide four to talk more about growth. At ITT, our ability to outgrow the competition comes from our ability to differentiate, and our teams differentiate in both performance and innovation. Let me talk about the performance aspect first. On Monday, we announced a three-year $80 million award in our flow business with ExxonMobil. Under the agreement, IP will supply ExxonMobil with our highly engineered API centrifugal pumps and aftermarket parts and services to their existing facilities.
Don Kelly: To further support our OEM customers, we made significant investments in the testing facility at our yellow mountain side in eastern China.
Don Kelly: In October a dislocation the friction team launched a best in class testing center, where together with our customers. We monitor the performance of their braking systems and solve their problems with speed and flexibility.
Don Kelly: This local approach has been a key driver of our friction OEM outperformance and organic revenue growth of over 20% for the year.
Don Kelly: It's because of this.
Don Kelly: Business in China will continue to be a growth driver for ITT over the long term.
Don Kelly: Now, let's turn to page five to discuss Itt's differentiation through innovation.
Don Kelly: When the connector steam saw an opportunity in the energy storage systems market date acted in record time.
Don Kelly: Quickly developing connectors from design concept to commercialized products and building an automated assembly line that enables scalable production.
Don Kelly: Connectors would be used on several applications in commercial industrial and residential battery storage systems.
Luca Savi: We displaced several incumbents by offering a superior solution that will lower the total cost of ownership for our customers by improving pub uptime, and the dedicated project management team provides world-class customer service and flawless execution. Well done Kelly, Juan, and the entire IP team for your perseverance and the close collaboration you built with ExxonMobil. Moving to friction.
Don Kelly: The enhanced power and signal transmission in batteries used for renewable energy sources.
Don Kelly: A year ago <unk> had no products in this space.
Don Kelly: Now we have more than 60, and our portfolio continues to expand.
Speaker Change: Well down Cecily and team for decisively acting when you saw the opportunity.
Don Kelly: We are also making inroads in EV toll applications, we recently engineered a condition Aoc cement vibration isolation equipment on a zero emissions short haul travel projects together with our customer beta.
Luca Savi: Our teams continue to gain share in the electrified vehicle market through superior quality, on-time delivery, and perfect execution. In 2023, we more than doubled the number of electrified platform awards with leading OEMs, including Tesla, BMW, BYD, Great Wall, and Geely. I'd like to draw your attention to our incredible growth of 49% in EV breakout deliveries as we continue to win market share. As we have mentioned many times, electrification is good for IT. And on top of that, we're winning on ICE too.
Don Kelly: This is a large potential market for CCT with commercial and defense applications.
Don Kelly: Continuing to sustain a sustainable transport in rail the.
Don Kelly: <unk> team has developed a highly engineered <unk> buffer for intermodal freight transport.
Don Kelly: The team acted quickly to address a problem for our customers who are underserved by a single supplier.
Don Kelly: This product is used to protect goods and rail infrastructure and allows for safer load in between road and rail.
Don Kelly: It represents a $15 million of addressable market expansion for accident and we have already secured a multimillion dollar backlog after displacing the single source incumbent in this segment and still there are further customers for us to conquer.
Don Kelly: These innovations.
Luca Savi: Despite the declining ICE market, we grew our delivery by 7%. As a result of all this, our global OE share rose over 100 basis points to more than 29% globally in 2023, led by Europe and China. Continuing with China, in November, the ITT leadership team and I spent four days in China to finalize ITT's 2024 plan. During this visit, we were fortunate to spend time on the shop floor in Wushu to see the latest improvements and new investments. The team showcased the many new electric vehicles where we won Breitbart country. Our penetration of the Chinese market has been outstanding, and both local and Western OEMs recognize the value we create. Specifically, our in-region for region strategy enabled us to design products tailored for the Chinese market. To further support our OEM customers, we made significant investments in the testing facility at our Yellow Mountain site in eastern China. In October, at this location, the FriXion team launched a best-in-class testing center where, together with our customers, we monitor the performance of their braking systems and solve their problems with speed and flexibility.
Don Kelly: All supports sustainability and yes sustainability too is good for ITT.
Don Kelly: With that let me now turn the call over to Emmanuel to discuss our Q4 results and 2024 outlook. Thank you Luca and good morning, beginning with revenue our teams delivered 4% organic growth with price realization and higher sales volumes contributing equally to this quarter's growth empty grew 7%.
Emmanuel: Sent driven by double digit growth in friction.
Emmanuel: Including 30% in China Importantly, our independent aftermarket sales grew 9% this quarter CCT grew 3% year over year with strong aerospace shipments. Despite continued challenges in the supply chain.
Emmanuel: Connectors declined in the high single digit range driven by continued Destocking in Europe and European distribution. Despite the strong December this was partially offset by growth in commercial Aero OE in North America, We believe distribution Destocking will most likely persist through the first half of 2024.
Don Kelly: Inventory levels remain elevated.
Don Kelly: Finally, IP revenue ended the fourth quarter up 2% above last year with strong parts shipments service activity and pricing realization, partially offset by weaker baseline pump sales.
Don Kelly: To production and supply constraints.
Don Kelly: Importantly orders in IP were up 5%, thanks to strong short cycle activity, while project orders were nearly flat.
Don Kelly: On profitability operating income grew 4%.
Don Kelly: Productivity added 90 basis points, while volume mix and price added 10 basis points net of other cost increases.
Don Kelly: Was partially offset by 110 basis points from corporate expenses, and M&A cost and 50 basis points from strategic investments.
Don Kelly: By segment, MTN, Cct's margins were 17% and 19% respectively.
Luca Savi: This local approach has been a key driver of our friction OER performance and organic revenue growth of over 20% for the year. It's because of this that our business in China will continue to be a growth driver for ITT over the long term. Now, let's turn to page five to discuss ITT's differentiation through innovation. When the Connectus team saw an opportunity in the energy storage systems market, they acted in record time, quickly developing connectors from design concept to commercialized products and building an automated assembly line that enables scalable production. Our connectors will be used for several applications in commercial, industrial, and residential battery storage systems. They enhance power and signal transmission in batteries used for renewable energy sources.
Don Kelly: And to our expectations and growing sequentially for the third consecutive quarter.
Don Kelly: IP was nearly at 21% and ended the year above 22% up 330 basis points from the year.
Don Kelly: To cap an impressive 2023.
Don Kelly: Lastly on free cash flow performance rebounded significantly in 2023, our teams generated $430 million for the year. This was mainly driven by higher income and improved collections. However, we still have a sizable opportunity in inventory, especially in IP and CCT.
Don Kelly: That will benefit cash generation in 2024.
Don Kelly: Let's move to slide eight to look quickly at the earnings bridge for Q4.
Don Kelly: EPS growth for the quarter came from our operational performance and price realization.
Don Kelly: Which outpace labor and overhead inflation before a strategic investments include our design for cost improvements in pumps and connectors investments into high performance vehicle segment and productivity related to our lean initiatives.
Luca Savi: A year ago, ITT had no products in this space. Now we have more than 60, and our portfolio continues to expand. Well done, Cecily, and team, for decisively acting when you saw the opportunity. We're also making inroads in eVTOL applications. We recently engineered a conditioned air system and vibration isolation equipment on a zero-emissions short-haul travel project together with our customer Beta.
Don Kelly: Corporate and other costs.
Don Kelly: Late two M&A expenses and higher variable compensation.
Don Kelly: With this result, we grew adjusted EPS to $5 21 for.
Don Kelly: For the year and exceeded the midpoint of our initial EPS guidance by more than 40.
Don Kelly: While also making significant investments for the future.
Don Kelly: Looking ahead, we have a positive view of 2024, there are some lingering headwinds related to destocking and muted growth in some markets mostly in Europe.
Don Kelly: But with our backlog, which increased 13% in 2023, we are well positioned to grow again this year, let's talk about each business briefly.
Luca Savi: This is a large potential market for CCT with commercial and defense applications. Sustainable transport in rail. The Accent team has developed a highly engineered 1G buffer for intermodal freight transport. The team acted quickly to address a problem for our customers who were underserved by a single supplier. This product is used to protect goods and rail infrastructure and allows for safer loading between road and rail.
Don Kelly: Beginning with motion technologies, we expect global auto production to be slightly down to prior year in line with the latest IHS forecast due to weaker demand in Europe, particularly in the first half and a flattish market in China. However, our revenue will be significantly boosted.
Don Kelly: We anticipated outperformance of more than 400 basis points globally in 2024.
Don Kelly: On rail after a rebound in demand last year, we expect our current backlog to drive topline growth in 2024. It is continues to be an area of growth for ITT due to public mass transit investments in the U S Europe and China.
Don Kelly: Moving to industrial process.
Luca Savi: It represents a $15 million addressable market expansion for Axel, and we have already secured a multi-million dollar backlog after displacing the single source incumbent in this segment. And still, there are further customers for us to count. These innovations all support sustainability.
Don Kelly: Entering 2024 with a record backlog of nearly $700 million.
Don Kelly: Which increased 16% in 2023 powered by large awards on energy mining and de Carbonization projects.
Don Kelly: Our project share gains should continue to ramp as we saw with Exxonmobil award that will start delivering in 2024.
Don Kelly: And we expect continued robust demand for parts and service. We also expect to generate around $160 million of revenue from Venezuela.
Emmanuel Caprais: And yes, sustainability, too, is good for IT. With that, let me now turn the call over to Emmanuel to discuss our Q4 results and 2024 outcomes. Thank you, Luca, and good morning.
Don Kelly: In total IP revenue will grow more than 20%, while organic growth will be up mid to high single digits.
Don Kelly: Lastly, on connect and control technologies defense demand continues to be strong and we expect commercial aero growth to continuous supply chain constraints ease further.
Emmanuel Caprais: Beginning with revenue, our teams delivered 4% organic growth, with price utilization and higher sales volumes contributing equally to this quarter. MT grew 7% driven by double-digit growth in friction OE, including 30% in China. Importantly, our independent aftermarket sales grew 9%. CCT grew 3% year-over-year with strong aerospace shipments despite continued challenges in the supply chain. Connector shipments declined in the high single-digit range, driven by continued destocking in European distribution, despite a strong. This was partially offset by growth in commercial aero OE in North America.
