Emmanuel Caprais: Yeah. So, if you look at our EV, the share of the EV out of our original equipment revenue, it’s been growing really fast. So, you may remember for — during our Investor Day, we said that 21% of our OE revenue was EVs. 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 vehicle 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 ICE as well.
Joe Giordano: And then just a follow-up, switching over to the connectors business. I mean, 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 ’23 by pushing new products like first time ever into the distribution chain. So, like, how much of that is just impossible comps because last year was the first year you ever put some of this stuff in?
Emmanuel Caprais: So, for industrial connectors, when we talk about like the wins in OE, this is more for aerospace and defense. Industrial connectors is more distribution. So, what you’re 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. 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.
Joe Giordano: Thanks, guys.
Luca Savi: Thanks, Joe.
Emmanuel Caprais: Thanks, Joe.
Operator: Our next question comes from Matt Summerville with D.A. Davidson. Your line is open.
Emmanuel Caprais: Good morning, Matt.
Luca Savi: Hi, Matt.
Matt Summerville: Good morning. In the 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 that’s going to continue to impact volume in ’24. And then I have a follow-up.
Emmanuel Caprais: Yeah. So, we expect this to continue a little bit maybe in Q1, a little bit in Q2, mainly driven by casting and also logistics, a lot of the supply chain routes 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, especially in Mexico, some really good suppliers. And so, that’s — we think that this is going to help in absorbing that capacity that we need.
Matt Summerville: Got it. And then just with respect to Svanehøj, it would be helpful I think if you’re able to parse out with respect to the dilutive impact to IP margins. 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 intangibles amortization? Thank you.
Emmanuel Caprais: Yeah. So, what we said, Matt, is that the impact of Svanehøj on IP’s margin, the dilution is a little bit more than 250 basis points. Obviously, we have a large number — 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 Habonim. 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, also a little bit in 2025. And then when it comes to 2025, we will be able to provide you with a better view of the impact without this backlog amortization.
Matt Summerville: Thank you.
Luca Savi: Thanks, Matt.
Operator: Our next question comes from Vlad Bystricky with Citigroup. Your line is open.
Emmanuel Caprais: Good morning, Vlad.
Luca Savi: Hi, Vlad.
Vlad Bystricky: Hey. Good morning, guys. 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. Obviously, 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 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 awards like that?
Luca Savi: Sure. Thanks, Vlad. So, I think that ExxonMobil was looking at a framework agreement, a framework agreement that will make many of their projects in the brownfield, all their facilities faster and they were looking for a partner. And what we were able to work was work for a long time together with them to ensure that our offerings, what we were putting together, was going to reduce the total cost of ownership that they had, improving the pump uptime, the reliability, all of that are key aspects in running those facilities. And the team has really worked closely with the customer for probably nine months, 12 months to ensure that we were really offering what they were looking at. 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 installed in ExxonMobil for ITT, when we talk to them, is that was really a small percentage. So, this is a market share gain story. When we look at some of the others customers, there’re other big oil producers, where we had some special agreements. Like, for instance, we talk about the Bornemann pumps, 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.
Vlad Bystricky: Great. That’s helpful color, Luca. Appreciate that. And then, I just wanted to ask you also — so you talked several times on the call about the Termoli plant and the ramp there. I think you said you’re starting production in October. So, I would imagine it’s 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?
Luca Savi: I would say, 2025, obviously, would be a bigger impact than 2024. I want just to remind you, Vlad, that when you’re talking about these facilities are the 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, it’s not huge volume, but it’s going to be healthy margins. So, you will expect more benefits on that front definitely in 2025.
Vlad Bystricky: Great. Thanks, Luca.
Luca Savi: Thanks, Vlad.
Operator: Our last question comes from Andrew Obin with Bank of America. Your line is open.
Sabrina Abrams: Hey, good morning. You have Sabrina Abrams on for Andrew.
Emmanuel Caprais: Good morning, Sabrina.
Luca Savi: Hi, Sabrina.
Sabrina Abrams: Hi, guys. Just a question about maybe 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?
Emmanuel Caprais: So, Sabrina, the first part of your question is referring to revenue?
Sabrina Abrams: I thought that you made a comment about EPS growth being mid-teens in 1Q.
Emmanuel Caprais: Yeah, that’s correct. So, when you — so let’s start with 2023. You saw in 2023 that we had a significant ramp in EPS throughout the year. And then 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 temp that down in the second half to a mid-single-digit growth year-over-year. So, you’re right, there is the continued ramp from Q4 that is really providing nice year-over-year increases in the first half and then a little bit more — a little bit less aggressive in the second half, given our performance in 2023.
Sabrina Abrams: Great, thank you so much. 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 normalize? And then maybe if you could give some color on price contribution that’s implied in the guide for next year?
Luca Savi: So, on the price cost, 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. 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 the inflation abating, then obviously the pricing will adjust accordingly, but 2024 will be price cost slightly positive.
Sabrina Abrams: Thank you.
Operator: Thank you. This does conclude today’s teleconference. Please disconnect your lines at this time, and have a wonderful day.
Luca Savi: Thank you.