Don Kelly: On industrial connectors, we expect that as surplus inventory will carryover into the first half, which will weigh on cct's growth. We are deploying plans to capture original equipment opportunities in Europe, and China as we did successfully North America last year.
Don Kelly: Let's turn to slide 10 to discuss our 2024 guidance further.
Don Kelly: With the dynamics just discussed we expect total ICT revenue growth of 9% to 12% and organic revenue growth of 326% for the year.
Don Kelly: Higher volumes and pricing actions will continue to aid our growth in 2024.
Don Kelly: We expect that volume productivity and pricing will drive margin expansion of 80 to 140 basis points, excluding the dilutive impact of those benefits.
Don Kelly: At the segment level motion Technologies' margin should expand over 100 basis points and hit 18% at some point in 2024.
Emmanuel Caprais: We believe distribution de-stocking will most likely persist through the first half of 2024 as inventory levels remain elevated. Finally, IP revenue ended the fourth quarter up 2% above last year with strong part shipments, service activity, and pricing realization, partially offset by weaker baseline pumps due to production and supply. Importantly, orders in IP were up 5% thanks to strong short cycle activity, while project orders were nearly flat on Profitability, Operating Income, Group 4. Productivity added 90 basis points, while volume, mix, and price added 10 basis points, net of other costs. This was partially offset by one hundred and ten base units from Corporate Expenses and Emine Kost.
Don Kelly: We expect CCT margin will be roughly flat to 2023 with a strong aerospace profitability weighted down by the impact of continued destocking in connectors.
Don Kelly: Finally, we expect industrial process will be slightly below 21% due to your one dilutive impact of the <unk> acquisition.
Don Kelly: Over over the long term, we expect this vanhoy to be in line or accretive to Ip's segment margin.
Don Kelly: As a reminder, our adjusted segment margin includes M&A costs and intangible amortization, excluding the impact of these items related to this vannoy acquisition.
Don Kelly: Ip's margin will likely be almost 23% in 2024 all else equal.
Don Kelly: This revenue growth and operating margin expansion is expected to drive adjusted EPS growth of 9% at the midpoint. This includes the impact of this vanhoy acquisition funding.
Don Kelly: In January we entered into a $275 million term loan to fund a large portion of the purchase with the rest being funded with commercial paper in the U S of.
Emmanuel Caprais: 50 basis points from strategic. By segment, MT and TCT's margins were 17% and 19%, respectively, aligned to our expectations and growing sequentially for the third consecutive quarter. IP was nearly at 21% and ended the year above 21%, on the year, recapping an impressive 20 years. Lastly, on free cash flow, our performance rebounded significantly in. Our teams generated $430 million for the year. This was mainly driven by higher income and improved collection.
Don Kelly: Today's interest rates that amounts to roughly 20 headwind.
Don Kelly: Finally on cash after a record year, where we increased free cash flow by $250 million compared to the prior year and more than double our free cash flow margin, we expect to grow our free cash flow again to more than $450 million.
Don Kelly: Let's move to slide 11 to review, our 2024 EPS bridge.
Don Kelly: As you can see once again most of our earnings growth is expected to come from operations and to a lesser degree our pricing actions. We will continue to invest in high return projects to support growth new product development and disruptive innovation.
Emmanuel Caprais: However, we still have a sizable opportunity in inventory, especially in IPN, that will benefit cash generation. Let's move to slide 8, quickly, at the Earnings Bridge.
Don Kelly: In terms of the first quarter performance, we anticipate driving mid teens EPS growth to begin the year we.
Don Kelly: <unk> mid single digit organic revenue growth at the ITT level in each segment.
Don Kelly: <unk> is expected to be up 100 basis points led by NT and IP margin will likely decline roughly 100 basis points due primarily to the year one impact of this <unk> acquisition.
Emmanuel Caprais: growth for the quarter came from operational performance and price stabilization, which outpaced labor and overhead. Four cents of strategic investments include our design for cost improvements in pumps and connectors, and investment in the high-performance vehicle segment. Productivity related to our leaning, corporate, and other costs, related to M&A expenses and higher variable costs. With this result, we grew Adjusted EPS to $5.21 for the year and exceeded the midpoint of our initial EPS guidance by more than 40%, while also making significant investments. Looking ahead, we have a positive view of 2020. There are some lingering headwinds related to de-stocking and muted growth in some markets, mostly but with our backlog, which increased 13% in 2020. We are well positioned to grow again. Let's talk about each business.
Speaker Change: So as you can see we are in a good position to execute and outperform again in 2024.
Speaker Change: Now I'll turn the call over to Luca to wrap up.
Luca Savi: Thanks, Emmanuel before moving to Q&A.
Speaker Change: Paul.
Luca Savi: We executed in 2023.
Luca Savi: Across both businesses.
Luca Savi: Strong order.
Paul: I'm proud of what our.
Don Kelly: Okay.
Speaker Change: Thanks, Emmanuel before moving to Q&A few key points we.
Speaker Change: We executed in 2023 across all businesses with strong orders strong revenue growth 100 basis points of margin expansion and 17% EPS growth.
Speaker Change: Collegium continued to outperform with IP won considerable share, including its largest single award ever.
Speaker Change: We completed the largest acquisition to date at ITT.
Speaker Change: We are proud of what our team accomplished all over the world and we enter 2024, we had a record backlog and our M&A pipeline remains rich and active.
Speaker Change: I look forward to sharing our progress with you throughout the year.
Speaker Change: Thank you for your continued support of ATT. It has been my pleasure speaking with you. All this morning, Kevin. Please open the line for Q&A.
Emmanuel Caprais: Beginning with motion technologies, we expect global auto production to be slightly down from the prior year, in line with the latest IHS forecast, due to weaker demand in Europe, particularly in the first half, and a flattish market. However, our revenue will be significantly boosted by our anticipated outperformance of more than 400 basis points globally in 2020. On rail, after a rebound in demand last year, we expect our current backlog to drive top-line growth in 2020. Public mass transit investments in the US, Europe, and China.
Speaker Change: Thank you the floor is now open for questions. At this time, if you have a question or comment. Please press star one on your Touchtone phone if at any point. Your question has been answered you may remove yourself from the queue by pressing star one one again, we do ask that you well posing your question that you pick up the handset to provide optimal sound quality. Please limit yourself to one question and one follow up we'll pulse hormone while the compiled.
Don Kelly: Our Q&A roster.
Don Kelly: Our first question comes from Damian Karas with UBS. Your line is open.
Damian Karas: Good morning Damian.
Damian Karas: Hey, good morning, guys Hi.
Damian Karas: Hi, Dan.
Damian Karas: Hey, good morning Luca.
Speaker Change: Sorry, I cut out a few.
Damian Karas: Tom I missed some of your comments.
Damian Karas: But maybe we could start with IP margins I know you said that.
Emmanuel Caprais: Moving to industrial process. We're entering 2024 with a record backlog and nearly $700 million, which increased 16% in 2020, powered by large awards on energy, mining, and decarbonization projects. Our Projects Share Gain will continue to ramp, as we saw with the ExxonMobil award that will start delivering in 2020, And we expect continued robust demand for parts. We also expect to generate around $160 million of revenue from Zveno.
Damian Karas: Not to be slightly below 21%, but maybe you could just unpack the moving pieces there.
Damian Karas: Santa Hawaii solutions, a little bit more than we anticipated.
Damian Karas: But maybe you could just talk about the opportunity to work some of those costs down you said overtime Manuel.
Damian Karas: And then maybe just any of the other things there the closing of the foundry mix. If you could just unpack that I appreciate it.
Manuel: Absolutely Damian so.
Manuel: Our IP margin will be down.
Damian Karas: Next year in Q1 and for the full year and mainly what you can with.
Damian Karas: As you can.
Damian Karas: Attribute this to EG Youre one impact of <unk>. This is an impact of roughly 200, it will be more than 250 basis points of margin and.
Damian Karas: And the reason for this is because <unk> added $160 million of revenue, but zero income.
Emmanuel Caprais: In total, IP revenue will grow more than 20% while organic growth will be up mid to high single digits. Lastly, on connect and control technologies, defense demand continues, and we expect commercial aero growth to continue as supply chain constraints. For industrial connectors, we expect that a surplus in inventory will carry over into the first quarter, which will weigh on. We are deploying plans to capture original equipment opportunities in Europe and China, as we did successfully in North America last year.
Damian Karas: And so that has a very dilutive impact on Ips margin other than this we continue to expect to grow pricing so pricing will be a net benefit of.
Damian Karas: The benefit of 100, and a little bit more than 150 basis points as well as volume keep in mind that IP is expected to grow 9% next year, which is a large number on top of the 14% organically we achieved in 2023.
Damian Karas: And then obviously, we'll continue we're going to continue to drive productivity and cost reductions.
Speaker Change: Okay great.
Damian Karas: And then switching gears to empty.
Damian Karas: No.
Speaker Change: On the sales guide you mentioned kind of expecting friction.
Damian Karas: Auto production to be down slightly but more than 500 basis points of outperformance.
Damian Karas: Outperformance.
Damian Karas: What's your expectation for kind of the rest of the.
Damian Karas:
Emmanuel Caprais: Let's turn to slide 10 to discuss our 2024 guidance. With the dynamics just discussed, we expect total ITT revenue growth of nine to 12, and organic revenue growth of 3% to 6%. Higher volumes and pricing actions will continue to aid our growth. We expect that volume, productivity, and pricing will drive margin expansion of 80 to 140 basic units, excluding the dilutive impact. At the segment level, motion technology's margin should expand over 100 base units and hit 18% at some point. We expect CCT's margin will be roughly flat, with strong aerospace profitability, weighted down by the impact of continued de-stocking. Finally, we expect the industrial process will be slightly below 21%, your one dilutive impact of the Zanahoy Act.
Damian Karas: Business thinking about friction aftermarket in rail and I'm just curious how you guys are <unk>.
Damian Karas: Thinking about.
Damian Karas: The China market in particular and any potential risks there.
Speaker Change: Sure. So when we look at the rail market.
Speaker Change: We're expecting the rate market to be stronger for for ITT.
Speaker Change: Next year, we had a very good backlog and good good awards and these across all the geography, China Europe and North America. So that is that policy is going to be positive for us in 2020 for the rail then when you look at where you specifically talked about that China.
Speaker Change: I think that we are expecting the market to be flat in 2020 for that that we will continue to outperform the market in China next year as well just to give you an idea Damian and the team in perform incredibly well in 2023 outperformance of more than 1000 basis.
Speaker Change: In China.
Speaker Change: In the Q in Q4, despite the fact that we had more than 80 PV process validation. The team was able to deliver more than 99 nine on time delivery and just in Q1 <unk>. They have more than 30 startup productions. So China will continue to be good therefore ITT.
Emmanuel Caprais: However, over the long term, we expect Svanehj to be in line or accretive to IP's segment. As a reminder, our adjusted segment margin includes M&A costs and intangible amortization, excluding the impact of these items related to this Vanaroy acquisition. IP's margin would likely be almost 23%, in 2020, whole health. This revenue growth and operating margin expansion is expected to drive adjusted EPS growth of 9% at the end of the year. This includes the impact of the Vanahoy acquisition. In January, we entered into a $275 million term loan to fund a large portion of the purchase, with the rest being funded with commercial paper at today's interest rates that amount to roughly $0.20 headway.
Speaker Change: T.
Speaker Change: Okay, and friction aftermarket or are you kind of assuming that that's flat or does that return to growth. So, yes, sorry, sorry, I forgot about that sorry, Damian when it comes to the China aftermarket as you can see the independent aftermarket grew in Q4 was an easy compare we will see some.
Damian Karas: And the Destocking has stopped but we got that confirmation with the customer and we will start seeing some growth. There in Q1, and then we will see for the rest of the year.
Speaker Change: Terrific appreciate the color best of luck guys.
Speaker Change: Thanks Amy.
Speaker Change: Our next question comes from Nathan Jones with Stifel. Your line is open.
Nathan Hardie Jones: Good morning, everyone.
Nathan Hardie Jones: Morning.
Speaker Change: Oh.
Nathan Hardie Jones: Wanted to follow up on this.
Nathan Hardie Jones: Impact to the financials.
Nathan Hardie Jones: You said no income you've got two points of headwind from interest expense.
Speaker Change: Are you accounting for <unk> all of the charges for the inventory step up as well as the continuing amortization on Savannah high and Thats why it has zero in 2024.
Emmanuel Caprais: Finally, on cash, after a record year where we increased free cash flow by $250 million compared to the prior year and more than doubled our free cash flow margin, we expect to grow our free cash flow again to more than $450,000. Let's move to slide 11 to review our 2024 EPS. As you can see, once again, most of our earnings growth is expected to come from operations and to a lesser degree, our prices, which will continue to invest in high-return projects. New Product Development and Disruptive Innovation
Speaker Change: Yes, that's correct Nathan we don't special alloy backlog amortization or any other intangible amortization and so when you think about 2024, we are hit by this backlog amortization probably.
Nathan: Until the beginning of 2025 and then from there on we'll have the regular intangible amortization.
Nathan: Could you.
Nathan: Maybe talk about what that.
Nathan: Reported margin looks like in 2025, once we get rid of this non continuing amortization from that business.
Emmanuel Caprais: In terms of the first quarter performance, we anticipate driving mid-teens EPS growth to begin. Additionally, we expect mid-single-digit organic revenue growth, at the ITT level and in each segment. Margin is expected to be up 100%, led by Andrew Ritchie, and IP Margin will likely decline roughly 100%, due primarily to the year one impact of this Venehoy accident. So, as you can see, we are in a good position to execute and outperform again in 2020. Let me now turn the call over to Luca to wrap. Thanks, Emmanuel. Before moving on, I was proud of what I was.
Nathan: Well.
Speaker Change: I mean, it's it.
Speaker Change: It's a little early you what what we wanted to say what do we want to say is what we talked we talked about.
Speaker Change: When we signed the deal.
Nathan: So EBITDA is above 20%.
Nathan: <unk>. This is a very strong business with very competent management team.
Nathan: You remember that we said that we expect to grow low double digit the revenue base in the next five years. So in 2025 2024, we have $160 million of sales contribution.
Nathan: And and.
Nathan: Yes.
Nathan: Importantly, we expect to generate cash in 2024 between 20 and $30 million. So I think this is.
Nathan: The year, one difficulties that we have two.
Luca Savi: Thanks, Emmanuel. Before moving to Q&A, a few key points. We executed in 2023 across all businesses with strong orders, strong revenue growth, 100 basis points of margin expansion, and 17% EPS growth. Friction continues to outperform, while IP1 significantly wins, including its largest single award ever. We completed the largest acquisition to date at IT. We are proud of what our team accomplished all over the world.
Nathan: To get over with especially specifically with the backlog amortization and then Zane.
Nathan: As we discussed will be accretive to our IP over the long term.
Speaker Change: Yes, I just want to make sure everyone understands that.
Nathan: The minus 20.
Nathan: The dilution to earnings in two.
Nathan: 2025.
Nathan: Really what the.
Nathan: Gary.
Speaker Change: My follow up question.
Speaker Change: Destocking what impact are you expecting for Destocking in <unk>, and if there's any destocking anywhere else Kevin.
Luca Savi: And we will end 2024 with a record backlog, and our M&A pipeline remains rich and active. I look forward to sharing our progress with you throughout the year. Thank you for your continued support of ITT. It has been my pleasure speaking with you all this morning. Kevin, please open the line for Q&A. Thank you. The floor is now open for questions. At this time, if you have a question or a comment, please press star 1-1 on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing star 1-1.
Speaker Change: Revenue in 2024.
Kevin: So what what we've seen is.
Kevin: A lot of Destocking is happening in 2023, but when we talk to our customer without seeing some destocking lingering a little bit in 2024, and this is probably will be true.
Kevin: In Q1, and maybe a little bit in Q2, as well and we are talking about that will be the connector side of the business. So.
Kevin: Put some numbers on tail on that.
Kevin: So industrial connectors orders in 2023 were down 6%, we expect them to be down high teens in 2024 for industrial connectors overall connectors.
Operator: Again, we do ask that you, while posing your question, pick up the handset to provide optimal sound quality. Please submit yourself to one question and one follow-up. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Damian Karas with UBS. Warren Damian, Hey, good morning, guys. Hi, Damian. Hey, buongiorno, Luca!
Kevin: Be down will be roughly flat to a little down in 2024 in terms of orders.
Kevin: And you said industrial.
Nathan: Industrial connectors orders as expected down high teens in 2024.
Speaker Change: That's correct yes.
Speaker Change: Great. Thanks for taking my questions I'll pass it on.
Nathan: Sure.
Nathan: Our next question comes from Jeff Hammond with Keybanc capital markets. Your line is open.
Jeff Hammond: Good morning, Jeff Hey, good morning, guys.
Jeff Hammond: Hey, just on the auto it seems like there's been this kind of shift more recently in EV momentum and maybe consumers, preferring hybrids or ICU still and I'm just wondering.
Damian Karas: Sorry, I cut out a few times, so I missed some of your comments. But maybe we could start with IP margins. I know you said that you expected that to be slightly below 21%. But maybe you could just unpack the moving pieces there.
Jeff Hammond: That lingers.
Jeff Hammond: If you guys are agnostic around the shift or.
Jeff Hammond: It doesn't seem to be kind of showing up in your business, but just how you think about that.
Jeff Hammond: <unk> consumer sentiment shift around.
Damian Karas: Santa Hoy's solution's a little bit more than we anticipated, but maybe you could just talk about the opportunity to work some of those costs down, you said, over time, Emmanuel. And then maybe just any other things there, the closing of a foundry mix, if you could just unpack that, appreciate it. Absolutely, Damian.
Jeff Hammond: Your new wins et cetera.
Speaker Change: Hi, Jess.
Speaker Change: Listen.
Speaker Change: It's fair right, we all read the same newspaper, but the electrification trend is really here to stay it might slow down a little bit that is not going to go away now what I would like to draw your attention to is the data. When you look at that you know we always talk about electrified platforms. When you look at the electric vehicles.
Speaker Change: And hybrid.
Speaker Change: The production of those platforms in 2023 is equivalent to more than 28 million vehicles.
Emmanuel Caprais: So our IP margin will be down next year in Q1 and for the next four years. And mainly, which you can attribute this to, is the year one impact of Venerois. This is an impact of roughly 200, a little bit more than 200, basis points of margin. And the reason for this is that Venahoy adds $160 million of revenue, but zero income.
Speaker Change: Now these east twice.
Speaker Change: Almost the production that you have in North America, So it's that.
Speaker Change: It's a sizable market it might grow a little bit less but it is still a huge.
Speaker Change: We pay attention to it of course and you see how much we are growing in that in those electrified platforms more than 150 platform is one in 2023, having said that you said it quite well we are agnostic, we go to IC as well and despite the fact that the market is declining.
Emmanuel Caprais: And so that has a very dilutive impact on IP's margin. Other than this, we continue to expect prices to grow. Pricing will be a net benefit of a little bit more than $150, as well as volume. Keep in mind that IP is expected to grow 9% next year, which is a large number on top of the 14% organically we achieve. And then, obviously, we're going to continue to drive productivity and cost. Okay, great. And then switching gears to MT.
Speaker Change: In 2003, we grew 7% outperforming on the IC too.
Speaker Change: Okay.
Speaker Change: Okay, and then just on CCT a couple of questions one just.
Speaker Change: Maybe spike out what you think the Aero defense business grows in 2024, and then just kind of the flat margins.
Speaker Change: Much of that is.
Speaker Change: Mix and maybe just talk about some of the war chest items that.
Speaker Change: Maybe you could drive some margin upside.
Speaker Change: Sure.
Speaker Change: When we look at the at the CCT and you look at the two businesses of course, we are facing some destocking on the connector side Amanda was talking about but then when you look at the OEM awards in connectors.
Luca Savi: So on the sales guide, you know, you mentioned kind of expecting friction, auto production to be down slightly, but four to 500 basis points of all performance. What's your expectation for kind of the rest of the business, you know, thinking about friction aftermarket and rail. And I'm just curious how you guys are thinking about, you know, the Chinese market in particular and any potential risk there. Sure.
Speaker Change: <unk> been growing in Q2 in Q3 in Q4 of 2013, and we expect them to keep on growing also in 2024 and this is where we are creating the pool that when it comes to connectors and a lot of that comes from Aero and defense on the component side of the of CCT.
Speaker Change: What we have is the Aero and defense has been a good tailwind now arrow has still not recovered when we talk about or to the level of the pre pandemic level, we're still probably 20% down when it comes to orders.
Luca Savi: So when we look at the rail market, I think we're expecting the rail market to be stronger for ITT next year. We had a very good backlog and good awards, and these are across all geography, China, Europe, and North America.
Speaker Change: But the aftermarket that is higher than the pre pandemic. So that is really the dynamic that we see on the CCT front and so when you look at our orders for 2024 for Aero and defense.
Speaker Change: For CCT, we we expect to be around it will be more than 6%. So a nice growth and then from a revenue standpoint.
Luca Savi: So that is going to be positive for us in 2024. Then when you specifically talk about China, I think that we're expecting the market to be flat in 2024. But to give you an idea, Damian, the team performed incredibly well in 2023, an outperformance of more than 1,000 basis points in China. In Q4, despite the fact that we had more than 80 PV process validations, the team was able to deliver more than 99.9% on-time delivery. And just in Q1 this year, they had more than 30 startup productions. So China will continue to be good for ITT. Okay, and the friction aftermarket, are you kind of assuming that that's flat, or does that return to growth? Yes, sorry, sorry, I forgot about that. Sorry, Damian.
Speaker Change: Is where youre going to see all the OE share gains that Luca was talking about.
Speaker Change: With defense revenue is going to be up low double digits. So really nice work from the teams here to go after original equipment opportunities in Aero and defense.
Speaker Change: And then just the margins.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: So when we look at the margins is that today. When you look at CCT margin in 2023 at 18, one the margin is a record profitability already for CCT now, we still have that area for improvement that we're going to work on and so those are.
Speaker Change: Coming from a constraint in the supply chain that that feel that this is slowly improving and a little bit on our operations that where we have to work and invest in it.
Speaker Change: So when you think about those constraints on the supply chain the materials into us in two ways. One is increased pricing from our suppliers.
Speaker Change: So because in in the Aero contracts, we have some fixed price contracts. It is taking a little bit of time for us to be able to recover that cost increase with our customers, but we should be in a good position by the end of 2024 with most of our costs recovered.
Speaker Change: And then he constraints also the volume so the volume growth as you as you see we expect volume growth in CCT.
Speaker Change: And to be to be up but still in the low single digits.
Luca Savi: When it comes to the Chinese aftermarket, as you can see, the independent aftermath that grew in Q4 was an easy comparison. We will see some when the destocking has stopped. We got that confirmation with the customer, and we will start seeing some growth in Q1. And then we will see for the rest of the year. Terrific. I appreciate the color.
Speaker Change: And so we expect to see as the year progresses.
Speaker Change: An improvement in our in our ability to deliver to our customers.
Speaker Change: Okay, great. Thanks, guys.
Speaker Change: Thanks Jack.
Speaker Change: Our next question comes from Scott Davis Melius Research your line is open.
Scott Reed Davis: Hey, good morning, good morning, Scott.
Scott Reed Davis: Hi, Scott.
Scott Reed Davis: Congrats on a good a great 23, and good luck this year.
Damian Karas: Best of luck, guys. Thanks, Damian. Our next question comes from Nathan Jones with Stiefel. Your line is open. Good morning, everyone. Good morning Nathan.
Scott Reed Davis: Guys. A couple a couple of questions I see the capex guidance up from kind of 3% of sales to 4% of sales.
Scott Reed Davis: Perhaps some timing of projects and such maybe you can.
Scott Reed Davis: Clarify that a little bit and just.
Scott Reed Davis: Perhaps maybe longer term do you envision getting back to that 3% ish type level or is four.
Scott Reed Davis: Is there somewhere between three and four perhaps.
Nathan Hardie Jones: Hi Nathan, I wanted to follow up on the Savanahoy and the impact of the financials. You said no income; you've got 20 cents a headwind from interest expense. Are you accounting for all of the charges for the inventory step up as well as the continuing amortization on Savannah High, and that's why it has zero income in 2024? Yeah, that's correct, Nathan. We don't special out backlog amortization or any other intangible amortization.
Speaker Change: I'll just leave it at that thanks.
Speaker Change: Hi, Scott, Thanks, well, what what you see in the 2024 is a little bit and it'll bump up and this is mainly related to our high performance that investment that we have in Talamona, Italy.
Speaker Change: We are going after these these market that we are building the plant. The plant is up the machinery will be in the plant in all go sign up running in October to make the new brake pad. So is a new market. We are getting in and NDS is really because the reason.
Speaker Change: Update of the higher Capex that what positive things.
Emmanuel Caprais: And so when you think about 2024, we are hit by this backlog amortization probably until the beginning of 2025. And then from there on, we'll have the regular intangible amortization. Could you then maybe talk about what that reported margin looks like in 2025 once we get rid of this non-continuing amortization from that business? Well, I mean, it's a it's a little early to say what we want to say, but what we want to say is what we talked about when we signed the deal.
Speaker Change: I can share with us Kathy that we already have the award and that we already have the pads that we need to make come.
Speaker Change: October 2024, and then so just to go back to the second point of your question.
Speaker Change: Absolutely expect capex to normalize around that.
Speaker Change: Lower level that we've seen in the past in the future once the infrastructure investment in terminal Youre done.
Kathy: Okay. That's helpful. And then when you think about your M&A pipeline without obviously disclosing anything specific.
Speaker Change: I would guess that it leans pretty heavily towards industrial process is that is that a fair assumption or is or is there more balance to that pipeline, perhaps than we would think.
Emmanuel Caprais: So EBITDA is above 20% at Vanoroy. This is a very strong business with very competent management. You remember that we said that we expect to grow our revenue base low double-digits in the next five years. So in 2024, we will have $160 million in sales contribution. And, yeah, and importantly, we expect to generate cash in 2024 between $20 and $30 million. So I think this is, you know, the year one difficulties that we have to get over with, specifically with the backlog amortization.
Speaker Change: I say, it's a bit more I would say Scott.
Speaker Change: You are right when you say IP because the.
Speaker Change: The pipeline. The finally, the reach of our pumps and Bob that the connectors is a strategic area for us as well.
Speaker Change: I know that we are a small players on the connector that.
Speaker Change: We have a very good service that our customers are.
Speaker Change: Usually they have a great customer experience working with ASUR and when it comes to particularly in.
Speaker Change: Aero and defense.
Speaker Change: Because these are great. There is a great opportunity and I would say not large deals on connectors, but freedom small medium size.
Speaker Change: Okay. Good color. Thank you best of luck. This year guys. Thank you very much.
Emmanuel Caprais: And then Zvan Ahoy, as we discussed, will be accretive to IP over the long term. Yeah, I just want to make sure everyone understands that the minus 20 cents of dilution to earnings in 2024 is not really what the business is doing. My follow-up question, CCT, DSTOP, What impact are you expecting for de-stocking in CCT and if there's a de-stocking anywhere else to have on revenue in 2024? So, what we have seen is a lot of this talking is happening in 2023, but when we talk to our customers, we start seeing some of this talking lingering a little bit in 2024. And this probably will be true in Q1 and maybe a little bit in Q2 as well.
Speaker Change: Scott Thanks, Scott.
Speaker Change: Our next question comes from Michael Halloran with Baird. Your line is open.
Michael Halloran: Good morning, Mike Good morning, everyone.
Michael Halloran: Hi, Mike.
Michael Halloran: So two quick ones here first on the IP side of things, maybe just talk about the underlying demand environment projects versus aftermarket.
Michael Halloran: When that you just announced which I think was booked in the first quarter I was curious about that but.
Michael Halloran: Any signs of concern in the marketplace it feel pretty healthy it feels like there's a lot of positive momentum. There just wondering how you are looking at it as you think for the year on the order side.
Speaker Change: Sure first of all Mike It when it comes to day.
Speaker Change: Award that we shared in the remarks, we didn't book is an award. So is a disease that we are going to work together with exxonmobil in all the expectation for all those different sites you are talking about $80 million in the last three years and probably something around in the first year something like probably 15 to 20.
Michael Halloran: <unk>.
Michael Halloran: That will be booked.
Michael Halloran: In 2024, when it comes to the general market that I want to just to give you. Some some staff. When you look at 2023 the revenue in AP was up 14%, but the book to Bill despite that growth in revenue was more than one and despite these orders that grew.
Emmanuel Caprais: And we're talking about the connector side of the business. So to put some numbers on that, industrial connector orders in 2023 were down 6%, and we expect them to be down in the high teens in 2024.
Michael Halloran: Tremendously, 10% for IP, 20% for the projects in our funnel today.
Emmanuel Caprais: Overall, connectors will be down, will be roughly flat, a little down in 2024 in terms of orders. And you said industrial connectors ought to be expected to be down in the high teens in 2024. That's correct.
Michael Halloran: Still the highest ever.
Michael Halloran: After 23% year over year and up 16% sequentially versus Q3. So this tells you the strength last data and then shut up is that also when you look at all the different geographies around the world North American orders have been growing every year for.
Nathan Hardie Jones: Great. Thanks for taking my questions. I'll pass them on.
Michael Halloran: The last three years and the same was for Asia Pacific Latin America, and the Middle East the only area that at a little bit of a mixed picture is actually Europe.
Jeff Hammond: Our next question comes from Jeff Hammond with KeyBank Capital Markets. Your line is open. Good morning, Jeff.
Speaker Change: And Mike Let me, let me throw a little bit more data in there. So as we discussed our backlog is up 16% year over year. So obviously, that's going to feed a lot of the growth in 2024.
Jeff Hammond: Hey, good morning guys. Hey, just on auto, it seems like, you know, there's been this kind of shift more recently in EV momentum and maybe, you know, consumers preferring hybrids or ICE still, and I'm just wondering if that lingers, you know, if you guys are agnostic around the shift, or, you know, it doesn't seem to be kind of showing up in your business, but just how you think about, I just, listen. It's fair, right? We all read the same newspaper, but the electrification trend is really here to stay. It might slow down a little bit, but it's not going to go away.
Mike: And if you look at the backlog coverage also we are around 50% of our expected revenue. So obviously some of the stuff you know backlog is for 2025, so that it doesn't all apply but this is comparing to.
Mike: More than 40% historically, so we also in a good position here.
Mike: We continue to gain market share.
Speaker Change: Great really appreciate that color and then for manual follow up here could you just clarify the motion margin guidance.
Speaker Change: For me I think on one side it said approaching 18% this year.
Speaker Change: I think I heard you say, 100% 100 basis points expansion year over year. So can you just think that and clarify it for me.
Speaker Change: Yeah. So so you're correct, Mike we expect to be able to reach 18% margin sometime in 2024, hopefully more in the first half than in the second half we saw some really good already numbers in January and we expect good numbers in February also so the team is really doing a fantastic.
Speaker Change: Job and.
Speaker Change: And then so for 2024, we expect <unk>.
Speaker Change: Margins not to be quite for the full year not to be quite at the level of 18% but to be up.
Luca Savi: Now, what I would like to draw your attention to is the data. When you look at it, you know, we always talk about electrified platforms. When you look at electric vehicles and hybrids, the production of those platforms in 2023 is equivalent to more than 28 million vehicles. Now this is twice, almost the production that you have in North America. So it's a sizable market. It might grow a little bit less, but it's still huge.
Speaker Change: At least 100 basis points compared to 2023.
Speaker Change: Okay, great that makes a lot of sense I appreciate everyone. Thanks.
Speaker Change: Our next question comes from Joe Ritchie with Goldman Sachs. Your line is open.
Joe Ritchie: Good morning, Joe.
Joe Ritchie: Good morning, guys, Hey, first maybe a theoretical question.
Joe Ritchie: Balance sheet in a great position.
Joe Ritchie: We're going to be doing a bunch of more deals going forward have you thought about considering.
Joe Ritchie: Reported a cash EPS number maybe kind of eliminating some of the noise associated with the <unk>.
Mike: Backlog amortization.
Mike: Any thoughts around that.
Speaker Change: So so you're right Joe.
Luca Savi: So we pay attention to it, of course, and you see how much we are growing in those electrified platforms; more than 150 platforms will be electrified in 2023. Having said that, you said it quite well. We are agnostics.
Speaker Change: We decided not to special out any intangible amortization and this is what we've been doing in the past.
Speaker Change: For now it is true that we're getting more and more acquisition at least that's what we wanted to do.
Speaker Change: Keeping our rigor and our disciplines. So that we do good deals and we secure returns for the moment. We are we haven't really thought about.
Luca Savi: We go to ICE as well. And despite the fact that the market is declining, in 23, we grew 7%, outperforming on ICE. Okay, and just on CCT, a couple questions. One, just maybe spike out what you think the air defense business will grow in 2024. And then just kind of the flat margins.
Speaker Change: Disclosing cash EPS, but I think that we provide visibility by.
Speaker Change: Really.
Speaker Change: Highlighting the impacts of those acquisition and especially in terms of Zen OIBDA year, one impact. So if it was vannoy for instance, I think we can get to the same result by disclosing those data points and then so if you think about IP, it's 260 basis points of dilution from a margin standpoint in 2024 and four.
Luca Savi: How much of that is, you know, mix and maybe just talk about some of the war chest items that, you know, maybe could drive some margin upside. Sure. When we look at the CCT and you look at the two businesses, of course, we are facing some of these talking points on the connector side that Manuel was talking about. But then when you look at the OEM awards in connectors, they've been growing in Q2, in Q3, in Q4 of 2013, and we expect them to keep on growing in 2024. And this is where we are creating the pool. That's when it comes to connectors. And a lot of that comes from Aero. On the component side of CCT, what we have is Aero and Defense, which has been a good tailwind. Now, Aero has still not recovered, when we talk about OE, to the level of the pre-pandemic level.
Speaker Change: Overall, ITT, it's 80 basis points of impact so it's a significant impact for the moment, we'll continue like this and if if cash EPS is warranted then.
Speaker Change: And then maybe we'll look at it thank you Joe.
Speaker Change: Yes.
Joe Ritchie: That's helpful.
Speaker Change: I appreciate all the details that you do provide.
Speaker Change: Maybe my other my other question.
Speaker Change: Talking through IP, obviously, great Great story there.
Speaker Change: You did mention the baseline business.
Speaker Change: It sounded like there is still some kind of supply chain issues that youre seeing in that business can you maybe just elaborate on that a little bit more than what the expectation is that business in 2024.
Speaker Change: Sure.
Speaker Change: When you look at the at.
Speaker Change: The short cycle.
Speaker Change: The short cycle orders in Q4 were up 7% and also for the full year. They were up something between 7%, 8%. So it's been the strongest year ever when it comes not just the orders of AP, the AISI ever but also the highest ever.
Speaker Change: For the short cycle now when you look at that 7% growth for the full year, Joe I would say half and half price and volume.
Speaker Change: 3% was volume, 4% what was that was price.
Speaker Change:
Speaker Change: Now we expect that to remain robust for 2024, when we look at the orders in January they stay stronger and there were particularly strong in valves and baseline when it comes to January but it's only a month.
Luca Savi: We are still probably 20% down when it comes to orders, but the aftermarket is higher than pre-pandemic. So that is really the dynamic that we see on the CCT front. And so when you look at our orders for 2024, for Aero and Defense, for CCT, we expect to be around a little bit more than 6%, so nice growth. And then from a revenue standpoint, this is where you're going to see all the OE share gains that Luca was talking about, where with Defense, revenue is going to be up low double. So, really nice work from the teams here to go after original equipment opportunities in AeroAce and then just the margins. You know, kind of being flat.
Speaker Change: So when you look at our revenue.
Speaker Change: Two two.
Speaker Change: To add further details.
Speaker Change: So our short cycle. Despite the constraints that we were facing our short cycle in IP was up revenue was up 2% and we expect that short cycle revenue in 2024 to be up 8%.
Speaker Change: We're working through the supply chain constraints, we have mainly with casting and logistics.
Speaker Change: And those are clearly impacting our ability to ship as expected.
Speaker Change: But.
Speaker Change: We're working through those issues and that's why we're confident that we can deliver the growth in 2024.
Speaker Change: Yes.
Speaker Change: Great. Thanks, guys.
Speaker Change: Yeah.
Speaker Change: Thanks Roger.
Speaker Change: Our next question comes from Joe Giordano with TD Cowen Your line is open.
Joseph Giordano: Good morning, Joe Good morning, guys Hi.
Joseph Giordano: Hi, Jeff good.
Joseph Giordano: Can I start on <unk> can you can you talk about all the friction Windsor in Evs are going to see obviously some of these platforms are small and small issue just kind of starting so they don't have the scale. So can you can you talk to what margins on EV versus ice it looks like now and maybe how much of your 2012.
Emmanuel Caprais: So when we look at the margins, you know, today, when you look at the CCT margin in 2023 at 18.1, the margin is a record profitability already for us. Now, we still have areas for improvement that we're going to work on, and so those are coming from constraints in the supply chain that are still there, persisting, slowly improving, and a little bit on our operations, where we have to work and invest. Yeah, and so when you think about those constraints on the supply chain, the materials in two ways.
Speaker Change: Three friction with EV related.
Speaker Change: Okay. So maybe if.
Speaker Change: I start in your manual.
Speaker Change: Give the color. So she is true when you are talking about 150 platform. Some of those are relatively small if you think about 38.
Speaker Change: <unk> in China in Q in Q1, some of those are small, but let's not forget that also during 2023.
Speaker Change: Some of the awards, we are the largest ever like we.
Speaker Change: With the German Lux.
Emmanuel Caprais: One is increased pricing from our suppliers. And so because, in the Aero contracts, we have some fixed price contracts, it's taking a little bit of time for us to be able to recover that cost increase with our customers. But we should be in a good position by the end of 2024 with most of our costs recovered. And then there is volume.
Speaker Change: Premium Oems that.
Speaker Change: We want almost 100% of all their future EV platforms that we make around the world in China and in other path. The Tesla cyber truck, what we want the front axle. So there are several awards.
Speaker Change: And medium.
Speaker Change: Our market share with Tesla now has more than 20% that will keep ramping up with awards our market share we'd be way D. In 2023 is wrapping up 10% and will double in the next couple of years those are out of it when it comes to <unk>.
Emmanuel Caprais: So the volume growth, as you see, we expect volume growth in CC to be up but still in the low single digits, and so we expect to see as the year progresses an improvement in our ability to deliver to our customers. Okay, great. Thanks, guys. Thanks, Jeff. Our next question comes from Scott Davis of Melius Research. Your line is open. Hey, good morning, guys. I thought of a congrats on a good on a great 23 and good luck this year.
Speaker Change: Do the awards.
Speaker Change: Yes. So if you look at our easy the share of EV out of our original equipment revenue. It's been growing really fast. So you may remember during our Investor day, we said that 21% of our OE revenue.
Speaker Change: Was.
Speaker Change: It was easy.
Speaker Change: And that number for 2023 has jumped to 35%.
Speaker Change: So we're really excited by the share gains in our market share in electric electrified vehicle is higher than our global market share and as Luca was saying we are agnostic. So we like to win an easy and we'd like to win and IC as well.
Scott Reed Davis: Guys, a couple questions. I see the CapEx guidance up from kind of 3% of sales to 4% of sales. Perhaps some timing of projects and such, maybe you can clarify that a little bit. And perhaps, maybe longer term, do you anticipate getting back to that three percentage type level, or is there somewhere between the three and four, perhaps?
Speaker Change: And then just a follow up switching over to the connectors business.
Speaker Change: You gave some commentary about orders in industrial connectors down high teens in 2024, I'm just curious how much of that I know, we talked through 2023 that you guys were kind of benefiting in 'twenty three by pushing new products like first time ever into the distribution chain. So like how much of that is just impossible comps because.
Speaker Change: Last year was the first year, you've ever put some of this stuff in.
Speaker Change: So.
Speaker Change: For industrial connectors, when we talk about like the wins you know.
Speaker Change: This is more for aerospace and defense industrial connectors is more distributions. So what youre seeing here is that we get we continue to get slammed by Destocking on our industrial connectors through the distribution channel and we're trying to offset that with aerospace and defense connector on the original equipment space.
Luca Savi: I'll just leave it at that. Hi Scott. Thanks. Well, what you see in 2024 is just a little bump up. And this is mainly related to our high performance investment that we have in Termoli, Italy. You know, we are going after this market, we are building the plant, the plant is up, the machinery will be in the plant in August and up and running in October to make the new brake pads. So it's a new market we're getting into, and this is really because of the reason for the higher CAPEX.
Speaker Change: So I think when you look at 2023, we were successful in doing that in original equipment in <unk>.
Speaker Change: North America, and we're going to try to do that especially for defense in Europe, and then some other OE applications such as.
Speaker Change: Battery charging for OE applications in China as well.
Speaker Change: Thanks, guys.
Speaker Change: Thanks, Joe.
Luca Savi: One positive thing that I can share with you, Scott, is that we already have the awards, and we already have the pads that we need to make come October 2024. And so just to go back to the second point of your question, we absolutely expect CAPEX to normalize around that, that lower level that we've seen in the past in the future once the infrastructure investment in Termoli are, Okay, that's helpful. And then when you think about your M&A pipeline, you know, without obviously disclosing anything specific, I would I would guess that it leans pretty heavily towards industrial process. Is that is that a fair assumption or is or is there more balance to that pipeline, perhaps? And we would.
Speaker Change: Our next question comes from Matt Summerville with D. A Davidson your line is open good.
Matt J. Summerville: Morning, Matt Hi, Matt Good morning.
Matt J. Summerville: In the prepared remarks, you mentioned some supply chain constraints in the baseline pump business.
Matt J. Summerville: Hoping you could elaborate on that a little bit and whether or not that's going to continue to impact <unk>.
Matt J. Summerville: In 'twenty four and then I will follow up.
Matt J. Summerville: Yes. So we expect this to continue a little bit maybe in Q1, a little bit in Q2, mainly driven by casting.
Matt J. Summerville: And also logistics you know a lot of the supply chain routes where were blocked as you know so we expect things to improve especially as also we ramp up some of our casting suppliers in North America, we've been able to find.
Matt J. Summerville: Especially in Mexico, with some really good suppliers and so we think that this is going to help you in absorbing the capacity that we need.
Speaker Change: Got it and then just with respect to savanna or it would be helpful. I think if you're able to parse out with respect to the dilutive impact to margins how much of that is being driven.
Luca Savi: I think a little bit more, and I would say, Scott, you're right when you say IP because the pipeline, the funnel, is the reach of pumps and valves, but the connectors are a strategic area for us as well. I know that we are a small player on the connector, but we have a very good service with our customers. Usually, they have a great customer experience working with us, and when it comes to aerospace and defense, connectors are a great opportunity. And I would say not large deals on connectors, but for some small, medium-sized.
Speaker Change: <unk> bought a temporary inventory step up costs and then what is the level of.
Speaker Change: Ongoing intangibles amortization. Thank you.
Speaker Change: Yeah. So so what we said Matt is that the impact of Zen.
Speaker Change: <unk>.
Speaker Change: On Ip's margin dilution is 200, and a little bit more than 250 basis points.
Speaker Change: Obviously, we have a large number.
Speaker Change: She is a.
Speaker Change: This is a business that has a long tail backlog because it's a long cycle business, which is much different from what we've seen in happening so that backlog spreads until early 2025, and so I think that what you should expect is to see that the dilution all the way in 2024 also a little bit in 2000.
Scott Reed Davis: Okay, good color. Thank you. Best of luck this year, guys. Thank you very much.
Speaker Change: Five and then when it comes to 2025, we will be able to provide you with a better view of our of the.
Michael Halloran: Thanks, Scott. Thanks, Scott. Our next question comes from Michael Halloran with Bayard. Your line is open. Good morning, Mike. Hi Mike.
Speaker Change: The impact without these backlog amortization.
Speaker Change: Thank you.
Speaker Change: Thanks, Matt.
Speaker Change: Our next question comes from Vlad restricted with Citigroup. Your line is open.
Vlad: Good morning.
Vlad: I have that.
Vlad: Hey, good morning, guys.
Speaker Change: Thanks.
Luca Savi: So two quick ones here, first on the IP side of things, maybe just talk about the underlying demand environment, projects versus aftermarket, the big win that you just announced, which I think was booked in the first quarter. I'd be curious about that, but any signs of concern in the marketplace? It feels pretty healthy, it feels like there's a lot of positive momentum there, just wondering how you're looking at it as you think for the year on Sure. First of all, Mike, when it comes to the award that we shared in the remarks, we did a book. It's an award.
Vlad: Thanks for getting me in here.
Speaker Change: I wanted to ask you guys about the.
Speaker Change: Exxon Award that you announced and you've talked about today.
Speaker Change: So a little different than what we've seen in the past and it looks like a really interesting opportunity can you talk a little more about.
Speaker Change: How that opportunity just evolved you mentioned that you displaced some competitors so was that Exxon coming to market with a tender or just how did that come about and then do you see any other opportunities out in the marketplace for similar larger scale.
Speaker Change: Awards like that.
Speaker Change: Sure. Thanks, Thanks, a lot. So I think that Exxon Mobil was that was looking at a framework agreement a framework agreement that will make many of their projects in their brownfield all their sites facilities, that's faster and they were looking for it.
Luca Savi: So this is how we are going to work together with ExxonMobil on all the quotations for all those different sites. You're talking about $80 million in the last three years and probably something around in the first year, something like probably $15, $20 million that will be booked in 2024. When it comes to the general market, I wanted just to give you some stats. When you look at 2023, revenue in IP was up 14%, but the book to bill, despite that growth in revenue, was more than one. And despite these orders that grew tremendously, 10% for IP, 20% for the project in IP, our funnel today is still the highest ever, is up 23% year-over-year, and up 16% sequentially versus year-over-year.
Speaker Change: A partner and while we were able to work was the work for a long time together with them to ensure that our offerings. While we were putting together was going to reduce the total cost of ownership that they had.
Speaker Change: Improving the pump uptime their reliability all of that out of key aspects of running those facilities and the team has really worked closely with the customer for probably <unk>.
Speaker Change: Nine months 12 months to ensure that that we were really offering what they were looking at so that is a great.
Speaker Change: War that is going to feed is growth in there in the next three years.
Speaker Change: I remind you that also when we look at our market share of the pumps installed in Exxon Mobil for ice for ITT when that when we talked to that is it was really a small percentage. So this is a market share gain story.
Luca Savi: So this tells you the strength. The last data, and then I shut up, is that also when you look at all the different geographies around the world, North American odors have been growing every year for the last... And the same was for Asia-Pacific, Latin America, and the Middle East. The only area that has a little bit of a mixed picture is actually Europe.
Speaker Change: When we look at some of the others are customers.
Speaker Change: The other big oil producers.
Speaker Change: Producers, where we had some special agreements like fleets and we talked about the bornemann pumps and other oil producer is really a standardizing their carbon capture and there are stopped flaring with our technology. So we do not have an agreement in place like this one but I will not.
Luca Savi: And Mike, let me throw a little bit more data in there. So, as we discussed our backlog, www.thevenusproject.com, Thank you. And if you look at the backlog coverage, also... We are around 50% of our expected revenue. So if you see some of the stuff in our backlog is for 2025, so it doesn't all apply. But compared to a little bit more than 40% historically, so we are also in a good position here as we continue to gain market share. We really appreciate that color.
Speaker Change: Excluded for our for.
Speaker Change: For the future.
Speaker Change: Great. That's helpful color I appreciate that and then.
Speaker Change: I just wanted to ask you also.
Speaker Change: So you talked.
Speaker Change: Several times on the call about the terminally plant and the ramps there.
Speaker Change: I think you said youre starting production in October so I would imagine is pretty small impact on 24.
Speaker Change: But given the awards that you have in sort of the visibility you have there is there a way to think about.
Speaker Change: What kind of tailwind or revenue contribution you you expect heading into 'twenty five as that facility ramps production begins to hit its stride.
Emmanuel Caprais: And then for manual follow up here, could you just clarify the motion margin guidance? For me, I think on one slide it said approaching 18% this year. I think I heard you say 100 basis points of expansion year over year, so can you just think that and clarify for me? Yeah, so you're correct, Mike, we expect to be able to reach 18% margin sometime in 2024. Hopefully, more in the first half than in the second half.
Luca Savi: I would say 2025, obviously it would be a bigger impact in 2024 I want to just remind you flagged when you were talking about it. These are these facilities are they high performance. So by definition you do not have a high volume of brake pads, but the price of those brake pads is going to be higher. So is there is not <unk>.
Luca Savi: Huge volume that is going to be healthy margins. So you will expect more benefits on that front, but definitely in 2025.
Luca Savi: Yes.
Speaker Change: Great. Thanks, a lot.
Speaker Change: Thanks for that.
Emmanuel Caprais: Last question comes from Andrew <unk> with Bank of America. Your line is open.
Emmanuel Caprais: We saw some really good numbers already in January, and we expect good numbers in February also. The team is really doing a fantastic job. And then so for 2024, we expect margins not to be quite for the four years, not to be quite at the level of 18%, but to be up at least 100 basis points compared to. Okay, great. That makes a lot of sense. I appreciate it, everyone. Thanks. Thanks Mike. Our next question comes from Joe Ritchie with Goldman Sachs. Your line is open.
Speaker Change: Hey, Good morning, you have Sabrina Abrams on for Andrew.
Sabrina Abrams: Good morning, Sabrina Hi, Sabrina.
Sabrina: Hi, guys.
Sabrina Abrams: Just a question about the maybe seasonality and moving through the year about the comment you made about mid teens growth in <unk>, but the 9% for the full year.
Joe Ritchie: Does that imply less visibility in the second half and how should we think about the cadence of earnings through 2024.
Emmanuel Caprais: Okay.
Joe Ritchie: So sabrina.
Speaker Change: As part of your question is referring to revenue.
Speaker Change: I thought you made a comment about UBS growth being mid teens, yes.
Sabrina: Yes, yes.
Joe Ritchie: Morning, Joe. Hi, Joe. Thanks. Hey, good morning, guys. First, maybe a theoretical question, since, you know, the Balance Sheet's in a great position. Seems like you're going to be doing a bunch more deals going forward. Have you thought about considering, you know, reporting a cash EPS number, maybe kind of eliminating some of the noise associated with the, you know, backlog amortization? Any thoughts around
That's correct that's correct. So when you when you when you. So let's start with 2023 you saw in 2023 that we had a significant ramp in EPS throughout the year.
Luca Savi: And then so it's only normal given our exit rate of 2023 in Q4 does that arc.
Joe Ritchie: Year over year Q1 performance will be much higher so we expect mid teens EPS growth in Q1, we.
Emmanuel Caprais: So, you're right, Joe, we decided not to special out any intangible amortization. And this is what we've been doing in the past. Now, for now, it's true that we're getting more and more acquisitive. At least that's what we want to do. Obviously, keeping our rigor and our discipline so that we do good deals and we secure returns. For the moment, we haven't really thought about disclosing cash EPS, but I think that we provide visibility by really highlighting the impacts of those acquisitions and, especially in terms of Venero, So for Vanuoi, for instance...
Joe Ritchie: We expect low.
Joe Ritchie: Low single digit growth in Q2, so overall overall for the first half low double digits and then to attempt that down in the second half to a mid single digit growth.
Emmanuel Caprais: Year over year, so you're right there's a.
Sabrina: The continued ramp from Q4 that is really providing a nice year over year increases in the first half and then it will be more.
Emmanuel Caprais: A little bit less aggressive in the second half given given our performance in 2023.
Speaker Change: Great. Thank you so much.
Emmanuel Caprais: And then.
Emmanuel Caprais: I guess thinking about.
Emmanuel Caprais: And inflation.
Sabrina: You mentioned still seeing some significant price increases on the Aero side, but what are your expectations for inflation and 2024 are you seeing it normalize and then maybe if you could give some color on price contribution.
Emmanuel Caprais: I think we can get to the same result by disclosing those data points. 260 basis points of dilution from a margin standpoint in 2024. And for overall IPT, it's 80 basis points of impact. Thank you. Yeah, no. That's, that's, that's, that's helpful. I do appreciate all the details that you do provide.
Sabrina: That's implied in the guide for next year.
Emmanuel Caprais: So we've had on the price cost that I would say price cost in 2024 will be slightly positive Sabrina now we are moving towards a normalization. So we will see inflation abating.
Joe Ritchie: Maybe my other, my other question, just, just talking through IP, obviously a great, great story there. You did mention the baseline pump business. It sounded like there were still some kind of supply chain issues that you're seeing in that business. Can you maybe just elaborate on that a little bit more and like what the expectation is for that business in 2024? Sure, when you look at the short cycle. The short cycle orders in Q4 were up 7%, and also for the full year, they were up something between seven and 8%.
Joe Ritchie: We continue to see that.
Joe Ritchie: Think about motion technologies in the last two quarters that we have seen that that are really contributing in a positive way, so and now with that with the inflation abating than obviously the pricing will adjust accordingly by 2024 will be priced cost slightly positive.
Speaker Change: Thank you.
Joe Ritchie: Yes.
Speaker Change: Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.
Luca Savi: So it's been the strongest year ever when it comes to not just the orders for IP, the highest ever, but also the highest ever for the short cycle. Now, when you look at that 7% growth for the full year, Joe, I would say half and a half price and volume. 3% was volume, and 4% was price.
Speaker Change: Thank you.
Luca Savi: [music].
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: [music].
Emmanuel Caprais: Okay.
Luca Savi: [music].
Emmanuel Caprais: So now we expect that to remain robust for 2024. When we look at the orders in January, they stay strong, and they were particularly strong in valves and baseline when it comes to January, but it's only a month. So when you look at our revenue... to add further detail, our short cycle, despite the constraints that we were facing, our short cycle in IP was up. Revenue was up, and we expect that short cycle revenue in 2024 to be up 80%. So we're working through the supply chain constraints we have, mainly with casting and logistics.
Emmanuel Caprais: Okay.
Emmanuel Caprais: [music].
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: [music].
Emmanuel Caprais: Yes.
Emmanuel Caprais: [music].
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: [music].
Emmanuel Caprais: Yes.
Emmanuel Caprais: [music].
Emmanuel Caprais: And those are clearly impacting our ability to ship, as expected, but we're working through those issues, and that's why we're confident that we can deliver the growth in 2019. Okay. Thanks, guys. Thank you, Joe. Our next question comes from Joe Giordano with TD Cowen. Your line is open.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: [music].
Emmanuel Caprais: Okay.
Emmanuel Caprais: [music].
Emmanuel Caprais: Okay.
Emmanuel Caprais: [music].
Joseph Giordano: Morning, Joe. Good morning, guys. How are you?
Emmanuel Caprais: Sure.
Emmanuel Caprais: Okay.
Joseph Giordano: Yes.
Luca Savi: Good, good. Can I start on MT? Can you talk about all the friction winds in EVs? It's great to see. Obviously, some of these platforms are small and smallish and just kind of starting, so they don't have the scale.
Joseph Giordano: Okay.
Joseph Giordano: Yes.
Luca Savi: Okay.
Luca Savi: [music].
Luca Savi: Yes.
Luca Savi: Dan.
Luca Savi: [music].
Luca Savi: So can you talk about what the margins on EV versus ICE look like now? And maybe how much of your 2023 friction was EV related? Okay, so maybe I start and you Emmanuel give the color.
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: [music].
Luca Savi: So it's true when you talk about 150 platforms, some of those are relatively small. If you think about 30, you know, SOP in China in Q1, some of those are small. But let's not forget that also during 2023, some of the boards were the largest ever, like, you know, with the German premium OEMs. We want almost 100% of all their future EV platforms that they will make around the world in China and other parts. The Tesla Cybertruck where we want the front axle.
Luca Savi: Okay.
Luca Savi: [music].
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: [music].
Luca Savi: Okay.
Luca Savi: [music].
Luca Savi: Okay.
Luca Savi: [music].
Luca Savi: Okay.
Luca Savi: Sure.
Luca Savi: [music].
Luca Savi: Okay.
Luca Savi: Sure.
Luca Savi: <unk>.
Luca Savi: [music].
Luca Savi: Sure.
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: So there are several awards, small and medium. Our market share with Tesla now is more than 20%. And we keep on ramping up with the awards. Our market share with BYD in 2023 is roughly 10% now and will double in the next couple of years. Those are when it comes to the award. Emmanuel Caprais.
Luca Savi: [music].
Luca Savi: Yes.
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: [music].
Luca Savi: Yes.
Luca Savi: Sure.
Luca Savi: Okay.
Luca Savi: Sure.
Luca Savi: [music].
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Okay.
Emmanuel Caprais: And that number for 2023 has jumped to 35. So we're really excited by the share gains in EV. Our market share in electrified vehicles is higher than our global market share. And as Luca was saying, we are agnostic. So we like to win in EV, and we like to win in IC.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Sure.
Emmanuel Caprais: [music].
Emmanuel Caprais: Yes.
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Emmanuel Caprais: [music].
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Emmanuel Caprais: Yes.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Uh huh.
Emmanuel Caprais: [music].
Emmanuel Caprais: Okay.
Emmanuel Caprais: [music].
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: [music].
Emmanuel Caprais: Yes.
Emmanuel Caprais: [music].
Emmanuel Caprais: Yes.
Joseph Giordano: And then just to follow up, switching over to the connectors business. I mean, I gave you some commentary about orders and industrial connectors down in the high teens in 2024. I'm just curious how much of that we talked through 2023 that you guys were kind of benefiting in 23 by pushing new products for the first time ever into the distribution chain. So like how much of that is just, you know, impossible comps because last year was the first year you ever put in. So for industrial connectors, when we talk about like the winds, you know, we this is more for aerospace and defense; industrial connectors is more distribution. So what you're seeing here is that we continue to get slammed by these talking on our industrial connectors through the distribution channel.
Emmanuel Caprais: [music] okay.
Joseph Giordano: Okay.
Speaker Change: Thank you.
Joseph Giordano: Yes.
Joseph Giordano: [music].
Joseph Giordano: Yes.
Joseph Giordano: Okay.
Joseph Giordano: [music].
Joseph Giordano: Yes.
Joseph Giordano: Sure.
Joseph Giordano: Okay.
Joseph Giordano: Yes.
Joseph Giordano: Okay.
Joseph Giordano: Okay.
Joseph Giordano: Okay.
Joseph Giordano: Okay.
Joseph Giordano: [music].
Joseph Giordano: And we're trying to offset that with aerospace and defense connectors on the original equipment. So, I think when you look at 2023, we were successful in doing that in original equipment in North America, and we're going to try to do that, especially for defense in Europe and then some other OE applications such as battery charging for OE applications in China as well.
Joseph Giordano: Okay.
Joseph Giordano: Yes.
Joseph Giordano: Okay.
Joseph Giordano: Sure.
Joseph Giordano: Okay.
Joseph Giordano: Yes.
Joseph Giordano: Yes.
Joseph Giordano: [music].
Joseph Giordano: Yes.
Joseph Giordano: Yes.
Emmanuel Caprais: Thanks, guys. Thanks, Joe. Our next question comes from Matt Summerville with D.A. Davidson.
Joseph Giordano: Sure.
Joseph Giordano: Yes.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Yes.
Matt J. Summerville: Your line is open. Morning, Matt. Hi, Matt.
Emmanuel Caprais: Okay.
Luca Savi: Morning. In your prepared remarks, you mentioned some supply chain constraints in the baseline pump business. I was hoping you could elaborate on that a little bit and whether or not, you know, that's going to continue to impact volume in 24 and then I will follow up. Yes, so we expect this to continue a little bit, maybe in Q1, a little bit in Q2, mainly driven by casting and also logistics. You know, a lot of the supply chain routes were blocked, as you know. So we expect things to improve, especially as we ramp up some of our casting suppliers in North America. We've been able to find, especially in Mexico, some really good suppliers.
Matt J. Summerville: Okay.
Luca Savi: Okay.
Luca Savi: [music].
Luca Savi: Yes.
Luca Savi: Yes.
Luca Savi: Sure.
Luca Savi: Yes.
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Yes.
Luca Savi: Yes.
Luca Savi: Sure.
Luca Savi: Okay.
Luca Savi: [music].
Luca Savi: Sure.
Luca Savi: Yes.
Luca Savi: [music].
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: And so we think that this is going to help in absorbing that capacity. Got it. And then just with respect to Savannah Hoy, it would be helpful, I think, if you're able to parse out with respect to the dilutive impact on IP Mart. How much of that is being driven, ideally in dollars, by the temporary inventory step-up cost? And then, what is the level of ongoing intangible zamortization? Thank you. Yeah, so what we said, Matt, is that the impact of Zenoi on IP's margin, the dilution, is a little bit more than 250 basis points. Obviously, we have a large number, you know, this is a business that has a long tailback, because it's a long cycle business, which is much different from what we've seen.
Luca Savi: [music].
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Yes.
Luca Savi: Sure.
Luca Savi: Sure.
Luca Savi: Okay.
Luca Savi: Sure.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Sure.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Okay.
Emmanuel Caprais: So that backlog spreads until early 2025. And so I think that what you should expect is to see that dilution all the way in 2024, and also a little bit in 2025. And then when it comes to 2025, we'll be able to provide you with a better view of the backlog and the impact without this backlog. Thank you. Thanks, Matt. Our next question comes from Vlad Verstrycky with Citigroup. Your line is open. Morning Vlad, Hi Vlad, Hey, good morning, guys.
Luca Savi: [music].
Emmanuel Caprais: Okay.
Vlad Verstrycky: Thank you.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Sure.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Yes.
Vlad Verstrycky: Thanks for getting me in here. I wanted to ask you guys about the Exxon Award that you announced and you've talked about today. You know, obviously a little different than what we've seen in the past, like a really interesting opportunity. Can you talk a little more about, you know, how that opportunity just evolved?
Emmanuel Caprais: Okay.
Emmanuel Caprais: Yes.
Vlad Verstrycky: Yes.
Vlad Verstrycky: [music].
Vlad Verstrycky: Yes.
Vlad Verstrycky: [music].
Vlad Verstrycky: Okay.
Vlad Verstrycky: Sure.
Vlad Verstrycky: Okay.
Vlad Verstrycky: Okay.
Vlad Verstrycky: [music].
Luca Savi: You mentioned that you displaced some competitors. So was that, you know, Exxon coming to market with a tender, or just how did that come about? And then, you know, do you see any other opportunities out in the marketplace for similar, larger-scale awards like that? Sure, thanks. Thanks, Vlad.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: So, I think that ExxonMobil was looking at a framework agreement, a framework agreement that would make, you know, many of their projects in their brownfields, all their site facilities faster, and they were looking for a partner. And what we were able to do was work for a long time together with them to ensure that our offerings, what we were putting together, were going to reduce the total cost of ownership that they had. Improving, you know, the pump uptime, the reliability, you know, all of that are key aspects of running those facilities.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: [music].
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Yes.
Luca Savi: Hum.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: [music].
Luca Savi: And the team has really worked closely with the customer for probably, you know, nine months, 12 months, to ensure that we were really offering what they were looking for. So that is a great award that is going to feed us growth in the next three years. I remind you that also when we look at our market share of the pumps in-store at ExxonMobil for ITT, when we talked to them, it was really a small percentage. So this is a market share gain. When we look at some of the other customers, you know, there are other big oil producers where we have some special agreements. Like, for instance, we talked about the Borderman pumps.
Luca Savi: Yes.
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: [music].
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: Another oil producer is really standardizing their carbon capture and their stop flaring with our technology. So we do not have an agreement in place like this one, but I will not exclude it for the future. Great. That's a helpful color, Luca.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: [music].
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Right.
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Yes.
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Thanks.
Vlad Verstrycky: And then, I just wanted to ask you also, you know, so you talked several times on the call about the termite plant and the ramp there. I think you said you're starting production in October, so I would imagine it's a pretty small impact on 24, but given the awards that you have and sort of the visibility you have there, is there a way to think about what kind of tailwind or revenue contribution you expect heading into 25 as that facility ramps production and begins to hit its stride? I would say 2025 obviously would have a bigger impact than 2024. I want to just remind you Vlad that when you're talking about these facilities, they are high performance facilities. So, by definition, you do not have a high volume of brake pads, but the price of those brake pads is going to be higher.
Luca Savi: Okay.
Vlad Verstrycky: Okay.
Vlad Verstrycky: Yes.
Vlad Verstrycky: Okay.
Vlad Verstrycky: Okay.
Vlad Verstrycky: Okay.
Vlad Verstrycky: Yes.
Vlad Verstrycky: Yes.
Vlad Verstrycky: Okay.
Vlad Verstrycky: [music].
Vlad Verstrycky: Okay.
Vlad Verstrycky: Yes.
Vlad Verstrycky: Okay.
Vlad Verstrycky: Yes.
Vlad Verstrycky: Okay.
Vlad Verstrycky: [music].
Vlad Verstrycky: Yes.
Vlad Verstrycky: Okay.
Vlad Verstrycky: Yes.
Vlad Verstrycky: Okay.
Vlad Verstrycky: Okay.
Vlad Verstrycky: Yes.
Vlad Verstrycky: Yes.
Vlad Verstrycky: [music].
Vlad Verstrycky: Yes.
Vlad Verstrycky: Okay.
Vlad Verstrycky: Yes.
Vlad Verstrycky: Yes.
Vlad Verstrycky: Okay.
Vlad Verstrycky: No.
Vlad Verstrycky: Sure.
Vlad Verstrycky: Okay.
Vlad Verstrycky: Okay.
Vlad Verstrycky: Okay.
Vlad Verstrycky: Yes.
Vlad Verstrycky: Okay.
Vlad Verstrycky: Okay.
Vlad Verstrycky: Yes.
Vlad Verstrycky: [music].
Vlad Verstrycky: Yes.
Vlad Verstrycky: Yes.
Vlad Verstrycky: Okay.
Luca Savi: So it's not a huge volume, but it's going to be healthy margins. So you will definitely expect more benefits on that front in 2025. Great. Thanks, Luca. Thanks a lot. Our last question comes from Andrew Obin with Bank of America. Your line is open. Hey, good morning. You have Sabrina Abrams on for Andrew. Good morning, Sabrina. Hi, Sabrina.
Vlad Verstrycky: Okay.
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: Okay.
Sabrina Abrams: Thank you.
Luca Savi: Thanks.
Luca Savi: Okay.
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Okay.
Luca Savi: Yes.
Luca Savi: Yes.
Andrew Burris Obin: Hi guys, just a question about seasonality and moving through the year about the comment you made about mid-teens growth in 1Q but 9% for the full year. Does that imply less visibility in the second half, and how should we think about the cadence of earnings through 2024? So Sabrina, the first part of your question refers to revenue. I thought that you made a comment about EPS growth being mid-teens in 1Q. Yeah, that's correct.
Andrew Burris Obin: Okay.
Andrew Burris Obin: Okay.
Andrew Burris Obin: Okay.
Andrew Burris Obin: Yes.
Andrew Burris Obin: Yes.
Andrew Burris Obin: Thanks.
Andrew Burris Obin: Okay.
Andrew Burris Obin: Okay.
Andrew Burris Obin: Yes.
Andrew Burris Obin: [music].
Andrew Burris Obin: Okay.
Andrew Burris Obin: Okay.
Andrew Burris Obin: Yes.
Andrew Burris Obin: Okay.
Andrew Burris Obin: Okay.
Andrew Burris Obin: Sure.
Andrew Burris Obin: Okay.
Andrew Burris Obin: Yes.
Andrew Burris Obin: Okay.
Andrew Burris Obin: Yes.
Emmanuel Caprais: So let's start with 2023. You saw in 2023 that we had a significant ramp-up in EPS throughout the year. And so it's only normal, given our exit rate of 2023 in Q4, that our year-over-year Q1 performance will be much higher. So we expect mid-teens EPS growth in Q1. We expect low single-digit growth in Q2. So overall for the first half, low double digits, and then to temper that down in the second half to mid-single-digit growth year-over-year. So you're right.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Sure.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Sure.
Emmanuel Caprais: Yes.
Emmanuel Caprais: So.
Emmanuel Caprais: [music].
Emmanuel Caprais: Okay.
Emmanuel Caprais: [music].
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Sure.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Sure.
Emmanuel Caprais: Yeah.
Emmanuel Caprais: Hum.
Emmanuel Caprais: Sure.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Sure.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: There's the continued ramp from Q4 that is really providing nice year-over-year increases in the first half and then a little bit less aggressive in the second half, given our performance in 2023. Great, thank you so much. Um, and then, I guess thinking about price and inflation. I know you mentioned still seeing some significant price increases on the aero side, but what are your expectations for inflation in 2024? Are you seeing it normalized?
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: [music].
Emmanuel Caprais: Yes.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Yes.
Emmanuel Caprais: [music].
Emmanuel Caprais: And then maybe if you could give some color on price contribution that's implied in the guide for next year? So, on price cost, I would say price cost in 2024 will be slightly positive, Sabrina. Now, we are moving towards normalization, so we will see inflation abating. We will continue to see that. Think about motion technologies. In the last two quarters, we have seen that really contributing in a positive way. And now, with that, with inflation abating, then obviously, the pricing will adjust accordingly. But 2024 will be a slightly higher price cost slightly.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Sure.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Sure.
Emmanuel Caprais: Yes.
Emmanuel Caprais: [music].
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: [music].
Emmanuel Caprais: Thank you. Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day. Thank you. Ahora es mi momento de contestarle, www.facebook.com, www.instagram.com, and www.twitter.com ? ? ? ? ? ? ? ? ? ? ? ? ? ? Thank you. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: [music].
Emmanuel Caprais: Okay.
Emmanuel Caprais: [music].
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: [music].
Emmanuel Caprais: Okay.
Emmanuel Caprais: Sure.
Emmanuel Caprais: Okay.
Emmanuel Caprais: Yes.
Emmanuel Caprais: Okay.
Emmanuel Caprais: [music].
Emmanuel Caprais: Yes.
Emmanuel Caprais: Yes.